<PAGE>
FILED PURSUANT TO RULE NO. 424(b)(1)
REGISTRATION NO. 333-24023
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED JULY 23, 1997
$280,500,000
FIRST NBC CREDIT CARD MASTER TRUST
$259,500,000 CLASS A 6.15% ASSET BACKED CERTIFICATES, SERIES 1997-1
$21,000,000 CLASS B 6.35% ASSET BACKED CERTIFICATES, SERIES 1997-1
FIRST NATIONAL BANK OF COMMERCE
TRANSFEROR AND SERVICER
--------------
Each Class A 6.15% Asset Backed Certificate, Series 1997-1 (collectively,
the "Class A Certificates") and each Class B 6.35% Asset Backed Certificate,
Series 1997-1 (collectively, the "Class B Certificates" and, together with the
Class A Certificates, the "Certificates") will represent the right to receive
certain payments from the First NBC Credit Card Master Trust, created pursuant
to a Pooling and Servicing Agreement between First National Bank of Commerce
("First NBC" or the "Bank"), as transferor and servicer, and The First
National Bank of Chicago, as trustee. Certain capitalized terms used in this
Prospectus Supplement are defined elsewhere in this Prospectus Supplement and
the accompanying Prospectus. Please refer to the "Index of Defined Terms for
Prospectus Supplement" on page S-48 and the "Index of Defined Terms for
Prospectus" on page 75 for a listing of the pages on which such terms are
defined.
(continued on next page)
--------------
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE IS NO
ASSURANCE THAT ONE WILL DEVELOP OR, IF ONE DOES, THAT IT WILL CONTINUE UNTIL
THE CERTIFICATES ARE PAID IN FULL. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" COMMENCING ON PAGE
S-16 HEREIN AND PAGE 23 IN THE PROSPECTUS.
--------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF FIRST NBC 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 (EXCEPT FOR RECEIVABLES ARISING
IN PRIVATE LABEL ACCOUNTS, WHICH REPRESENTED 1.23% OF THE RECEIVABLES
AS OF THE CUT-OFF DATE) 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 COM-
MISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate............... 99.875000% 0.315% 99.560000%
- ------------------------------------------------------------------------------------
Per Class B Certificate............... 99.984375% 0.365% 99.619375%
- ------------------------------------------------------------------------------------
Total................................. $280,172,343.75 $894,075 $279,278,268.75
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the Class A Rate or the Class B Rate, as
applicable, from August 7, 1997.
(2) Before deduction of expenses estimated to be $750,000.
--------------
The Certificates are offered by the Underwriters and First NBC when, as and
if issued by the Trust and accepted by the Underwriters and First NBC and
subject to the Underwriters' right to reject orders in whole or in part. It is
expected that the Certificates will be delivered in book-entry form on or
about August 7, 1997, through the facilities of The Depository Trust Company,
Cedel Bank, societe anonyme, and the Euroclear System.
--------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
UNDERWRITER OF THE CLASS B CERTIFICATES
MERRILL LYNCH & CO.
--------------
The Date of this Prospectus Supplement is July 31, 1997
<PAGE>
(continued from previous page)
The property of the Trust includes receivables (the "Receivables") generated
from time to time in a portfolio of MasterCard(R), VISA(R) and private label
revolving credit card accounts (the "Accounts"), all monies due or to become
due in payment of the Receivables, all proceeds of the Receivables and
proceeds of credit insurance policies relating to the Receivables, all monies
in certain bank accounts of the Trust and certain other property as described
herein. In addition, the Collateral Interest will be issued in the initial
amount of $19,500,000 and will be subordinated to the Certificates as
described herein. First NBC will initially own the remaining undivided
interest in the Trust not represented by the Certificates, the Collateral
Interest and other interests issued by the Trust from time to time and will
initially service the Receivables. First NBC may from time to time offer other
Series of certificates that evidence undivided interests in certain assets of
the Trust, which may have terms significantly different from the Certificates.
Interest will accrue on the Class A Certificates from August 7, 1997 (the
"Closing Date") at the rate of 6.15% per annum (the "Class A Rate"). Interest
will accrue on the Class B Certificates from the Closing Date at the rate of
6.35% per annum (the "Class B Rate"). Interest with respect to the
Certificates will be distributed on September 15, 1997 and on the 15th day of
each month thereafter (or, if such 15th day is not a business day, the next
succeeding business day) (each, a "Distribution Date"). Principal on the Class
A Certificates is scheduled to be distributed on the August 2002 Distribution
Date (the "Class A Scheduled Payment Date"), but may be paid earlier or later
under the circumstances described herein. Principal on the Class B
Certificates is scheduled to be distributed on the September 2002 Distribution
Date (the "Class B Scheduled Payment Date"), but may be paid earlier or later
under the circumstances described herein. See "Maturity Assumptions."
The Class B Certificates will be subordinated to the Class A Certificates,
and the Collateral Interest will be subordinated to the Class A Certificates
and the Class B Certificates, as described herein.
First NBC does not intend to list the Certificates on any securities exchange.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES,
INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS, SYNDICATE
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
----------------
The Certificates offered hereby constitute a separate Series of certificates
being offered by the Trust from time to time pursuant to its Prospectus dated
July 23, 1997. This Prospectus Supplement does not contain complete
information about the offering of the Certificates. Additional information is
contained in the Prospectus and purchasers are urged to read both this
Prospectus Supplement and the Prospectus in full. Sales of the Certificates
may not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus.
S-2
<PAGE>
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus Supplement and the accompanying
Prospectus. A listing of the pages on which all such terms are defined is found
in the "Index of Defined Terms for Prospectus Supplement" on page S-48 and the
"Index of Defined Terms for Prospectus" on page 75.
THE TRUST................... The First NBC Credit Card Master Trust.
TITLE OF SECURITIES ........ $259,500,000 Class A 6.15% Asset Backed
Certificates, Series 1997-1 (the "Class A
Certificates") and $21,000,000 Class B 6.35%
Asset Backed Certificates, Series 1997-1 (the
"Class B Certificates," and together with the
Class A Certificates, the "Certificates").
CLASS A RATE................ 6.15% per annum.
CLASS B RATE................ 6.35% per annum.
DISTRIBUTION DATES.......... The 15th day of each month (or, if any such day
is not a business day, the next succeeding
business day), commencing on September 15, 1997.
CLASS A SCHEDULED PAYMENT The August, 2002 Distribution Date.
DATE........................
CLASS B SCHEDULED PAYMENT The September, 2002 Distribution Date.
DATE........................
CLOSING DATE................ August 7, 1997.
CREDIT ENHANCEMENT.......... For the Class A Certificates, the subordination
of the Collateral Interest (in an initial amount
of $19,500,000, 6.5% of the initial Investor
Interest) and the Class B Certificates, as
described herein. For the Class B Certificates,
the subordination of the Collateral Interest, as
described herein.
CLASS STRUCTURE............. The Class A and Class B Certificates differ in
terms of priorities and are expected to differ
in terms of ratings. The Class B Certificates
are subordinated to the Class A Certificates to
the extent described herein in order to provide
credit enhancement for the Class A Certificates.
The Collateral Interest (which is not offered
hereby) is subordinated to both the Class A and
the Class B Certificates to the extent described
herein in order to provide credit enhancement.
(See "Description of Certificates--
Subordination" and "--Application of
Collections.") See "Risk Factors--Possible
Losses on Class B Certificates as a Result of
Subordination" herein for a discussion of the
risks associated with purchasing certificates of
a subordinated class. Also see "Class A
Certificate Rating" and "Class B Certificate
Rating" below in this Summary of Terms.
CERTIFICATE INTEREST AND Each of the Certificates offered hereby
PRINCIPAL .................. represents the right to receive certain payments
from the assets of the Trust. The Trust's assets
will be allocated among the Class A Holders (the
"Class A Investor Interest"), the Class B
Holders (the "Class B Investor Interest"), the
Collateral Interest Holder (the "Collateral
Interest," and together with the Class A
Investor Interest and the Class B Investor
Interest, the "Investor Interest"), the interest
of
S-3
<PAGE>
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.
As used in this Prospectus Supplement, the term
"Holders" refers to holders of the Certificates,
the term "Class A Holders" refers to holders of
the Class A Certificates, the term "Class B
Holders" refers to holders of the Class B
Certificates, the term "Collateral Interest
Holder" refers to the holder of the Collateral
Interest and the term "Agreement" (unless the
context requires otherwise) refers to the
Agreement as supplemented by the Series 1997-1
Supplement pursuant to which the Certificates
are issued (the "Series 1997-1 Supplement").
The Class A Certificates will represent the right
to receive from the assets of the Trust
allocated to the Class A Certificates funds up
to (but not in excess of) the amounts required
to make (a) payments of interest accruing from
the Closing Date through September 14, 1997, and
with respect to each Interest Period thereafter,
at the Class A Rate and (b) payments of
principal on the Class A Scheduled Payment Date
or, under certain limited circumstances, during
the Rapid Amortization Period, to the extent of
the Class A Investor Interest, which may be less
than the unpaid principal balance of the Class A
Certificates in certain circumstances described
herein.
The Class B Certificates will represent the right
to receive, from the assets of the Trust
allocated to the Class B Certificates, funds up
to (but not in excess of) the amounts required
to make (a) payments of interest accruing from
the Closing Date through September 14, 1997 and
with respect to each Interest Period thereafter,
at the Class B Rate and (b) payments of
principal on the Class B Scheduled Payment Date
or, under certain limited circumstances, during
the Rapid Amortization Period, to the extent of
the Class B Investor Interest, which may be less
than the unpaid principal balance of the Class B
Certificates in certain circumstances described
herein. No principal will be paid to the Class B
Holders until the Class A Investor Interest is
paid in full.
The aggregate principal amount of the Class A
Investor Interest and the Class B Investor
Interest will, except as otherwise provided
herein, remain fixed at $259,500,000 and
$21,000,000, respectively. The Class A Investor
Interest will decline in certain circumstances
if the Investor Default Amounts allocated to the
Class A Certificates exceed funds allocable
thereto as described herein and the Class B
Investor Interest and the Collateral Interest
are zero. The Class B Investor Interest will
decline in certain circumstances as a result of
(a) the reallocation of collections of Principal
Receivables otherwise allocable to the Class B
Investor Interest to fund certain payments in
respect of the Class A Certificates and (b) the
allocation to the Class B Investor Interest of
certain Investor Default Amounts, including such
amounts
S-4
<PAGE>
otherwise allocable to the Class A Investor
Interest when the Collateral Interest is zero.
During the Controlled Accumulation Period, for
the sole purpose of allocating collections of
Finance Charge Receivables, Net Default Amounts
and Net Recoveries with respect to each Monthly
Period, the Class A Investor Interest will be
further reduced by the amount on deposit in the
Principal Funding Account from time to time (as
so reduced, the "Class A Adjusted Investor
Interest" and together with the Class B Investor
Interest and the Collateral Interest, the
"Adjusted Investor Interest").
The Class A Certificates, the Class B
Certificates and the Collateral Interest will
each include the right to receive (but only to
the extent needed to make required payments
under the Agreement and subject to any
reallocation of such amounts as described
herein) varying percentages of collections of
Finance Charge Receivables (subject to
reallocation of Group Investor Finance Charge
Collections to other Series in Group I, as
described under "Description of the
Certificates--Reallocations Among Certificates
in Different Series within a Reallocation Group"
in the Prospectus) and Principal Receivables and
will be allocated varying percentages of Net
Default Amounts and Net Recoveries during each
calendar month (a "Monthly Period"). Collections
of Finance Charge Receivables, Net Default
Amounts and Net Recoveries at all times, and
collections of Principal Receivables during the
Revolving Period, will be allocated to the
Investor Interest based on the Floating Investor
Percentage and will be further allocated among
the Class A Investor Interest, the Class B
Investor Interest and the Collateral Interest
based on the Class A Floating Allocation, the
Class B Floating Allocation and the Collateral
Floating Allocation, respectively, applicable
during the related Monthly Period. Collections
of Principal Receivables during the Controlled
Accumulation Period and the Rapid Amortization
Period will be allocated to the Investor
Interest based on the Fixed Investor Percentage
and will be further allocated among the Class A
Investor Interest, the Class B Investor Interest
and the Collateral Interest based on the Class A
Fixed Allocation, the Class B Fixed Allocation
and the Collateral Fixed Allocation,
respectively. See "Description of the
Certificates--Allocation Percentages" and "--Pay
Out Events" herein and "Description of the
Certificates--Pay Out Events" in the Prospectus.
The final distribution of principal and interest
on the Certificates will be made no later than
the September, 2004 Distribution Date in the
manner provided in "Description of the
Certificates--Final Payment of Principal;
Termination" in the Prospectus. Series 1997-1
will terminate on the earliest to occur of (a)
the Distribution Date on which the Investor
Interest is paid in full, (b) the September,
2004 Distribution Date or (c) the Trust
Termination Date (such earliest to occur, the
"Series 1997-1
S-5
<PAGE>
Termination Date"). After the Series 1997-1
Termination Date, no further principal or
interest payments will be made on the
Certificates (except as described in
"Description of the Certificates--Final Payment
of Principal; Termination" in the Prospectus).
OTHER SERIES ............... The Certificates will be the first Series of
investor certificates issued by the Trust.
RECEIVABLES ................ The Receivables arise in Accounts in the Bank
Portfolio that satisfied the eligibility
criteria set forth in the Agreement as of the
Cut-Off Date. The Receivables consist of
Principal Receivables and Finance Charge
Receivables. In addition, certain amounts of
Interchange and Other Account Revenues
attributed to the Accounts will be allocated to
the Certificates and treated as Finance Charge
Receivables. See "First NBC's Credit Card
Activities--Interchange and Other Account
Revenues" in the Prospectus.
The aggregate amount of Receivables in the
Accounts as of the beginning of the day on May
1, 1997 was $814,353,580, comprised of
$802,881,646 of Principal Receivables and
$11,471,934 of Finance Charge Receivables. The
amount of Finance Charge Receivables will not
affect the amount of the Investor Interest
represented by the Certificates and the
Collateral Interest or the amount of the
Transferor Interest, all of which are determined
on the basis of the amount of Principal
Receivables in the Trust. The aggregate amount
of Principal Receivables in the Trust evidenced
by the Certificates and the Collateral Interest
will never exceed the amount of the Investor
Interest regardless of the total amount of
Principal Receivables in the Trust at any time.
DENOMINATIONS .............. Beneficial interests in the Certificates will be
offered for purchase in denominations of $1,000
and integral multiples thereof.
REGISTRATION OF The Certificates initially will be represented by
CERTIFICATES ............... 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. Holders 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" in the Prospectus.
SERVICING FEE .............. The Servicer will receive a monthly fee as
servicing compensation from the Trust on each
Transfer Date. The Servicing Fee Rate for the
Certificates will be 2% (the "Servicing Fee
Rate"). On each Transfer Date, Servicer
Interchange with respect to the related Monthly
Period that is on deposit in the Finance Charge
Account will be withdrawn from the Finance
Charge Account and paid to the Servicer in
respect of the Monthly Investor Servicing Fee.
In addition, the Class A Servicing Fee, the
Class B Servicing Fee
S-6
<PAGE>
and the Collateral Interest Servicing Fee will
be paid on each Transfer Date as described under
"Description of the Certificates--Servicing
Compensation and Payment of Expenses." See also
"Description of the Certificates--Servicing
Compensation and Payment of Expenses" in the
Prospectus.
REVOLVING PERIOD............ The "Revolving Period" for the Certificates means
the period from and including the Closing Date
to, but not including, the commencement of the
earlier of (a) the Controlled Accumulation
Period and (b) the Rapid Amortization Period.
During the Revolving Period, Available Investor
Principal Collections otherwise allocable to the
Investor Interest will, subject to certain
limitations and unless a reduction in the
Required Collateral Interest has occurred, be
treated as Shared Principal Collections and
allocated to the holders of certificates of
other Principal Sharing Series issued and
outstanding or, subject to certain limitations,
paid to the Transferor or deposited into the
Excess Funding Account. See "Description of the
Certificates--Principal Payments." See
"Description of the Certificates--Pay Out
Events" for a discussion of the events which
might lead to the termination of the Revolving
Period prior to the commencement of the
Controlled Accumulation Period.
CONTROLLED ACCUMULATION Unless a Pay Out Event occurs, the controlled
PERIOD...................... accumulation period for the Certificates (the
"Controlled Accumulation Period") is scheduled
to begin at the close of business on July 31,
2001. Subject to the conditions set forth under
"Description of the Certificates--Postponement
of Controlled Accumulation Period," the day on
which the Revolving Period ends and
the Controlled Accumulation Period begins may be
delayed to not later than the close of business
on June 30, 2002. The Controlled Accumulation
Period will end on the earliest of (i) the
commencement of the Rapid Amortization Period,
(ii) payment of the Investor Interest in full
and (iii) the Series 1997-1 Termination Date.
During the Controlled Accumulation Period, prior
to the payment of the Class A Investor Interest
in full, amounts equal to the least of (a)
Available Investor Principal Collections for the
related Monthly Period, (b) the sum of the
Controlled Accumulation Amount for such Monthly
Period and any portion of the Controlled
Accumulation Amount for any prior Monthly Period
that has not yet been deposited (such sum, the
"Controlled Deposit Amount" for such Monthly
Period) and (c) the Class A Adjusted Investor
Interest on such Transfer Date will be deposited
monthly in a trust account established by the
Trustee (the "Principal Funding Account") on
each Transfer Date beginning with the Transfer
Date in the month following the month in which
the Controlled Accumulation Period begins until
the Principal Funding Account Balance is equal
to the Class A Investor Interest. On each
Transfer Date during the Controlled Accumulation
Period beginning with the Transfer Date after
the one on which the Class A Investor Interest
has been provided for, an amount equal to the
S-7
<PAGE>
lesser of (a) Available Investor Principal
Collections for the related Monthly Period (less
any amount allocated to the Class A Investor
Interest as described in the prior sentence) and
(b) the Class B Investor Interest on such
Transfer Date will be deposited into the
Distribution Account for distribution to the
Class B Holders until the Class B Investor
Interest has been paid in full. If, for any
Monthly Period, the Available Investor Principal
Collections for such Monthly Period exceed the
sum of the Class A Monthly Principal and the
Class B Monthly Principal for the related
Transfer Date, the amount of such excess will be
first paid to the Collateral Interest Holder to
the extent that the Collateral Interest exceeds
the Required Collateral Interest and then will
be treated as Shared Principal Collections and
allocated to the holders of certificates of
other Principal Sharing Series or, subject to
certain limitations, paid to the Transferor or
deposited into the Excess Funding Account. See
"Description of the Certificates--Application of
Collections." Also see "Prospectus Summary--
Controlled Accumulation Period" in the
Prospectus for a general description of the
purpose of this feature and its effect on
Certificateholders.
Unless a Pay Out Event occurs, prior to the
payment of the Class A Investor Interest 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 Permitted Investments. Investment
earnings (net of investment losses and expenses)
on funds on deposit in the Principal Funding
Account (the "Principal Funding Investment
Proceeds") during the Controlled Accumulation
Period will be used to pay interest on the Class
A Certificates in an amount up to, for each
Transfer Date, the product of (a) one-twelfth,
(b) the Class A Rate and (c) the Principal
Funding Account Balance as of the Record Date
preceding such Transfer Date (the "Class A
Covered Amount"). If, for any Transfer Date, the
Principal Funding Investment Proceeds are less
than the Class A Covered Amount, the amount of
such deficiency (the "Class A Principal Funding
Investment Shortfall") shall be paid, to the
extent available, from the Reserve Account and,
if necessary, from Excess Spread and Reallocated
Principal Collections.
Funds on deposit in the Principal Funding Account
will be available to pay the Class A Holders in
respect of the Class A Investor Interest on the
Class A Scheduled Payment Date. If the aggregate
principal amount of deposits made to the
Principal Funding Account is insufficient to pay
the Class A Investor Interest in full on the
Class A Scheduled Payment Date, the Rapid
Amortization Period will commence. Although it
is anticipated that during the Controlled
Accumulation Period prior to the payment of the
Class A Investor Interest in full, funds will be
deposited in the Principal Funding Account in an
amount equal to the applicable Controlled
Deposit Amount on each Transfer Date and that
scheduled principal will be available for
distribution to the Class A Holders
S-8
<PAGE>
on the Class A Scheduled Payment Date, no
assurance can be given in that regard. See
"Maturity Assumptions" in the Prospectus and
herein.
On the Class B Scheduled Payment Date, provided
that the Class A Investor Interest is paid in
full on the Class A Scheduled Payment Date and
the Rapid Amortization Period has not commenced,
Available Investor Principal Collections will be
used to pay the Class B Holders in respect of
the Class B Investor Interest as described
herein. If the Available Investor Principal
Collections are insufficient to pay the Class B
Investor Interest in full on the Class B
Scheduled Payment Date, the Rapid Amortization
Period will commence. Although it is anticipated
that scheduled principal will be available for
distribution to the Class B Holders on the Class
B Scheduled Payment Date, no assurance can be
given in that regard. See "Maturity Assumptions"
in the Prospectus and herein.
If a Pay Out Event occurs during the Controlled
Accumulation Period, the Rapid Amortization
Period will commence, and any amounts on deposit
in the Principal Funding Account will be paid to
the Class A Holders on the Distribution Date in
the month following the commencement of the
Rapid Amortization Period.
Other Series offered by the Trust may or may not
have amortization or accumulation periods like
the Controlled Accumulation Period for the
Certificates, and such periods may have
different lengths and begin on different dates
than such Controlled Accumulation Period. Thus,
certain Series may be in their revolving periods
while others are in periods during which
collections of Principal
Receivables are distributed to or held for the
benefit of certificateholders of such other
Series. In addition, other Series may allocate
Principal Receivables based upon different
investor percentages. See "Description of the
Certificates--Exchanges" in the Prospectus for a
discussion of the potential terms of any other
Series.
RAPID AMORTIZATION PERIOD... During the period from the day on which a Pay Out
Event has occurred and ending on the earlier of
(a) the payment of the Investor Interest in
full, (b) the Series 1997-1 Termination Date and
(c) the Trust Termination Date (the "Rapid
Amortization Period"), Available Investor
Principal Collections will be distributed
monthly on each Distribution Date to the Class A
Holders and, following payment of the Class A
Investor Interest in full, to the Class B
Holders and, following payment of the Class B
Investor Interest in full, to the Collateral
Interest Holder beginning with the Distribution
Date in the month following the commencement of
the Rapid Amortization Period. See "Description
of the Certificates--Pay Out Events" for a
discussion of the events which might lead to the
commencement
S-9
<PAGE>
of the Rapid Amortization Period and "Prospectus
Summary-- Rapid Amortization Period" in the
Prospectus for a general discussion of the
purpose and effect on Certificateholders of this
feature.
SUBORDINATION OF THE CLASS
B CERTIFICATES AND THE
COLLATERAL INTEREST........
The Class B Certificates and the Collateral
Interest will be subordinated to the extent
necessary to fund certain payments with respect
to the Class A Certificates as described herein.
In addition, the Collateral Interest will be
subordinated to the extent necessary to fund
certain payments with respect to the Class B
Certificates. If the Class B Investor Interest
and the Collateral Interest are reduced to zero,
the Class A Holders will bear directly the
credit and other risks associated with their
interest in the Trust. If the Collateral
Interest is reduced to zero, the Class B Holders
will bear directly the credit and other risks
associated with their interest in the Trust. To
the extent the Class B Investor Interest is
reduced, the percentage of collections of
Finance Charge Receivables allocable to the
Class B Holders in subsequent Monthly Periods
will be reduced. Such reductions of the Class B
Investor Interest will thereafter be reimbursed
and the Class B Investor Interest increased on
each Transfer Date by the amount, if any, of
Excess Spread for such Transfer Date available
for that purpose. To the extent the amount of
such reduction in the Class B Investor Interest
is not reimbursed, the amount of principal and
interest distributable to the Class B Holders
will be reduced. See "Description of the
Certificates--Subordination."
ADDITIONAL AMOUNTS
AVAILABLE TO HOLDERS.......
With respect to any Transfer Date, Excess Spread
will be applied to fund the Class A Required
Amount and the Class B Required Amount, if any.
The "Class A Required Amount" means the amount,
if any, by which the sum of (a) the Class A
Monthly Interest due on the related Distribution
Date and any overdue Class A Monthly Interest
and Class A Additional Interest thereon, (b) the
Class A Servicing Fee for the related Monthly
Period and any overdue Class A Servicing Fee and
(c) the Class A Investor Default Amount, if any,
for the related Monthly Period exceeds the Class
A Available Funds for the related Monthly
Period. The "Class B Required Amount" means the
amount, if any, equal to the sum of (a) the
amount, if any, by which the sum of (i) Class B
Monthly Interest due on the related Distribution
Date and any overdue Class B Monthly Interest
and Class B Additional Interest thereon and (ii)
the Class B Servicing Fee for the related
Monthly Period and any overdue Class B Servicing
Fee exceeds the Class B Available Funds for the
related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related
Monthly Period. The "Required Amount" for any
Monthly Period means the sum of the Class A
Required Amount and the Class B
S-10
<PAGE>
Required Amount for such Monthly Period. "Excess
Spread" for any Transfer Date will equal the sum
of (1) the excess of (A) Class A Available Funds
for the related Monthly Period over (B) the sum
of the amounts referred to in clauses (a), (b)
and (c) in the definition of "Class A Required
Amount" above, (2) the excess of (A) Class B
Available Funds for the related Monthly Period
over (B) the sum of the amounts referred to in
clauses (a)(i) and (a)(ii) in the definition of
"Class B Required Amount" above, (3) Collateral
Available Funds for the related Monthly Period
not used under certain circumstances to pay the
Collateral Interest Servicing Fee, as described
herein and (4) Excess Finance Charge Collections
allocated to the Investor Interest.
If, on any Transfer Date, Excess Spread is less
than the Class A Required Amount, then
Reallocated Principal Collections allocable
first to the Collateral Interest and then to the
Class B Investor Interest with respect to the
related Monthly Period will be used to fund the
remaining Class A Required Amount. If
Reallocated Principal Collections with respect
to such Monthly Period are insufficient to fund
the remaining Class A Required Amount for the
related Transfer Date, then the Collateral
Interest (after giving effect to reductions for
any Collateral Charge-Offs and Reallocated
Principal Collections on such Transfer Date)
will be reduced by the amount of such deficiency
(but not by more than the Class A Investor
Default Amount for such Monthly Period). In the
event that such reduction would cause the
Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero, and
the Class B Investor Interest (after giving
effect to reductions for any Class B Investor
Charge-Offs and any Reallocated Class B
Principal Collections on such Transfer Date)
will be reduced by the amount by which the
Collateral Interest would have been reduced
below zero (but not by more than the excess of
the Class A Investor Default Amount, if any, for
such Monthly Period over the amount of such
reduction, if any, of the Collateral Interest
with respect to such Monthly Period). In the
event that such reduction would cause the Class
B Investor Interest to be a negative number, the
Class B Investor Interest will be reduced to
zero and the Class A Investor Interest will be
reduced by the amount by which the Class B
Investor Interest would have been reduced below
zero (but not by more than the excess, if any,
of the Class A Investor Default Amount for such
Monthly Period over such reductions in the
Collateral Interest and the Class B Investor
Interest with respect to such Monthly Period)
(such reduction, a "Class A Investor Charge-
Off"). If the Collateral Interest and the Class
B Investor Interest are reduced to zero, the
Class A Holders will bear directly the credit
and other risks associated with their undivided
interest in the Trust. See "Description of the
Certificates--Reallocation of Cash Flows" and
"--Defaulted Receivables; Investor Charge-Offs."
S-11
<PAGE>
If, on any Transfer Date, Excess Spread not
required to pay the Class A Required Amount and
to reimburse Class A Investor Charge-Offs is
less than the Class B Required Amount, then
Reallocated Principal Collections allocable to
the Collateral Interest for the related Monthly
Period not required to pay the Class A Required
Amount will be allocated to fund the remaining
Class B Required Amount. If such remaining
Reallocated Principal Collections allocable to
the Collateral Interest with respect to such
Monthly Period are insufficient to fund the
remaining Class B Required Amount for the
related Transfer Date, then the Collateral
Interest (after giving effect to reductions for
any Collateral Charge-Offs, Reallocated
Principal Collections and any adjustments made
thereto for the benefit of the Class A Holders)
will be reduced by the amount of such deficiency
(but not by more than the Class B Investor
Default Amount for such Monthly Period). If such
reduction would cause the Collateral Interest to
be a negative number, the Collateral Interest
will be reduced to zero, and the Class B
Investor Interest will be reduced by the amount
by which the Collateral Interest would have been
reduced below zero (but not by more than the
excess, if any, of the Class B Investor Default
Amount for such Monthly Period over such
reduction in the Collateral Interest with
respect to such Monthly Period) (such reduction,
a "Class B Investor Charge-Off"). In the event
of a reduction of the Class A Investor Interest,
the Class B Investor Interest or the Collateral
Interest, the amount of principal and interest
available to fund payments with respect to the
Class A Certificates and the Class B
Certificates will be decreased. See "Description
of the Certificates--Reallocation of Cash Flows"
and "--Defaulted Receivables; Investor Charge-
Offs."
REQUIRED COLLATERAL The "Required Collateral Interest" with respect
INTEREST.................... to any Transfer Date means (a) initially,
$19,500,000 (the "Initial Collateral Interest")
and (b) on any Transfer Date thereafter, an
amount equal to 6.5% of the sum of the Class A
Adjusted Investor Interest and the Class B
Investor Interest on such Transfer Date, after
taking into account deposits into the Principal
Funding Account on such Transfer Date and
payments to be made on the related Distribution
Date, and the Collateral Interest on the prior
Transfer Date after any adjustments made on such
Transfer Date, but not less than $9,000,000;
provided, however, (i) that if certain
reductions in the Collateral Interest occur or
if a Pay Out Event occurs, the Required
Collateral Interest for such Transfer Date shall
equal the Required Collateral Interest for the
Transfer Date immediately preceding the
occurrence of such reduction or Pay Out Event;
(ii) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of
the Certificates as of the last day of the
Monthly Period preceding such Transfer Date
after taking into account payments to be made on
the related Distribution Date; and (iii) the
Required Collateral Interest may be reduced at
any time to a lesser amount if the Rating Agency
S-12
<PAGE>
Condition is satisfied. See "Description of the
Certificates--Required Collateral Interest."
If on any Transfer Date, the Collateral Interest
is less than the Required Collateral Interest,
certain Excess Spread amounts, if available,
will be used to increase the Collateral Interest
to the extent of such shortfall. If on any
Transfer Date the Collateral Interest equals or
exceeds the Required Collateral Interest, any
such Excess Spread amounts will first be
deposited into the Reserve Account as described
herein and second, to the extent available, be
applied in accordance with the Loan Agreement
among the Trustee, the Transferor, the Servicer
and the Collateral Interest Holder (the "Loan
Agreement") and will not be available to the
Holders.
REALLOCATED INVESTOR
FINANCE CHARGE
COLLECTIONS................
Series 1997-1 will be the first Series issued by
the Trust in a Group ("Group I") constituting a
Reallocation Group. Collections of Finance
Charge Receivables allocable to the investor
certificates of each Series in Group I will be
aggregated and made available for certain
required distributions to all Series in Group I
pro rata based upon the relative amount of such
required distributions for each Series in Group
I as described under "Description of the
Certificates--Reallocations Among Certificates
of Different Series within a Reallocation Group"
in the Prospectus. Consequently, any issuance of
a new Series in Group I may have the effect of
reducing or increasing the amount of collections
of Finance Charge Receivables allocable to the
Series 1997-1 Certificates. See "Risk Factors--
Possible Prepayment or Losses as a Result of
Issuance of New Series; Groups" in the
Prospectus. In addition, it has not been
determined whether any Series issued by the
Trust in the future will be included in Group I.
SHARED EXCESS FINANCE
CHARGE COLLECTIONS.........
Each Series in Group I, including Series 1997-1,
will be an Excess Allocation Series. See
"Description of the Certificates--Shared Excess
Finance Charge Collections."
PAIRED SERIES............... Series 1997-1 may be paired with one or more
other Series (each a "Paired Series"). If a
Paired Series is issued with respect to Series
1997-1, following the issuance of such Paired
Series, as the Adjusted Invested Amount is
reduced, the investor interest of the Paired
Series may increase by an equal amount. This
will have the effect of increasing the investor
interest of the Paired Series by an amount that
otherwise would have increased the Transferor
Interest. If a Pay Out Event occurs with respect
to any such Paired Series prior to the payment
in full of the Certificates, the percentages
used to determine the share of collections of
Principal Receivables allocable to the
Certificates may be reduced, which may delay the
final payment of principal to the Holders. See
"Maturity Assumptions--Paired Series,"
"Description of the Certificates--Paired Series"
and "Description of the Certificates--Allocation
Percentages" herein.
S-13
<PAGE>
SHARED PRINCIPAL Series 1997-1 is a Principal Sharing Series. To
COLLECTIONS................. the extent that collections of Principal
Receivables allocated to the Investor Interest
are not needed to make payments on the Investor
Interest or to be deposited in the Principal
Funding Account, such collections ("Shared
Principal Collections") will be allocated to
cover certain principal payments due to or for
the benefit of certificateholders of other
Principal Sharing Series or, under certain
circumstances, paid to the Transferor or
deposited into the Excess Funding Account. Any
such reallocation or deposit will not result in
a reduction in the Investor Interest with
respect to Series 1997-1. In addition,
collections of Principal Receivables and certain
other amounts otherwise allocable to other
Principal Sharing Series, to the extent such
collections are not needed to make payments to
or deposits for the benefit of the
certificateholders of such other Series, may be
applied to cover principal payments due to or
for the benefit of the holders of the Class A
Certificates and the Class B Certificates or the
Collateral Interest Holder. See "Description of
the Certificates--Shared Principal Collections."
Also see "Prospectus Summary--Shared Principal
Collections" in the Prospectus for a general
discussion of the purpose and effect on
Certificateholders of this feature.
OPTIONAL REPURCHASE......... The Investor Interest will be subject to optional
repurchase by the Transferor on any Distribution
Date on or after the Distribution Date on which
the Investor Interest is reduced to an amount
less than or equal to $15,000,000 (5% of the
initial Investor Interest), if certain
conditions set forth in the Agreement are met.
The repurchase price will be equal to the sum of
the Investor Interest and all accrued and unpaid
interest on the Certificates and the Collateral
Interest through the day preceding the
Distribution Date on which the repurchase
occurs. See "Description of the Certificates--
Final Payment of Principal; Termination" in the
Prospectus.
TAX STATUS.................. Special Tax Counsel to the Transferor will opine
on the Closing Date that under existing law the
Certificates will be characterized as debt for
Federal income tax purposes and the Trust will
not be an association (or publicly traded
partnership) taxable as a corporation. Under the
Agreement, the Transferor, the Servicer, the
Holders and the Certificate Owners will agree to
treat the Certificates as debt for Federal,
state, local and foreign income and franchise
tax purposes. See "U.S. Federal Income Tax
Consequences" in the Prospectus for additional
information concerning the application of
Federal income tax laws.
ERISA CONSIDERATIONS........ Subject to considerations described below, the
Class A Certificates are eligible for purchase
by employee benefit plan investors. Under a
regulation issued by the Department of Labor,
the Trust's assets would not be deemed "plan
assets" of an employee benefit plan holding the
Class A Certificates if certain conditions are
met, including that the Class A Certificates
must be held, upon
S-14
<PAGE>
completion of the public offering made hereby,
by at least 100 investors who are independent of
the Transferor and of one another. At or before
the conclusion of the offering, the Underwriters
will notify the Transferor and the Trustee as to
whether or not the Class A Certificates will be
expected to be held by at least 100 separately
named persons at the conclusion of the offering,
although no assurances can be made and no
monitoring or other measures will be taken to
assure that the 100 separately named persons
criterion has been satisfied. The Transferor
anticipates that the other conditions of the
regulation will be met. If the Trust's assets
were deemed to be "plan assets" of an employee
benefit plan investor (e.g., if the 100
independent investor criterion is not
satisfied), violations of the "prohibited
transaction" rules of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), could result and generate excise tax
and other liabilities under ERISA and section
4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), unless a statutory,
regulatory or administrative exemption is
available. It is uncertain whether existing
exemptions from the "prohibited transaction"
rules of ERISA would apply to all transactions
involving the Trust's assets. Accordingly,
fiduciaries or other persons contemplating
purchasing the Certificates on behalf or with
"plan assets" of any employee benefit plan
should consult their counsel before making a
purchase. See "ERISA Considerations" in the
Prospectus.
The Underwriters currently do not expect that
the Class B Certificates will be held by at
least 100 independent investors at the
conclusion of the offering and, therefore, do
not expect that such Class B Certificates will
qualify as publicly-offered securities under the
regulation referred to in the preceding
paragraph. Accordingly, the Class B Certificates
may not be acquired with plan assets of (a) any
employee benefit plan that is subject to ERISA,
or (b) any plan or other arrangement (including
an individual retirement account or Keogh plan)
that is subject to section 4975 of the Code. By
its acceptance of a Class B Certificate or an
interest therein, each Class B Holder and
Certificate Owner will be deemed to have
represented and warranted that it is not subject
to the foregoing limitation.
CLASS A CERTIFICATE RATING.. It is a condition to the issuance of the Class A
Certificates that they be rated in the highest
rating category by at least one Rating Agency.
The rating of the Class A Certificates is based
primarily on the value of the Receivables and
the terms of the Class B Certificates and the
benefits of the Collateral Interest.
CLASS B CERTIFICATE RATING.. It is a condition to the issuance of the Class B
Certificates that they be rated in one of the
three highest rating categories by at least one
Rating Agency. The rating of the Class B
Certificates is based primarily on the value of
the Receivables and the benefits of the
Collateral Interest.
S-15
<PAGE>
RISK FACTORS
Potential investors should consider among other things, the risk factors
discussed under "Risk Factors" in the Prospectus and the following risk
factors in connection with the purchase of the Certificates.
Possible Losses as a Result of Limited Amounts of Credit Enhancement.
Although Credit Enhancement with respect to the Class A Certificates will be
provided by the subordination of the Class B Certificates to the extent
described herein and by the Collateral Interest, and with respect to the Class
B Certificates, will be provided by the Collateral Interest, the amount
available thereunder is limited, may decline during the Controlled
Accumulation Period and will be reduced by payments made pursuant thereto. If
the Collateral Interest has been reduced to zero, Class B Certificateholders
will bear directly the credit and other risks associated with their undivided
interests in the Trust, and the Class B Investor Interest may be reduced. If
the Class B Investor Interest is reduced to zero, Class A Certificateholders
will bear directly the credit and other risks associated with their undivided
interest in the Trust, and the Class A Investor Interest may be reduced.
Further, in the event of a reduction of the Class B Investor Interest or the
Collateral Interest, the amount of principal and interest available to make
distributions with respect to the Class A Certificates and the Class B
Certificates may be reduced.
Possible Losses on Class B Certificates as a Result of Subordination. The
Class B Certificates are subordinated in right of payment of principal to the
Class A Certificates. Payments of principal in respect of the Class B
Certificates will not commence until after the final principal payment with
respect to the Class A Certificates has been made as described herein.
Moreover, the Class B Investor Interest is subject to reduction if the Class A
Required Amount for any Monthly Period is greater than zero and is not funded
from Excess Spread and Excess Finance Charge Collections allocated to Series
1997-1, Reallocated Principal Collections with respect to the Collateral
Interest and reductions in the Collateral Interest, if any. To the extent the
Class B Investor Interest is reduced, the percentage of collections of Finance
Charge Receivables allocable to the Class B Investor Interest in future
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Investor Interest is not reimbursed, the amount of
principal and interest distributable to the Class B Certificateholders will be
reduced. See "Description of the Certificates--Allocation Percentages" and "--
Subordination" herein.
Possible Prepayment or Losses as a Result of Increasing Credit Card Losses.
As set forth under "First NBC's Credit Card Portfolio--Delinquency and Loss
Experience" herein, losses and delinquencies in the Bank Portfolio have
increased in recent years. For instance, net charge-offs of receivables in the
Bank Portfolio for the years ended December 31, 1994, 1995 and 1996 were
1.59%, 2.05% and 2.94% of the average receivables outstanding during the
applicable year, and total delinquent receivables at December 31, 1994, 1995
and 1996 were 3.26%, 3.40% and 4.26% of the total receivables outstanding in
the Bank Portfolio. Based upon published reports such as the Moody's Investors
Service Credit Card Credit Indexes, First NBC understands that most domestic
credit card issuers have experienced increases in charge-offs and
delinquencies. Increasing losses and delinquencies in the Bank Portfolio may
result in the occurrence of a Pay Out Event and the commencement of the Rapid
Amortization Period. If losses reached a high enough level relative to the
yield on the Receivables, a Pay Out Event could occur, resulting in payments
to Certificateholders prior to the expected dates. In addition, if any
applicable Credit Enhancement is exhausted, Certificateholders will bear a
share of the losses on Receivables in the Trust, which could result in losses
to Certificateholders.
FIRST NBC'S CREDIT CARD PORTFOLIO
GENERAL
The Receivables to be conveyed to the Trust by First NBC pursuant to the
Agreement have been or will be generated from transactions made by holders of
selected VISA, MasterCard and private label credit card accounts, including
premium accounts and standard accounts, in the Bank Portfolio. A description
of the Bank's credit card business is contained in the Prospectus under the
heading "First NBC's Credit Card Activities."
S-16
<PAGE>
BILLING AND PAYMENTS
First NBC generates and mails to cardholders monthly statements summarizing
account activity and processes cardholder monthly payments at the end of each
Billing Cycle, generally within 3 business days after the cycle date assigned
to such account by the Servicer. Currently, the Servicer has ten Billing
Cycles within each calendar month. The monthly billing statement reflects all
purchases, cash advances, administrative charges, if applicable (such as
currency conversion charges, late charges, and returned payment charges),
annual fees, if any, credit life insurance charges and finance charges
incurred by the account during the Billing Cycle or a prior Billing Cycle and
reported to the Servicer, all payments or credits applicable to the account
and the outstanding balance of the account as of the cycle date, including the
available credit thereunder.
Customers receive a 25-day grace period on purchases. Currently, cardholders
in the programs included in the Trust Portfolio must make a monthly minimum
payment at least equal to the greater of (i) 2.5% or 10% (depending upon the
program) of the statement balance (excluding any disputed amounts) plus past
due amounts and (ii) a stated minimum payment (generally $10) plus past due
amounts.
The finance charges on purchases are assessed monthly and are calculated by
multiplying the account's average daily purchase balance times the applicable
annual periodic rate times the actual number of days in the applicable Billing
Cycle divided by 365. Finance charges are calculated on purchases from the
date of the purchase or the first day of the Billing Cycle in which the
purchase is posted to the account, whichever is later. Monthly periodic
finance charges are not assessed on purchases if all balances shown in the
billing statement are paid by the due date, which is 25 days after the billing
date. Finance charges are calculated on cash advances (including balance
transfers) from the date of the transaction. Currently, First NBC generally
treats the date before posting as the transaction date for cash advance
checks.
The Trust Portfolio includes fixed rate and variable rate credit card
accounts. Generally, fixed annual percentage rates range from 5.9% to 21.0%,
and variable rates range from prime plus 4.0% per annum to prime plus 8.4% per
annum. First NBC imposes no minimum finance charge. Certain accounts in the
Trust Portfolio may include a structure by which a portion of finance charges,
annual fees, cash advance fees or purchase volume are rebated to agent banks
or affinity groups.
A portion of the accounts require payment of annual fees (generally ranging
from $5.00 to $40.00), although under various marketing programs these fees
may be waived or rebated. First NBC also assesses late fees (generally $10.00
to $20.00), overlimit fees (generally $10.00 to $15.00) and returned check
charges (generally $15.00). First NBC assesses a cash advance fee, generally
2.5% of the cash advance amount, with a minimum fee of $2.50 and a maximum fee
of $20.00.
Payments in respect of the Accounts are processed by the FCSC (on behalf of
the Servicer) and are generally allocated at the end of the applicable Billing
Cycle to the outstanding balance of such Accounts in the following order: (i)
to fees assessed on the account, (ii) to finance charges, and (iii) to the
unpaid principal balance of purchases.
DELINQUENCY AND LOSS EXPERIENCE
An account is contractually delinquent if the minimum payment is not
received by the due date indicated on the customer's statement. An account may
be restricted for subsequent activity until the customer makes all past due
payments. Account restrictions may be instituted within a range of one to 40
days delinquency, based upon the customer's internal "behavioral score" and
credit bureau score. Generally, once a customer is four payments delinquent,
the account is permanently closed.
Efforts to collect contractually delinquent credit card receivables include
statement messages, telephone calls and formal collection letters. First NBC
updates monthly an internal "behavioral score", developed with Fair, Isaac and
Company, Inc., for each cardholder based upon payment and transaction history.
Each
S-17
<PAGE>
cardholder's credit bureau score, under a credit scoring model developed with
Fair, Isaac and Company, Inc., is also updated quarterly. The behavioral score
and the credit bureau score are used to prioritize accounts for initial
contact with the objective of contacting the highest risk and balance accounts
first. Accounts are worked continually at each stage of delinquency. Accounts
are charged off at 179 days delinquent, except for bankruptcy and deceased
losses, which are charged off within 45 days of notification. Charged off
accounts are placed with collection personnel at First NBC, outside collection
agencies or outside attorneys.
In First NBC's historical experience, delinquency and loss ratios for a
group of accounts opened at around the same time have peaked during the second
and third years after the accounts were opened and then dropped off
significantly thereafter. Although there can be no assurance that the
delinquency and loss experience for the Receivables in the future will be
similar to First NBC's historical experience, addition of a large number of
newly created Additional Accounts to the Trust Portfolio might be expected to
increase delinquency and loss ratios for the Trust Portfolio during the second
and third years after such addition of accounts.
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Bank Portfolio of credit card accounts. The Bank
Portfolio's delinquency and loss experience is comprised of segments which
may, when taken individually, have delinquency and loss characteristics
different from those of the overall Bank Portfolio of credit card accounts. As
of the beginning of the day on May 1, 1997, the Receivables in the Trust
Portfolio represented approximately 98% of the Bank Portfolio. Because the
Trust Portfolio is only a portion of the Bank Portfolio, actual delinquency
and loss experience with respect to the Receivables may be different from that
set forth below for the Bank Portfolio. There can be no assurance that the
delinquency and loss experience for the Receivables in the future will be
similar to the historical experience of the Bank Portfolio set forth below.
DELINQUENCY EXPERIENCE
BANK PORTFOLIO(1)(2)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 30 AS OF DECEMBER 31
----------------------------------- -----------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
PERCENT- PERCENT- PERCENT- PERCENT- PERCENT- PERCENT-
AGE OF AGE OF AGE OF AGE OF AGE OF AGE OF
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV-
ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(3).... $830,994 $631,697 $828,812 $616,644 $425,983 $381,702
Receivables
Delinquent........
31-60 Days....... $ 12,332 1.48% $ 7,491 1.19% $ 13,685 1.65% $ 8,970 1.45% $ 6,073 1.43% $ 4,822 1.26%
61-90 Days....... $ 8,573 1.03% $ 4,524 .72% $ 8,484 1.02% $ 5,013 .81% $ 3,435 .81% $ 3,297 .86%
91-120 Days...... $ 5,079 .61% $ 3,874 .61% $ 5,998 .72% $ 3,516 .57% $ 2,209 .52% $ 1,793 .47%
121 Days Or More.. $ 7,572 .91% $ 4,227 .67% $ 7,111 .86% $ 3,484 .57% $ 2,169 .51% $ 1,874 .49%
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total........... $ 33,556 4.04% $ 20,116 3.19% $ 35,278 4.26% $ 20,983 3.40% $ 13,886 3.26% $ 11,786 3.09%
======== ==== ======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
(1) The above information is for First NBC's First BankCard Division only.
Amounts have not been restated for acquisitions of portfolios from the
Corporation's acquired banks which were accounted for as poolings-of-
interests.
(2) The above information includes the Private Label Accounts. Balances in the
Private Label Accounts are charged back to USAF at 90 days past due. The
balances in such accounts and the related delinquencies at April 30, 1997
and 1996, respectively, were: $10,224,531 outstanding, 6.56% delinquent;
and $4,022,733 outstanding, 6.39% delinquent; and at December 31, 1996,
1995, 1994 and 1993, respectively, were; $9,097,339 outstanding, 8.02%
delinquent; $2,179,667 outstanding, 8.55% delinquent; $1,471,198
outstanding, 11.60% delinquent; and $1,540,102 outstanding, 8.89%
delinquent.
(3) The Receivables Outstanding on the accounts consist of all amounts due
from cardholders as posted to the accounts as of the end of the period
shown.
S-18
<PAGE>
LOSS EXPERIENCE(1)(2)
BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED APRIL 30 YEAR ENDED DECEMBER 31
----------------------------------- -----------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
PERCENT- PERCENT- PERCENT- PERCENT- PERCENT- PERCENT-
AGE OF AGE OF AGE OF AGE OF AGE OF AGE OF
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV- RECEIV-
ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES ABLES
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average
Receivables
Outstanding(3).. $823,067 $615,555 $680,557 $444,393 $374,209 $362,449
Gross Charge-
Offs(4)........ $ 13,347 4.93% $ 6,111 3.00% $ 23,664 3.48% $ 11,970 2.69% $ 8,511 2.27% $ 8,824 2.43%
Recoveries...... -1,385 .51% -1,192 .59% -3,629 .54% -2,882 .64% -2,568 .69% -2,144 .59%
-------- ---- -------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Net Charge-Offs.. $ 11,962 4.42% $ 4,919 2.41% $ 20,035 2.94% $ 9,088 2.05% $ 5,943 1.59% $ 6,680 1.84%
======== ==== ======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- -------
(1) The above information is for First NBC's First BankCard Division only.
Amounts have not been restated for acquisitions of portfolios from the
Corporation's acquired banks which were accounted for as poolings-of-
interests.
(2) Interest and fees on charged off accounts are reversed from finance charge
revenues and fee income accounts, respectively, and are not included in
charge-offs.
(3) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(4) Gross Charge-Offs are total principal charge-offs before recoveries and do
not include the amount of any reductions in Average Receivables
Outstanding due to fraud, returned goods, customer disputes or other
miscellaneous credit adjustments.
INTERCHANGE AND OTHER ACCOUNT REVENUES
The Transferor will be required, pursuant to the terms of the Agreement, to
transfer to the Trust a percentage of the Interchange attributed to cardholder
charges for goods and services in the Accounts. For administrative
convenience, the Transferor may exclude from the calculation of Interchange
certain interchange received from merchants for whom First NBC acts as the
MasterCard or VISA clearing bank. Interchange arising under the Accounts will
be allocated to the Certificates on the basis of the percentage equivalent of
the ratio of (i) the Floating Investor Percentage of cardholder charges for
goods and services in the Accounts to (ii) the total amount of cardholder
charges for goods and services in the MasterCard and VISA credit card accounts
owned by First NBC, as reasonably estimated by the Transferor. MasterCard and
VISA may from time to time change the amount of Interchange reimbursed to
banks issuing their credit cards. Interchange will be treated as collections
of Finance Charge Receivables for the purposes of determining the amount of
Finance Charge Receivables, allocating collections of Finance Charge
Receivables, making required monthly payments, and calculating the Portfolio
Yield. Under the circumstances described herein, Interchange will be used to
pay a portion of the Monthly Investor Servicing Fee required to be paid on
each Transfer Date. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses" herein and "First NBC's Credit Card
Activities--Interchange" in the Prospectus.
The Transferor will also be required, pursuant to the terms of the
Agreement, to transfer to the Trust, for the benefit of the Certificates, a
percentage of the Other Account Revenues (which presently consist of
advertising revenues and experience-based rebates of credit insurance
premiums). The amount of Other Account Revenues to be so included shall be
equal to the portion of the revenues in each applicable category for the
entire Bank Portfolio that is allocable to the Accounts, as determined by
Transferor using any reasonable method, multiplied by the Floating Investor
Percentage.
S-19
<PAGE>
THE RECEIVABLES
The Receivables in the Trust Portfolio, as of the beginning of the day on
May 1, 1997, included $802,881,646 of Principal Receivables and $11,471,934 of
Finance Charge Receivables. The Accounts had an average Principal Receivable
balance of $1,016 and an average credit limit of $3,920. The percentage of the
aggregate total Receivable balance to the aggregate total credit limit was
26%. The average age of the Accounts was approximately 59 months. As of the
beginning of the day on May 1, 1997, Receivables arising in Accounts in agent
bank, affinity or military relationship programs made up approximately 61% in
the aggregate of the total Receivables in the Trust Portfolio, with
approximately 33% of the total Receivables in the Trust Portfolio arising in
the single largest program of this type. See "Risk Factors--Possible Delays or
Prepayment as a Result of Affinity Programs" in the Prospectus. As of such
date, 70% of the Accounts were standard accounts and 30% were premium
accounts, and the aggregate Principal Receivable balances of standard accounts
and premium accounts, as a percentage of the total aggregate Principal
Receivables, were 65% and 35%, respectively. Because approximately 34%, 8%,
6%, 6% and 5% of the cardholders whose Accounts are included in the Trust
Portfolio had a billing address in Louisiana, Alabama, Mississippi, Texas and
Florida, respectively, the Trust Portfolio as a whole may be adversely
affected by material adverse legal, economic and social changes in such
states. First NBC is not aware of any material trends in such states that
would likely adversely impact the Trust Portfolio. See "Risk Factors--Possible
Delays or Prepayment as a Result of Effect of Social, Legal and Economic
Factors on Credit Card Usage" in the Prospectus. As of the beginning of the
day on May 1, 1997, Receivables arising in accounts in First NBC's military
programs made up approximately 33% in the aggregate of the total Receivables
in the Trust Portfolio. See "Risk Factors--Effects of Applicable Law--Possible
Prepayment or Losses as a Result of Limitations Imposed by Consumer Protection
Laws" in the Prospectus.
Credit applications for the Accounts under which the Receivables in the
Trust Portfolio arise are processed through an automated application
processing system using a credit scoring system based on models developed by
Fair, Isaac and Company, Inc. Those applications that are flagged for further
review (i.e., those that are neither accepted nor rejected) by the automated
application processing system are reviewed by a First BankCard credit
analyst who makes a credit and limit assignment decision based on a review of
(i) the score generated by the credit scorecard, (ii) information contained in
the application, (iii) an independent credit report and (iv) an analysis of
the applicant's capacity to repay. First BankCard also uses a prescreening
process as a method of acquiring new accounts. First BankCard primarily
identifies potential prospects for pre-approved solicitations through lists
obtained from (i) First NBC and its affiliated banks, (ii) agent banks and
(iii) affinity groups. First BankCard submits to the credit bureaus its credit
criteria and cutoff scores for those criteria to screen prospects. Lists of
individuals who meet the criteria are returned to the mailing list vendor, and
a pre-approved offer for a credit card is made to those individuals. An
offeree's response to the solicitation is reviewed and confirmed, and a credit
card is issued. Where an individual's creditworthiness undergoes rapid and
substantial change following the initial prescreening, First BankCard may
refuse to extend any credit to that individual despite the pre-approved offer.
The primary factors considered in the non-military credit scoring model
include (a) the presence or absence of existing credit references and checking
and savings account references, (b) the number of recently reported
installment loans reflected in the credit file, (c) revolving utilization
reflected in the credit file and (d) the number of inquiries by other credit
providers. The primary factors considered in the military credit scoring model
include (a) occupation, (b) high credit card utilization reflected in the
credit file, (c) the number of major derogatory ratings reflected in the
credit file and (d) the number of inquiries by other credit providers.
The Trust Portfolio will initially consist of all Receivables in the Bank
Portfolio, with the exception of Receivables arising under Accounts identified
as lost, stolen, fraudulent, voluntarily canceled, deceased, bankrupt,
internal expense accounts or foreign accounts. The following tables summarize
the Trust Portfolio by various criteria as of the beginning of the day on May
1, 1997. Because the future composition of the Trust Portfolio may change over
time, these tables are not necessarily indicative of the composition of the
Trust Portfolio at any subsequent time.
S-20
<PAGE>
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS (IN THOUSANDS) RECEIVABLES
- --------------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Credit Balance................. 25,638 3.25% $ (1,282) (.16)%
No Balance..................... 193,371 24.48 -- --
$.01--$5,000.00................ 540,004 68.36 626,987 76.99
$5,000.01--$10,000.00.......... 30,687 3.88 185,208 22.74
$10,000.01--$15,000.00......... 201 .03 2,364 .29
$15,000.01--$20,000.00......... 41 -- 698 .09
$20,000.01--$25,000.00......... 9 -- 200 .02
$25,000.01 or More............. 5 -- 179 .02
------- ------ -------- ------
TOTAL...................... 789,956 100.00% $814,354 100.00%
======= ====== ======== ======
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
CREDIT LIMIT RANGE ACCOUNTS ACCOUNTS (IN THOUSANDS) RECEIVABLES
- ------------------ --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Less than or equal to
$5,000.00..................... 555,308 70.30% $448,740 55.10%
$5,000.01--$10,000.00.......... 232,728 29.46 359,694 44.17
$10,000.01--$15,000.00......... 1,175 .15 3,423 .42
$15,000.01--$20,000.00......... 341 .04 1,229 .15
$20,000.01--$25,000.00......... 277 .03 721 .09
$25,000.01 or More............. 127 .02 547 .07
------- ------ -------- ------
TOTAL...................... 789,956 100.00% $814,354 100.00%
======= ====== ======== ======
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
PERIOD OF DELINQUENCY NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS ACCOUNTS (IN THOUSANDS) RECEIVABLES
- ------------------------------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Not delinquent or up to 30
Days.......................... 775,111 98.12% $783,128 96.17%
31 to 60 Days.................. 6,802 .86 11,499 1.41
61 to 90 Days.................. 3,421 .43 7,837 .96
91 or More Days................ 4,622 .59 11,890 1.46
------- ------ -------- ------
TOTAL...................... 789,956 100.00% $814,354 100.00%
======= ====== ======== ======
</TABLE>
S-21
<PAGE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE OF
NUMBER OF NUMBER OF RECEIVABLES TOTAL
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS (IN THOUSANDS) RECEIVABLES
- --------------------- --------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Not More than 6 Months........ 75,862 9.60% $ 42,727 5.24%
Over 6 Months to 12 Months.... 142,564 18.05 121,224 14.89
Over 12 Months to 24 Months... 214,244 27.12 198,471 24.37
Over 24 Months to 36 Months... 50,890 6.44 55,510 6.82
Over 36 Months to 48 Months... 27,613 3.50 29,458 3.62
Over 48 Months to 60 Months... 26,972 3.41 30,522 3.75
Over 60 months to 72 Months... 21,262 2.69 23,271 2.86
Over 72 Months................ 230,549 29.19 313,171 38.45
------- ------ -------- ------
TOTAL..................... 789,956 100.00% $814,354 100.00%
======= ====== ======== ======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF TOTAL PERCENTAGE OF
OF NUMBER OF RECEIVABLES TOTAL
STATE(1) ACCOUNTS ACCOUNTS (IN THOUSANDS) RECEIVABLES
- -------- -------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Louisiana...................... 268,892 34.04% $332,830 40.87%
Alabama........................ 63,079 7.99 68,695 8.44
Mississippi.................... 49,933 6.32 52,725 6.47
Texas.......................... 46,339 5.87 48,564 5.96
Florida........................ 40,401 5.11 34,443 4.23
California..................... 24,333 3.08 23,121 2.84
Georgia........................ 20,492 2.59 20,967 2.57
North Carolina................. 17,181 2.17 14,767 1.81
Virginia....................... 14,701 1.86 12,678 1.56
Maryland....................... 13,211 1.67 12,127 1.49
New Mexico..................... 11,504 1.46 9,041 1.11
South Carolina................. 11,244 1.42 9,094 1.12
Arizona........................ 10,730 1.36 8,389 1.03
Ohio........................... 9,522 1.21 9,179 1.13
Oklahoma....................... 9,181 1.16 8,803 1.08
Other.......................... 179,213 22.69 148,931 18.29
------- ------ -------- ------
Total......................... 789,956 100.00% $814,354 100.00%
======= ====== ======== ======
</TABLE>
- --------
(1) No more than 1% of the aggregate principal balance of the Receivables as of
the Cut-Off Date were represented by Receivables owed by obligors located
in any single state other than those listed in this table.
S-22
<PAGE>
MATURITY ASSUMPTIONS
The Agreement provides that Class A Holders will not receive payments of
principal until the Class A Scheduled Payment Date, or earlier in the event of
a Pay Out Event which results in the commencement of the Rapid Amortization
Period. The Class B Holders will not begin to receive payments of principal
until the final principal payment on the Class A Certificates has been made.
Controlled Accumulation Period. On each Transfer Date during the Controlled
Accumulation Period prior to the payment of the Class A Investor Interest in
full, an amount equal to, for each Monthly Period, the least of (a) the
Available Investor Principal Collections, (b) the "Controlled Deposit Amount"
for such Monthly Period (which equals the sum of the Controlled Accumulation
Amount for such Monthly Period and any portion of the Controlled Accumulation
Amount for any prior Monthly Period that was not deposited in the Principal
Funding Account) and (c) the Class A Adjusted Investor Interest prior to any
deposits on such day, will be deposited in the Principal Funding Account (the
"Principal Funding Account") established by the Servicer until the principal
amount on deposit in the Principal Funding Account (the "Principal Funding
Account Balance") equals the Class A Investor Interest. After the Class A
Investor Interest has been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Class B
Holders on each Distribution Date until the earlier of the date the Class B
Investor Interest has been paid in full and the Series 1997-1 Termination
Date. After the Class A Investor Interest and the Class B Investor Interest
have each been paid in full, Available Investor Principal Collections, to the
extent required, will be distributed to the Collateral Interest Holder on each
Transfer Date until the earlier of the date the Collateral Interest has been
paid in full and the Series 1997-1 Termination Date. Amounts in the Principal
Funding Account are expected to be available to pay the Class A Investor
Interest on the Class A Scheduled Payment Date. After the payment of the Class
A Investor Interest in full, Available Investor Principal Collections are
expected to be available to pay the Class B Investor Interest on the Class B
Scheduled Payment Date. Although it is anticipated that collections of
Principal Receivables will be available on each Transfer Date during the
Controlled Accumulation Period to make a deposit of the applicable Controlled
Deposit Amount and that the Class A Investor Interest will be paid to the
Class A Holders on the Class A Scheduled Payment Date and the Class B Investor
Interest will be paid to the Class B Holders on the Class B Scheduled Payment
Date, respectively, no assurance can be given in this regard. If the amount
required to pay the Class A Investor Interest or the Class B Investor Interest
in full is not available on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date, respectively, a Pay Out Event will occur and the Rapid
Amortization Period will commence.
Rapid Amortization Period. If a Pay Out Event occurs, the Rapid Amortization
Period will commence and any amount on deposit in the Principal Funding
Account will be paid to the Class A Holders on the Distribution Date in the
month following the commencement of the Rapid Amortization Period. In
addition, to the extent that the Class A Investor Interest has not been paid
in full, the Class A Holders will be entitled to monthly payments of principal
equal to the Available Investor Principal Collections until the earlier of the
date on which the Class A Certificates have been paid in full and the Series
1997-1 Termination Date. After the Class A Certificates have been paid in full
and if the Series 1997-1 Termination Date has not occurred, Available Investor
Principal Collections will be paid to the Class B Certificates on each
Distribution Date until the earlier of the date on which the Class B
Certificates have been paid in full and the Series 1997-1 Termination Date.
Pay Out Events. A Pay Out Event occurs, either automatically or after
specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Holders within the time
periods stated in the Agreement, (b) material breaches of certain
representations, warranties or covenants of the Transferor, (c) certain
insolvency events involving the Transferor, (d) a reduction in the average of
the Portfolio Yields for any three consecutive Monthly Periods to a rate that
is less than the average of the Base Rates for such period, (e) the Trust
becoming an "investment company" within the meaning of the Investment Company
Act of 1940, as amended, (f) the failure of the Transferor to convey
Receivables arising under Additional Accounts or Participations to the Trust
when required by the Agreement, (g) the occurrence of a Servicer Default which
would have a material adverse effect on the Holders, (h) insufficient monies
in the Distribution Account to pay the Class A Investor Interest or the Class
B Investor Interest in full on the Class A Scheduled Payment
S-23
<PAGE>
Date or the Class B Scheduled Payment Date, respectively, or (i) the
Transferor becomes unable for any reason to transfer Receivables to the Trust
in accordance with the provisions of the Agreement. See "Description of the
Certificates--Pay Out Events." The term "Base Rate" means, with respect to any
Monthly Period, the sum of (a) the weighted average of the Class A Certificate
Rate, the Class B Certificate Rate, and the Collateral Rate for the related
Interest Period plus (b) the Servicing Fee Percentage. The term "Portfolio
Yield" means, with respect to any Monthly Period, the annualized percentage
equivalent of a fraction, the numerator of which is the sum of Reallocated
Investor Finance Charge Collections, Principal Funding Investment Proceeds and
amounts withdrawn from the Reserve Account deposited into the Finance Charge
Account and allocable to the Certificates and the Collateral Interest for such
Monthly Period, calculated on a cash basis after subtracting the Investor
Default Amount for such Monthly Period, and the denominator of which is the
Investor Interest as of the close of business on the last day of such Monthly
Period.
Paired Series. The Transferor may cause the Trust to issue another Series as
a Paired Series with respect to Series 1997-1. Although no assurance can be
given as to whether such other Series will be issued and, if issued, the
specific terms thereof, the outstanding principal amount of such Series may
vary from time to time whether or not a Pay Out Event occurs with respect to
Series 1997-1, and the interest rate with respect to certificates of such
Series will be established on the date of issuance of such Series and may be
reset periodically. Further, the Pay Out Events with respect to such other
Series may vary from the Pay Out Events with respect to Series 1997-1 and may
include Pay Out Events which are unrelated to the status of the Transferor,
the Servicer or the Receivables, such as events related to the continued
availability and rating of certain providers of Enhancement to such other
Series. If a Pay Out Event does occur with respect to any such Paired Series
prior to the payment in full of the Certificates, the final payment of
principal to the Holders may be delayed. In particular, the numerator of the
Fixed Allocation Percentage may be changed upon the occurrence of a Pay Out
Event with respect to a Paired Series resulting in a possible reduction of the
percentage of collections of Principal Receivables allocated to the Holders
and a possible slowdown in the repayment of principal to such Holders because
of such reduction in allocation of collections. See "Description of the
Certificates--Allocation Percentages" and "--Paired Series" herein.
Payment Rates and Creation of Additional Receivables. The following table
sets forth the highest and lowest cardholder monthly payment rates for the
Bank Portfolio during any month in the period shown and the average cardholder
monthly payment rates for all months during the periods shown, in each case
calculated as a percentage of average monthly account balances during the
periods shown. Payment rates shown in the table are based on amounts which
would be deemed payments of Principal Receivables and Finance Charge
Receivables with respect to the Accounts.
CARDHOLDER MONTHLY PAYMENT RATES
BANK PORTFOLIO
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED DECEMBER
APRIL 30 31
------------ ----------------------
1997 1996 1996 1995 1994 1993
----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lowest Month........................ 13.7% 14.9% 14.1% 14.1% 14.5% 14.6%
Highest Month....................... 15.2% 17.0% 17.1% 17.2% 17.9% 18.0%
Monthly Average..................... 14.6% 15.7% 15.5% 15.7% 16.2% 16.6%
</TABLE>
Currently, cardholders must make a monthly minimum payment at least equal to
the greater of (i) 2.5% or 10% (depending upon the program) of the statement
balance (excluding any disputed amounts) plus past due amounts and (ii) a
stated minimum payment (generally $10) plus past due amounts. There can be no
assurance that the cardholder monthly payment rates in the future will be
similar to the historical experience set forth above. In addition, any
election by the Transferor to designate (or increase) a Discount Percentage
may, by causing certain collections of Principal Receivables to be treated as
collections of Finance Charge Receivables, reduce
S-24
<PAGE>
the effective principal payment rate with respect to the Receivables. (See
"Description of the Certificates--Discount Option" in the Prospectus.) The
Receivables may be paid at any time and there is no assurance that there will
be additional Receivables created in the Accounts.
A significant decline in the amount of Receivables generated during the
Controlled Accumulation Period could result in the occurrence of a Pay Out
Event. In addition, a significant decline in the amount of Receivables
generated during the Rapid Amortization Period could significantly extend the
average life to maturity of the Certificates. The amount of collections of
Receivables and the creation of additional Receivables in the Accounts may
vary from month to month due to seasonal variations, general economic
conditions and payment habits of individual cardholders. There can be no
assurance that collections of Principal Receivables with respect to the Trust
Portfolio will be similar to the historical experience set forth above or that
deposits into the Principal Funding Account or the Distribution Account, as
applicable, will be made in accordance with the applicable Controlled
Accumulation Amount. If a Pay Out Event occurs, the average life of the
Certificates could be significantly reduced or increased.
Because there may be a decline in the creation of new Receivables in the
Accounts or a slowdown in the payment rate below the payment rates used to
determine the Controlled Accumulation Amounts, or a Pay Out Event may occur
which would initiate the Rapid Amortization Period, there can be no assurance
that the actual number of months elapsed from the date of issuance of the
Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described
under "Description of the Certificates--Postponement of Controlled
Accumulation Period," the Servicer may shorten the Controlled Accumulation
Period and, in such event, there can be no assurance that there will be
sufficient time to accumulate all amounts necessary to pay the Class A
Investor Interest and the Class B Investor Interest on the Class A Scheduled
Payment Date and the Class B Scheduled Payment Date, respectively. See
"Maturity Assumptions" and "Risk Factors--Payments Other than at Expected
Maturity" in the Prospectus.
Any factors which effectively slow the principal payment rate with respect
to the Receivables, and hence slow the accumulation of principal for
distribution to the Certificateholders, may have the additional effect of
extending the period of time during which the Certificateholders are exposed
to losses on the Receivables.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Bank Portfolio for each of the four calendar years contained in the period
ended December 31, 1996 are set forth in the following table.
The historical yield figures in the following table are calculated on an
accrual basis. Collections of Receivables included in the Trust will be on a
cash basis and may not reflect the historical yield experience in the table.
During periods of increasing delinquencies or periodic payment deferral
programs, accrual yields may exceed cash amounts accrued and billed to
cardholders. Conversely, cash yields may exceed accrual yields as amounts
collected in a current period may include amounts accrued during prior
periods. However, the Transferor believes that during four calendar years
contained in the period ended December 31, 1996, the yield on an accrual basis
closely approximated the yield on a cash basis. The yield on both an accrual
and a cash basis will be affected by numerous factors, including the monthly
periodic finance charges on the Receivables, the amount of any annual
membership fees and other fees, changes in the delinquency rate on the
Receivables and the percentage of cardholders who pay their balances in full
each month and do not incur monthly periodic finance charges. See "Risk
Factors" in the Prospectus.
S-25
<PAGE>
BANK PORTFOLIO YIELD(1)(2)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
APRIL 30 YEAR ENDED DECEMBER 31
------------------ --------------------------------------
1997 1996 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding (3)........ $823,067 $615,555 $680,557 $444,393 $374,209 $362,449
Total Finance Charges
and Fees (4)(5)........ $ 48,802 $ 37,033 $127,061 $ 81,806 $ 72,673 $ 72,188
Total Finance Charges
and Fees
as a percentage of
Average
Receivables
Outstanding........... 18.03% 18.20% 18.68% 18.41% 19.42% 19.92%
</TABLE>
- --------
(1) Amounts have not been restated for acquisitions of portfolios from the
Corporation's acquired banks which were accounted for as poolings-of-
interests.
(2) Interest and fees on charged off accounts are reversed from finance charge
revenues and fee income accounts, respectively, and are not included in
charge-offs.
(3) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(4) Fees include Annual Fees, Interchange, Cash Advance Fees, Late Fees,
Overlimit Fees and Other Fees as allocated to the Bank Portfolio.
(5) Finance Charges and Fees are presented net of adjustments pursuant to
First NBC's normal servicing procedures, including removal of incorrect or
disputed monthly periodic finance charges.
The revenue for the Bank Portfolio of credit card accounts shown in the
above table is comprised of monthly periodic finance charges, credit card fees
and Interchange. These revenues vary for each account based on the type and
volume of activity for each account. Because the Trust Portfolio is only a
portion of the Bank Portfolio, actual yield with respect to Receivables may be
different from that set forth above for the Bank Portfolio. See "First NBC's
Credit Card Portfolio" herein and "First NBC Credit Card Activities" in the
Prospectus.
FIRST NBC AND FIRST COMMERCE CORPORATION
First NBC is a national banking association and a wholly owned subsidiary of
First Commerce Corporation (the "Corporation"). The Bank's main office is
located at 210 Baronne Street, New Orleans, Louisiana 70112, telephone (504)
623-1371. The Corporation is a Louisiana corporation and a bank holding
company under the Bank Holding Company Act of 1956, as amended, and maintains
its headquarters in New Orleans, Louisiana. As of December 31, 1996, First NBC
had assets of $5.9 billion and stockholder's equity of $374 million. As of
December 31, 1996, the Corporation had assets of $9.2 billion and
stockholders' equity of $724 million. The Corporation has six wholly owned
bank subsidiaries, each in Louisiana: the Bank, City National Bank of Baton
Rouge, Central Bank (Monroe), The First National Bank of Lafayette, Rapides
Bank & Trust Company in Alexandria and The First National Bank of Lake
Charles, which offer a full range of banking and related financial services to
commercial and consumer customers, including numerous types of interest-
bearing and noninterest-bearing deposit accounts, commercial and consumer
loans (including credit card loans), credit card merchant services, trust
services, correspondent banking services and safe deposit facilities.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the Series
1997-1 Supplement. Pursuant to the Agreement, the Transferor and the Trustee
may execute further series supplements in order to issue additional Series.
The following summary of the Certificates does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Agreement and the Series 1997-1
S-26
<PAGE>
Supplement. See "Description of the Certificates" in the Prospectus for
additional information concerning the Certificates and the Agreement.
GENERAL
The Certificates will represent the right to receive certain payments from
the assets of the Trust, including the right to the applicable allocation
percentage of all cardholder payments on the Receivables in the Trust. Each
Class A Certificate represents the right to receive payments of interest at
the Class A Rate for the related Interest Period funded from collections of
Finance Charge Receivables and payments of principal on the Class A Scheduled
Payment Date or, to the extent of the Class A Investor Interest, on each
Distribution Date during the Rapid Amortization Period, funded from
collections of Principal Receivables allocated to the Class A Investor
Interest and certain other available amounts. Each Class B Certificate
represents the right to receive payments of interest at the applicable Class B
Rate for the related Interest Period, and payments of principal on the Class B
Scheduled Payment Date or, to the extent of the Class B Investor Interest, on
each Distribution Date during the Rapid Amortization Period after the Class A
Certificates have been paid in full, funded from collections of Finance Charge
Receivables and Principal Receivables, respectively, allocated to the Class B
Investor Interest and certain other available amounts. In addition to
representing the right to payment from collections of Finance Charge
Receivables and Principal Receivables, each Class A Certificate also
represents the right to receive payments from Excess Spread, funds on deposit
in the Principal Funding Account and the Reserve Account and certain
investment earnings thereon, Reallocated Principal Collections and Shared
Principal Collections and certain other available amounts (including, under
certain circumstances, amounts on deposit in the Excess Funding Account). In
addition to representing the right to payment from collections of Finance
Charge Receivables and Principal Receivables, each Class B Certificate also
represents the right to receive payments from Excess Spread, Reallocated
Collateral Principal Collections and Shared Principal Collections and certain
other available amounts (including, under certain circumstances, amounts on
deposit in the Excess Funding Account). Payments of interest and principal
will be made, to the extent of funds available therefor, on each Distribution
Date on which such amounts are due to Holders in whose names the Certificates
were registered on the last business day of the calendar month preceding such
Distribution Date (each, a "Record Date").
First NBC does not intend to list the Certificates on any securities
exchange.
The Class A Certificates and the Class B Certificates initially will be
represented by certificates registered in the name of Cede, as nominee of DTC.
Unless and until Definitive Certificates are issued, all references herein to
actions by Class A Holders and/or Class B Holders shall refer to actions taken
by DTC upon instructions from DTC Participants and all references herein to
distributions, notices, reports and statements to Class A Holders and/or Class
B Holders shall refer to distributions, notices, reports and statements to DTC
or Cedel, as the registered holder of the Class A Certificates and the Class B
Certificates, as the case may be, for distribution to Certificate Owners in
accordance with DTC procedures. Holders may hold their Certificates through
DTC (in the United States) or Cedel or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations that are
participants in such systems. Cede, as nominee for DTC, will hold the global
Certificates. Cede and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books
of their respective Depositaries which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
See "Description of the Certificates--General," "--Book-Entry Registration"
and "--Definitive Certificates" in the Prospectus.
INTEREST PAYMENTS
Interest will accrue on the Class A Certificates at the Class A Rate and on
the Class B Certificates at the Class B Rate from the Closing Date. Interest
will be distributed to Holders on September 15, 1997 and on each Distribution
Date thereafter. Interest payments on the Class A Certificates and the Class B
Certificates on any Distribution Date will be calculated on the outstanding
principal balance of the Class A Certificates and the outstanding principal
balance of the Class B Certificates, as applicable, as of the preceding Record
Date, except
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that interest for the first Distribution Date will accrue at the applicable
Certificate Rate on the initial outstanding principal balance of the Class A
Certificates and the initial outstanding principal balance of the Class B
Certificates, as applicable, from the Closing Date. Interest due on the
Certificates but not paid on any Distribution Date will be payable on the next
succeeding Distribution Date together with additional interest on such amount
at the applicable Certificate Rate plus 2% per annum (such amount with respect
to the Class A Certificates, the "Class A Additional Interest," and such
amount with respect to the Class B Certificates, the "Class B Additional
Interest," and collectively, the "Additional Interest"). Additional Interest
shall accrue on the same basis as interest on the Certificates, and shall
accrue from the Distribution Date on which such overdue interest first became
due, to but excluding the Distribution Date on which such Additional Interest
is paid. Interest payments on the Class A Certificates on any Distribution
Date will be paid from Class A Available Funds for the related Monthly Period,
and to the extent such Class A Available Funds are insufficient to pay such
interest, from Excess Spread and Reallocated Principal Collections (to the
extent available) for such Monthly Period. Interest payments on the Class B
Certificates on any Distribution Date will be paid from Class B Available
Funds for the related Monthly Period, and to the extent such Class B Available
Funds are insufficient to pay such interest, from Excess Spread and
Reallocated Collateral Principal Collections (to the extent available)
remaining after certain other payments have been made with respect to the
Class A Certificates.
"Class A Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class A Floating Allocation of Reallocated
Investor Finance Charge Collections allocated to the Investor Interest with
respect to such Monthly Period (excluding the portion of collections of
Finance Charge Receivables attributable to Interchange that is allocable to
Servicer Interchange) and Series Investment Earnings, (b) Principal Funding
Investment Proceeds, if any, with respect to the related Transfer Date (up to
the Class A Covered Amount for such Transfer Date) and (c) amounts, if any, to
be withdrawn from the Reserve Account which are required to be included in
Class A Available Funds pursuant to the Series 1997-1 Supplement with respect
to such Transfer Date. "Class B Available Funds" means, with respect to any
Monthly Period, an amount equal to the Class B Floating Allocation of
Reallocated Investor Finance Charge Collections allocated to the Investor
Interest with respect to such Monthly Period (excluding the portion of
collections of Finance Charge Receivables attributable to Interchange that is
allocable to Servicer Interchange) and Series Investment Earnings. "Series
Investment Earnings" means, with respect to any Monthly Period, the sum of (x)
the Investor Percentage for Finance Charge Receivables multiplied by the
aggregate amount of investment earnings (net of losses and investment
expenses) accrued on or prior to the related Transfer Date in connection with
the investment of funds on deposit in the Collection Account, the Distribution
Account, the Excess Funding Account and the Finance Charge Account plus (y)
the amount of investment earnings (net of losses and investment expenses)
accrued on or prior to the related Transfer Date in connection with the
investment of funds on deposit in the Principal Account.
The Class A Certificates will bear interest from the Closing Date through
September 14, 1997, and with respect to each Interest Period thereafter, at a
rate of 6.15% per annum (the "Class A Rate"). The Class B Certificates will
bear interest from the Closing Date through September 14, 1997, and with
respect to each Interest Period thereafter, at a rate of 6.35% per annum (the
"Class B Rate"). "Interest Period" means each period from the Closing Date to
September 14, 1997 and thereafter from and including one Distribution Date to
but excluding the next Distribution Date. Interest on the Certificates will be
calculated on the basis of twelve 30-day months and a 360-day year.
PRINCIPAL PAYMENTS
On each Transfer Date relating to the Revolving Period (which begins on the
Closing Date and ends at the commencement of the Controlled Accumulation
Period or, if earlier, the Rapid Amortization Period), unless a reduction in
the Required Collateral Interest has occurred, collections of Principal
Receivables allocable to the Investor Interest will, subject to certain
limitations, including the allocation of any Reallocated Principal Collections
with respect to the related Monthly Period to pay the Class A Required Amount
and the Class B Required Amount, be treated as Shared Principal Collections
or, under certain circumstances, deposited into the Excess Funding Account.
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On each Transfer Date relating to the Controlled Accumulation Period, the
Trustee will deposit in the Principal Funding Account an amount equal to the
least of (a) Available Investor Principal Collections with respect to such
Transfer Date, (b) the applicable Controlled Deposit Amount and (c) the Class
A Adjusted Investor Interest prior to any deposits on such date. Amounts in
the Principal Funding Account will be paid to the Class A Holders on the Class
A Scheduled Payment Date. After the Class A Investor Interest has been paid or
provided for in full, on each Transfer Date during the Controlled Accumulation
Period, amounts equal to the lesser of (a) Available Investor Principal
Collections with respect to such Transfer Date and (b) the Class B Investor
Interest will be deposited in the Distribution Account for distribution to the
Class B Holders until the Class B Investor Interest has been paid in full.
Such amounts in the Distribution Account will be paid to the Class B Holders
on the Class B Scheduled Payment Date. On each Transfer Date, if a reduction
in the Required Collateral Interest has occurred, a portion of collections of
Principal Receivables allocable to the Investor Interest will be applied in
accordance with the Loan Agreement to reduce the Collateral Interest to the
Required Collateral Interest. During the Controlled Accumulation Period until
the final principal payment to the Class B Holders, the portion of Available
Investor Principal Collections not applied to Class A Monthly Principal, Class
B Monthly Principal or Collateral Monthly Principal on a Transfer Date will
generally be treated as Shared Principal Collections or, under certain
circumstances, deposited into the Excess Funding Account.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) collections of Principal
Receivables received during such Monthly Period and certain other amounts, in
each case which are allocable to the Investor Interest, minus (ii) the amount
of Reallocated Principal Collections with respect to such Monthly Period used
to fund interest on the Certificates or the Class A Servicing Fee or Class B
Servicing Fee, plus (b) any Shared Principal Collections with respect to other
Principal Sharing Series that are allocated to Series 1997-1.
On each Distribution Date commencing with the first Distribution Date
following the date the Rapid Amortization Period begins, the Class A Holders
will be entitled to receive Available Investor Principal Collections for the
related Monthly Period in an amount up to the Class A Investor Interest until
the earlier of the date the Class A Certificates are paid in full and the
Series 1997-1 Termination Date. After payment in full of the Class A Investor
Interest, the Class B Holders will be entitled to receive on each Distribution
Date during the Rapid Amortization Period Available Investor Principal
Collections until the earlier of the date the Class B Certificates are paid in
full and the Series 1997-1 Termination Date. After payment in full of the
Class B Investor Interest, the Collateral Interest Holder will be entitled to
receive on each Transfer Date (other than the Transfer Date prior to the
Series 1997-1 Termination Date) and on the Series 1997-1 Termination Date,
Available Investor Principal Collections until the earlier of the date the
Collateral Interest is paid in full and the Series 1997-1 Termination Date.
See "--Pay Out Events" below for a discussion of events which might lead to
the commencement of the Rapid Amortization Period.
POSTPONEMENT OF CONTROLLED ACCUMULATION PERIOD
Upon written notice to the Trustee, the Transferor and each Rating Agency,
the Servicer may elect to postpone the commencement of the Controlled
Accumulation Period, and extend the length of the Revolving Period, subject to
certain conditions including those set forth below. The Servicer may make such
election only if the Accumulation Period Length (determined as described
below) is less than twelve months. On each Determination Date on or after the
July 2001 Determination Date, until the Controlled Accumulation Period begins,
the Servicer will determine the "Accumulation Period Length," which is a
number of months such that the amount available for distribution of principal
on the Class A Certificates on the Class A Scheduled Payment Date is expected
to equal or exceed the Class A Investor Interest, assuming (a) the expected
monthly collections of Principal Receivables expected to be distributable to
the Holders of all Series have a principal payment rate no greater than the
lowest monthly principal payment rate on the Receivables for the preceding
twelve months, (b) the amount of principal expected to be distributable to
Holders of all Series remains constant at the level on such date of
determination, (c) no Pay Out Event with respect to any Series will
subsequently occur and (d) no additional Series will be subsequently issued.
If the Accumulation Period Length is less than twelve months, the
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Servicer may, at its option, postpone the commencement of the Controlled
Accumulation Period such that the number of months included in the Controlled
Accumulation Period will be equal to or exceed the Accumulation Period Length.
The effect of the foregoing calculation is to permit the reduction of the
length of the Controlled Accumulation Period based on the investor interest of
certain other Series which are scheduled to be in their revolving periods
during the Controlled Accumulation Period and on increases in the principal
payment rate occurring after the Closing Date. The length of the Controlled
Accumulation Period will not be determined to be less than one month.
SUBORDINATION
The Class B Certificates and the Collateral Interest will be subordinated to
the extent necessary to fund certain payments with respect to the Class A
Certificates. In addition, the Collateral Interest will be subordinated to the
extent necessary to fund certain payments with respect to the Class B
Certificates. Certain principal payments otherwise allocable to the Class B
Holders may be reallocated to cover amounts in respect of the Class A
Certificates and the Class B Investor Interest may be reduced if the
Collateral Interest is equal to zero. Similarly, certain principal payments
allocable to the Collateral Interest may be reallocated to cover amounts in
respect of the Class A Certificates and the Class B Certificates and the
Collateral Interest may be reduced. To the extent the Class B Investor
Interest is reduced, the percentage of collections of Finance Charge
Receivables allocated to the Class B Certificates in subsequent Monthly
Periods will be reduced. Moreover, to the extent the amount of such reduction
in the Class B Investor Interest is not reimbursed, the amount of principal
and interest distributable to the Class B Holders will be reduced. See "--
Allocation Percentages," "--Reallocation of Cash Flows" and "--Application of
Collections--Excess Spread."
ALLOCATION PERCENTAGES
Pursuant to the Agreement, with respect to each Monthly Period the Servicer
will allocate among the Investor Interest, the investor interest for all other
Series issued and outstanding and the Transferor Interest, all amounts
collected on Finance Charge Receivables, all amounts collected on Principal
Receivables and all Net Default Amounts and Net Recoveries with respect to
such Monthly Period.
Collections of Finance Charge Receivables, Net Default Amounts and Net
Recoveries at all times, and collections of Principal Receivables during the
Revolving Period, will be allocated to the Investor Interest based on the
Floating Investor Percentage. Collections of Finance Charge Receivables that
are so allocated will then be reallocated among all Series in Group I as
described in the "Description of the Certificates--Reallocations Among
Certificates of Different Series within a Reallocation Group" in the
Prospectus.
The "Floating Investor Percentage" means, with respect to any Monthly
Period, the percentage equivalent of a fraction, the numerator of which is the
Adjusted Investor Interest as of the close of business on the last day of the
preceding Monthly Period (or with respect to the first Monthly Period, the
initial Investor Interest) and the denominator of which is the greater of (a)
the Aggregate Principal Receivables as of the close of business on the last
day of the preceding Monthly Period (or with respect to the first Monthly
Period, the Aggregate Principal Receivables as of the close of business on the
day immediately preceding the Closing Date) and (b) the sum of the numerators
used to calculate the Investor Percentages for allocations with respect to
Finance Charge Receivables, Net Default Amounts, Net Recoveries or Principal
Receivables, as applicable, for all outstanding Series on such date of
determination; provided, however, that if one or more Reset Dates occur in a
Monthly Period, the Floating Investor Percentage for the portion of the
Monthly Period falling after each such Reset Date (the "subject Reset Date")
and prior to the earlier of the first day of the next Monthly Period and any
subsequent Reset Date shall be determined using a denominator equal to the
greater of the amounts specified in clause (a) and (b) above determined as of
the subject Reset Date.
The amounts so allocated (or reallocated) will be further allocated between
the Class A Holders, Class B Holders and the Collateral Interest Holder based
on the Class A Floating Allocation, the Class B Floating Allocation and the
Collateral Floating Allocation, respectively. The "Class A Floating
Allocation" means, with
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respect to any Monthly Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is equal to the
Class A Adjusted Investor Interest as of the close of business on the last day
of the preceding Monthly Period (or with respect to the first Monthly Period,
as of the Closing Date) and the denominator of which is equal to the Adjusted
Investor Interest as of the close of business on such day. The "Class B
Floating Allocation" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class B Investor Interest as of the close
of business on the last day of the preceding Monthly Period (or with respect
to the first Monthly Period, as of the Closing Date) and the denominator of
which is equal to the Adjusted Investor Interest as of the close of business
on such day. The "Collateral Floating Allocation" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Collateral
Interest as of the close of business on the last day of the preceding Monthly
Period (or with respect to the first Monthly Period, as of the Closing Date)
and the denominator of which is equal to the Adjusted Investor Interest as of
the close of business on such day.
Collections of Principal Receivables during the Controlled Accumulation
Period and Rapid Amortization Period will be allocated to the Investor
Interest based on the Fixed Investor Percentage. The "Fixed Investor
Percentage" means, with respect to any Monthly Period, the percentage
equivalent of a fraction, the numerator of which is the Investor Interest as
of the close of business on the last day of the Revolving Period and the
denominator of which is the greater of (a) the Aggregate Principal Receivables
as of the close of business on the last day of the prior Monthly Period (or
with respect to the first Monthly Period, the Aggregate Principal Receivables
as of the close of business on the day immediately preceding the Closing Date)
and (b) the sum of the numerators used to calculate the Investor Percentages
for allocations with respect to Principal Receivables for all outstanding
Series for such Monthly Period; provided, that (x) if Series 1997-1 is paired
with a Paired Series and a Pay Out Event occurs with respect to such Paired
Series during the Controlled Accumulation Period, the Transferor may, by
written notice delivered to the Trustee and the Servicer, designate a
different numerator (provided that such numerator is not less than the
Adjusted Investor Interest (less the balance on deposit in the Principal
Account) as of the last day of the revolving period for such Paired Series);
and (y) if one or more Reset Dates occur in a Monthly Period, the Fixed
Investor Percentage for the portion of the Monthly Period falling after each
subject Reset Date and prior to the earlier of the first day of the next
Monthly Period and any subsequent Reset Date shall be determined using a
denominator equal to the greater of the amounts specified in clause (a) and
(b) above determined as of the subject Reset Date.
The amounts so allocated will be further allocated between the Class A
Holders, the Class B Holders and the Collateral Interest Holder based on the
Class A Fixed Allocation, the Class B Fixed Allocation and the Collateral
Fixed Allocation, respectively. The "Class A Fixed Allocation" means, with
respect to any Monthly Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is equal to the
Class A Investor Interest as of the close of business on the last day of the
Revolving Period, and the denominator of which is equal to the numerator used
in determining the related Fixed Investor Percentage; provided, that if Series
1997-1 is paired with a Paired Series and a Pay Out Event occurs with respect
to such Paired Series during the Controlled Accumulation Period, the
Transferor may, by written notice delivered to the Trustee and the Servicer,
designate a different numerator (provided that such numerator is not less than
the Class A Adjusted Investor Interest (less the balance on deposit in the
Principal Account) as of the last day of the revolving period for such Paired
Series). The "Class B Fixed Allocation" means, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed 100%)
of a fraction, the numerator of which is equal to the Class B Investor
Interest as of the close of business on the last day of the Revolving Period,
and the denominator of which is equal to the numerator used in determining the
related Fixed Investor Percentage; provided that if Series 1997-1 is paired
with a Paired Series and a Pay Out Event occurs with respect to such Paired
Series during the Controlled Accumulation Period, the Transferor may, by
written notice delivered to Trustee and Servicer, designate a different
numerator (provided that such numerator is not less than the Class B Investor
Interest (less, if the Class A Fixed Allocation is zero, the balance on
deposit in the Principal Account and the Principal Funding Account, in each
case to the extent not subtracted in reducing the Class A Fixed Allocation to
zero) as of the last day of the revolving period for such Paired Series). The
"Collateral Fixed Allocation" means, with respect to any Monthly Period, the
percentage equivalent (which
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percentage shall never exceed 100%) of a fraction, the numerator of which is
equal to the Collateral Interest as of the close of business on the last day
of the Revolving Period, and the denominator of which is equal to the
numerator used in determining the related Fixed Investor Percentage; provided,
that if Series 1997-1 is paired with a Paired Series and a Pay Out Event
occurs with respect to such Paired Series during the Controlled Accumulation
Period, the Transferor may, by written notice delivered to the Trustee and the
Servicer, designated a different numerator (provided that such numerator is
not less than the Collateral Interest (less, if the Class B Fixed Allocation
is zero, the balance on deposit in the Principal Account, in each case to the
extent not subtracted in reducing the Class B Fixed Allocation to zero) as of
the last day of the revolving period for such Paired Series).
"Class A Adjusted Investor Interest," for any date of determination, means
an amount equal to then current Class A Investor Interest, minus the Principal
Funding Account Balance (up to the Class A Invested Amount) on such date.
"Class A Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class A Certificates, minus (b) the
aggregate amount of principal payments made to Class A Holders prior to such
date, minus (c) the excess, if any, of the aggregate amount of Class A
Investor Charge-Offs for all Transfer Dates preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Transfer Dates preceding such date; provided, however, that the Class A
Investor Interest may not be reduced below zero.
"Class B Investor Interest" for any date means an amount equal to (a) the
aggregate initial principal amount of the Class B Certificates, minus (b) the
aggregate amount of principal payments made to Class B Holders prior to such
date, minus (c) the aggregate amount of Class B Investor Charge-Offs for all
prior Transfer Dates, minus (d) the aggregate amount of Reallocated Class B
Principal Collections for all prior Transfer Dates for which the Collateral
Interest has not been reduced, minus (e) an amount equal to the aggregate
amount by which the Class B Investor Interest has been reduced to fund the
Class A Investor Default Amount on all prior Transfer Dates as described under
"--Defaulted Receivables; Investor Charge-Offs," plus (f) the aggregate amount
of Excess Spread allocated to the Certificates and available on all prior
Transfer Dates for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e); provided, however, that the Class B
Investor Interest may not be reduced below zero.
"Collateral Interest" for any date means an amount equal to (a) the Initial
Collateral Interest, minus (b) the aggregate amount of principal payments made
to the Collateral Interest Holder prior to such date, minus (c) the aggregate
amount of Collateral Charge-Offs for all prior Transfer Dates, minus (d) the
aggregate amount of Reallocated Principal Collections for all prior Transfer
Dates, minus (e) an amount equal to the aggregate amount by which the
Collateral Interest has been reduced to fund the Class A Investor Default
Amount and the Class B Investor Default Amount on all prior Transfer Dates as
described under "--Defaulted Receivables; Investor Charge-Offs," plus (f) the
aggregate amount of Excess Spread allocated to the Certificates and available
on all prior Transfer Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c), (d) and (e); provided, however, that
the Collateral Interest may not be reduced below zero.
"Reset Date" means each of (a) any date on which Receivables in Additional
Accounts are conveyed to the Trust, (b) any date on which Accounts are removed
from the Trust and on which, if any Series has been paid in full, Principal
Receivables in an aggregate amount approximately equal to the initial investor
interest of such Series are removed from the Trust and (c) a date on which
there is an increase in the Investor Interest under any Variable Interest
issued by the Trust.
"Variable Interest" means either of (a) any certificate that is designated
as a variable funding certificate in the related Series Supplement and (b) any
Purchased Interest sold as permitted by the Agreement.
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 (a) Class A
Monthly Interest due on the related Distribution Date and
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overdue Class A Monthly Interest and Class A Additional Interest thereon, if
any, (b) the Class A Servicing Fee for the related Monthly Period and overdue
Class A Servicing Fee, if any, and (c) the Class A Investor Default Amount, if
any, for the related Monthly Period exceeds the Class A Available Funds for
the related Monthly Period. If the Class A Required Amount is greater than
zero, Excess Spread allocated to Series 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 is insufficient to fund the Class A Required
Amount, first, Reallocated Collateral Principal Collections and, then,
Reallocated Class B Principal Collections will be used to fund the remaining
Class A Required Amount. If Reallocated Principal Collections with respect to
the related Monthly Period, together with Excess Spread, are insufficient to
fund the remaining Class A Required Amount for such related Monthly Period,
then the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and Reallocated Principal Collections on such Transfer
Date) will be reduced by the amount of such excess (but not by more than the
Class A Investor Default Amount for such Monthly Period). In the event that
such reduction would cause the Collateral Interest to be a negative number,
the Collateral Interest will be reduced to zero, and the Class B Investor
Interest (after giving effect to reductions for any Class B Investor Charge-
Offs and any Reallocated Class B Principal Collections for which the
Collateral Interest was not reduced on such Transfer Date) will be reduced by
the amount by which the Collateral Interest would have been reduced below zero
(but not by more than the excess of the Class A Investor Default Amount, if
any, for such Monthly Period over the amount of such reduction, if any, of the
Collateral Interest with respect to such Monthly Period). In the event that
such reduction would cause the Class B Investor Interest to be a negative
number, the Class B Investor Interest will be reduced to zero and the Class A
Investor Interest will be reduced by the amount by which the Class B Investor
Interest would have been reduced below zero (but not by more than the excess,
if any, of the Class A Investor Default Amount for such Monthly Period over
the amount of the reductions, if any, of the Collateral Interest and the Class
B Investor Interest with respect to such Monthly Period). Any such reduction
in the Class A Investor Interest will have the effect of slowing or reducing
the return of principal and interest to the Class A Holders. In such case, the
Class A Holders will bear directly the credit and other risks associated with
their interests in the Trust. See "--Defaulted Receivables; Investor Charge-
Offs."
With respect to each Transfer Date, the Servicer will determine the amount
(the "Class B Required Amount"), which will be equal to the sum of (a) the
amount, if any, by which the sum of (i) Class B Monthly Interest due on the
related Distribution Date and overdue Class B Monthly Interest and Class B
Additional Interest thereon, if any, and (ii) the Class B Servicing Fee for
the related Monthly Period and overdue Class B Servicing Fee, if any, exceeds
the Class B Available Funds for the related Monthly Period and (b) the Class B
Investor Default Amount, if any, for the related Monthly Period. If the Class
B Required Amount is greater than zero, Excess Spread allocated to Series
1997-1 not required to pay the Class A Required Amount or reimburse Class A
Investor Charge-Offs will be used to fund the Class B Required Amount with
respect to such Transfer Date. If such Excess Spread is insufficient to fund
the Class B Required Amount, Reallocated Collateral Principal Collections not
required to fund the Class A Required Amount for the related Monthly Period
will be used to fund the remaining Class B Required Amount. If such
Reallocated Collateral Principal Collections with respect to the related
Monthly Period are insufficient to fund the remaining Class B Required Amount,
then the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and Reallocated Principal Collections on such Transfer
Date and after any adjustments made thereto for the benefit of the Class A
Holders) will be reduced by the amount of such deficiency (but not by more
than the Class B Investor Default Amount for such Monthly Period). In the
event that such a reduction would cause the Collateral Interest to be a
negative number, the Collateral Interest will be reduced to zero, and the
Class B Investor Interest will be reduced by the amount by which the
Collateral Interest would have been reduced below zero (but not by more than
the excess of the Class B Investor Default Amount for such Monthly Period over
the amount of such reduction of the Collateral Interest), and the Class B
Holders will bear directly the credit and other risks associated with their
interests in the Trust. See "--Defaulted Receivables; Investor Charge-Offs."
Reductions of the Class A Investor Interest or Class B Investor Interest
described above will be reimbursed by, and the Class A Investor Interest or
Class B Investor Interest increased to the extent of, Excess Spread available
for such purposes on each Transfer Date. See "--Application of Collections--
Excess Spread." When
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such reductions of the Class A Investor Interest and Class B Investor Interest
have been fully reimbursed, reductions of the Collateral Interest shall be
reimbursed until reimbursed in full in a similar manner.
"Reallocated Class B Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Class B Investor
Interest for the related Monthly Period in an amount not to exceed the amount
applied to fund the Class A Required Amount, if any; provided, however, that
such amount will not exceed the Class B Investor Interest after giving effect
to any Class B Investor Charge-Offs for the related Transfer Date.
"Reallocated Collateral Principal Collections" for any Monthly Period means
collections of Principal Receivables allocable to the Collateral Interest for
the related Monthly Period in an amount not to exceed the amount applied to
fund the Class A Required Amount and the Class B Required Amount, if any;
provided, however, that such amount will not exceed the Collateral Interest
after giving effect to any Collateral Charge-Offs for the related Transfer
Date.
"Reallocated Principal Collections" for any Monthly Period means the sum of
(a) the Reallocated Class B Principal Collections for such Monthly Period, if
any, and (b) the Reallocated Collateral Principal Collections such Monthly
Period, if any.
APPLICATION OF COLLECTIONS
Allocations. Except as otherwise provided below, the Servicer will deposit
into the Collection Account, no later than the second business day following
the date of processing, any payment collected by the Servicer on the
Receivables. On the same day as any such deposit is made, the Servicer will
make the deposits and payments to the accounts and parties as indicated below;
provided, however, that for as long as First NBC remains the Servicer under
the Agreement and (a) (i) the Servicer provides to the Trustee a letter of
credit or other credit enhancement covering the risk of collection of the
Servicer acceptable to the Rating Agencies and (ii) the Rating Agency
Condition shall have been satisfied with respect to reliance on such letter of
credit or other credit enhancement or (b) the certificate of deposit or
unsecured short-term debt obligations of the Transferor are rated P-1 by
Moody's and at least A-1 by Standard & Poor's and insured by either BIF or
SAIF or (c) the Transferor makes other arrangements satisfactory to each
Rating Agency rating any Series then outstanding, then the Servicer may make
such deposits (including the deposit to the Collection Account) and payments
on the business day immediately prior to the Distribution Date (the "Transfer
Date") in an amount equal to the net amount of such deposits and payments
which would have been made had the conditions of this proviso not applied. The
Pooling and Servicing Agreement provides, that before the Conversion Date, the
Servicer will make such deposits and payments based on the assumption that all
collections received by the Servicer with respect to the Receivables in each
Billing Cycle are collections of Finance Charge Receivables up to the amount
of Finance Charge Receivables billed with respect to Receivables in such
Billing Cycle (with respect to each Billing Cycle, the "Billed Finance Charge
Receivables") and collections in excess of the Billed Finance Charge
Receivables are collections of Principal Receivables. The term "Aggregate
Principal Receivables" means in the case of any date of determination which
occurs before the Conversion Date, the aggregate amount of Principal
Receivables as of the end of the Billing Cycles during the Monthly Period
immediately preceding such date of determination or, in the case of any date
of determination which occurs on or after the Conversion Date, the aggregate
amount of Principal Receivables as of the end of the day on such date of
determination.
Whether the Servicer is required to make monthly or daily deposits into the
Collection Account, (i) the Servicer will only be required to deposit
Collections into the Collection Account or from the Collection Account into
the Finance Charge Account or the Principal Account up to the required amount
to be deposited into any such deposit account or, without duplication,
distributed on or prior to the related Distribution Date to Holders or to the
Collateral Interest Holder and (ii) if at any time prior to such Distribution
Date the amount of Collections deposited in any such deposit account exceeds
the amount required to be deposited pursuant to clause (i) above, the Servicer
will be permitted to withdraw the excess from such an account.
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Payment of Interest, Fees and Other Items. On each Transfer Date, the
Trustee, acting pursuant to Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds in the
Finance Charge Account in the following manner:
(a) On each Transfer Date, an amount equal to the Class A Available Funds
will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class A Monthly
Interest and Class A Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to Class A
Holders on such Distribution Date;
(ii) an amount equal to the Class A Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class A Servicing Fee,
will be paid to the Servicer;
(iii) an amount equal to the Class A Investor Default Amount, if any,
for the related Monthly Period will be treated as a portion of
Available Investor Principal Collections and deposited into the
Principal Account for such Transfer Date; and
(iv) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "--Excess
Spread."
(b) On each Transfer Date, an amount equal to the Class B Available Funds
will be distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for the related
Distribution Date, plus the amount of any overdue Class B Monthly
Interest and Class B Additional Interest thereon, if any, will be
deposited into the Distribution Account for distribution to Class B
Holders on such Distribution Date;
(ii) an amount equal to the Class B Servicing Fee for the related
Monthly Period, plus the amount of any overdue Class B Servicing Fee,
will be paid to the Servicer; and
(iii) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "--Excess
Spread."
(c) On each Transfer Date, an amount equal to the Collateral Available
Funds will be distributed in the following priority:
(i) if First NBC is no longer the Servicer, an amount equal to the
Collateral Interest Servicing Fee for the related Monthly Period, plus
the amount of any overdue Collateral Interest Servicing Fee, will be
paid to the Servicer; and
(ii) the balance, if any, will constitute a portion of Excess Spread
and will be allocated and distributed as described under "--Excess
Spread."
"Class A Monthly Interest" with respect to any Distribution Date will equal
the product of (i) the Class A Rate, (ii) one-twelfth, and (iii) the
outstanding principal balance of the Class A Certificates as of the related
Record Date; provided, however, with respect to the first Distribution Date,
Class A Monthly Interest will be equal to the interest accrued on the initial
outstanding principal balance of the Class A Certificates at the Class A Rate
for the period from the Closing Date through September 14, 1997 (calculated on
the basis of a 360-day year and twelve 30-day months).
"Class B Monthly Interest" with respect to any Distribution Date will equal
the product of (i) the Class B Rate, (ii) one-twelfth, and (iii) the
outstanding principal balance of the Class B Certificates as of the related
Record Date; provided, however, with respect to the first Distribution Date,
Class B Monthly Interest will be equal to the interest accrued on the initial
outstanding principal balance of the Class B Certificates at the Class B Rate
for the period from the Closing Date through September 14, 1997 (calculated on
the basis of a 360-day year and twelve 30-day months).
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the Collateral Floating Allocation of Reallocated Investor
Finance Charge Collections allocated to the Investor Interest with respect to
such Monthly Period (excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange) and Series Investment Earnings.
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"Excess Spread" means, with respect to any Transfer Date, an amount equal to
the sum of the amounts described in clause (a) (iv), clause (b) (iii) and
clause (c) (ii) above. To the extent such amounts are insufficient to make the
distributions required by subparagraphs (a) through (i) below under "--Excess
Spread," Excess Spread shall also be deemed to include any Excess Finance
Charge Collections allocable to other Series available to Series 1997-1 in
accordance with the Agreement.
Excess Spread. On each Transfer Date, the Trustee, acting pursuant to the
Servicer's instructions, will apply Excess Spread with respect to the related
Monthly Period, to make the following distributions in the following priority:
(a) an amount equal to the Class A Required Amount, if any, with respect
to such Transfer Date will be used to fund the Class A Required Amount;
provided, that in the event the Class A Required Amount for such Transfer
Date exceeds the amount of Excess Spread, such Excess Spread shall be
applied first to pay amounts due with respect to such Transfer Date
pursuant to clause (a)(i) above under "--Payment of Interest, Fees and
Other Items," second to pay amounts due with respect to such Transfer Date
pursuant to clause (a) (ii) above under "--Payment of Interest, Fees and
Other Items" and third to pay amounts due with respect to such Transfer
Date pursuant to clause (a) (iii) above under "--Payment of Interest, Fees
and Other Items";
(b) an amount equal to the aggregate amount of Class A Investor Charge-
Offs which have not been previously reimbursed (after giving effect to the
allocation on such Transfer Date of certain other amounts applied for that
purpose) will be deposited into the Principal Account and treated as a
portion of Available Investor Principal Collections for such Transfer Date
as described under "--Payments of Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with respect
to such Transfer Date will be used to fund the Class B Required Amount and
will be applied first to pay amounts due with respect to such Transfer Date
pursuant to clause (b) (i) above under "--Payment of Interest, Fees and
Other Items," second to pay amounts due with respect to such Transfer Date
pursuant to clause (b) (ii) above under "--Payment of Interest, Fees and
Other Items" and third, the amount remaining, up to the Class B Investor
Default Amount, will be deposited into the Principal Account and treated as
a portion of Available Investor Principal Collections for such Transfer
Date as described under "--Payments of Principal" below;
(d) an amount equal to the aggregate amount by which the Class B Investor
Interest has been reduced below the initial Class B Investor Interest for
reasons other than the payment of principal to the Class B Holders (but not
in excess of the aggregate amount of such reductions which have not been
previously reimbursed) will be deposited into the Principal Account and
treated as a portion of Available Investor Principal Collections for such
Transfer Date as described under "--Payments of Principal" below;
(e) an amount equal to the Collateral Monthly Interest for such Transfer
Date, plus the amount of any Collateral Monthly Interest previously due but
not distributed to the Collateral Interest Holder on a prior Transfer Date,
will be distributed to the Collateral Interest Holder for distribution in
accordance with the Loan Agreement;
(f) if First NBC or the Trustee is the Servicer, an amount equal to the
Collateral Interest Servicing Fee for the related Monthly Period, plus the
amount of any overdue Collateral Interest Servicing Fee, will be paid to
the Servicer;
(g) an amount equal to the aggregate Collateral Investor Default Amount,
if any, for such Transfer Date will be deposited into the Principal Account
and treated as a portion of Available Investor Principal Collections for
such Transfer Date as described under "--Payments of Principal" below;
(h) an amount equal to the aggregate amount by which the Collateral
Interest has been reduced below the Required Collateral Interest for
reasons other than the payment of principal to the Collateral Interest
Holder (but not in excess of the aggregate amount of such reductions which
have not been previously reimbursed) will be deposited into the Principal
Account and treated as a portion of Available Investor Principal
Collections for such Transfer Date as described under "--Payments of
Principal" below;
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(i) on each Transfer Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates as
described under "--Reserve Account," an amount up to the excess, if any, of
the Required Reserve Account Amount over the Available Reserve Account
Amount will be deposited into the Reserve Account;
(j) an amount equal to all other amounts due under the Loan Agreement (to
the extent payable out of Excess Spread or Excess Finance Charge
Collections) shall be distributed in accordance with the Loan Agreement;
and
(k) the balance, if any, after giving effect to the payments made
pursuant to subparagraphs (a) through (j) above, will constitute "Excess
Finance Charge Collections" to be applied with respect to other Series in
accordance with the Agreement.
"Collateral Monthly Interest" with respect to any Transfer Date will equal
the product of (a) an amount equal to LIBOR plus 1.0% per annum, or such
lesser amount as may be designated in the Loan Agreement (the "Collateral
Rate"), (b) the actual number of days in the related Interest Period divided
by 360 and (c) the Collateral Interest as of the related Record Date. For
purposes of the foregoing, "LIBOR" means the reserve-adjusted London interbank
offered rate, as determined from time to time in accordance with the Loan
Agreement.
Payments of Principal. On each Transfer Date, the Trustee, acting pursuant
to the Servicer's instructions, will distribute Available Investor Principal
Collections (see "--Principal Payments" above) on deposit in the Principal
Account in the following manner:
(a) on each Transfer Date with respect to the Revolving Period, all such
Available Investor Principal Collections will be distributed or deposited
in the following priority:
(i) an amount equal to the Collateral Monthly Principal will be paid
to the Collateral Interest Holder in accordance with the Loan
Agreement; and
(ii) the balance will be treated as Shared Principal Collections and
applied as described under "Description of the Certificates--Shared
Principal Collections" herein and in the Prospectus;
(b) on each Transfer Date with respect to the Controlled Accumulation
Period or the Rapid Amortization Period, all such Available Investor
Principal Collections will be distributed or deposited in the following
priority:
(i) an amount equal to Class A Monthly Principal will be deposited in
the Principal Funding Account (during the Controlled Accumulation
Period) or distributed to the Class A Holders (during the Rapid
Amortization Period); and
(ii) for each Transfer Date after the Class A Investor Interest has
been paid in full (after taking into account payments to be made on the
related Distribution Date), an amount equal to the Class B Monthly
Principal for such Transfer Date will be distributed to the Class B
Holders (on the related Distribution Date);
(c) on each Transfer Date with respect to the Controlled Accumulation
Period and the Rapid Amortization Period in which a reduction in the
Required Collateral Interest has occurred, Available Investor Principal
Collections not applied to Class A Monthly Principal or Class B Monthly
Principal will be applied to reduce the Collateral Interest to the Required
Collateral Interest; and
(d) on each Transfer Date with respect to the Controlled Accumulation
Period and Rapid Amortization Period, the balance of Available Investor
Principal Collections not applied pursuant to (b) and (c) above, if any,
will be treated as Shared Principal Collections and applied as described
under "Description of the Certificates--Shared Principal Collections"
herein and in the Prospectus.
"Class A Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, prior to
the payment in full of the Class A Investor Interest, will equal
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the least of (i) the Available Investor Principal Collections on deposit in
the Principal Account with respect to such Transfer Date, (ii) for each
Transfer Date with respect to the Controlled Accumulation Period, prior to the
payment in full of the Class A Investor Interest, and on or prior to the Class
A Scheduled Payment Date, the applicable Controlled Deposit Amount for such
Transfer Date and (iii) the Class A Adjusted Investor Interest prior to any
deposits on such Transfer Date.
"Class B Monthly Principal" with respect to any Transfer Date relating to
the Controlled Accumulation Period or the Rapid Amortization Period, after the
Class A Certificates have been paid in full (after taking into account
payments to be made on the related Distribution Date), will equal the lesser
of (i) the Available Investor Principal Collections on deposit in the
Principal Account with respect to such Transfer Date (minus the portion of
such Available Investor Principal Collections applied to Class A Monthly
Principal on such Transfer Date) and (ii) the Class B Investor Interest for
such Transfer Date.
"Collateral Monthly Principal" means (a) with respect to any Transfer Date
relating to the Revolving Period following any reduction of the Required
Collateral Interest pursuant to clause (3) of the proviso in the definition
thereof an amount equal to the lesser of (i) the excess, if any, of the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and Reallocated Principal Collections on such Transfer Date and
after giving effect to any adjustments thereto for the benefit of the Class A
Holders and the Class B Holders on such Transfer Date) over the Required
Collateral Interest on such Transfer Date, and (ii) the Available Investor
Principal Collections on such Transfer Date or (b) with respect to any
Transfer Date relating to the Controlled Accumulation Period or Rapid
Amortization Period an amount equal to the lesser of (i) the excess, if any,
of the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and Reallocated Principal Collections on such Transfer
Date and after giving effect to any adjustments thereto for the benefit of the
Class A Holders and the Class B Holders on such Transfer Date) over the
Required Collateral Interest on such Transfer Date, and (ii) the excess, if
any, of (A) the Available Investor Principal Collections on such Transfer Date
over (B) the sum of the Class A Monthly Principal and the Class B Monthly
Principal for such Transfer Date.
"Controlled Accumulation Amount" means for any Transfer Date with respect to
the Controlled Accumulation Period, prior to the payment in full of the Class
A Investor Interest, $21,625,000; provided, however, that if the commencement
of the Controlled Accumulation Period is modified as described above under "--
Postponement of Controlled Accumulation Period," (i) the Controlled
Accumulation Amount for each Transfer Date with respect to the Controlled
Accumulation Period shall mean the amount determined in accordance with the
Agreement on the date on which the Controlled Accumulation Period has most
recently been modified and (ii) the sum of the Controlled Accumulation Amounts
for all Transfer Dates with respect to the modified Controlled Accumulation
Period shall not be less than the Class A Investor Interest.
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Each Series in Group I, including Series 1997-1, will be an Excess
Allocation Series. To the extent that collections of Finance Charge
Receivables allocated to the Investor Interest (and any other amounts that are
to be treated as collections of Finance Charge Receivables allocated to the
Investor Interest) are not needed to make payment in respect of the Investor
Interest as described above under "--Application of Collections--Payment of
Interest, Fees and Other Items" and "--Excess Spread," such Excess Finance
Charge Collections will be applied to make payments in respect of other Series
in Group I entitled to share therein in accordance with the Agreement. In
addition, Excess Finance Charge Collections with respect to certain other
Series in Group I, to the extent not required to make payments in respect of
such Series, may be applied to cover shortfalls in amounts payable from Excess
Spread as described above under "--Application of Collections--Excess Spread"
(as well as shortfalls experienced by other Series).
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SHARED PRINCIPAL COLLECTIONS
Series 1997-1 is a Principal Sharing Series. Collections of Principal
Receivables for any Monthly Period allocated to the Investor Interest (and not
allocated as Reallocated Principal Collections) will first be used to cover,
with respect to any Monthly Period during the Controlled Accumulation Period,
deposits of the applicable Controlled Deposit Amount to the Principal Funding
Account or the Distribution Account, and during the Rapid Amortization Period,
payments to the Holders and then under certain circumstances payments to the
Collateral Interest Holder. The Servicer will determine the amount of
collections of Principal Receivables for any Monthly Period allocated to the
Investor Interest remaining after covering required payments to the Holders
and any similar amount remaining for any other Series ("Shared Principal
Collections"). The Servicer will allocate the Shared Principal Collections to
cover any scheduled or permitted principal distributions to certificateholders
and deposits to principal funding accounts, if any, for any Principal Sharing
Series entitled thereto which have not been covered out of the Collections of
Principal Receivables allocable to such Principal Sharing Series and certain
other amounts for such Series ("Principal Shortfalls"). Shared Principal
Collections will not be used to cover investor charge-offs for any Series. If
Principal Shortfalls exceed Shared Principal Collections for any Monthly
Period, Shared Principal Collections will be allocated pro rata among the
applicable Principal Sharing Series based on the relative amounts of Principal
Shortfalls. To the extent that Shared Principal Collections exceed Principal
Shortfalls, the balance will be paid to the Transferor or, under certain
circumstances, deposited into the Excess Funding Account.
REQUIRED COLLATERAL INTEREST
The "Required Collateral Interest" with respect to any Transfer Date means
(i) initially $19,500,000 and (ii) thereafter on each Transfer Date an amount
equal to 6.5% of the sum of the Class A Adjusted Investor Interest and the
Class B Investor Interest on such Transfer Date, after taking into account
deposits into the Principal Funding Account on such Transfer Date and payments
to be made on the related Distribution Date, plus the Collateral Interest on
the prior Transfer Date after any adjustments made on such Transfer Date, but
not less than $9,000,000; provided, however, (1) that if certain reductions in
the Collateral Interest are made or if a Pay Out Event occurs, the Required
Collateral Interest for such Transfer Date shall equal the Required Collateral
Interest for the Transfer Date immediately preceding the occurrence of such
reduction or Pay Out Event, (2) in no event shall the Required Collateral
Interest exceed the unpaid principal amount of the Certificates as of the last
day of the Monthly Period preceding such Transfer Date after taking into
account payments to be made on the related Distribution Date and (3) the
Required Collateral Interest may be reduced to a lesser amount at any time if
the Rating Agency Condition is satisfied.
"Rating Agency Condition" means the notification in writing by each Rating
Agency that a proposed action will not result in such Rating Agency reducing
or withdrawing its then existing rating of the investor certificates of any
outstanding Series or class with respect to which it is a Rating Agency.
With respect to any Transfer Date, if the Collateral Interest is less than
the Required Collateral Interest, certain Excess Spread, if available, will be
allocated to increase the Collateral Interest to the extent of such shortfall.
Any of such Excess Spread not required to be so allocated or deposited into
the Reserve Account with respect to any Transfer Date will be applied in
accordance with the Loan Agreement or will be applied as Excess Finance Charge
Collections. See "--Application of Collections--Excess Spread."
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On or before each Transfer Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (a) the Floating
Investor Percentage with respect to such Monthly Period (which shall be
calculated on a weighted average basis if a Reset Date occurred during that
Monthly Period) and (b) the Net Default Amount for such Monthly Period. A
portion of the Investor Default Amount will be allocated to the Class A
Holders (the "Class A Investor Default Amount") on each Transfer Date in an
amount equal to the product of the Class A Floating
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Allocation applicable during the related Monthly Period and the Investor
Default Amount for such Monthly Period. A portion of the Investor Default
Amount will be allocated to the Class B Holders (the "Class B Investor Default
Amount") on each Transfer Date in an amount equal to the product of the Class
B Floating Allocation applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Collateral Interest Holder (the
"Collateral Investor Default Amount") on each Transfer Date in an amount equal
to the product of the Collateral Floating Allocation applicable during the
related Monthly Period and the Investor Default Amount for such Monthly
Period.
On each Transfer Date, if the Class A Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Principal
Collections available to fund such amount with respect to the Monthly Period
immediately preceding such Transfer Date, the Collateral Interest (after
giving effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Transfer Date) will be reduced by the amount of
such excess, but not more than the lesser of the Class A Investor Default
Amount and the Collateral Interest (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Transfer Date) for such Transfer Date. In the event that such reduction would
cause the Collateral Interest to be a negative number, the Collateral Interest
will be reduced to zero, and the Class B Investor Interest (after giving
effect to reductions for any Class B Investor Charge-Offs and any Reallocated
Class B Principal Collections on such Transfer Date) will be reduced by the
amount by which the Collateral Interest would have been reduced below zero. In
the event that such reduction would cause the Class B Investor Interest to be
a negative number, the Class B Investor Interest will be reduced to zero, and
the Class A Investor Interest will be reduced by the amount by which the Class
B Investor Interest would have been reduced below zero, but not more than the
Class A Investor Default Amount for such Transfer Date (a "Class A Investor
Charge-Off"), which will have the effect of slowing or reducing the return of
principal and interest to the Class A Holders. If the Class A Investor
Interest has been reduced by the amount of any Class A Investor Charge-Offs,
it will be reimbursed on any Transfer Date (but not by an amount in excess of
the aggregate Class A Investor Charge-Offs) by the amount of Excess Spread
allocated and available for such purpose as described under "--Application of
Collections--Excess Spread."
On each Transfer Date, if the Class B Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread and Reallocated Collateral
Principal Collections which are allocated and available to fund such amount
with respect to the Monthly Period preceding such Transfer Date, the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and any Reallocated Principal Collections on such Transfer Date
and after giving effect to any adjustments with respect thereto as described
in the preceding paragraph) will be reduced by the amount of such excess but
not more than the lesser of the Class B Investor Default Amount and the
Collateral Interest (after giving effect to reductions for any Collateral
Charge-Offs and any Reallocated Principal Collections on such Transfer Date
and after giving effect to any adjustments with respect thereto as described
in the preceding paragraph) for such Transfer Date. In the event that such
reduction would cause the Collateral Interest to be a negative number, the
Collateral Interest will be reduced to zero and the Class B Investor Interest
will be reduced by the amount by which the Collateral Interest would have been
reduced below zero, but not more than the Class B Investor Default Amount for
such Transfer Date (a "Class B Investor Charge-Off"). The Class B Investor
Interest will also be reduced by the amount of Reallocated Class B Principal
Collections in excess of the Collateral Interest (after giving effect to
reductions for any Collateral Charge-Offs and any Reallocated Collateral
Principal Collections on such Transfer Date) and the amount of any portion of
the Class B Investor Interest allocated to the Class A Certificates to avoid a
reduction in the Class A Investor Interest. The Class B Investor Interest will
thereafter be reimbursed (but not in excess of the unpaid principal balance of
the Class B Certificates) on any Transfer Date by the amount of Excess Spread
allocated and available for that purpose as described under "--Application of
Collections--Excess Spread."
On each Transfer Date, if the Collateral Investor Default Amount for such
Transfer Date exceeds the amount of Excess Spread which is allocated and
available to fund such amount as described under "--Application of
Collections--Excess Spread," the Collateral Interest will be reduced by the
amount of such excess but not more
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than the lesser of the Collateral Investor Default Amount and the Collateral
Interest for such Transfer Date (a "Collateral Charge-Off"). The Collateral
Interest will also be reduced by the amount of Reallocated Principal
Collections and the amount of any portion of the Collateral Interest allocated
to the Class A Certificates to avoid a reduction in the Class A Investor
Interest or to the Class B Certificates to avoid a reduction in the Class B
Investor Interest. The Collateral Interest will thereafter be reimbursed on
any Transfer Date by the amount of Excess Spread allocated and available for
that purpose as described under "--Application of Collections--Excess Spread."
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Series 1997-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Holders (the "Principal Funding Account"). During the
Controlled Accumulation Period, the Trustee at the direction of the Servicer
will transfer collections in respect of Principal Receivables (other than
Reallocated Principal Collections) and Shared Principal Collections from other
Principal Sharing Series, if any, allocated to Series 1997-1 from the
Principal Account to the Principal Funding Account as described under "--
Application of Collections."
Funds on deposit in the Principal Funding Account will be invested to the
following Transfer Date by the Trustee at the direction of the Servicer in
Permitted Investments. Investment earnings (net of investment losses and
expenses) on funds on deposit in the Principal Funding Account (the "Principal
Funding Investment Proceeds") will be used to pay interest on the Class A
Certificates in an amount up to, for each Transfer Date, the product of (a) a
fraction, the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360, (b) the Class A Rate and
(c) the Principal Funding Account Balance as of the Record Date preceding such
Transfer Date (the "Class A Covered Amount"). If, for any Transfer Date, the
Principal Funding Investment Proceeds are less than the Class A Covered
Amount, the amount of such deficiency (the "Class A Principal Funding
Investment Shortfall") shall be withdrawn, to the extent available, from the
Reserve Account and deposited in the Finance Charge Account and included in
collections of Finance Charge Receivables to be applied to the payment of
Class A Monthly Interest.
RESERVE ACCOUNT
Pursuant to the Series 1997-1 Supplement, the Trustee will establish and
maintain with a Qualified Institution a segregated trust account held for the
benefit of the Holders (the "Reserve Account"). The Reserve Account is
established to assist with the subsequent distribution of interest on the
Certificates during the Controlled Accumulation Period. On each Transfer Date
from and after the Reserve Account Funding Date, but prior to the termination
of the Reserve Account, the Trustee, acting pursuant to the Servicer's
instructions, will apply Excess Spread allocated to the Certificates (to the
extent described above under "--Application of Collections--Excess Spread") to
increase the amount on deposit in the Reserve Account (to the extent such
amount is less than the Required Reserve Account Amount). The "Reserve Account
Funding Date" will be the Transfer Date with respect to the Monthly Period
which commences no later than three months prior to the commencement of the
Controlled Accumulation Period, or such earlier date as the Agreement may
require. The "Required Reserve Account Amount" for any Transfer Date on or
after the Reserve Account Funding Date will be equal to (a) 0.50% of the
outstanding principal balance of the Class A Certificates or (b) any other
amount designated by the Transferor; provided, that if such designation is of
a lesser amount, the Transferor shall have provided the Servicer, the
Collateral Interest Holder and the Trustee with evidence that the Rating
Agency Condition has been satisfied and the Transferor shall have delivered to
the Trustee a certificate of an authorized officer to the effect that, based
on the facts known to such officer at such time, in the reasonable belief of
the Transferor, such designation will not cause a Pay Out Event or an event
that, after the giving of notice or the lapse of time, would cause a Pay Out
Event to occur with respect to Series 1997-1. On each Transfer Date, after
giving effect to any deposit to be made to, and any withdrawal to be made
from, the Reserve Account on such Transfer Date, the Trustee will withdraw
from the Reserve Account an amount equal to the excess, if any, of the
S-41
<PAGE>
amount on deposit in the Reserve Account over the Required Reserve Account
Amount and distribute such excess to the Collateral Interest Holder for
application in accordance with the terms of the Loan Agreement.
Provided that the Reserve Account has not terminated as described below, all
amounts on deposit in the Reserve Account on any Transfer Date (after giving
effect to any deposits to, or withdrawals from, the Reserve Account to be made
on such Transfer Date) will be invested to the following Transfer Date by the
Trustee at the direction of the Servicer in Permitted Investments. The
interest and other investment income (net of investment expenses and losses)
earned on such investments will be retained in the Reserve Account (to the
extent the amount on deposit is less than the Required Reserve Account Amount)
or deposited in the Finance Charge Account and treated as Class A Available
Funds.
On or before each Transfer Date with respect to the Controlled Accumulation
Period and on the first Transfer Date with respect to the Rapid Amortization
Period, a withdrawal will be made from the Reserve Account, and the amount of
such withdrawal will be deposited in the Finance Charge Account and included
in collections of Finance Charge Receivables to be applied to the payment of
the Class A Monthly Interest for such Transfer Date in an amount equal to the
lesser of (a) the Available Reserve Account Amount with respect to such
Transfer Date and (b) the Class A Principal Funding Investment Shortfall with
respect to such Transfer Date; provided, that the amount of such withdrawal
shall be reduced to the extent that funds otherwise would be available to be
deposited in the Reserve Account on such Transfer Date. On each Transfer Date,
the amount available to be withdrawn from the Reserve Account (the "Available
Reserve Account Amount") will be equal to the lesser of the amount on deposit
in the Reserve Account (before giving effect to any deposit to be made to the
Reserve Account on such Transfer Date) and the Required Reserve Account Amount
for such Transfer Date.
The Reserve Account will be terminated upon the earlier to occur of (a) the
termination of the Trust pursuant to the Agreement and (b) if the Controlled
Accumulation Period has not commenced, the first Transfer Date with respect to
the Rapid Amortization Period or, if the Controlled Accumulation Period has
commenced, the earlier to occur of (i) the first Transfer Date with respect to
the Rapid Amortization Period and (ii) the Transfer Date immediately preceding
the Class A Scheduled Payment Date. Upon the termination of the Reserve
Account, all amounts on deposit therein (after giving effect to any withdrawal
from the Reserve Account on such date as described above) will be distributed
to the Collateral Interest Holder for application in accordance with the terms
of the Loan Agreement. Any amounts withdrawn from the Reserve Account and
distributed to the Collateral Interest Holder as described above will not be
available for distribution to the Holders.
EXCESS FUNDING ACCOUNT
Pursuant to the Agreement, the Trustee will establish and maintain with a
Qualified Institution a segregated trust account held for the benefit of the
Holders (the "Excess Funding Account"). If on any date a Retention Condition
exists, the Servicer will not distribute to the Transferor any collections of
Principal Receivables that otherwise would be distributed to the Transferor,
but shall instead deposit such funds in the Excess Funding Account until the
Retention Condition ceases. Funds on deposit in the Excess Funding Account
will be withdrawn and paid to the Transferor on any date provided that a
Retention Condition is not in effect, or would result from such payment, on
such date. In addition, if a Controlled Accumulation Period or Rapid
Amortization Period commences with respect to the Certificates, then an amount
of funds on deposit in the Excess Funding Account (after giving effect to the
release of funds to the Transferor as described above) up to the amount, if
any, by which the Transferor Interest would be less than zero if there were no
funds on deposit in the Excess Funding Account on such date, will be treated
as Shared Principal Collections to the extent needed to cover principal
payments due to or for the benefit of such Series. "Retention Condition" means
(a) on any day on and after the Conversion Date, either (i) the Transferor
Interest is less than the Minimum Transferor Interest or (ii) the sum of the
Aggregate Principal Receivables and the principal amount on deposit in the
Excess Funding Account is less than the Minimum Aggregate Principal
Receivables (in each case determined after giving effect to any transfer of
Principal Receivables to the Trust on such day); or (b) on any day prior to
the Conversion Date, either (i)(A) the sum of the aggregate amount of
Receivables and the principal amount on deposit in the Excess Funding Account
at the end of the day immediately prior to such date of determination, minus
the
S-42
<PAGE>
Adjusted Aggregate Investor Interest at the end of such preceding day is less
than (B) 3% of the aggregate amount of Receivables at the end of the day
immediately prior to such date of determination, or (ii)(A) the sum of (1) the
product of 0.97 times the aggregate amount of Receivables plus (2) the
principal amount on deposit in the Excess Funding Account, in each case at the
end of the day immediately prior to such date of determination is less than
(B) the Minimum Aggregate Principal Receivables (in the case of both clauses
(i) and (ii) determined after giving effect to any transfer of Receivables to
the Trust on such day).
PAIRED SERIES
Series 1997-1 may be paired with one or more other Series (each a "Paired
Series"). Each Paired Series either will be prefunded with an initial deposit
to a Pre-Funding Account in an amount up to the initial principal balance of
such Paired Series and primarily from the proceeds of the sale of such Paired
Series or will be a Variable Interest. Any such Pre-Funding Account will be
held for the benefit of such Paired Series and not for the benefit of the
Holders. As principal is deposited into the Principal Funding Account with
respect to the Certificates, either (i) in the case of a prefunded Paired
Series, an equal amount of funds on deposit in the Pre-Funding Account for
such prefunded Paired Series will be released (which funds will be distributed
to the Transferor) or (ii) in the case of a Paired Series which is a Variable
Interest, an interest in such variable Paired Series in an equal or lesser
amount may be sold by the Trust (and the proceeds thereof will be distributed
to the Transferor) and, in either case, the investor interest of such Paired
Series will increase by up to a corresponding amount. Upon payment in full of
the Certificates, assuming that there have been no unreimbursed charge-offs
with respect to any related Paired Series, the aggregate investor interest of
such related Paired Series will have been increased by an amount up to an
aggregate amount equal to the payments of principal of the Certificates since
the issuance of such Paired Series. The issuance of a Paired Series will be
subject to the conditions described under "Description of the Certificates--
Exchanges" in the Prospectus. There can be no assurance, however, that the
terms of any Paired Series might not have an impact on the timing or amount of
payments received by a Holder. In particular, the denominator of the Fixed
Allocation Percentage may be reduced upon the occurrence of a Pay Out Event
with respect to a Paired Series resulting in a possible reduction of the
percentage of collections of Principal Receivables allocated to the Holders
and a possible slowdown in the repayment of principal to such Holders because
of such reduction in allocation of collections. See "Maturity Assumptions"
herein.
PAY OUT EVENTS
As described above, the Revolving Period will continue through July 31, 2001
(unless such date is postponed as described under "--Postponement of
Controlled Accumulation Period"), unless a Pay Out Event occurs prior to such
date. A "Pay Out Event" refers to any of the following events:
(a) failure on the part of the Transferor (i) to make any payment or
deposit on the date required under the Agreement (or within the applicable
grace period which shall not exceed five days) or (ii) to observe or
perform in any material respect any other covenants or agreements of the
Transferor set forth in the Agreement, which failure has a material adverse
effect on the Holders (which determination shall be made without regard to
the existence of the Collateral Interest) and which continues for a period
of 60 days after written notice and continues to materially and adversely
affect the interests of the Holders (which determination shall be made
without regard to the existence of the Collateral Interest) for such
period;
(b) any representation or warranty made by the Transferor in the
Agreement, or any information required to be given by the Transferor to the
Trustee to identify the Accounts proves to have been incorrect in any
material respect when made and which continues to be incorrect in any
material respect for a period of 60 days after written notice and as a
result of which the interests of the Holders are materially and adversely
affected (which determination shall be made without regard to the existence
of the Collateral Interest) and continue to be materially and adversely
affected for such period; provided, however, that a Pay Out Event pursuant
to this subparagraph (b) shall not be deemed to occur thereunder if the
Transferor has accepted reassignment of the related Receivable or all such
Receivables, if applicable, during such
S-43
<PAGE>
period (or such longer period as the Trustee may specify) in accordance
with the provisions of the Agreement;
(c) any reduction of the average of the Portfolio Yields for any three
consecutive Monthly Periods to a rate which is less than the average of the
Base Rates for such period;
(d) a failure by the Transferor to convey Receivables arising under
Additional Accounts, or Participations, to the Trust when required by the
Agreement;
(e) any Servicer Default occurs which would have a material adverse
effect on the Holders;
(f) insufficient moneys in the Distribution Account to pay the Class A
Investor Interest on the Class A Scheduled Payment Date or the Class B
Investor Interest on the Class B Scheduled Payment Date;
(g) certain events of insolvency, conservatorship or receivership
relating to the Transferor;
(h) the Transferor becomes unable for any reason to transfer Receivables
to the Trust in accordance with the provisions of the Agreement; or
(i) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In the case of any event described in clause (a), (b) or (e) above, a Pay
Out Event will be deemed to have occurred with respect to the Certificates
only if, after any applicable grace period, either the Trustee or Holders and
the Collateral Interest Holder evidencing undivided interests aggregating more
than 50% of the Investor Interest, by written notice to the Transferor and the
Servicer (and to the Trustee if given by the Holders) declare that a Pay Out
Event has occurred with respect to the Certificates as of the date of such
notice. In the case of any event described in clause (g), (h) or (i), a Pay
Out Event with respect to all Series then outstanding, and in the case of any
event described in clause (c), (d) or (f), a Pay Out Event with respect to
only the Certificates, will be deemed to have occurred without any notice or
other action on the part of the Trustee or the Holders, the Collateral
Interest Holder or all certificateholders, as appropriate, immediately upon
the occurrence of such event. On the date on which a Pay Out Event is deemed
to have occurred, the Rapid Amortization Period will commence. In such event,
distributions of principal to the Holders will begin on the first Distribution
Date following the month in which such Pay Out Event occurred.
See "Description of the Certificates--Pay Out Events" in the Prospectus for
an additional discussion of the consequences of an insolvency, conservatorship
or receivership of the Transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to the Investor Interest with
respect to any Transfer Date (the "Monthly Investor Servicing Fee") shall be
equal to one-twelfth of the product of (a) 2.00% and (b) the Adjusted Investor
Interest as of the last day of the Monthly Period preceding such Transfer
Date; provided, however, with respect to the first Transfer Date, the Monthly
Investor Servicing Fee shall be equal to $383,333.33. On each Transfer Date,
but only if First NBC or the Trustee is the Servicer, Servicer Interchange
with respect to the related Monthly Period that is on deposit in the Finance
Charge Account will be withdrawn from the Finance Charge Account and paid to
the Servicer in payment of a portion of the Monthly Investor Servicing Fee
with respect to such Monthly Period. The "Servicer Interchange" for any
Monthly Period for which First NBC is the Servicer will be an amount equal to
the portion of collections of Finance Charge Receivables allocated to the
Investor Interest with respect to such Monthly Period that is attributable to
Interchange, provided, however, that Servicer Interchange for a Monthly Period
shall not exceed one-twelfth of the product of (i) the Adjusted Investor
Interest, as of the last day of such Monthly Period and (ii) 0.75%. In the
case of any insufficiency of Servicer Interchange on deposit in the Finance
Charge Account, a portion of the Monthly Investor Servicing Fee with respect
to such Monthly Period will not be paid to the extent of such
S-44
<PAGE>
insufficiency and in no event shall the Trust, the Trustee, the Holders 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
Holders with respect to any Transfer Date (the "Class A Servicing Fee") shall
be equal to one-twelfth of the product of (a) the Class A Floating Allocation,
(b) the Net Servicing Fee Rate and (c) the Adjusted Investor Interest as of the
last day of the Monthly Period preceding such Transfer Date; provided however,
that with respect to the first Transfer Date, the Class A Servicing Fee shall
be equal to $207,239.58. The share of the Monthly Investor Servicing Fee
allocable to the Class B Holders with respect to any Transfer Date (the "Class
B Servicing Fee") shall be equal to one-twelfth of the product of (a) the Class
B Floating Allocation, (b) the Net Servicing Fee Rate and (c) the Adjusted
Investor Interest as of the last day of the Monthly Period preceding such
Transfer Date, provided however, that with respect to the first Transfer Date,
the Class B Servicing Fee shall be equal to $16,770.83. The share of the
Monthly Investor Servicing Fee allocable to the Collateral Interest Holder with
respect to any Transfer Date (the "Collateral Interest Servicing Fee") shall be
equal to one-twelfth of the product of (a) the Collateral Floating Allocation,
(b) the Net Servicing Fee Rate and (c) the Adjusted Investor Interest as of the
last day of the Monthly Period preceding such Transfer Date; provided, however,
that with respect to the first Transfer Date, the Collateral Interest Servicing
Fee shall be equal to $15,572.92. The "Net Servicing Fee Rate" shall mean (a)
so long as First NBC or Trustee is the Servicer, 1.25% per annum, and (b) so
long as a Person other than First NBC or the Trustee is the Servicer, 2.00% per
annum. The remainder of the Servicing Fee shall be paid by the Transferor or
other Series (as provided in the related Series Supplements) or, to the extent
of any insufficiency of Servicer Interchange as described above, not be paid.
In no event shall the Trust, the Trustee, the Holders or the Collateral
Interest Holder be liable for the share of the Servicing Fee to be paid out of
Servicer Interchange. The Class A Servicing Fee and the Class B Servicing Fee
shall be payable to the Servicer solely to the extent amounts are available for
distribution in respect thereof as described under "--Application of
Collections."
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee and
independent certified public accountants and other fees which are not expressly
stated in the Agreement to be payable by the Trust or the Holders other than
federal, state and local income and franchise taxes, if any, of the Trust.
REPORTS TO HOLDERS
On each Transfer Date, the Trustee will forward to each Holder of record, a
statement prepared by the Servicer setting forth the items described in
"Description of the Certificates--Reports to Holders" in the Prospectus. In
addition, such statement will include (a) the amount, if any, withdrawn from
the Principal Funding Account for such Transfer Date, and (b) the Collateral
Interest, if any, for such Transfer Date.
UNDERWRITING
Subject to the terms and conditions set forth in the Class A Underwriting
Agreement (the "Class A Underwriting Agreement") between the Transferor and the
Class A Underwriters named below (the "Class A Underwriters"), and the terms
and conditions set forth in the Class B Underwriting Agreement (the "Class B
Underwriting Agreement," and together with the Class A Underwriting Agreement,
the "Underwriting Agreement") between the Transferor and the Class B
Underwriter named below (the "Class B Underwriter," and together with the Class
A Underwriters, the "Underwriters"), the Transferor has agreed to sell to the
Underwriters, and each of the Underwriters has severally agreed to purchase,
the principal amount of the Certificates set forth opposite its name:
S-45
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS A UNDERWRITERS CLASS A CERTIFICATES
-------------------- --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated... $ 64,875,000
J.P. Morgan Securities Inc. ......................... 64,875,000
Lehman Brothers Inc. ................................ 64,875,000
Morgan Stanley & Co. Incorporated.................... 64,875,000
------------
Total............................................ $259,500,000
============
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS B UNDERWRITER CLASS B CERTIFICATES
------------------- --------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated... $ 21,000,000
</TABLE>
In the Class A Underwriting Agreement, the Class A Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Class A Certificates offered hereby if any of the Class A Certificates are
purchased. In the Class B Underwriting Agreement, the Class B Underwriter has
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class B Certificates offered hereby if any of the Class B Certificates
are purchased.
The Class A Underwriters propose initially to offer the Class A Certificates
to the public at the price set forth on the cover page hereof and to certain
dealers at such price less concessions not in excess of 0.25% of the principal
amount of the Class A Certificates. The Class A Underwriters may allow, and
such dealers may reallow, concessions not in excess of 1.25% of the principal
amount of the Class A Certificates to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Class A Underwriters.
The Class B Underwriter proposes initially to offer the Class B Certificates
to the public at the price set forth on the cover page hereof and to certain
dealers at such price less concessions not in excess of 0.25% of the principal
amount of the Class B Certificates. The Class B Underwriter may allow, and
such dealers may reallow, concessions not in excess of 1.50% of the principal
amount of the Class B Certificates to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Class B Underwriter.
Until the distribution of the Certificates is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Certificates. As an exception to these
rules, Merrill Lynch & Co., on behalf of the Underwriters, are permitted to
engage in over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids with respect to the Certificates in
accordance with Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing
transactions permit bids to purchase the Certificates so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Certificates in the open market after
the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit reclamation of a selling concession from a
syndicate member when the Certificates originally sold by such syndicate
member are purchased in a syndicate covering transaction.
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the
Certificates to be higher than they would otherwise be in the absence of such
transactions. Neither the Trust, the Transferor, nor any of the Underwriters
make any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the
Certificates. In addition, neither the Trust, the Transferor nor any of the
Underwriters represent that the Underwriters will engage in any such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
S-46
<PAGE>
Each Underwriter will represent and agree that:
(a) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation
to the Series 1997-1 Certificates in, from or otherwise involving the
United Kingdom;
(b) it has only issued, distributed or passed on and will only issue,
distribute or pass on in the United Kingdom any document received by it in
connection with the issue of the Series 1997-1 Certificates to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued, distributed or passed on;
(c) if it is an authorized person under Chapter III of Part I of the
Financial Services Act 1986, it has only promoted and will only promote (as
that term is defined in Regulation 1.02(2) of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991) to any person in the
United Kingdom the scheme described in this Prospectus Supplement and the
Prospectus if that person is 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; and
(d) it is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996.
The Transferor will indemnify the Underwriters against liabilities relating
to the adequacy of disclosure to investors, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof.
S-47
<PAGE>
INDEX OF DEFINED TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Accounts........ S-2
Accumulation Period
Length........ S-29
Additional Interest.
S-28
Adjusted Investor
Interest....... S-5
Aggregate Principal
Receivables... S-34
Agreement....... S-4
Available Investor
Principal
Collections... S-29
Available Reserve
Account Amount.. S-
42
Bank............ S-1
Base Rate...... S-24
Billed Finance
Charge Receivables.
S-34
Certificates... S-1,
S-3
Class A Additional
Interest...... S-28
Class A Adjusted
Investor Interest..
S-5, S-32
Class A Available
Funds......... S-28
Class A
Certificates.. S-1,
S-3
Class A Covered
Amount... S-8, S-41
Class A Fixed
Allocation.... S-31
Class A Floating
Allocation.... S-30
Class A Holders. S-4
Class A Investor
Charge-Off... S-11,
S-40
Class A Investor
Default Amount.. S-
39
Class A Investor
Interest. S-3, S-32
Class A Monthly
Interest...... S-35
Class A Monthly
Principal..... S-37
Class A Principal
Funding Investment
Shortfall.. S-8, S-
41
Class A Rate... S-2,
S-3, S-28
Class A Required
Amount.. S-10, S-32
Class A Scheduled
Payment Date.. S-2,
S-3
Class A Servicing
Fee........... S-45
Class A
Underwriters.. S-45
Class A Underwriting
Agreement..... S-45
Class B Additional
Interest...... S-28
Class B Available
Funds......... S-28
Class B
Certificates.. S-1,
S-3
Class B Fixed
Allocation.... S-31
Class B Floating
Allocation.... S-30
Class B Holders. S-4
Class B Investor
Charge-Off... S-12,
S-40
Class B Investor
Default Amount.. S-
40
Class B Investor
Interest. S-3, S-32
Class B Monthly
Interest...... S-35
Class B Monthly
Principal..... S-38
Class B Rate... S-2,
S-3, S-28
Class B Required
Amount.. S-10, S-33
Class B Scheduled
Payment Date.. S-2,
S-3
Class B Servicing
Fee........... S-45
Class B
Underwriters.. S-45
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Class B Underwriting
Agreement....... S-45
Closing Date. S-2, S-3
Code............. S-15
Collateral Available
Funds........... S-35
Collateral Charge-Off.
S-41
Collateral Fixed
Allocation...... S-31
Collateral Floating
Allocation...... S-31
Collateral Interest...
S-3, S-32
Collateral Interest
Holder........... S-4
Collateral Interest
Servicing Fee... S-45
Collateral Investor
Default Amount.. S-40
Collateral Monthly
Interest........ S-37
Collateral Monthly
Principal....... S-38
Collateral Rate.. S-37
Controlled
Accumulation Amount..
S-38
Controlled
Accumulation Period..
S-7
Controlled Deposit
Amount..... S-7, S-23
Credit Enhancement. S-
3
Distribution Date. S-2
Distribution Dates. S-
3
ERISA............ S-15
Excess Finance Charge
Collections..... S-37
Excess Funding
Account......... S-42
Excess Spread... S-11,
S-35
First NBC......... S-1
Fitch............ S-34
Fixed Investor
Percentage...... S-31
Floating Investor
Percentage...... S-30
Group I.......... S-13
Holders........... S-4
Initial Collateral
Interest........ S-12
Interest Period.. S-28
Investor Default
Amount.......... S-39
Investor Interest. S-3
LIBOR........ S-3 S-30
LIBOR Determination
Date............ S-30
Loan Agreement... S-13
Monthly Investor
Servicing Fee... S-44
Monthly Period.... S-5
Net Servicing Fee
Rate............ S-45
Paired Series... S-13,
S-43
Pay Out Event.... S-43
Portfolio Yield.. S-24
Principal Funding
Account... S-7, S-23,
S-41
Principal Funding
Account Balance. S-23
Principal Funding
Investment Proceeds..
S-8, S-41
Principal Shortfalls..
S-39
Rapid Amortization
Period........... S-9
Rating Agency
Condition....... S-39
</TABLE>
S-48
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reallocated
Class B
Principal
Collections..
S-33
Reallocated
Collateral
Principal
Collections..
S-34
Reallocated
Principal
Collections..
S-34
Receivables...
S-2
Record Date...
S-27
Required
Amount.. S-10
Required
Collateral
Interest.. S-
12, S-39
Required
Reserve
Account
Amount.. S-41
Reserve
Account. S-41
Reserve
Account
Funding Date.
S-41
Reset Date. S-
32
Retention
Condition. S-
42
Revolving
Period... S-7
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Series
Investment
Earnings.. S-28
Series 1997-1
Supplement. S-4
Series 1997-1
Termination
Date....... S-5
Servicer
Interchange. S-
44
Servicing Fee
Rate........S-6
Shared Principal
Collections. S-
14, S-39
Subject Reset
Date...... S-30
Transfer Date...
S-34
Transferor
Interest... S-4
Trust....... S-3
Underwriters. S-
45
Underwriting
Agreement. S-45
Variable
Interest.. S-32
</TABLE>
S-49
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS
- -------------------------------------------------------------------------------
FIRST NBC CREDIT CARD MASTER TRUST
ASSET BACKED CERTIFICATES
FIRST NATIONAL BANK OF COMMERCE
TRANSFEROR AND SERVICER
-------------
The Asset Backed Certificates (collectively, the "Certificates") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on terms to be determined at the time of sale and to
be set forth in a supplement to this Prospectus (a "Prospectus Supplement").
The Certificates in each Series will represent an undivided interest in the
First NBC Credit Card Master Trust (the "Trust"). The Trust will be formed
pursuant to a pooling and servicing agreement between First National Bank of
Commerce ("First NBC" or the "Bank"), as transferor and servicer, and The
First National Bank of Chicago, as trustee. Certain capitalized terms used in
this Prospectus are defined elsewhere in this Prospectus and in the
accompanying Prospectus Supplement. Please refer to the "Index of Defined
Terms for Prospectus" on page 75 for a listing of the pages on which such
terms are defined.
The property of the Trust will include receivables (the "Receivables")
generated from time to time in a portfolio of revolving credit accounts, all
monies due or to become due in payment of the Receivables, any collateral
securing the Receivables, all proceeds of the foregoing and proceeds of credit
life insurance policies relating to the Receivables and all monies on deposit
in certain bank accounts of the Trust, as more fully described herein.
Additionally, with respect to any Series or Class offered hereby, the Trust
assets also may include (i) the right to receive Interchange and Other Account
Revenues and/or (ii) credit enhancement and interest rate protection
arrangements for such Series or Class, as described in the related Prospectus
Supplement. The Bank will initially own the remaining undivided interest in
the Trust not represented by the Certificates issued by the Trust and will
initially service the related Receivables.
Each Series will consist of one or more classes of Certificates (each, a
"Class"), one or more of which may be fixed rate Certificates, floating rate
Certificates or other types of Certificates, as specified in the related
Prospectus Supplement. Each Certificate will represent an undivided interest
in the Trust, and the interest of the holders of each Class or Series of
Certificates will include the right to receive a varying percentage of each
month's collections with respect to the Receivables at the times, in the
manner and to the extent described herein and, with respect to any Series
offered hereby, in the related Prospectus Supplement. Interest and principal
payments with respect to each Series offered hereby will be made as specified
in the related Prospectus Supplement. One or more Classes of a Series offered
hereby may be entitled to the benefits of a cash collateral account or
guaranty, a collateral interest, a letter of credit, a surety bond, an
insurance policy or other form of enhancement as specified in the Prospectus
Supplement relating to that Series. In addition, any Series offered hereby may
include one or more Classes which are subordinated in right and priority to
payment of principal of, and/or interest on, one or more other Classes of that
Series or another Series, in each case to the extent described in the related
Prospectus Supplement. Each Series of Certificates or Class offered hereby
will be rated in one of the four highest rating categories by at least one
nationally recognized rating organization.
While the specific terms of any Series in respect of which this Prospectus
is being delivered will be described in the related Prospectus Supplement, the
terms of such Series will not be subject to prior review by, or consent of,
the Certificateholders of any previously issued Series.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" COMMENCING ON PAGE 23 OF THIS PROSPECTUS.
-------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF FIRST NBC 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 (EXCEPT
FOR RECEIVABLES ARISING IN PRIVATE LABEL ACCOUNTS, WHICH REPRESENTED
1.23% OF THE RECEIVABLES AS OF APRIL 30, 1997) ANY OTHER
GOVERNMENTAL AGENCY.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------
Certificates may be sold by the Bank or the Trust directly to purchasers,
through agents designated from time to time, through underwriting syndicates
led by one or more managing underwriters or through one or more underwriters
acting alone. If underwriters or agents are involved in the offering of the
Certificates of any Series offered hereby, the name of the managing
underwriter or underwriters or agents will be set forth in the related
Prospectus Supplement. If an underwriter, agent or dealer is involved in the
offering of the Certificates of any Series offered hereby, the underwriter's
discount, agent's commission or dealer's purchase price will be set forth in,
or may be calculated from, the related Prospectus Supplement, and the net
proceeds to the Bank from such offering will be the public offering price of
such Certificates less such discount in the case of an underwriter, the
purchase price of such Certificates less such commission in the case of an
agent or the purchase price of such Certificates in the case of a dealer, and
less, in each case, the other expenses of the Bank associated with the
issuance and distribution of such Certificates. See "Plan of Distribution."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF ANY SERIES OF
CERTIFICATES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
-------------
THE DATE OF THIS PROSPECTUS IS JULY 23, 1997.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby will, among other things, set forth with respect to that Series: (a)
the initial aggregate principal amount of each Class of that Series; (b) the
certificate interest rate (or method for determining it) of each Class of that
Series; (c) certain information concerning the Receivables allocated to that
Series; (d) the expected date or dates on which the principal amount of the
Certificates will be paid to holders of each Class of Certificates (the
"Certificateholders"); (e) the extent to which any Class within a Series is
subordinated to any other Class of that Series or any other Series; (f) the
identity of each Class of floating rate Certificates and fixed rate
Certificates included in that Series, if any, or such other type of Class of
Certificates; (g) the Distribution Dates for the respective Classes; (h)
relevant financial information with respect to the Receivables; (i) additional
information with respect to any Enhancement relating to that Series; and (j)
the plan of distribution of that Series.
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 the registered holder(s) of
the related Certificates. Cede & Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC") is generally expected to be the only registered holder
of the Certificates. The availability of copies of such reports to DTC
participants and ultimately to the owners of beneficial interests in the
Certificates ("Certificate Owners") will be governed by arrangements among DTC
and such parties, subject to any statutory or regulatory requirements as may
be in effect from time to time. 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 Certificate Owners. The Servicer will file with the Commission such
periodic reports with respect to the Trust as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder.
AVAILABLE INFORMATION
This Prospectus, which forms a part of the Registration Statement, omits
certain information contained in such Registration Statement pursuant to the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement (including any amendments thereof and
exhibits thereto) and any reports and other documents incorporated herein by
reference as described below under "Incorporation of Certain Documents by
Reference," which are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
7 World Trade Center, Suite 1300, New York, New York 10048. 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. Such
information may also be accessed electronically by means of the Commission's
home page on the World Wide Web located at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of the
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by reference
into this Prospectus and to be part hereof. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that
2
<PAGE>
a statement contained herein or in any subsequently filed document which also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Servicer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to: Thomas L. Callicutt, Jr., Executive Vice
President, Controller and Principal Accounting Officer, First Commerce
Corporation, 201 Saint Charles Avenue, 19th Floor, New Orleans, Louisiana
70170, telephone number (504) 623-2913.
3
<PAGE>
PROSPECTUS SUMMARY
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus and in the accompanying Prospectus
Supplement. A listing of the pages on which all such terms are defined is found
in the "Index of Defined Terms for Prospectus" on page 75. Unless the context
requires otherwise, capitalized terms used in this Prospectus and in the
accompanying Prospectus Supplement refer only to the particular Series being
offered by that Prospectus Supplement.
Risk Factors............ Potential investors should note that there are
material risks associated with an investment in the
Certificates and should consider, among other
things, the information set forth in "Risk Factors"
on page 23.
Type of Securities...... Asset Backed Certificates (the "Certificates")
evidencing an undivided interest in the assets of
the First NBC Credit Card Master Trust (the "Trust")
may be issued from time to time in one or more
series (each, a "Series") which will consist of one
or more classes of Certificates (each, a "Class").
The Trust............... The Trust will be formed pursuant to a pooling and
servicing agreement (the "Agreement") between First
National Bank of Commerce ("First NBC" or the
"Bank"), as transferor and servicer, and The First
National Bank of Chicago, as trustee (the
"Trustee"). Each Series issued by the Trust will be
issued pursuant to a series supplement to the
Agreement (a "Series Supplement"; references in this
Prospectus to the Agreement, as it relates to any
Series, shall include the Series Supplement entered
into in connection with such Series). Any Series (or
class thereof) may or may not be offered pursuant to
this Prospectus. Each Prospectus Supplement will
identify all outstanding Series previously issued by
the Trust. Certificate Owners with respect to any
Series are not required to be notified of the
issuance of any subsequent Series. However, it is a
condition precedent to the issuance of any
additional Series that each Rating Agency that has
rated any outstanding Series deliver written
confirmation to the Trustee that such issuance will
not result in the reduction or withdrawal of its
rating on any such outstanding Series.
Trust Assets............ The assets of the Trust will include receivables (the
"Receivables") arising under certain revolving
credit accounts (the "Accounts"), initially
comprised of a portion of the MasterCard(R),
VISA(R)* and private label credit card accounts
included in the portfolio of MasterCard, VISA and
private label accounts owned by the Bank (the "Bank
Portfolio"), and all monies due or to become due in
payment of the Receivables, including certain fees
charged on the Accounts and included as Finance
Charge Receivables, all proceeds of the Receivables
and proceeds of credit life insurance policies
relating to the Receivables, and any collateral
securing the Receivables and proceeds of such
collateral and may include the right to receive
Interchange and Other Account Revenues, if any,
allocable to the Certificates and all
- --------
*MasterCard(R) and VISA(R) are Federally registered servicemarks of
MasterCard International Inc. and Visa U.S.A., Inc., respectively.
4
<PAGE>
monies on deposit in certain bank accounts of the
Trust (including any permitted investments made with
such monies and related investment earnings), and
any Enhancement with respect to any particular
Series or Class, as described in the related
Prospectus Supplement. The private label accounts
included in the Bank Portfolio (the "Private Label
Accounts") relate to credit cards issued to military
personnel who are eligible to participate in one of
the Bank's military affinity programs but do not
meet the credit standards for issuance of standard
credit cards. Payments due under Private Label
Accounts are charged back to a non-appropriated
funds instrumentality associated with the United
States Air Force Services at 65-90 days past due.
The non-appropriated funds instrumentality does not
represent a full faith and credit obligation of the
United States. "Interchange" consists of certain
fees received by the Bank from VISA and MasterCard
as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a
limited period prior to initial billing. "Other
Account Revenues" consist of amounts received by the
Transferor (a) from any third party in consideration
of the inclusion of advertising inserts with monthly
statements relating to accounts in the Bank
Portfolio, (b) from issuers of credit insurance
policies on account of experience rebates or similar
amounts related to obligors on accounts included in
the Bank Portfolio and (c) from any other Person on
account of revenues related to the Accounts, to the
extent (in the case of this clause (c)) that
Transferor in the future designates such amounts to
be treated as "Other Account Revenues." The term
"Enhancement" means, with respect to any Series or
Class, any Credit Enhancement or any derivative
product such as a guaranteed rate agreement,
maturity liquidity facility, interest rate cap
agreement, interest rate swap agreement or other
similar arrangement for the benefit of the
Certificateholders of that Series or Class. The term
"Credit Enhancement" means, with respect to any
Series or Class, any cash collateral guaranty or
account, collateral interest, letter of credit,
surety bond, insurance policy, spread account,
reserve account or other similar arrangement for the
benefit of the Certificateholders of that Series or
Class. Credit Enhancement may also take the form of
subordination of one or more Classes of a Series to
any other Class or Classes of a Series or a cross-
support feature which requires collections on
Receivables of one Series to be paid as principal
and/or interest with respect to another Series.
At the time of formation of the Trust, the Bank, as
transferor (in such capacity, the "Transferor"),
will convey to the Trustee, in trust for the benefit
of the Certificateholders, all Receivables existing
under certain Accounts selected from the Bank
Portfolio based on criteria provided in the
Agreement and all Receivables arising under such
Accounts from time to time thereafter until
termination of the Trust. In addition, the Agreement
will provide that the Bank may, from time to time
(subject to certain limitations and conditions), and
in some circumstances will be obligated to,
designate additional eligible revolving credit
accounts to be included as Accounts (the "Additional
Accounts"), the Receivables of which will be
included in the Trust and that in lieu of
5
<PAGE>
Additional Accounts or in addition thereto, the Bank
may include in the Trust participations or trust
certificates representing undivided interests in a
pool of assets primarily consisting of receivables
arising under revolving credit accounts and
collections thereon ("Participations").
Any Participation included in the Trust will
represent an undivided interest in the same types of
assets that may be added as Receivables arising in
"Additional Accounts," but in the case of a
Participation the Trust would have a less direct
interest in the specific assets. See "Description of
the Certificates--Addition of Trust Assets" for a
discussion of possible features of the indirect
ownership arrangement involved in a Participation.
Any Participation added to the Trust will either
have been registered under the Securities Act or be
eligible for sale under Rule 144(k) and, in either
case, will (except as otherwise permitted by the
Securities Act and applicable rules thereunder) have
been acquired by the Transferor in a bona fide
secondary market transaction and not from the issuer
of the Participation or any of its affiliates.
In addition to the periodic reports otherwise
required to be filed by the Servicer with the
Commission pursuant to the Exchange Act, the
Servicer intends to file, on behalf of the Trust, a
Report on Form 8-K with respect to any addition to
the Trust of Receivables in Additional Accounts or
Participations that would have a material effect on
the composition of the assets of the Trust,
including statistical data, on a discrete basis,
describing the additional assets. Any conveyance by
the Transferor to the Trust of Receivables in
Additional Accounts or Participations is subject to
the satisfaction of several conditions. See "The
Receivables," "Risk Factors--Possible Prepayment or
Losses as a Result of Addition of Trust Assets--
Effect on Credit Quality" and "Description of the
Certificates--Addition of Trust Assets."
To the extent provided in any Series Supplement, or
in an amendment to the Agreement, all or a portion
of the Receivables or Participations conveyed to the
Trust and all collections received with respect
thereto may be allocated to one or more Series as
long as each Rating Agency confirms that such
allocation will not result in the reduction or
withdrawal of its rating on any outstanding Class of
Certificates, and the Servicer has delivered an
officer's certificate to the Trustee to the effect
that the Servicer reasonably believes such
allocation will not adversely affect in any material
respect the interests of the Certificateholders of
any Series issued and outstanding.
Certificate Interest Each Series of Certificates will represent an
and Principal........... undivided interest in the assets of the Trust. Each
Certificate of a Series will represent the right to
receive payments of (i) interest at the specified
rate or rates per annum (each, a "Certificate
Rate"), which may be a fixed, floating or other type
of rate and (ii) principal at the times and in the
circumstances (if any) described in the related
Prospectus Supplement. Payments of principal may be
made during a Controlled Amortization Period,
Principal Amortization Period, or, under certain
limited circumstances, Rapid Amortization Period
(each, an "Amortization Period") or, under
6
<PAGE>
certain limited circumstances, in connection with a
Partial Amortization; or principal may be payable on
Scheduled Payment Dates, in which case such Series
will have a Controlled Accumulation Period and,
under certain limited circumstances if so specified
in the related Prospectus Supplement, a Rapid
Accumulation Period (each, an "Accumulation
Period"), as well as, under certain limited
circumstances, a Rapid Amortization Period, all as
specified in the related Prospectus Supplement.
Each Series of Certificates will consist of one or
more Classes, one or more of which may be senior
("Senior Certificates") or subordinated
("Subordinated Certificates") to one or more other
Classes. Each Class of a Series may evidence the
right to receive a specified portion of each
distribution of principal, interest or both. The
Certificates of a Class may also differ from
Certificates of other Classes of the same Series in,
among other things, the amounts allocated to
principal payments, priority of payments, payment
dates, maturity, interest rates, interest rate
computation and availability and form of
Enhancement.
The assets of the Trust will be allocated among the
Certificateholders of each Series and the
Transferor. A portion of the assets of the Trust
also will be allocated to a related Credit
Enhancement Provider which provides Credit
Enhancement in the form of a Collateral Interest and
may be allocated to a provider of Credit Enhancement
in another form to the extent draws are made on the
Credit Enhancement to pay the principal of the
Certificates of the related Series. See "Credit
Enhancement--General" and "--Collateral Interest."
The aggregate principal amount of the interest of
the Certificateholders of a Series is called the
"Investor Interest" and is based on the portion of
the Aggregate Principal Receivables allocated to
that Series. If specified in any Prospectus
Supplement, the term "Investor Interest" with
respect to the related Series will include the
Collateral Interest with respect to that Series. The
aggregate principal amount of the interest of the
Transferor is called the "Transferor Interest," and
is based on the sum of the portion of the Aggregate
Principal Receivables in the Trust not allocated to
the Certificateholders or any provider of Credit
Enhancement (each a "Credit Enhancement Provider"),
with respect to the Trust and the principal amount,
if any, on deposit in the Excess Funding Account.
See "Description of the Certificates--General."
The Certificateholders of each Series will have the
right to receive (but only to the extent needed to
make required payments under the Agreement and the
related Series Supplement and subject, in the case
of any Series in a Reallocation Group, to
reallocation as described in "Description of the
Certificates--Reallocations Among Different Series
within a Reallocation Group") varying percentages of
the collections of Finance Charge Receivables and
Principal Receivables for each month and will be
allocated a varying percentage of the Net Default
Amount or any Net Recoveries for that month (each
such percentage, an "Investor Percentage"). The "Net
Default Amount" for any month means the excess (if
any) of the amount of Receivables in Accounts that
7
<PAGE>
were written off as uncollectible by the Servicer
("Defaulted Accounts") for that month over the
amounts received by the Servicer with respect to
Receivables in all Defaulted Accounts (net of
related expenses and allocated in accordance with
the Servicer's customary procedures) (collectively,
"Recoveries"). If the amount of Recoveries received
by the Servicer for a month exceeds the amount of
Receivables in Accounts that become Defaulted
Accounts in that month, the excess Recoveries are
referred to as "Net Recoveries."
The related Prospectus Supplement will specify the
Investor Percentages with respect to the allocation
of collections of Principal Receivables, Finance
Charge Receivables and Receivables in Defaulted
Accounts during the Revolving Period, any
Amortization Period and any Accumulation Period, as
applicable. If the Certificates of a Series offered
hereby include more than one Class of Certificates,
the assets of the Trust allocable to the
Certificates of that Series may be further allocated
among each Class in that Series as described in the
related Prospectus Supplement. See "Description of
the Certificates--Allocations."
The Certificates of each Series will represent
interests in the Trust only and will not represent
interests in or recourse obligations of the
Transferor or any affiliate thereof. A Certificate
is not a deposit and neither the Certificates nor
the underlying Accounts or Receivables are insured
or guaranteed by the Federal Deposit Insurance
Corporation (the "FDIC") or (except for Receivables
arising in Private Label Accounts) any other
governmental agency.
Receivables............. The Receivables held in the Trust will arise in
Accounts selected from the Bank Portfolio based on
criteria provided in the Agreement and described in
the related Prospectus Supplement as applied
initially on April 30, 1997 (the "Cut-Off Date"),
and, with respect to certain Additional Accounts, if
any, on subsequent dates.
The Receivables will consist of amounts charged by
accountholders for goods and services, cash advances
and balances transferred from other credit accounts
(the "Principal Receivables"), plus the related
periodic finance charges and amounts charged to the
Accounts in respect of certain annual account fees,
cash advance fees, late fees, overlimit fees, closed
account maintenance charges and similar fees and
charges (including fees which are not now but from
time to time may be assessed on the Accounts) (the
"Finance Charge Receivables"). Net Recoveries also
will be treated as collections of Finance Charge
Receivables unless the related Prospectus Supplement
provides that Net Recoveries shall not be treated as
Finance Charge Receivables for purposes of the
related Series. In addition, at the option of the
Transferor, an amount equal to the product of the
Discount Percentage and the amount of Receivables
arising in the related Accounts on and after the
date such option is exercised (and, if the
Transferor so elects, Receivables arising in the
related Accounts before the date such option is
exercised) that otherwise would be Principal
Receivables will be treated as Finance Charge
Receivables. See "Description of the
8
<PAGE>
Certificates--Discount Option." Finally, if so
specified in the related Prospectus Supplement,
certain amounts of Interchange and Other Account
Revenues may be allocated to the Certificates of a
Series or any of its Classes and treated as
collections of Finance Charge Receivables for
purposes of that Series or Class or may be applied
in some other manner as described in the related
Prospectus Supplement. See "First NBC's Credit Card
Activities--Interchange and Other Account Revenues."
During the term of the Trust, the Transferor will
automatically transfer all new Receivables arising
in the Accounts to the Trust. 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.
Pursuant to the Agreement, the Transferor will have
the right (subject to certain limitations and
conditions), and, to the extent necessary to
maintain the Transferor Interest at or above a
specified level (the "Minimum Transferor Interest")
and in certain other circumstances, will be
obligated, to designate additional eligible
revolving credit accounts to be included as
Additional Accounts and to convey to the Trust all
of the Receivables in the Additional Accounts,
whether such Receivables are then existing or
thereafter created or designate Participations to be
included in the Trust in lieu thereof or in addition
thereto. See "Risk Factors--Possible Prepayment or
Losses as a Result of Addition of Trust Assets--
Effect on Credit Quality" and "Description of the
Certificates--Addition of Trust Assets."
Pursuant to the Agreement, the Transferor will have
the right (subject to certain limitations and
conditions) to designate certain Accounts as
"Removed Accounts" and stop transferring new
Receivables arising in the Removed Accounts to the
Trust. Pre-existing Receivables in Removed Accounts
may either be conveyed to the Transferor or its
designee or retained by the Trust. If such pre-
existing Receivables are retained in the Trust, the
Servicer and the Transferor will agree to allocate
principal collections on the Removed Accounts on a
first-in, first-out basis, so that such collections
will be allocated to outstanding advances in the
order in which such advances arose (beginning with
the oldest outstanding advance). Principal
collections allocable to Receivables retained by the
Trust will be applied as Collections in accordance
with the Agreement. Upon payment of all amounts
owing in respect of such Receivables, the Trust will
transfer the related Account to the Transferor. See
"Description of the Certificates--Removal of
Accounts."
New Issuances........... The Agreement will authorize the Trustee to issue two
types of certificates: (i) one or more Series of
Certificates that will be transferable and have the
characteristics described below; and (ii) one or
more supplemental certificates ("Supplemental
Certificates"), evidencing partial interests in the
Transferor Interest. The Supplemental Certificates
are not offered hereby and will be transferable only
as provided in the Agreement. Any Series of
Certificates may be offered
9
<PAGE>
to the public or other investors under a prospectus
or other disclosure document (a "Disclosure
Document") in offerings pursuant to this Prospectus
or in transactions either registered under the
Securities Act of 1933, as amended (the "Securities
Act") or exempt from registration thereunder,
directly or through one or more other underwriters
or placement agents, in fixed-price offerings or in
negotiated transactions or otherwise. To the extent
provided in the related Supplement (and subject to
any applicable requirements under the Exchange Act
and the rules and regulations thereunder, including
Rule 13e-4), a new Series may be issued fully or
partially in exchange for certificates of one or
more existing Series.
A new issuance of a Series of Certificates (a "New
Issuance") may occur only upon delivery to the
Trustee of the following: (i) a Series Supplement
specifying the terms of the new Series, (ii) (a) an
opinion of counsel to the effect that the
certificates of that Series will be characterized as
indebtedness for Federal income tax purposes, unless
the related Series Supplement indicates that such
opinion will not be provided and (b) an opinion of
counsel to the effect that, for Federal income tax
purposes, (1) such issuance will not adversely
affect the tax characterization as debt of
Certificates of any outstanding Series or Class that
were characterized as debt at the time of their
issuance, (2) such issuance will not cause the Trust
to 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 (an opinion of counsel to this
effect with respect to any action being a "Tax
Opinion"), (iii) if required by the related Series
Supplement, the form of Credit Enhancement, (iv) if
Credit Enhancement is required by the Series
Supplement, an appropriate Credit Enhancement
agreement with respect thereto, (v) written
confirmation from each Rating Agency that the New
Issuance will not result in that Rating Agency
reducing or withdrawing its rating on any then
outstanding Series rated by it, (vi) an officer's
certificate of the Transferor to the effect that
after giving effect to the New Issuance the
Transferor would not be required to add the
Receivables of any Additional Accounts pursuant to
the Agreement and the Transferor Interest would be
at least equal to the Minimum Transferor Interest
and (vii) if applicable, the Certificates
representing the Series to be exchanged. See
"Description of the Certificates--New Issuances."
The Certificates resulting from a New Issuance may
either be delivered by the Trustee to the Bank for
sale by the Bank or sold directly by the Trust.
The Transferor also may from time to time cause the
Trustee to sell interests (each, a "Purchased
Interest") in the Receivables and other assets of
the Trust to one or more purchasers. Any Purchased
Interest will represent an interest in the Trust's
assets similar to the interest of a Series of
Certificates. No Series will be subordinated to any
Purchased Interest, and no Purchased Interest will
have any interest in the Series Accounts or
Enhancement for any Series, unless the Prospectus
Supplement relating to that Series so provides. Any
such sale will take
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place pursuant to one or more agreements which will
specify terms for the applicable Purchased Interests
and may grant the purchasers of such interests
notice and consultation rights with respect to
rights or actions of the Trustee. Any sale of
Purchased Interests in the assets of the Trust will
be subject to the satisfaction of the same
conditions (including Rating Agency confirmations)
as for a New Issuance, as appropriately adjusted to
apply to the relevant Purchased Interest rather than
a New Issuance. No Purchased Interest is offered
hereby.
Denominations........... Beneficial interests in the Certificates will be
offered for purchase in the denominations specified
in the related Prospectus Supplement.
Registration of The Certificates of each Series offered hereby may or
Certificates............ may not be represented by Certificates registered in
the name of Cede, as the nominee of DTC, as
specified in the related Prospectus Supplement. If
the Certificates of a Series are so registered, then
no Certificate Owner will be entitled to receive a
definitive certificate representing its interest,
except in the event that Certificates in fully
registered, certificated form ("Definitive
Certificates") are issued under the limited
circumstances described herein. See "Description of
the Certificates--Definitive Certificates."
Clearance and Certificate Owners of each Series offered hereby may
Settlement.............. or may not be permitted to make an election to hold
their Certificates through any of DTC (in the United
States) or Cedel or Euroclear (in Europe), as
specified in the related Prospectus Supplement. If
such election is available, then transfers within
DTC, Cedel or Euroclear, as the case may be, will be
made in accordance with the usual rules and
operating procedures of the relevant system. Cross-
market transfers between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or indirectly
through Cedel or Euroclear, on the other, will be
effected in DTC through the relevant Depositaries of
Cedel or Euroclear. See "Description of the
Certificates--Book-Entry Registration."
Transferor and First National Bank of Commerce ("First NBC" or the
Servicer................ "Bank"). The principal executive offices of the Bank
are located at New Orleans, Louisiana, telephone
number (504) 623-1371. The Servicer will receive a
fee as servicing compensation from the Trust in
respect of each Series in the amounts and at the
times specified in the related Prospectus Supplement
(the "Servicing Fee"). The Servicing Fee may be
payable from Finance Charge Receivables, Interchange
or other amounts as specified in the related
Prospectus Supplement. In certain limited
circumstances, the Bank may resign or be removed as
servicer, in which event the Trustee or a third
party servicer may be appointed as successor
servicer (the Bank, in this capacity, or any
successor servicer, is called the "Servicer"). The
Bank is a wholly owned subsidiary of First Commerce
Corporation (the "Corporation"). See "First NBC and
First Commerce Corporation." In addition, if the
Bank elects to sell or otherwise dispose of the
Accounts, then the new owner of the Accounts may be
substituted for the Bank as Transferor and Servicer
upon the satisfaction of certain conditions,
including the delivery of a Tax
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<PAGE>
Opinion and receipt of written confirmation from
each Rating Agency that such substitution will not
result in such Rating Agency's reducing or
withdrawing its rating on any then outstanding
Series rated by it.
Collections............. The Servicer will deposit all collections of
Receivables in an account required to be established
for such purpose by the Agreement (the "Collection
Account"). All amounts deposited in the Collection
Account will be allocated by the Servicer between
amounts collected on Principal Receivables and
amounts collected on Finance Charge Receivables. If
so specified in the related Prospectus Supplement,
Principal Receivables and/or Finance Charge
Receivables may be otherwise characterized. See
"Description of the Certificates--Discount Option."
All such amounts will then be further allocated in
accordance with the respective interests of the
Certificateholders of each Series or Class of
Certificates and the Transferor and, in certain
circumstances, certain providers of Enhancement. See
"Description of the Certificates--Allocations."
Interest Payments....... Interest on each Series of Certificates or Class for
each applicable period (each, an "Interest Period")
specified in the related Prospectus Supplement will
be distributed in the amounts and on the dates
(which may be monthly, quarterly, semiannually or
otherwise as specified in the related Prospectus
Supplement) (each, a "Distribution Date") specified
in the related Prospectus Supplement. Interest
payments on each Distribution Date will be funded
from collections of Finance Charge Receivables
allocated to the Investor Interest during the
preceding calender month or months (each, a "Monthly
Period"), as described in the related Prospectus
Supplement, and may be funded from certain
investment earnings on funds in certain accounts of
the Trust and from any applicable Enhancement, if
necessary, or certain other amounts as specified in
the related Prospectus Supplement. If the
Distribution Dates for payment of interest for a
Series or Class occur less frequently than monthly,
such collections or other amounts allocable to such
Series or Class may be deposited in one or more
trust accounts pending distribution to the
Certificateholders of such Series or Class, all as
described in the related Prospectus Supplement. See
"Description of the Certificates--Application of
Collections," "--Shared Excess Finance Charge
Collections," "Credit Enhancement" and "Risk
Factors--Possible Losses as a Result of Limited
Credit Enhancement."
Revolving Period........ Generally, no principal will be payable to
Certificateholders of any Series or Class until the
Principal Commencement Date or the Scheduled Payment
Date with respect to that Series or Class, as
described below. However, if specified in the
related Prospectus Supplement for a Series or Class,
principal may be payable to Certificateholders of
such Series or Class prior to either such date, in
connection with a Partial Amortization or otherwise.
For the period beginning on the date of issuance of
a Series (a "Closing Date") and ending with the
commencement of an Amortization Period or an
Accumulation Period (the "Revolving Period"),
collections of Principal Receivables otherwise
allocable to that Series' Investor Interest will,
subject to
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<PAGE>
certain limitations, be paid to the Transferor or
deposited in the Excess Funding Account for the
Trust or, under certain circumstances and if so
specified in the related Prospectus Supplement,
treated as Shared Principal Collections and paid to
the holders of certificates of other Principal
Sharing Series, as described herein and in the
related Prospectus Supplement. See "Description of
the Certificates--Pay Out Events" for a discussion
of the events which might lead to early termination
of the Revolving Period.
Principal Payments...... The principal of the Certificates of each Series
offered hereby will be scheduled to be paid either
in installments commencing on a date specified in
the related Prospectus Supplement (the "Principal
Commencement Date"), in which case such Series will
have either a Controlled Amortization Period or a
Principal Amortization Period, as described below,
or on an expected date specified in, or determined
in the manner specified in, the related Prospectus
Supplement (the "Scheduled Payment Date"), in which
case such Series will have an Accumulation Period,
as described below. If a Series has more than one
Class of Certificates, a different method of paying
principal, Principal Commencement Date or Scheduled
Payment Date may be assigned to each Class. The
payment of principal with respect to the
Certificates of a Series or Class may commence
earlier than the applicable Principal Commencement
Date or Scheduled Payment Date, and the final
principal payment with respect to the Certificates
of a Series or Class may be made earlier or later
than the applicable expected payment date, Scheduled
Payment Date or other expected date, if a Pay Out
Event occurs and the Rapid Amortization Period
commences with respect to such Series or Class or
under certain other circumstances described herein
or in the related Prospectus Supplement. See
"Description of the Certificates--Principal
Payments."
Controlled Amortization A Series or any Class thereof may have a "Controlled
Period.................. Amortization Period," as specified in the related
Prospectus Supplement, in order to permit payment of
the principal balance of the applicable Certificates
in fixed installments over a specified amortization
period. Unless a Rapid Amortization Period with
respect to a Series that has a Controlled
Amortization Period commences, collections of
Principal Receivables allocable to that Series'
Investor Interest during each Monthly Period falling
in its Controlled Amortization Period (and certain
other amounts if so specified in the related
Prospectus Supplement) will be used on the related
Distribution Date to make principal distributions in
scheduled amounts to the Certificateholders of such
Series or any Class of such Series then scheduled to
receive such distributions. The amount to be
distributed on any Distribution Date during the
Controlled Amortization Period will be limited to an
amount (the "Controlled Distribution Amount") equal
to an amount specified in the related Prospectus
Supplement (the "Controlled Amortization Amount"),
plus any Controlled Amortization Amount not paid on
prior Distribution Dates. If a Series has more than
one Class of Certificates, each Class may have a
separate Controlled Amortization Amount. In
addition, the related Prospectus Supplement may
describe priorities among such Classes
13
<PAGE>
with respect to such distributions. The Controlled
Amortization Period will commence at the close of
business on a date specified in the related
Prospectus Supplement and continue until the
earliest of (a) the commencement of the Rapid
Amortization Period, (b) payment in full of the
Investor Interest of the Certificates of such Series
or Class and, if so specified in the related
Prospectus Supplement, of any related Collateral
Interest or Enhancement Invested Amount and (c) the
related Series Termination Date.
Principal Amortization A Series or any Class thereof may have a "Principal
Period.................. Amortization Period" as specified in the related
Prospectus Supplement, in order to permit payment of
the principal balance of the applicable Certificates
in installments over a specified amortization
period. Such installment payments are not limited by
any Controlled Amortization Amount during a
Principal Amortization Period. Unless a Rapid
Amortization Period with respect to a Series that
has a Principal Amortization Period commences,
collections of Principal Receivables allocable to
that Series' Investor Interest during each Monthly
Period falling in its Principal Amortization Period
(and certain other amounts if so specified in the
related Prospectus Supplement) will be used on the
related Distribution Date to make principal
distributions to the Certificateholders of that
Series or any Class of that Series then scheduled to
receive such distributions. If a Series has more
than one Class of Certificates, the related
Prospectus Supplement may describe certain
priorities among those Classes with respect to such
distributions. The Principal Amortization Period
will commence at the close of business on a date
specified in the related Prospectus Supplement and
continue until the earlier of (a) the commencement
of the Rapid Amortization Period, (b) payment in
full of the Investor Interest of the Certificates of
such Series or Class and, if so specified in the
related Prospectus Supplement, of any related
Collateral Interest or Enhancement Invested Amount
and (c) the related Series Termination Date.
Controlled Accumulation A Series or any Class thereof may have a "Controlled
Period.................. Accumulation Period," as specified in the related
Prospectus Supplement, in order to allow for the
accumulation of principal collections in a trust
account established for the benefit of the
Certificateholders of that Series or Class (a
"Principal Funding Account") in anticipation of a
balloon payment on the Scheduled Payment Date.
During the Controlled Accumulation Period, principal
collections in excess of a fixed amount will not be
so set aside in the Principal Funding Account, which
permits the Transferor to continue to have access to
collections which are not then required to be set
aside for payment of the Certificates. Unless a
Rapid Amortization Period or, if so specified in the
related Prospectus Supplement, a Rapid Accumulation
Period with respect to a Series that has a
Controlled Accumulation Period commences, Controlled
Accumulation Period collections of Principal
Receivables allocable to that Series' Investor
Interest during each Monthly Period falling in its
Controlled Accumulation Period (and certain other
amounts if so specified in the related Prospectus
Supplement) will be deposited on the
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<PAGE>
business day immediately prior to the related
Distribution Date or other business day specified in
the related Prospectus Supplement (each a "Transfer
Date") in the Principal Funding Account for that
Series or Class Principal Funding Account and used
to make distributions of principal to the
Certificateholders of that Series or Class on the
Scheduled Payment Date. The amount to be deposited
in the Principal Funding Account on any Transfer
Date will be limited to an amount (the "Controlled
Deposit Amount") equal to an amount specified in the
related Prospectus Supplement (the "Controlled
Accumulation Amount"), plus any Controlled
Accumulation Amount not deposited on prior Transfer
Dates. If a Series has more than one Class of
Certificates, each Class may have a separate
Principal Funding Account and Controlled
Accumulation Amount. In addition, the related
Prospectus Supplement may describe certain
priorities among such Classes with respect to
deposits of principal into such Principal Funding
Accounts. The Controlled Accumulation Period will
commence at the close of business on a date
specified in or determined in the manner specified
in the related Prospectus Supplement and continue
until the earliest of (a) the commencement of the
Rapid Amortization Period or, if so specified in the
related Prospectus Supplement, the Rapid
Accumulation Period, (b) payment in full of the
Investor Interest of the Certificates of that Series
or Class and, if so specified in the related
Prospectus Supplement, any related Collateral
Interest or Enhancement Invested Amount and (c) the
related Series Termination Date.
Funds on deposit in any Principal Funding Account may
be invested in permitted investments or subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on
the investment of such funds. Investment earnings on
such funds may be applied to pay interest on the
related Series of Certificates. In order to enhance
the likelihood of payment in full of principal at
the end of an Accumulation Period with respect to a
Series of Certificates, that Series or any of its
Classes may be subject to a principal payment
guaranty or other similar arrangement.
Rapid Accumulation A Series or any Class thereof having a Controlled
Period.................. Accumulation Period may require the commencement of
a "Rapid Accumulation Period" upon the occurrence of
a Pay Out Event in order to halt the Transferor's
access to principal collections allocable to the
Investor Interest of such Series and require that
all such principal collections be set aside pending
the balloon payment on the related Scheduled Payment
Date. A Rapid Accumulation Period, if used, would
commence on the day on which a Pay Out Event has
occurred and end on the earliest of (a) the
commencement of the Rapid Amortization Period, (b)
payment in full of the Investor Interest of the
Certificates of such Series and, if so specified in
the related Prospectus Supplement, of the Collateral
Interest or the Enhancement Invested Amount, if any,
with respect to such Series and (c) the related
Series Termination Date. During the Rapid
Accumulation Period for a Series, Rapid Accumulation
Period collections of Principal Receivables
allocable to the Investor Interest of
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<PAGE>
the specified Series during each Monthly Period (and
certain other amounts if so specified in the related
Prospectus Supplement) will be deposited on the
related Transfer Date in the Principal Funding
Account and used to make distributions of principal
to the Certificateholders of such Series or any
Class thereof on the Scheduled Payment Date. The
amount to be deposited in the Principal Funding
Account during the Rapid Accumulation Period will
not be limited to the Controlled Deposit Amount.
The term "Pay Out Event" with respect to a Series of
Certificates means any of the events identified as
such in the related Prospectus Supplement and any of
the following: (a) certain events of insolvency or
receivership relating to the Transferor, (b) the
Transferor being unable for any reason to transfer
Receivables to the Trust in accordance with the
provisions of the Agreement or (c) the Trust
becoming an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
See "Description of the Certificates--Pay Out
Events." Providing for a Rapid Accumulation Period
instead of a Rapid Amortization Period in certain
circumstances would reduce the number of events that
could cause Certificateholders to be repaid their
principal investment prior to their Scheduled
Payment Date.
During the Rapid Accumulation Period, funds on
deposit in any Principal Funding Account may be
invested in permitted investments or subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on
the investment of such funds. Investment earnings on
such funds may be applied to pay interest on the
related Series of Certificates or make other
payments as specified in the related Prospectus
Supplement. In order to enhance the likelihood of
payment in full of principal at the end of the Rapid
Accumulation Period with respect to a Series of
Certificates, such Series or any Class thereof may
be subject to a principal payment guaranty or other
similar arrangement.
Rapid Amortization Each Series will be subject to early payment
Period.................. following the occurrence of a Pay Out Event (or a
date following the occurrence of a Pay Out Event in
the case of a Series subject to a Rapid Accumulation
Period, as specified in the related Prospectus
Supplement) through the monthly application of such
Series' allocable share of principal collections.
During the period from the day on which a Pay Out
Event has occurred with respect to a Series or, if
so specified in the Prospectus Supplement relating
to a Series with a Controlled Accumulation Period,
from such time specified in the related Prospectus
Supplement after a Pay Out Event has occurred and
the Rapid Accumulation Period has commenced, to the
earlier of (a) the date on which the Investor
Interest of the Certificates of such Series and the
Collateral Interest or the Enhancement Invested
Amount, if any, with respect to such Series have
been paid in full and (b) the related Series
Termination Date (the "Rapid Amortization Period"),
collections of Principal Receivables allocable to
the Investor Interest of such Series (and certain
other amounts if so specified in the related
Prospectus Supplement) will be
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<PAGE>
distributed as principal payments to the
Certificateholders of such Series and, in certain
circumstances, to the Credit Enhancement Provider,
monthly on each Distribution Date with respect to
such Series in the manner and order of priority set
forth in the related Prospectus Supplement. If a
Rapid Amortization Period commences, then such of
the Revolving Period, Controlled Amortization
Period, Principal Amortization Period, Controlled
Accumulation Period or Rapid Accumulation Period
which is then in effect with respect to the
applicable Series will terminate, and no portion of
such Series' allocable share of principal
collections will be paid to the Transferor or the
Holders of any other outstanding Series or retained
in the Excess Funding Account. Rather, the entire
amount of such Series' share of principal
collections will be distributed to the
Certificateholders of such Series on each
Distribution Date during the Rapid Amortization
Period.
During the Rapid Amortization Period with respect to
a Series, distributions of principal will not be
limited by any Controlled Deposit Amount or
Controlled Distribution Amount. In addition, upon
the commencement of the Rapid Amortization Period
with respect to a Series, any funds on deposit in a
Principal Funding Account with respect to such
Series or any Class thereof will be paid to the
Certificateholders of such Series or Class on the
first Distribution Date in the Rapid Amortization
Period.
Partial Amortization.... If so specified in the Prospectus Supplement relating
to a Series, one or more Classes of Certificates in
that Series may be subject to a partial early
amortization (a "Partial Amortization") in the
circumstances described below. In the event that the
Transferor is required to add the Receivables of
Additional Accounts pursuant to the Agreement and
the Transferor is unable to designate sufficient
Eligible Accounts for such purpose, then the
Transferor may elect to avoid a Pay Out Event based
on such inability by commencing a Partial
Amortization for the applicable Series. During a
Partial Amortization for any Series or Class, a
portion (as specified in the related Prospectus
Supplement) of collections of Principal Receivables
which otherwise would be treated as Shared Principal
Collections will be payable to the
Certificateholders of such Series or Class,
commencing on a specified Distribution Date
following the commencement of such Partial
Amortization until the Transferor is no longer
required to add Receivables of Additional Accounts
to the Trust.
Allocations Among Pursuant to the Agreement, during each Monthly
Series.................. Period, the Servicer is required to first allocate
to each Series collections of Principal Receivables
and Finance Charge Receivables and the Net Default
Amount or Net Recoveries with respect to such
Monthly Period based on the Investor Percentage for
such Series. See "Description of the Certificates--
Allocations." Subject to reallocation among Series
in a Reallocation Group, such amounts allocated to
each Series are then further allocated within each
Series to the Certificateholders, any Series
Enhancement and the Transferor pursuant to the terms
of the related Series Supplement.
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<PAGE>
Shared Excess Finance
Charge
Collections............ If so specified in the related Prospectus Supplement,
any Series offered hereby may be designated as a
Series that shares with other Series similarly
designated collections of Finance Charge Receivables
which are in excess of the amounts then required by
such Series (an "Excess Allocation Series"). The
receiving Series may then use such excess to cover
any shortfalls with respect to amounts payable from
collections of Finance Charge Receivables allocable
to such Series. By so sharing such excess
collections of Finance Charge Receivables, the
Transferor can more efficiently use available
investor funds to cover required payments on all
Series. The sharing of excess collections of Finance
Charge Receivables will, however, be discontinued if
at any time the Transferor delivers to the Trustee
an officer's certificate to the effect that, in the
reasonable belief of the Transferor, the
continuation of such sharing would have adverse
regulatory implications for Transferor. See
"Description of the Certificates--Application of
Collections," "--Shared Excess Finance Charge
Collections," "--Defaulted Receivables; Incentive
Payments and Fraudulent Charges; Investor Charge-
Offs" and "Credit Enhancement."
Shared Principal If any Series is designated as a "Principal Sharing
Collections............. Series" in the related Prospectus Supplement, to the
extent that collections of Principal Receivables
that are allocated to the Investor Interest of such
Series are not needed to make payments or deposits
with respect to such Series, such collections
("Shared Principal Collections") will be applied to
cover principal payments due to or for the benefit
of Certificateholders of other Principal Sharing
Series and, if not needed for that purpose, will
generally be distributed to the Transferor. Any such
reallocation will not result in a reduction in the
Investor Interest of the Series to which such
collections were initially allocated.
Reallocations Among
Series in
a Reallocation Group... If so specified in the related Prospectus Supplement,
the Certificates of a Series may be included in a
group of Series that will be subject to
reallocations of collections of Finance Charge
Receivables and other amounts among the Series in
such group (a "Reallocation Group"). Collections of
Finance Charge Receivables allocable to each Series
in a Reallocation Group will be aggregated and made
available for certain required payments for all
Series in such Reallocation Group. By including a
Series in a Reallocation Group, the Transferor may
enable that Series to obtain the benefit of excess
collections of Finance Charge Receivables allocated
on the basis of the amounts required for payments
with respect to such Series relative to the
aggregate amount of such required amounts for all
Series in the Reallocation Group. Consequently, the
issuance of new Series in such Reallocation Group
may have the effect of reducing or increasing the
amount of collections of Finance Charge Receivables
allocable to the Certificates of other Series in
such Reallocation Group. See "Risk Factors--Possible
Prepayment or Losses as a Result of Issuance of New
Series; Groups."
Paired Series........... If so specified in the Prospectus Supplement relating
to a Series, such Series may be paired with all or a
portion of one or more Series (each,
18
<PAGE>
a "Paired Series"), such that a reduction in the
Investor Interest or the Adjusted Investor Interest
of one such Series results in an increase in the
Investor Interest of the other such Series. The
effect of a Paired Series is to provide for
continuous investment in the Receivables by
Certificateholders, thereby reducing the potential
increase in the Transferor Interest as the first of
the Paired Series' interest in the Trust is reduced
through the amortization or accumulation of
principal. If a Pay Out Event occurs with respect to
a Series having a Paired Series or with respect to
the Paired Series when such Series is in a
Controlled Amortization Period or Controlled
Accumulation Period, the Investor Percentage for
collections of Principal Receivables for the Series
and for its Paired Series may be reset as specified
in the related Prospectus Supplements. See
"Description of the Certificates--Paired Series."
Excess Funding Account.. If on any date a Retention Condition exists, the
Servicer will not distribute to the Transferor any
Shared Principal Collections that otherwise would be
so distributed, but will instead deposit such funds
in an account required to be established for such
purpose by the Agreement (the "Excess Funding
Account"), until the Retention Condition ceases.
Funds on deposit in the Excess Funding Account will
be withdrawn and paid to the Transferor on any date
provided that no Retention Condition is in effect,
or would result from such payment, on such date. As
more fully described herein, a Retention Condition
exists if certain tests concerning the minimum level
of Receivables in the Trust are not met. In
addition, if a Controlled Accumulation Period,
Controlled Amortization Period, Principal
Amortization Period, Rapid Amortization Period or
Rapid Accumulation Period commences with respect to
any Series entitled to the benefits of Shared
Principal Collections, an amount of funds on deposit
in the Excess Funding Account (after giving effect
to the release of funds to the Transferor as
described above) up to the amount, if any, by which
the Transferor Interest would be less than zero if
there were no funds on deposit in the Excess Funding
Account on such date, 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 so provided by the related Series
Supplement. See "Description of the Certificates--
Excess Funding Account."
Funding Period.......... The Prospectus Supplement relating to a Series of
Certificates may specify that for a period beginning
on the Closing Date and ending on a specified date
before the commencement of an Amortization Period or
Accumulation Period with respect to such Series (the
"Funding Period"), which period will be less than a
year, the Aggregate Principal Receivables in the
Trust allocable to such Series may be less than the
aggregate principal amount of the Certificates of
such Series and that the amount of such deficiency
(the "Pre-Funding Amount") will be held in a trust
account established with the Trustee for the benefit
of Certificateholders of such Series (the "Pre-
Funding Account") pending the transfer of additional
Principal Receivables to the Trust or pending the
reduction of the Investor Interests of other Series
issued by the Trust. The Pre-Funding Amount may be
up to 100% of the principal
19
<PAGE>
amount of the Certificates of a Series. The related
Prospectus Supplement will specify the initial
Investor Interest on the Closing Date with respect
to such Series, the aggregate principal amount of
the Certificates of such Series (the "Full Investor
Interest") and the date by which the Investor
Interest is expected to equal the Full Investor
Interest. The Investor Interest will increase as
Principal Receivables are added to the Trust or as
the Investor Interests of other Series of the Trust
are reduced.
During the Funding Period, funds on deposit in the
Pre-Funding Account for a Series of Certificates
will be withdrawn and paid to the Transferor or its
assigns to the extent of any increases in the
Investor Interest. In the event that the Investor
Interest does not for any reason equal the Full
Investor Interest by the end of the Funding Period,
any amount remaining in the Pre-Funding Account and
any additional amounts specified in the related
Prospectus Supplement will be payable to the
Certificateholders of such Series in the manner and
at such time as set forth in the related Prospectus
Supplement.
If so specified in the related Prospectus Supplement,
funds on deposit in the Pre-Funding Account may be
invested in Permitted Investments or subject to a
guaranteed rate or investment agreement or other
similar arrangement, and investment earnings and any
applicable payment under any such investment
arrangement will be applied to pay interest on the
Certificates of such Series.
Credit Enhancement...... Credit Enhancement with respect to a Series or any
Class thereof may be provided in the form or forms
of subordination, a cash collateral account or
guaranty, a collateral interest, a letter of credit,
a surety bond, an insurance policy, a spread
account, a reserve account or other form of support
as specified in the related Prospectus Supplement.
Credit Enhancement may also be provided to a Class
or Classes of different Series by a cross-support
feature which requires that distributions of
principal and/or interest be made with respect to
Certificates of one or more Classes of a particular
Series before distributions are made to one or more
Classes of another Series.
The type, characteristics and amount of the Credit
Enhancement will be determined based on several
factors, including the characteristics of the
Receivables and Accounts included in the Trust
Portfolio as of the Closing Date with respect to any
Series, and will be established on the basis of
requirements of each Rating Agency rating the
Certificates of such Series. If so specified in the
related Prospectus Supplement, any such Credit
Enhancement will apply only in the event of certain
types of losses and the protection against losses
provided by such Credit Enhancement will be limited.
The terms of the Credit Enhancement with respect to
a Series, and the conditions under which the Credit
Enhancement may be increased, reduced or replaced,
will be described in the related Prospectus
Supplement. See "Credit Enhancement" and "Risk
Factors--Limitations of Certificate Rating."
Optional Repurchase..... With respect to each Series of Certificates offered
hereby, the Investor Interest will be subject to
optional repurchase by the Transferor on any
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Distribution Date after the Investor Interest and
the Enhancement Invested Amount, if any, with
respect to such Series is reduced to an amount less
than or equal to 5% of the initial Investor
Interest, if any, or such lesser amount specified in
the related Prospectus Supplement, if certain
conditions set forth in the Agreement are met. The
repurchase price will be as specified in the related
Prospectus Supplement. See "Description of the
Certificates--Final Payment of Principal;
Termination."
Tax Status.............. Mayer, Brown & Platt, or such other counsel specified
in the related Prospectus Supplement, will act as
special tax counsel to the Bank ("Special Tax
Counsel") and will, upon issuance of a Series of
Certificates, render an opinion that the Offered
Certificates of such Series will be characterized as
indebtedness for Federal income tax purposes and
that the issuance of the Offered Certificates will
not cause the Trust to be treated as an association
(or publicly traded partnership) taxable as a
corporation. A copy of such opinion will be filed
with the Commission with a Report on Form 8-K
following the issuance of a Series of Certificates.
The Certificate Owners will agree to treat the
Offered Certificates as debt for Federal income tax
purposes. See "U.S. Federal Income Tax Consequences"
for additional information concerning the
application of Federal income tax laws.
ERISA Considerations.... Under regulations issued by the Department of Labor,
the Trust's assets would not be deemed "plan assets"
of any employee benefit plan holding interests in
the Certificates of a Series if certain conditions
are met. If the Trust's assets were deemed to be
"plan assets" of an employee benefit plan, there is
uncertainty as to whether existing exemptions from
the "prohibited transaction" rules of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), would apply to all transactions involving
the Trust's assets. No assurance can be made with
respect to any offering of the Certificates of any
Series that the conditions which would allow the
Trust assets not to be deemed "plan assets" will be
met, although the intention of the underwriters (but
not their assurance) as to whether the Certificates
of a particular Series will be "publicly-offered
securities", and therefore eligible for an ERISA
exemption, will be set forth in the related
Prospectus Supplement. Accordingly, employee benefit
plans contemplating purchasing interests in
Certificates should consult their counsel before
making a purchase. See "ERISA Considerations."
Certificate Rating...... It will be a condition to the issuance of the
Certificates of each Series or Class thereof offered
pursuant to this Prospectus and the related
Prospectus Supplement that they be rated in one of
the four highest rating categories by at least one
nationally recognized rating organization (each such
rating organization selected by the Transferor to
rate any Series, a "Rating Agency"). The rating or
ratings applicable to the Certificates of each
Series or Class thereof offered hereby will be set
forth in the related Prospectus Supplement.
A rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning Rating
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Agency. Each rating should be evaluated
independently of any other rating. See "Risk
Factors--Limitations of Certificate Rating."
Listing................. If so specified in the Prospectus Supplement relating
to a Series, application will be made to list the
Certificates of such Series, or all or a portion of
any Class thereof, on the Luxembourg Stock Exchange
or any other specified exchange.
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RISK FACTORS
Potential investors should consider, among other things, the following
considerations in connection with the purchase of the Certificates.
Possible Impact of Limited Liquidity on Market Value. It is anticipated
that, to the extent permitted, the underwriters of any Series of Certificates
offered hereby will make a market in such Certificates, but in no event will
any such underwriter be under an obligation to do so. There is no assurance
that a secondary market will develop with respect to the Certificates of any
Series, or if it does develop, that it will provide Certificateholders with
liquidity of investment or that it will continue for the life of such
Certificates. Consistent with general practice for asset-backed securities
like the Certificates, it is not generally expected that any Series of
Certificates will be listed on any securities exchange, except that certain
Series may be listed on the Luxembourg Stock Exchange (in which case such
expected listing will be disclosed in the related Prospectus Supplement).
Limitations on the liquidity of the Certificates may have a negative impact on
their market value.
Possible Delays or Losses as a Result of Potential Priority of Certain
Liens. The Transferor will transfer interests in Receivables to the Trust. A
court could treat any such transaction as an assignment of collateral as
security for the benefit of holders of Certificates issued by the Trust. The
Transferor will represent and warrant in the Agreement that the transfer of
the Receivables to the Trust is either a valid transfer and assignment of the
related Receivables to the Trust or the grant to the Trustee of a security
interest in such Receivables. The Transferor will take actions required to
perfect the Trust's security interest in the Receivables and will warrant that
if the transfer to the Trust is deemed to be a grant of a security interest in
the related Receivables, the Trustee will have a first priority perfected
security interest therein, except for any liens for local taxes that are not
yet due and payable or are being contested. Nevertheless, if the transfer of
Receivables to the Trust is deemed to create a security interest therein,
certain nonconsensual liens on property of the Transferor arising before
Receivables come into existence (including Federal or local tax liens and
liens arising under ERISA) may have priority over the Trust's interest in such
Receivables, and if the FDIC were appointed receiver or conservator of the
Transferor, the FDIC's administrative expenses may also have priority over the
Trust's interest in such Receivables. The existence of such liens or rights of
the receiver of the Transferor could result in possible delay in the amount of
payments on the Certificates or in losses to Certificateholders. See "Certain
Legal Aspects of the Receivables--Transfer of Receivables."
Possible Losses as a Result of Commingling. In addition, while the
Transferor is the Servicer, cash collections held by the Transferor may,
subject to certain conditions described below in "Description of
Certificates--Application of Collections," be commingled and used for the
benefit of the Transferor prior to the date on which such collections are
required to be deposited in the Finance Charge Account and Principal Account.
As a result of any such commingling, the Trust may not have a perfected
interest in such collections, which could, in the event of a conservatorship
or receivership of the Transferor, cause the Trust to suffer a loss of all or
part of such collections, which may result in a loss to Certificateholders.
Possible Delays, Prepayment or Losses as a Result of Receivership of
Transferor. To the extent that the Transferor has granted or will grant a
security interest in Receivables to the Trust and that security interest is
validly perfected before the Transferor's insolvency (and was not or will not
be taken in contemplation of insolvency of the Transferor, or with the intent
to hinder, delay or defraud the Transferor or the creditors of the
Transferor), the Federal Deposit Insurance Act ("FDIA"), as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as
amended ("FIRREA"), provides that such security interest should not be subject
to avoidance by the FDIC, as receiver for the Transferor. Positions taken by
the FDIC staff prior to the passage of FIRREA suggest that the FDIC, as
receiver for the Transferor, would not interfere with the timely transfer to
the Trust of payments collected on the related Receivables. If, however, the
FDIC were to assert a contrary position, such as requiring the Trustee to
establish its right to those payments by submitting to and completing the
administrative claims procedure under the FDIA, or the conservator or receiver
were to request a stay of proceedings with respect to the Transferor as
provided under the FDIA, delays in payments on the related Series of
Certificates and possible losses to Certificateholders could occur.
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In addition, the FDIC, if appointed as the conservator or receiver for the
Transferor has the power under the FDIA to repudiate contracts, including
secured contracts of the Transferor. The FDIA provides that a claim for
damages arising from the repudiation of a contract is limited to "actual
direct compensatory damages." In the event the FDIC were to be appointed as
conservator or receiver of the Transferor and were to repudiate the Agreement,
then the amount payable out of available collections to the Certificateholders
could be lower than the outstanding principal and accrued interest on the
Certificates.
If a conservator or receiver were appointed for the Transferor, then a Pay
Out Event could occur with respect to all Series then outstanding and,
pursuant to the Agreement, new Principal Receivables would not be transferred
to the Trust. If a Pay Out Event occurs involving either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the commencement of
the Rapid Amortization Period or, if applicable with respect to a Series as
specified in the related Prospectus Supplement, the Rapid Accumulation Period,
and may be able to require that new Principal Receivables be transferred to
the Trust. Such action could cause delays in payments to Certificateholders or
in losses to Certificateholders. A conservator or receiver may also have the
power to cause the early sale of the Receivables and the early retirement of
the Certificates of each Series or to prohibit the continued transfer of
Principal Receivables to the Trust. In addition, in the event of a Servicer
Default relating to the conservatorship or receivership of the Servicer, if no
Servicer Default other than such conservatorship or receivership exists, the
conservator or receiver for the Servicer may have the power to prevent either
the Trustee or the Certificateholders from appointing a successor Servicer
under the Agreement. See "Certain Legal Aspects of the Receivables--Certain
Matters Relating to Receivership."
Effects of Applicable Law
Possible Prepayment or Losses as a Result of Limitations Imposed by Consumer
Protection Laws. Federal and state consumer protection laws, such as the
Louisiana Consumer Credit Law, Louisiana Collection Agency Regulation Act and
Louisiana Equal Credit Opportunity Law impose requirements on the making and
enforcement of consumer loans and extensions of credit to consumers. In
addition, the Soldiers' and Sailors' Civil Relief Act of 1940 (the "SSCRA")
provides for a stay of court proceedings against military personnel (including
Air Force personnel) on active duty if the ability of such person to defend
against a suit would be materially affected by reason of military service and
limits to 6% per year the interest chargeable to military personnel (including
Air Force personnel) on active duty on obligations incurred by such person
prior to entrance into such service unless the obligee obtains a court order
allowing a higher rate to be charged. The SSCRA could adversely affect the
Servicer's ability to collect on Receivables generated under First NBC's USAF
Club Card program and other military programs, which make up a significant
portion of the Trust Portfolio. See "First NBC's Credit Card Activities--
General." In its experience to date with the military programs, First NBC does
not believe that the SSCRA has had a material impact on its collection
efforts, but there can be no assurance that the SSCRA would not have an
adverse effect in the future. Congress and the states may enact new laws and
amendments to existing laws to regulate further the credit card and consumer
credit industry or to reduce finance charges or other fees or charges
applicable to credit card accounts.
Such laws, as well as any new laws or rulings which may be adopted, may
adversely affect the Servicer's ability to collect on the Receivables or
maintain previous levels of monthly periodic finance charges and other credit
card fees. One effect of any existing or new legislation which regulates the
amount of interest and other charges that may be assessed on credit card
account balances could be to reduce the Portfolio Yield on the Accounts. If
such legislation were to result in a significant reduction in the Portfolio
Yield, a Pay Out Event could occur, in which case the Rapid Amortization
Period or, if so specified in the related Prospectus Supplement, the Rapid
Accumulation Period would commence. Certificateholders of an affected Series
might then receive principal payments earlier than expected. See "Description
of the Certificates--Pay Out Events." If the resulting reduction in the
Portfolio Yield were significant enough, Certificateholders could suffer
losses.
Pursuant to the Agreement, the Transferor will covenant to accept
reassignment, subject to certain conditions described under "Description of
the Certificates--Representations and Warranties," of each
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Receivable that does not comply in all material respects with all requirements
of applicable law. The Transferor will make certain other representations and
warranties relating to the validity and enforceability of the Receivables.
However, it is not anticipated that the Trustee will make any examination of
the related Receivables or the records relating thereto for the purpose of
establishing the presence or absence of defects, compliance with such
representations and warranties, or for any other purpose. The sole remedy if
any such representation or warranty is breached and such breach continues
beyond the applicable cure period is that the Transferor will be obligated to
accept reassignment, subject to certain conditions described under
"Description of the Certificates--Representations and Warranties," of the
Receivables affected thereby. See "Description of the Certificates--
Representations and Warranties" and "Certain Legal Aspects of the
Receivables--Consumer Protection Laws."
Possible Losses as a Result of Application of Bankruptcy Law. Application of
Federal and state bankruptcy and debtor relief laws would affect the interests
of the Certificateholders in the Receivables if such laws result in any
Receivables being written off as uncollectible when there are no funds
available from any Credit Enhancement or other sources to cover any resulting
shortfalls in amounts payable to Certificateholders. See "Description of the
Certificates--Defaulted Receivables; Incentive Payments and Fraudulent
Charges; Investor Charge-Offs." If any applicable Credit Enhancement is
exhausted, Certificateholders will bear a share of the losses on Receivables
in the Trust, including losses resulting from write offs described above,
which could result in losses to Certificateholders.
Possible Prepayment or Losses as a Result of Increasing Credit Card Losses.
Losses and delinquencies in the Bank Portfolio have increased in recent years.
Based upon published reports such as the Moody's Investors Service Credit Card
Credit Indexes, First NBC understands that this has been the case for most
domestic credit card issuers. Increasing losses and delinquencies in the Bank
Portfolio may result in the occurrence of a Pay Out Event and the commencement
of the Rapid Amortization Period. Further information about the level of
losses and delinquencies in the Bank Portfolio will be provided under "First
NBC's Credit Card Portfolio--Delinquency and Loss Experience" in the
applicable Prospectus Supplement. If losses reached a high enough level
relative to the yield on the Receivables, a Pay Out Event could occur,
resulting in payments to Certificateholders prior to the expected dates. In
addition, if any applicable Credit Enhancement is exhausted,
Certificateholders will bear a share of the losses on Receivables in Trust,
which could result in losses to Certificateholders.
Possible Prepayment as a Result of Competition in the Credit Card Industry.
The credit card industry is highly competitive. As new credit card issuers
enter the market and all issuers seek to expand their share of the market,
there is increased use of advertising, target marketing and pricing
competition. 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, a Partial Amortization for one or more Series could occur
or a Pay Out Event could occur with respect to each Series, in which case the
Rapid Amortization Period or, if so specified in the related Prospectus
Supplement, the Rapid Accumulation Period with respect to each such Series
would commence. Certificateholders of an affected Series might then receive
principal payments earlier than expected.
Payments Other than at Expected Maturity. The Receivables may be paid at any
time and there is no assurance that there will be additional Receivables
created in the Accounts or that any particular pattern of cardholder
repayments will occur. The commencement and continuation of a Controlled
Amortization Period, a Principal Amortization Period, or a Controlled
Accumulation Period for a Series or Class thereof 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 a Partial Amortization for one or more Series or a Pay Out Event
for one or more Series and the commencement of the Rapid Amortization Period
or, if so specified in the related Prospectus Supplement, the Rapid
Accumulation Period for each such Series. If a Pay Out Event occurs and the
Rapid Amortization Period commences, or if a Partial Amortization occurs, the
average life to maturity of the affected Series of Certificates could be
significantly reduced.
In addition, the Transferor can give no assurance that the payment rate
assumptions for any Series will prove to be correct. The related Prospectus
Supplement will provide certain historical data relating to payments by
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cardholders, total charge-offs and other related information relating to the
Trust Portfolio. There can be no assurance that future events will be
consistent with such historical data. In particular, 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.
Further, the amount of collections of Receivables may vary from month to
month due to seasonal variations, general economic conditions, changes in
periodic finance charges and payment habits of individual cardholders. A
significant decrease in such monthly payment rate could slow the return or
accumulation of principal during an Amortization Period or Accumulation
Period. No assurance can be given that payments of principal will be made as
expected during the Controlled Amortization Period or the Principal
Amortization Period, or with respect to an Accumulation Period, or on the
Scheduled Payment Date, as applicable. Further, there can be no assurance that
collections of Principal Receivables, and thus the rate at which the related
Certificateholders could expect to receive or accumulate payments of principal
on their Certificates during an Amortization Period or Accumulation Period, or
on any Scheduled Payment Date, as applicable, will be similar to any
historical experience set forth in a related Prospectus Supplement. Also, any
decision by the Transferor to designate (or increase) a Discount Percentage
will result in an increase in the amount of collections of Finance Charge
Receivables and a reduction in the balance of Principal Receivables
outstanding and a reduction in the Transferor Amount. See "Description of the
Certificates--Discount Option."
Possible Delays or Prepayment as a Result of Effect of Social, Legal and
Economic Factors on Credit Card Usage. Changes in use of credit and payment
patterns by customers may result from a variety of social, legal and economic
factors. Economic factors include the rate of inflation, seasonal buying
patterns, unemployment levels and relative interest rates. Social factors also
include unemployment rates as well as changes in consumer confidence levels
and attitudes toward incurring debt. Legal factors include the application of
usury and consumer protection laws. Social, legal and economic factors in the
State of Louisiana and surrounding states may have a disproportionate effect
on the Trust because of the relatively large percentage of Accounts in such
States. See "The Receivables" in the related Prospectus Supplement. The
Transferor, however, is unable to determine and has no basis to predict
whether, or to what extent, social, legal or economic factors will affect
future use of credit or repayment patterns. Any changes in credit or repayment
patterns could have effects like those described in "Payments Other than at
Expected Maturity" above.
Possible Delays or Prepayment as a Result of Affinity Programs. Some of the
Accounts, the Receivables of which will be conveyed to the Trust, were
originated by First NBC under various affinity agreements, including the
agreements relating to First NBC's United States Air Force Club program and
other military programs. In the future, Additional Accounts originated under
these or other affinity programs may be designated to the Trust (as may other
Additional Accounts not originated under affinity programs). Changes in the
terms of such programs or in First NBC's participation in the programs may
affect the rate at which new Receivables are generated in the related
Accounts, which could have effects like those described in "Payments Other
than at Expected Maturity" above.
Prepayment Resulting from Pre-Funding Account. With respect to any Series
having a Pre-Funding Account, in the event that there is an insufficient
amount of Principal Receivables in the Trust at the end of the applicable
Funding Period, the Certificateholders of such Series will be repaid principal
from amounts on deposit in the Pre-Funding Account (to the extent of such
insufficiency) following the end of such Funding Period, as described more
fully in the Prospectus Supplement. Such repayment of principal would be prior
to the scheduled date of such repayment. As a result of such repayment,
Certificateholders would receive a principal payment earlier than they
expected. In addition, Certificateholders would not receive the benefit of the
applicable Certificate Rate for the period of time originally expected on the
amount of such early repayment. There can be no assurance that a
Certificateholder would be able to reinvest such early repayment amount at a
similar rate of return. If a Certificateholder is not able to reinvest such
early repayment amount at the same rate of return or better, the
Certificateholder's anticipated yield would be adversely affected. However, a
Series with a Pre-Funding Account feature may also require the payment of a
prepayment premium in such a circumstance, which would mitigate the adverse
effect to the Certificateholder's anticipated yield.
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Possible Prepayment or Losses as a Result of Transferor's Ability to
Adversely 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 monthly periodic finance charges and other
fees which will be applicable from time to time to the Accounts, to alter the
minimum monthly payment required on the Accounts and to change various other
terms with respect to the Accounts, including changing the annual percentage
rate from a fixed rate to a variable rate or vice versa. A decrease in the
periodic finance charge or a reduction in credit card or other fees would
decrease the effective yield on the Accounts and could result in the
occurrence of a Pay Out Event with respect to each Series and the commencement
of the Rapid Amortization Period or, if so specified in the related Prospectus
Supplement, the Rapid Accumulation Period with respect to each such Series.
Certificateholders of an affected Series might then receive principal payments
earlier than expected. If the resulting reduction reduced the Portfolio Yield
significantly, there could be reductions in amounts available to cover the
portions of defaulted Receivables allocated to a Series, and in amounts
available to make required deposits to various Trust Accounts, all of which
may (if any available Credit Enhancement is exhausted) result in losses to
Certificateholders.
Under the Agreement, the Transferor will agree that, except as otherwise
required by law or as is deemed by the Transferor to be necessary in order to
maintain its revolving credit business, based upon a good faith assessment by
it, in its sole discretion, of the nature of the competition in that business,
the Transferor will not reduce the annual percentage rate or the periodic
finance charges assessed on the related Receivables or other fees on the
related Accounts if, as a result of such reduction, the Portfolio Yield for
any Series as of such date would be less than the Base Rate for such Series.
The Transferor from time to time may offer special rates (generally of limited
duration) which may be less than the annual percentage rates applicable to
other Receivables. The terms "Portfolio Yield" and "Base Rate" for each Series
will have the meanings set forth in the Prospectus Supplement relating to each
such Series. In addition, the Agreement will provide that the Transferor may
change the terms of the contracts relating to the related Accounts or its
servicing policies and procedures (including changes that could reduce the
required minimum monthly payment and change the calculation of the amount or
the timing of finance charges, credit card fees and charge offs), if such
change (i) would not, in the reasonable belief of the Transferor, cause a Pay
Out Event for any related Series to occur, and (ii) is made applicable to the
comparable segment of revolving credit accounts owned and serviced by the
Transferor which have characteristics the same as or substantially similar to
the related Accounts which are subject to such change. In servicing the
Accounts, the Servicer will be required to exercise the same care and apply
the same policies that it exercises in handling similar matters for its own
comparable accounts. Except as specified above or in any Prospectus
Supplement, there will be no restrictions on the Transferor's ability to
change the terms of the Accounts. There can be no assurance that changes in
applicable law, changes in the marketplace or prudent business practice might
not result in a determination by the Transferor to take actions which would
change this or other Account terms or that such changes would not be adverse
to the interests of Certificateholders. See "Receivable Yield Considerations"
in the Prospectus Supplement.
Possible Losses as a Result of Incentive Programs. First NBC has established
incentive programs applicable to certain accounts in the Bank Portfolio. These
programs permit a qualifying cardholder participating in the program to earn
rights to obtain airline tickets paid for by First NBC based upon use of the
account. The Trust will not assume the obligation to purchase airline tickets
or provide other benefits earned under this or any other incentive program
that may be adopted in the future. However, if accounts subject to this or any
similar incentive program are included in the Trust Portfolio, a cardholder
entitled to receive an incentive payment from First NBC might assert that he
or she could reduce the amount he or she was required to pay on a Receivable
if First NBC failed to provide a ticket or other benefit that had been earned
under the program. As described in "Description of the Certificates--Defaulted
Receivables; Incentive Payments and Fraudulent Charges; Investor Charge-Offs,"
any adjustments to Receivables as a result of such an event will be allocated
to the Transferor Interest. However, if the Transferor's Interest is reduced
to zero, and the Transferor fails to make required payments relating to these
events, then Certificateholders could suffer a loss.
Possible Prepayment or Losses as a Result of Basis Risk. If so specified in
the related Prospectus Supplement, a portion of the Accounts will have finance
charges set at a variable rate above a designated prime
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rate or other designated index. A Series of Certificates may bear interest at
a fixed rate or at a floating rate based on an index other than such prime
rate or other designated index. If there is a decline in such prime rate or
other designated index, the amount of collections of Finance Charge
Receivables on such Accounts may be reduced, whereas the amounts payable as
interest on such Series of Certificates and other amounts required to be
funded out of collections of Finance Charge Receivables with respect to such
Series may not be similarly reduced. Conversely, to the extent that Accounts
bear interest at a fixed rate and there is an increase in such prime rate or
other designated index, amounts payable as interest on such Series of
Certificates and other amounts required to be funded out of collections of
Finance Charge Receivables with respect to such Series may be increased,
whereas the amount of collections of Finance Charge Receivables on such
Accounts may not be similarly increased. In either case, if the amount of
collections of Finance Charge Receivables allocated to a Series is less than
the aggregate amount of interest, servicing fees and other amounts required to
be paid from such collections and this situation continued for a period of
time specified in the applicable Prospectus Supplement, then a Pay Out Event
could occur, resulting in principal payments to the Certificateholders prior
to the expected dates, and if any applicable Credit Enhancement was exhausted
losses to Certificateholders could result.
Possible Prepayment or Losses as a Result of Issuance of New Series; Groups.
The Trust, as a master trust, may issue Series and sell Purchased Interests
from time to time. While the terms of any Series will be specified in a Series
Supplement, the provisions of a Series Supplement and, therefore, the terms of
any additional Series, will not be subject to the prior review by, or consent
of, holders of the Certificates of any previously issued Series. Similarly,
the terms of any Purchased Interest will not be subject to the prior review
by, or consent of, holders of the Certificates of any previously issued
Series. The terms of any Series may include methods for determining applicable
investor percentages and allocating collections, provisions creating different
or additional security, 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 Agreement which
is made applicable only to such Series. The terms of any Purchased Interest
may also cover all of the above-mentioned matters. It is a condition precedent
to the issuance of any additional Series, or sale of a Purchased Interest,
that each Rating Agency that has rated any outstanding Series deliver written
confirmation to the Trustee that such issuance or sale will not result in such
Rating Agency reducing or withdrawing its rating on any such outstanding
Series. See "Description of the Certificates--New Issuances." There can be no
assurance, however, that the terms of any other Series, including any Series
issued from time to time hereafter, or the terms of any Purchased Interest
might not have an impact on the timing and amount of payments received by a
Certificateholder of any other Series.
In addition, the Series Supplements relating to Series which are part of a
Reallocation Group as described herein may provide that collections of
Receivables allocable to such Series will be reallocated among all Series in
the Reallocation Group. Consequently, the issuance of new Series in a
Reallocation Group may have the effect of reducing the amount of collections
of Receivables which are reallocated to the Certificates of existing Series in
such Reallocation Group. For example, an additional Series which is issued
with a larger claim with respect to monthly interest than that of previously
issued Series in such Reallocation Group (due to a higher certificate rate)
will receive a proportionately larger reallocation of collections of Finance
Charge Receivables. Such issuance will reduce the amount of collections of
Finance Charge Receivables which are reallocated to the existing Series in
such Reallocation Group. Furthermore, there can be no assurance that, for any
Series in a Reallocation Group, the Trust will issue any other Series in such
Reallocation Group. Accordingly, the anticipated benefits of reallocation of
collections of Receivables may not be realized. See "Description of the
Certificates--Allocations" and "Reallocations Among Certificates of Different
Series within a Reallocation Group."
Possible Prepayment or Losses as a Result of Addition of Trust Assets--
Effect 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. In addition, the Agreement provides that the Transferor
may add Participations to the Trust. The designation of Additional Accounts
and Participations will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates--Addition of Trust
Assets." Additional Accounts may include accounts originated using criteria
different from those which were
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applied to the Accounts designated on the Cut-Off Date or to previously-
designated Additional Accounts, because such accounts were originated at a
different date or were acquired from another institution. Consequently, there
can be no assurance that Additional Accounts designated in the future will be
of the same credit quality as previously-designated Accounts. The varying
quality of Trust assets could affect the payment patterns and default
experience of such portfolio. If such effect on payment patterns is
significant, a Partial Amortization for one or more Series could occur or a
Pay Out Event could occur with respect to each Series, in which case the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period, with respect to each such Series would
commence. Certificateholders of an affected Series might then receive
principal payments earlier than expected. In addition, if a decline in the
credit quality of the portfolio were significant enough, it could result in
reductions in payments to Certificateholders in an affected Series.
Limited Certificateholder Control of Action under Agreement. The
Certificateholders will generally have limited control over the administration
of the Trust. Subject to certain exceptions, the Certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the Agreement or Series Supplement. However, the Agreement or Series
Supplement may provide that under certain circumstances the consent or
approval of a specified percentage of the aggregate Investor Interest of other
Series or of the Investor Interest of a specified Class of such other Series
will be required to direct certain actions, including requiring the
appointment of a successor Servicer following a Servicer Default, amending the
Agreement in certain circumstances and directing a repurchase of all
outstanding Series upon the breach of certain representations and warranties
by the Transferor. Certificateholders of other Series may have interests which
do not coincide in any way with the interests of Certificateholders of the
subject Series. In addition, Certificateholders of different Classes of the
same Series may have interests which do not coincide. In such instances, it
may be difficult for the Certificateholders of such Series to achieve the
results from the vote that they desire.
Limitations of Certificate Rating. Any rating assigned to the Certificates
of a Series or a Class by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders of such Series or Class
will receive the payments of interest and principal required to be made under
the Agreement and will be based primarily on the value of the Receivables in
the Trust and the availability of any Enhancement with respect to such Series
or Class. However, any such rating will not, unless specifically so provided
in the related Prospectus Supplement with respect to any Class or Series
offered hereby, address the likelihood that the principal of any Certificates
of such Class or Series will be paid on a scheduled date. In addition, any
such rating will not address the possibility of the occurrence of a Pay Out
Event with respect to such Class or Series, the financial condition or
creditworthiness of the Transferor or the possibility of the imposition of
United States withholding tax with respect to non-U.S. Certificateholders. The
rating will not be a recommendation to purchase, hold or sell Certificates of
such Series or Class, and such rating will not comment as to the marketability
of such Certificates, any market price or suitability for a particular
investor. There is no assurance that any rating will remain for any given
period of time or that any rating will not be 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 the Certificates of each Series
offered hereby by at least one Rating Agency. There can be no assurance as to
whether any rating agency not requested to rate the Certificates will
nonetheless issue a rating with respect to any Series of Certificates or Class
thereof. A rating assigned to any Series of Certificates or Class thereof by a
rating agency that has not been requested by the Transferor to do so may be
lower than the rating assigned by a Rating Agency pursuant to the Transferor's
request.
Possible Losses as a Result of Limited Credit Enhancement. Although Credit
Enhancement may be provided with respect to a Series of Certificates or any of
its Classes, the amount available will generally be limited and subject to
certain reductions. If the amount available under any Credit Enhancement is
reduced to zero, Certificateholders of the Series or Class covered by such
Credit Enhancement will bear directly the credit and other risks associated
with their undivided interest in the Trust and will be more likely to suffer a
loss on their investment in the Certificates. See "Credit Enhancement."
Certificateholders' Direct Exercise of Rights Limited by Book-Entry
Registration. The Certificates of Series offered hereby initially will, if so
specified in the related Prospectus Supplement, be represented by one or more
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Certificates registered in the name of Cede, the nominee for DTC, and will not
be registered in the names of the Certificate Owners or their nominees. Unless
and until Definitive Certificates are issued for such a Series, Certificate
Owners relating to such Series will not be recognized by the Trustee as
Certificateholders, as that term will be 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. See "Description of the Certificates--Book--Entry
Registration" and "--Definitive Certificates."
Risks of Swaps. The Trustee, on behalf of the Trust, may enter into interest
rate swaps and related caps, floors and collars to reduce the risk to
Certificateholders from adverse changes in interest rates. However, such
transactions will not eliminate fluctuations in the value of the Receivables
or prevent such losses if the value of the Receivables decline.
The Trust's ability to hedge all or a portion of its portfolio of
Receivables through transactions in Swaps depends on the degree to which
interest rate movements in the market generally correlate with interest rate
movements in the Receivables.
The Trust's ability to engage in transactions involving Swaps will depend on
the degree to which the Trust can identify acceptable Counterparties. There
can be no assurance that acceptable Counterparties will be available for a
specific Swap at any specific time.
The costs to the Trust of hedging transactions vary among the various
hedging techniques and also depend on such factors as market conditions and
the length of the contract. Furthermore the Trust's ability to engage in
hedging transactions may be limited by tax considerations.
Swaps are not traded on markets regulated by the Commission or the Commodity
Futures Trading Commission, but are arranged through financial institutions
acting as principals or agents. In an over-the-counter environment, many of
the protections afforded to exchange participants are not available. For
example, there are no daily fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of time. Because
the performance of over-the-counter Swaps is not guaranteed by any settlement
agency, there is a risk of Counterparty default.
The Trust may consider taking advantage of investment opportunities in Swaps
that are not presently contemplated for use by the Trust or that are not
currently available but that may be developed, to the extent such
opportunities are both consistent with the Trust's objectives and legally
permissible investments for the Trust. Such opportunities, if they arise, may
involve risks that differ from or exceed those involved in the activities
described above and will be more fully described in the applicable Prospectus
Supplement.
Possible Prepayment or Losses as a Result of Allocations. To the extent
provided in any Series Supplement, or any amendment to the Agreement, portions
of the Receivables or Participations conveyed to the Trust and all collections
received with respect thereto may be allocated to one or more Series as long
as the Rating Agency Condition shall have been satisfied with respect to such
allocation and the Servicer shall have delivered an officer's certificate to
the Trustee to the effect that the Servicer reasonably believes such
allocation will not adversely affect in any material respect the interests of
the Certificateholders of any Series issued and outstanding. There can be no
assurance, however, that any such allocation of Trust assets might not have an
impact on the timing and amount of payments received by a Certificateholder of
any Series.
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 be permitted to engage in
any business activity other than acquiring and holding Receivables, issuing
Series of Certificates, making payments thereon and engaging in related
activities (including, with respect to any Series, obtaining any Enhancement
and entering into a related Enhancement agreement).
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FIRST NBC'S CREDIT CARD ACTIVITIES
GENERAL
First Bankcard Center ("First Bankcard"), a division of First NBC, was one
of the earliest BankAmericard issuers, entering the credit card business in
1968. From that time through the early 1990's, First Bankcard relied primarily
on the branch networks of First NBC and its affiliated banks, a network of
correspondent banks ("agent banks"), affinity groups and portfolio
acquisitions to generate new accounts. In 1989 First Bankcard began its
relationship with the military sector and was awarded the management contract
for the Air Force Logistics Command's Club Card Program. Beginning in 1994,
First Bankcard's new account strategy has also included pre-approved campaigns
focused on the cross-selling of bankcard products to customers and prospects
of First NBC and its affiliated banks, agent banks and affinity groups. In
addition, these campaigns have been augmented with a few regionally specific
pre-approved prospect campaigns. In December, 1994, the Club Card Program was
expanded with United States Air Force Services ("USAF") to include Club Card
Program services at all United States Air Force bases in the United States,
including Alaska and Hawaii. The USAF Club Card Program was again expanded in
1996 to provide U. S. dollar-denominated Club Card Program services to
military personnel in bases outside the United States.
First Bankcard provides cardholder and/or merchant services to its network
of 202 agent banks, which have not chosen to become Class A members of the
VISA or MasterCard Associations. First Bankcard's 30 affinity groups benefit
from the value-added services provided by First Bankcard, as well as from
sharing in the on-going earnings generated by group members through use of
their cards. The USAF Club Card Program includes centralized dues and account
billing for both officers and enlisted clubs, providing a diverse population
for new account and account balance growth. Certain data processing and
administrative functions associated with the servicing of the Bank Portfolio
are performed by First Commerce Service Corporation. See "The Trust--
Description of First Commerce Service Corporation."
With respect to each Series of Certificates, the Receivables conveyed or to
be conveyed to the Trust by the Bank pursuant to the Agreement have been or
will be generated from transactions made by holders of selected MasterCard,
VISA and private label credit accounts, including premium accounts and
standard accounts, within the Bank Portfolio. Generally, both premium and
standard accounts undergo the same credit analysis, but premium accounts carry
higher credit limits and offer a wider variety of services to the cardholders.
The private label accounts included in the Bank Portfolio (the "Private Label
Accounts") relate to credit cards issued to military personnel who do not meet
the credit standards for issuance of standard credit cards. Payments due under
Private Label Accounts are charged back to a non-appropriated funds
instrumentality associated with the United States Air Force Services at 65-90
days past due. The non-appropriated funds instrumentality does not represent a
full faith and credit obligation of the United States. The Bank currently
services the Bank Portfolio in the manner described in the related Prospectus
Supplement. Other than the Private Label Accounts, all of the credit card
accounts currently owned by the Bank (including accounts in the Bank's
affinity programs) are MasterCard or VISA accounts. See "Risk Factors--
Possible Prepayment or Losses as a Result of Transferor's Ability to Adversely
Change Terms of the Receivables" for a discussion of the effect of the Bank's
ability to modify terms of the Receivables after the initial issuance of any
Series.
The VISA and MasterCard credit accounts may be used for four types of
transactions: credit card purchases, cash advances, balance transfers and
convenience checks. Purchases occur when cardholders use credit cards to buy
goods and/or services. A cash advance is made when a credit card is used to
obtain cash from a financial institution, an automated teller machine or in a
cash equivalent transaction. Cardholders (or accountholders) may also use
convenience checks to (i) transfer balances from other credit card accounts to
their First Bankcard accounts and (ii) draw against their VISA and MasterCard
credit card accounts at any time. Amounts due with respect to purchases, cash
advances and convenience checks are included in the Receivables. Private Label
Accounts may be used only for purchases at officer and enlisted clubs.
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In addition, MasterCard and VISA cardholders (or accountholders) in certain
states are able to purchase insurance against the inability to repay all or a
portion of their account balances for reasons such as involuntary
unemployment, death, disability or accidental death/dismemberment. Premiums
for this insurance are charged to the account for each monthly billing cycle
(each a "Billing Cycle"). Such insurance premiums are included in the
Receivables transferred to the Trust and are treated as Principal Receivables.
Each cardholder (or accountholder) is subject to an agreement with First
Bankcard governing the terms and conditions of the related MasterCard, VISA or
private label credit card account. Pursuant to each such agreement, except as
described herein or in any related Prospectus Supplement, First Bankcard
reserves the right, subject to notice as may be required by law or such
agreement, to add to, change or terminate any terms, conditions, services or
features of its MasterCard, VISA or private label credit card accounts at any
time, including increasing or decreasing the periodic finance charges, other
charges or the minimum monthly payment requirements. The agreement with each
cardholder (or accountholder) provides that First Bankcard may apply such
changes, when applicable, to current outstanding balances as well as to future
transactions. The foregoing notwithstanding, certain affinity agreements
provide that the terms and conditions of the agreement between First Bankcard
and the cardholder (or accountholder) may be changed only at the end of the
contract period of such affinity agreement.
ACQUISITION AND USE OF CREDIT CARD ACCOUNTS
New credit card account marketing and solicitation is handled by the First
Bankcard Marketing Department. New credit card accounts are originated through
both customer inquiry and direct mail solicitation programs. Customer inquiry
originations are generally initiated by applicants who pick up applications at
a branch of the Bank, a First NBC affiliated bank or an agent bank, from an
affinity group or at any Club Card Program location, or call First Bankcard
and ask that an application be sent to them. Direct mail solicitations are
generally followed up by telemarketing efforts.
First Bankcard believes that its network of affiliated banks, agent banks,
affinity groups and military relationships, for which First Bankcard has the
exclusive right to market credit cards bearing the name of the related
financial institution or organization, represents significant opportunities
for growth in the cardholder base. First Bankcard believes that these
relationships generally provide better credit quality and lower attrition than
non-relationship-based accounts. These relationships are generally governed by
agency or affinity agreements between First Bankcard and an agent bank,
affiliate bank or sponsoring institution, which are periodically subject to
renewal, renegotiation or cancellation by one or both parties (in some cases
as often as annually). Any changes
in the terms of one of these programs or in First NBC's participation in such
program could affect the rate at which new Receivables are generated in the
related Accounts.
Credit applications are processed through an automated application
processing system that uses credit scorecards. A "score" is calculated for
each applicant, using information from the application and a credit bureau
report obtained through an independent credit reporting agency. The credit
scorecards are based upon credit scoring models developed with Fair, Isaac and
Company, Inc. Those applications that are flagged for further review (i.e.,
those that are neither accepted nor rejected) by the automated application
processing system are reviewed by a First Bankcard credit analyst who makes a
credit and limit assignment decision based on a review of (i) the score
generated by the credit scorecard, (ii) information contained in the
application, (iii) the independent credit report referred to above and (iv) an
analysis of the applicant's capacity to repay. The primary factors considered
in the non-military credit scoring model include (a) the presence or absence
of existing credit references and checking and savings account references, (b)
the number of recently reported installment loans reflected in the credit
file, (c) revolving utilization reflected in the credit file and (d) the
number of inquiries. The primary factors considered in the military credit
scoring model include (a) occupation, (b) high credit card utilization
reflected in the credit file, (c) the number of major derogatory ratings
reflected in the credit file and (d) the number of inquiries by other credit
providers.
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First Bankcard also uses a prescreening process as a method of acquiring new
accounts. First Bankcard primarily identifies potential prospects for pre-
approved solicitations through lists obtained from (i) First NBC and its
affiliated banks, (ii) agent banks and (iii) affinity groups. First Bankcard
submits to the credit bureaus its credit criteria and cutoff scores for those
criteria to screen prospects. Lists of individuals who meet the criteria are
returned to the mailing list vendor, and a pre-approved offer for a credit
card is made to those individuals. An offeree's response to the solicitation
is reviewed and confirmed, and a credit card is issued. Where an individual's
creditworthiness undergoes rapid and substantial change following the initial
prescreening, First Bankcard may refuse to extend any credit to that
individual despite the pre-approved offer. The primary factors considered in
First Bankcard's credit criteria are (a) the length and depth of the
individual's credit experience, (b) recency and severity of the delinquencies
reflected in the file, (c) the presence of derogatory public record
information and (d) the use of a generic credit bureau score model developed
by Fair, Isaac and Company, Inc.
If First Bankcard acquires credit card accounts originally opened by another
institution, those accounts may have been opened using criteria different from
those used by First Bankcard and may not have been subject to the same level
of credit review as accounts originally established by First Bankcard.
Portfolios of revolving credit accounts purchased by First Bankcard from other
credit card issuers may be added to the Trust from time to time.
DESCRIPTION OF FIRST COMMERCE SERVICE CORPORATION
Credit card processing services performed by First Commerce Service
Corporation ("FCSC"), a wholly owned subsidiary of the Corporation, include
statement rendering, payment processing, data processing, embossing, research,
accounting, purchasing, legal, audit, human resources and network services and
systems development. FCSC's data network provides an interface to MasterCard
International Incorporated and VISA USA, Inc. for performing authorizations
and funds transfers. Data processing and network functions are performed in
FCSC's facility in Harahan, Louisiana.
INTERCHANGE AND OTHER ACCOUNT REVENUES
Creditors participating in the VISA and MasterCard associations receive
Interchange as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard systems, a portion of this Interchange in
connection with cardholder charges for goods and services is passed from banks
which clear the transactions for merchants to credit card issuing banks.
Interchange fees are set annually by MasterCard and VISA and are based on the
number of credit card transactions and the amount charged per transaction.
Each Prospectus Supplement will specify whether or not the Transferor will be
required to transfer to the Trust for the benefit of the related Series a
percentage of Interchange and the basis on which any such percentage will be
determined.
First NBC also currently earns additional revenues in connection with the
Bank Portfolio in the form of payments from advertisers for the inclusion of
advertising inserts with monthly statements relating to accounts in the Bank
Portfolio, and rebates or similar payments from issuers of credit insurance
policies on account of claims experience related to the Bank Portfolio. Each
Prospectus Supplement will also specify whether or not the Transferor will be
required to transfer to the Trust for the benefit of the related Series a
percentage of these "Other Account Revenues" reasonably determined by the
Transferor to be attributable to that Series interest in the Receivables.
If so required to be transferred, Interchange and Other Account Revenues
arising under the Accounts will be allocated to the related Certificates of
any Series in the manner provided in the related Prospectus Supplement, and,
in each case, will be (a) treated as collections of Finance Charge Receivables
and used to pay required monthly payments including interest on the related
Series of Certificates, (b) used to pay all or a portion of the Servicing Fee
to the Servicer, or (c) both, as specified in the related Prospectus
Supplement.
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THE RECEIVABLES
The Receivables conveyed to the Trust will arise in Accounts selected from
the Bank Portfolio on the basis of criteria set forth in the Agreement as
applied on the Cut-Off Date and, with respect to Additional Accounts, as of
the related date of their designation (the "Trust Portfolio"). 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 in
such Additional Accounts, whether such Receivables are then existing or
thereafter created, or to transfer Participations in lieu of such Receivables
or in addition thereto. Any Additional Accounts designated pursuant to the
Agreement must be Eligible Accounts as of the date the Transferor designates
such accounts as Additional Accounts. Furthermore, pursuant to the Agreement,
the Transferor has the right (subject to certain limitations and conditions)
to designate certain Accounts as Removed Accounts and to require the Trustee
to reconvey all Receivables in such Removed Accounts to the Transferor,
whether such Receivables are then existing or thereafter created. Throughout
the term of 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. With respect to each Series of
Certificates, the Transferor will represent and warrant to the Trust that, as
of the Closing Date and the date Receivables are conveyed to the Trust, such
Receivables meet certain eligibility requirements. See "Description of the
Certificates--Representations and Warranties."
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the Trust Portfolio as of the date
specified. Such information will include, but not be limited to, the amount of
Principal Receivables, the amount of Finance Charge Receivables, the range of
balances of the Accounts and the average thereof, the range of credit limits
of the Accounts and the average thereof, the range of ages of the Accounts and
the average thereof, the geographic distribution of the Accounts, the types of
Accounts and delinquency statistics relating to the Accounts.
MATURITY ASSUMPTIONS
Following the Revolving Period for each Series, collections of Principal
Receivables are expected to be distributed to the Certificateholders of that
Series or any specified Class thereof on each specified Distribution Date
during the Controlled Amortization Period or the Principal Amortization
Period, or are expected to be accumulated for payment to Certificateholders of
that Series or any specified Class thereof during an Accumulation Period and
distributed on a Scheduled Payment Date. However, if the Rapid Amortization
Period commences, collections of Principal Receivables will be paid to
Certificateholders in the manner described herein and in the related
Prospectus Supplement. Further, if a Partial Amortization occurs, certain
funds available in the Excess Funding Account may be paid to
Certificateholders in the manner described herein and in the related
Prospectus Supplement. The related Prospectus Supplement will specify when the
Controlled Amortization Period, the Principal Amortization Period or an
Accumulation Period, as applicable, will commence, the principal payments
expected or available to be received or accumulated during such Controlled
Amortization Period, Principal Amortization Period or Accumulation Period, or
on the Scheduled Payment Date, as applicable, the manner and priority of
principal accumulations and payments among the Classes of a Series of
Certificates, the payment rate assumptions on which such expected principal
accumulations and payments are based and the Pay Out Events which, if any were
to occur, would lead to the commencement of a Rapid Amortization Period or, if
so specified in the related Prospectus Supplement, a Rapid Accumulation
Period.
No assurance can be given, however, that collections on Principal
Receivables allocated to be paid to Certificateholders or the holders of any
specified Class thereof will be available for distribution or accumulation for
payment to Certificateholders on each Distribution Date during the Controlled
Amortization Period, the Principal Amortization Period or an Accumulation
Period, or on the Scheduled Payment Date, as applicable. See "Risk Factors--
Payment Other than at Expected Maturity."
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USE OF PROCEEDS
The net proceeds from the sale of each Series of Certificates offered hereby
will be paid to the Transferor as consideration for the transfer of the
Receivables to the Trust. The Transferor will use such proceeds for its
general corporate purposes.
FIRST NBC AND FIRST COMMERCE CORPORATION
First NBC is a national banking association and a wholly owned subsidiary of
First Commerce Corporation (the "Corporation"). The Bank's main office is
located at 210 Baronne Street, New Orleans, Louisiana 70112, telephone (504)
623-1371. The New Orleans metropolitan area is the primary market served by
the Bank. The Bank and its subsidiaries offer a full range of banking and
related financial services to commercial and consumer customers. First NBC
issues credit cards both directly and as agent for other banks.
The Corporation is a Louisiana corporation and a bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and
maintains its headquarters in New Orleans, Louisiana. The Corporation has six
wholly owned bank subsidiaries, each in Louisiana: the Bank, City National
Bank of Baton Rouge, Central Bank (Monroe), The First National Bank of
Lafayette, Rapides Bank & Trust Company in Alexandria and The First National
Bank of Lake Charles. The Prospectus Supplement for each Series of
Certificates will provide additional information, including limited financial
information, relating to the Bank's credit card activities and the
Corporation.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in the Trust other than the interests represented by any other Series
of Certificates issued by the Trust (which may include Series offered pursuant
to this Prospectus) and the Transferor Interest. Each Series will be issued
pursuant to a Series Supplement. The Prospectus Supplement for each Series
will describe any provisions of the Agreement relating to such Series which
may differ materially from the Agreement filed as an exhibit to the
Registration Statement. The following summaries describe certain provisions
common to each Series of Certificates. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Agreement and Series Supplement.
GENERAL
The Certificates of each Series will represent undivided interests in
certain assets of the Trust, including the right to the applicable Investor
Percentage of all payments on the Receivables in the Trust. The Investor
Interest for each Series of Certificates on any date will generally be equal
to the initial Investor Interest as of the related Closing Date for such
Series (increased by the principal balance of any Certificates of such Series
issued after the Closing Date for such Series) minus the amount of principal
paid to the related Certificateholders prior to such date and minus the amount
of unreimbursed Investor Charge-Offs with respect to such Certificates prior
to such date, except that the Invested Amount of any pre-funded Series may
increase upon the transfer of additional Principal Receivables to the Trust or
the reduction of the Investor Interest or the Adjusted Investor Interest of
another Series. If so specified in the Prospectus Supplement relating to any
Series of Certificates, under certain circumstances the Investor Interest may
be further adjusted by the amount of principal allocated to
Certificateholders, the funds on deposit in any specified account, and any
other amount specified in the related Prospectus Supplement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates or Subordinated Certificates. Each Class
of a Series will evidence the right to receive a specified portion of each
distribution of principal or interest or both. The Investor Interest with
respect to a Series with
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more than one Class will be allocated among the Classes as described in the
related Prospectus Supplement. The Certificates of a Class may differ from
Certificates of other Classes of the same Series in, among other things, the
amounts allocated to principal payments, maturity date, Certificate Rate and
the availability of Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates were registered on the
record dates (each, a "Record Date") specified in the related Prospectus
Supplement. Interest will be distributed to Certificateholders in the amounts,
for the periods and on the dates specified in the related Prospectus
Supplement.
The Transferor Interest will represent the undivided interest in the Trust
not represented by the Certificates issued and outstanding under the Trust or
the rights, if any, of any Credit Enhancement Providers to receive payments
from the Trust. As holder of the Transferor Interest, the Transferor will have
the right to a percentage (the "Transferor Percentage") of payments from the
Receivables in the Trust. The Transferor Interest may be transferred in whole
or in part subject to the limitations and conditions described therein. See
"--Certain Matters Regarding the Transferor and the Servicer."
During the Revolving Period with respect to each Series of Certificates
offered hereby, the amount of the Investor Interest for that Series will
remain constant except as described in "--Defaulted Receivables; Incentive
Payments and Fraudulent Charges; Investor Charge-Offs" (which describes
circumstances in which the Investor Interest will be reduced during the
Revolving Period) and "--Funding Period" (which describes circumstances in
which the Investor Interest will be increased during a Funding Period which
would coincide with the Revolving Period for the affected Series). The amount
of Principal Receivables in the Trust, however, will vary each day as new
Principal Receivables are created and others are paid. The amount of the
Transferor Interest will fluctuate each day, to reflect the changes in the
amount of the Principal Receivables in the Trust (and amounts, if any, on
deposit in the Excess Funding Account). When a Series is amortizing, the
Investor Interest of such Series will decline as customer payments of
Principal Receivables are collected and distributed to or accumulated for
distribution to the Certificateholders. As a result, the Transferor Interest
will generally increase to reflect reductions in the Investor Interest for
such Series and will also change to reflect the variations in the amount of
Principal Receivables in the Trust. The Transferor Interest in the Trust may
also be reduced as the result of a New Issuance. See "--New Issuances."
Certificates of each Series initially will be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Transferor, the "Depository") except as set forth
below. See "--Definitive Certificates." With respect to each Series of
Certificates, beneficial interests in the Certificates will be available for
purchase in minimum denominations as specified in the related Prospectus
Supplement (or, if not so specified, in minimum denominations of $1,000 and
integral multiples thereof). As to any Series of Certificates issued in book-
entry form, the Transferor has been informed by DTC that DTC's nominee will be
Cede. Accordingly, Cede is expected to be the holder of record of each such
Series of Certificates. No Certificate Owner acquiring an interest in such
Certificates will be entitled to receive a certificate representing such
person's interest in the Certificates. Unless and until Definitive
Certificates are issued for any Series under the limited circumstances
described herein, all references herein to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from DTC Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Certificates, as
the case may be, for distribution to Certificate Owners in accordance with DTC
procedures. See "--Book-Entry Registration" and "--Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg Stock Exchange or any other
specified exchange.
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BOOK-ENTRY REGISTRATION
With respect to each Series of Certificates issued in book-entry form,
Certificateholders may hold their Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositories (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 New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
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
holds securities for its Participants ("DTC Participants") and facilitates the
clearance and settlement among DTC Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
book-entry changes in DTC Participants' accounts, thereby eliminating the need
for physical movement of securities certificates. DTC Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to the DTC system is also
available to others such as securities brokers and dealers, banks, and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and DTC Participants are on file with the Commission.
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, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel Participants
and Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a 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.
Purchases of Certificates under the DTC system must be made by or through
DTC Participants, which will receive a credit for the Certificates on DTC's
records. The ownership interest of each actual Certificate Owner is in turn to
be recorded on the DTC Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC
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Participant or Indirect Participant through which the Certificate Owner
entered into the transaction. Transfers of ownership interests in the
Certificates are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Certificate Owners. Certificate Owners will
not receive certificates representing their ownership interest in
Certificates, except in the event that use of the book-entry system for the
Certificates is discontinued.
To facilitate subsequent transfers, all Certificates deposited by DTC
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Certificates with DTC and their registration in the name of
Cede & Co. effects no change in beneficial ownership. DTC has no knowledge of
the actual Certificate Owners of the Certificates; DTC's records reflect only
the identity of the DTC Participants to whose accounts such Certificates are
credited, which may or may not be the Certificate Owners. The DTC Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to
Certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede & Co.'s
consenting or voting rights to those DTC Participants to whose accounts the
Certificates are credited on the record date (identified in a listing attached
thereto).
Principal and interest payments on the Certificates will be made to DTC.
DTC's practice is to credit Participants' accounts on the applicable
Distribution Date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payment on
such Distribution Date. Payments by DTC Participants to Certificate Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such DTC
Participant and not of DTC, the Trustee or the Transferor, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Trustee,
disbursement of such payments to DTC Participants shall be the responsibility
of DTC, and disbursement of such payments to Certificate Owners shall be the
responsibility of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Certificates at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Transferor may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor
securities depository). In that event, Definitive Certificates will be
delivered to Certificateholders. See "--Definitive Certificates."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Transferor believes to be reliable,
but the Transferor takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants,
thereby eliminating the need for physical movement of certificates.
Transactions may be settled in Cedel in any of 32 currencies, including United
States dollars. Cedel provides to its Cedel Participants, among other things,
services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary
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Institute. Cedel Participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the underwriters of any Series of Certificates. Indirect access to
Cedel is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in 25 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, Societe Cooperative, 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 Board establishes policy for the Euroclear System. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series of Certificates. Indirect access to the Euroclear
System is also available to other firms that maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System (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. See "U.S. Federal Income Tax Consequences." Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by a Certificateholder under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
If so specified in the related Prospectus Supplement, the Certificates of
each Series will be initially issued as Definitive Certificates in fully
registered, certificated form to Certificate Owners or their nominees rather
than
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to DTC or its nominee. If the related Prospectus Supplement states that a
Series will be issued in book-entry form, then Definitive Certificates will be
issued to Certificate Owners or their nominees only if (i) the Transferor
advises the Trustee for such Series in writing that DTC is no longer willing
or able to discharge properly its responsibilities as Depository with respect
to such Series of Certificates, and the Trustee or the Transferor is unable to
locate a qualified successor, (ii) the Transferor, at its option, advises the
Trustee in writing that it elects to terminate the book-entry system through
DTC or (iii) after the occurrence of a Servicer Default, Certificate Owners
representing not less than 50% (or such other percentage specified in the
related Prospectus Supplement) of the Investor Interest advise the Trustee and
DTC through DTC 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 DTC Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificate representing the Certificates and instructions for
reregistration, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Agreement ("Holders").
Distribution of principal and interest on the Certificates will be made by
the Trustee directly to Holders of Definitive Certificates in accordance with
the procedures set forth herein and in the Agreement. Interest payments and
any principal payments on each Distribution Date will be made to Holders in
whose names the Definitive Certificates were registered at the close of
business on the related Record Date. The final payment on any Certificate
(whether Definitive Certificates or the Certificates registered in the name of
Cede representing the Certificates), will be made only upon presentation and
surrender of such Certificate at the office or agency specified in the notice
of final distribution to Certificateholders. The Trustee will provide such
notice to registered Certificateholders not later than the fifth day of the
month of such final distributions.
Definitive Certificates will be transferable and exchangeable at the offices
of the Transfer Agent and Registrar, which shall initially be the Trustee. No
service charge will be imposed for any registration of transfer or exchange,
but the Transfer Agent and Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
The Transfer Agent and Registrar shall not be required to register the
transfer or exchange of Definitive Certificates for a period of fifteen days
preceding the due date for any payment with respect to such Definitive
Certificates.
INTEREST PAYMENTS
For each Series of Certificates and Class thereof, interest will accrue from
the date specified in the applicable Prospectus Supplement on the applicable
Investor Interest at the applicable Certificate Rate, which may be a fixed,
floating or other type of rate as specified in the related Prospectus
Supplement. Interest will be distributed to Certificateholders on the
Distribution Dates specified in the related Prospectus Supplement. Interest
payments on any Distribution Date will be funded from collections of Finance
Charge Receivables allocated to the Investor Interest during the preceding
Monthly Period or Periods and may be funded from certain investment earnings
on funds held in accounts of the Trust and from any applicable Credit
Enhancement, if necessary, or certain other amounts as specified in the
related Prospectus Supplement. If the Distribution Dates for payment of
interest for a Series or Class occur less frequently than monthly, such
collections or other amounts (or the portion thereof allocable to such Class)
may be deposited in one or more trust accounts (each, an "Interest Funding
Account") pending distribution to the Certificateholders of such Series or
Class, as described in the related Prospectus Supplement. If a Series has more
than one Class of Certificates, each such Class may have a separate Interest
Funding Account. The Prospectus Supplement relating to each Series of
Certificates will describe the amounts and sources of interest payments to be
made; the Certificate Rate for each Class thereof; for a Series or Class
thereof bearing interest at a floating Certificate Rate, the initial
Certificate Rate, the dates and the manner for determining subsequent
Certificate Rates, and the formula, index or other method by which such
Certificate Rates are determined; and any limitations on any such Certificate
Rate.
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PRINCIPAL PAYMENTS
Generally, during the Revolving Period for each Series of Certificates
(which begins on the related Closing Date and ends on the day before an
Amortization Period or Accumulation Period begins), no principal payments will
be made to the Certificateholders of such Series, although principal payments
may be made to Certificateholders of a Series during the Revolving Period, in
connection with a Partial Amortization or otherwise, if so specified in the
related Prospectus Supplement. During the Controlled Amortization Period or
Principal Amortization Period, as applicable, which will be scheduled to begin
on the date specified in, or determined in the manner specified in, the
related Prospectus Supplement, and during the Rapid Amortization Period, which
will begin upon the occurrence of a Pay Out Event or, if so specified in the
Prospectus Supplement, following the Rapid Accumulation Period, principal will
be paid to the Certificateholders in the amounts and on Distribution Dates
specified in the related Prospectus Supplement. During an Accumulation Period,
principal will be accumulated in a Principal Funding Account for later
distribution to Certificateholders on the Scheduled Payment Date in the
amounts specified in the related Prospectus Supplement. Principal payments for
any Series or Class thereof will be funded from collections of Principal
Receivables received during the related Monthly Period or Periods as specified
in the related Prospectus Supplement and allocated to such Series or Class, in
certain circumstances from amounts on deposit in the Excess Funding Account
and from certain other sources specified in the related Prospectus Supplement.
In the case of a Series with more than one Class of Certificates, the
Certificateholders of one or more Classes may receive payments of principal at
different times. The related Prospectus Supplement will describe the manner,
timing and priority of payments of principal to Certificateholders of each
Class.
Funds on deposit in any Principal Funding Account applicable to a Series may
be subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified in the related Prospectus Supplement intended to
assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
Series of Certificates or Class thereof at the end of an Accumulation Period,
such Series of Certificates or Class thereof may be subject to a principal
payment guaranty or other similar arrangement specified in the related
Prospectus Supplement.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
The Transferor will transfer and assign at the time of formation of the
Trust all of its right, title and interest in and to the Receivables in the
related Accounts and all Receivables thereafter created in such Accounts.
In connection with each transfer of Receivables to the Trust, the Transferor
will indicate in its computer files that the related Receivables have been
conveyed to the Trust. In addition, the Transferor will provide to the Trustee
computer files or microfiche lists containing a true and complete list of the
related Accounts, identified by account number and by total outstanding
balance on the date of transfer. The Transferor will not deliver to the
Trustee any other records or agreements relating to the Accounts or the
Receivables, except in connection with additions or removals of Accounts.
Except as stated above, the records and agreements relating to the Accounts
and the Receivables maintained by the Transferor or the Servicer are not and
will not be segregated by the Transferor or the Servicer from other documents
and agreements relating to other credit card accounts and receivables and are
not and will not be stamped or marked to reflect the transfer of the
Receivables to the Trust, but the computer records of the Transferor are and
will be required to be marked to evidence such transfer. The Transferor will
file with respect to the Trust Uniform Commercial Code financing statements
with respect to the Receivables meeting the requirements of applicable state
law. See "Risk Factors--Transfer of Receivables" and "Certain Legal Aspects of
the Receivables--Transfer of Receivables."
NEW ISSUANCES
The Agreement will authorize 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) one or more Supplemental
Certificates, evidencing partial interests in the Transferor Interest, which
are not offered hereby
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and which will be transferable only as provided in the Agreement. Pursuant to
the Agreement, the Transferor may define, with respect to any newly issued
Series, the terms of such new Series. Upon the issuance of an additional
Series of Certificates, none of the Transferor, the Servicer, the Trustee or
the Trust will be required (nor do they intend) to obtain the consent of any
Certificateholder of any other Series previously issued by the Trust. However,
as a condition of a New Issuance, the Transferor will deliver to the Trustee
written confirmation that the New Issuance will not result in the reduction or
withdrawal by any Rating Agency of its rating of any outstanding Series. The
Transferor may offer any Series under a Disclosure Document in offerings
pursuant to this Prospectus or in transactions either registered under the
Securities Act or exempt from registration thereunder directly, through one or
more other underwriters or placement agents, in fixed-price offerings or in
negotiated transactions or otherwise. To the extent provided in the related
Supplement (and subject to any applicable requirements under the Exchange Act
and the rules and regulations thereunder, including Rule 13e-4), a new Series
may be issued fully or partially in exchange for certificates of one or more
existing Series.
The Transferor may execute New Issuances such that each Series has a period
during which amortization or accumulation of the principal amount thereof is
intended to occur which may have a different length and begin on a different
date than such period for any other Series. Further, one or more Series may be
in their amortization or accumulation periods while other Series are not.
Moreover, each Series may have the benefit of a Credit Enhancement which is
available only to such Series. Under the Agreement, the Trustee shall hold any
such form of Credit Enhancement only on behalf of the Series to which it
relates. The Transferor may deliver a different form of Credit Enhancement
agreement with respect to any Series. The Transferor may specify different
certificate rates and monthly servicing fees with respect to each Series (or a
particular Class within such Series). The Transferor will also have the option
under the Agreement to vary between Series the terms upon which a Series (or a
particular Class within such Series) may be repurchased by the Transferor or
remarketed to other investors. There will be no limit to the number of New
Issuances that may be performed under the Agreement.
A New Issuance may only occur upon the satisfaction of certain conditions
provided in the Agreement. Under the Agreement, the Transferor may execute a
New Issuance by notifying the Trustee at least three days in advance of the
date upon which the New Issuance is to occur stating the Series to be issued
on the date of the New Issuance and, with respect to each such Series (and, if
applicable, each Class thereof): (1) its initial principal amount (or method
for calculating such amount), (2) its certificate rate (or method of
calculating such rate) and (3) the provider of Credit Enhancement, if any,
which is expected to provide support with respect to it. The Agreement will
provide that on the date of the New Issuance the Trustee will authenticate any
such Series only upon delivery to it of at least the following: (i) a Series
Supplement specifying the terms of such Series; (ii) (a) an opinion of counsel
to the effect that the certificates of such Series will be characterized as
indebtedness for Federal income tax purposes, unless the related Series
Supplement indicates that such opinion will not be provided, and (b) a Tax
Opinion; (iii) if required by the related Series Supplement, the form of
Credit Enhancement; (iv) if Credit Enhancement is required by the Series
Supplement, an appropriate Credit Enhancement agreement executed by the
Transferor and the Credit Enhancement Provider; (v) written confirmation from
each Rating Agency that the New Issuance will not result in such Rating
Agency's reducing or withdrawing its rating on any then outstanding Series
rated by it; (vi) an officer's certificate of the Transferor to the effect
that after giving effect to the New Issuance the Transferor would not be
required to add Additional Accounts pursuant to the Agreement and the
Transferor Interest would be at least equal to the Minimum Transferor
Interest; and (vii) if applicable, the certificates representing the Series to
be exchanged. Upon satisfaction of such conditions, the Trustee will cancel
the certificates of the exchanged Series, if applicable, and authenticate the
new Series. The Certificates resulting from a New Issuance may either be
delivered by the Trustee to the Bank for sale by the Bank or sold directly by
the Trust.
The Transferor also may from time to time cause the Trustee to sell
Purchased Interests to one or more purchasers. Any Purchased Interest will
represent an interest in the Trust's assets similar to the interest of a
Series of Certificates. No Series will be subordinated to any Purchased
Interest, and no Purchased Interest will have any interest in the Enhancement
or series accounts specified for any Series, except as specified in the
Prospectus Supplement relating to that Series. Any such sale will take place
pursuant to one or more agreements which will
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specify terms for the applicable Purchased Interests and may grant the
purchasers of such interests notice and consultation rights with respect to
rights or actions of the Trustee. Any sale of Purchased Interests in the
assets of the Trust will be subject to the satisfaction of the same conditions
(including Rating Agency confirmations) as for a New Issuance as appropriately
adjusted to apply to the relevant Purchased Interest rather than a New
Issuance.
ADDITIONAL TRANSFERORS
The Transferor may designate other persons to be included as a "Transferor"
("Additional Transferors") under the Agreement (by means of an amendment to
the Agreement that will not require the consent of any Certificateholder, see
"--Amendments" but will be subject to satisfaction of certain conditions,
including confirmation that such designation will not result in the withdrawal
or downgrade of the credit rating of any outstanding Series. Following the
inclusion of an Additional Transferor, the Additional Transferor will be
treated in the same manner as the initial Transferor and each Additional
Transferor generally will have the same obligations and rights as a Transferor
described herein.
REPRESENTATIONS AND WARRANTIES
In connection with the issuance of any Series of Certificates, the
Transferor will represent and warrant in the Agreement to the effect that (a)
as of the Closing Date, the Transferor was duly incorporated and in good
standing and that it has the authority to consummate the transactions
contemplated by the Agreement and (b) as of the Cut-Off Date (or as of the
date of the designation of Additional Accounts), each Account was an Eligible
Account. If (i) any of these representations and warranties proves to have
been incorrect in any material respect when made, and continues to be
incorrect for 60 days after notice to the Transferor by the Trustee or to the
Transferor and the Trustee by the Certificateholders holding more than 50% of
the Investor Interest of the related Series, and (ii) as a result the
interests of the Certificateholders are materially and adversely affected, and
continue to be materially and adversely affected during such period, then the
Trustee or Certificateholders holding more than 50% of the Investor Interest
may give notice to the Transferor (and to the Trustee in the latter instance)
declaring that a Pay Out Event has occurred, thereby commencing the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period.
The Transferor will also represent and warrant in the Agreement to the
effect that (a) as of the Closing Date of the initial Series of Certificates,
each of the related Receivables then existing is an Eligible Receivable (as
defined below) and (b) as of the date of creation of any new Receivable, such
Receivable is an Eligible Receivable and the representation and warranty set
forth in clause (b) in the immediately following paragraph is true and correct
with respect to such Receivable. In the event (i) of a breach of any
representation and warranty described in this paragraph, within 60 days, or
such longer period as may be agreed to by the Trustee, of the earlier to occur
of the discovery of such breach by the Transferor or Servicer or receipt by
the Transferor of written notice of such breach given by the Trustee, or, with
respect to certain breaches relating to prior liens, immediately upon the
earlier to occur of such discovery or notice and (ii) that as a result of such
breach, the Receivables in the related Accounts are charged off as
uncollectible, the Trust's rights in, to or under the Receivables or its
proceeds are impaired or the proceeds of such Receivables are not available
for any reason to the Trust free and clear of any lien, the Transferor will
accept reassignment of each Principal Receivable as to which such breach
relates (an "Ineligible Receivable") on the terms and conditions set forth
below. No such reassignment will be required to be made with respect to an
Ineligible Receivable if, on any day within the applicable period (or such
longer period as may be agreed to by the Trustee), the representations and
warranties with respect to that Ineligible Receivable are true and correct in
all material respects. The Transferor will accept reassignment of Ineligible
Receivables by directing the Servicer to deduct the amount of each Ineligible
Receivable from the Aggregate Principal Receivables used to calculate the
Transferor Interest. If the exclusion of an Ineligible Receivable from the
calculation of the Transferor Interest would cause the Transferor Interest to
be less than the Minimum Transferor Interest, on the date of reassignment of
such Ineligible Receivable the Transferor will make a deposit in the Excess
Funding Account in immediately available funds in an amount equal
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to the amount by which the Transferor Interest would be reduced below the
Minimum Transferor Interest. Any such deduction or deposit shall be considered
a repayment in full of the Ineligible Receivable. The obligation of the
Transferor to accept reassignment of any Ineligible Receivable is the sole
remedy respecting any breach of the representations and warranties set forth
in this paragraph with respect to such Receivable available to the
Certificateholders or the Trustee on behalf of Certificateholders.
The Transferor will also represent and warrant in the Agreement to the
effect that as of the Closing Date of the initial Series of Certificates (a)
the Agreement will constitute a legal, valid and binding obligation of the
Transferor and (b) the transfer of Receivables by it to the Trust under the
Agreement will constitute either a valid transfer and assignment to the Trust
of all right, title and interest of the Transferor in and to the Receivables
(other than Receivables in Additional Accounts), whether then existing or
thereafter created and the proceeds thereof (including amounts in any of the
accounts established for the benefit of Certificateholders) or the grant of a
first priority perfected security interest in such Receivables (except for
certain tax and other governmental liens) and the proceeds thereof (including
amounts in any of the accounts established for the benefit of
Certificateholders), which is effective as to each such Receivable upon the
creation thereof. In the event of a breach of any of the representations and
warranties described in this paragraph which has a material adverse effect on
the interest of the Certificateholders in the Receivables, either the Trustee
or the Holders of Certificates evidencing undivided interests in the Trust
aggregating more than 50% of the aggregate Investor Interest of all Series
outstanding may direct the Transferor to accept reassignment of the Trust
Portfolio within 60 days of such notice, or within such longer period
specified in such notice. The Transferor will be obligated to accept
reassignment of such Receivables on a Distribution Date occurring within such
applicable period. Such reassignment will not be required to be made, however,
if at any time during such applicable period, or such longer period, the
representations and warranties are true and correct in all material respects.
The deposit amount for such reassignment will equal the Investor Interest and
Enhancement Invested Amount, if any, plus accrued and unpaid interest for each
Series outstanding on the last day of the Monthly Period preceding the
Distribution Date on which the reassignment is scheduled to be made less the
amount, if any, previously allocated for payment of principal and interest to
such Certificateholders or such holders of the Enhancement Invested Amount or
the Collateral Interest, if any, on such Distribution Date. The payment of the
reassignment deposit amount and the transfer of all other amounts deposited
for the preceding month in the Distribution Account will be considered a
payment in full of the Investor Interest and the Enhancement Invested Amount,
if any, for each such Series required to be repurchased and will be
distributed upon presentation and surrender of the Certificates for each such
Series. The obligation of the Transferor to make any such deposit will
constitute the sole remedy respecting a breach of the representations and
warranties available to the Trustee or Certificateholders.
With respect to each Series of Certificates, an "Eligible Account" means, as
of the Cut-Off Date (or, with respect to Additional Accounts, as of their date
of designation for inclusion in the Trust), each Account owned by the
Transferor (a) which was in existence and maintained with the Transferor, (b)
which is payable in United States dollars, (c) the customer of which has
provided, as his most recent billing address, an address located in the United
States or its territories or possessions or a military address (except that up
to 3% of the aggregate number of all Accounts as of the Cut-Off Date or any
date on which Additional Accounts are designated for inclusion in the Trust
may have customers with billing addresses that do not satisfy this
requirement), (d) which has not been classified by the Transferor as canceled,
counterfeit, fraudulent, stolen or lost (except that Eligible Accounts may
include Accounts identified by the applicable customers as having balances
incurred as a result of fraudulent use or as to which the credit cards have
been identified as lost or stolen if (1) the Transferor appropriately reflects
the balance of the applicable Receivables on its books and records in
accordance with its customary practices and (2) charging privileges have been
canceled and are not reinstated), (e) which has either been originated by the
Transferor or acquired by the Transferor from other institutions, (f) which
has not been charged off by the Transferor in its customary and usual manner
for charging off such Account as of the Cut-Off Date and, with respect to
Additional Accounts, as of their date of designation for inclusion in the
Trust and (g) which satisfies any additional requirements specified in the
related Prospectus Supplement. Under the Agreement, the definition of Eligible
Account may be changed by amendment to the Agreement without the consent of
the related Certificateholders if (i) the Transferor delivers to the Trustee a
certificate of an authorized officer to the
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effect that, in the reasonable belief of the Transferor, such amendment will
not as of the date of such amendment adversely affect in any material respect
the interest of such Certificateholders, and (ii) such amendment will not
result in a withdrawal or reduction of the rating of any outstanding Series
under the Trust.
With respect to each Series of Certificates, an "Eligible Receivable" means
each Receivable (a) which has arisen under an Eligible Account, (b) which was
created in compliance, in all material respects, with all requirements of law
applicable to the Transferor, and pursuant to an account agreement which
complied in all material respects with all requirements of law applicable to
the Transferor, (c) with respect to which all consents, licenses 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, creation and performance by the
Transferor of the related account agreement, have been duly obtained or given
and are in full force and effect as of the date of the creation of such
Receivable, (d) as to which, at the time of its creation, the Transferor or
the Trust had good and marketable title free and clear of all liens and
security interests arising under or through the Transferor (other than certain
tax liens for taxes not then due or which the Transferor is contesting and any
other lien that is released or terminated at or before the time that the
receivable is transferred to the Trust), (e) which is the legal, valid and
binding payment obligation of the obligor thereon, legally enforceable against
such obligor in accordance with its terms (with certain bankruptcy-related
exceptions), (f) which constitutes an "account," "chattel paper" or a "general
intangible" under Article 9 of the Uniform Commercial Code as then in effect
in the State of Louisiana and (g) which satisfies any additional requirements
specified in the related Prospectus Supplement.
The Trustee will not make any initial or periodic general examination of the
Receivables or any records relating to the Receivables for the purpose of
establishing the presence or absence of defects, compliance with the
Transferor's representations and warranties or for any other purpose. The
Servicer, however, will deliver to the Trustee on or before March 31 of each
year (or such other date specified in the related Prospectus Supplement) an
opinion of counsel with respect to the validity of the security interest of
the Trust in and to the Receivables and certain other components of the Trust.
ADDITION OF TRUST ASSETS
As described above under "The Receivables," the Transferor will have the
right to designate for the Trust, from time to time, Additional Accounts to be
included as Accounts with respect to the Trust. In addition, the Transferor
will be required to designate Additional Accounts (a) to maintain the
Transferor Interest so that during any period of 30 consecutive days, the
Transferor Interest averaged over that period equals or exceeds the Minimum
Transferor Interest for the same period and (b) to maintain the sum of (i) the
Aggregate Principal Receivables and (ii) the principal amount on deposit in
the Excess Funding Account equal to or greater than the Minimum Aggregate
Principal Receivables. "Minimum Transferor Interest" means 7% of the aggregate
Principal Receivables at the end of the day immediately prior to the date of
determination. "Minimum Aggregate Principal Receivables" means an amount equal
to the sum of the numerators used to calculate the Investor Percentages with
respect to the allocation of collections of Principal Receivables for each
Series issued by the Trust then outstanding. However, the percentage used to
calculate the Minimum Transfer Interest, the Minimum Aggregate Principal
Receivables or both may be increased or reduced at any time if each Rating
Agency confirms that such action will not result in a withdrawal or downgrade
of its rating of any outstanding Series as to which it is a Rating Agency. The
Transferor's designation of Additional Accounts generally will be subject to
the satisfaction of the conditions described below.
However, the Transferor may from time to time designate to the Trust certain
accounts ("Automatic Additional Accounts") generated in the ordinary course of
business of the Transferor, subject to fewer conditions (but the remaining
conditions include limitations on the amount of Automatic Additional Accounts
that may be designated for the Trust during a period of time). The Transferor
will convey to the Trust its interest in all Receivables in Additional
Accounts, whether such Receivables are then existing or thereafter created.
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Each Additional Account (including Automatic Additional Accounts) must be an
Eligible Account at the time of its designation. However, Additional Accounts
may not be of the same credit quality as the initial Accounts. Additional
Accounts may have been originated by the Transferor using credit criteria
different from those which were applied by the Transferor to the initial
Accounts or may have been acquired by the Transferor from an institution which
may have had different credit criteria.
In addition to or in lieu of Additional Accounts, the Transferor under the
Agreement will be permitted (subject to compliance with applicable securities
laws) to add to the Trust participations or trust certificates representing
undivided interests in a pool of assets primarily consisting of receivables
arising under revolving credit accounts and collections thereon
("Participations"). Any Participation included in the Trust will represent an
undivided interest in the same types of assets that may be added as
Receivables arising in "Additional Accounts," but in the case of a
Participation the Trust would have a less direct interest in the specific
assets. Participations may be evidenced by one or more certificates of
ownership issued under a separate pooling and servicing agreement or similar
agreement (a "Participation Agreement") entered into by the Transferor which
entitles the Certificateholder to receive percentages of collections generated
by the pool of assets subject to such Participation Agreement from time to
time and to certain other rights and remedies specified therein.
Participations may have their own credit enhancement, pay out events,
servicing obligations and servicer defaults, all of which are likely to be
enforceable by a separate trustee under the Participation Agreement and may be
different from those specified herein. The rights and remedies of the Trust as
the holder of a Participation (and therefore the Certificateholders) will be
subject to all the terms and provisions of the related Participation
Agreement. The Agreement may be amended to permit the addition of a
Participation in the Trust without the consent of the related
Certificateholders if (i) the Transferor delivers to the Trustee a certificate
of an authorized officer to the effect that, in the reasonable belief of the
Transferor, such amendment will not as of the date of such amendment adversely
affect in any material respect the interest of such Certificateholders, and
(ii) such amendment will not result in a withdrawal or reduction of the rating
of any outstanding Series under the Trust.
A conveyance by the Transferor to the Trust of Receivables in Additional
Accounts or Participations is subject to the following conditions, among
others: (i) except in the case of Automatic Additional Accounts, the
Transferor shall give the Trustee, each Rating Agency and the Servicer written
notice that such Additional Accounts or Participations will be included, which
notice shall specify the approximate aggregate amount of the Receivables or
interests therein to be transferred; (ii) the Transferor shall have delivered
to the Trustee a written assignment (including an acceptance by the Trustee on
behalf of the Trust for the benefit of the Certificateholders) as provided in
the Agreement relating to such Additional Accounts or Participations (the
"Assignment") and, the Transferor shall have delivered to the Trustee a
computer file or microfiche list, dated the date of such Assignment,
containing a true and complete list of such Additional Accounts or
Participations; (iii) the Transferor shall represent and warrant that (a) 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, (b) no selection procedures believed by the Transferor to be
materially adverse to the interests of the Certificateholders were utilized in
selecting the Additional Accounts from the available Eligible Accounts from
the Bank Portfolio and (c) as of the Addition Date, the Transferor is not
insolvent; (iv) the Transferor shall deliver certain opinions of counsel with
respect to the transfer of the Receivables in the Additional Accounts or the
Participations to the Trust; and (v) under certain circumstances with respect
to Additional Accounts (but not in the case of Automatic Additional Accounts),
and in all cases with respect to Participations, the addition of such
Additional Accounts or Participations will not result in a withdrawal or
reduction of the rating of any outstanding Series under the Trust.
In addition to the periodic reports otherwise required to be filed by the
Servicer with the Commission pursuant to the Exchange Act, the Servicer
intends to file, on behalf of the Trust, a Report on Form 8-K with respect to
any addition to the Trust of Receivables in Additional Accounts or
Participations that would have a material effect on the composition of the
assets of the Trust, including statistical data, on a discrete basis,
describing the additional assets.
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REMOVAL OF ACCOUNTS
The Transferor may, but shall not be obligated to, designate from time to
time certain Accounts to be Removed Accounts and stop transferring new
Receivables arising in the Removed Accounts to the Trust. Pre-existing
Receivables in Removed Accounts may either be conveyed to the Transferor or
its designee or retained by the Trust. If such pre-existing Receivables are
retained in the Trust, the Servicer and the Transferor will agree to allocate
principal collections on the Removed Accounts on a first-in, first-out basis,
so that such collections will be allocated to outstanding advances in the
order in which such advances arose (beginning with the oldest outstanding
advance). Principal collections allocable to Receivables retained by the Trust
will be applied as Collections in accordance with the Agreement. Upon payment
of all amounts owing in respect of such Receivables, the Trust will transfer
the related Account to the Transferor.
The Transferor will, however, be permitted to designate Removed Accounts
only if: (i) such designation will not, in the reasonable belief of the
Transferor, cause a Pay Out Event to occur; (ii) the Transferor shall have
delivered to the Trustee for execution a written assignment and a computer
file or microfiche list containing a true and complete list of all Removed
Accounts identified by account number and the aggregate amount of the
Receivables in such Removed Accounts as of the end of the Billing Cycle
immediately preceding the date of removal; (iii) the Transferor represents and
warrants that no selection procedures believed by the Transferor to be
materially adverse to the interests of the holders of any Series of
Certificates outstanding were used in selecting the Removed Accounts to be
removed from the Trust; (iv) the Transferor shall have received notice from
each such Rating Agency that such proposed removal will not result in a
downgrade of its then-current rating for any such Series; (v) such other
conditions as are specified in any Prospectus Supplement or adopted by the
Transferor to enable the Transferor to derecognize Receivables transferred to
the Trust in accordance with applicable accounting principles; and (vi) the
Transferor shall have delivered to the Trustee an officer's certificate
confirming the items set forth in clauses (i) through (v) above.
Notwithstanding the above, the Transferor will be permitted to designate as a
Removed Account without the consent of the Trustee, Certificateholders or
Rating Agencies any Account that has a zero balance and which the Transferor
will remove from its computer file.
COLLECTION AND OTHER SERVICING PROCEDURES
For each Series of Certificates, the Servicer will be responsible for
servicing and administering the Receivables in accordance with the Servicer's
policies and procedures for servicing credit card receivables comparable to
the Receivables. The Servicer will be required to maintain fidelity bond
coverage insuring against losses through wrongdoing of its officers and
employees who are involved in the servicing of credit card receivables
covering such actions and in such amounts as the Servicer believes to be
reasonable from time to time.
DISCOUNT OPTION
The Transferor may at any time designate a specified fixed or variable
percentage as specified in the related Prospectus Supplement (the "Discount
Percentage") of the amount of Receivables arising in the Accounts on and after
the date such option is exercised (and if the Transferor so elects,
Receivables arising in the Accounts before the date such option is exercised)
that otherwise would have been treated as Principal Receivables to be treated
as Finance Charge Receivables. Such designation will become effective upon
satisfaction of the requirements set forth in the Agreement, including, if the
Discount Percentage would be greater than 3% after such designation,
confirmation by each Rating Agency that such designation will not result in a
withdrawal or downgrade of its rating of any outstanding Series of the Trust.
On the date of processing of any collections, the product of the Discount
Percentage and collections of Receivables that arise in the Accounts on such
day on or after the date such option is exercised (and if the Transferor so
elects, Receivables arising in the related Accounts before the date such
option is exercised) that otherwise would be Principal Receivables will be
deemed collections of Finance Charge Receivables and will be applied
accordingly. The Transferor may also elect to increase, decrease or terminate
the Discount Percentage.
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By designating (or increasing) a Discount Percentage, the Transferor would
in effect increase the amount of collections of Finance Charge Receivables
that are allocated to outstanding Series and available to cover interest on
the Certificates in that Series, defaults allocated to that Series and other
amounts, but conversely may reduce the effective principal payment rate with
respect to the Receivables (which could slow the payment of principal to
Certificateholders). The Transferor is not obligated under any circumstances
to designate (or increase) a Discount Percentage.
TRUST ACCOUNTS
With respect to the Trust, the Trustee will establish and maintain in the
name of the Trust, a "Finance Charge Account" and an "Excess Funding Account,"
as segregated trust accounts or with a Qualified Institution, for the benefit
of the Certificateholders of all related Series, including any Series offered
pursuant to this Prospectus. The Agreement will also permit the Trustee to
establish accounts for particular Series, including an Interest Funding
Account, a Principal Funding Account, a Pre-Funding Account or any other
account specified in the related Series Supplement. Each series account will
be an asset of the Trust held for the benefit of the Certificateholders of the
related Series and for the purposes set forth in the related Prospectus
Supplement. The other accounts referred to in this paragraph will be assets of
the Trust held for the benefit of all Certificateholders. The Trustee will
also establish a segregated demand deposit account to serve as the
"Distribution Account" for the Trust. The Servicer will establish and
maintain, in the name of the Trustee, on behalf of the Trust, for the benefit
of Certificateholders of all Series issued thereby, a non-interest bearing
segregated account to serve as the Collection Account for the Trust. The
Distribution Account and Collection Account will each be established as a
segregated trust account or with a "Qualified Institution," defined as a
depository institution or trust company, which may include the Trustee,
organized under the laws of the United States or any one of the states
thereof, which at all times has a certificate of deposit, short-term deposit
or commercial paper rating of P-1 by Moody's Investors Service, Inc.
("Moody's") and of at least A-1 by Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc. ("Standard & Poor's") or long-term
unsecured debt obligation (other than such obligation the rating of which is
based on collateral or on the credit of a person other than such institution
or trust company) rating of at least Aa3 by Moody's and AA- by Standard &
Poor's and deposit insurance provided by either the Bank Insurance Fund
("BIF") or the Savings Association Insurance Fund ("SAIF"), each administered
by the FDIC, or a depository institution, which may include the Trustee, which
is acceptable to each Rating Agency. Funds in the Excess Funding Account, the
Finance Charge Account, the Principal Funding Account, the Distribution
Account and any series account for the Trust will be invested, at the
direction of the Servicer, in (i) obligations fully guaranteed by the United
States of America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies, the certificates of
deposit of which have the highest rating from Moody's and Standard & Poor's,
(iii) commercial paper having, at the time of the Trust's investment, a rating
in the highest rating category from Moody's and Standard & Poor's, (iv)
bankers' acceptances issued by any depository institution or trust company
described in clause (ii) above, (v) money market funds which have the highest
rating from, or have otherwise been approved in writing by, Moody's and
Standard & Poor's (so long as such investment will not require the Trust to
register as an investment company under the Investment Company Act of 1940, as
amended), (vi) repurchase obligations with respect to any security described
in clause (i) above or with respect to any other security issued or guaranteed
by an agency or instrumentality of the United States of America, in either
case entered into with a depository institution or trust company described in
clause (ii) above and (vii) any other investment if each Rating Agency
confirms in writing that such investment will not adversely affect its then
current rating or ratings of the Investor Certificates and making such
investment will not require the Trust to register as an investment company
under the Investment Company Act of 1940, as amended (such investments,
"Permitted Investments"). Any earnings (net of losses and investment expenses)
on funds in the Finance Charge Account, the Excess Funding Account or the
Distribution Account will be treated as collections of Finance Charge
Receivables. The Servicer will have the revocable power to withdraw funds from
the Collection Account and to instruct the Trustee to make withdrawals and
payments from the Finance Charge Account and the Excess Funding Account for
the purpose of carrying out the Servicer's duties under the Agreement. Each
Prospectus Supplement will identify a paying agent which will have the
revocable power to withdraw funds from the Distribution Account for the
purpose of
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making distributions to the Certificateholders (or, if no such entity is
designated, the Trustee shall act as paying agent).
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may
specify that during a Funding Period, all or a portion of the principal amount
of such Series (the "Pre-Funding Amount") will be held in a Pre-Funding
Account pending the transfer of additional Receivables to the Trust or pending
the reduction of the Investor Interests of other Series issued by the Trust.
The related Prospectus Supplement will specify the initial Investor Interest
with respect to such Series, the Full Investor Interest and the date by which
the Investor Interest is expected to equal the Full Investor Interest. The
Investor Interest will increase as Receivables are added to the Trust or as
the Investor Interests of other Series of the Trust are reduced. See "--
Addition of Trust Assets." This feature is intended to permit the Transferor
to issue a new Series of Certificates at an opportune time, if the Investor
Interest of existing Series are expected to be reduced or additional
Receivables are expected to be included in the Trust at a subsequent time.
Certificateholders will not incur any costs, direct or indirect, as a result
of the exercise of this feature. If the Investor Interest does not equal the
Full Investor Interest by the end of the Funding Period, Certificateholders of
the affected Series will receive principal repayments prior to the expected
date of receipt. See "Risk Factors--Prepayment Resulting from Pre-Funding
Account." Any designation of Additional Accounts (or Participations) during
the Funding Period will be subject to the same conditions and protections
applicable at any other time. It is not expected or required that the Trustee
or any other Person (except for the Transferor) will make any initial
examination of Receivables added to the Trust during a Funding Period for the
purpose of establishing the presence or absence of defects, compliance with
the Transferor's representations and warranties or for any other purpose.
During the Funding Period, funds on deposit in the Pre-Funding Account for a
Series of Certificates will be withdrawn and paid to Transferor to the extent
of any increases in the Investor Interest. In the event that the Investor
Interest does not for any reason equal the Full Investor Interest by the end
of the Funding Period, any amount remaining in the Pre-Funding Account and any
additional amounts specified in the related Prospectus Supplement will be
payable to the Certificateholders of such Series in the manner and at such
time as set forth in the related Prospectus Supplement. Such payment will
reduce the aggregate principal amount of such Certificates.
Monies in the Pre-Funding Account will be invested by the Trustee in
Permitted Investments and, if so specified in the related Prospectus
Supplement, will be subject to a guaranteed rate or investment agreement or
other similar arrangement, and, in connection with each Distribution Date
during the Funding Period, investment earnings on funds in the Pre-Funding
Account during the related Monthly Period will be withdrawn from the Pre-
Funding Account and deposited, together with any applicable payment under a
guaranteed rate or investment agreement or other similar arrangement, into the
Finance Charge Account for distribution in respect of interest on the
Certificates of the related Series in the manner specified in the related
Prospectus Supplement.
ALLOCATIONS
The Servicer will allocate between the Investor Interest of each Series
issued by the Trust (and between each Class of each Series) and the Transferor
Interest, and, in certain circumstances, the interest of certain Credit
Enhancement Providers, all amounts collected on Finance Charge Receivables,
all amounts collected on Principal Receivables and all Net Default Amounts and
Net Recoveries. The Servicer will make each allocation by reference to the
applicable Investor Percentage of each Series and the Transferor Percentage,
and, in certain circumstances, the percentage interest of certain providers of
Enhancement (the "Credit Enhancement Percentage") with respect to such Series.
The Prospectus Supplement relating to a Series will specify the Investor
Percentage and, if applicable, the Credit Enhancement Percentage (or the
method of calculating such percentages) with respect to the allocations of
collections of Principal Receivables, Finance Charge Receivables and Net
Default Amounts and Net Recoveries during the Revolving Period, any
Amortization Period and any
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Accumulation Period, as applicable. In addition, for each Series of
Certificates having more than one Class, the related Prospectus Supplement
will specify the method of allocation between each Class.
The Transferor Percentage will, in all cases, be equal to 100% minus the
aggregate Investor Percentages and, if applicable, the Credit Enhancement
Percentages, for all Series then outstanding.
APPLICATION OF COLLECTIONS
Except as otherwise provided below, the Servicer will deposit into the
Collection Account for the Trust, no later than the second business day (or
such other day specified in the related Prospectus Supplement) following the
date of processing, any payment collected by the Servicer on the Receivables.
On the same day as any such deposit is made, the Servicer will make the
deposits and payments to the accounts and parties as indicated below;
provided, however, that for as long as First NBC remains the Servicer under
the Agreement and (a) (i) the Servicer provides to the Trustee a letter of
credit or other credit enhancement covering the risk of collection of the
Servicer acceptable to the Rating Agencies and (ii) the Rating Agency
Condition shall have been satisfied with respect to reliance on such letter of
credit or other credit enhancement or (b) the certificate of deposit or
unsecured short-term debt obligations of the Transferor are rated P-1 by
Moody's and at least A-1 by Standard & Poor's and insured by either BIF or
SAIF or (c) the Transferor makes other arrangements satisfactory to each
Rating Agency rating any Series then outstanding, then the Servicer may make
deposits to the Collection Account and such other deposits and payments on the
business day immediately prior to the Distribution Date (the "Transfer Date")
in an amount equal to the net amount of such deposits and payments which would
have been made had the conditions of this proviso not applied.
The Pooling and Servicing Agreement provides, that until the date on which
First NBC notifies the Trustee that First NBC is able, and elects, to
calculate the aggregate amount of Finance Charge Receivables and Principal
Receivables on a daily basis rather than on a Billing Cycle basis (the
"Conversion Date") references herein to deposits and payments of collections
received during a particular month shall instead refer to collections received
during Billing Cycles ending during such month. See "Description of
Certificates--Application of Collections." The Servicer will make such
deposits and payments based on the assumption that all collections received by
the Servicer with respect to the Receivables in each Billing Cycle are
collections of Finance Charge Receivables up to the amount of Finance Charge
Receivables billed with respect to Receivables in such Billing Cycle (with
respect to each Billing Cycle, the "Billed Finance Charge Receivables") and
collections in excess of the Billed Finance Charge Receivables are collections
of Principal Receivables, subject to a monthly reconciliation procedure. The
term "Aggregate Principal Receivables" means in the case of any date of
determination which occurs before the Conversion Date, the aggregate amount of
Principal Receivables as of the end of the Billing Cycles during the Monthly
Period immediately preceding such date of determination or, in the case of any
date of determination which occurs on or after the Conversion Date, the
aggregate amount of Principal Receivables as of the end of the day on such
date of determination.
Whether the Servicer is required to make monthly or daily deposits to the
Collection Account with respect to any Monthly Period, (i) the Servicer will
only be required to deposit Collections from the Collection Account into the
Finance Charge Account, the Excess Funding Account or such related series
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 provider of Enhancement and (ii) if at any
time prior to such Distribution Date the amount of Collections deposited in
the Collection Account exceeds the amount required to be deposited pursuant to
clause (i) above, the Servicer will be permitted to withdraw the excess from
the Collection Account.
The Servicer will withdraw the following amounts from the Collection Account
for application as indicated:
(a) an amount equal to the Transferor Percentage of the aggregate amount
of such deposits in respect of Principal Receivables and Finance Charge
Receivables, respectively, will be paid or held for payment to the
Transferor (or, in certain limited circumstances, deposited in the Excess
Funding Account);
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(b) subject to reallocations among a Reallocation Group (see "--
Reallocations Among Certificates of Different Series within a Reallocation
Group"), an amount equal to the applicable Investor Percentage of the
aggregate amount of such deposits in respect of Finance Charge Receivables
will be deposited into the Finance Charge Account for allocation and
distribution as described in the related Prospectus Supplement;
(c) during the Revolving Period, an amount equal to the applicable
Investor Percentage of the aggregate amount of such deposits in respect of
Principal Receivables will, in the case of a Principal Sharing Series, be
made available for principal payments or accumulation on other Series of
Certificates and otherwise (or to the extent not needed for such principal
payments or accumulation), will be paid or held for payment to the
Transferor, provided that if after giving effect to the inclusion in the
Trust of all Receivables on or prior to such date of processing and the
application of payments referred to in paragraph (a) above the Transferor
Interest is reduced to less than the Minimum Transferor Interest, the
excess will be deposited in the Excess Funding Account and will be used as
described in the related Prospectus Supplement;
(d) during the Controlled Amortization Period, Controlled Accumulation
Period or Rapid Accumulation Period, as applicable, an amount equal to the
applicable Investor Percentage of such deposits in respect of Principal
Receivables up to the amount, if any, specified in the related Prospectus
Supplement will be deposited in the Principal Funding Account or related
series account identified for such purpose, as applicable, for allocation
and distribution to Certificateholders as described in the related
Prospectus Supplement, except that, if collections of Principal Receivables
exceed the principal payments which may be allocated or distributed to
Certificateholders, then the amount of such excess will be paid to the
Transferor until the Transferor Interest is reduced to the Minimum
Transferor Interest, and thereafter will be deposited in the Excess Funding
Account or other specified account and will be used as described in the
related Prospectus Supplement, including for payment to other Series of
Certificates issued by the Trust; and
(e) during the Principal Amortization Period, if applicable, and the
Rapid Amortization Period, an amount equal to the applicable Investor
Percentage of such deposits in respect of Principal Receivables will be
deposited into the related series account identified for such purpose for
application and distribution as provided in the related Prospectus
Supplement.
In the case of a Series of Certificates having more than one Class, the
amounts in the Collection Account will be allocated and applied to each Class
in the manner and order of priority described in the related Prospectus
Supplement.
REALLOCATIONS AMONG DIFFERENT SERIES WITHIN A REALLOCATION GROUP
Group Investor Finance Charge Collections. Any Series offered hereby may, if
so specified in the related Prospectus Supplement, be included in a
Reallocation Group. Other Series issued in the future may also be included in
such Group.
The Servicer will calculate for each Monthly Period the Group Investor
Finance Charge Collections for a particular Reallocation Group, and on the
following Distribution Date will allocate such amount among the Investor
Interests (including any Enhancement Invested Amounts) for all Series in such
Reallocation Group in the following priority:
(i) Group Investor Monthly Interest;
(ii) Group Investor Monthly Fees;
(iii) Group Investor Default Amounts;
(iv) Group Investor Charge-Offs; and
(v) the balance pro rata among each Series in such Reallocation Group
based on the current Investor Interest (including any Enhancement Invested
Amount) of each such Series.
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In the case of clauses (i), (ii), (iii) and (iv), if the amount of Group
Investor Finance Charge Collections is not sufficient to cover each such
amount in full, the amount available will be allocated among the Series in
such Reallocation Group pro rata, based on the claim that each Series has
under the applicable clause. This means, for example, that if the amount of
Group Investor Finance Charge Collections is not sufficient to cover Group
Investor Monthly Interest, each Series in such Reallocation Group will share
such amount pro rata, and any Series in such Reallocation Group with a claim
with respect to monthly interest, overdue monthly interest and interest on
such overdue monthly interest, if applicable, which is larger than the claim
for such amounts for any other Series in such Reallocation Group (due to a
higher certificate rate) will receive a proportionately larger allocation than
such other Series.
The amount of Group Investor Finance Charge Collections allocated to the
Investor Interest (including any Enhancement Invested Amount) for a particular
Series offered hereby as described above is referred to herein as "Reallocated
Investor Finance Charge Collections."
"Group Investor Charge-Offs" means, for any Reallocation Group on any
Distribution Date, the sum of the Investor Charge-Offs for all Series in such
Reallocation Group for the related Monthly Period.
"Group Investor Default Amounts" means, for any Reallocation Group on any
Distribution Date, the sum of the Investor Default Amounts for all Series in
such Reallocation Group for the related Monthly Period.
"Group Investor Finance Charge Collections" means, for any Reallocation
Group on any Distribution Date, the sum of the Investor Finance Charge
Collections for all Series in such Reallocation Group for such Monthly Period.
"Group Investor Monthly Fees" means, for any Reallocation Group on any
Distribution Date, the aggregate amount of Investor Monthly Fees for all
Series in such Reallocation Group for such Distribution Date.
"Group Investor Monthly Interest" means, for any Reallocation Group on any
Distribution Date, the aggregate amount of monthly interest, overdue monthly
interest and interest on such overdue monthly interest, if applicable, for all
Series in such Reallocation Group for such Distribution Date.
"Investor Finance Charge Collections" means, for any Series, the amount of
collections of Finance Charge Receivables allocable to the Investor Interest
(including any Enhancement Invested Amount) of that Series for the related
Monthly Period, which is determined by multiplying by the applicable Investor
Percentage the aggregate amount of such collections for that Monthly Period.
"Investor Monthly Fees" means, for any Series on any Distribution Date, the
sum of the Servicing Fee for that Series for the related Monthly Period, and
any fees in respect of Credit Enhancement or similar fees which are paid out
of Reallocated Investor Finance Charge Collections for such Series pursuant to
the applicable Series Supplement.
The chart below demonstrates the manner in which collections of Finance
Charge Receivables are allocated and reallocated among Series in a
Reallocation Group. The chart assumes that the Trust has issued three Series
(Series 1, 2 and 3), and that each such Series is in its Revolving Period.
In Step 1, total collections of Finance Charge Receivables are allocated
among the three Series and the Transferor Interest based on the Investor
Percentage for each Series and the Transferor Percentage. The amounts
allocated to each Series pursuant to Step 1 are referred to as "Investor
Finance Charge Collections."
Group Investor Finance Charge Collections for all Series in a particular
Reallocation Group are pooled as shown above in Step 2 for reallocation to
each such Series as shown in Step 3. In Step 3 Group Investor Finance Charge
Collections are reallocated to each Series in such Reallocation Group as
described above based on the Series' respective claim with respect to interest
payable on the Certificates or Enhancement Invested Amount (if any) of such
Series, the Servicing Fee and the Investor Default Amount allocable to such
Series and certain other amounts in respect to such Series. The excess is
allocated pro rata among the Series in such Group based on their respective
Investor Interests (including any Enhancement Invested Amounts).
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LOGO
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SHARED EXCESS FINANCE CHARGE COLLECTIONS
The Prospectus Supplement relating to a Series will specify whether such
Series will be an Excess Allocation Series and will identify any previously
issued Excess Allocation Series. The Certificateholders of an Excess
Allocation Series may be entitled to receive all or a portion of Excess
Finance Charge Collections with respect to other Excess Allocation Series to
cover any shortfalls with respect to amounts payable from collections of
Finance Charge Receivables allocable to such Series. While any Series offered
hereby may be designated as an Excess Allocation Series, there can be no
assurance that (a) any other Series will be designated as an Excess Allocation
Series, (b) there will be any Excess Finance Charge Collections with respect
to any such other Series for any Monthly Period, or (c) any agreement relating
to any Credit Enhancement will not be amended in such a manner as to increase
payments to the providers of Credit Enhancement and thereby decrease the
amount of Excess Finance Charge Collections available from such Series. See
"--Application of Collections" and "--Defaulted Receivables; Incentive
Payments and Fraudulent Charges; Investor Charge-Offs."
EXCESS FUNDING ACCOUNT
If on any date a Retention Condition exists, the Servicer will not
distribute to the Transferor any collections of Principal Receivables that
otherwise would be distributed to the Transferor, but shall instead deposit
such funds in a segregated account established and maintained by the Trustee,
in the name of the Trust, for the benefit of Certificateholders of all Series,
as a trust account or with the Servicer or with a Qualified Institution (the
"Excess Funding Account") until the Retention Condition ceases. Funds on
deposit in the Excess Funding Account will be withdrawn and paid to the
Transferor on any date provided that a Retention Condition is not in effect,
or would result from such payment, on such date. In addition, if a Controlled
Accumulation Period, Controlled Amortization Period, Principal Amortization
Period, Rapid Amortization Period or Rapid Accumulation Period commences with
respect to any Series entitled to the benefits of Shared Principal
Collections, then an amount of funds on deposit in the Excess Funding Account
(after giving effect to the release of funds to the Transferor as described
above) up to the amount, if any, by which the Transferor Interest would be
less than zero if there were no funds on deposit in the Excess Funding Account
on such date, 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. "Retention
Condition" means (a) on any day on and after the Conversion Date, either (i)
the Transferor Interest is less than the Minimum Transferor Interest or (ii)
the sum of the Aggregate Principal Receivables and the principal amount on
deposit in the Excess Funding Account is less than the Minimum Aggregate
Principal Receivables (in each case determined after giving effect to any
transfer of Principal Receivables to the Trust on such day); or (b) on any day
prior to the Conversion Date, Retention Condition shall have the meaning
specified in the applicable Prospectus Supplement.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Permitted Investments. Any
earnings (net of losses and investment expenses) earned on amounts on deposit
in the Excess Funding Account during any Monthly Period will be withdrawn from
the Excess Funding Account and turned over to or at the direction of the
Servicer.
SHARED PRINCIPAL COLLECTIONS
If a Series is designated a "Principal Sharing Series" in the related
Prospectus Supplement, to the extent that collections of Principal Receivables
and certain other amounts that are allocated to the Investor Interest of such
Series are not needed to make payments or deposits with respect to such
Series, such collections will constitute Shared Principal Collections and will
be applied to cover principal payments due to or for the benefit of
Certificateholders of other Principal Sharing Series. Any such reallocation
will not result in a reduction in the Investor Interest of the Series to which
such collections were initially allocated.
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PAIRED SERIES
If specified in the Prospectus Supplement relating to a Series, such Series
may be paired with another Series (each, a "Paired Series"), such that a
reduction in the Investor Interest or Adjusted Investor Interest of one such
Series results in an increase in the Investor Interest of the other such
Series. A Paired Series would provide financing for a portion of the Trust's
assets, from which the Collections of Principal Receivables are dedicated to a
pre-existing Series if that pre-existing Series has, in part, been paid or
effectively defeased with Collections that have been set aside for an eventual
payment. The effect of a Paired Series is to provide for continuous investment
in the Receivables by Certificateholders, thereby reducing the potential
increase in the Transferor Interest as the first of the Paired Series'
interest in the Trust is reduced through the amortization or accumulation of
principal. If a Pay Out Event occurs with respect to a Series having a Paired
Series or with respect to the Paired Series when such Series is in a
Controlled Amortization Period or Controlled Accumulation Period, the Investor
Percentage for collections of Principal Receivables for the Series and for its
Paired Series may be reset as specified in the related Prospectus Supplements.
The "Adjusted Investor Interest" for any Series means the Investor Interest of
that Series, adjusted in any manner described in the related Prospectus
Supplement.
DEFAULTED RECEIVABLES; INCENTIVE PAYMENTS AND FRAUDULENT CHARGES; INVESTOR
CHARGE-OFFS
For each Series of Certificates, on the business day preceding each Transfer
Date (the "Determination Date"), the Servicer will calculate the amount (for
each Series, the "Investor Default Amount") equal to the applicable Investor
Percentage of the Net Default Amount for the related Monthly Period. In the
case of a Series of Certificates having more than one Class, the Investor
Default Amount will be allocated among the Classes in the manner described in
the related Prospectus Supplement. If so provided in the related Prospectus
Supplement, an amount equal to the Investor Default Amount for any Monthly
Period may be paid from other amounts, including collections in the Finance
Charge Account or from Credit Enhancement, and applied to pay principal to
Certificateholders or the Transferor, as appropriate. In the case of a Series
of Certificates having one or more Classes of Subordinated Certificates, the
related Prospectus Supplement may provide that all or a portion of amounts
otherwise allocable to such Subordinated Certificates may by paid to the
Senior Certificateholders to make up any Investor Default Amount allocable to
such Senior Certificateholders.
The Investor Interest of each Series will be reduced (an "Investor Charge-
Off") to the extent that the related Investor Default Amount for any Monthly
Period exceeds the amount of collections in the Finance Charge Account
available to cover the Investor Default Amount and any amounts available under
applicable Credit Enhancement for such purpose. Investor Charge-Offs will be
reimbursed on any Distribution Date to the extent amounts on deposit in the
Finance Charge Account and otherwise available therefor exceed interest, fees
and any aggregate Investor Default Amount payable on such date, resulting in
an increase in the Series' Investor Interest. In the case of a Series of
Certificates having more than one Class, the related Prospectus Supplement
will describe the manner and priority of allocating Investor Charge-Offs and
reimbursements thereof among the Investor Interests of the several Classes.
If the Servicer adjusts the amount of any Principal Receivable because of
transactions or set-offs occurring in respect of an incentive payment to or
for the benefit of a cardholder or because such Principal Receivable was
created in respect of merchandise which was refused or returned by a
cardholder, then the amount of the Transferor Interest in the Trust will be
reduced by the aggregate amount of the adjustment. In addition, the Transferor
Interest in the Trust will be reduced, on a net basis, as a result of
transactions in respect of any Principal Receivable which was discovered to
have been created through a fraudulent or counterfeit charge. Furthermore, in
the event that the exclusion of such Receivables from the calculation of the
Transferor Interest at such time would cause the Transferor Interest to be
less than the Minimum Transferor Interest, the Transferor will be required to
pay an amount equal to such deficiency into the Excess Funding Account.
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DEFEASANCE
If so specified in the Prospectus Supplement relating to a Series, the
Transferor may terminate its substantive obligations in respect of such Series
or the Trust by depositing with the Trustee, from amounts representing, or
acquired with, collections of Receivables, money or Permitted Investments
sufficient to make all remaining scheduled interest and principal payments on
such Series or all outstanding Series of Certificates, as the case may be, on
the dates scheduled for such payments and to pay all amounts owing to any
Credit Enhancement Provider with respect to such Series or all outstanding
Series, as the case may be, if such action would not result in a Pay Out Event
for any Series. Prior to its first exercise of its right to substitute money
or Permitted Investments for Receivables, the Transferor will deliver to the
Trustee (i) an opinion of counsel to the effect that such deposit and
termination of obligations will not result in the Trust being required to
register as an "investment company" within the meaning of the Investment
Company Act of 1940, as amended and (ii) a Tax Opinion.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Certificates of each Series offered hereby will be subject to optional
repurchase by the Transferor on any Distribution Date after that Series'
Investor Interest and any related Enhancement Invested Amount is reduced to an
amount less than or equal to 5% of the initial Investor Interest (or such
lesser amount as may be specified in the related Prospectus Supplement), if
certain conditions set forth in the Agreement are met. The repurchase price
will be specified in the related Prospectus Supplement.
The Certificates of each Series will be retired on the day following the
Distribution Date on which the final payment of principal is scheduled to be
made to the Certificateholders, whether as a result of optional reassignment
to the Transferor or otherwise. Each Prospectus Supplement will specify the
final date on which principal and interest with respect to the related Series
of Certificates will be scheduled to be distributed (the "Series Termination
Date"). Certificates may, however, be subject to prior termination as provided
above. If the Investor Interest is greater than zero on the Series Termination
Date, the Trustee or Servicer may be required to sell or cause to be sold
certain Receivables in the manner provided in the Agreement and Series
Supplement and to pay the net proceeds of such sale and any collections on the
Receivables, in an amount at least equal to the sum of the Investor Interest
and the Enhancement Invested Amount, if any, with respect to such Series plus
accrued interest due thereon.
Unless the Servicer and the Transferor instruct the Trustee otherwise, the
Trust will terminate on the earlier of (a) the day after the Distribution Date
on which the aggregate Investor Interest and, if specified in the Prospectus
Supplement for any Series, the Enhancement Invested Amount or Collateral
Interest, if any, with respect to each Series is zero, (b) the Specified Trust
Termination Date or (c) if the Receivables are sold or disposed of,
immediately following such sale or disposition (such date, the "Trust
Termination Date"). Upon the termination of the Trust, 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. For purposes hereof, the
"Specified Trust Termination Date" means the day which is 21 years less one
day after the death of the officers and the last survivor of all the lineal
descendants of every officer of the Trustee of the Trust who are living on the
date of the Agreement, or such later date which would not render the rights,
privileges or options under the Trust invalid under applicable law.
PAY OUT EVENTS
The Revolving Period will terminate prior to the date specified in the
related Prospectus Supplement if a Pay Out Event occurs prior to such date. A
Pay Out Event occurs with respect to all Series upon the occurrence of any of
the following events:
(a) certain events of insolvency or receivership relating to the
Transferor;
(b) the Transferor is unable for any reason to transfer Receivables to
the Trust in accordance with the provisions of the Agreement; or
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(c) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In addition, a Pay Out Event may occur with respect to any Series upon the
occurrence of any other event specified in the related Prospectus Supplement.
On the date on which a Pay Out Event is deemed to have occurred, the Rapid
Amortization Period or, if so specified in the related Prospectus Supplement,
the Rapid Accumulation Period will commence. If, because of the occurrence of
a Pay Out Event, the Rapid Amortization Period begins earlier than the
scheduled commencement of an Amortization Period or prior to a Scheduled
Payment Date, Certificateholders will begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the
average life of the Certificates.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of Federal law, the Transferor voluntarily
enters liquidation or a receiver is appointed for the Transferor, on the day
of such event the Transferor will immediately cease to transfer Principal
Receivables to the Trust and promptly give notice to the Trustee of such
event.
If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of a Rapid
Amortization Period or, if applicable with respect to a Series as specified in
the related Prospectus Supplement, a Rapid Accumulation Period. In addition, a
conservator or receiver may have the power to cause the early sale of the
Receivables and the early retirement of the Certificates. See "Risk Factors--
Possible Delays, Prepayment or Losses as a Result of Receivership of
Transferor" and "Certain Legal Aspects of the Receivables--Certain Matters
Relating to Receivership."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For each Series of Certificates, the Servicer will be compensated for its
servicing activities and reimbursed for its expenses by payment to it of the
Servicing Fee at the times and in the amounts specified in the related
Prospectus Supplement. The Servicing Fee will be funded from collections of
Finance Charge Receivables allocated to the Investor Interest and will be paid
each month (or on any other specified basis) from amounts so allocated and on
deposit in the Finance Charge Account (which, if so specified in the related
Prospectus Supplement, may include all or a portion of the Interchange arising
from the Accounts) or, in certain limited circumstances, from amounts
available from Enhancement and other sources, if any. The remainder of the
servicing fee for the Trust will be allocable to the Transferor Interest, the
Investor Interests of any other Series issued by the Trust and the interest
represented by the Collateral Interest or the Enhancement Invested Amount, if
any, with respect to such Series, as described in the related Prospectus
Supplement. Neither the Trust nor the Certificateholders will have any
obligation to pay the portion of the servicing fee allocable to the Transferor
Interest.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables, including payment of
the fees and disbursements of the Trustee and independent certified public
accountants and other fees that are not expressly stated in the Agreement to
be payable by the Trust or the Certificateholders (but excluding Federal,
state and local income and franchise taxes, if any, of the Trust).
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
With respect to each Series of Certificates, the Servicer may not resign
except upon determination that performance of its duties is no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or another successor to the Servicer has assumed the
Servicer's responsibilities and obligations under the Agreement.
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The Agreement will provide that the Servicer will indemnify the Trust and
Trustee from and against any reasonable loss, liability, expense, damage or
injury suffered or sustained by reason of any acts or omissions or alleged
acts or omissions of the Servicer with respect to the activities of the Trust
or the Trustee. The Servicer will not, however, indemnify (a) the Trustee for
liabilities imposed by reason of fraud, negligence or willful misconduct by
the Trustee in the performance of its duties under the Agreement, (b) the
Trust, the Certificateholders or the Certificate Owners for liability 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 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 any Federal, state, local or foreign
income or franchise tax or any other tax imposed on or measured by income (or
any interest or penalties with respect thereto or arising from a failure to
comply therewith) required to be paid by the Trust, the Certificateholders or
the Certificate Owners in connection with the Agreement to any taxing
authority.
The Agreement will provide that neither the Transferor nor the Servicer nor
any of their respective directors, officers, employees or agents will be under
any other liability to the Trust, Trustee, Certificateholders or any other
person for any action taken, or for refraining from taking any action, in good
faith pursuant to the Agreement. Neither the Transferor, the Servicer, nor any
of their respective directors, officers, employees or agents will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of the Transferor, the Servicer or
any such person in the performance of its duties or by reason of reckless
disregard of obligations and duties thereunder. In addition, the Agreement
will provide that the Servicer is not under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its servicing
responsibilities under the Agreement and which in its opinion may expose it to
any expense or liability.
The Agreement will provide that, in addition to New Issuances, the
Transferor may transfer all or a portion of the Transferor Interest, provided
that prior to any such transfer (a) the Trustee receives written notification
from each Rating Agency that such transfer will not result in a lowering of
its then-existing rating of the Certificates of each outstanding Series rated
by it and (b) the Trustee receives a Tax Opinion.
Any person into which, in accordance with the Agreement, the Transferor or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Transferor or the Servicer is a party, or
any person succeeding to the business of the Transferor or the Servicer, upon
execution of a supplement to the Agreement and delivery of an opinion of
counsel with respect to the compliance of the transaction with the applicable
provisions of the Agreement, will be the successor to the Transferor or the
Servicer, as the case may be, under the Agreement.
In addition, if the Bank elects to sell or otherwise dispose of the
Accounts, then the new owner of the Accounts may be substituted for the Bank
as Transferor and Servicer upon the satisfaction of certain conditions,
including the delivery of a Tax Opinion and receipt of written confirmation
from each Rating Agency that such substitution will not result in such Rating
Agency's reducing or withdrawing its rating on any then outstanding Series
rated by it.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or Certificateholders representing undivided interests aggregating more than
50% of the Investor Interests for all Series of Certificates of the Trust, by
written notice to the Servicer (and to the Trustee if given by the
Certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Transferor under the Agreement and
in the Transferor Interest will not be affected by such termination. The
Trustee will as promptly as possible appoint a successor Servicer. If no such
Servicer has been appointed and
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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. If the Trustee is unable
to legally act as Servicer, the Trustee shall petition a court to appoint a
financial institution with risk-based capital or a net worth of at least
$50,000,000 whose regular business includes servicing VISA or MasterCard
credit card receivables to act as successor Servicer.
"Servicer Default" under the Agreement refers to any of the following
events:
(a) failure by the Servicer to make any payment, transfer or deposit, or
to give instructions to the Trustee to make certain payments, transfers or
deposits, on the date the Servicer is required to do so under the Agreement
or any Series Supplement (or within the applicable grace period, which
shall not exceed five business days);
(b) failure on the part of the Servicer duly to observe or perform in any
respect any other covenants or agreements of the Servicer which has a
material adverse effect on the Certificateholders of any Series issued and
outstanding and which continues unremedied for a period of 60 days after
written notice and continues to have a material adverse effect on such
Certificateholders; or the delegation by the Servicer of its duties under
the Agreement, except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer in
the Agreement, or in any certificate delivered pursuant to the Agreement,
proves to have been incorrect when made which has a material adverse effect
on the Certificateholders of any Series issued and outstanding, and which
continues to be incorrect in any material respect for a period of 60 days
after written notice and continues to have a material adverse effect on
such Certificateholders; or
(d) the occurrence of certain insolvency events with respect to the
Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to in clause (a) above for a period of 10 business days (or, in either case,
such longer or shorter period as may be specified in the related Prospectus
Supplement), or referred to under clause (b) or (c) for a period of 30
business days, will not constitute a Servicer Default if such delay or failure
could not be prevented by the exercise of reasonable diligence by the Servicer
and such delay or failure was caused by an act of God or other similar
occurrence. Upon the occurrence of any such event, the Servicer will not be
relieved from using its best efforts to perform its obligations in a timely
manner in accordance with the terms of the Agreement, and the Servicer will
provide the Trustee, any provider of Enhancement, the Transferor and the
holders of Certificates of each Series issued and outstanding under the Trust
prompt notice of such failure or delay by it, together with a description of
the cause of such failure or delay and its efforts to perform its obligations.
If a conservator or receiver is appointed for the Servicer, and no Servicer
Default other than such conservatorship or receivership or the insolvency of
the Servicer exists, the conservator or receiver may have the power to prevent
either the Trustee or the majority of the certificateholders from effecting a
Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
For each Series of Certificates, on each Distribution Date, or as soon
thereafter as is practicable, as specified in the related Prospectus
Supplement, the Trustee will forward to each Certificateholder of record a
statement prepared by the Servicer setting forth, among other things: (a) the
total amount distributed, (b) the amount of the distribution on such
Distribution Date allocable to principal on the Certificates, (c) the amount
of such distribution allocable to interest on the Certificates, (d) the amount
of collections of Principal Receivables processed during the preceding month
or months since the last Distribution Date and allocated in respect of the
Certificates, (e) the Aggregate Principal Receivables, the Investor Interest
and the Investor Interest as a percentage of the aggregate amount of the
Principal Receivables in the Trust as of the end of the last day of the
preceding Monthly Period or Periods since the last Distribution Date, (f) the
aggregate outstanding balance of Accounts which are 30-59, 60-89 and 90 or
more days delinquent (or a similar classification of delinquency) as of the
end of the last day of the preceding Monthly Period or Periods since the last
Distribution Date, (g) the
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aggregate Investor Default Amount for the preceding Monthly Period or Periods
since the last Distribution Date, (h) the amount of Investor Charge-Offs for
the preceding Monthly Period or Periods since the last Distribution Date and
the amount of reimbursements of previous Investor Charge-Offs for the
preceding Monthly Period or Periods since the last Distribution Date, (i) the
amount of the Servicing Fee for the preceding Monthly Period or Periods since
the last Distribution Date, (j) the amount available under any Enhancement and
Credit Enhancement, if any, as of the close of business on such Distribution
Date, (k) the aggregate amount of collections on Finance Charge Receivables
processed during the preceding Monthly Period or Periods since the last
Distribution Date, (l) the Portfolio Yield for the preceding Monthly Period or
Periods since the last Distribution Date, (m) information as to any Shared
Excess Finance Charge Collections, Reallocated Investor Finance Charge
Collections and funds in the Excess Funding Account, and (n) certain
information relating to the floating or variable Certificate Rates, if
applicable, for the Monthly Period or Periods ending on such Distribution
Date. If a Series of Certificates has more than one Class, the statements
forwarded to Certificateholders will provide information as to each Class of
Certificates.
On or before January 31 of each calendar year or such other date as
specified in the related Prospectus Supplement, the Trustee will furnish to
each person who at any time during the preceding calendar year was a
Certificateholder of record, a statement prepared by the Servicer containing
the information required to be contained in the regular monthly report to
Certificateholders, as set forth in clauses (a), (b) and (c) above aggregated
for such calendar year or the applicable portion thereof during which such
person was a Certificateholder, together with such other customary information
(consistent with the treatment of the Certificates as debt) as the Trustee or
the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their United States tax returns.
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that on or before March 31 of each calendar year
commencing after the calendar year during which it becomes effective (or
another date specified in the related Prospectus Supplement) the Servicer will
cause a firm of independent certified public accountants to furnish a report
to the effect that such accounting firm has made a study and evaluation of the
Servicer's internal accounting controls relative to the servicing of the
Accounts and that, on the basis of such examination, such firm is of the
opinion that such servicing was conducted in compliance with the sections of
the Agreement during the period covered by such report (which shall be the
prior calendar year), except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in
such statement. On the same time frames, the Servicer will also be required to
cause a firm of independent certified public accountants to furnish a report
to the effect that they have compared the mathematical calculations of each
amount set forth in the monthly Servicer reports referred to above during the
prior calendar year, or the portion thereof falling after the initial Closing
Date, with Servicer's computer reports which were the source of such amounts
and that on the basis of such comparison, such firm is of the opinion that
such amounts are in agreement, except for such exceptions as it believes to be
immaterial to the financial statements of Servicer and such other exceptions
as shall be set forth in such report. The foregoing procedures do not
constitute an audit under generally accepted accounting principles.
The Agreement will provide for delivery to the Trustee on or before March 31
of each calendar year commencing after the calendar year during which it
becomes effective, or such other date as is specified in the related
Prospectus Supplement, of an annual statement signed by an officer of the
Servicer to the effect that the Servicer has fully performed its obligations
under the Agreement throughout the preceding year, or, if there has been a
default in the performance of any such obligation, specifying the nature and
status of the default.
AMENDMENTS
The Agreement and any Series Supplement may be amended by the Transferor,
the Servicer and the Trustee, without the consent of Certificateholders of any
Series then outstanding, provided that the Transferor has delivered to the
Trustee an officer's certificate to the effect that the Transferor reasonably
believes that such amendment will not adversely affect in any material respect
the interest of such Certificateholders and that the
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Rating Agency Condition has been satisfied. Amendments may be made as
described in the foregoing sentence in order (among other things) to (i)
provide additional Credit Enhancement for the benefit of the Holders of any
Series or substitute such Credit Enhancement, (ii) add one or more
Participations to the Trust, (iii) designate one or more Additional
Transferors or substitute Transferors, (iv) cure any ambiguity or correct or
supplement any provision contained in the Agreement or Series Supplement which
may be defective or inconsistent with any other provisions thereof, (v) enable
all or a portion of the Trust to qualify as, and to permit an election to be
made to cause the Trust to be treated as, a "financial asset securitization
investment trust," as described in the provisions of the SBJP Act (and, in
connection with any such election, to modify or eliminate existing provisions
of relating to the intended Federal income tax treatment of the Certificates
and the Trust), (vi) enable the Trust to qualify as a partnership for purposes
of any state tax laws and (vii) enable Receivables transferred to the Trust to
be derecognized by the Transferor (or applicable Additional Transferor) under
applicable accounting principles (including provisions relating to the removal
of Accounts) and the Trust to not be treated as a member of the Transferor's
(or such related Additional Transferor's) consolidated group under applicable
accounting principles.
Among other amendments that may be made as described under clause (vi) in
the preceding paragraph, the Agreement may be amended to provide that if
pursuant to certain provisions of Federal law, the Transferor voluntarily
enters liquidation or a receiver is appointed for the Transferor, within 15
days, the Trustee will publish a notice of the liquidation or the appointment
stating that the Trustee intends to sell, dispose of, or otherwise liquidate
the Receivables in a commercially reasonable manner. Any such amendment will
provide that, unless otherwise instructed within a specified period by
Certificateholders representing undivided interests aggregating more than 50%
of the Investor Interest of each Series (or if any Series has more than one
Class, of each Class, and any other Person specified in the Agreement or a
Series Supplement) issued and outstanding, the Trustee will sell, dispose of,
or otherwise liquidate the Receivables in a commercially reasonable manner and
on commercially reasonable terms. The proceeds from the sale, disposition or
liquidation of the Receivables will be treated as collections of the
Receivables and applied as specified above in "--Application of Collections"
and in the various Prospectus Supplements.
The Agreement and the related Series Supplement 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%
(or such other percentage specified in the related Prospectus Supplement) of
the Investor Interests for all Series of the Trust, for the purpose of adding
any provisions to, changing in any manner or eliminating any of the provisions
of, the Agreement or the related Series Supplement or of modifying in any
manner the rights of Certificateholders of any outstanding Series of the
Trust. No such amendment, however, may (a) reduce in any manner the amount of,
or delay the timing of, distributions required to be made on any Series, (b)
change the definition of or the manner of calculating the interest of any
Certificateholder of any Series issued by the Trust or (c) reduce the
aforesaid percentage of undivided interests the holders of which are required
to consent to any such amendment, in each case without the consent of all
Certificateholders of the related Series and of all Series adversely affected.
Promptly following the execution of any amendment to the Agreement, the
Trustee will furnish written notice of the substance of such amendment to each
Certificateholder. Any Series Supplement and any amendments regarding the
addition or removal of Receivables or Participations from the Trust will not
be considered an amendment requiring Certificateholder consent under the
provisions of the Agreement and any Series Supplement.
LIST OF CERTIFICATEHOLDERS
Upon written request of Certificateholders of record representing undivided
interests in the Trust aggregating not less than 10% (or such other percentage
specified in the related Prospectus Supplement) of a Series' Investor
Interest, 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 Trustee may, however, refuse to supply such
list until it has been adequately indemnified by such Certificateholders for
its costs and expenses, and will give the Servicer
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notice that such request has been made. See "--Book-Entry Registration" and
"--Definitive Certificates" above.
THE TRUSTEE
The Prospectus Supplement for each Series will specify the 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
(except that the Trustee may not hold a Certificate issued by the Trust for
its own account). In addition, for purposes of meeting the legal requirements
of certain local jurisdictions, the Trustee shall have the power to appoint a
co-trustee or separate trustees of all or any part of the Trust. In the event
of such appointment, all rights, powers, duties and obligations conferred or
imposed upon the Trustee by the Agreement shall be conferred or imposed upon
the Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Trustee.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Transferor will be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee does not
become effective until acceptance of the appointment by the successor Trustee.
INTEREST RATE SWAPS AND RELATED CAPS, FLOORS AND COLLARS
The Trustee on behalf of the Trust may enter into interest rate swaps and
related caps, floors and collars to minimize the risk to Certificateholders
from adverse changes in interest rates (collectively, "Swaps").
An interest rate Swap is an agreement between two parties ("Counterparties")
to exchange a stream of interest payments on an agreed hypothetical or
"notional" principal amount. No principal amount is exchanged between the
Counterparties to an interest rate Swap. In the typical Swap, one party agrees
to pay a fixed rate on a notional principal amount, while the Counterparty
pays a floating rate based on one or more reference interest rates such as the
London Interbank Offered Rate ("LIBOR"), a specified bank's prime rate, or
U.S. Treasury Bill rates. Interest rate Swaps also permit Counterparties to
exchange a floating rate obligation based upon one reference interest rate
(such as LIBOR) for a floating rate obligation based upon another referenced
interest rate (such as U.S. Treasury Bill rates).
The Swap market has grown substantially in recent years with a significant
number of banks and financial service firms acting both as principals and as
agents utilizing standardized Swap documentation. Caps, floors and collars are
more recent innovations, and they are less liquid than other Swaps. There can
be no assurance that the Trust will be able to enter into or offset Swaps at
any specific time or at prices or on other terms that are advantageous. In
addition, although the terms of Swaps may provide for termination under
certain circumstances, there can be no assurance that the Trust will be able
to terminate or offset a Swap on favorable terms.
CREDIT ENHANCEMENT
GENERAL
Credit Enhancement may be provided with respect to one or more Classes or
any Series. Credit Enhancement may be in the form of the subordination of one
or more Classes of the Certificates of such Series, the establishment of a
cash collateral guaranty or account, a collateral interest, a letter of
credit, a surety bond, an insurance policy, a spread account, a reserve
account, the use of cross-support features or any combination of
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the foregoing. Each Prospectus Supplement will specify the Class or Classes
entitled to the benefit of any applicable Credit Enhancement.
Credit Enhancement generally will not provide protection against all risks
of loss and will not guarantee repayment of the entire principal balance of
the Certificates and interest thereon, although Credit Enhancement for a
particular Class or Series may provide such protection and guarantee if so
specified in the related Prospectus Supplement. If losses occur which exceed
the amount covered by the Credit Enhancement or which are not covered by the
Credit Enhancement, Certificateholders will bear their allocable share of
deficiencies.
If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable
under such Credit Enhancement, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
payable under such Credit Enhancement may be reduced and under which such
Credit Enhancement may be terminated or replaced and (d) any material
provision of any agreement relating to such Credit Enhancement. Additionally,
the related Prospectus Supplement may set forth certain information with
respect to any Credit Enhancement Provider, including (i) a brief description
of its principal business activities, (ii) its principal place of business,
place of incorporation and the jurisdiction under which it is chartered or
licensed to do business, (iii) if applicable, the identity of regulatory
agencies which exercise primary jurisdiction over the conduct of its business
and (iv) its total assets, and its stockholders' or policy holders' surplus,
if applicable, and other appropriate financial information as of the date
specified in the Prospectus Supplement. If so specified in the related
Prospectus Supplement, Credit Enhancement with respect to a Series may be
available to pay principal of the Certificates of such Series following the
occurrence of certain Pay Out Events with respect to such Series, and the
Credit Enhancement Provider may have an interest in certain cash flows in
respect of the Receivables to the extent described in such Prospectus
Supplement (the "Enhancement Invested Amount").
SUBORDINATION
If specified in the related Prospectus Supplement, one or more Classes of
any Series will be subordinated as described in the related Prospectus
Supplement to the extent necessary to fund payments with respect to the
related Senior Certificates. The rights of the holders of any such
Subordinated Certificates to receive distributions of principal and/or
interest on any Distribution Date will be subordinate in right and priority to
the rights of the holders of Senior Certificates to the extent set forth in
the related Prospectus Supplement. If specified in the related Prospectus
Supplement, subordination may apply only in the event of certain types of
losses not covered by another Credit Enhancement. The related Prospectus
Supplement will also set forth information concerning the amount of
subordination of a Class or Classes of Subordinated Certificates in a Series,
the circumstances in which such subordination will be applicable, the manner,
if any, in which the amount of subordination will decrease over time and the
conditions under which amounts available from payments that would otherwise be
made to holders of such Subordinated Certificates will be distributed to
holders of Senior Certificates. If collections of Receivables otherwise
distributable to holders of a Subordinated Class of a Series will be used as
support for a Class of another Series, the related Prospectus Supplement will
specify the manner and conditions for applying such a cross-support feature.
CASH COLLATERAL GUARANTY OR ACCOUNT
If specified in the related Prospectus Supplement, support for a Series or
one or more Classes thereof will be provided by a guaranty (the "Cash
Collateral Guaranty") secured by the deposit of cash or certain permitted
investments in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the
Cash Collateral Account will be the lesser of amounts on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments are made to beneficiaries of the Cash Collateral Guaranty
from the Cash Collateral Account or from the Cash Collateral Account directly.
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COLLATERAL INTEREST
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes will be provided initially by an undivided interest
in the Trust (the "Collateral Interest") in an amount initially equal to a
percentage of the Certificates of such Series as specified in the Prospectus
Supplement. Such Series may also have the benefit of a Cash Collateral
Guaranty or Cash Collateral Account with an initial amount on deposit therein,
if any, as specified in the Prospectus Supplement which will be increased (i)
to the extent the Transferor elects, subject to certain conditions specified
in the related Prospectus Supplement, to apply collections of Principal
Receivables allocable to the Collateral Interest to decrease the Collateral
Interest, (ii) to the extent collections of Principal Receivables allocable to
the Collateral Interest are required to be deposited into the Cash Collateral
Account as specified in the related Prospectus Supplement and (iii) to the
extent excess collections of Finance Charge Receivables are required to be
deposited into the Cash Collateral Account as specified in the related
Prospectus Supplement. The total amount of the Credit Enhancement available
pursuant to the Collateral Interest and, if applicable, the Cash Collateral
Guaranty or Cash Collateral Account will be the lesser of the sum of the
Collateral Interest and the amount on deposit in the Cash Collateral Account
and an amount specified in the related Prospectus Supplement. The related
Prospectus Supplement will set forth the circumstances under which payments
which otherwise would be made to holders of the Collateral Interest will be
distributed to holders of Certificates and, if applicable, the circumstances
under which payment will be made under the Cash Collateral Guaranty or under
the Cash Collateral Account.
LETTER OF CREDIT
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes will be provided by one or more letters of credit.
A letter of credit may provide limited protection against certain losses in
addition to or in lieu of other Credit Enhancement. The issuer of the letter
of credit will be obligated to honor demands with respect to such letter of
credit, to the extent of the amount available thereunder, to provide funds
under the circumstances and subject to such conditions as are specified in the
related Prospectus Supplement.
The maximum liability of the issuer of the letter of credit under a letter
of credit will generally be an amount equal to a percentage specified in the
related Prospectus Supplement of the Initial Investor Interest of a Series or
a Class of such Series. The maximum amount available at any time to be paid
under a letter of credit will be determined in the manner specified therein
and in the related Prospectus Supplement.
SURETY BOND OR INSURANCE POLICY
If specified in the related Prospectus Supplement, insurance with respect to
a Series or one or more of its Classes will be provided by one or more
insurance companies. Such insurance will guarantee, with respect to one or
more Classes of the related Series, distributions of interest or principal in
the manner and amount specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class or such Series
to assure distributions of interest or principal with respect to such Series
or Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
SPREAD ACCOUNT
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes will be provided by the periodic deposit of certain
available excess cash flow from the Trust assets into an account (the "Spread
Account") intended to assist with subsequent distribution of interest and
principal on the Certificates of such Class or Series in the manner specified
in the related Prospectus Supplement.
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RESERVE ACCOUNT
If specified in the related Prospectus Supplement, support for a Series or
one or more of its Classes or any related Enhancement will be provided by a
reserve account (the "Reserve Account"). The Reserve Account may be funded, to
the extent provided in the related Prospectus Supplement, by an initial cash
deposit, the retention of certain periodic distributions of principal,
interest or both otherwise payable to one or more Classes of Certificates,
including the Subordinated Certificates, or the provision of a letter of
credit, guarantee, insurance policy or other form of credit or any combination
thereof. The Reserve Account will be established to assist with the subsequent
distribution of principal or interest on the Certificates of such Series or
Class or amounts owing on any related Enhancement as provided in the related
Prospectus Supplement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor will represent and warrant in the Agreement that the transfer
of Receivables by it to the Trust is either a valid transfer and assignment to
the Trust of all right, title and interest of the Transferor in and to the
related Receivables, except for the Transferor Interest, or the grant to the
Trustee of a security interest in such Receivables. The Transferor also will
represent and warrant in the Agreement that, if the transfer of Receivables by
the Transferor to the Trust is deemed to create a security interest under
Chapter 9 of the Louisiana Commercial Laws, as in effect in the State of
Louisiana (the "UCC"), there will exist a valid, subsisting and enforceable
first priority perfected security interest in such Receivables created
thereafter in favor of the Trustee on and after their creation, except for
certain tax and other governmental liens. For a discussion of the Trust's
rights arising from a breach of these warranties, see "Description of the
Certificates--Representations and Warranties."
The Transferor will represent as to Receivables to be conveyed that the
Receivables are "accounts", "chattel paper" or "general intangibles" for
purposes of the UCC. Both the absolute transfer and assignment of accounts and
the transfer of accounts as security for an obligation are treated for certain
purposes under Article 9 of the UCC as creating a security interest therein
and are subject to its provisions, and the filing of an appropriate financing
statement is required to perfect the interest of the Trust. Financing
statements covering the Receivables have been and will be filed with the
appropriate governmental authority to protect the interests of the Trust in
the Receivables.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after a Closing
Date could have an interest in such Receivables with priority over the Trust's
interest. Under the Agreement, however, the Transferor will represent and
warrant that it transferred the Receivables to the Trust free and clear of the
lien of any third party. In addition, the Transferor will covenant that it
will not sell, pledge, assign, transfer or grant any lien on any Receivable
(or any interest therein) other than to the Trust. A tax or government lien or
other nonconsensual lien on property of the Transferor arising prior to the
time a Receivable comes into existence may also have priority over the
interest of the Trust in such Receivable. In addition, if the FDIC were
appointed as conservator or receiver of the Transferor, certain administrative
expenses of the receiver may also have priority over the interest of the Trust
in such Receivable. If a conservatorship or receivership proceeding were to be
commenced involving the Transferor and the conservator or receiver of the
Transferor were to take the position that the transfer of the Receivables from
the Transferor to the Trust should be characterized as the grant of a security
interest in such Receivables, then delays in distributions on the Certificates
and reductions in such distributions could result. In addition, while the
Transferor is the Servicer, cash collections held by the Transferor may,
subject to certain conditions, be commingled and used for the benefit of the
Transferor prior to the date on which such collections are required to be
deposited in the Finance Charge Account and Principal Account as described
under "Description of Certificates--Application of Collections." In the event
of the conservatorship or receivership of the Transferor or, in certain
circumstances, the lapse of certain time periods, the Trust may not have a
perfected interest in such
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collections and, in such event, the Trust may suffer a loss of all or part of
such collections which may result in a loss to Certificateholders.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Transferor is chartered as a national banking association and is subject
to regulation and supervision by the Office of the Comptroller of the
Currency, which is authorized to appoint the FDIC as conservator or receiver
of the Transferor upon the occurrence of certain events relating to the
Transferor's financial condition.
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC in
its capacity as conservator or receiver for the Transferor could exercise.
Positions taken by the FDIC prior to the passage of FIRREA suggest that the
FDIC, if appointed as conservator or receiver for the Transferor, would not
interfere with the timely transfer to the Trust of payments collected on the
Receivables or interfere with the timely liquidation of related Receivables,
as described below. To the extent that the Transferor has granted a security
interest in Receivables to the Trust, and that interest was validly perfected
before the Transferor's insolvency and was not taken in contemplation of the
insolvency of the Transferor, or with the intent to hinder, delay or defraud
the Transferor or the creditors of the Transferor, the FDIA provides that such
security interest should not be subject to avoidance by the FDIC. However,
such positions are not binding on the FDIC and if the FDIC were to assert a
contrary position, such as by requiring the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure under the FDIA, or were the conservator or receiver to request a
stay of proceedings with respect to the Transferor as provided under the FDIA,
delays in payments on the related Series of Certificates and possible
reductions in the amount of those payments, resulting in losses to the
Certificateholders, could occur. In addition, the FDIC, if appointed as the
conservator or receiver for the Transferor has the power under the FDIA to
repudiate contracts, including secured contracts of the Transferor. The FDIA
provides that a claim for damages arising from the repudiation of a contract
is limited to "actual direct compensatory damages." In the event the FDIC were
to be appointed as conservator or receiver of the Transferor and were to
repudiate the Agreement, then the amount payable out of available collections
to the Certificateholders could be lower than the outstanding principal and
accrued interest on the Certificates.
Upon the appointment of a conservator or receiver or upon a voluntary
liquidation with respect to the Transferor, the Transferor will promptly give
notice thereof to the Trustee and a Pay Out Event will occur with respect to
all Series then outstanding under the Trust. Pursuant to the Agreement, newly
created Principal Receivables will not be transferred to the Trust on and
after any such appointment or voluntary liquidation. Under the Agreement, the
proceeds from the sale of the Receivables would be treated as collections of
the Receivables and the Investor Percentage of such proceeds would be
distributed to the Certificateholders or, if so specified in the related
Prospectus Supplement, collected and held for the benefit of
Certificateholders. This procedure could be delayed, as described above. If
the only Pay Out Event to occur is either the insolvency of the Transferor or
the appointment of a conservator or receiver for the Transferor, the
conservator or receiver may have the power to prevent the commencement of a
Rapid Amortization Period or, if applicable with respect to a Series as
specified in the related Prospectus Supplement, a Rapid Accumulation Period.
In addition, a conservator or receiver may have the power to cause the early
sale of the Receivables and the early retirement of the Certificates, which
could reduce the effective yield to Certificateholders. See "Description of
the Certificates--Pay Out Events."
Upon the Transferor becoming insolvent, the Transferor also may be unable
(or not required) to perform its obligations with respect to the repurchase of
Ineligible Receivables and dilution of Receivables resulting from various
adjustments to Receivables or fraudulently created Receivables.
CONSUMER PROTECTION LAWS
The relationships of cardholders, credit card issuers and lenders are
extensively regulated by Federal and state consumer protection laws. With
respect to credit cards issued by the Transferor, the most significant laws
include the Federal Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting, Fair Debt Collection
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Practice and Electronic Funds Transfer Acts, at the Federal level, and the
Louisiana Consumer Credit Law, Louisiana Collection Agency Regulation Act and
Louisiana Equal Credit Opportunity Law. Certain of these statutes impose
disclosure requirements when a credit card account is advertised, when it is
opened, at the end of Billing Cycles and at year end. In addition, certain of
these statutes limit customer liability for unauthorized use, prohibit certain
discriminatory practices in extending credit, and impose certain limitations
on the type of account-related charges that may be assessed. Cardholders are
entitled under these laws to have payments and credits applied to the credit
card accounts promptly, to receive prescribed notices and to require billing
errors to be resolved promptly. The Trust may be liable for certain violations
of consumer protection laws that apply to the related Receivables, either as
assignee from the Transferor with respect to obligations arising before
transfer of the Receivables to the Trust or as a party directly responsible
for obligations arising after the transfer. In addition, a cardholder may be
entitled to assert such violations by way of set-off against his obligation to
pay the amount of Receivables owing. The Transferor will warrant in the
Agreement that all related Receivables have been and will be created in
compliance with the requirements of such laws. The Servicer will also agree in
the Agreement to indemnify the Trust, among other things, for any liability
arising from such violations caused by the Servicer. For a discussion of the
Trust's rights arising from the breach of these warranties, see "Description
of the Certificates--Representations and Warranties."
In addition, the SSCRA provides for a stay of court proceedings against
military personnel (including Air Force personnel) on active duty if the
ability of such person to defend against a suit would be materially affected
by reason of military service and limits to 6% per year the interest
chargeable to military personnel (including Air Force personnel) on active
duty on obligations incurred by such person prior to entrance into such
service unless the obligee obtains a court order allowing a higher rate to be
charged. The SSCRA could adversely affect the Servicer's ability to collect on
Receivables generated under First NBC's USAF Club Card program and other
military programs, which make up a significant portion of the Trust Portfolio.
See "First NBC's Credit Card Activities--General." In its experience to date
with the military programs, First NBC does not believe that the SSCRA has had
a material impact on its collection efforts, but there can be no assurance
that the SSCRA would not have an adverse effect in the future.
Certain jurisdictions may attempt to require out-of-state credit card
issuers to comply with such jurisdiction's consumer protection laws (including
laws limiting the charges imposed by such credit card issuers) in connection
with their operations in such jurisdictions. A successful challenge by such a
jurisdiction could have an adverse impact on the Transferor's credit card
operations or the yield on the Receivables in the Trust.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders if such laws result in any
related Receivables being written off as uncollectible when the amount
available under any Credit Enhancement is equal to zero. See "Description of
the Certificates--Defaulted Receivables; Rebates and Fraudulent Charges;
Investor Charge-Offs."
U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material anticipated Federal
income tax consequences of the purchase, ownership and disposition of the
Certificates of a Series, is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), proposed, temporary and final Treasury
regulations thereunder, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change, possibly
retroactively. To the extent that the following summary relates to matters of
law or legal conclusions with respect thereto, such summary represents the
opinion of Mayer, Brown & Platt, special federal tax counsel for the Bank
subject to the qualifications set forth herein. Mayer, Brown & Platt have
prepared or reviewed the statements in this Prospectus under the heading "U.S.
Federal Income Tax Consequences," and are of the opinion that such statements
are correct in all material respects. This discussion does not address every
aspect of the Federal income tax laws that may be relevant to Certificate
Owners of a Series in light of their
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personal investment circumstances or to certain types of Certificate Owners of
a Series subject to special treatment under the Federal income tax laws (for
example, banks and life insurance companies). Accordingly, investors should
consult their own tax advisors regarding Federal, state, local, foreign and
any other tax consequences to them of any investment in the Certificates of a
Series. PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR
DISPOSITION OF INTERESTS IN CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY, OR OTHER TAXING
JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Mayer, Brown & Platt, or such other counsel specified in the related
Prospectus Supplement, will act as special tax counsel to the Bank ("Special
Tax Counsel") and will, upon issuance of a Series of Certificates, render an
opinion to the Bank based on the assumptions and qualifications set forth
therein that the Certificates of such Series that are offered pursuant to a
Prospectus Supplement (the "Offered Certificates") will be treated as
indebtedness for Federal income tax purposes. A copy of such opinion will be
filed with the Commission with a Report on Form 8-K following the issuance of
a Series of Certificates. However, opinions of counsel are not binding on the
Internal Revenue Service (the "IRS"), and there can be no assurance that the
IRS could not successfully challenge this conclusion.
The Transferor expresses in the Agreement its intent that for Federal,
state, local and foreign income or franchise tax purposes, the Offered
Certificates of each Series will be indebtedness secured by the Receivables.
The Transferor agrees and each Certificateholder and Certificate Owner, by
acquiring an interest in an Offered Certificate, agrees or will be deemed to
agree to treat the Offered Certificates of such Series as indebtedness for
Federal, state and local income or franchise tax purposes. However, because
different criteria are used to determine the non-tax accounting
characterization of the transactions contemplated by the Agreement, the
Transferor expects to treat such transaction, for regulatory and financial
accounting purposes, as a sale of an ownership interest in the Receivables and
not as a debt obligation.
In general, whether for Federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several
factors to be taken into account in determining whether the substance of a
transaction is a sale of property or a secured indebtedness for Federal income
tax purposes, the primary factor in making this determination is whether the
transferee has assumed the risk of loss or other economic burdens relating to
the property and has obtained the benefits of ownership thereof. Special Tax
Counsel may analyze and rely on several factors in reaching its opinion that
the weight of the benefits and burdens of ownership of the Receivables has not
been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. It is expected that Special Tax Counsel may
advise that the rationale of those cases will not apply to the transaction
evidenced by a Series of Certificates because the form of the transaction, as
reflected in the operative provisions of the documents, either is not
inconsistent with the characterization of the Offered Certificates of such
Series as debt for Federal income tax purposes or otherwise makes the
rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, Special Tax Counsel will render an opinion to the Bank
that the Offered Certificates will constitute indebtedness for Federal income
tax purposes, and accordingly, interest thereon generally will be includible
in income by Certificate Owners as ordinary income when received (in the case
of a cash basis taxpayer) or accrued (in the case of an accrual basis
taxpayer) in accordance with their respective methods of tax
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accounting. Interest received on the Offered Certificates may also constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense.
It is not anticipated that the Offered Certificates will be issued with
original issue discount ("OID") within the meaning of Section 1273 of the
Code.
If the Offered Certificates are issued at a greater than de minimis discount
or are treated as having been issued with OID under the Treasury regulations,
the following rules will apply. The excess of the "stated redemption price at
maturity" of an Offered Certificate over the original issue price (in this
case, the initial offering price at which a substantial amount of the Offered
Certificates are sold to the public) will constitute OID. A Certificate Owner
must include OID in income as interest over the term of the Offered
Certificate under a constant yield method. In general, OID must be included in
income in advance of the receipt of cash representing that income.
Accordingly, cash basis taxpayers would effectively be treated as being on the
accrual method and therefore be required to include interest into income prior
to the receipt of cash representing that income. In the case of a debt
instrument as to which the repayment of principal may be accelerated as a
result of the prepayment of other obligations securing the debt instrument,
the periodic accrual of OID is determined by taking into account both the
prepayment assumptions used in pricing the debt instrument and the prepayment
experience. If this provision applies to a Class of Certificates (which is not
clear), the amount of OID which will accrue in any given "accrual period" may
either increase or decrease depending upon the actual prepayment rate.
Accordingly, each Certificate Owner should consult its own tax adviser
regarding the impact to it of the OID rules if the Offered Certificates are
issued with OID. Under the Treasury regulations, a holder of a Certificate
issued with de minimis OID must include such OID in income proportionately as
principal payments are made on a Class of Certificates.
A holder who purchases an Offered Certificate at a discount from its
adjusted issue price 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 Offered
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the Offered Certificate.
A subsequent holder who purchases an Offered Certificate at a premium may
elect to amortize and deduct this premium over the remaining term of the
Offered Certificate in accordance with rules set forth in Section 171 of the
Code.
SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of an Offered Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and
taxable as, accrued interest) and (ii) the Certificate Owner's tax basis in
the Offered Certificate (as increased by any OID or market discount previously
included in income by the holder and decreased by any deductions previously
allowed for amortizable bond premium and by any payments reflecting principal
or OID received with respect to such Certificate). Subject to the market
discount rules discussed above and to the one-year holding requirement for
long-term capital gain treatment, any such gain or loss generally will be
long-term capital gain or loss, provided that the Offered Certificate was held
as a capital asset. The maximum ordinary income rate for individuals, estates,
and trusts exceeds the maximum long-term capital gains rate for such
taxpayers. In addition, 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.
TAX CLASSIFICATION OF TRUST
The Agreement permits the issuance of Classes of Certificates that are
treated for Federal income tax purposes either as indebtedness or as an
interest in a partnership. Accordingly, the Trust could be characterized
either as (i) a security device to hold Receivables securing the repayment of
the Certificates of all Series or (ii) a
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partnership in which the Transferor and certain classes of Certificateholders
are partners, and which has issued debt represented by other classes of
Certificates of the Trust (including the Offered Certificates). In connection
with the issuance of Certificates of any Series, Special Tax Counsel will
render an opinion to the Bank, based on the assumptions and qualifications set
forth therein, that under then current law, the issuance of the Certificates
of such Series will not cause the Trust to be classified for Federal income
tax purposes as an association (or publicly traded partnership) taxable as a
corporation. A copy of such opinion will be filed with the Commission with a
Report on Form 8-K following the issuance of a Series of Certificates.
FASIT LEGISLATION
In August, 1996, the United States Congress passed and President Clinton
signed into law the "Small Business Job Protection Act of 1996," H.R. 3448
(the "SBJP Act"). The SBJP Act creates a new type of entity for federal income
tax purposes called a "financial asset securitization investment trust" or
"FASIT." The effective date of the FASIT provisions of the SBJP Act is
September 1, 1997. The SBJP Act enables certain arrangements similar to the
Trust to elect to be treated as a FASIT. Under the FASIT provisions of the
SBJP Act a FASIT generally would avoid federal income taxation and could issue
securities substantially similar to the Certificates, and those securities
would be treated as debt for federal income tax purposes. If so specified in
the related Prospectus Supplement, the Trust may make an election to be
treated as a FASIT. The Agreement may contain any such terms and provide for
the issuance of Certificates on such terms and conditions as are permitted to
a FASIT and described in the related Prospectus Supplement. In addition, upon
satisfying certain conditions set forth in the Agreement, the Transferor,
Servicer and the Trustee will be permitted to amend the Agreement in order to
enable all or a portion of the Trust to qualify as a FASIT and to permit a
FASIT election to be made with respect thereto, and to make such modifications
to the Agreement as may be permitted by reason of the making of such an
election. See "Description of Certificates--Amendments." However, there can be
no assurance that the Transferor will or will not cause any permissible FASIT
election to be made with respect to the Trust or amend the Agreement in
connection with any election. In addition, if such an election is made, it may
cause a Certificateholder to recognize gain (but not loss) with respect to any
Certificates held by it, even though Special Tax Counsel will deliver its
opinion that a Certificate will be treated as debt for federal income tax
purposes without regard to the election and the Certificate would be treated
as debt following the election. Additionally, any such election and any
related amendments to the Agreement may have other tax and non-tax
consequences to Certificateholders. Accordingly, prospective
Certificateholders should consult their tax advisors with regard to the
effects of any such election and any permitted related amendments on them in
their particular circumstances.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN
ASSOCIATION TAXABLE AS A CORPORATION
The opinion of Special Tax Counsel with respect to Offered Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for purposes of the Code, the transaction contemplated by this
Prospectus and a related Prospectus Supplement constitutes a sale of the
Receivables (or an interest therein) to the Certificate Owners of one or more
Series or Classes and that the proper classification of the legal relationship
between the Bank and some or all of the Certificate Owners or
Certificateholders of one or more Series resulting from the transaction is
that of a partnership (including a publicly traded partnership) or a publicly
traded partnership taxable as a corporation. The Transferor currently does not
intend to comply with the Federal income tax reporting requirements that would
apply if any Classes of Certificates were treated as interests in a
partnership or corporation (unless, as is permitted by the Agreement, an
interest in a Trust is issued or sold that is intended to be classified as an
interest in a partnership).
If a transaction were treated as creating a partnership between the
Transferor and the Certificate Owners or Certificateholders of one or more
Series, the partnership itself would not be subject to Federal income tax
(unless it were to be characterized as a publicly traded partnership taxable
as a corporation); rather, the partners of such partnership, including the
Certificate Owners or Certificateholders of such Series, would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of a Certificate Owner could differ if the Offered
Certificates were held to constitute partnership interests, rather than
indebtedness. Moreover, unless the partnership were treated
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as engaged in a trade or business, an individual's share of expenses of the
partnership would be miscellaneous itemized deductions that, in the aggregate,
are allowed as deductions only to the extent they exceed two percent of the
individual's adjusted gross income, and would be subject to reduction under
Section 68 of the Code if the individual's adjusted gross income exceeded
certain limits. As a result, the individual might be taxed on a greater amount
of income than the stated rate on the Offered Certificates. Finally, assuming
a transaction were treated as creating a partnership, all or a portion of any
taxable income allocated to a Certificate Owner that is a pension, profit-
sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account) may, under certain circumstances, constitute
"unrelated business taxable income" which generally would be taxable to the
holder under the Code.
If it were determined that a transaction created an entity classified as a
publicly traded partnership taxable as a corporation, the Trust would be
subject to Federal income tax at corporate income tax rates on the income it
derives from the Receivables, which would reduce the amounts available for
distribution to the Certificate Owners, possibly including Certificate Owners
of a Class that is treated as indebtedness. Such classification may also have
adverse state and local tax consequences that would reduce amounts available
for distribution to Certificate Owners. Cash distributions to the Certificate
Owners (except any Class not recharacterized as an equity interest) generally
would be treated as dividends for tax purposes to the extent of such deemed
corporation's earnings and profits.
FOREIGN INVESTORS
As set forth above, Special Tax Counsel will render an opinion, upon
issuance, that the Offered Certificates will be treated as debt for U.S.
Federal income tax purposes. The following information describes the U.S.
Federal income tax treatment of investors that are not U.S. persons ("Foreign
Investors") if the Offered Certificates are treated as debt. The term "Foreign
Investor" means any person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust the income of which is includible in gross income for U.S.
Federal income tax purposes, regardless of its source.
Interest, including OID, paid to a Foreign Investor will be subject to U.S.
withholding taxes at a rate of 30% unless (i) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or business in
the United States as evidenced by IRS Form 4224, signed by the Certificate
Owner or such owner's agent, claiming exemption from withholding tax on income
effectively connected with the conduct of a trade or business in the United
States; (ii) the Foreign Investor delivers IRS Form 1001, signed by the
Certificate Owner or such Certificate Owner's agent, claiming exemption from
withholding under an applicable tax treaty; or (iii) the Foreign Investor and
each securities clearing organization, bank, or other financial institution
that holds the Offered Certificates on behalf of the customer in the ordinary
course of its trade or business, in the chain between the Certificate Owner
and the U.S. person otherwise required to withhold the U.S. tax, complies with
applicable identification requirements and the Certificate Owner does not
actually or constructively own 10% or more of the voting stock of the Bank
(or, upon the issuance of an interest in the Trust that is treated as a
partnership interest, any holder of such interest) and is not a controlled
foreign corporation with respect to the Bank (or the holder of such an
interest). Applicable identification requirements generally will be satisfied
if there is delivered to a securities clearing organization IRS Form W-8
signed under penalties of perjury by the Certificate Owner, stating that the
Certificate Owner is not a U.S. person and providing such Certificate Owner's
name and address. In the case of (i), (ii) or (iii) the appropriate form will
be effective 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 Certificate Owner is
a U.S. person.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. Federal income tax on gain realized upon the sale,
exchange, or redemption of an Offered Certificate, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States, (ii) in the case of a Certificate Owner that is an individual,
such Certificate Owner is not present in the United States for 183 days or
more during the taxable year in which such sale, exchange, or redemption
occurs, and (iii) in the case of gain representing accrued interest, the
conditions described in the immediately preceding paragraph are satisfied.
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If the interests of the Certificate Owners of a Series were reclassified as
interests in a partnership (not taxable as a corporation), such
recharacterization could cause a Foreign Investor to be treated as engaged in
a trade or business in the United States. In such event the Certificate Owner
of such Series would be required to file a Federal income tax return and, in
general, would be subject to Federal income tax, including branch profits tax
in the case of a Certificateholder that is a corporation, on its net income
from the partnership. Further, the partnership would be required, on a
quarterly basis, to pay withholding tax equal to the sum, for each foreign
partner, of such foreign partner's distributive share of "effectively
connected" income of the partnership multiplied by the highest rate of tax
applicable to that foreign partner. The tax withheld from each foreign partner
would be credited against such foreign partner's U.S. income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
STATE AND LOCAL TAXATION
The discussion above does not address the tax treatment of the Trust, the
Certificates of any Series, or the Certificate Owners of any Series under
state and local tax laws. Prospective investors are urged to consult their own
tax advisors regarding state and local tax treatment of the Trust and the
Certificates of any Series, and the consequences of purchase, ownership or
disposition of the Certificates of any Series under any state or local tax
law.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code with respect to the plan. ERISA
also imposes certain duties on persons who are fiduciaries of plans subject to
ERISA and prohibits certain transactions between a plan and parties in
interest with respect to such plans. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of
a plan is considered to be a fiduciary of such plan (subject to certain
exceptions not here relevant). A violation of these "prohibited transaction"
rules may generate excise tax and other liabilities under ERISA and the Code
for such persons.
Plan fiduciaries must determine whether the acquisition and holding of the
Certificates of a Series and the operations of the Trust would result in
direct or indirect prohibited transactions under ERISA and the Code. The
operations of the Trust could result in prohibited transactions if Benefit
Plans (as defined below) that purchase the Certificates of a Series are deemed
to own an interest in the underlying assets of the Trust. There may also be an
improper delegation of the responsibility to manage Benefit Plan assets if
Benefit Plans that purchase the Certificates are deemed to own an interest in
the underlying assets of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or Section 4975 of
the Code, or an individual retirement account ("IRA") (collectively referred
to as "Benefit Plans"), the assets and properties of certain entities in which
a Benefit Plan makes an equity investment could be deemed to be assets of the
Benefit Plan in certain circumstances. Accordingly, if Benefit Plans purchase
Certificates of a Series, the Trust could be deemed to hold plan assets unless
one of the exceptions under the Final Regulation is applicable to the Trust.
The Final Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Although interests in Certificates of a Series
are likely to be treated as equity interests under the Final Regulation, the
Final Regulation contains an exception that provides that if a Benefit Plan
acquires a "publicly-offered security," the issuer of the security is not
deemed to hold plan assets. A publicly-offered security is a security that is
(i) freely transferable, (ii) part of a class of securities that is owned by
100 or more investors independent
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of the issuer and of one another at the completion of the public offering 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 the plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the 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. In addition, the Final Regulation provides that if at all times more
than 75% of the value of all classes of equity interests in Certificates of a
Series are held by investors other than benefit plan investors (which is
defined as including plans subject to ERISA, government, church and other
plans not subject to ERISA and IRAs), the investing plan's assets will not
include any of the underlying assets of the Trust.
There are no restrictions imposed on the transfer of the Certificates
offered hereby, and the Certificates offered hereby will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act. At or before the conclusion of the offering, the underwriters will notify
the Transferor and the Trustee as to whether or not the Certificates of any
Series (or if there is more than one Class in a Series, each Class) will be
expected to be held by at least 100 separately named persons at the conclusion
of the offering. The Transferor will not, however, determine whether there
will, in fact, be at least 100 separately named persons or whether the 100-
investor requirement of the exception for publicly offered securities is
satisfied as to the Certificates of such Series (or Class). If the
Certificates of any Series (or if there is more than one Class in a Series,
any Class) are expected to be held by at least 100 separately named persons at
the conclusion of the offering, those Certificates will be timely registered
under the Exchange Act.
If interests in the Certificates of a Series fail to meet the criteria of
publicly-offered securities and the Trust's assets are deemed to include
assets of Benefit Plans that are Certificateholders, transactions involving
the Trust and "parties in interest" or "disqualified persons" with respect to
such Benefit Plans might be prohibited under Section 406 of ERISA and Section
4975 of the Code unless an exemption is applicable. Thus, for example, if a
participant in any Benefit Plan is a cardholder of one of the Accounts, under
DOL interpretations the purchase of interests in Certificates by such Benefit
Plan could constitute a prohibited transaction. In addition, the Transferor,
Servicer, Trustee or any underwriter of such Series may be considered to be a
party in interest, disqualified person or fiduciary with respect to an
investing Benefit Plan. Accordingly, an investment by a Benefit Plan in
Certificates may be a prohibited transaction under ERISA and the Code unless
such investment is subject to a statutory or administrative exemption. Five
class exemptions issued by the DOL that could apply in such event are DOL
Prohibited Transaction Exemption ("PTE") 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
PTE 91-38 (Class Exemption for Certain Transactions Involving Bank Collective
Investment Funds), PTE 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts), PTE 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company General
Accounts) and PTE 96-23 (Class Exemption for Plan Asset Transactions
Determined by In-House Asset Managers). There is no assurance that any of
these exemptions, even if all of the conditions specified therein are
satisfied, or any other exemption will apply to all transactions involving the
Trust's assets.
IN LIGHT OF THE FOREGOING, FIDUCIARIES OF A BENEFIT PLAN CONSIDERING THE
PURCHASE OF INTERESTS IN CERTIFICATES OF ANY SERIES SHOULD CONSULT THEIR OWN
COUNSEL AS TO WHETHER THE ASSETS OF THE TRUST WHICH ARE REPRESENTED BY SUCH
INTERESTS WOULD BE CONSIDERED PLAN ASSETS, AND WHETHER, UNDER THE GENERAL
FIDUCIARY STANDARDS OF INVESTMENT PRUDENCE AND DIVERSIFICATION, AN INVESTMENT
IN CERTIFICATES OF ANY SERIES IS APPROPRIATE FOR THE BENEFIT PLAN TAKING INTO
ACCOUNT THE OVERALL INVESTMENT POLICY OF THE BENEFIT PLAN AND THE COMPOSITION
OF THE BENEFIT PLAN'S INVESTMENT PORTFOLIO. In addition, fiduciaries should
consider the consequences that would apply if the Trust's assets were
considered plan assets, the applicability of exemptive relief from the
prohibited transaction rules, and, whether all conditions for such exemptive
relief would be satisfied.
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In particular, insurance companies considering the purchase of Certificates
of any Series should consult their own benefits or other appropriate counsel
with respect to the United States Supreme Court's decision in John Hancock
Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 510 U.S. 86 (1993)
("John Hancock") and the applicability of PTE 95-60 and Section 401(c) of
ERISA. In John Hancock, the Supreme Court held that assets held in an
insurance company's general account may be deemed to be "plan assets" under
certain circumstances; however, PTE 95-60 may exempt some or all of the
transactions that could occur as the result of the acquisition and holding of
the Certificates of a Series by an insurance company general account from the
penalties normally associated with prohibited transactions. Accordingly,
investors should analyze whether John Hancock, PTE 95-60 and Section 401(c) of
ERISA or any other exemption may have an impact with respect to their purchase
of the Certificates of any Series.
PLAN OF DISTRIBUTION
The Transferor may sell or cause Certificates to be sold (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. In addition, the Transferor or its affiliates may act as
selling agent for the Certificates, if so specified in the related Prospectus
Supplement. The related Prospectus Supplement in respect of a Series offered
hereby will set forth the terms of the offering of such Certificates,
including the name or names of any underwriters, the purchase price of such
Certificates and the proceeds to the Transferor from such sale, any
underwriting discounts and other items constituting underwriters'
compensation, any initial offering price and any discounts or concessions
allowed or reallowed or paid to dealers and the extent, if any, to which any
or all of such underwriters may engage in stabilizing transactions and
syndicate covering transactions with respect to the related Certificates. Only
underwriters so named in such Prospectus Supplement shall be deemed to be
underwriters in connection with the Certificates offered thereby.
Subject to the terms and conditions set forth in an underwriting agreement
(an "Underwriting Agreement") to be entered into with respect to each series
of Certificates, the Transferor will agree to sell or cause the Trust to sell
to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase
from the Transferor or Trust, as applicable, the principal amount of
Certificates set forth therein and in the related Prospectus Supplement
(subject to proportional adjustment on the terms and conditions set forth in
the related Underwriting Agreement in the event of an increase or decrease in
the aggregate amount of Certificates offered hereby and by the related
Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the
Certificates offered hereby and by the related Prospectus Supplement if any of
such Certificates are purchased. In the event of a default by any underwriter,
each Underwriting Agreement will provide that, in certain circumstances,
purchase commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Underwriting Agreement will provide that the Transferor will indemnify
the related underwriters against liabilities relating to the adequacy of
disclosure to investors, including under the Securities Act of 1933, as
amended.
The place and time of delivery for any Series of Certificates in respect of
which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Transferor by Mayer, Brown & Platt, Chicago, Illinois.
Certain legal matters relating to the Federal tax consequences of the issuance
of the Certificates will be passed upon for the Transferor by Mayer, Brown &
Platt. Certain legal matters relating to the issuance of the Certificates will
be passed upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP, New
York, New York.
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INDEX OF DEFINED TERMS FOR PROSPECTUS
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Accounts................................................................ 4
Accumulation Period..................................................... 7
Additional Accounts..................................................... 5
Additional Transferors.................................................. 43
Adjusted Investor Interest.............................................. 55
Agent Banks............................................................. 31
Aggregate Principal Receivables......................................... 50
Agreement............................................................... 4
Amortization Period..................................................... 6
Assignment.............................................................. 46
Automatic Additional Accounts........................................... 45
Bank.................................................................... 4, 11
Bank Portfolio.......................................................... 4
Base Rate............................................................... 27
Benefit Plans........................................................... 72
BHC Act................................................................. 35
BIF..................................................................... 48
Billed Finance Charge Receivables....................................... 50
Billing Cycle........................................................... 32
Cash Collateral Account................................................. 63
Cash Collateral Guaranty................................................ 63
Cede.................................................................... 2
Cedel................................................................... 38
Cedel Participants...................................................... 38
Certificate Owners...................................................... 2
Certificate Rate........................................................ 6
Certificateholders...................................................... 2
Certificates............................................................ 1, 4
Class................................................................... 4
Closing Date............................................................ 12
Code.................................................................... 67
Collateral Interest..................................................... 64
Collection Account...................................................... 12
COMMISSION.............................................................. 1
Controlled Accumulation Amount.......................................... 15
Controlled Accumulation Period.......................................... 14
Controlled Amortization Amount.......................................... 13
Controlled Amortization Period.......................................... 13
Controlled Deposit Amount............................................... 15
Controlled Distribution Amount.......................................... 13
Conversion Date......................................................... 50
Cooperative............................................................. 39
Corporation............................................................. 11, 35
Counterparties.......................................................... 62
Credit Enhancement...................................................... 5
Credit Enhancement Percentage........................................... 49
Credit Enhancement Provider............................................. 7
Cut-Off Date............................................................ 8
Defaulted Accounts...................................................... 8
</TABLE>
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Definitive Certificates.............................................. 11
Depositaries......................................................... 37
Depository........................................................... 36
Determination Date................................................... 55
Disclosure Document.................................................. 10
Discount Percentage.................................................. 47
Distribution Account................................................. 48
Distribution Date.................................................... 12
DOL.................................................................. 72
DTC.................................................................. 2, A-1
DTC Participants..................................................... 37
Eligible Account..................................................... 44
Eligible Receivable.................................................. 45
Enhancement.......................................................... 5
Enhancement Invested Amount.......................................... 63
ERISA................................................................ 21
Euroclear............................................................ 39
Euroclear Operator................................................... 39
Euroclear Participants............................................... 39
Excess Allocation Series............................................. 18
Excess Funding Account............................................... 19, 48, 54
Exchange Act......................................................... 2
FASIT................................................................ 73
FCSC................................................................. 33
FDIA................................................................. 23
FDIC................................................................. 8
Final Regulation..................................................... 72
Finance Charge Account............................................... 48
Finance Charge Receivables........................................... 8
FIRREA............................................................... 23
First Bankcard....................................................... 31
First NBC............................................................ 4, 11
Foreign Investor..................................................... 71
Foreign Investors.................................................... 71
Full Investor Interest............................................... 20
Funding Period....................................................... 19
Global Securities.................................................... A-1
Group Investor Charge-Offs........................................... 52
Group Investor Default Amounts....................................... 52
Group Investor Finance Charge Collections............................ 52
Group Investor Monthly Interest...................................... 52
Holders.............................................................. 40
Indirect Participants................................................ 37
Ineligible Receivable................................................ 43
Interchange.......................................................... 5
Interest Funding Account............................................. 40
Interest Period...................................................... 12
Investor Charge-Off.................................................. 55
</TABLE>
75
<PAGE>
INDEX OF DEFINED TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Investor Default Amount.................................................. 55
Investor Finance Charge Collections...................................... 52
Investor Interest........................................................ 7
Investor Monthly Fees.................................................... 52
Investor Percentage...................................................... 7
IRA...................................................................... 72
IRS...................................................................... 68
John Hancock............................................................. 74
LIBOR.................................................................... 62
Minimum Aggregate Principal Receivables.................................. 45
Minimum Transferor Interest.............................................. 9, 45
Monthly Period........................................................... 12
Moody's.................................................................. 48
Net Default Amount....................................................... 7
Net Recoveries........................................................... 8
New Issuance............................................................. 10
Offered Certificates..................................................... 68
OID...................................................................... 69
Other Account Revenues................................................... 5
Paired Series............................................................ 19, 55
Partial Amortization..................................................... 17
Participation Agreement.................................................. 46
Participations........................................................... 6, 46
Pay Out Event............................................................ 16
Permitted Investments.................................................... 48
Portfolio Yield.......................................................... 27
Pre-Funding Account...................................................... 19
Pre-Funding Amount....................................................... 19, 49
Principal Amortization Period............................................ 14
Principal Commencement Date.............................................. 13
Principal Funding Account................................................ 14
Principal Receivables.................................................... 8
Principal Sharing Series................................................. 18, 54
Private Label Accounts................................................... 5, 31
Prospectus Supplement.................................................... 1
PTE...................................................................... 73
Purchased Interest....................................................... 12
Qualified Institution.................................................... 48
Rapid Accumulation Period................................................ 15
Rapid Amortization Period................................................ 16
Rating Agency............................................................ 21
Reallocated Investor Finance Charge Collections.......................... 52
Reallocation Group....................................................... 18
Receivables.............................................................. 4
Record Date.............................................................. 36
Recoveries............................................................... 8
Regulations.............................................................. 69
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
Removed Accounts...................................................... 9
Reserve Account....................................................... 65
Retention Condition................................................... 54
Revolving Period...................................................... 12
SAIF.................................................................. 48
SBJP Act.............................................................. 70
Scheduled Payment Date................................................ 13
Securities Act........................................................ 10
Senior Certificates................................................... 7
Series................................................................ 1, 4, A-1
Series Supplement..................................................... 4
Series Termination Date............................................... 56
Service Transfer...................................................... 58
Servicer.............................................................. 11
Servicer Default...................................................... 59
Servicing Fee......................................................... 11
Shared Principal Collections.......................................... 18
Special Tax Counsel................................................... 21, 68
Specified Trust Termination Date...................................... 56
Spread Account........................................................ 64
SSCRA................................................................. 24
Standard & Poor's..................................................... 48
Subordinated Certificates............................................. 7
Supplemental Certificates............................................. 9
Swaps................................................................. 62
Tax Opinion........................................................... 10
Terms and Conditions.................................................. 39
Transfer Date......................................................... 15, 50
Transferor............................................................ 5
Transferor Interest................................................... 7
Transferor Percentage................................................. 36
Trust................................................................. 4
Trust Portfolio....................................................... 34
Trust Termination Date................................................ 56
Trustee............................................................... 4
U.S. Person........................................................... A-3
UCC................................................................... 65
Underwriting Agreement................................................ 74
USAF.................................................................. 31
</TABLE>
76
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered First NBC
Credit Card Master Trust Asset Backed Certificates (the "Global Securities")
to be issued in Series from time to time (each, a "Series") will be available
only in book-entry form. Investors in the Global Securities may hold such
Global Securities through any of The Depository Trust Company ("DTC"), Cedel
or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of Cedel and Euroclear (in
such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
A-1
<PAGE>
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 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
A-2
<PAGE>
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 form the withholding
tax by filing a signed Form W-8 (Certificate of Foreign Status). If the
information shown on Form W-8 changes, a new Form W-8 must be filed within 30
days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U. S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a
country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless
the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
Proposed Treasury regulations, which would be effective with respect to
payments made after December 31, 1997 if adopted in their current form, would
provide alternative certification requirements and means for obtaining the
exemption from federal income and withholding tax.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisers for
specific tax advice concerning their holding and disposing of the Global
Securities.
A-3
<PAGE>
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING 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. NEITHER THIS
PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES 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 SUPPLEMENT OR THE ACCOM-
PANYING PROSPECTUS, NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE TRANSFEROR OR THE RECEIVABLES OR THE ACCOUNTS SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFER-
ENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Terms........................................................... S-3
Risk Factors............................................................... S-16
First NBC'S Credit Card Portfolio.......................................... S-16
The Receivables............................................................ S-20
Maturity Assumptions....................................................... S-23
Receivable Yield Considerations............................................ S-25
First NBC and First Commerce Corporation................................... S-26
Description of the Certificates............................................ S-26
Underwriting............................................................... S-45
Index of Defined Terms for Prospectus Supplement........................... S-48
PROSPECTUS
Prospectus Supplement...................................................... 2
Reports to Certificateholders.............................................. 2
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 4
Risk Factors............................................................... 23
The Trust.................................................................. 30
First NBC's Credit Card Activities......................................... 31
The Receivables............................................................ 34
Maturity Assumptions....................................................... 34
Use of Proceeds............................................................ 35
First NBC and First Commerce Corporation................................... 35
Description of the Certificates............................................ 35
Credit Enhancement......................................................... 62
Certain Legal Aspects of the Receivables................................... 65
U.S. Federal Income Tax Consequences....................................... 67
State and Local Taxation................................................... 72
ERISA Considerations....................................................... 72
Plan of Distribution....................................................... 74
Legal Matters.............................................................. 74
Index of Defined Terms for Prospectus...................................... 75
Annex 1: Global Clearance, Settlement and Tax Documentation Procedures..... A-1
</TABLE>
UNTIL OCTOBER 29, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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FIRST NBC
CREDIT CARD MASTER TRUST
$259,500,000 CLASS A
6.15% ASSET BACKED
CERTIFICATES, SERIES 1997-1
$21,000,000 CLASS B
6.35% ASSET BACKED
CERTIFICATES, SERIES 1997-1
FIRST NATIONAL BANK
OF COMMERCE
TRANSFEROR AND SERVICER
-----------------
PROSPECTUS SUPPLEMENT
-----------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
UNDERWRITER OF THE CLASS B CERTIFICATES
MERRILL LYNCH & CO.
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