AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-29495
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
PARTNERS FIRST CREDIT CARD MASTER TRUST
(Issuer with respect to the Certificates)
DELAWARE 04-3375894
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
[157 Main Street
Nashua, New Hampshire 03060
(603) 594-1802]
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
GARY A. SPIESS, ESQ. JANICE B. LIVA, ESQ.
General Counsel and Clerk Assistant General Counsel and
BankBoston Corporation Assistant Clerk
100 Federal Street BankBoston Corporation
Boston, Massachusetts 02110 100 Federal Street
(617) 434-2870 Boston, Massachusetts 02110
(617) 434-8630
(Name, address, including zip code, and telephone number, including
area code, of agents for service)
COPIES TO:
ANDREW M. FAULKNER, ESQ. EDWARD M. DESEAR, ESQ.
Skadden, Arps, Slate, Meagher & Orrick, Herrington & Sutcliffe LLP
Flom LLP 666 Fifth Avenue
919 Third Avenue New York, New York 10103
New York, New York 10022-9931 (212) 506-5000
(212) 735-2853
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after this Registration Statement becomes effective as
determined by market conditions.
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. ( )
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. (X)
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. ( ) _______________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( ) _______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ( )
--------------------
CALCULATION OF REGISTRATION FEE
========================================================================
TITLE OF EACH AMOUNT TO PROPOSED PROPOSED AMOUNT OF
CLASS OF BE MAXIMUM MAXIMUM REGISTRATION
SECURITIES TO REGISTERED OFFERING OFFERING FEE
BE REGISTERED PRICE PRICE (1)
PER UNIT (1)
========================================================================
Asset Backed
Certificates. . $1,000,000 100% $1,000,000 $303.03(2)
========================================================================
(1) Estimated solely for purpose of calculating the registration fee.
(2) $303.03 of which was previously paid in connection with the
original filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
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P R O S P E C T U S
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PARTNERS FIRST CREDIT CARD MASTER TRUST
ASSET BACKED CERTIFICATES
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
TRANSFEROR
PARTNERS FIRST NATIONAL BANK
SERVICER
_______________
Partners First Receivables Funding Corporation ("PFRFC"), as
transferor (in such capacity, the "Transferor"), may sell from time
to time up to $ aggregate initial offering price of one or
more series (each, a "Series") of asset backed certificates (the
"Certificates") evidencing undivided interests in certain assets of
the Partners First Credit Card Master Trust (the "Trust"), to be
created pursuant to a pooling and servicing agreement (the "Pooling
and Servicing Agreement") among the Transferor, Partners First
National Bank (the "Bank"), as servicer (in such capacity, the
"Servicer"), and The Bank of New York, as trustee (the "Trustee").
The property of the Trust will include, among other things, the
receivables (the "Receivables") that are generated from time to time
in a portfolio of consumer revolving credit card accounts (the
"Accounts"), collections thereon, funds on deposit in certain
accounts of the Trust, any Participation Interests (as defined
herein) included in the Trust, collections thereon and any Credit
Enhancement (as defined herein) with respect to any particular Series
or Class as more fully described herein and, with respect to a Series
offered hereby, in the related Prospectus Supplement (as defined
below). The Receivables in the Accounts are sold to PFRFC and then
transferred by PFRFC to the Trust as more fully described herein.
Certificates will be sold from time to time under this Prospectus
on terms determined for each Series at the time of the sale and
described in the related prospectus supplement (each, a "Prospectus
Supplement"). Each Series will consist of one or more classes of
Certificates (each, a "Class"). Each Certificate will represent an
undivided interest in certain assets of the Trust and the interest of
the holders of each Class or Series 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. A Series offered hereby (or any Class
within such Series) may be entitled to the benefits of a cash
collateral account or guaranty, spread account, yield supplement
account, collateral interest, letter of credit, surety bond,
insurance policy or other form of credit enhancement as specified in
the Prospectus Supplement relating to such Series. In addition, any
Series offered hereby may include one or more Classes which are
subordinated in right and priority of payment to one or more other
Classes of such Series or another Series, in each case to the extent
described in the related Prospectus Supplement. Each Series of
Certificates or Class offered hereby will be rated in one of the four
highest categories by at least one nationally recognized statistical
rating organization.
POTENTIAL INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 24 HEREIN.
_______________
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRANSFEROR, THE
SERVICER OR ANY AFFILIATE OF EITHER OF THEM. A CERTIFICATE IS NOT A
DEPOSIT AND NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR
RECEIVABLES ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE ACCOMPANYING PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________
Certificates may be sold by the Transferor 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 Transferor 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 Transferor associated
with the issuance and distribution of such Certificates. See "Plan of
Distribution."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY THE RELATED
PROSPECTUS SUPPLEMENT.
_______________
THE DATE OF THIS PROSPECTUS IS __________, 1997
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . 6
REPORTS TO CERTIFICATEHOLDERS . . . . . . . . . . . . . . . . 6
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . 6
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 24
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . 34
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CREDIT CARD ACTIVITIES . . . . . . . . . . . . . . . . . . . 34
General . . . . . . . . . . . . . . . . . . . . . . . . 34
Business Strategy . . . . . . . . . . . . . . . . . . . 35
Processing and Servicing of Credit Card Accounts . . . . 36
Account Origination . . . . . . . . . . . . . . . . . . 37
Underwriting Procedures . . . . . . . . . . . . . . . . 37
Additional Accounts . . . . . . . . . . . . . . . . . . 38
Billing and Payments . . . . . . . . . . . . . . . . . . 38
Interchange . . . . . . . . . . . . . . . . . . . . . . 40
Collection of Delinquent Accounts . . . . . . . . . . . 40
Recoveries . . . . . . . . . . . . . . . . . . . . . . . 40
Fraud Prevention . . . . . . . . . . . . . . . . . . . . 41
THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . 41
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION . . . . . . . 41
THE ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . 41
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . 43
General . . . . . . . . . . . . . . . . . . . . . . . . 43
Book-Entry Registration . . . . . . . . . . . . . . . . 43
Definitive Certificates . . . . . . . . . . . . . . . . 46
Interest . . . . . . . . . . . . . . . . . . . . . . . . 46
Principal . . . . . . . . . . . . . . . . . . . . . . . 47
Pay Out Events and Reinvestment Events . . . . . . . . . 48
Servicing Compensation and Payment of Expenses . . . . . 50
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT . . . . . 50
Conveyance of Receivables . . . . . . . . . . . . . . . 50
Representations and Warranties . . . . . . . . . . . . . 51
The Transferor Certificates . . . . . . . . . . . . . . 53
Additions of Accounts or Participation Interests . . . . 54
Removal of Accounts . . . . . . . . . . . . . . . . . . 54
Discount Option . . . . . . . . . . . . . . . . . . . . 55
Yield Supplement Account . . . . . . . . . . . . . . . . 55
Premium Option . . . . . . . . . . . . . . . . . . . . . 56
Indemnification . . . . . . . . . . . . . . . . . . . . 56
Collection and Other Servicing Procedures . . . . . . . 57
New Issuances . . . . . . . . . . . . . . . . . . . . . 57
Collection Account . . . . . . . . . . . . . . . . . . . 59
Allocations . . . . . . . . . . . . . . . . . . . . . . 60
Groups of Series . . . . . . . . . . . . . . . . . . . . 61
Reallocations Among Certificates of Different Series
within a Reallocation Group . . . . . . . . . . . . 61
Sharing of Excess Finance Charge Collections Among
Excess Allocation Series . . . . . . . . . . . . . 62
Shared Principal Collections . . . . . . . . . . . . . . 63
Paired Series . . . . . . . . . . . . . . . . . . . . . 64
Special Funding Account . . . . . . . . . . . . . . . . 64
Funding Period; Pre-Funding Account . . . . . . . . . . 64
Defaulted Receivables; Rebates and Fraudulent Charges . 65
Credit Enhancement . . . . . . . . . . . . . . . . . . . 65
Interest Rate Swaps and Related Caps, Floors and
Collars . . . . . . . . . . . . . . . . . . . . . . 67
Servicer Covenants . . . . . . . . . . . . . . . . . . . 68
Certain Matters Regarding the Servicer . . . . . . . . . 68
Servicer Default . . . . . . . . . . . . . . . . . . . . 69
Evidence as to Compliance . . . . . . . . . . . . . . . 70
Amendments . . . . . . . . . . . . . . . . . . . . . . . 70
List of Certificateholders . . . . . . . . . . . . . . . 71
The Trustee . . . . . . . . . . . . . . . . . . . . . . 71
DESCRIPTION OF THE PURCHASE AGREEMENTS . . . . . . . . . . . 71
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES . . . . . . . . . . 73
Transfer of Receivables . . . . . . . . . . . . . . . . 73
Certain Matters Relating to Insolvency . . . . . . . . . 74
Consumer Protection Laws . . . . . . . . . . . . . . . . 76
Proposed Legislation . . . . . . . . . . . . . . . . . . 77
U.S. FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . 77
General . . . . . . . . . . . . . . . . . . . . . . . . 77
Characterization of the Certificates as Indebtedness . . 77
Taxation of Interest Income of Certificateholders . . . 78
Sale of a Certificate . . . . . . . . . . . . . . . . . 79
Tax Characterization of the Trust . . . . . . . . . . . 79
FASIT . . . . . . . . . . . . . . . . . . . . . . . . . 80
Foreign Investors . . . . . . . . . . . . . . . . . . . 81
STATE AND LOCAL TAXATION . . . . . . . . . . . . . . . . . . 82
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . 82
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 85
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 85
INDEX OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . 86
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to any Series will, among
other things, set forth with respect to such Series: (a) the
initial aggregate principal amount of each Class of such Series;
(b) the rate of interest on each Certificate (the "Certificate
Rate") (or method of determining the Certificate Rate) of each
such Class; (c) the expected date or dates on which the Invested
Amount with respect to each such Class will have been paid to the
holders of the Certificates of such Class ("Certificateholders");
(d) the extent to which any Class within a Series is subordinated
to any other Class of such Series or any other Series; (e) the
Distribution Dates for the respective Classes; (f) relevant
financial information with respect to the Receivables; (g)
additional information with respect to any Series Enhancement
relating to such Series; and (h) the plan of distribution of such
Series.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein)
are issued, monthly and annual unaudited reports, containing
information concerning the Trust and prepared by the Servicer,
will be sent on behalf of the Trust to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered
holder of the Certificates pursuant to the Pooling and Servicing
Agreement. Such reports will be made available by DTC and its
participants to the Certificateholders in accordance with the
rules, regulations and procedures creating and affecting DTC. See
"Description of the Pooling and Servicing Agreement Evidence as
to Compliance." Such reports will not constitute financial
statements prepared in accordance with generally accepted
accounting principles. The Pooling and Servicing Agreement does
not require the sending of, and the Transferor does not intend to
send, any of its financial reports to the Certificateholders or
to the owners of beneficial interests in the Certificates
("Certificate Owners").
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a
Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with the Securities and Exchange
Commission (the "Commission") with respect to the Certificates
offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement and amendments
thereof and exhibits thereto, which are available for inspection
without charge at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; Seven World Trade Center, New York, New York 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Servicer
will file with the Commission such periodic reports, if any, 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. In addition,
the Commission maintains a public access site on the Internet
through the World Wide Web at which site reports, proxy and
information statements and other information regarding
registrants, including all electronic filings, may be viewed. The
Internet address of the Commission's World Wide Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on
behalf of the Trust, pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
Certificates offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be part hereof. Any
statement contained herein or in a document deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that
a statement contained in any other subsequently filed document
which also 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 modified or
superseded, to constitute a part of this Prospectus.
The Servicer will provide without charge to each person to
whom a copy of this Prospectus is delivered, on the written or
oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits
to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests
for such copies should be directed to Partners First National
Bank; 220 Continental Drive, Suite 208, Newark, Delaware 19713;
Attention: Chief Financial Officer. Telephone requests for such
copies should be directed to (302) 283-3000.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by
reference to the detailed information appearing elsewhere in this
Prospectus and in any accompanying Prospectus Supplement.
Reference is made to the Index of Defined Terms beginning on page
86 herein for the location herein of the definitions of certain
capitalized terms used herein. Unless the context requires
otherwise, certain capitalized terms, when used herein and in any
accompanying Prospectus Supplement, relate only to the particular
Series being offered by such Prospectus Supplement.
Issuer . . . . . . . . Partners First Credit Card Master
Trust (the "Trust"). The Trust, as a
master trust, is expected to issue
series of Certificates (each, a
"Series") from time to time. See
"The Trust."
Servicer . . . . . . . Partners First National Bank, a
national banking association
organized under the laws of the
United States (the "Bank"), as
servicer (in such capacity, the
"Servicer"). 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,
in which event the Trustee or, so
long as it meets certain eligibility
standards set forth in the Pooling
and Servicing Agreement, a third-
party servicer may be appointed as
successor servicer (the Bank, or any
such successor servicer, is referred
to herein as the "Servicer"). The
Bank is permitted to delegate
certain of its duties as Servicer to
any of its affiliates or, subject to
certain conditions, to third party
service providers, but any such
delegation will not relieve the
Servicer of its liability and
responsibility with respect to such
duties under the Pooling and
Servicing Agreement or any
Supplement. The Bank has delegated
certain of its servicing duties to
First Data Resources, Inc. ("FDR").
See "Description of the Certificates
Servicing Compensation and Payment
of Expenses."
Trustee . . . . . . . . The Bank of New York (the
"Trustee"), a New York banking
corporation.
Transferor . . . . . . Partners First Receivables Funding
Corporation ("PFRFC"), a Delaware
corporation and a special purpose
wholly owned subsidiary of Partners
First Receivables, LLC, ("PFR") a
Delaware limited liability company,
as transferor (in such capacity, the
"Transferor").
Account Originators . . On the date of issuance of the first
Series of Certificates (the "Initial
Series Closing Date") BankBoston
(NH), National Association ("BKB"),
a national banking association
organized under the laws of the
United States, and Harris Trust and
Savings Bank, a bank chartered under
the laws of the State of Illinois
("Harris") each will contribute
specified rights under certain
identified credit card accounts to
Partners First Holdings, LLC
("Holdings"), a limited liability
company organized under the laws of
the State of Delaware, in exchange
for an equity interest in Holdings
(BKB and Harris, together with any
other contributor of revolving
consumer credit card accounts to
Holdings, the "Account
Originators"). Immediately upon
giving effect to such contributions
Holdings will license all of its
rights under such credit card
accounts to the Bank. After giving
effect to such transactions, the
Bank will be entitled to exercise
all of the rights of the owner of
the Accounts.
Transfer of Receivables Immediately following the foregoing
transactions, BKB will sell to the
Bank approximately $
aggregate principal amount of
Receivables and Harris will sell to
the Bank approximately $
aggregate principal amount of
Receivables. The Bank in turn will
sell the Receivables acquired from
BKB and Harris to PFR and BKB and
Harris will sell approximately
$__________ and approximately $
, aggregate principal amount
of Receivables, respectively,
directly to PFR. Upon giving effect
to such transactions PFR will have
acquired approximately $_____________
aggregate principal amount of
Receivables on the Initial Series
Closing Date (the "Initial
Receivables").
Holdings may from time to time in
the future enter into arrangements
with other Account Originators
similar to the arrangements entered
into with BKB and Harris. Any such
Account Originator will contribute
specified rights under certain
identified credit card accounts
owned by it to Holdings in exchange
for an equity interest in Holdings,
which in turn will license its
rights under such credit card
accounts to the Bank.
Pursuant to the receivables purchase
agreement to be entered into between
the Bank and PFR (the "PFR Purchase
Agreement") and the receivables
purchase agreement to be entered
into between PFR and the Transferor
(the "Transferor Purchase Agreement"
and, together with the PFR Purchase
Agreement and the Account Originator
Purchase Agreement, the "Purchase
Agreements"), the Bank will sell to
PFR and then PFR will sell to the
Transferor, all of their respective
right, title and interest in and to
(i) the Initial Receivables, (ii)
all of the Receivables created in
the Initial Accounts following the
Initial Series Closing Date and
(iii) the Receivables in each
Additional Account, which may
include Accounts originated by an
Account Originator other than BKB or
Harris, designated from time to time
for inclusion as an Account as of
the date of such designation,
whether such Receivables shall then
be existing or shall thereafter be
created. In addition, pursuant to
their respective Purchase
Agreements, the Bank has assigned to
PFR and PFR has assigned to the
Transferor the right to Recoveries
(as defined herein) and Interchange
(as defined herein) allocable to the
Receivables or its approximate
equivalent in the form of Discount
Option Receivables (as defined
herein) allocable to the
Receivables. See "Description of the
Purchase Agreements." The
Transferor in turn, from time to
time, transfers such Receivables,
including the right to Recoveries
and Interchange, to the Trust
pursuant to the Pooling and
Servicing Agreement.
Trust Assets . . . . . The assets of the Trust (the "Trust
Assets") include the receivables
("Receivables") arising under
certain VISA and MasterCard *
revolving credit card accounts (the
"Accounts"), and the proceeds
thereof, including recoveries on
charged-off Receivables
("Recoveries"), proceeds of credit
insurance policies relating to the
Receivables and may include the
right to receive Interchange (as
defined herein), if any, allocable
to the Certificates, funds on
deposit in certain accounts of the
Trust for the benefit of
Certificateholders, Participation
Interests (as defined herein), if
any, and any Credit Enhancement (as
defined herein) issued with respect
to a particular Series (the drawing
on or payment of any Series Enhancement
for the benefit of a Series or Class
of Certificateholders will not be
available to the Certificateholders
of any other Series or Class).
"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. "Series
Enhancement" means, with respect to
any Series or Class of Certificates,
any Credit Enhancement (as defined
herein), interest rate swap
agreement, interest rate cap
agreement or other similar
arrangement for the benefit of
Certificateholders of such Series or
Class. The subordination of any
Series or Class of Certificates to
another Series or Class of
Certificates shall be deemed to be a
Series Enhancement. "Participation
Interests" means participations
representing undivided interests in
a pool of assets primarily
consisting of revolving credit card
receivables, charge card receivables
and other self-liquidating financial
assets. See "Description of the
Pooling and Servicing Agreement
Additions of Accounts or
Participation Interests."
________________________
* VISA and MasterCard are registered trademarks of VISA USA,
Inc. ("VISA") and MasterCard International Incorporated
("MasterCard"), respectively.
To the extent provided in any
Supplement (as defined herein), or
in an amendment to the Pooling and
Servicing Agreement, all or a
portion of the Receivables or
Participation Interests conveyed to
the Trust and all collections
received with respect thereto may be
allocated to one or more Series or
groups of Series (each a "Group") as
long as the Rating Agency Condition
(as defined herein) 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
have an Adverse Effect (as defined
herein).
The Certificates . . . The Certificates will be issued in
Series, each of which will consist
of one or more Classes. The specific
terms of a Series or Class will be
established as described herein
under "Description of the Pooling
and Servicing Agreement New
Issuances." However, while the
specific terms of any Series or
Class offered hereby will be
described in the related Prospectus
Supplement, the terms of such Series
or Class will not be subject to
prior review by, or consent of, the
holders of the Certificates of any
previously issued Series.
The Certificates of a Series offered
hereby will generally be available
for purchase in minimum
denominations of $1,000 and in
integral multiples thereof, and will
only be available in book-entry form
except in certain limited
circumstances as described herein
under "Description of the
Certificates Definitive
Certificates." Interests in the
Trust Assets will be allocated among
(a) the Certificateholders,
including Credit Enhancers (as
defined herein) holding
uncertificated subordinated
interests (each, an "Enhancement
Invested Amount"), of a particular
Series (the "Certificateholders'
Interest"), (b) the
Certificateholders (including such
holders of Enhancement Invested
Amounts) of other Series, if any,
(c) the holders of any
Participations and (d) the interest
of the Transferor and its permitted
transferees (the "Transferor's
Interest"), as described below. The
Invested Amount of a Series offered
hereby will, except as otherwise
provided herein and except with
respect to Certificates with a
variable principal amount, remain
fixed at the aggregate initial
principal amount of the Certificates
of such Series. The
Certificateholders' Interest of a
Series will include the right to
receive (but only to the extent
needed to make required payments
under the Pooling and Servicing
Agreement, including the related
Supplement, and subject to any
reallocation of such amounts if the
related Supplement so provides)
varying percentages of collections
of Finance Charge Receivables and
Principal Receivables and will be
allocated a varying percentage of
the Receivables in Defaulted
Accounts with respect to each
calendar month (each, a "Monthly
Period"). See "Description of the
Certificates Interest" and "
Principal." If the Certificates of a
Series offered hereby include more
than one Class of Certificates, the
collections allocable to the
Invested Amount of such Series may
be further allocated among each
Class in such Series as described in
the related Prospectus Supplement.
The Transferor's
Interest . . . . . . . The Transferor's Interest at any
time represents the right to the
Trust Assets in excess of the
Certificateholders' Interest, the
interest of any holder of a
Participation and Enhancement
Invested Amounts of all Series then
outstanding. The principal amount of
the Transferor's Interest (the
"Transferor Amount") will fluctuate
as the amount of the Principal
Receivables held by the Trust
changes from time to time. In
addition, the Transferor intends to
cause the issuance of Series from
time to time and any such issuance
will have the effect of decreasing
the Transferor Amount to the extent
of the initial Invested Amount of
such Series. See "Risk Factors
Issuance of New Series."
The level of the "Required
Transferor Amount," which equals the
sum of the Series Required
Transferor Amounts for each
outstanding Series, is intended to
enable the Transferor's Interest to
absorb fluctuations in the amount of
Principal Receivables held by the
Trust from time to time (due to,
among other things, seasonal
purchase and payment habits of
cardholders or adjustments in the
amount of Principal Receivables
because of rebates, refunds,
fraudulent charges or otherwise).
See "Risk Factors Generation of
Additional Receivables; Dependency
on Cardholder Repayments" and
"Description of the Pooling and
Servicing Agreement Defaulted
Receivables; Rebates and Fraudulent
Charges."
Issuance of New Series The Pooling and Servicing Agreement
authorizes the Trustee to issue four
types of certificates: (a) one or
more Series of Certificates, (b)
Participations representing
participation interests in the
Receivables, as described below, (c)
a certificate evidencing the
Transferor's Interest in the Trust
retained by the Transferor (the
"Transferor Certificate"), which
Transferor Certificate will be held
by the Transferor, and (d)
certificates ("Supplemental
Certificates") held by transferees
of a portion of the Transferor
Certificate. The Transferor
Certificate and any Supplemental
Certificates are collectively
referred to as the "Transferor
Certificates." See "Description of
the Pooling and Servicing Agreement
The Transferor Certificates." The
Pooling and Servicing Agreement
provides that, pursuant to any one
or more supplements to the Pooling
and Servicing Agreement (each, a
"Supplement"), the Transferor may
cause the Trustee without the
consent of the Certificateholders to
issue one or more new Series and
accordingly cause a reduction in the
Transferor's Interest represented by
the Transferor Certificates. There
can be no assurance that the terms
of any Series might not have an
impact on the timing or amount of
payments received by a
Certificateholder of another Series.
Under the Pooling and Servicing
Agreement, the Transferor may
define, with respect to any Series,
the Principal Terms of such Series.
See "Description of the Pooling and
Servicing Agreement New
Issuances." The Transferor may offer
any Series to the public or other
investors under a disclosure
document (a "Disclosure Document"),
which will consist of a Prospectus
Supplement in the case of a Series
offered hereby, in transactions
either registered under the
Securities Act or exempt from
registration thereunder, directly or
through one or more underwriters or
placement agents, in fixed-price
offerings or in negotiated
transactions or otherwise. See "Plan
of Distribution."
A new Series may be issued only upon
satisfaction of the conditions
described herein under "Description
of the Pooling and Servicing
Agreement New Issuances"
including, among others, that (a)
such issuance will satisfy the
Rating Agency Condition (as defined
herein) and (b) the Transferor shall
have delivered to the Trustee and
certain providers of Series
Enhancement a certificate of an
authorized officer to the effect
that, in the reasonable belief of
the Transferor, such issuance will
not, based on the facts known to
such representative at the time of
such certification, have an Adverse
Effect.
The Pooling and Servicing Agreement
provides that, pursuant to any one
or more supplements to the Pooling
and Servicing Agreement (each, a
"Participation Supplement"), the
Transferor may direct the Trustee to
issue on behalf of the Trust one or
more participations (each, a
"Participation"), to be delivered to
or upon the order of the Transferor
upon the satisfaction of certain
conditions described herein under
"Description of the Pooling and
Servicing Agreement New Issuances."
A Participation will be issued on
the Closing Date to the Bank.
The Accounts . . . . . The Accounts generally consist of
VISA and MasterCard consumer
revolving credit card accounts
originated by or contributed to
Holdings, licensed by Holdings to
the Bank and designated from time
to time by the Transferor (or an
affiliate thereof), that, in each
case, meet the criteria provided in
the Pooling and Servicing Agreement
for an Eligible Account (as defined
herein), but do not include any
Removed Accounts (as defined
herein). The Accounts are not being
sold or transferred to the Trust and
will continue to be owned by
Holdings and controlled and held by
the Bank unless transferred as
described herein. See "Credit Card
Activities" and "Description of the
Purchase Agreements."
The Transferor conveyed to the Trust
Receivables existing on __________,
1997 (the "Initial Cut-Off Date") in
certain VISA and MasterCard consumer
revolving credit card accounts (the
"Initial Accounts") that met the
criteria provided in the Pooling and
Servicing Agreement for an Eligible
Account as of the Initial Cut-Off
Date and will convey Receivables
arising in the Initial Accounts from
time to time thereafter until the
termination of the Trust. The
Initial Accounts were originated or
purchased by BKB or Harris and
contributed to Holdings which then
licensed them to the Bank on the
Initial Series Closing Date. In
addition, pursuant to the Pooling
and Servicing Agreement, the
Transferor expects (subject to
certain limitations and conditions),
and in some circumstances will be
obligated, to have Additional
Accounts designated, the Receivables
of which will be included in the
Trust or, in lieu thereof or in
addition thereto, to include
Participation Interests in the
Trust. Additional Accounts include
New Accounts (as defined herein) and
Aggregate Addition Accounts (as
defined herein). The Transferor will
convey to the Trust all Receivables
in Additional Accounts, whether such
Receivables are then existing or
thereafter created. The addition to
the Trust of Receivables in
Aggregate Addition Accounts or
Participation Interests will be
subject to certain conditions,
including, among others, that (a)
unless such addition is a required
addition or a designation of New
Accounts, such addition will satisfy
the Rating Agency Condition and (b)
the Transferor shall have delivered
to the Trustee a certificate of an
authorized officer to the effect
that, in the reasonable belief of
the Transferor, such addition will
not have an Adverse Effect. The
Transferor will also have the right,
in certain circumstances, to remove
from the Trust all Receivables of
certain designated Accounts (the
"Removed Accounts"). See
"Description of the Pooling and
Servicing Agreement Additions of
Accounts or Participation
Interests;" " Removal of Accounts"
and "Risk Factors Addition of
Trust Assets."
The Receivables . . . . The Receivables include (a) periodic
finance charges, cash advance fees,
late charges, annual membership
fees, returned check fees, over-the-
limit fees and other miscellaneous
fees and the interest portion of any
Participation Interests as
determined pursuant to the
applicable Supplement (the "Finance
Charge Receivables"), and (b)
amounts charged by cardholders for
merchandise and services, amounts
advanced to cardholders as cash
advances and the principal portion
of any Participation Interests as
determined pursuant to the
applicable Supplement (the
"Principal Receivables").
Recoveries attributed to charged-off
Receivables up to the amount of
Defaulted Receivables in any Monthly
Period will be treated as
collections of Principal
Receivables. The excess, if any, of
Recoveries over Defaulted
Receivables will be treated as
collections of Finance Charge
Receivables. In addition, certain
Interchange or its equivalent in the
form of Discount Option Receivables
attributed to cardholder charges for
merchandise and services in the
Accounts will be treated as
collections of Finance Charge
Receivables. See "Credit Card
Activities Interchange."
All new Receivables arising in the
Accounts during the term of the
Trust will automatically be sold by
the Bank to PFR and by PFR to the
Transferor and then transferred by
the Transferor to the Trust.
Accordingly, the amount of
Receivables will fluctuate from day
to day as new Receivables are
generated and as existing
Receivables are collected, charged-
off as uncollectible or otherwise
adjusted.
If so specified in the related
Prospectus Supplement, the Servicer
will establish and maintain a Yield
Supplement Account for the benefit
of the Certificateholders of such
Series. Amounts on deposit in the
Yield Supplement Account for any
Series (together with investment
earnings thereon) will be released
and deposited into the Collection
Account in the amounts and at the
times specified in the Prospectus
Supplement for such Series. Each
such deposit into the Collection
Account will be treated as
collections of Finance Charge
Receivables allocable to the
Certificates of the related Series.
The Yield Supplement Account for any
Series will be funded with proceeds
from the offering of the related
Series of Certificates.
Clearance and
Settlement . . . . . . Unless otherwise specified in the
related Prospectus Supplement, the
Certificates will be available for
purchase in minimum denominations of
$1,000 and integral multiples
thereof in book-entry form only.
Certificateholders may elect to hold
their Certificates through any of
DTC (in the United States) or Cedel
Bank, societe anonyme ("Cedel") or
the Euroclear System ("Euroclear")
(in Europe). See "Description of the
Certificates Book-Entry
Registration."
Interest . . . . . . . Interest will accrue on the Invested
Amount or outstanding principal
amount of the Certificates of a
Series or Class offered hereby at
the per annum rate either specified
in or determined in the manner
specified in the related Prospectus
Supplement. Except as otherwise
provided herein, collections of
Finance Charge Receivables and
certain other amounts allocable to
the Invested Amount of a Series
offered hereby will generally be
used to make interest payments to
Certificateholders of such Series on
each Interest Payment Date with
respect thereto; provided that if an
Early Amortization Period commences
with respect to such Series,
thereafter interest will be distributed
to such Certificateholders monthly on
each Special Payment Date (defined
herein). If the Interest Payment
Dates for a Series or Class occur
less frequently than monthly, such
collections or other amounts (or the
portion thereof allocable to such
Class) will be deposited in one or
more trust accounts (each, an
"Interest Funding Account") and used
to make interest payments to
Certificateholders of such Series or
Class on the following Interest
Payment Date with respect thereto.
If a Series has more than one Class
of Certificates, each such Class may
have a separate Interest Funding
Account. See "Description of the
Certificates Interest."
Principal . . . . . . . The principal of the Certificates of
each Series offered hereby will be
scheduled to be paid either (a) in
full on an expected date specified
in the related Prospectus Supplement
(the "Expected Final Payment Date"),
in which case such Series will have
a Controlled Accumulation Period as
described below under " Controlled
Accumulation Period," or (b) in
installments commencing on a date
specified in the related Prospectus
Supplement (the "Principal
Commencement Date"), in which case
such Series will have a Controlled
Amortization Period as described
below under " Controlled
Amortization Period." If a Series
has more than one Class of
Certificates, each Class may have a
different method of paying
principal, Expected Final Payment
Date or Principal Commencement Date.
The payment of principal with
respect to the Certificates of a
Series or Class may commence earlier
than the applicable Expected Final
Payment Date or Principal
Commencement Date, and the final
principal payment with respect to
the Certificates of a Series or
Class may be made later than the
applicable Expected Final Payment
Date or other expected date, if a
Pay Out Event occurs with respect to
such Series or Class or under
certain other circumstances
described herein. See "Risk Factors
- Generation of Additional
Receivables; Dependency on
Cardholder Repayments" for a
description of factors that may
affect the timing of principal
payments on Certificates. See
"Description of the Certificates
Principal."
Revolving Period . . . The Certificates of each Series
offered hereby will have a revolving
period (the "Revolving Period") that
will commence on the date of
issuance of the related Series (the
"Series Closing Date") or on a date
prior thereto specified in the
related Supplement and, for a Series
offered hereby, the related
Prospectus Supplement (the "Series
Cut-Off Date") and continue until
the earlier of (a) the commencement
of the Early Amortization Period or
Early Accumulation Period with
respect to such Series and (b) the
date specified in the related
Prospectus Supplement as the end of
the Revolving Period with respect to
such Series. If the related
Prospectus Supplement provides that
a Series is a Principal Sharing
Series (as defined herein), during
the Revolving Period with respect to
such Series, collections of
Principal Receivables and certain
other amounts otherwise allocable to
the Certificateholders' Interest of
such Series will be treated as
Shared Principal Collections and
will be distributed to, or for the
benefit of, the Certificateholders
of other Principal Sharing Series or
the holders of the Transferor
Certificates or deposited into the
Special Funding Account, as more
fully described in the related
Prospectus Supplement. If the
related Prospectus Supplement
provides that a Series is not a
Principal Sharing Series, during the
Revolving Period with respect to
such Series, collections of
Principal Receivables and certain
other amounts otherwise allocable to
the Certificateholders' Interest of
such Series will be paid to the
holders of the Transferor
Certificates or deposited into the
Special Funding Account, as more
fully described in the related
Prospectus Supplement. See
"Description of the Certificates
Principal," and " Pay Out Events
and Reinvestment Events" for a
discussion of the events that might
lead to the termination of the
Revolving Period with respect to a
Series prior to its scheduled date.
Controlled Accumulation
Period . . . . . . . . If the related Prospectus Supplement
so specifies, unless an Early
Amortization Period or, if so
specified in the related Prospectus
Supplement, an Early Accumulation
Period commences with respect to a
Series offered hereby, the
Certificates of such Series will
have a scheduled accumulation period
(the "Controlled Accumulation
Period") that will commence at the
close of business on the date or
dates specified in or determined as
specified in such Prospectus
Supplement and continue until the
earliest of (a) the commencement of
the Early Amortization Period or, if
so specified in the related
Prospectus Supplement, an Early
Accumulation Period with respect to
such Series, (b) payment in full of
the Invested Amount, including the
Enhancement Invested Amount, if any,
of the Certificates of such Series,
and (c) the series termination date
with respect to such Series (the
"Series Termination Date"). The
Controlled Accumulation Period may
be postponed under the conditions
set forth in "Description of the
Certificates Principal." During
the Controlled Accumulation Period
with respect to a Series,
collections of Principal Receivables
and, if so specified in the related
Prospectus Supplement, certain other
amounts allocable to the
Certificateholders' Interest of such
Series (including Shared Principal
Collections (as defined herein), if
any, allocable to such Series) will
be deposited on each Distribution
Date in a trust account established
for the benefit of the
Certificateholders of such Series
(each, a "Principal Funding
Account") and used to make principal
distributions to the
Certificateholders of such Series or
any Class thereof when due. The
amount to be deposited in the
Principal Funding Account (the
"Controlled Deposit Amount") for any
Series offered hereby on any
Distribution Date may, but will not
necessarily, be limited to an amount
equal to an amount specified in or
determined as specified in the
related Prospectus Supplement (the
"Controlled Accumulation Amount")
plus any existing deficit controlled
accumulation amount arising from
prior Distribution Dates. If the
Prospectus Supplement for a Series
so specifies, the amount to be
deposited in the Principal Funding
Account on a Distribution Date may
be a variable amount. If a Series
has more than one Class of
Certificates, each Class may have a
separate Principal Funding Account
and Controlled Accumulation Amount
and the Controlled Accumulation
Period with respect to each Class
may commence on different dates. In
addition, the related Prospectus
Supplement may describe certain
priorities among such Classes with
respect to deposits of principal
into such Principal Funding
Accounts.
Early Accumulation
Period . . . . . . . . If so specified and under the
conditions set forth in the
Prospectus Supplement relating to a
Series having a Controlled
Accumulation Period, during the
period from the day on which a
Reinvestment Event (as defined
herein) has occurred, until the
earliest of (a) the commencement of
the Early Amortization Period (if
any), (b) payment in full of the
Invested Amount, including the
Enhancement Invested Amount, if any,
of the Certificates of such Series,
and (c) the Series Termination Date
with respect to such Series (the
"Early Accumulation Period"),
collections of Principal Receivables
and, if so specified in the related
Prospectus Supplement, certain other
amounts allocable to the
Certificateholders' Interest of such
Series (including Shared Principal
Collections, if any, allocable to
such Series) will be deposited on
each Distribution 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
Expected Final Payment Date. The
amount to be deposited in the
Principal Funding Account during the
Early Accumulation Period will not
be limited to any Controlled Deposit
Amount. See "Description of the
Certificates Pay Out Events and
Reinvestment Events" for a
discussion of the events which might
lead to commencement of an Early
Accumulation Period.
Controlled Amortization
Period . . . . . . . . If the related Prospectus Supplement
so specifies, unless an Early
Amortization Period commences with
respect to a Series offered hereby,
the Certificates of such Series will
have an amortization period (the
"Controlled Amortization Period")
that will commence at the close of
business on the date specified in
such Prospectus Supplement and
continue until the earliest of (a)
the commencement of the Early
Amortization Period with respect to
such Series, (b) payment in full of
the Invested Amount, including the
Enhancement Invested Amount, if any,
of the Certificates of such Series
and (c) the Series Termination Date
with respect to such Series. During
the Controlled Amortization Period
with respect to a Series,
collections of Principal Receivables
and certain other amounts allocable
to the Certificateholders' Interest
of such Series (including Shared
Principal Collections, if any,
allocable to such Series) will be
used on each Distribution Date to
make principal distributions to
Certificateholders of such Series or
any Class thereof then scheduled to
receive such distributions. The
amount to be distributed to
Certificateholders of any Series
offered hereby on any Distribution
Date may, but will not necessarily,
be limited to an amount (the
"Controlled Distribution Amount")
equal to an amount (the "Controlled
Amortization Amount") specified in
the related Prospectus Supplement
plus any existing deficit controlled
amortization amount arising from
prior Distribution Dates. If a
Series has more than one Class of
Certificates, each Class may have a
different Controlled Amortization
Amount. In addition, the related
Prospectus Supplement may describe
certain priorities among such
Classes with respect to such
distributions.
Early Amortization
Period . . . . . . . . During the period from the day on
which a Pay Out Event has occurred with
respect to a Series to the date on which
the Invested Amount, including the
Enhancement Invested Amount, if any, of
the Certificates of such Series has been
paid in full or the related Series
Termination Date has occurred (the
"Early Amortization Period"),
collections of Principal Receivables and
certain other amounts allocable to the
Certificateholders' Interest of such
Series (including Shared Principal
Collections, if any, allocable to such
Series) will be distributed as principal
payments to the Certificateholders of
such Series monthly on each Distribution
Date beginning with the first Special
Payment Date with respect to such
Series. During the Early Amortization
Period with respect to a Series,
distributions of principal to
Certificateholders will not be subject
to any Controlled Deposit Amount or
Controlled Distribution Amount. In
addition, upon the commencement of the
Early Amortization Period with respect
to a Series, any funds on deposit in a
Principal Funding Account with respect
to such Series will be paid to the
Certificateholders of the relevant Class
or Series on the first Special Payment
Date with respect to such Series. See
"Description of the Certificates Pay Out
Events and Reinvestment Events" for a
discussion of the events that might lead
to the commencement of the Early
Amortization Period with respect to a
Series.
Allocations Among
Series. . . . . . . . . Pursuant to the Pooling and Servicing
Agreement, during each Monthly Period,
the Servicer is required to first
allocate to each Series collections of
Principal Receivables and Finance Charge
Receivables and the Defaulted
Receivables with respect to such Monthly
Period based on the Series Allocation
Percentage (as defined herein). See
"Description of the Pooling and
Servicing Agreement 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 holders of the
Transferor Certificates pursuant to the
terms of the related Supplement.
Sharing of Excess
Finance Charge Collec-
tions Among Excess
Allocation Series. . . If the Prospectus Supplement for a
Series so provides, any Series may be
designated as a Series that shares with
other Series similarly designated,
subject to certain limitations, certain
Excess Finance Charge Collections (as
defined herein) allocable to any such
Series (an "Excess Allocation Series").
Subject to certain limitations described
under "Description of the Pooling and
Servicing Agreement Sharing of Excess
Finance Charge Collections Among Excess
Allocation Series," collections of
Finance Charge Receivables and certain
other amounts allocable to the
Certificateholders' Interest of any
Series that is designated as an Excess
Allocation Series in excess of the
amounts necessary to make required
payments with respect to such Series
(including payments to the provider of
any related Series Enhancement) will be
applied to cover shortfalls with respect
to amounts payable from collections of
Finance Charge Receivables allocable to
any other Series designated as an Excess
Allocation Series, in each case pro rata
based upon the amount of the shortfall
with respect to amounts payable from
Collections of Finance Charge
Receivables, if any, with respect to
each other Excess Allocation Series. See
"Description of the Pooling and
Servicing Agreement Sharing of Excess
Finance Charge Collections Among Excess
Allocation Series."
Shared Principal
Collections . . . . . . If the Prospectus Supplement for a
Series so provides, any Series may be
designated as a Series that shares with
other Series similarly designated,
subject to certain limitations, certain
excess collections of Principal
Receivables and certain other amounts
allocable to the Certificateholders'
Interest of such Series (a "Principal
Sharing Series"). To the extent that
collections of Principal Receivables and
certain other amounts that are allocated
to the Certificateholders' Interest of
any Principal Sharing Series are not
needed to make payments to the
Certificateholders of such Series or
required to be deposited in a Principal
Funding Account for such Series and to
the extent that any amounts are
specified in any Participation
Supplement to be treated as Shared
Principal Collections, such amounts may
be applied to cover principal payments
due to or for the benefit of
Certificateholders of another Principal
Sharing Series. Any such reallocation
will not result in a reduction in the
Invested Amount of the Series to which
such collections were initially
allocated. See "Description of the
Pooling and Servicing Agreement Shared
Principal Collections."
Reallocations Among
Series in a Realloca-
tion Group . . . . . . If so provided in the related Prospectus
Supplement, the Certificates of a Series
may be included in a Group that will be
subject to reallocations of collections
of Finance Charge Receivables and other
amounts or obligations 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 Group.
Consequently, the issuance of new Series
in such 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
Group. See "Risk Factors Issuance of New
Series."
Paired Series . . . . . If so provided in the related
Prospectus Supplement, a Series of
Certificates may be issued (a "Paired
Series") that is paired with one or more
other Series or a portion of one or more
other Series previously issued by the
Trust (a "Prior Series"). A Paired
Series may be issued at or after the
commencement of a Controlled
Accumulation Period or Controlled
Amortization Period for a Prior Series.
As the Invested Amount of the Prior
Series having a Paired Series is
reduced, the Invested Amount of the
Paired Series will increase by an equal
amount. Upon payment in full of such
Prior Series, the Invested Amount of the
Paired Series will be equal to the
amount of the Invested Amount paid to
Certificateholders of such Prior Series.
If a Pay Out Event or Reinvestment Event
occurs with respect to the Prior Series
having a Paired Series or with respect
to the Paired Series when such Prior
Series is in a Controlled Amortization
Period or Controlled Accumulation
Period, the percentage specified in the
applicable Prospectus Supplement for the
allocation of collections of Principal
Receivables to the Certificateholders'
Interest of such Prior Series (the
"Principal Allocation Percentage") and
the Series Allocation Percentage for the
Prior Series and the Principal
Allocation Percentage and the Series
Allocation Percentage for the Paired
Series will be reset as specified in the
related Prospectus Supplement and the
Controlled Amortization Period,
Controlled Accumulation Period, Early
Amortization Period or Early
Accumulation Period for such Prior
Series could be lengthened.
Special Funding
Account . . . . . . . . If on any date the Transferor Amount
is less than or equal to the Required
Transferor Amount, the Servicer shall
not distribute to the holders of the
Transferor Certificates any collections
of Principal Receivables that otherwise
would be distributed to the holders of
the Transferor Certificates, but shall
deposit such funds in the Special
Funding Account.
Funds on deposit in the Special Funding
Account will be withdrawn and paid to
the holders of the Transferor
Certificates on any Distribution Date to
the extent that, after giving effect to
such payment, the Transferor Amount
exceeds the Required Transferor Amount
on such date; provided, however, that if
a Controlled Accumulation Period, Early
Accumulation Period, Controlled
Amortization Period or Early
Amortization Period commences with
respect to any Series, any funds on
deposit in the Special Funding Account
will be released and treated as
collections of Principal Receivables to
the extent needed to cover principal
payments due to or for the benefit of
such Series. See "Description of the
Pooling and Servicing Agreement Special
Funding Account."
Funding Period; Pre-
Funding Account . . . The Prospectus Supplement relating to a
Series of Certificates may specify that
for a period beginning on the Series
Closing Date and ending on a specified
date before the commencement of a
Controlled Amortization Period or
Controlled Accumulation Period with
respect to such Series (the "Funding
Period"), the aggregate amount of
Principal Receivables in the Trust
allocable to such Series may be less
than the aggregate principal amount of
the Certificates of such Series and an
amount equal to 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 Invested
Amounts of other Series issued by the
Trust. The related Prospectus Supplement
will specify the initial Invested Amount
on the Series Closing Date with respect
to such Series, the aggregate principal
amount of the Certificates of such
Series (the "Full Invested Amount") and
the date by which the Invested Amount is
expected to equal the Full Invested
Amount. The Invested Amount will
increase as Principal Receivables are
delivered to the Trust or as the
Invested Amounts of other Series of the
Trust are reduced. The Invested Amount
may also decrease due to the occurrence
of a Pay Out Event as specified in the
related Prospectus Supplement. See "Risk
Factors Pre-Funding Account."
During the Funding Period, funds on
deposit in the Pre-Funding Account for a
Series of Certificates will be withdrawn
and paid to the Transferor to the extent
of any increases in the Invested Amount.
In the event that the Invested Amount
does not for any reason equal the Full
Invested Amount 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 a manner and at such time
as set forth in the related Prospectus
Supplement.
If so specified in the related
Prospectus Supplement, funds in the
Pre-Funding Account with respect to any
Series will be invested by the Trustee
in Eligible Investments or will be
subject to a guaranteed rate or
investment agreement or other similar
arrangement, and investment earnings and
any applicable payment under any such
investment arrangement will be applied
to pay interest on the Certificates of
such Series.
Credit Enhancement . . The credit enhancement (the "Credit
Enhancement") with respect to a Series
offered hereby may include a letter of
credit, a cash collateral account or
guaranty, spread account, yield
supplement account, a collateral
interest, a surety bond, an insurance
policy, guaranteed rate agreement,
maturity liquidity facility, tax
protection agreement or any other form
of credit enhancement described in the
related Prospectus Supplement. Credit
Enhancement may also be provided to a
Class or Classes of a Series or to a
Series by subordination provisions which
require that distributions of principal
or interest be made with respect to the
Certificates of such Class or Classes or
such Series before distributions are
made to one or more other Classes of
such Series or to another Series (if the
Supplement for such Series so provides).
The type, characteristics and amount of
the Credit Enhancement with respect to
any Series will be determined based on
several factors, including the
characteristics of the Receivables and
Accounts underlying or comprising the
Trust Assets as of the Series Closing
Date with respect thereto, and will be
established on the basis of requirements
of each applicable Rating Agency. The
terms of the Credit Enhancement with
respect to any Series offered hereby
will be described in the related
Prospectus Supplement. If so specified
in the Prospectus Supplement for a
Series, the level of Credit Enhancement
for such Series may be reduced if such
reduction satisfies the Rating Agency
Condition. See "Description of the
Pooling and Servicing Agreement Credit
Enhancement" and "Risk Factors Limited
Nature of Rating."
Servicing . . . . . . . The Bank, in its capacity as
Servicer under the Pooling and Servicing
Agreement, is the initial Servicer for
the Trust. The Servicer is responsible
for servicing, managing and making
collections on the Receivables. The
"Distribution Date" for a Series will be
the day occurring in each month (or, if
such day is not a business day, the next
business day) or such other date
specified in the Supplement for a
Series. The "Transfer Date" for a Series
will be the business day preceding each
Distribution Date or such other date
specified in the Supplement for a
Series. On the earlier of (a) the second
business day following the Date of
Processing and (b) the day on which the
Servicer deposits any collections into
the Collection Account, subject to
certain exceptions described herein, the
Servicer will pay to the holders of the
Transferor Certificates and any
Participations their allocable portion
of any collections then held by the
Servicer. The "Date of Processing" is
the business day on which a record of
any transaction is first recorded
pursuant to the Servicer's data
processing procedures. The
"Determination Date" for a Series will
be the third business day preceding the
Distribution Date in each Monthly
Period, or such other date specified in
the Supplement for a Series. On each
Determination Date, the Servicer will
calculate the amounts to be allocated to
the Certificateholders of each Class or
Series, the holders of any
Participations and the holders of the
Transferor Certificates as described
herein in respect of collections of
Receivables received with respect to the
preceding Monthly Period.
Income Tax With-
holding . . . . . . . Interest on the Certificates will be
subject to United States withholding tax
and backup withholding unless the holder
complies with applicable IRS
identification requirements.
Tax Status . . . . . . Except to the extent otherwise
specified in the related Prospectus
Supplement, it is anticipated that
special tax counsel will be of the
opinion that the Certificates of each
Class offered hereby of each Series will
be characterized as indebtedness for
Federal income tax purposes. Except to
the extent otherwise specified in the
related Prospectus Supplement, the
Certificate Owners will agree to treat
the Certificates offered hereby 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 . See "ERISA Considerations" herein
and "Summary of Series Terms - ERISA
Considerations" in the applicable
Prospectus Supplement.
Certificate Rating . . It will be a condition to the
issuance of each Series of Certificates
or Class thereof offered pursuant to
this Prospectus and the related
Prospectus Supplement that they be rated
in one of the four highest applicable
rating categories by at least one
nationally recognized statistical rating
organization selected by the Transferor,
as specified in the applicable
Supplement (each rating agency rating
any Series, a "Rating Agency"). The
rating or ratings applicable to the
Certificates of each such Series or
Class thereof will be set forth in the
related Prospectus Supplement. A
security rating should be evaluated
independently of similar ratings of
different types of securities. A rating
is not a recommendation to buy, sell or
hold securities and may be subject to
revision or withdrawal at any time by
the assigning Rating Agency. Each rating
should be evaluated independently of any
other rating. See "Risk Factors Limited
Nature of 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.
RISK FACTORS
Investors should consider the following risk factors in
connection with the purchase of the Certificates.
Limited Liquidity. It is anticipated that, to the extent
permitted, the underwriters of any Series of Certificates offered
hereby will make a market in such Certificates, but in no event
will any such underwriter be under an obligation to do so. There
can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide
Certificateholders of any Series offered hereby with liquidity of
investment or that it will continue for the life of such
Certificates.
Limited Operating History. The Bank will be formed on or
about the Initial Series Closing Date and will have no operating
history. The Bank will begin originating credit card accounts
upon the grant of all necessary regulatory approvals and upon
obtaining membership in VISA U.S.A. Inc. and MasterCard
International Incorporation and subsequent consummation of
solicitation operations by Holdings on behalf of the Bank, and
thus has no underwriting or servicing experience, or delinquency,
default and loss experience with respect to credit card accounts,
other than through BKB and Harris. BKB began originating and
servicing credit card accounts in September 1995. BKB thus has
limited underwriting and servicing experience, and limited
delinquency, default and loss experience with respect to the
Accounts.
The average age of a credit card issuer's portfolio of
accounts is an indicator of the stability of delinquency and loss
levels of that portfolio. A portfolio of older accounts
generally behaves more predictably than a newly originated
portfolio. Approximately two thirds of the credit card accounts
to be transferred to the Trust upon formation that were
originated by BKB were originated within the last 25 months and
over 42% of such Accounts were originated within the last 12
months. Approximately __% of the credit card accounts originated
by Harris were originated within the last 12 months. The credit
card accounts originated by BKB will represent a significant
portion of the Trust's initial portfolio. The levels of such
delinquencies and losses may increase as the average age of the
Accounts increases, until the Accounts become more seasoned.
Limited History of Trust and Transferor. The Transferor was
formed in June 1997, and the Trust will be formed on the Initial
Series Closing Date. The Transferor and the Trust will have no
substantial assets other than their respective interests in the
Receivables and the proceeds thereof as described herein.
Portfolio Acquisitions. A significant portion of the
anticipated growth of the Trust Assets will depend on the Bank's
ability to identify, negotiate and complete Alliances and
portfolio acquisitions on a timely basis and successfully
integrate managed or acquired portfolios into the Trust. Failure
to do so could have a material adverse effect on the Trust. Any
acquisition or Alliance involves inherent uncertainties and
risks, such as the effect on the acquired assets of integration
with the existing Trust Assets, the availability of management
resources of the Servicer to oversee operations with respect to
the managed or acquired assets, and different demographic
characteristics of holders of managed or acquired accounts.
Integrating managed and acquired account portfolios with the
Trust's existing portfolio will require a significant amount of
the Servicer's management's time and skill and may place
significant demands on the Servicer's operations and financial
resources. Although an acquired portfolio may have had certain
levels of delinquencies and losses prior to the acquisition,
there can be no assurance that such levels of delinquencies and
losses would continue thereafter. There can be no assurance that
Holdings or the Bank will be able to locate appropriate
acquisition candidates, that any identified candidates will
ultimately be acquired or that acquired portfolios will be
effectively integrated with the Trust's existing portfolio.
There can be no assurance that the financing necessary to
complete acquisitions can be obtained by Holdings or the Bank on
favorable terms, if at all. See "Credit Activities Business
Strategy"
Non-Recourse to the Account Originators, the Bank, PFR, the
Transferor or Affiliates Thereof. No Certificateholder will have
recourse for payment of its Certificates to any assets of the
Account Originators, the Bank, PFR, the Transferor (other than
the Transferor Certificate, to the extent described herein), or
any affiliates thereof. Consequently, Certificateholders must
rely solely upon payments on the Receivables for the payment of
principal of and interest on the Certificates. Furthermore,
under the Pooling and Servicing Agreement, the Certificateholders
have an interest in the Receivables and collections thereon only
to the extent of the Certificateholders' Interest and, to the
limited extent described herein, the Transferor's Interest.
Should the Certificates not be paid in full on a timely basis,
Certificateholders may not look to any assets of any of the
Account Originators, the Bank, PFR, the Transferor (other than
the Transferor Certificate, to the extent described herein), or
any affiliates thereof to satisfy their claims.
Characteristics as a Sale; Insolvency and Receivership
Risks. Each Account Originator, the Bank and PFR represents and
warrants in the applicable Purchase Agreement that the transfer
of all Receivables pursuant thereto to the applicable purchaser
is a valid sale and assignment of such Receivables from such
party to such purchaser. In addition, each Account Originator,
the Bank, PFR and the Transferor have agreed that if,
notwithstanding their intent, the respective sales of Receivables
are not treated as sales, the respective Purchase Agreements will
be deemed to create a security interest in the Receivables.
With respect to Receivables conveyed by an Account
Originator to the Bank or to PFR and with respect to Receivables
conveyed by the Bank to PFR, in a receivership or conservatorship
of the Account Originator or of the Bank, if the conveyance of
Receivables by such Account Originator or the Bank, as the case
may be, is not treated as a sale, but is deemed to create a
security interest in the Receivables conveyed, the Bank's and
PFR's interest (in the case of a receivership or conservatorship
of an Account Originator) or PFR's interest (in the case of a
receivership or conservatorship of the Bank) in such Receivables
may be subject to tax or other governmental liens relating to the
Account Originator or to the Bank, as applicable, arising before
the subject Receivables came into existence and to certain
administrative expenses of the receivership, conservatorship or
bankruptcy proceeding. Each of the Account Originators has taken
or will take certain actions required to perfect the Bank's
interest or PFR's interest, as applicable, in the Receivables
conveyed by such Account Originator. The Bank has taken or will
take certain actions required to perfect PFR's interest in the
Receivables conveyed by the Bank to PFR.
A conservator or receiver would have the power under the
Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") to repudiate contracts of, and to request a stay
of up to 90 days of any judicial action or proceeding involving,
an Account Originator or the Bank. However, notwithstanding the
insolvency of, or the appointment of a receiver or conservator
for, an Account Originator or for the Bank, subject to certain
qualifications, a valid perfected security interest of the Bank
in the Receivables conveyed to it by the Account Originator, or
of PFR in the Receivables conveyed to it by an Account Originator
or by the Bank, should be enforceable (to the extent of the
Bank's or PFR's, as applicable, "actual direct compensatory
damages" (as described below)) and payments to the Bank or to
PFR, as applicable, with respect to the subject Receivables (up
to the amount of such damages) should not be subject to an
automatic stay of payment or to recovery by such a conservator or
receiver. If, however, the conservator or receiver were to
assert that the security interest was unperfected or
unenforceable, or were to require the Bank or PFR, to establish
its right to those payments by submitting to and completing the
administrative claims procedure established under FIRREA, or the
conservator or receiver were to request a stay of proceedings
with respect to the Account Originator or the Bank, as
applicable, as provided under FIRREA, delays in payments to the
Trust and on the Certificates and possible reductions in the
amount of those payments could occur. In the event of a
repudiation of obligations by a conservator or receiver, FIRREA
provides that a claim for the repudiated obligation is limited to
"actual direct compensatory damages" determined as of the date of
the appointment of the conservator or receiver (which in most
cases are expected to include the outstanding principal on the
Certificates plus interest accrued thereon to the date of
payment). The Federal Deposit Insurance Corporation ("FDIC") has
not adopted a formal policy statement on payment of principal and
interest on collateralized borrowings of banks that are
repudiated. The Transferor believes that the general practice of
the FDIC in such circumstances is to permit the collateral to be
applied to pay the principal owed plus interest at the contract
rate up to the date of payment, together with the costs of
liquidation of the collateral if provided for in the contract.
In one case involving the repudiation by the Resolution Trust
Corporation (the "RTC") of certain secured zero-coupon bonds
issued by a savings association, a United States federal district
court held that "actual direct compensatory damage" in the case
of a marketable security meant the value of the repudiated bonds
as of the date of repudiation. If that court's view were applied
to determine the Bank's or PFR's "actual direct compensatory
damages" in the event a conservator or receiver of an Account
Originator or the Bank, as applicable, repudiated the Purchase
Agreement pursuant to which the subject Receivables were
conveyed, the amount paid to Certificateholders could, depending
upon circumstances existing on the date of the repudiation, be
less than the principal of the Certificates and the interest
accrued thereon to the date of payment. See "Certain Legal
Aspects of the Receivables Certain Matters Relating to
Insolvency."
In addition, in the event of a Servicer Default, if a
conservator or receiver is appointed for the Servicer, and no
Servicer Default other than such conservatorship or receivership
exists, the conservator or receiver may have the power to prevent
either the Trustee or the majority of the Certificateholders from
effecting a transfer of servicing to a successor Servicer.
With respect to Receivables conveyed by PFR to the
Transferor, if PFR were to become subject to a bankruptcy
proceeding and the conveyance of Receivables by PFR to the
Transferor is not treated as a sale, but is deemed to create a
security interest in the Receivables conveyed, the Transferor's
interest in such Receivables may be subject to tax or other
governmental liens relating to PFR arising before the Receivables
came into existence and to certain administrative expenses of the
bankruptcy proceeding. PFR has taken or will take certain
actions required to perfect the Transferor's interest in the
Receivables conveyed to it by the Bank.
In a receivership or conservatorship of an Account
Originator or the Bank, or in a bankruptcy proceeding involving
PFR, if a receiver or conservator for the Account Originator or
for the Bank, or if a bankruptcy trustee for PFR, PFR as debtor
in possession, or a creditor of PFR were to take the view that
the transfer of the Receivables from PFR to the Transferor should
be recharacterized as a pledge of such Receivables, then delays
in payments on the Certificates or (should the bankruptcy court
rule in favor of any such trustee, debtor in possession or
creditor) reductions in such payments on such Certificates could
result. In addition, in a bankruptcy proceeding involving
Holdings or PFR, if a bankruptcy trustee for Holdings, Holdings
as debtor in possession, or a creditor of Holdings, or if a
bankruptcy trustee for PFR, PFR as debtor in possession, or a
creditor of PFR were to take the view that any of Holdings, PFR
or the Transferor should be substantively consolidated, then
delays in payments on the Certificates or (should the bankruptcy
court rule in favor of any such trustee, debtor in possession or
creditor) reductions in such payments on such Certificates could
result.
Although the Pooling and Servicing Agreement provides that
the Transferor will transfer all of its right, title, and
interest in and to the Receivables to the Trust, a court could
treat such transactions as an assignment of collateral as
security for the benefit of holders of Certificates issued by the
Trust. It is possible that the risk of such treatment may be
increased by the retention by the Transferor of the Transferor
Certificate and any other Class of Certificates that may be
issued and retained by the Transferor. The Transferor represents
and warrants in the Pooling and Servicing Agreement that the
transfer of the Receivables to the Trust is either a valid
transfer and assignment of the Receivables to the Trust or the
grant to the Trust of a security interest in the Receivables.
The Transferor has taken and will take certain actions required
to perfect the Trust's interest in the Receivables and warrants
that if the transfer to the Trust is deemed to be a grant to the
Trust of a security interest in the Receivables, the Trustee will
have a first priority perfected security interest therein,
subject only to tax or government lien or other nonconsensual
liens. If the transfer of the Receivables to the Trust is deemed
to create a security interest therein under the Uniform
Commercial Code "UCC", a tax or government lien or other
nonconsensual lien on property of the Transferor arising before
Receivables come into existence may have priority over the
Trust's interest in such Receivables. In the event of the
insolvency of the Transferor, certain administrative expenses may
also have priority over the Trust's interest in such Receivables.
See "Certain Legal Aspects of the Receivables Transfer of
Receivables."
To the extent that the Transferor is deemed to have granted
a security interest in the Receivables to the Trust and such
security interest was validly perfected before any insolvency of
the Transferor and was not granted or taken in contemplation of
insolvency or with the intent to hinder, delay, or defraud the
Transferor or its creditors, such security interest should not be
subject to avoidance in the event of insolvency or receivership
of the Transferor, and payments to the Trust with respect to the
Receivables should not be subject to recovery by a bankruptcy
trustee or receiver of the Transferor. If, however, such a
bankruptcy trustee or receiver were to assert a contrary
position, delays in payments on the Certificates and possible
reductions in the amount of those payments could occur.
In the event of a Servicer Default relating to the
bankruptcy or insolvency of the Servicer, and no Servicer Default
other than such bankruptcy or insolvency-related Servicer Default
exists, the bankruptcy trustee, conservator or receiver may have
the power to prevent either the Trustee or the Certificateholders
from appointing a successor Servicer. If the Transferor consents
or fails to object to the appointment of a bankruptcy trustee or
conservator, receiver or liquidator in any bankruptcy, insolvency
or similar proceedings of or relating to the Transferor, or the
commencement of an action for the appointment of a bankruptcy
trustee or conservator, receiver or liquidator in any insolvency
or similar proceedings, or for the winding-up, insolvency,
bankruptcy, reorganization, conservatorship, receivership or
liquidation of the Transferor's affairs, or notwithstanding an
objection by the Transferor any such action remains undischarged
or unstayed for a period of 60 days; or the Transferor admits in
writing its inability to pay its debts generally as they become
due, files, or consents or fails to object (or objects without
dismissal of any such filing within 60 days of such filing) to
the filing of, a petition to take advantage of any applicable
bankruptcy, insolvency or reorganization, receivership or
conservatorship statute, makes an assignment for the benefit of
its creditors or voluntarily suspends payment of its obligations
(any such event being an "Insolvency Event"), new Principal
Receivables would not be transferred by the Transferor to the
Trust. In the event of an Insolvency Event, the Trustee would
sell the Receivables (unless Holders (as defined herein) of
Certificates evidencing undivided interests aggregating more than
50% of the aggregate unpaid principal amount of each Series (or
with respect to any Series with two or more Classes, 50% of the
unpaid principal amount of each Class) and certain other persons
specified in the Supplement for a Series instruct otherwise and
provided that a trustee for the Transferor does not order a sale
despite such instructions not to sell), thereby causing early
termination of the Trust. The entire proceeds of such sale or
liquidation will be treated as collections of Receivables and
allocated accordingly among the Certificateholders of each
Series, the holders of any Participations and the Transferor.
Upon the occurrence of a Pay Out Event, if a trustee, receiver or
conservator is appointed for the Transferor and no Pay Out Event
other than such insolvency of the Transferor exists, the trustee
may have the power to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of the Early
Amortization Period or Early Accumulation Period and may be able
to require that new Principal Receivables be transferred to the
Trust. In addition, the trustee, receiver or conservator for the
Transferor may have the power to cause early sale of the
Receivables and the early payment of the Certificates or to
prohibit the continued transfer of Receivables to the Trust. See
"Certain Legal Aspects of the Receivables Certain Matters
Relating to Insolvency."
While the Bank is the Servicer, cash collections held by the
Bank may, subject to certain conditions, be commingled and used
for the benefit of the Bank prior to each Transfer Date and, in
the event of the insolvency, receivership or conservatorship of
the Bank or, in certain circumstances, the lapse of certain time
periods, the Trust may not have a perfected security interest in
such collections and accordingly, be entitled to such
collections. The Bank will be allowed to make monthly rather than
daily deposits of collections to the Collection Account if either
(i) the Bank obtains a commercial paper rating of at least A-1
and P-1 (or its equivalent) by the applicable Rating Agency or
(ii) or the Bank makes other arrangements that satisfy the Rating
Agency Condition. Unless otherwise provided in the related
Prospectus Supplement, if either of the foregoing conditions are
not satisfied, then the Bank will, within five business days,
commence the deposit of collections directly into the Collection
Account within two business days of the Date of Processing.
Consumer Protection Laws. The Accounts and Receivables are
subject to numerous Federal and state consumer protection laws
which impose requirements on the solicitation, making,
enforcement and collection of consumer loans. Such laws, as well
as any new laws or rulings which may be adopted (including, but
not limited to, federal or state interest rate caps on credit
cards), may adversely affect the Servicer's ability to collect on
the Receivables or maintain the required level of periodic
finance charges, annual membership fees and other fees. In
addition, failure by the Servicer to comply with such
requirements could adversely affect the Servicer's ability to
enforce the Accounts or Receivables.
Pursuant to the Pooling and Servicing Agreement, the
Transferor makes certain representations and warranties relating
to the validity and enforceability of the Accounts and the
Receivables and pursuant to the applicable Purchase Agreement the
Account Originators, the Bank and PFR make similar
representations and warranties with respect to the Receivables
conveyed by each such party. However, it is not anticipated that
the Trustee will make any examination of the 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 not
complied with and such noncompliance continues beyond the
applicable cure period, is that the Receivables affected thereby
will be assigned to the Servicer or reassigned to the Transferor
(for reassignment, in turn, to PFR). In addition, in the event of
the breach of certain representations and warranties, the
Transferor may be obligated to accept the reassignment of the
entire Trust Portfolio. The proceeds of any such reassignment
will be deposited in the Collection Account and treated as
collections of Principal Receivables. If the proceeds from such
reassignment and any amounts on deposit in the Collection
Account, the Reserve Account and any amounts available from any
Credit Enhancement are not sufficient to pay any Certificates in
full, the amount of principal returned to Certificateholders will
be reduced and some or all of the Certificateholders will incur a
loss. In addition, because the proceeds of any such reassignment
will be distributed to Certificateholders as principal prior to
the scheduled date of such repayment, Certificateholders would
not receive the benefit of the interest rate on the Certificates
specified in the applicable Prospectus Supplement for the period
of time originally expected on the amount of such early
repayment, and accordingly, Certificateholders will bear the
reinvestment risk resulting from faster payment of principal of
the Certificates. There can be no assurance that a
Certificateholder would be able to reinvest such early repayment
amount at a similar rate of return. See "Description of the
Pooling and Servicing Agreement Representations and Warranties"
and " Servicer Covenants" and "Certain Legal Aspects of the
Receivables Consumer Protection Laws."
Application of federal and state bankruptcy and debtor
relief laws would affect the interests of Certificateholders in
the Receivables if such laws result in any Receivables being
written off as uncollectible when there are no funds available
pursuant to any applicable Credit Enhancement or other sources.
See "Description of the Pooling and Servicing Agreement
Defaulted Receivables; Rebates and Fraudulent Charges."
Proposed Legislation Limitation on Finance Charges.
Congress and the states may enact new laws and amendments to
existing laws to regulate further the credit card industry or to
reduce finance charges or other fees or charges applicable to
credit card accounts. The potential effect of any such
legislation could be to reduce the yield on the Accounts. If such
yield is reduced, a Pay Out Event or Reinvestment Event could
occur, and the Early Amortization Period or Early Accumulation
Period would commence. See "Description of the Certificates Pay
Out Events and Reinvestment Events."
Generation of Additional Receivables; Dependency on
Cardholder Repayments. On the Initial Series Closing Date, the
credit card account relationships for each of the Accounts will
be transferred to Holdings. There can be no assurance that
holders of BKB and Harris credit cards whose accounts are
transferred to Holdings will be willing to maintain their credit
card relationship with Holdings. The failure of Holdings or the
Bank to retain sufficient numbers of these account relationships
could have a material adverse effect on the Trust. The
Receivables may be paid at any time and there is no assurance
that there will be additional Receivables created in the
Accounts, that Receivables will be added to the Trust from
Additional Accounts designated to the Trust, or that any
particular pattern of cardholder repayments will occur. The
commencement and continuation of a Controlled Amortization Period
or a Controlled Accumulation Period will be dependent upon the
continued generation of new Receivables to be conveyed to the
Trust. A significant decline in the amount of Receivables
generated could result in the occurrence of a Pay Out Event or
Reinvestment Event and the commencement of the Early Amortization
Period or the Early Accumulation Period. The full payment of the
Invested Amount of a Series or Class is dependent on cardholder
repayments and will not be made if such repayment amounts are
insufficient to pay such Series or Class its Invested Amount in
full by the Series Termination Date. The Pooling and Servicing
Agreement provides that the Transferor will be required, and the
Transferor Purchase Agreement provides that PFR and the
Transferor will be required (subject to certain conditions), to
designate Additional Accounts, the Receivables of which will be
added to the Trust in the event that the amount of the Principal
Receivables is not maintained at the Required Minimum Principal
Balance or if the Transferor Amount is less than the Required
Transferor Amount. If Additional Accounts are not designated by
the Transferor and PFR when required, a Pay Out Event or
Reinvestment Event may occur and result in the commencement of an
Early Amortization Period or Early Accumulation Period. In
addition, a decrease in the effective yield on the Receivables
due to, among other things, a change in the annual percentage
rates applicable to the Accounts, an increase in the level of
delinquencies or an increase in convenience use (i.e., where
cardholders pay their Receivables early and thus avoid all
finance charges on purchases) could cause the commencement of an
Early Amortization Period or Early Accumulation Period as well as
result in decreased protection to Certificateholders against
defaults under the Accounts.
Social, Legal,Technological, Economic and Other Factors.
Changes in card use and payment patterns by cardholders result
from a variety of social, legal, technological and economic
factors. Social factors include potential changes in consumers'
attitudes towards financing purchases with debt. Legal factors
include changes in the laws affecting creditor's rights.
Technological factors include new methods of payment, such as
debit cards, electronic billing and payment services and personal
computer banking services. Economic factors include the rate of
inflation, unemployment levels, tax law changes, bankruptcy
levels and relative interest rates. The use of incentive programs
(e.g., gift awards for card usage) may also affect card use. The
Transferor and the Bank are unable to determine and have no basis
to predict whether or to what extent legal, economic or social
factors will affect card use or repayment patterns. See "The
Accounts."
Competition in the Credit Card Industry. The credit card
industry is highly competitive and operates in a legal and
regulatory environment increasingly focused on the cost of
services charged for credit cards. As new credit card issuers
seek to enter the market and issuers seek to expand their market
share, there is increased use of advertising, target marketing
and pricing competition. Congress and the states may enact new
laws and amendments to existing laws to regulate further the
credit card industry or to reduce finance charges or other fees
or charges applicable to credit card accounts. In addition,
certain credit card issuers assess annual percentage rates or
other fees or charges at rates lower than the rate currently
being assessed on most of the Accounts. If cardholders choose to
utilize competing sources of credit, the rate at which new
Receivables are generated in the Accounts may be reduced and
certain purchase and payment patterns with respect to Receivables
may be affected. The Trust will be dependent upon the continued
ability of the Bank to generate new Receivables. If the rate at
which new Receivables are generated declines significantly and
the Transferor and PFR do not designate Additional Accounts, a
Pay Out Event or Reinvestment Event could occur, in which event
an Early Amortization Period or Early Accumulation Period would
commence.
In September 1994, the United States Court of Appeals for
the Tenth Circuit reversed a 1992 Utah federal court decision
that the VISA association violated antitrust laws when it denied
membership in VISA to a subsidiary of Sears Roebuck & Co., on the
basis that another former Sears subsidiary at the time was the
issuer of the Discover credit card, a competitor of the VISA
credit card. In June 1995, the United States Supreme Court
declined to review the decision of the court of appeals.
MasterCard has settled a similar lawsuit. This settlement by
MasterCard or a similar lawsuit against VISA could result in
increased competition among issuers of VISA and MasterCard credit
cards and thereby have adverse consequences for members of the
MasterCard and VISA associations, such as the Bank.
Ability of the Bank to Change Terms of the Accounts;
Decrease in Finance Charges. Pursuant to the Pooling and
Servicing Agreement, the Transferor is not transferring to the
Trust the Accounts but only the Receivables arising in the
Accounts. The Bank has the right to determine the annual
percentage rates and the fees which are applicable from time to
time to the Accounts, to alter the Minimum Monthly Payment
required under the Accounts and to change various other terms
with respect to the Accounts. A decrease in the annual
percentage rates or a reduction in fees would decrease the
effective yield on the Accounts and could result in the
occurrence of a Pay Out Event or Reinvestment Event and the
commencement of an Early Amortization Period or Early
Accumulation Period. An alteration of payment terms may result in
fewer payments on Receivables being made in any month. Under the
applicable Purchase Agreement, the Bank agrees that, unless
required by law or unless it deems it necessary to maintain on a
competitive basis its credit card business or a program operated
by such credit card business based on a good faith assessment by
it of the nature of the competition with respect to the credit
card business or such program, it will not take any action which
would have the effect of reducing the Portfolio Yield (as defined
herein) to a level that could reasonably be expected to cause any
Series to experience a Pay Out Event or Reinvestment Event based
on the insufficiency of the Series Adjusted Portfolio Yield or
any similar test or take any action that would have the effect of
reducing the Portfolio Yield to less than the highest Average
Rate (as defined herein) for any Group. "Portfolio Yield" means,
with respect to the Trust as a whole and, with respect to any
Monthly Period, the annualized percentage equivalent of a
fraction (a) the numerator of which is the aggregate of the sum
of the Series Allocable Finance Charge Collections (as defined
herein) for all Series during the immediately preceding Monthly
Period calculated on a cash basis after subtracting therefrom the
Series Allocable Defaulted Amount (as defined herein) for all
Series for such Monthly Period and (b) the denominator of which
is the total amount of Principal Receivables as of the last day
of such immediately preceding Monthly Period. Unless otherwise
provided in the Prospectus Supplement with respect to any Series,
"Average Rate" means, with respect to any Group, the percentage
equivalent of a decimal equal to the sum of the amounts for each
outstanding Series (or each Class within a Series consisting of
more than one Class) within such Group obtained by multiplying
(a) the certificate rate for such Series or Class (adjusted to
take into account any payments made pursuant to any interest rate
agreements) and (b) a fraction, the numerator of which is the
aggregate unpaid principal amount of the Certificates of such
Series or Class and the denominator of which is the aggregate
unpaid principal amount of all Certificates within such Group. In
addition, the Bank also agrees that, unless required by law and
except as provided above, the Bank will take no action with
respect to the applicable credit card agreements or the
applicable credit card guidelines that, at the time of such
action, the Bank reasonably believes will have a material adverse
effect on PFR and the Transferor and the Certificateholders, as
assignees. In servicing the Accounts, each of the Servicer and
any successor servicer will be required to exercise the same care
and apply the same policies that it exercises in handling similar
matters for its own or other comparable accounts. Except as
specified above, there are no restrictions specified in the
Purchase Agreements on the ability of the Bank to change the
terms of its Accounts.
There can be no assurances that changes in applicable law,
changes in the marketplace or prudent business practice might not
result in a determination by the Bank to decrease customer
finance charges or otherwise take actions which would change
other Account terms. Under certain circumstances, the Transferor
will have the right and the Transferor and PFR may be required
from time to time to designate Receivables from time to time
existing in Additional Accounts or Participation Interests for
inclusion in the Trust. However, such Additional Accounts or
Participation Interests may not be of the same credit quality or
have the same characteristics as the Accounts, the Receivables of
which have been conveyed to the Trust. See "Description of the
Pooling and Servicing Agreement Additions of Accounts or
Participation Interests."
Pre-Funding Account. With respect to any Series having a
Pre-Funding Account, in the event 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. 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 interest rate on the Certificates specified in
the applicable Prospectus Supplement for the period of time
originally expected on the amount of such early repayment and,
accordingly, Certificateholders will bear the reinvestment risk
resulting from faster payment of principal of the Certificates.
There can be no assurance that a Certificateholder would be able
to reinvest such early repayment amount at a similar return.
Premium Option. Under the Pooling and Servicing Agreement
the Transferor may, by exercising the Premium Option, at any time
or from time to time designate a specified percentage of the
amount of Receivables arising in all or a specified portion of
the Accounts that otherwise would be treated as Finance Charge
Receivables to be treated as Principal Receivables. The
Transferor might exercise the Premium Option because an increase
in the amount of collections of Principal Receivables could
result in a faster repayment of principal to Certificateholders
during an Amortization Period or accumulation of principal during
an Accumulation Period. Exercise of the Premium Option by the
Transferor could result in a reduction of the portfolio yield
with respect to collections of Finance Charge Receivables thereby
reducing amounts initially allocated to make interest payments
with respect to the Certificates and cover losses allocated to
the Certificates. See "Description of the Pooling and Servicing
Agreement -- Premium Option."
Basis Risk. The Accounts generally have finance charges set
at a variable rate above the prime rate or other specified index.
Any Class of Certificates offered hereby may bear interest at a
floating rate based on a different floating rate index. If there
is a decline in the Prime Rate or such other specified index, the
amount of collections of Finance Charge Receivables on the
Accounts may be reduced, whereas the amounts payable as interest
with respect to the Certificates and other amounts required to be
funded out of collections of Finance Charge Receivables may not
be similarly reduced.
Risks of Swaps. 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. 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 (as
defined herein) 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 (as defined herein). 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. See "Description of the
Pooling and Servicing Agreement Interest Rate Swaps and Related
Caps, Floors and Collars."
Limited Nature of 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
Pooling and Servicing Agreement and the related Supplement and
will be based primarily on the value of the Receivables in the
Trust and the availability of any Credit Enhancement with respect
to such Series or Class. Any such rating will therefore generally
address credit risk and will not, unless otherwise specified in
the related Prospectus Supplement with respect to any Class or
Series offered hereby, address the likelihood that the principal
of, or interest on, any Certificates of such Class or Series will
be prepaid, paid on a scheduled date or paid on any particular
date before the applicable Series Termination Date. In addition,
any such rating will not address the possibility of the
occurrence of a Pay Out Event or Reinvestment Event with respect
to such Class or Series or the possibility of the imposition of
United States withholding tax with respect to non-U.S.
Certificateholders. Further, the available amount of any Credit
Enhancement with respect to any such Series or Class will be
limited and will be subject to reduction from time to time as
described in the related Prospectus Supplement. In addition, the
rating of any Series or Class may be dependent upon the rating of
any provider of Series Enhancement for such Series or Class. The
rating of the Certificates of a Class or Series will not be a
recommendation to purchase, hold or sell such Certificates, and
such rating will not comment as to the marketability of such
Certificates, any market price or suitability for a particular
investor. There is no assurance that any rating will remain for
any given period of time or that any rating will not be lowered
or withdrawn entirely by a Rating Agency if in such Rating
Agency's judgment circumstances so warrant.
Issuance of New Series. The Trust, as a master trust, is
expected to issue new Series from time to time. While the terms
of any Series will be specified in a Supplement, the provisions
of a Supplement and, therefore, the terms of any new Series, will
not be subject to the prior review or consent of holders of the
Certificates of any previously issued Series. Such terms may
include methods for determining applicable investor percentages
and allocating collections, provisions creating different or
additional security or other Series Enhancements, provisions
subordinating such Series to other Series or subordinating other
Series (if the Supplement relating to such Series so permits) to
such Series, and any other amendment or supplement to the Pooling
and Servicing Agreement which is made applicable only to such
Series. The obligation of the Trustee to issue any new Series is
subject to the following conditions, among others: (a) such
issuance will not result in any Rating Agency reducing or
withdrawing its then existing rating of the Certificates of any
outstanding Series or Class with respect to which it is a Rating
Agency (the notification in writing by each Rating Agency to the
Transferor, the Servicer and the Trustee that any action will not
result in such a reduction or withdrawal is referred to herein as
the "Rating Agency Condition") and (b) the Transferor shall have
delivered to the Trustee a certificate of an authorized officer
to the effect that, in the reasonable belief of the Transferor,
such issuance will not (i) result in the occurrence of a Pay Out
Event or Reinvestment Event or (ii) materially adversely affect
the timing or amount of payments to Certificateholders of any
Series or Class (any of the conditions referred to in the
preceding clauses (i) and (ii) are referred to herein as an
"Adverse Effect"). There can be no assurance, however, that the
issuance of any other Series, including any Series issued from
time to time hereafter, might not have an impact on the timing or
amount of payments received by a Certificateholder. In addition,
the Supplements relating to Series which are part of a Group as
described herein may provide that collections of Receivables
allocable to such Series will be reallocated among all Series in
the Group. Consequently, the issuance of new Series in a Group
may have the effect of reducing the amount of collections of
Receivables which are reallocated to the Certificates of existing
Series in such Group. For example, in a Reallocation Group, which
will provide for the reallocation of collections of Finance
Charge Receivables allocable to a Series among all Series in such
Group, an additional Series which is issued with a larger claim
with respect to monthly interest than that of previously issued
Series in such 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 Group. Furthermore,
there can be no assurance that, for any Series in a Group, the
Trust will issue any other Series in such Group. Accordingly, the
anticipated benefits of sharing or reallocation collections of
Receivables may not be realized. See "Description of the Pooling
and Servicing Agreement New Issuances" and "Groups of
Series."
Addition of Trust Assets. The Transferor may from time to
time designate Participation Interests to be conveyed to the
Trust or may designate Additional Accounts, the Receivables in
which will be conveyed to the Trust. In addition, under certain
circumstances, the Transferor will be obligated to designate
Aggregate Addition Accounts or, at the Transferor's option,
Participation Interests for inclusion in the Trust. "Aggregate
Addition Accounts" means revolving credit card accounts
established pursuant to a credit card agreement between the
Account Originators or the Bank and the person or persons
obligated to make payments thereunder, excluding any merchant,
which is designated by the Transferor to be included as an
Account. Aggregate Addition Accounts may be subject to different
eligibility criteria than the Initial Accounts and may include
accounts originated using criteria different from those which
were applied to the Initial Accounts, because such accounts were
originated at a later date or were part of a portfolio of credit
card accounts which were not part of the Initial Accounts or
which were acquired from another credit card issuer. Moreover,
Aggregate Addition Accounts may not be accounts of the same type
previously included in the Trust. Consequently, there can be no
assurance that such Aggregate Addition Accounts will be of the
same credit quality as the Accounts, the Receivables of which
were initially included in the Trust. In addition, such Aggregate
Addition Accounts may consist of credit card accounts which have
different terms than the Accounts, the Receivables of which are
now included in the Trust, including lower periodic finance
charges, which may have the effect of reducing the average yield
on the portfolio of Accounts. The designation of Aggregate
Addition Accounts will be subject to the satisfaction of certain
conditions, including that (a) such addition will satisfy the
Rating Agency Condition and (b) the Transferor shall have
delivered to the Trustee a certificate of an authorized officer
to the effect that, in the reasonable belief of the Transferor,
such addition will not have an Adverse Effect. The Transferor
expects to convey from time to time to the Trust the Receivables
arising in certain Aggregate Addition Accounts in accordance with
the provisions of the Pooling and Servicing Agreement.
After obtaining the consent of each Rating Agency, the
Transferor may also, from time to time, at its sole discretion,
designate newly originated Eligible Accounts to be included as
Accounts ("New Accounts") subject to the limitations and
conditions specified in this paragraph. For purposes of the
definition of New Accounts, Eligible Accounts will be deemed to
include only types of revolving credit card accounts which are
included as Initial Accounts or which have previously been
included in any Aggregate Addition if the assignment related to
such Aggregate Addition provides that such type of revolving
credit card account is permitted to be designated as a New
Account. Until such time as each applicable Rating Agency
otherwise consents, the number of New Accounts may be subject to
certain restrictions. To the extent New Accounts are designated
for inclusion in the Trust, the Transferor will deliver to the
Trustee, at least semiannually, an opinion of counsel with
respect to the New Accounts included as Accounts confirming the
validity and perfection of each transfer of such New Accounts. If
such opinion of counsel with respect to any New Accounts is not
so received, all Receivables arising in the New Accounts to which
such failure relates will be removed from the Trust. The
Transferor will designate New Accounts subject to the following
conditions, among others: (a) the New Accounts will all be
Eligible Accounts; (b) such conveyance will not result in the
occurrence of a Pay Out Event or Reinvestment Event; and (c) such
conveyance will not have been made in contemplation of an
insolvency event with respect to the Transferor, PFR, the Bank or
any Account Originator. New Accounts and Aggregate Addition
Accounts are collectively referred to herein as "Additional
Accounts."
Any Participation Interests to be included as Trust Assets
or any Eligible Accounts, other than New Accounts, to be included
as Accounts after the Initial Cut-Off Date, are collectively
referred to herein as an "Aggregate Addition." "Eligible Account"
means a revolving credit card account owned by Holdings and
licensed to the Bank which, as of the respective date of
designation, (a) is a revolving credit card account in existence
and maintained by the Bank, (b) is payable in United States
dollars, (c) has a cardholder whose address is in the United
States or its territories or possessions or a military address,
(d) except as provided below has a cardholder who has not been
identified by the Servicer in its computer files as being
involved in any voluntary or involuntary bankruptcy proceeding,
(e) has not been identified as an account with respect to which
the related card has been lost or stolen, (f) has not been sold
or pledged to any other party except for any Account Originator
that has entered into a receivables purchase agreement, the Bank
or PFR (g) does not have receivables which have been sold or
pledged by the related Account Originator to any other party
other than the Bank or PFR, (h) except as provided below, does
not have receivables that are Defaulted Receivables, (i) does not
have any receivables that have been identified by the Servicer or
the related cardholder as having been incurred as a result of
fraudulent use of any related credit card, (j) was created in
accordance with the credit card guidelines of the Bank, and (k)
with respect to Additional Accounts, certain other accounts which
shall have satisfied the Rating Agency Condition. Accounts which
relate to bankrupt obligors or certain charged-off receivables
may be designated as Accounts provided that the amount of
Principal Receivables in any such Account is deemed to be zero
for purposes of all allocations under the Pooling and Servicing
Agreement. See "Description of the Pooling and Servicing
Agreement Addition of Accounts or Participation Interests."
Allocations. To the extent provided in any Supplement, or
any amendment to the Pooling and Servicing Agreement, portions of
the Receivables or Participation Interests conveyed to the Trust
and all collections received with respect thereto may be
allocated to one or more Series or Groups 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 have an Adverse
Effect.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus
Supplement, the net proceeds from the sale of the Certificates of
any Series offered hereby, before the deduction of expenses, will
be paid to the Transferor. Unless otherwise specified in the
related Prospectus Supplement, the Transferor will use such
proceeds to pay PFR the purchase price of the Receivables, which
in turn will apply such amounts to pay the Bank and the Account
Originators the purchase price of the Receivables acquired from
such parties.
THE TRUST
The Trust will be formed pursuant to the Pooling and
Servicing Agreement. The Trust does not and will not engage in
any business activity other than acquiring and holding the
Receivables and the other assets of the Trust and proceeds
therefrom, issuing Certificates, the Transferor Certificate,
Participations and any Supplemental Certificate and making
payments thereon and on any Series Enhancements and related
activities. As a consequence, the Trust does not and is not
expected to have any source of capital other than the Trust
Assets. The Trust is administered in accordance with the laws of
the State of Delaware.
The Transferor conveyed to the Trust, without recourse, its
interests in all Receivables existing in the Initial Accounts at
the close of business on the Initial Cut-Off Date, and will
convey to the Trust, without recourse, its interest in all
Receivables arising under such Accounts thereafter, in exchange
for the net cash proceeds from the sale of one or more Series of
Certificates plus the Transferor Certificate representing the
Transferor's Interest. In addition, the Transferor may convey
from time to time to the Trust, without recourse, except as
provided in the Pooling and Servicing Agreement, its interests in
all Receivables existing in certain Additional Accounts and
Participation Interests, if any, at the close of business on each
applicable date of designation thereof. The Trust Assets consist
of the Receivables arising under certain VISA and MasterCard
revolving credit card accounts (the "Accounts"), and the
proceeds thereof, including recoveries on charged-off
Receivables, proceeds of credit insurance policies relating to
the Receivables and may include the right to receive Interchange,
if any, allocable to the Certificates, funds on deposit in
certain accounts of the Trust for the benefit of
Certificateholders, Participation Interests, if any, and any
Credit Enhancement issued with respect to a particular Series
(the drawing on or payment of any Series Enhancement for the
benefit of a Series or Class of Certificateholders will not be
available to the Certificateholders of any other Series or
Class). Pursuant to the Purchase Agreement, the Transferor has
the right (subject to certain limitations and conditions) and in
some circumstances under the Pooling and Servicing Agreement is
obligated, to require PFR to designate from time to time
Additional Accounts to be included as Accounts and the Transferor
will convey to the Trust, pursuant to the Pooling and Servicing
Agreement, its interests in all Receivables of such Additional
Accounts or Participation Interests. Under the Pooling and
Servicing Agreement, the Transferor may convey Participation
Interests to the Trust. See "Description of the Pooling and
Servicing Agreement Additions of Accounts or Participation
Interests." In addition, the Transferor may, but is not obligated
to, designate from time to time Participation Interests or
Receivables from Accounts to be removed from the Trust. See
"Description of the Pooling and Servicing Agreement Removal of
Accounts."
CREDIT CARD ACTIVITIES
GENERAL
The Receivables to be conveyed to the Trust pursuant to the
Pooling and Servicing Agreement have been or will be generated
from transactions made by holders of certain credit card accounts
(the "Trust Portfolio") that have been selected from the total
portfolio of VISA and MasterCard accounts contributed by BKB (the
"BKB Portfolio") and Harris (the "Harris Portfolio"). The BKB
Portfolio includes all of its accounts with the exception of
those accounts of cardholders with billing addresses in
Massachusetts, Rhode Island, Connecticut and New Hampshire and
student, VIP, foreign accounts and relationship accounts. The
Harris Portfolio includes all of its accounts except corporate
accounts and secured accounts. The Receivables also will include
all fees billed to the Accounts. The Accounts were generated
under the VISA and MasterCard associations of which BKB and
Harris are members. The Accounts and Receivables will primarily
be serviced by First Data Resources, Inc. ("FDR").
The BKB Portfolio and the Harris Portfolio include VISA
Classic and MasterCard standard accounts, which are standard
accounts, and VISA Gold and Gold MasterCard accounts, which are
premium accounts. Premium accounts are generally subject to
stricter underwriting criteria than standard accounts, including
higher income requirements. Premium accounts generally have
higher credit limits and provide cardholders with services not
available to cardholders of standard accounts. For the BKB
originated accounts, the Bank applies the same finance charges to
its premium and standard accounts. More than three-quarters of
the accounts in the BKB Portfolio are assessed an annual
membership fee, although, historically, BKB has waived the annual
membership fee for certain premium and standard accounts. In
general, for the Harris Portfolio, premium accounts are priced at
a lower annual percentage rate than standard accounts; however,
there are exceptions based on risk profile and cardholder
behavior. Only about 13% of the accounts in the Harris Portfolio
are assessed an annual membership fee. With regard to both
portfolios, for accounts with an annual membership fee, premium
accounts are assessed a higher fee than standard accounts.
Cardholders may use their VISA and MasterCard credit cards
for three types of transactions: credit card purchases, cash
advances and convenience checks issued by the Bank. Cardholders
obtain cash advances when they use their VISA or MasterCard
credit card to obtain cash from a financial institution or via an
automated teller machine. Cardholders may also effect balance
consolidations by transferring their balances from credit card
accounts at other financial institutions to their credit card
account at the Bank. The balances so transferred are then
consolidated with their account at the Bank. Balance
consolidations, which are treated by the Bank in the same manner
as purchases, may be done by cardholders either at the time an
account is originated or anytime thereafter. Cardholders also
receive and may utilize special convenience checks issued by the
Bank. Convenience checks may be used by cardholders to draw
against their VISA and MasterCard credit card accounts at any
time. The Bank treats such draws in the same manner as cash
advances. All amounts due with respect to purchases, cash
advances and convenience checks are included in the Receivables.
Each cardholder is subject to an agreement with the Bank
governing the terms and conditions of the related VISA or
MasterCard credit card account. Pursuant to each such agreement,
except as described herein, the Bank reserves the right, subject
to advance notice to the cardholder as may be required by law, to
add to, delete or change the terms and conditions of its VISA or
MasterCard credit card accounts at any time, including increasing
or decreasing periodic finance charges, fees, other charges or
minimum monthly payment requirements.
BUSINESS STRATEGY
The Bank will design and market its credit card program
based on an empirical analysis of the credit card business at the
level of the individual cardholder. The Bank will collect
information about its competitors, the consumer credit market,
and current as well as historical behavior of individual
customers and prospects from both internal and external sources.
Factors which the Bank will consider include credit scores,
balance amounts, purchase types and amounts, finance charges paid
and other indicia of cardholder behavior over time.
The Bank intends to create alliances ("Alliances") with
credit card issuers ("Alliance Partners") who have concluded that
they cannot be successful within the constraints of their current
size and operational capacities without outsourcing or partnering
with third parties that will provide them with a comprehensive
economic solution for maintaining their visibility and
competitiveness in the credit card industry. The Bank believes
that the formation of a typical Alliance would involve the
selling of the Alliance Partner's non-strategic accounts to the
Bank for fair market value and the retention by the Alliance
Partner of those assets it considers strategic (e.g. relationship
or regional accounts). The Bank would provide management and
advisory services for this strategic portfolio through an
exclusive servicing agreement for all analysis, account
origination, account management, processing, back-office
services, accounting and information management support.
Entering into an alliance with the Bank would enable an
Alliance Partner to divest out-of-market, non-relationship and
other non-strategic credit card accounts and refocus its emphasis
on using the credit card as a mechanism to foster an overall
relationship strategy for its retail customers. Partnering with
the Bank to provide account origination and management services
for this strategic portfolio would enable the Alliance Partner to
continue to grow its retained portfolio and improve the long-term
financial performance of that portfolio. At the same time, the
Alliance Partner would typically retain control over key decision
areas such as brand strategy, credit policy, product pricing and
product packaging, which the Bank believes will be an extremely
important factor for many prospective Alliance Partners.
The Bank believes that this platform of growth based on an
Alliance strategy is unique in the industry, and will represent
an attractive alternative for many potential Alliance Partners.
In addition, the Bank profile as a specialized monoline entity
that does not compete in other areas of traditional banking may
assist it in achieving the image of a bank-friendly partner,
which the Bank believes will serve to enhance the attractiveness
of an Alliance relationship.
PROCESSING AND SERVICING OF CREDIT CARD ACCOUNTS
Historically, BKB delegated the processing and servicing of
its accounts exclusively to FDR. In addition, BKB utilized the
management services of First Annapolis Marketing Information
Services ("FAMIS") to perform functions related to credit policy
and risk management, marketing acquisition and account
management, data mining and FDR oversight.
Historically, the Harris Portfolio was serviced by Harris'
employees in Buffalo Grove, Illinois. As of the Initial Series
Closing Date, the accounts in the Harris Portfolio were
maintained on the system utilized by Harris prior to the Initial
Series Closing Date, which is the CardPac System. FDR has
recently acquired the Buffalo Grove facility, has hired its
employees and is servicing the Harris Portfolio. The Harris
Portfolio is expected to be converted to the FDR processing
system in the first half of 1998.
The Bank has delegated the majority of both the credit card
processing and account servicing functions to Holdings, which in
turn has contracted with FDR, a subsidiary of First Data Corp.
("FDC"), to perform those functions which performs such functions
under a [six-year], automatically renewable contract entered into
in [October]. The remainder of the processing and servicing work
will be performed by a combination of alternative vendors and in-
house staff. FDR facilities currently located in Omaha,
Nebraska, Tulsa, Oklahoma, Buffalo Grove, Illinois, Atlanta,
Georgia, Matron, Illinois and Phoenix, Arizona are utilized to
clear transactions through the VISA and MasterCard systems, post
transactions to cardholder accounts, create billing statements,
provide credit processing, operational support (including
customer service), and perform collections activity on delinquent
accounts according to the policies and procedures prescribed by
the Bank. Transactions creating the Receivables flow through
both the VISA and MasterCard systems and the FDR processing
system. If FDR should fail to perform its functions or become
insolvent, or should either the VISA or MasterCard system
materially curtail its activities, or should the Bank cease to be
a member of either VISA or MasterCard associations for any
reason, a Pay Out Event could occur and delays in payments on the
Receivables and possible reductions in the dollar amounts thereof
could also occur.
All database management functions, data mining activities,
predictive model creating and daily oversight of FDR and FDR
activities will be performed in-house by employees of Holdings as
of the Initial Series Closing Date.
ACCOUNT ORIGINATION
BKB began originating accounts in September 1995 through (i)
direct mail solicitations of individuals residing in the United
States who have been prescreened at credit bureaus on the basis
of criteria furnished by the BKB; (ii) direct mail solicitations
of individuals residing in the United States without
prescreening; (iii) outbound telemarketing programs and (iv)
applicant initiated requests made at the BKB's branch offices or
by telephone or via written letter. BKB applied the same credit
criteria without distinction among the foregoing sources of
applications, as described below in " Underwriting Procedures."
In addition, BKB purchased a credit card portfolio consisting of
approximately 324,000 accounts with outstanding principal
receivables of approximately $311 million in July 1996 from
BayBank, N.A., of which only $17,874,142 of Receivables will be
included in the Bank Portfolio.
In 1996, Harris began originating accounts through applicant
initiated requests. In 1983, Harris began soliciting new
cardholders through mass mailings from bureau extracts. Outbound
telemarketing programs conducted in 1994 and 1995 were an
additional source of applications for Harris. Credit policy, as
described below in "Underwriting Procedures" does not vary with
application source; however, it has varied over time. In
September 1990, Harris purchased approximately $207 million of
outstanding receivables from United Jersey Bank ("UJB") and
currently maintains an agent bank relationship with UJB. As of
August 1997, the UJB portfolio comprised approximately 38,000
active accounts and $81 million of receivables outstanding.
Going forward, the Bank will continue to originate accounts
through pre-approved and non-prescreened direct mail
solicitations to creditworthy consumers on a nationwide basis.
In addition, the Bank has plans to acquire accounts through the
selective acquisition of portfolios.
UNDERWRITING PROCEDURES
Historically, BKB and Harris reviewed all applications for
credit card accounts for completeness and creditworthiness based
on credit underwriting criteria established by each originator.
They used credit reports issued by independent credit reporting
agencies and, in the event of any discrepancies between the
application and the credit report and in certain other
circumstances, they verified certain information regarding
applicants.
Going forward, the primary new account source for the Bank
will be prescreened direct mail solicitation of qualified
prospective cardholders. Underwriting criteria established by
the Bank will be utilized at the credit bureaus to generate a
list of qualifying prospective cardholders. The Bank will also
obtain credit scores using scoring models licensed by the credit
bureaus from Fair Isaac & Company ("FICO"), which specializes in
developing credit scoring models. The credit scoring models to
be used by the Bank are intended to provide a general indication,
based on the information available, of the applicant's
willingness and ability to repay the applicant's obligations.
Credit scoring will evaluate a potential cardholder's credit
profile and certain of the information provided by the applicant
in the credit application in order to statistically quantify
credit risk. Models for credit scoring will be developed by
using statistics to evaluate common characteristics and their
correlation with credit risk. The credit scoring models used by
the Bank will often be reviewed and updated to reflect more
current statistical data.
The Bank will also use information obtained from various
third-party sources and its own internal database and then apply
its various predictive models to the list of potential
cardholders supplied by the credit bureaus to determine the most
creditworthy and more profitable prospects to solicit by mail.
Potential cardholders who receive direct mail solicitations will
be required to complete and return an acceptance certificate.
The information supplied by the potential cardholder on the
acceptance certificate will be used by the Bank to verify the
potential cardholder's credit information. As part of the
verification process the Bank will review a new credit bureau
report and credit score which will be updated based on the
information supplied by the applicant and established lending
criteria. Credit lines will be established after this
verification process has been completed and will be commensurate
with the new cardholder's updated credit profile, credit score
and income.
Non-prescreened applicants for credit cards will be reviewed
for completeness and accuracy. The Bank will credit score all
non-prescreened applicants utilizing a FICO supplied credit
scorecard. Applicants who score above or below pre-set
thresholds will be accepted or rejected accordingly. Applicants
whose credit score lies between these pre-set thresholds will be
reviewed manually by a credit analyst who will make the
determination as to the applicant's creditworthiness. Credit
analysts have the ability to override decisions made by the
scorecard upon receipt of additional information from the
applicant. Credit lines will be assigned based upon the
cardholder's credit score, income and credit profile.
Generally, the Bank will issue credit cards that expire two
years after issuance and will reissue credit cards with two-year
expiration dates, so long as the payment behavior of the
cardholder satisfies certain criteria.
ADDITIONAL ACCOUNTS
Receivables from Additional Accounts, if needed, will be
added to the Trust from accounts originated or acquired by the
Bank through pre-approved applications and other sources, as
described above. See "Risk Factors Addition of Trust Assets."
BILLING AND PAYMENTS
The VISA and MasterCard credit card accounts of the BKB
Portfolio are currently grouped into twenty-one billing cycles
and of the Harris Portfolio are currently grouped into twenty-
seven billing cycles (each, a "Billing Cycle") ending on various
days throughout each month. Consistent with the conversion to
the FDR system in the first half of 1998, the Harris Portfolio
will be distributed amongst 21 Billing Cycle. Each Billing Cycle
has its own monthly billing date, at which time the activity in
the related accounts during the month ending on such billing date
is processed and mailed to such cardholders. Effective
immediately, a monthly billing statement is sent by FDR to each
cardholder with a debit or credit balance of at least one dollar
at the end of the Billing Cycle or when a finance charge has been
imposed.
Generally, each month, cardholders are required to make at
least a minimum payment equal to the sum of (i) the greater of
2.5% of the new balance of purchases and $10, or if the new
balance of purchases is less than $10, the amount of the new
balance of purchases, (ii) the greater of 2.5% of the new balance
of cash advances and $10, or if the new balance of cash advances
is less than $10, the amount of the new balance of cash advances,
(iii) any past due amount from prior months, and (iv) at the
option of the Bank, the excess of the unpaid balance for an
account over the assigned credit limit (the "Minimum Monthly
Payment").
With regard to the BKB Portfolio, BKB reserves the option to
allow individual cardholders or groups of cardholders to skip
their Minimum Monthly Payments for one or more months in unusual
circumstances. Finance charges in connection with such skipped
payments continues to accrue, and the amount of the next Minimum
Monthly Payment is determined as described above, based on the
account balance at the end of the next Billing Cycle. The effect
of skipped payments is to increase the amount of Finance Charge
Receivables and to decrease the rate of payments of Principal
Receivables during the Billing Cycles for which the offers apply.
The Bank's policy will mirror the previous BKB policy with
respect to both new accounts originated by the Bank and accounts
from the Harris Portfolio.
Currently, for both the BKB Portfolio and the Harris
Portfolio the monthly periodic finance charges are calculated for
both cash advances and purchases by multiplying the applicable
monthly periodic rate by the average daily cash advance balance
or average daily purchase balance, respectively. Monthly
periodic finance charges are calculated on cash advances and
purchases (including certain fees and unpaid finance charges)
from the date of the transaction or the first day of the Billing
Cycle in which the transaction is posted to the account
(whichever is later). Monthly periodic finance charges are not
assessed in most circumstances on purchases if the purchases new
balance shown in the billing statement is paid by the next
statement closing date, or if the purchases previous balance is
zero. The next statement closing date is on average 25-28 days
after the billing date. The average annual percentage rates for
purchases and cash advances for virtually every account are
variable rates. For the BKB Portfolio, the current annual
percentage rate for purchases is a variable rate based on The
Wall Street Journal prime rate plus a spread generally ranging
from 3.75% to 7.90%. The current annual percentage rate for cash
advances is a variable rate based on The Wall Street Journal
prime rate plus a spread generally ranging from 5.75% to 9.90%.
Spreads in the BKB Portfolio vary depending on risk profile and
cardholder behavior. For the Harris Portfolio, the current
annual percentage rate for both purchases and cash advances is a
variable rate based on The Wall Street Journal prime rate plus a
spread generally ranging from 5.90% to 7.90%. Spreads vary
depending on account type (premium or standard), risk profile and
behavior.
For the BKB Portfolio, for accounts with an annual
membership fee, generally the annual membership fee is $18.00 for
standard accounts and $28.00 for premium accounts. Approximately
83% of BKB Portfolio Accounts are assessed an annual fee. BKB
reserves the right to waive the annual membership fee, or a
portion thereof, at its discretion, in connection with
solicitations for new accounts, or when BKB determines a waiver
to be necessary to operate its credit card business on a
competitive basis. For the Harris accounts with an annual
membership fee, generally the annual membership fee is
[$________] for standard accounts and [$_________] for premium
accounts. Approximately 13% of the Harris Portfolio accounts are
assessed an annual fee. Harris reserves the right to waive the
annual membership fee, or a portion thereof, at its discretion,
in connection with solicitations for new accounts, or when Harris
determines a waiver to be necessary to operate its credit card
business on a competitive basis. The annual membership fee for
both the BKB and the Harris Portfolio Accounts is non-refundable.
The annual fee policy for new accounts will mirror the previous
BKB policy of pricing cardholders according to their behavior and
risk profile. Harris accounts will be repriced gradually over
time to achieve consistency with this policy.
With reference to the BKB Portfolio, in addition to the
annual membership fee, accounts are charged certain other fees
including: (i) a late fee, generally in the amount of $25.00 with
respect to any monthly payment if the required minimum monthly
payment is not received by the payment due date shown on the
monthly billing statement; (ii) a cash advance fee of 2.5% of the
amount of the advance subject to a minimum fee of $3.50 per
transaction, (iii) a returned check charge, generally in the
amount of $25.00 and (iv) an over-the-limit fee, generally in the
amount of $25.00 with respect to any account more than a
specified amount over its credit limit at the time the monthly
billing statement is created. With reference to the Harris
Portfolio, in addition to the annual membership fee, accounts are
charged certain other fees including: (i) a late fee, generally
in the amount of $20.00 with respect to any monthly payment if
the required minimum monthly payment is not received by the
payment due date shown on the monthly billing statement; (ii) a
cash advance fee of 2.0% of the amount of the advance subject to
a minimum fee of $5.00 and a maximum of $15.00 per transaction,
unless the cash advance is done through an automatic teller
machine, in which case, the cash advance fee is $2.00, (iii) a
returned check charge, generally in the amount of $20.00 and (iv)
an over-the-limit fee, generally in the amount of $20.00 with
respect to any account more than a specified amount over its
credit limit at the time the monthly billing statement is
created. Finance charge policies for new accounts will mirror
the previous BKB policy of pricing cardholders according to their
behavior and risk profile. Harris accounts will be re-priced
gradually over time to achieve consistency with this policy.
With regard to both portfolios, payments by cardholders are
processed and applied first to any billed fees and other amounts
not subject to finance charges, next to billed and unpaid finance
charges and then to billed and unpaid transactions, in the order
determined by BKB or Harris, as applicable. Any excess is
applied to unbilled transactions in the order determined by the
Bank and then to unbilled finance charges. [There can be no
assurance that monthly periodic finance charges, fees, and other
charges imposed by the Bank will remain at current levels in the
future.]
With respect to pricing, the Bank intends to gradually re-
price the accounts in the Harris Portfolio according to policy
established and utilized for the BKB Portfolio. Annual fees and
annual percentage rates will be assigned to accounts based on
risk profile and cardholder behavior. It is expected that,
eventually, most accounts will be subject to the same late,
overlimit, cash advance and returned check fees. There can be no
assurance that monthly periodic finance charges, fees and other
charges imposed by the Bank will remain at current levels in the
future.
INTERCHANGE
Members participating in the VISA and MasterCard
associations receive certain fees ("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
merchandise and services is passed from banks which clear the
transactions for merchants to credit card-issuing banks.
Interchange ranges from approximately 1% to 2% of the transaction
amount, although VISA and MasterCard associations may from time
to time change the amount of Interchange reimbursed to banks
issuing their credit cards. Interchange will be allocated to the
Trust on the basis of the percentage equivalent of the ratio
which the amount of cardholder sales charges in the Accounts
bears to the total amount of cardholder sales charges for all
accounts in the Bank's entire portfolio. This percentage is an
estimate of the actual Interchange and may be greater or less
than the actual amount of the Interchange relating to the
Accounts from time to time. Unless otherwise stated in the
related Prospectus Supplement, Interchange will be included in
collections of Finance Charge Receivables for purposes of
calculating the Portfolio Yield for a Series.
COLLECTION OF DELINQUENT ACCOUNTS
With regard to both the Harris and BKB Portfolios, an
account is delinquent if a minimum payment due thereunder is not
received by the Bank by the time the cardholder's next billing
statement is generated, which was generally within five days
after the due date printed in the previous statement. For the
BKB Portfolio, delinquent accounts are routed to the pre-
collections system at FDC where they are prioritized and early
stage collection efforts were initiated. For the Harris
Portfolio, delinquent accounts are routed to the internal
collections tracking and analysis system on the CardPac System.
These early efforts include the printing of the overdue amount on
the next billing statement and either a telephone call or letter
requesting payment of the past due amount. If these early stage
collection efforts are ineffective, contact by telephone and/or
mail is escalated and efforts to collect past due amounts are
made more frequently subject to all applicable legal
requirements.
In general, an account is restricted and charging privileges
are suspended when the account becomes fifteen (15) to thirty
(30) days past due for the BKB Portfolio and thirty (30) days
past due for the Harris Portfolio, or when a cardholder exceeds
the account's credit limit within pre-set parameters. At sixty
(60) days past due, no additional extensions of credit would be
authorized for any reason. Each of BKB and Harris reserves the
right to enter into agreements with delinquent cardholders to
extend or otherwise change an account's payment schedule. A
delinquent account could be re-aged once in any twelve (12) month
period if the delinquent cardholder makes a payment equal to
three minimum payments over a ninety (90) day period.
The policy for both portfolios is to charge-off as
uncollectible any account which is six billing cycles past due
(i.e., 180 days delinquent). However, for the BKB Portfolio, if
notice is received that a cardholder has filed for bankruptcy
then the account is charged-off as soon as is practicable but
generally no later than 25 days after receipt of such notice.
Harris charged off bankrupt and deceased accounts manually every
month. The Bank's credit evaluation, servicing and charge-off
policies and collection practices may change over time in
accordance with the business judgment of the Bank, applicable
law, guidelines established by applicable regulatory authorities
and market conditions.
By the end of the first half of 1998, consistent with the
conversion of the Harris Portfolio to the FDR processing
platform, the collection of all delinquent accounts will be
performed consistent with BKB and Partners First originated
accounts.
RECOVERIES
The Transferor and the Servicer will be required, pursuant
to the terms of the Pooling and Servicing Agreement, to transfer
to the Trust all amounts received by the Servicer (net of out-of-
pocket costs of collecting such amounts, which the Transferor
believes represents an immaterial portion of the total
collections with respect to the Receivables), including insurance
proceeds, with respect to Defaulted Receivables, including
amounts received by the Transferor or the Servicer from the
purchaser or transferee with respect to the sale or other
disposition of Defaulted Receivables ("Recoveries"). In the
event of any such sale or other disposition of Receivables,
Recoveries will not include amounts received by the purchaser or
transferee of such Receivables but will be limited to amounts
received by the Transferor or the Servicer from the purchaser or
transferee. Collections of Recoveries will be treated as
collections of Principal Receivables; provided, however, that to
the extent the aggregate amount of Recoveries received with
respect to any monthly period exceeds the aggregate amount of
Principal Receivables (other than Ineligible Receivables) on the
day such Receivables became Defaulted Receivables for each day in
such monthly period, the amount of such excess will be treated as
collections of Finance Charge Receivables.
For the BKB Portfolio, the Bank utilizes FDR's facilities to
administer the recovery of defaulted receivables. The Bank will
prioritize defaulted receivables according to the likelihood of
successful recovery and selects a collection method based on the
information supplied by FDC. Included among the collection
methods utilized by the Bank are primary and secondary third-
party collection agencies, which are retained to recover the
defaulted receivables. As compensation for their services, the
collection agencies receive a percentage of the amounts they
collect. For the Harris portfolio, Harris utilizes internal
facilities to administer the recovery of defaulted receivables.
However, by the end of the first half of 1998, consistent with
the conversion of the Harris Portfolio to the FDR processing
platform, FDR will administer the recovery of defaulted
receivables consistent with BKB's and the Bank's originated
accounts.
FRAUD PREVENTION
Historically, for both the BKB and Harris Portfolios, each
organization reviewed all applications for potential fraud by
comparing the information on the credit card application against
the information supplied by the credit bureaus. In addition, all
applications were checked against information supplied by the
Issuers Clearinghouse, a national fraud database maintained
jointly by VISA and MasterCard. For the BKB Portfolio, once an
account is approved, transactions are monitored by FDR which
scores each transaction based upon its likelihood of being
fraudulent. For the Harris Portfolio, the majority of fraud
functions were performed internally; however, both FDR and VISA
monitored transactions and attempted to identify potential
fraudulent activity. Potential fraudulent activity was
researched by investigators and, dependent upon their findings,
accounts may be blocked or closed. Going forward, the Bank's
fraud policy will be identical to that of BKB prior to the Bank's
existence.
THE BANK
Partners First National Bank is a national banking
association organized under the laws of Delaware. Its principal
executive office is located at 220 Continental Drive, Suite 208,
Newark, Delaware 19713, and its telephone number is 302-283-3000.
The Prospectus Supplement for each Series will provide additional
information relating to the Servicer.
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
PFRFC was incorporated under the laws of the State of
Delaware on June 4, 1997 and is a special purpose wholly owned
subsidiary of BankBoston Corporation. Its principal office is
currently located at 157 Main Street, Nashua, New Hampshire
03060, and its telephone number is (603) 594-1802. The Transferor
was organized for the limited purposes of facilitating the type
of transactions described herein, purchasing, holding, owning and
selling receivables, and any activities incidental to and
necessary or convenient for the accomplishment of such purposes.
Neither the Bank nor the Transferor's board of directors intends
to change the business purpose of the Transferor.
THE ACCOUNTS
The Receivables arise in certain credit card accounts that
have been selected from the total portfolio of MasterCard and
VISA accounts serviced by the Bank on the basis of criteria set
forth in the Pooling and Servicing Agreement. An account in the
Bank Portfolio must be an Eligible Account to be included in the
Trust Portfolio. The Trust Portfolio represents approximately
[75]% of the Eligible Accounts in the Bank Portfolio.
Pursuant to the Transferor Purchase Agreement and the
Pooling and Servicing Agreement, the Transferor has the right or
is obligated (subject to certain limitations and conditions) to
require and PFR is obligated (subject to certain limitations and
conditions) to designate, from time to time, additional
qualifying VISA and MasterCard consumer revolving credit card
accounts to be included as Accounts and to convey to the
Transferor for ultimate conveyance to the Trust all Receivables
of such Additional Accounts, whether such Receivables are then
existing or thereafter created. Those Accounts must meet the
eligibility criteria set forth in the Pooling and Servicing
Agreement as of the date the Bank designates such Accounts as
Additional Accounts. PFR will convey the Receivables then
existing or thereafter created under such Additional Accounts to
the Transferor which in turn will convey such Receivables to the
Trust. Under the Pooling and Servicing Agreement, the Transferor
also has the right to convey Participation Interests to the Trust
subject to the conditions described in the Pooling and Servicing
Agreement. See "Description of the Pooling and Servicing
Agreement Additions of Accounts or Participation Interests."
As of each date with respect to which Additional Accounts
are designated, PFR will represent and warrant to the Transferor
that the Receivables generated under the Additional Accounts meet
the eligibility requirements set forth in the Purchase Agreement
and the Transferor will represent and warrant to the Trust that
such Receivables or Participation Interests, if any, meet the
eligibility requirements set forth in the Pooling and Servicing
Agreement. See "Description of the Pooling and Servicing
Agreement Conveyance of Receivables." Because the Initial
Accounts were designated as of the Initial Cut-Off Date and
subsequent Aggregate Addition Accounts may be designated from
time to time, there can be no assurance that all of such Accounts
will continue to meet the eligibility requirements as of any
Series Closing Date. In the Pooling and Servicing Agreement the
Transferor is required to make certain representations and
warranties with respect to the Accounts and the Receivables as of
each Series Closing Date (or as of the related addition date with
respect to Additional Accounts). In the event of a breach of any
such representation or warranty by the Transferor, the Transferor
may be required to accept reassignment of the related Receivables
and, to the extent such breach relates to an Account, such
Account will no longer be included as an Account. See
"Description of the Pooling and Servicing Agreement
Representations and Warranties."
Subject to certain limitations and restrictions, the
Transferor may also designate certain Accounts or Participation
Interests, if any, for removal from the Trust, in which case such
Participation Interests or the Receivables of the Removed
Accounts will be reassigned to the Transferor. Throughout the
term of the Trust, the Receivables in the Trust will consist of
Receivables generated under the Accounts, Participation
Interests, if any, and the Receivables generated under Additional
Accounts, but will not include the Receivables generated under
Removed Accounts or removed Participation Interests.
The Prospectus Supplement relating to a Series will provide
certain information about the Trust Portfolio as of the date
specified. Such information will include the amount of Principal
Receivables, the amount of Finance Charge Receivables, the range
of principal balances of the Accounts and the average thereof,
the range of credit lines of the Accounts and the average
thereof, the range of ages of the Accounts and the average
thereof, information with respect to the geographic distribution
of the Accounts, the types of Accounts and delinquency statistics
relating to the Accounts.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and
Servicing Agreement and the related Supplement substantially in
the forms filed as exhibits to the Registration Statement of
which this Prospectus is a part. The following summary describes
certain terms of the Pooling and Servicing Agreement and the
related Supplement and is qualified in its entirety by reference
to the Pooling and Servicing Agreement and the related
Supplement.
The Certificates will evidence undivided beneficial
interests in the Trust Assets allocated to such Certificates,
representing the right to receive from such Trust Assets funds up
to (but not in excess of) the amounts required to make payments
of interest and principal in the manner described below.
The Certificates will initially be represented by one or
more Certificates registered in the name of the nominee of DTC
(together with any successor depository selected by the
Transferor, the "Depository"), except as set forth below. Unless
otherwise stated in the related Prospectus Supplement, the
Certificates will be available for purchase in minimum
denominations of $1,000 and integral multiples thereof in book-
entry form only. The Transferor has been informed by DTC that
DTC's nominee will be Cede & Co. ("Cede"). Accordingly, Cede is
expected to be the holder of record of the Certificates. Except
under the limited circumstances described herein, no
Certificateholder will be entitled to receive a Certificate in
fully registered, certificated form ("Definitive Certificates")
representing such person's interest in the Certificates. Unless
and until Definitive Certificates are issued under the limited
circumstances described herein, all references herein to actions
by Certificateholders shall refer to actions taken by DTC upon
instructions from its Participants (as defined herein), and all
references herein to distributions, notices, reports and
statements to Certificateholders shall refer to distributions,
notices, reports and statements to Cede, as the registered holder
of the Certificates, for distribution to the beneficial owners of
the Certificates in accordance with DTC procedures. See " Book-
Entry Registration" and " Definitive Certificates."
Payments of interest and principal will be made on each
related Interest Payment Date to the Certificateholders in whose
names the Certificates were registered on the last day of the
calendar month preceding such Interest Payment Date, unless
otherwise specified in the related Prospectus Supplement (each, a
"Record Date").
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus
Supplement, 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 which are participants in such systems.
Cede, as nominee for DTC, will hold the global Certificate
or Certificates. Cedel and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities
accounts in Cedel's and Euroclear's names on the books of their
respective Depositaries (as defined herein) which in turn will
hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Citibank, N.A. will act
as depositary for Cedel and Morgan Guaranty Trust Company of New
York will act as depositary for Euroclear (in such capacities,
the "Depositaries").
DTC is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the UCC
and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations ("Participants")
and facilitate the settlement of securities transactions between
Participants through electronic book-entry changes in accounts of
its Participants, thereby eliminating the need for physical
movement of certificates. Participants include underwriters,
securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between Participants will occur in accordance with
DTC rules. Transfers between Cedel Participants (as defined
herein) and Euroclear Participants (as defined herein) will occur
in accordance with their respective 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
systems by its Depositary. 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
received in Cedel or Euroclear as a result of a transaction with
a Participant will be made during subsequent securities
settlement processing and dated the business day following the
DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the
relevant Euroclear or Cedel Participants on such business day.
Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel Participant or a Euroclear
Participant to a Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel
or Euroclear cash account only as of the business day following
settlement in DTC.
Certificateholders that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Certificates may do so only
through Participants and Indirect Participants. In addition,
Certificateholders will receive all distributions of principal
and interest on the Certificates from the Trustee through DTC and
its Participants. Under a book-entry format, Certificateholders
will receive payments after the related Distribution Date, as the
case may be, because, while payments are required to be forwarded
to Cede, as nominee for DTC, on each such date, DTC will forward
such payments to its Participants, which thereafter will be
required to forward them to Indirect Participants or holders of
beneficial interests in the Certificates. It is anticipated that
the only "Certificateholder" will be Cede, as nominee of DTC, and
that holders of beneficial interests in the Certificates will not
be recognized by the Trustee as Certificateholders under the
Pooling and Servicing Agreement. Holders of beneficial interests
in the Certificates will only be permitted to exercise the rights
of Certificateholders under the Pooling and Servicing Agreement
indirectly through DTC and its Participants who in turn will
exercise their rights through DTC. The Trustee, the Transferor,
the Servicer and any paying agent, transfer agent or registrar
may treat the registered holder in whose name any Certificate is
registered (expected to be Cede) as the absolute owner thereof
(whether or not such Certificate shall be overdue and
notwithstanding any notice of ownership or writing thereon or any
notice to the contrary) for the purpose of making payment and for
all other purposes.
Under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-
entry transfers among Participants on whose behalf it acts with
respect to the Certificates and is required to receive and
transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which
holders of beneficial interests in the Certificates have accounts
similarly are required to make book-entry transfers and receive
and transmit such payments on behalf of these respective holders.
Because DTC can only act on behalf of Participants, who in
turn act on behalf of Indirect Participants and certain banks,
the ability of holders of beneficial interests in the
Certificates to pledge Certificates to persons or entities that
do not participate in the DTC system, or otherwise take actions
in respect of such Certificates, may be limited due to the lack
of a Definitive Certificate for such Certificates.
DTC has advised the Transferor that it will take any action
permitted to be taken by a Certificateholder under the Pooling
and Servicing Agreement and the related Supplement only at the
direction of one or more Participants to whose account with DTC
the Certificates are credited. Additionally, DTC has advised the
Transferor that it may take actions with respect to the
Certificateholders' Interest that conflict with other of its
actions with respect thereto.
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 36 currencies,
including United States dollars. Cedel provides to Cedel
Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a
professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized
financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. 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.
Euroclear was created in 1968 to hold securities for
participants of Euroclear ("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 34
currencies, including United States dollars. Euroclear includes
various other services, including securities lending and
borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New
York (the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks),
underwriters, securities brokers and dealers and other
professional financial intermediaries. Indirect access to
Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Board of
Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions
Governing Use of Euroclear and the related Operating Procedures
of the Euroclear System and applicable Belgian law (collectively,
the "Euroclear Provisions"). The Euroclear Provisions govern
transfers of securities and cash within Euroclear, withdrawals of
securities and cash from Euroclear, and receipts of payments with
respect to securities in Euroclear. All securities in Euroclear
are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The
Euroclear Operator acts under the Euroclear Provisions 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 Foreign
Investors." Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement and
the related Supplement 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
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of each Series will be issued as
Definitive Certificates in fully registered certificated form to
Certificate Owners or their nominees rather than to DTC or its
nominee, only if (i) the Transferor advises the Trustee 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, elects to terminate the book-entry system through DTC
or (iii) after the occurrence of a Servicer Default, Certificate
Owners evidencing not less than 50% of the aggregate unpaid
principal amount of the Certificates, advise the Trustee and DTC
through Participants in writing that the continuation of a book-
entry system through DTC (or a successor thereto) is no longer in
the best interests of the Certificate Owners.
Upon the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all
Participants of the availability through DTC of Definitive
Certificates. Upon surrender by DTC of the definitive
certificates representing the Certificates and instructions for
re-registration, the Trustee will issue the Certificates in the
form of Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as
Certificateholders under the Pooling and Servicing Agreement and
the related Supplement ("Holders").
Distribution of principal and interest on the Certificates
will be made by the Trustee directly to Holders in accordance
with the procedures set forth herein and in the Pooling and
Servicing Agreement and the related Prospectus Supplement.
Interest payments and principal payments will be made to Holders
in whose names the Definitive Certificates were registered at the
close of business on the related Record Date. Distributions will
be made by check mailed to the address of such Holder as it
appears on the register maintained by the Trustee. The final
payment on any Certificate (whether Definitive Certificates or
Certificates registered in the name of Cede), however, will be
made only upon presentation and surrender of such Certificate on
the final payment date at such office or agency as is 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 the final
distribution.
Definitive Certificates will be transferable and
exchangeable at the offices of the transfer agent and registrar,
which will initially be the Trustee. No service charge will be
imposed for any registration of transfer or exchange, but the
transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed
in connection therewith.
INTEREST
Interest will accrue on the Certificates of a Series or
Class offered hereby at the per annum rate either specified in or
determined in the manner specified in the related Prospectus
Supplement. Except as otherwise provided herein, collections of
Finance Charge Receivables and certain other amounts allocable to
the Certificateholders' Interest of a Series or Class offered
hereby will generally be used to make interest payments to
Certificateholders of such Series or Class on each Interest
Payment Date specified in the related Prospectus Supplement;
provided that after the commencement of an Early Amortization
Period with respect to such Series, interest will be distributed
to such Certificateholders monthly on each Special Payment Date.
If the Interest Payment Dates for a Series or Class occur less
frequently than monthly, such collections or other amounts (or
the portion thereof allocable to such Class) will be deposited in
one or more Interest Funding Accounts and used to make interest
payments to Certificateholders of such Series or Class on the
following Interest Payment Date. If a Series has more than one
Class of Certificates, each such Class may have a separate
Interest Funding Account. Funds on deposit in an Interest Funding
Account will be invested in Eligible Investments. Any earnings
(net of losses and investment expenses) on funds in an Interest
Funding Account will be paid to, or at the direction of, the
Transferor except as otherwise specified in any Supplement.
Interest with respect to the Certificates of each Series offered
hereby will accrue and be calculated on the basis described in
the related Prospectus Supplement.
PRINCIPAL
The Certificates of each Series will have a Revolving Period
during which collections of Principal Receivables and certain
other amounts otherwise allocable to the Invested Amount of such
Series will, (x) if such Series is a Principal Sharing Series, be
treated as Shared Principal Collections and will be distributed
to, or for the benefit of, the Certificateholders of other Series
in such Group or, if not required for such purpose, the holders
of the Transferor Certificates or deposited into the Special
Funding Account or (y) if such Series is not a Principal Sharing
Series, paid to the holders of the Transferor Certificates or
deposited into the Special Funding Account, as more fully
described in the related Prospectus Supplement. Unless an Early
Amortization Period or Early Accumulation Period commences with
respect to a Series, following the Revolving Period with respect
to such Series, such Series will have either a Controlled
Accumulation Period or a Controlled Amortization Period.
During the Controlled Accumulation Period, if any, with
respect to a Series, collections of Principal Receivables and
certain other amounts allocable to the Certificateholders'
Interest of such Series (including Shared Principal Collections,
if any, allocable to such Series) will be deposited on each
Distribution Date in a Principal Funding Account and used to make
principal distributions to the Certificateholders of such Series
or any Class thereof when due. If so specified in the related
Prospectus Supplement, the amount to be deposited in a Principal
Funding Account for any Series offered hereby on any Distribution
Date may, but will not necessarily, be limited to an amount equal
to a Controlled Accumulation Amount specified in such Prospectus
Supplement plus any existing deficit controlled accumulation
amount arising from prior Distribution Dates. If the Prospectus
Supplement for a Series so specifies, the amount to be deposited
in the Principal Funding Account on a Distribution Date may be a
variable amount. If a Series has more than one Class of
Certificates, each Class may have a separate Principal Funding
Account and Controlled Accumulation Amount and the Controlled
Accumulation Period with respect to each class may commence on
different dates. In addition, the related Prospectus Supplement
may describe certain priorities among such Classes with respect
to deposits of principal into such Principal Funding Accounts.
Subject to certain conditions including those set forth
below, upon written notice to the Trustee, the Servicer may elect
to postpone the commencement of the Accumulation Period with
respect to a Series, and to extend the length of the Revolving
Period of such Series. The Servicer may make such election only
if the Accumulation Period Length (determined as described below)
is less than the number of months specified in the Prospectus
Supplement for such Series. On each Determination Date, until
the Accumulation Period begins, the Servicer will determine the
"Accumulation Period Length," which is the number of months
expected to be required to fully fund the Principal Funding
Account no later than the Scheduled Payment Date for such Series,
based on (a) the expected monthly collections of Principal
Receivables expected to be distributable to the
Certificateholders of all Series (unless such Series is not a
Principal Sharing Series), assuming a principal payment rate no
greater than the lowest monthly principal payment rate on the
Receivables for the preceding twelve months and (b) the amount of
principal expected to be distributable to Certificateholders of
Series (which may exclude certain other Series) which are not
expected to be in their Revolving Periods during the Accumulation
Period of the Series in respect of which the Accumulation Period
Length is being determined. If the Accumulation Period Length is
less than the number of months specified in the Prospectus
Supplement for such Series, the Servicer may, at its option,
postpone the commencement of the Accumulation Period such that
the number of months included in the Accumulation Period will be
equal to or exceed the Accumulation Period Length. The effect of
the foregoing calculation is to permit the reduction of the
length of the Accumulation Period of a Series based on the
Invested Amounts of certain other Series which are scheduled to
be in their Revolving Periods during the Accumulation Period for
such Series and on increases in the principal payment rate
occurring after the Series Closing Date for such Series. The
length of the Accumulation Period for any Series will not be less
than one month. If the Accumulation Period of a Series is
postponed in accordance with the foregoing, and if a Pay Out
Event occurs after the date originally scheduled as the
commencement of the Accumulation Period, it is probable that
Certificateholders would receive some of their principal later
than if the Accumulation Period had not been so postponed.
During the Controlled Amortization Period, if any, with
respect to a Series, collections of Principal Receivables and
certain other amounts allocable to the Certificateholders'
Interest of such Series (including Shared Principal Collections,
if any, allocable to such Series) will be used on each
Distribution Date to make principal distributions to any Class of
Certificateholders then scheduled to receive such distributions.
If so specified in the related Prospectus Supplement, the amount
to be distributed to Certificateholders of any Series offered
hereby on any Distribution Date may, but will not necessarily, be
limited to an amount equal to the Controlled Amortization Amount
specified in such Prospectus Supplement plus any existing deficit
controlled amortization amount arising from prior Distribution
Dates. If a Series has more than one Class of Certificates, each
Class may have a different Controlled Amortization Amount. In
addition, the related Prospectus Supplement may describe certain
priorities among such Classes with respect to such distributions.
During the Early Accumulation Period, if any, with respect
to a Series, collections of Principal Receivables and certain
other amounts allocable to the Certificateholders' Interest of
such Series (including Shared Principal Collections, if any,
allocated to such Series) will be deposited on each Distribution
Date in a Principal Funding Account and used to make
distributions of principal to the Certificateholders of such
Series or Class on the Expected Final Payment Date. The amount to
be deposited in the Principal Funding Account will not be limited
to any Controlled Deposit Amount.
During the Early Amortization Period with respect to a
Series, collections of Principal Receivables and certain other
amounts allocable to the Certificateholders' Interest of such
Series (including Shared Principal Collections, if any, allocable
to such Series) will be distributed as principal payments to the
applicable Certificateholders monthly on each Distribution Date
beginning with the first Special Payment Date. During the Early
Amortization Period with respect to a Series, distributions of
principal to Certificateholders of such Series will not be
subject to any Controlled Deposit Amount or Controlled
Distribution Amount. In addition, upon the commencement of the
Early Amortization Period, any funds on deposit in a Principal
Funding Account with respect to such Series will be paid to the
Certificateholders of the relevant Class or Series on the first
Special Payment Date.
Funds on deposit in any Principal Funding Account
established with respect to a Class or Series offered hereby will
be invested in Eligible Investments and may be subject to a
guarantee or guaranteed investment contract or a deposit account
or other mechanism 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 Class of Certificates offered
hereby at the end of a Controlled Accumulation Period or Early
Accumulation Period with respect thereto, such Class may be
subject to a maturity liquidity facility or a deposit account or
other similar mechanism specified in the relevant Prospectus
Supplement.
PAY OUT EVENTS AND REINVESTMENT EVENTS
The Revolving Period with respect to a Series will continue
through the date specified in the applicable Prospectus
Supplement and the Controlled Amortization Period or Controlled
Accumulation Period will begin at such time, unless a Pay Out
Event or Reinvestment Event occurs. The Early Amortization Period
with respect to such Series will commence when a Pay Out Event
occurs or is deemed to occur and the Early Accumulation Period
will occur when a Reinvestment Event occurs or is deemed to
occur. A "Pay Out Event" will occur with respect to all Series
upon the occurrence of an Insolvency Event with respect to the
Transferor. A Pay Out Event may occur with respect to any
specific Series upon the occurrence of any event specified in the
related Prospectus Supplement. Such events may include (i) the
Trust becoming subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended, (ii) the failure by the Transferor to make any payment
or deposit required under the Pooling and Servicing Agreement
within a specified period of the date such payment or deposit is
required to be made, (iii) the breach of specified covenants,
representations or warranties contained in the Pooling and
Servicing Agreement, after any applicable notice and cure period
(and, if so specified in the related Prospectus Supplement, only
to the extent such breach has a material adverse effect on the
related Certificateholders), (iv) the failure by the Transferor
to make a required designation of Additional Accounts for the
Trust within a specified time after the date such addition is
required to be made, (v) a reduction in the Series Adjusted
Portfolio Yield below the rates, and for the period, specified in
the related Prospectus Supplement and (vi) the occurrence of a
Servicer Default. The Early Amortization Period with respect to
a Series will commence on the day on which a Pay Out Event occurs
or is deemed to occur with respect thereto. If an Early
Amortization Period commences, monthly distributions of principal
to the Certificateholders of such Series will begin on the
Distribution Date in the Monthly Period following the Monthly
Period in which such Pay Out Event occurs (such Distribution Date
and each following Distribution Date with respect to such Series,
a "Special Payment Date"). Any amounts on deposit in a Principal
Funding Account or an Interest Funding Account with respect to
such Series at such time will be distributed on such first
Special Payment Date to the Certificateholders of such Series.
If, because of the occurrence of a Pay Out Event, the Early
Amortization Period begins earlier than the scheduled
commencement of a Controlled Amortization Period or prior to an
Expected Final Payment Date, Certificateholders will begin
receiving distributions of principal earlier than they otherwise
would have and such distributions will not be subject to the
Controlled Deposit Amount or the Controlled Distribution Amount.
As a result, the average life of the Certificates may be reduced
or increased. If a Series has more than one Class of
Certificates, each Class may have different Pay Out Events which,
in the case of any Series of Certificates offered hereby, will be
described in the related Prospectus Supplement.
A particular Series may have no Pay Out Events or only
limited Pay Out Events, but may have in lieu thereof specified
events ("Reinvestment Events") that end the reinvestment of the
Trust in new Receivables and apply available collections of
Principal Receivables to the purchase of Eligible Investments. A
Reinvestment Event may include all or some of the events that
constitute Pay Out Events for other Series. The Early
Accumulation Period with respect to a Series will commence on the
day on which a Reinvestment Event occurs or is deemed to occur
with respect thereto. If a Series has more than one Class of
Certificates, each Class may have different Reinvestment Events
(or may have only Pay Out Events) which, in the case of any
Series of Certificates offered hereby, will be described in the
related Prospectus Supplement.
In addition to the consequences of a Pay Out Event or
Reinvestment Event discussed above, if an Insolvency Event shall
occur, immediately on the day of such event the Transferor will
cease to transfer Principal Receivables to the Trust and promptly
give notice to the Trustee of such event. Under the terms of the
Pooling and Servicing Agreement, as soon as possible but in any
event within 15 days, the Trustee will publish a notice of the
occurrence of the Insolvency Event stating that the Trustee
intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner unless
instructions otherwise are received within a specified period
from Certificateholders holding Certificates evidencing more than
50% of the Invested Amount of each Series of Certificates issued
and outstanding (or, with respect to any Series with two or more
Classes, 50% of the Invested Amount of each Class) and each
Enhancement Invested Amount and possibly the vote of other
persons specified in the Supplement for a Series and, for a
Series offered hereby, the related Prospectus Supplement to the
effect that such Certificateholders disapprove of the liquidation
of Receivables and wish to continue having Principal Receivables
transferred to the Trust as before such Insolvency Event. 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 on the Receivables and applied as provided above and
in each Prospectus Supplement.
If the only Pay Out Event or Reinvestment Event to occur
with respect to any Series is the bankruptcy of the Transferor,
the Trustee may not be permitted to suspend transfers of
Receivables to the Trust, and the instructions to sell the
Receivables may not be given effect.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and
reimbursement for its expenses is a monthly servicing fee (the
"Servicing Fee"). The Servicing Fee will be allocated among the
Transferor's Interest (the "Transferor Servicing Fee"), the
holders of any Participations and Certificateholders of each
Series. The portion of the Servicing Fee allocable to each Series
of Certificates on any Distribution Date (the "Monthly Servicing
Fee") will generally be equal to one-twelfth of the product of
(a) the applicable servicing fee percentage with respect to such
Series and (b) the Invested Amount (as it may be adjusted in
accordance with the related Supplement) of such Series with
respect to the related Monthly Period. A portion of the Monthly
Servicing Fee with respect to a particular Series may be payable
from Interchange allocated to such Series as specified in the
related Supplement and, for a Series offered hereby, the related
Prospectus Supplement. For any Monthly Period, the portion of
the Monthly Servicing Fee payable from Interchange with respect
to any Series will be an amount equal to the portion of
collections of Finance Charge Receivables allocated to the
Certificateholders' Interest of such Series with respect to such
Monthly Period that is attributable to Interchange (the "Servicer
Interchange"); provided, however, that Servicer Interchange for a
Monthly Period may not exceed one-twelfth of the product of (i)
the Series Adjusted Invested Amount, as of the last day of such
Monthly Period and (ii) a percentage specified in the Prospectus
Supplement for such Series. In the case of any insufficiency of
Servicer Interchange with respect to any Monthly Period, a
portion of the Monthly Servicing Fee with respect to such Monthly
Period will not be paid to the extent of such insufficiency and
in no event shall the Trust, the Trustee, the holders of any
Participations or the Certificateholders be liable for the share
of the Servicing Fee to be paid out of Servicer Interchange.
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, paying agent, transfer agent
and registrar and independent accountants and other fees which
are not expressly stated in the Pooling and Servicing Agreement
to be payable by the Trust or the Transferor other than Federal,
state and local income and franchise taxes, if any, of the Trust.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
CONVEYANCE OF RECEIVABLES
On the Initial Series Closing Date, BKB will sell to the
Bank Receivables which were not more than [29] days past due as
of the Initial Cut-Off Date, having an aggregate principal
balance of approximately $ as of the Initial Cut-
Off Date, and will sell to PFR Receivables which were at least
[30] days past due as of the Initial Cut-Off Date, having an
aggregate principal balance of approximately $ as of
the Initial Cut-Off Date. Harris will sell to the Bank
Receivables which were not more than [29] days past due as of the
Initial Cut-Off Date having an aggregate principal balance of
approximately $ as of the Initial Cut-Off Date, and
will sell to PFR Receivables which were at least [30] days past
due as of the Initial Cut-Off Date, having an aggregate principal
balance of approximately $ as of the Initial Cut-Off
Date. The Bank in turn will sell the Receivables acquired from
BKB and Harris to PFR. Upon giving effect to such transactions
PFR will have acquired approximately $ aggregate
principal amount of Receivables on the Initial Series Closing
Date (the "Initial Receivables"). Pursuant to the Transferor
Purchase Agreement, PFR will sell and assign to the Transferor
for assignment to the Trust all of its interests in the
Receivables then existing under the Accounts and all Receivables
thereafter created under the Accounts, all Recoveries and
Interchange allocable to the Trust, and the proceeds of all of
the foregoing. PFR may also sell and assign from time to time to
the Transferor for conveyance to the Trust Receivables in
designated Additional Accounts, and the Transferor may from time
to time sell and assign to the Trust its interest in
Participation Interests, all Recoveries and Interchange allocable
to the Trust and the proceeds of all of the foregoing.
On each Series Closing Date, the Trustee will authenticate
and deliver one or more certificates representing the Series or
Class of Certificates, in each case against payment to the
Transferor of the net proceeds of the sale of the Certificates.
In the case of the Initial Series Closing Date, the Trustee will
deliver to the Transferor the Transferor Certificate,
representing the Transferor's Interest.
In connection with the transfers of the Receivables, each
Account Originator and the Bank will indicate in its respective
computer records that the applicable Receivables have been
conveyed from such party to the Bank or to PFR, as applicable.
PFR will indicate in its computer records that the Receivables
have conveyed from PFR to the Transferor and the Transferor will
indicate in its records that the Receivables have been conveyed
from the Transferor to the Trust. In addition, the Transferor
will provide or cause to be provided to the Trustee a computer
file or a microfiche list containing a true and complete list
showing for each Account, as of the applicable date of
designation, (i) its account number, (ii) the aggregate amount
outstanding in such Account and (iii) except in the case of New
Accounts, the aggregate amount of Principal Receivables in such
Account. The Transferor will retain and will not deliver to the
Trustee any other records or agreements relating to the Accounts
or the Receivables. Except as set forth above, the records and
agreements relating to the Accounts and the Receivables will not
be segregated from those relating to other credit card accounts
and receivables, and the physical documentation relating to the
Accounts or Receivables will not be stamped or marked to reflect
the transfer of Receivables to the Transferor or the Trust. The
Transferor will file UCC financing statements with respect to the
transfer of the Receivables from the Transferor to the Trust
meeting the requirements of applicable state law. See "Risk
Factors" and "Certain Legal Aspects of the Receivables."
As described below under " Additions of Accounts or
Participation Interests," the Transferor has the right (subject
to certain limitations and conditions), and in some circumstances
is obligated, to require PFR to designate from time to time
Additional Accounts to be included as Accounts and to convey to
the Transferor (for conveyance by the Transferor to the Trust)
all Receivables in such Additional Accounts, whether such
Receivables are then existing or thereafter created. Each such
Additional Account must be an Eligible Account. In respect of any
designation of Additional Accounts, the Transferor will follow
the procedures set forth in the preceding paragraph, except the
list will show information for such Additional Accounts as of the
date such Additional Accounts are identified and selected.
Aggregate Addition Accounts will be selected by the Transferor in
a manner which it reasonably believes will not be materially
adverse to the Certificateholders. The Transferor has the right
(subject to certain conditions described below under " Additions
of Accounts or Participation Interests") to convey Participation
Interests to the Trust. In addition, the Transferor may (under
certain circumstances and subject to certain limitations and
conditions) remove the Participation Interests and the
Receivables in certain Accounts as described below under "
Removal of Accounts."
REPRESENTATIONS AND WARRANTIES
The Transferor makes representations and warranties to the
Trust in the Pooling and Servicing Agreement relating to the
Accounts and the Receivables as of each Series Closing Date (or
as of the related addition date with respect to Additional
Accounts) to the effect, among other things, that as of each
applicable date of designation, (a) each Account was an Eligible
Account, (b) each of the Receivables then existing in the Initial
Accounts or in the Additional Accounts, as applicable, is an
Eligible Receivable and (c) thereafter, on the date of creation
of any new Receivable, such Receivable is an Eligible Receivable.
If the Transferor breaches any representation and warranty
described in this paragraph in any material respect and such
breach remains uncured for 60 days, or such longer period as may
be agreed to by the Trustee and the Servicer, after the earlier
to occur of the discovery of such breach by the Transferor or
receipt of written notice of such breach by the Transferor and
such breach has a material adverse effect on the
Certificateholders' Interest in such Receivable, all Receivables
with respect to the Account affected ("Ineligible Receivables")
will be reassigned to the Transferor on the terms and conditions
set forth below and such Account shall no longer be included as
an Account.
"Eligible Receivable" means each receivable, or interest
therein as contemplated by each Purchase Agreement, (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 related Account Originator at the time of the
creation of such Receivable and which was created pursuant to a
credit card agreement which complies in all material respects
with all requirements of law applicable to the related Account
Originator at the time of the creation of such receivable and the
requirements of law applicable to Holdings and the Bank with
respect to such Receivable, (c) with respect to which all
material consents, licenses, approvals or authorizations of, or
registrations or declarations with, any governmental authority
required to be obtained, effected or given in connection with the
creation of such Receivable or the execution, delivery, creation
and performance by the Bank of the related credit card agreements
pursuant to which such Receivable was created have been duly
obtained or given and are in full force and effect, (d) as to
which at the time of its transfer to the Trust, the Transferor or
the Trust will have good and marketable title, free and clear of
all liens, encumbrances, charges and security interests (other
than any lien for municipal or other local taxes if such taxes
are not then due and payable or if the Transferor is then
contesting the validity thereof in good faith by appropriate
proceedings and has set aside on its books adequate reserves with
respect thereto), (e) which is the legal, valid and binding
payment obligation of the related cardholder enforceable against
such cardholder in accordance with its terms, subject to certain
bankruptcy or insolvency related exceptions, (f) which is not at
the time of its transfer to the Trust subject to any right of
rescission, setoff, counterclaim or defense (including the
defense of usury), other than certain bankruptcy and insolvency
related defenses, and (g) which constitutes either an "account"
or a "general intangible" under the applicable UCC as then in
effect.
An Ineligible Receivable will be reassigned to the
Transferor on or before the end of the Monthly Period in which
such reassignment obligation arises by the Transferor directing
the Servicer to deduct the portion of such Ineligible Receivable
which is a Principal Receivable from the aggregate amount of the
Principal Receivables used to calculate the Transferor Amount. In
the event that the exclusion of the principal portion of an
Ineligible Receivable from the calculation of the Transferor
Amount would cause the Transferor Amount to be less than the
Required Transferor Amount, on the Distribution Date following
the Monthly Period in which such reassignment obligation arises
the Transferor will make a deposit into the Special Funding
Account in immediately available funds in an amount equal to the
amount by which the Transferor Amount would be reduced below the
Required Transferor Amount. The reassignment of any Ineligible
Receivable to the Transferor, and the obligation of the
Transferor to make any deposits into the Special Funding Account
as described in this paragraph, is the sole remedy respecting any
breach of the representations and warranties described in the
preceding paragraph with respect to such Receivable available to
the Certificateholders or the Trustee on behalf of
Certificateholders. PFR will agree, in the Transferor Purchase
Agreement, to repurchase from the Transferor any Ineligible
Receivables which shall be reassigned to the Transferor and to
provide the Transferor any amounts necessary to enable the
Transferor to make the deposit referred to above. The term
"Transferor Amount" means at any time of determination, an amount
equal to the sum of (i) total aggregate amount of Principal
Receivables in the Trust and (ii) the amount on deposit in the
Special Funding Account at such time minus the aggregate
[Adjusted] Invested Amounts for all outstanding Series at such
time.
The Transferor also makes representations and warranties to
the Trust to the effect, among other things, that as of each
Series Closing Date it is a corporation validly existing under
the laws of the State of Delaware, it has the authority to
consummate the transactions contemplated by the Pooling and
Servicing Agreement and each Supplement and will further
represent to the Trust on each Series Closing Date and, with
respect to the Additional Accounts, as of each addition date (a)
the Pooling and Servicing Agreement and each Supplement
constitutes a valid, binding and enforceable agreement of the
Transferor and (b) the Pooling and Servicing Agreement and each
Supplement constitutes either a valid sale, transfer and
assignment to the Trust of all right, title and interest of the
Transferor in the Receivables, whether then existing or
thereafter created and the proceeds thereof (including proceeds
in any of the accounts established for the benefit of the
Certificateholders) and in Recoveries and Interchange allocable
to the Trust or the grant of a first priority perfected security
interest under the applicable UCC in such Receivables and the
proceeds thereof (including proceeds in any of the accounts
established for the benefit of the Certificateholders) and in
Recoveries and Interchange allocable to the Trust, which is
effective as to each Receivable then existing on such date. In
the event of a material breach of any of the representations and
warranties described in this paragraph that has a material
adverse effect on the Certificateholders' Interest in the
Receivables or the availability of the proceeds thereof to the
Trust (which determination will be made without regard to whether
funds are then available pursuant to any Series Enhancement),
either the Trustee or Certificateholders holding Certificates
evidencing not less than 50% of the aggregate unpaid principal
amount of all outstanding Certificates, by written notice to the
Transferor and the Servicer (and to the Trustee if given by the
Certificateholders), may direct the Transferor to accept the
reassignment of the Receivables in the Trust within 60 days of
such notice, or within such longer period specified in such
notice. The Transferor will be obligated to accept the
reassignment of such Receivables on the Distribution Date
following the Monthly Period in which such reassignment
obligation arises. Such reassignment will not be required to be
made, however, if at the end of such applicable period, the
representations and warranties shall then be true and correct in
all material respects and any material adverse effect caused by
such breach shall have been cured. The price for such
reassignment will be an amount equal to the sum of the amounts
specified therefor with respect to each Series in the related
Supplement. The payment of such reassignment price in immediately
available funds, will be considered a payment in full of the
Certificateholders' Interest and such funds will be distributed
upon presentation and surrender of the Certificates. If the
Trustee or Certificateholders give a notice as provided above,
the obligation of the Transferor to make any such deposit will
constitute the sole remedy respecting a breach of the
representations and warranties available to Certificateholders or
the Trustee on behalf of Certificateholders. See "Description
of the Purchase Agreements Representations and Warranties."
It is not required or anticipated that the Trustee will make
any initial or periodic general examination of the Receivables or
any records relating to the Receivables for the purpose of
establishing the presence or absence of defects, compliance with
each of the Transferor's representations and warranties or for
any other purpose. In addition, it is not anticipated or required
that the Trustee will make any initial or periodic general
examination of the Servicer for the purpose of establishing the
compliance by the Servicer with its representations or warranties
or the performance by the Servicer of its obligations under the
Pooling and Servicing Agreement, any Supplement or for any other
purpose. The Servicer, however, will deliver to the Trustee on or
before March 31 of each calendar year an opinion of counsel with
respect to the validity of the interest of the Trust in and to
the Receivables and certain other components of the Trust.
THE TRANSFEROR CERTIFICATES
The Transferor Certificate represents the undivided interest
in the Trust not represented by the Certificates or any
Participation issued and outstanding under the Trust or the
rights, if any, of any providers of enhancement to receive
payments from the Trust. The Transferor will initially own the
Transferor Certificate. The Transferor's Interest at any time
represents the right to the Trust Assets in excess of the
Certificateholders' Interest, the interest of any holder of a
Participation and Enhancement Invested Amounts of all Series then
outstanding. The Transferor Amount will fluctuate as the amount
of the Principal Receivables held by the Trust changes from time
to time. In addition, the Transferor intends to cause the
issuance of Series from time to time and any such issuance will
have the effect of decreasing the Transferor Amount to the extent
of the initial Invested Amount of such Series. The Pooling and
Servicing Agreement provides that the Transferor may exchange a
portion of the Transferor Certificate for one or more additional
certificates (each, a "Supplemental Certificate") for transfer or
assignment to a person designated by the Transferor upon the
execution and delivery of a supplement to the Pooling and
Servicing Agreement (which supplement shall be subject to the
amendment section of the Pooling and Servicing Agreement to the
extent that it amends any of the terms of the Pooling and
Servicing Agreement; see " Amendments"); provided, that (a) the
Rating Agency Condition is satisfied for such exchange, (b) such
exchange will not result in any Adverse Effect and the Transferor
shall have delivered to the Trustee an officer's certificate to
the effect that the Transferor reasonably believes that such
exchange will not, based on the facts known to such officer at
the time of such certification, have an Adverse Effect, (c) the
Transferor shall have delivered to the Trustee a Tax Opinion (as
defined herein) with respect to such exchange and (d) the
aggregate amount of Principal Receivables in the Trust as of the
date of such exchange will be greater than the Required Minimum
Principal Balance as of such date. Any subsequent transfer or
assignment of a Supplemental Certificate by a person other than
the Transferor will be subject to the condition set forth in
clause (c) above.
ADDITIONS OF ACCOUNTS OR PARTICIPATION INTERESTS
The Transferor has the right under the Transferor Purchase
Agreement to require PFR to designate from time to time
Additional Accounts to be included as Accounts. PFR will convey
to the Transferor, which in turn will convey to the Trust, its
interest in all Receivables arising from the Additional Accounts,
whether such Receivables are then existing or thereafter created,
subject to the following conditions, among others: (i) each such
Additional Account must be an Eligible Account; and (ii) except
for the addition of New Accounts (a) the selection of the
Aggregate Addition Accounts is done in a manner which it
reasonably believes will not result in an Adverse Effect; and (b)
except for the addition of New Accounts, the Rating Agency
Condition shall have been satisfied. "Adverse Effect" means any
action that will result in the occurrence of a Pay Out Event or
Reinvestment Event or materially adversely affect the amount or
timing of distributions to the Certificateholders of any Series
or Class. The Transferor will be obligated to require PFR to
designate Additional Accounts (to the extent available) if (a)
the aggregate amount of Principal Receivables in the Trust on the
last business day of any calendar month is less than the Required
Minimum Principal Balance as of such last day or (b) the
Transferor Amount on the last business day of any calendar month
is less than the Required Transferor Amount as of such last day.
In lieu of adding Additional Accounts, the Transferor may convey
Participation Interests to the Trust. Participation Interests
may, for example, include rights in transferors' interests in, or
certain credit card backed securities issued by, other trusts
which have as their primary assets revolving credit card
receivables originated or purchased by the Bank or another
Account Originator. There are currently no Participation
Interests held by the Trust and Participation Interests may be
added to the Trust only if the requirements of the Securities Act
applicable thereto have been satisfied including, that such
Participation Interests either have been registered under the
Securities Act and, if purchased from an affiliate of an
underwriter in the original distribution, the Participation
Interests are purchased in the secondary market at least three
months after the sale of any unsold allotments from the original
distribution, or that such Participation Interests are entitled
to an exemption from the registration requirements of the
Securities Act and have been acquired by the Registrant following
the expiration of any holding period applicable thereto under the
Securities Act. In addition, Participation Interests may be
added to the Trust only if the Rating Agency Condition has been
satisfied, such addition will not result in an Adverse Effect and
such addition will not cause an Insolvency Event to occur.
"Required Minimum Principal Balance" as of any date of
determination means the sum of the [Series Invested Amounts]
[Adjusted Invested Amounts for all Series] for all outstanding
Series plus the aggregate principal amounts of all outstanding
Participations minus the amount on deposit in the Special Funding
Account. The "Series Invested Amount" for a Series will be the
amount set forth in the related Supplement and, for each Series
offered hereby, in the related Prospectus Supplement for such
Series, but will generally equal the initial Invested Amount for
a Series.
Each Additional Account must be an Eligible Account at the
time of its designation. However, since Additional Accounts or
Participation Interests created after the Initial Cut-Off Date
may not have been a part of the portfolio of accounts of PFR as
of the Initial Cut-Off Date, they may not be of the same credit
quality as the Initial Accounts because such Additional Accounts
or Participation Interests may have been originated at a later
date using credit criteria different from those which were
applied to the Initial Accounts or may have been acquired from
another credit card issuer or entity who had different credit
criteria. Consequently, the performance of such Additional
Accounts or Participation Interests may be better or worse than
the performance of the Initial Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next succeeding
sentence, the Transferor may on any day of any Monthly Period,
but shall not be obligated to, acquire all Receivables and
proceeds thereof with respect to Removed Accounts and
Participation Interests. The Transferor is permitted to designate
and require reassignment to it of the Receivables from Removed
Accounts and Participation Interests only upon satisfaction of
the following conditions: (i) the Transferor shall have delivered
to the Trustee a computer file or microfiche list containing a
true and complete list of all Removed Accounts, such Accounts to
be identified by, among other things, account number and their
aggregate amount of Principal Receivables; (ii) the Transferor
shall have delivered an officer's certificate to the Trustee to
the effect that (a) either (x) no selection procedure reasonably
believed by the Transferor to be materially adverse to the
interests of the Certificateholders or the Transferor was
utilized in removing the Removed Accounts from among any pool of
Accounts of a similar type or (y) a random selection procedure
was used by the Transferor in selecting the accounts to be
removed and (b) in the reasonable belief of Transferor such
removal will not have an Adverse Effect; and (iii) the Transferor
shall have delivered prior written notice of the removal to each
Rating Agency, the Trustee and the Servicer and prior to the date
on which such Receivables are to be removed the Rating Agency
Condition shall have been satisfied with respect to such removal.
The foregoing conditions may be amended with the consent of each
Rating Agency but without the consent of Certificateholders if
such amendment is required to comply with any accounting or
regulatory restrictions to which the Trust, the Transferor,
Holdings PFR or any Account Originator may become subject.
DISCOUNT OPTION
The Pooling and Servicing Agreement provides that the
Transferor may at any time and from time to time, but without any
obligation to do so, designate a specified fixed or variable
percentage based on a formula (the "Discount Percentage") of the
amount of Receivables arising in all or any specified portion of
the Accounts on and after the date such designation becomes
effective that otherwise would have been treated as Principal
Receivables to be treated as Finance Charge Receivables (the
"Discount Option Receivables"). Although there can be no
assurance that the Transferor will do so, such designation may
occur because the Transferor determines that the exercise of the
discount option is needed to provide a sufficient yield on the
Receivables to cover interest and other amounts due and payable
from collections of Finance Charge Receivables or to avoid the
occurrence of a Pay Out Event or Reinvestment Event relating to
the reduction of the average yield on the portfolio of Accounts
in the Trust, if the related Supplement provides for such a Pay
Out Event or Reinvestment Event. After any such designation,
pursuant to the Pooling and Servicing Agreement, the Transferor
may, without notice to or consent of the Certificateholders, from
time to time reduce or withdraw the Discount Percentage;
provided, however, that such reduction or withdrawal will occur
only if the Transferor delivers to the Trustee and, in connection
with certain Series, providers of Series Enhancement a
certificate of an authorized representative to the effect that,
in the reasonable belief of the Transferor, such reduction or
withdrawal would not have adverse regulatory or other accounting
implications for the Transferor. The Transferor must provide 30
days' prior written notice to the Servicer, the Trustee, each
Rating Agency and, in connection with certain Series, providers
of Series Enhancement of any such designation or reduction or
withdrawal, and such designation or reduction or withdrawal will
become effective on the date specified therein only if (a) the
Transferor has delivered to the Trustee and any such providers of
Series Enhancement a certificate of an authorized representative
to the effect that, based on the facts known to such
representative at the time, the Transferor reasonably believes
that such designation or reduction or withdrawal will not at the
time of its occurrence cause a Pay Out Event or Reinvestment
Event or an event that, with notice or the lapse of time or both,
would constitute a Pay Out Event or Reinvestment Event, to occur
with respect to any Series and (b) the Transferor has received
written notice from each Rating Agency that such designation or
reduction or withdrawal will satisfy the Rating Agency Condition.
On the Date of Processing of any collections on or after the date
the exercise of the discount option takes effect, the product of
(i) a fraction the numerator of which is the amount of Discount
Option Receivables and the denominator of which is the amount of
all of the Principal Receivables (including Discount Option
Receivables) at the end of the prior Monthly Period and (ii)
collections of Receivables that arise in the Accounts on such day
on or after the date such option is exercised that otherwise
would be Principal Receivables will be deemed collections of
Finance Charge Receivables and will be applied accordingly,
unless otherwise provided in the related Prospectus Supplement.
Any such designation would result in an increase in the amount of
collections of Finance Charge Receivables, a reduction in the
balance of Principal Receivables and a reduction in the
Transferor Amount.
YIELD SUPPLEMENT ACCOUNT
If so specified in the Prospectus Supplement for any Series
the Servicer will establish and maintain an account in the name
of the Trustee, on behalf of the Trust, with an Eligible
Institution for the benefit of the Certificateholders of such
Series. Amounts on deposit in the Yield Supplement Account
(together with investment earnings thereon) will be released and
deposited into the Collection Account in the amounts and at the
times specified in the Prospectus Supplement for such Series.
Each such deposit into the Collection Account will be treated as
collections of Finance Charge Receivables allocable to the
Certificates of the related Series. The Yield Supplement Account
for any Series will be funded with proceeds from the offering of
the related Investor Certificates.
PREMIUM OPTION
The Pooling and Servicing Agreement provides that the
Transferor may at any time and from time to time, but without any
obligation to do so, designate a specified fixed or variable
percentage based on a formula as specified in the related
Prospectus Supplement (the "Premium Percentage") of the amount of
Receivables arising in all or any specified portion of the
Accounts on and after the date such designation becomes effective
that otherwise would have been treated as Finance Charge
Receivables to be treated as Principal Receivables (the "Premium
Option Receivables"). After any such designation, pursuant to the
Pooling and Servicing Agreement, the Transferor may, without
notice to or consent of the Certificateholders, from time to time
reduce or withdraw the Premium Percentage; provided, however,
that such reduction or withdrawal will occur only if the
Transferor delivers to the Trustee and, in connection with
certain Series, providers of Series Enhancement a certificate of
an authorized representative to the effect that, in the
reasonable belief of the Transferor, such reduction or withdrawal
would not have adverse regulatory or other accounting
implications for the Transferor. The Transferor must provide 30
days' prior written notice to the Servicer, the Trustee, each
Rating Agency and any such provider of Series Enhancement of any
such designation or reduction or withdrawal, and such designation
or reduction or withdrawal will become effective on the date
specified therein only if (a) the Transferor has delivered to the
Trustee and any such providers of Series Enhancement a
certificate of an authorized representative to the effect that,
based on the facts known to such representative at the time, the
Transferor reasonably believes that such designation or reduction
or withdrawal will not at the time of its occurrence cause a Pay
Out Event or Reinvestment Event or an event that, with notice or
the lapse of time or both, would constitute a Pay Out Event or
Reinvestment Event, to occur with respect to any Series and (b)
the Transferor has received written notice from each Rating
Agency that such designation or reduction or withdrawal will
satisfy the Rating Agency Condition. On the Date of Processing of
any collections on or after the date the exercise of the premium
option takes effect, the product of (i) a fraction the numerator
of which is the amount of Premium Option Receivables and the
denominator of which is the amount of all of the Finance Charge
Receivables (including Premium Option Receivables) at the end of
the prior Monthly Period and (ii) collections of Receivables that
arise in the Accounts on such day on or after the date such
option is exercised that otherwise would be Finance Charge
Receivables will be deemed collections of Principal Receivables
and will be applied accordingly, unless otherwise provided in the
related Prospectus Supplement. Any such designation would result
in an increase in the amount of collections of Principal
Receivables and a lower portfolio yield with respect to
collections of Finance Charge Receivables than would otherwise
occur. The Transferor might exercise this option because an
increase in the amount of collections of Principal Receivables
could result in a faster repayment of principal to
Certificateholders during an Amortization Period or accumulation
of principal during an Accumulation Period.
INDEMNIFICATION
The Pooling and Servicing Agreement provides that the
Servicer will indemnify the Trust and the Trustee from and
against any loss, liability, expense, damage or injury suffered
or sustained arising out of certain of the Servicer's actions or
omissions with respect to the Trust pursuant to the Pooling and
Servicing Agreement.
Under the Pooling and Servicing Agreement, PFRFC, in its
capacity as a Transferor, has agreed to be liable directly to an
injured party for the entire amount of any liabilities of the
Trust (other than those incurred by a Certificateholder in the
capacity of an investor in the Certificates of any Series)
arising out of or based on the arrangement created by the Pooling
and Servicing Agreement or the actions of the Servicer taken
pursuant thereto as though the Pooling and Servicing Agreement
created a partnership under the New York Uniform Partnership Act
in which the Transferor was a general partner.
Except as provided in the preceding two paragraphs, the
Pooling and Servicing Agreement provides 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, the Trustee, the Certificateholders, any
Credit Enhancer or any other person for any action taken, or for
refraining from taking any action, in good faith pursuant to the
Pooling and Servicing Agreement. However, neither the Transferor
nor the Servicer 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 their duties or by reason of
reckless disregard of their obligations and duties thereunder.
In addition, the Pooling and Servicing Agreement provides
that the Servicer is not under any obligation to appear in,
prosecute or defend any legal action which is not incidental to
its servicing responsibilities under the Pooling and Servicing
Agreement. The Servicer may, in its sole discretion, undertake
any such legal action which it may deem necessary or desirable
for the benefit of Certificateholders with respect to the Pooling
and Servicing Agreement and the rights and duties of the parties
thereto and the interests of the Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the
Servicer is responsible for servicing, collecting, enforcing and
administering the Receivables in accordance with customary and
usual procedures for servicing credit card receivables, but in
any event at least comparable with the policies and procedures
and the degree of skill and care applied or exercised with
respect to any other credit card receivables it, or its
affiliates, service.
Pursuant to the PFR Purchase Agreement, except as otherwise
required by any requirement of law or as is deemed by the Bank
(or any successor thereto under such agreement) to be necessary
in order for it to maintain its credit card business or a program
operated by such credit card business on a competitive basis
based on a good faith assessment by it of the nature of the
competition in the credit card business or such program, the Bank
will not take any action that will have the effect of reducing
the Portfolio Yield to a level that could reasonably be expected
to cause any Series to experience a Pay Out Event or Reinvestment
Event based on the insufficiency of the Series Adjusted Portfolio
Yield or take any action that would have the effect of reducing
the Portfolio Yield to less than the highest Average Rate for any
Group. The Bank also covenants that unless required by law and
except as provided above, the Bank will take no action with
respect to the applicable credit card agreements or the
applicable credit card guidelines that, at the time of such
action, the Bank reasonably believes will have a material adverse
effect on the Transferor or the Certificateholders.
Servicing activities to be performed by the Servicer include
collecting and recording payments, communicating with
cardholders, investigating payment delinquencies, evaluating the
increase of credit limits and the issuance of credit cards,
providing billing and tax records to cardholders and maintaining
internal records with respect to each Account. Managerial and
custodial services performed by the Servicer on behalf of the
Trust include providing assistance in any inspections of the
documents and records relating to the Accounts and Receivables by
the Trustee pursuant to the Pooling and Servicing Agreement,
maintaining the agreements, documents and files relating to the
Accounts and Receivables as custodian for the Trust and providing
related data processing and reporting services for
Certificateholders and on behalf of the Trustee.
The Pooling and Servicing Agreement provides that the
Servicer may delegate its duties under that agreement to any
entity that agrees to conduct such duties in accordance with the
Pooling and Servicing Agreement and the credit card guidelines.
Notwithstanding any such delegation the Servicer will continue to
be liable for all of its obligations under the Pooling and
Servicing Agreement.
NEW ISSUANCES
The Pooling and Servicing Agreement provides that, pursuant
to any one or more Supplements, the Transferor may direct the
Trustee to authenticate from time to time new Series subject to
the conditions described below (each such issuance, a "New
Issuance"). Each New Issuance will have the effect of decreasing
the Transferor Amount to the extent of the initial Invested
Amount of such new Series. Under the Pooling and Servicing
Agreement, the Transferor may designate, with respect to any
newly issued Series: (a) its name or designation; (b) its initial
principal amount (or method for calculating such amount) and its
invested amount in the Trust (the "Invested Amount"), which is
generally based on the aggregate amount of Principal Receivables
in the Trust allocated to such Series, and its Series Invested
Amount; (c) its certificate rate (or formula for the
determination thereof); (d) the interest payment date or dates
(each, an "Interest Payment Date") and the date or dates from
which interest shall accrue; (e) the method for allocating
collections to Certificateholders of such Series; (f) any bank
accounts to be used by such Series and the terms governing the
operation of any such bank accounts; (g) the percentage used to
calculate the Monthly Servicing Fees; (h) the provider and terms
of any form of Series Enhancement with respect thereto; (i) the
terms on which the Certificates of such Series may be
repurchased; (j) the Series Termination Date; (k) the number of
Classes of Certificates of such Series, and if such Series
consists of more than one Class, the rights and priorities of
each such Class; (l) the extent to which the Certificates of such
Series will be issuable in temporary or permanent global form
(and, in such case, the depositary for such global certificate or
certificates, the terms and conditions, if any, upon which such
global certificate or certificates may be exchanged, in whole or
in part, for definitive certificates, and the manner in which any
interest payable on such global certificate or certificates will
be paid); (m) whether the Certificates of such Series may be
issued in bearer form and any limitations imposed thereon; (n)
the priority of such Series with respect to any other Series; (o)
the Group, if any, in which such Series will be included; and (p)
any other relevant terms (all such terms, the "Principal Terms"
of such Series). None of the Transferor, the Servicer, the
Trustee or the Trust is required or intends to obtain the consent
of any Certificateholder of any outstanding Series to issue any
additional Series. The Transferor may offer any Series to the
public under a Prospectus Supplement or other Disclosure Document
in transactions either registered under the Securities Act or
exempt from registration thereunder, directly, through one or
more underwriters or placement agents, in fixed-price offerings
or in negotiated transactions or otherwise. See "Plan of
Distribution." Any such Series may be issued in fully registered
or book-entry form in minimum denominations determined by the
Transferor. The Transferor intends to offer, from time to time,
additional Series.
The Pooling and Servicing Agreement provides that the
Transferor may designate Principal Terms such that each Series
has a Controlled Accumulation Period or a Controlled Amortization
Period that may have a different length and begin on a different
date than such periods for any other Series. Further, one or more
Series may be in their Controlled Accumulation Period or
Controlled Amortization Period while other Series are not.
Moreover, each Series may have the benefits of Series Enhancement
issued by enhancement providers different from the providers of
Series Enhancement with respect to any other Series. Under the
Pooling and Servicing Agreement, the Trustee shall hold any such
Series Enhancement only on behalf of the Certificateholders of
the Series to which such Series Enhancement relates. With respect
to each such Series Enhancement, the Transferor may deliver a
different form of Series Enhancement agreement. The Transferor
also has the option under the Pooling and Servicing Agreement to
vary among Series the terms upon which a Series may be
repurchased by the Transferor. There is no limit to the number of
New Issuances the Transferor may cause under the Pooling and
Servicing Agreement. The Trust will terminate only as provided in
the Pooling and Servicing Agreement. There can be no assurance
that the terms of any Series might not have an impact on the
timing and amount of payments received by a Certificateholder of
another Series.
Under the Pooling and Servicing Agreement and pursuant to a
Supplement, a New Issuance may only occur upon the satisfaction
of certain conditions provided in the Pooling and Servicing
Agreement. The obligation of the Trustee to authenticate the
Certificates of such new Series and to execute and deliver the
related Supplement is subject to the satisfaction of the
following conditions: (a) on or before the fifth day immediately
preceding the date upon which the New Issuance is to occur, the
Transferor shall have given the Trustee, the Servicer and each
Rating Agency written notice of such New Issuance and the date
upon which the New Issuance is to occur; (b) the Transferor shall
have delivered to the Trustee the related Supplement, in form
satisfactory to the Trustee, executed by each party to the
Pooling and Servicing Agreement other than the Trustee; (c) the
Transferor shall have delivered to the Trustee any related Series
Enhancement agreement executed by each of the parties to such
agreement; (d) the Trustee shall have received confirmation from
each Rating Agency that such New Issuance will satisfy the Rating
Agency Condition; (e) the Transferor shall have delivered to the
Trustee and certain providers of Series Enhancement a certificate
of an authorized officer, dated the date upon which the New
Issuance is to occur, to the effect that the Transferor
reasonably believes that such issuance will not, based on the
facts known to such representative at the time of such
certification, have an Adverse Effect; (f) the Transferor shall
have delivered to the Trustee, each Rating Agency and certain
providers of Series Enhancement an opinion of counsel acceptable
to the Trustee that for Federal income tax purposes: (i)
following such New Issuance the Trust will not be deemed to be an
association (or publicly traded partnership) taxable as a
corporation; (ii) such New 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; (iii) such New Issuance will not cause or
constitute an event in which gain or loss would be recognized by
any Certificateholders; and (iv) except as is otherwise provided
in a Supplement with respect to any Series or Class thereof, the
Certificates of such Series or the specified Classes thereof will
be properly characterized as debt (an opinion of counsel to the
effect referred to in clauses (i), (ii) (iii) with respect to any
action is referred to herein as a "Tax Opinion"); (g) the
aggregate amount of Principal Receivables plus the principal
amount of any Participation Interest shall be greater than the
Required Minimum Principal Balance as of the date upon which the
New Issuance is to occur after giving effect to such issuance;
and (h) any other conditions specified in any Supplement. Upon
satisfaction of the above conditions, the Trustee shall execute
the Supplement and issue to the Transferor the Certificates of
such new Series for execution and redelivery to the Trustee for
authentication.
The Pooling and Servicing Agreement provides that, pursuant
to any one or more supplements to the Pooling and Servicing
Agreement (each, a "Participation Supplement"), the Transferor
may direct the Trustee to issue on behalf of the Trust one or
more participations (each, a "Participation"), to be delivered to
or upon the order of the Transferor; provided that (a) the Rating
Agency Condition shall have been satisfied with respect thereto,
(b) the Transferor Amount (excluding the interest represented by
any Supplemental Certificate) shall not be less than the Required
Transferor Amount as of the date of, and after giving effect to,
such issuance and (c) the Transferor shall have delivered to the
Trustee and each Rating Agency a Tax Opinion, dated the date of
such issuance, with respect to such issuance. Any Participation
may be transferred or exchanged only upon satisfaction of the
conditions described in clauses (a) and (c) above.
Notwithstanding the foregoing, on the Closing Date, the
Transferor will issue to the Bank a Participation with respect to
which the conditions above need not be specifically satisfied.
Each Participation will entitle its holder to a specified
percentage (the "Participation Percentage") of all Collections of
Principal Receivables and Finance Charge Receivables and any
other Trust Assets to the extent specified in the Participation
Supplement.
COLLECTION ACCOUNT
The Servicer has established and maintains, or has caused to
be established and maintains, for the benefit of the
Certificateholders in the name of the Trustee, on behalf of the
Trust, an account (the "Collection Account") with an Eligible
Institution. "Eligible Institution" means any depository
institution (which may be 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 rating acceptable to each
Rating Agency or a long-term unsecured debt rating acceptable to
each Rating Agency, except that no such rating will be required
of an institution which maintains a trust fund in a fully
segregated trust account with the corporate trust department of
such institution as long as such institution maintains the credit
rating of the applicable Rating Agency in one of its generic
credit rating categories which signifies investment grade and is
a member of the FDIC. Notwithstanding the preceding sentence, any
institution the appointment of which satisfies the Rating Agency
Condition will be an Eligible Institution. Funds in the
Collection Account generally will be invested in (i) obligations
issued or fully guaranteed by the United States of America or any
instrumentality or agency thereof when such obligations are
backed by the full faith and credit of the United States of
America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies
incorporated under the laws of the United States of America or
any state thereof and subject to supervision and examination by
Federal or state banking or depository institution authorities;
provided that at the time of the Trust's investment or
contractual commitment to invest therein, the short-term debt
rating of such depository institution or trust company shall be
in the highest rating category of the applicable Rating Agency,
(iii) commercial paper or other short-term obligations having, at
the time of the Trust's investment or a contractual commitment to
invest, a rating in the highest rating category of the applicable
Rating Agency, (iv) demand deposits, time deposits or
certificates of deposit which are fully insured by the FDIC
having, at the time of the Trust's investment therein, a rating
in the highest rating category of the applicable Rating Agency,
(v) bankers' acceptances issued by any depository institution or
trust company described in (ii) above, (vi) money market funds
having, at the time of the Trust's investment therein, a rating
in the highest rating category of the applicable Rating Agency,
(vii) time deposits, other than as referred to in (iv) above,
with an entity, the commercial paper of such entity having a
credit rating in the highest rating category of the applicable
Rating Agency, (viii) certain repurchase agreements meeting the
requirements set forth in the Pooling and Servicing Agreement,
and (ix) any other investment if the Rating Agency Condition has
been satisfied (collectively, "Eligible Investments"). Any
earnings (net of losses and investment expenses) on funds in the
Collection Account will be paid to the Transferor. The Servicer
has the revocable power to withdraw funds from the Collection
Account and to instruct the Trustee to make withdrawals and
payments from the Collection Account for the purpose of carrying
out its duties under the Pooling and Servicing Agreement and any
Supplement.
ALLOCATIONS
Pursuant to the Pooling and Servicing Agreement, during each
Monthly Period the Servicer will allocate to each outstanding
Series its Series Allocable Finance Charge Collections, Series
Allocable Principal Collections and Series Allocable Defaulted
Amount.
"Series Adjusted Invested Amount" means, with respect to any
Series and for any Monthly Period, the Series Invested Amount for
such Series for such Monthly Period, less the excess, if any, of
the cumulative amount (calculated in accordance with the terms of
the related Supplement and, with respect to any Series offered
hereby, the related Prospectus Supplement) of investor charge-
offs allocable to the Invested Amount for such Series as of the
last day of the immediately preceding Monthly Period over the
aggregate reimbursement of such investor charge-offs as of such
last day, or such lesser amount as may be provided in the
Supplement for such Series and, with respect to any Series
offered hereby, the related Prospectus Supplement.
"Series Allocable Finance Charge Collections," "Series
Allocable Principal Collections" and "Series Allocable Defaulted
Amount" mean, with respect to any Series and for any Monthly
Period, the product of (a) the Series Allocation Percentage and
(b) the amount of collections of Finance Charge Receivables
deposited in the Collection Account, the amount of collections of
Principal Receivables deposited in the Collection Account and the
amount of all Defaulted Amounts with respect to such Monthly
Period, respectively.
"Series Allocation Percentage" means, with respect to any
Series and for any Monthly Period, the percentage equivalent of a
fraction, the numerator of which is the Series Adjusted Invested
Amount as of the last day of the immediately preceding Monthly
Period plus the Series Required Transferor Amount as of the last
day of the immediately preceding Monthly Period and the
denominator of which is the Trust Adjusted Invested Amount plus
the sum of all Series Required Transferor Amounts as of such last
day.
"Series Required Transferor Amount" means for any Series an
amount specified in the Supplement for such Series and, for any
Series offered hereby, the related Prospectus Supplement.
"Trust Adjusted Invested Amount" means, with respect to any
Monthly Period, the sum of the Series Adjusted Invested Amounts
(as adjusted in any Supplement) for all outstanding Series plus
the principal amount of any Participation then outstanding.
The Servicer will then allocate amounts initially allocated
to a particular Series between the Certificateholders' Interest
and the Transferor's Interest for such Monthly Period as follows:
(i) the Series Allocable Finance Charge Collections and the
Series Allocable Defaulted Amount will at all times be
allocated to the Invested Amount of a Series based on the
Floating Allocation Percentage of such Series; and
(ii) the Series Allocable Principal Collections will at all
times be allocated to the Invested Amount of such Series
based on the Principal Allocation Percentage of such Series.
The "Floating Allocation Percentage" and the "Principal
Allocation Percentage" with respect to any Series will be
determined as set forth in the related Supplement and, with
respect to each Series offered hereby, in the related Prospectus
Supplement. Amounts not allocated to the Invested Amount of any
Series as described above will be allocated to the Transferor's
Interest.
GROUPS OF SERIES
If so specified in the related Prospectus Supplement, the
Certificates of a Series may be included in a Reallocation Group,
which is a Group of Series subject to reallocations of
collections of Finance Charge Receivables and other amounts or
obligations among Series in such Group in the manner described
below under " Reallocations Among Certificates of Different
Series within 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 Group. Consequently, the issuance
of new Series in such 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
Group. See "Risk Factors Issuance of New Series." The
Prospectus Supplement with respect to a Series offered hereby
will specify whether such Series will be included in a
Reallocation Group or another type of Group, whether any
previously issued Series have been included in such a Group and
whether any such Series or any previously issued Series may be
removed from such a Group.
REALLOCATIONS AMONG CERTIFICATES OF 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 Group
Investor Finance Charge Collections (as defined below) for a
particular Reallocation Group and on the following Distribution
Date will allocate such amount among the Certificateholders'
Interest (including any Enhancement Invested Amount) for all
Series in such Group in the following priority:
(i) Group Investor Monthly Interest (as defined
below);
(ii) Group Investor Default Amounts (as defined
below);
(iii) Group Investor Monthly Fees (as defined
below);
(iv) Group Investor Additional Amounts (as defined
below); and
(v) the balance pro rata among each Series in
such Group based on the current Invested Amount of each such
Series.
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 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 Group
will share such amount pro rata, and any Series in such 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 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 Certificateholders' 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 Additional Amounts" means for any
Distribution Date the sum of the amounts determined with respect
to each Series in such Group equal to (a) an amount equal to the
amount by which the Invested Amount of any Class of Certificates
or any Enhancement Invested Amounts have been reduced as a result
of investor charge-offs, subordination of principal collections
and funding the investor default amount for any other Class of
Certificates or Enhancement Invested Amounts of such Series and
(b) if the related Supplement so provides, the amount of interest
at the applicable certificate rate that has accrued on the amount
described in the preceding clause (a).
"Group Investor Default Amount" means for any Distribution
Date the sum of the amounts determined with respect to each
Series in such Group equal to the product of the Series Allocable
Defaulted Amount for such Distribution Date and the applicable
Floating Allocation Percentage for such Distribution Date.
"Group Investor Finance Charge Collections" means for any
Distribution Date the aggregate amount of Investor Finance Charge
Collections for such Distribution Date for all Series in such
Group.
"Group Investor Monthly Fees" means for any Distribution
Date the Monthly Servicing Fee for each Series in such Group, any
Series Enhancement fees and any other similar fees which are paid
out of Reallocated Investor Finance Charge Collections for such
Series pursuant to the applicable Supplement.
"Group Investor Monthly Interest" means for any Distribution
Date the sum of the aggregate amount of monthly interest,
including overdue monthly interest and interest on such overdue
monthly interest, if applicable, for all Series in such Group for
such Distribution Date.
Finance Charge Receivables may be allocated and reallocated
among Series in a Group as described below.
Step 1 - total collections of Finance Charge Receivables are
allocated among Series based on the Series Allocation Percentage
for each Series. The amounts allocated to each Series pursuant to
this Step 1 are referred to as "Series Allocable Finance Charge
Collections." See " Allocations" above.
Step 2 - the amount of collections of Finance Charge
Receivables allocable to the Invested Amount (including any
Enhancement Invested Amount) of a Series (the "Investor Finance
Charge Collections") is determined by multiplying Series
Allocable Finance Charge Collections for each Series by the
applicable Floating Allocation Percentages. See " Allocations"
above.
Step 3 - Investor Finance Charge Collections for all Series
in a particular Reallocation Group (or Group Investor Finance
Charge Collections) are pooled for reallocation to each such
Series.
Step 4 - Group Investor Finance Charge Collections are
reallocated to each Series in such Group based on the Series'
respective claim with respect to interest payable on the
Certificates or Enhancement Invested Amount (if any) of such
Series, the Defaulted Amount allocable to the Certificateholders'
Interest of such Series and the Monthly Servicing Fee 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
Invested Amounts.
SHARING OF EXCESS FINANCE CHARGE COLLECTIONS AMONG EXCESS
ALLOCATION SERIES
Any Series offered hereby may be designated as an Excess
Allocation Series (including a Series in a Reallocation Group or
other type of Group). Collections of Finance Charge Receivables
and certain other amounts allocable to the Certificateholders'
Interest of any Excess Allocation Series in excess of the amounts
necessary to make required payments with respect to such Series
(including payments to the provider of any related Series
Enhancement) that are payable out of collections of Finance
Charge Receivables (any such excess, the "Excess Finance Charge
Collections") may be applied to cover any shortfalls with respect
to amounts payable from collections of Finance Charge Receivables
allocable to any other Excess Allocation Series, pro rata based
upon the amount of the shortfall with respect to amounts payable
from collections of Finance Charge Receivables, if any, with
respect to each other Excess Allocation Series; provided,
however, that the sharing of Excess Finance Charge Collections
among Excess Allocation Series will cease if the Transferor shall
deliver to the Trustee a certificate of an authorized
representative to the effect that, in the reasonable belief of
the Transferor, the continued sharing of Excess Finance Charge
Collections among Excess Allocation Series would have adverse
regulatory implications with respect to the Transferor, the Bank
or PFR. Following the delivery by the Transferor of any such
certificate to the Trustee there will not be any further sharing
of Excess Finance Charge Collections among such Series in any
such Group. In all cases, any Excess Finance Charge Collections
remaining after covering shortfalls with respect to all
outstanding Excess Allocation Series will be paid to the holders
of the Transferor Certificates. 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, (c) any agreement relating to any Series
Enhancement will not be amended in such a manner as to increase
payments to the providers of Series Enhancement and thereby
decrease the amount of Excess Finance Charge Collections
available from such Series or (d) the Transferor will not at any
time deliver a certificate as described above. While the
Transferor believes that, based upon applicable rules and
regulations as currently in effect, the sharing of Excess Finance
Charge Collections among Excess Allocation Series will not have
adverse regulatory implications for it, the Bank, or PFR, there
can be no assurance that this will continue to be true in the
future.
SHARED PRINCIPAL COLLECTIONS
If the Prospectus Supplement for the related Series provides
that such Series is a Principal Sharing Series, collections of
Principal Receivables for any Monthly Period allocated to the
Certificateholders' Interest of any such Series will first be
used to cover certain amounts described in the related Prospectus
Supplement (including any required deposits into a Principal
Funding Account or required distributions to Certificateholders
of such Series in respect of principal). The Servicer will
determine the amount of collections of Principal Receivables for
any Monthly Period (plus certain other amounts described in the
related Prospectus Supplement) allocated to such Series remaining
after covering such required deposits and distributions and any
similar amount remaining for any other Principal Sharing Series
plus amounts specified in any Participation Supplement with
respect to any Participation to be treated as shared principal
collections (collectively, "Shared Principal Collections"). The
Servicer will allocate the Shared Principal Collections to cover
any principal distributions to Certificateholders and deposits to
Principal Funding Accounts for any Principal Sharing Series that
are either scheduled or permitted and that have not been covered
out of collections of Principal Receivables and certain other
amounts allocable to the Certificateholders' Interest of such
Series (collectively, "Principal Shortfalls"). If Principal
Shortfalls exceed Shared Principal Collections for any Monthly
Period, Shared Principal Collections will be allocated pro rata
among the applicable Series based on the respective Principal
Shortfalls of such Series. To the extent that Shared Principal
Collections exceed Principal Shortfalls, the balance will be
allocated to the holders of the Transferor Certificates, provided
that (a) such Shared Principal Collections will be distributed to
the holders of the Transferor Certificates only to the extent
that the Transferor Amount is greater than the Required
Transferor Amount and (b) in certain circumstances described
below under " Special Funding Account," such Shared Principal
Collections will be deposited in the Special Funding Account. Any
such reallocation of collections of Principal Receivables will
not result in a reduction in the Invested Amount of the Series to
which such collections were initially allocated. There can be no
assurance that there will be any Shared Principal Collections
with respect to any Monthly Period or that any Series will be
designated as Principal Sharing Series.
PAIRED SERIES
If so provided in the related Supplement, a Prior Series may
be paired with a Paired Series issued by the Trust at or after
the commencement of the Controlled Amortization Period or
Controlled Accumulation Period for such Prior Series. As the
Invested Amount of the Prior Series is reduced, the Invested
Amount in the Trust of the Paired Series will increase by an
equal amount. Upon payment in full of the Prior Series, the
Invested Amount of such Paired Series will be equal to the
Invested Amount paid to Certificateholders of such Prior Series.
If a Pay Out Event or Reinvestment Event occurs with respect to
the Prior Series or with respect to the Paired Series when the
Prior Series is in a Controlled Amortization Period or Controlled
Accumulation Period, the Series Allocation Percentage and the
Principal Allocation Percentage for the Prior Series and the
Series Allocation Percentage and the Principal Allocation
Percentage for the Paired Series will be reset as provided in the
related Prospectus Supplement and the Controlled Amortization
Period, Controlled Accumulation Period, Early Amortization Period
or Early Accumulation Period for such Series could be lengthened.
SPECIAL FUNDING ACCOUNT
If, on any date, the Transferor Amount is less than or equal
to the Required Transferor Amount, the Servicer shall not
distribute to the holders of the Transferor Certificates any
collections of Principal Receivables allocable to a Series or a
Group that otherwise would be distributed to such holders, but
shall deposit such funds in an account with an Eligible
Institution established and maintained by the Servicer for the
benefit of the Certificateholders of each Series, in the name of
the Trustee, on behalf of the Trust, and bearing a designation
clearly indicating that the funds deposited therein are held for
the benefit of the Certificateholders of each Series (the
"Special Funding Account"). Funds on deposit in the Special
Funding Account will be withdrawn and paid to the holders of the
Transferor Certificates on any Distribution Date to the extent
that, after giving effect to such payment, the Transferor Amount
exceeds the Required Transferor Amount on such date; provided,
however, that if a Controlled Accumulation Period, Early
Accumulation Period, Controlled Amortization Period or Early
Amortization Period commences with respect to any Series, any
funds on deposit in the Special Funding Account will be released
from the Special Funding Account, deposited in the Collection
Account and treated as collections of Principal Receivables to
the extent needed to make principal payments due to or for the
benefit of the Certificateholders of such Series.
Funds on deposit in the Special Funding Account will be
invested by the Trustee, at the direction of the Servicer, in
Eligible Investments. Any earnings (net of losses and investment
expenses) earned on amounts on deposit in the Special Funding
Account during any Monthly Period will be withdrawn from the
Special Funding Account and treated as collections of Finance
Charge Receivables with respect to such Monthly Period.
FUNDING PERIOD; PRE-FUNDING ACCOUNT
For any Series of Certificates, the related Prospectus
Supplement may specify that during a Funding Period, the Pre-
Funding Amount will be held in a Pre-Funding Account pending the
transfer of additional Receivables to the Trust or pending the
reduction of the Invested Amounts of other Series issued by the
Trust. The related Prospectus Supplement will specify the initial
Invested Amount with respect to such Series, the Full Invested
Amount and the date by which the Invested Amount is expected to
equal the Full Invested Amount. The Invested Amount will increase
as Receivables are delivered to the Trust or as the Invested
Amounts of other Series of the Trust are reduced. The Invested
Amount may also decrease due to the occurrence of a Pay Out Event
with respect to such Series as provided in the related Prospectus
Supplement.
During the Funding Period, funds on deposit in the Pre-
Funding Account for a Series of Certificates will be withdrawn
and paid to the Transferor to the extent of any increases in the
Invested Amount. If the Invested Amount does not for any reason
equal the Full Invested Amount 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
in the Pre-Funding Account will be invested by the Trustee in
Eligible Investments or 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 Collection Account for distribution in
respect of interest on the Certificates of the related Series in
the manner specified in the related Prospectus Supplement.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
"Defaulted Receivables" for any Monthly Period are Principal
Receivables that were charged-off as uncollectible in such
Monthly Period. The "Defaulted Amount" for any Monthly Period
will be an amount (not less than zero) equal to (a) the excess,
if any, of the amount of Defaulted Receivables for such Monthly
Period over the Recoveries for such Monthly Period, minus (b) the
amount of any Defaulted Receivables the assignment or
reassignment of which the Transferor or the Servicer becomes
obligated to accept during such Monthly Period (unless an event
relating to bankruptcy, receivership or insolvency has occurred
with respect to the Transferor or the Servicer, in which event
the amount of such Defaulted Receivables will not be added to the
sum so subtracted). Receivables in any Account will be charged-
off as uncollectible in accordance with the credit card
guidelines and the Servicer's customary and usual policies and
procedures for servicing revolving credit card and other
revolving credit account receivables comparable to the
Receivables. The current policy of the Bank is to charge-off the
receivables in an account when that account becomes 181 days
delinquent (or sooner in the event of receipt of notice of death
or bankruptcy of the cardholder), but such policy may change in
the future to conform with regulatory requirements and applicable
law.
If the Servicer adjusts downward the amount of any Principal
Receivable (other than Ineligible Receivables that have been, or
are to be, reassigned to the Transferor) because of a rebate,
refund, counterclaim, defense, error, fraudulent charge or
counterfeit charge to a cardholder, or such Principal Receivable
was created in respect of merchandise that was refused or
returned by a cardholder or if the Servicer otherwise adjusts
downward the amount of any Principal Receivable without receiving
collections therefor or charging off such amount as
uncollectible, the amount of the Principal Receivables in the
Trust with respect to the Monthly Period in which such adjustment
takes place will be reduced by the amount of the adjustment.
Furthermore, in the event that the exclusion of any such
Receivables would cause the Transferor Amount at such time to be
less than the Required Transferor Amount, the Transferor will be
required to pay an amount equal to such deficiency into the
Special Funding Account.
CREDIT ENHANCEMENT
General. For any Series, Credit Enhancement may be provided
with respect to one or more Classes thereof. Credit Enhancement
with respect to one or more Classes of a Series offered hereby
may include a letter of credit, a cash collateral account or
guaranty, a spread account, a yield supplement account, a
collateral interest, a surety bond, an insurance policy or any
other form of credit enhancement described in the related
Prospectus Supplement, or any combination of the foregoing.
Credit Enhancement may also be provided to a Class or Classes of
a Series or to a Series by subordination provisions which require
distributions of principal or interest be made with respect to
the Certificates of such Class or Classes or such Series before
distributions are made to one or more Classes of such Series or
to another Series (if the Supplement for such Series so
provides). If so specified in the related Prospectus Supplement,
any form of Credit Enhancement may be available to more than one
Class or Series to the extent described therein.
The presence of Credit Enhancement with respect to a Class
is intended to enhance the likelihood of receipt by
Certificateholders of such Class of the full amount of principal
and interest with respect thereto and to decrease the likelihood
that such Certificateholders will experience losses. However,
unless otherwise specified in the related Prospectus Supplement,
the Credit Enhancement, if any, with respect thereto will not
provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur that exceed
the amount covered by the Credit Enhancement or that are not
covered by the Credit Enhancement, Certificateholders will bear
their allocable share of such losses. In addition, if specific
Credit Enhancement is provided for the benefit of more than one
Class or Series, Certificateholders of any such Class or Series
will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of Certificateholders of other Classes or
Series.
If Credit Enhancement is provided with respect to a Series
offered hereby, 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 provisions of any agreement relating to
such Credit Enhancement material to the Certificateholders of
such Series. Additionally, in certain cases, the related
Prospectus Supplement may set forth certain information with
respect to the provider of any third-party Credit Enhancement
(the "Credit Enhancer"), including (i) a brief description of its
principal business activities, (ii) its principal place of
business, place of incorporation or the jurisdiction under which
it is chartered or licensed to do business, (iii) if applicable,
the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total
assets, and its stockholders' or policyholders' surplus, if
applicable, as of a date specified in the Prospectus Supplement.
If so described in the related Prospectus Supplement, Credit
Enhancement with respect to a Series offered hereby may be
available to pay principal of the Certificates of such Series
following the occurrence of certain Pay Out Events or
Reinvestment Events with respect to such Series. In such event,
the Credit Enhancer will have an interest in certain cash flows
in respect of the Receivables to the extent described in such
Prospectus Supplement (an "Enhancement Invested Amount") and may
be entitled to the benefit of the Trustee's security interest in
the Receivables, in each case subordinated to the interest of the
Certificateholders of such Series.
Subordination. If so specified in the related Prospectus
Supplement, one or more Classes of a Series offered hereby may be
subordinated to one or more other Classes of such Series or a
Series may be subordinated to another Series. If so specified in
the related Prospectus Supplement, the rights of the holders of
the subordinated Certificates to receive distributions of
principal or interest on any payment date will be subordinated to
such rights of the holders of the Certificates that are senior to
such subordinated Certificates to the extent set forth in the
related Prospectus Supplement. 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 or of the subordinated Certificates of another
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 Certificates that are senior to such
subordinated Certificates. The amount of subordination will
decrease whenever amounts otherwise payable to the holders of
subordinated Certificates are paid to the holders of the
Certificates that are senior to such subordinated Certificates.
Letter of Credit. If so specified in the related Prospectus
Supplement, a letter of credit with respect to a Series or Class
of Certificates offered hereby may be issued by a bank or
financial institution specified in the related Prospectus
Supplement (the "L/C Issuer"). Subject to the terms and
conditions specified in the related Prospectus Supplement, the
L/C Issuer will be obligated to honor drawings under a letter of
credit in an aggregate dollar amount (which may be fixed or may
be reduced as described in the related Prospectus Supplement),
net of unreimbursed payments thereunder, equal to the amount
described in the related Prospectus Supplement. The amount
available under a letter of credit will be reduced to the extent
of the unreimbursed payments thereunder.
Cash Collateral Account. If so specified in the related
Prospectus Supplement, support for a Series or one or more
Classes thereof will be provided by a guaranty (the "Cash
Collateral Guaranty") secured by the deposit of cash or certain
Eligible 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.
Reserve Account. If so specified in the related Prospectus
Supplement, support for a Series or one or more Classes thereof
will be provided by the establishment of a reserve account (the
"Reserve Account"). The Reserve Account may be funded, to the
extent provided in the related Prospectus Supplement, by an
initial cash deposit, the retention of certain periodic
distributions of principal or interest otherwise payable to one
or more Classes of Certificates, including the subordinated
Certificates, or both, or the provision of a letter of credit,
guarantee insurance policy other form of credit or any
combination thereof. The Reserve Account will be established to
assure the subsequent distribution of principal or interest on
the Certificates of such Series or Class thereof in the manner
provided in the related Prospectus Supplement.
Yield Supplement Account. If so specified in the related
Prospectus Supplement the Servicer will establish and maintain a
Yield Supplement Account for the benefit of the
Certificateholders of such Series. Amounts on deposit in the
Yield Supplement Account (together with investment earnings
thereon) will be released and deposited into the Collection
Account in the amounts and at the times specified in the
Prospectus Supplement for such Series. Each such deposit into
the Collection Account will be treated as collections of Finance
Charge Receivables allocable to the Certificates of the related
Series. The Yield Supplement Account for any Series will be
funded with the proceeds from offering of the related Investor
Certificates.
Collateral Interest. If so specified in the related
Prospectus Supplement, support for a Series of Certificates or
one or more Classes thereof may be provided initially by an
uncertificated, subordinated interest in the Trust (the
"Collateral Interest") in an amount initially equal to a
percentage of the Certificates of such Series specified in the
Prospectus Supplement. References to Enhancement Invested Amounts
herein include Collateral Interests, if any.
Surety Bond or Insurance Policy. If so specified in the
related Prospectus Supplement, insurance with respect to a Series
or Class of Certificates offered hereby may be provided by one or
more insurance companies. Such insurance will guarantee, with
respect to one or more Classes of the related Series,
distributions of interest or principal in the manner and amount
specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a
surety bond may be purchased for the benefit of the holders of
any Series or Class of Certificates offered hereby to assure
distributions of interest or principal with respect to such
Series or Class of Certificates in the manner and amount
specified in the related Prospectus Supplement.
Spread Account. If so specified in the related Prospectus
Supplement, support for a Series or one or more Classes of a
Series offered hereby may be provided by the periodic deposit of
certain available excess cash flow from the Trust Assets into a
spread account intended to assure the subsequent distributions of
interest and principal on the Certificates of such Class or
Series in the manner specified in the related Prospectus
Supplement.
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 referenced
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.
SERVICER COVENANTS
In the Pooling and Servicing Agreement, the Servicer has
agreed as to each Receivable and related Account that it will:
(a) duly fulfill all obligations on its part to be fulfilled
under or in connection with the Receivables or the related
Accounts, and will maintain in effect all qualifications required
and comply in all material respects with all requirements of law
in order to service the Receivables and Accounts, the failure to
maintain or comply with which would have a material adverse
effect on the Certificateholders; (b) not permit any rescission
or cancellation of the Receivables except as ordered by a court
of competent jurisdiction or other governmental authority; (c) do
nothing to impair the rights of the Certificateholders in the
Receivables or the related Accounts; and (d) not reschedule,
revise or defer payments due on the Receivables except in
accordance with its guidelines for servicing receivables.
Under the terms of the Pooling and Servicing Agreement, all
Receivables in an Account will be assigned and transferred to the
Servicer and such Account will no longer be included as an
Account if the Servicer discovers, or receives written notice
from the Trustee, that any covenant of the Servicer set forth
above has not been complied with in all material respects and
such noncompliance has not been cured within 60 days (or such
longer period as may be agreed to by the Trustee and the
Transferor) thereafter and has a material adverse effect on the
Certificateholders' Interest in such Receivables. Such assignment
and transfer will be made when the Servicer deposits an amount
equal to the amount of such Receivables in the Collection Account
on the business day preceding the Distribution Date following the
Monthly Period during which such obligation arises. This transfer
and assignment to the Servicer constitutes the sole remedy
available to the Certificateholders if such covenant or warranty
of the Servicer is not satisfied and the Trust's interest in any
such assigned Receivables will be automatically assigned to the
Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties
under the Pooling and Servicing Agreement except (i) upon
determination that the performance of such duties is no longer
permissible under applicable law or (ii) if such obligations and
duties are assumed by any entity that has satisfied the Rating
Agency Condition. No such resignation will become effective until
the Trustee or a successor to the Servicer has assumed the
Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement. Notwithstanding the foregoing, the Bank may
assign part or all of its obligations and duties as Servicer
under the Pooling and Servicing Agreement to an affiliate of the
Bank as long as the Bank shall have fully guaranteed the
performance of such obligations and duties under the Pooling and
Servicing Agreement.
Any person into which, in accordance with the Pooling and
Servicing 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, will be the successor to the Transferor or the
Servicer, as the case may be, under the Pooling and Servicing
Agreement.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below),
either the Trustee or Certificateholders holding Certificates
evidencing more than 50% of the aggregate unpaid principal amount
of all Certificates, by written notice to the Servicer (and to
the Trustee if given by the Certificateholders) (a "Termination
Notice"), may terminate all of the rights and obligations of the
Servicer, as Servicer, under the Pooling and Servicing Agreement
and in and to the Receivables and the proceeds thereof and the
Trustee will appoint a new Servicer (a "Service Transfer"). The
rights and interest of the Transferor under the Pooling and
Servicing Agreement in the Transferor's Interest will not be
affected by any Termination Notice or Service Transfer. If within
60 days of receipt of a Termination Notice the Trustee does not
receive any bids from eligible servicers to act as successor
Servicer and receives an officer's certificate from the
Transferor to the effect that the Servicer cannot in good faith
cure the Servicer Default which gave rise to the Termination
Notice, the Trustee shall grant a right of first refusal to the
Transferor which would permit the Transferor at its option to
purchase the Certificateholders' Interest on the Distribution
Date in the next calendar month. The purchase price for the
Certificateholders' Interest shall be equal to the sum of the
amounts specified therefor with respect to each outstanding
Series in the related Supplement, and for any Certificates
offered hereby, in the Prospectus Supplement.
The Trustee will as promptly as possible, after the giving
of a Termination Notice, appoint a successor Servicer and if no
successor Servicer has been appointed by the Trustee and has
accepted such appointment by the time the Servicer ceases to act
as Servicer, all rights, authority, power and obligations of the
Servicer under the Pooling and Servicing Agreement will be vested
in the Trustee. Prior to any Service Transfer, the Trustee will
seek to obtain bids from potential servicers meeting certain
eligibility requirements set forth in the Pooling and Servicing
Agreement to serve as a successor Servicer for servicing
compensation not in excess of the Servicing Fee plus any amounts
payable to the Transferor pursuant to the Pooling and Servicing
Agreement.
A "Servicer Default" 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
any payment, transfer or deposit, on the date the Servicer
is required to do so under the Pooling and Servicing
Agreement or any Supplement, which is not cured within a
five business day grace period;
(b) failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or
agreements of the Servicer in the Pooling and Servicing
Agreement or any Supplement which has an Adverse Effect
and which continues unremedied for a period of 60 days
after written notice, or the Servicer assigns its duties
under the Pooling and Servicing Agreement, except as
specifically permitted thereunder;
(c) any representation, warranty or certification made by
the Servicer in the Pooling and Servicing Agreement, in
any Supplement or in any certificate delivered pursuant to
the Pooling and Servicing Agreement or any Supplement
proves to have been incorrect in any material respect when
made, which has an Adverse Effect on the rights of the
Certificateholders of any Series, and which Adverse Effect
continues for a period of 60 days after written notice; or
(d) the occurrence of certain events of bankruptcy,
insolvency or receivership with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of
performance referred to under clause (a) above for a period of
ten business days after the applicable grace period or referred
to under clauses (b) or (c) for a period of 60 business days
after the applicable grace period, 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 Pooling and Servicing Agreement and the Servicer must provide
the Trustee, the Transferor and any provider of Series
Enhancement prompt notice of such failure or delay by it,
together with a description of its efforts to so perform its
obligations.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or
before August 31 of each calendar year or such other date as
specified in the related Prospectus Supplement, the Servicer will
cause a firm of independent certified public accountants (who may
also render other services to the Servicer or the Transferor and
any affiliates thereof) to furnish a report to the effect that
such accounting firm has made a study and evaluation of the
Servicer's internal accounting controls relative to the servicing
of the Accounts and that, on the basis of such examination, such
firm is of the opinion that, assuming the accuracy of reports by
the Servicer's third party agents, the system of internal
accounting controls in effect on the date of such statement
relating to servicing procedures performed by the Servicer, taken
as a whole, was sufficient for the prevention and detection of
errors and irregularities in amounts that would be material to
the financial statements of the Servicer and that such servicing
was conducted in compliance with the sections of the Pooling and
Servicing Agreement during the period covered by such report
(which shall be the period from July 1 (or for the initial
period, the relevant Closing Date) of the preceding calendar year
to and including June 30 of such 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.
The Pooling and Servicing Agreement provides for delivery to
the Trustee on or before August 31 of each calendar year or such
other date as specified in the related Prospectus Supplement, of
an annual statement signed by an officer of the Servicer to the
effect that the Servicer has fully performed its obligations
under the Pooling and Servicing 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 Pooling and Servicing Agreement and any Supplement may
be amended from time to time (including in connection with the
issuance of a Supplemental Certificate, addition of a
Participation Interest, allocation of assets in the Trust to a
Series or Group, or to change the definition of Monthly Period,
Determination Date or Distribution Date) by the Servicer, the
Transferor and the Trustee, and without the consent of the
Certificateholders of any Series, provided that (i) an opinion of
counsel for the Transferor is addressed and delivered to the
Trustee to the effect that the conditions precedent to any such
amendment have been satisfied, (ii) the Transferor shall have
delivered to the Trustee a certificate of an officer of the
Transferor to the effect that the Transferor reasonably believes
that such amendment will not have an Adverse Effect and (iii) the
Rating Agency Condition shall have been satisfied with respect
thereto.
The Pooling and Servicing Agreement or any Supplement may be
amended by the Transferor, the Servicer and the Trustee with the
consent of the Certificateholders evidencing not less than 66
2/3% of the aggregate unpaid principal amount of the Certificates
of all affected Series for which the Transferor has not delivered
an officer's certificate stating that there will be no Adverse
Effect, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Pooling
and Servicing Agreement or any Supplement or of modifying in any
manner the rights of Certificateholders. No such amendment,
however, may (a) reduce in any manner the amount of, or delay the
timing of, deposits or distributions on any Certificate without
the consent of each Certificateholder, (b) (i) change the
definition or the manner of calculating the Certificateholders'
Interest or the Invested Amount or (ii) reduce the aforesaid
percentage of the aggregate unpaid principal amount of the
Certificates the holders of which are required to consent to any
such amendment, in each case without the consent of each
Certificateholder or (c) adversely affect the rating of any
Series or Class by a Rating Agency without the consent of the
holders of Certificates of such Series or Class evidencing not
less than 66 2/3% of the aggregate unpaid principal amount of the
Certificates of such Series or Class. Promptly following the
execution of any amendment to the Pooling and Servicing Agreement
(other than an amendment described in the preceding paragraph),
the Trustee will furnish written notice of the substance of such
amendment to each Certificateholder. Notwithstanding the
foregoing, any Supplement executed in connection with the
issuance of one or more new Series of Certificates will not be
considered an amendment to the Pooling and Servicing Agreement.
LIST OF CERTIFICATEHOLDERS
Upon written request of any Holder or group of Holders of
Certificates of any Series or of all outstanding Series of record
holding Certificates evidencing not less than 10% of the
aggregate unpaid principal amount of the Certificates of such
Series or all Series, as applicable, the Trustee will afford such
Holder or Holders of Certificates access during business hours to
the current list of Certificateholders of such Series or of all
outstanding Series, as the case may be, for purposes of
communicating with other Holders of Certificates with respect to
their rights under the Pooling and Servicing Agreement. See
"Description of the Certificates Book-Entry Registration" and
" Definitive Certificates."
The Pooling and Servicing Agreement does not provide for any
annual or other meetings of Certificateholders.
THE TRUSTEE
The Bank of New York will act as trustee under the Pooling
and Servicing Agreement. The corporate trust office of The Bank
of New York is located at 101 Barclay Street, New York, New York
10286. The Transferor and 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 or the Transferor may hold Certificates in their own
names; however, any Certificates so held shall not be entitled to
participate in any decisions made or instructions given to the
Trustee by the Certificateholders as a group. 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 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.
DESCRIPTION OF THE PURCHASE AGREEMENTS
ACCOUNT ORIGINATOR PURCHASE AGREEMENTS
Pursuant to separate receivables purchase agreements between
each Account Originator and the Bank or PFR (each, an "Account
Originator Purchase Agreement"), on the Initial Series Closing
Date, BKB will sell to the Bank Receivables which were not more
than [29] days past due as of the Initial Cut-Off Date, having an
aggregate principal balance of approximately [$ ]
as of the Initial Cut-Off Date, and will sell to PFR Receivables
which were at least [30] days past due as of the Initial Cut-Off
Date, having an aggregate principal balance of approximately [$
] as of the Initial Cut-Off Date. Harris will sell to
the Bank Receivables which were not more than [29] days past due
as of the Initial Cut-Off Date having an aggregate principal
balance of approximately [$ ] as of the Initial Cut-
Off Date, and will sell to PFR Receivables which were at least
[30] days past due as of the Initial Cut-Off Date, having an
aggregate principal balance of approximately [$ ] as of
the Initial Cut-Off Date.
Holdings may from time to time enter into similar
arrangements with other Account Originators and in connection
with such transactions any such Account Originator will enter
into Account Originator Purchase Agreements with the Bank and PFR
containing substantially similar provisions as the Account
Originator Purchase Agreements entered into by BKB and Harris. In
connection with any such sale of Receivables to the Bank or to
PFR, such Account Originator will indicate in its computer
records that the Receivables have been sold to the Bank or to
PFR, as applicable. Each Account Originator, as debtor/seller,
will file UCC financing statements meeting the requirements of
applicable state law in each of the jurisdictions in which the
books and records relating to the Accounts are maintained with
respect to the Receivables thereunder. See "Risk Factors
Characteristics as a Sale; Insolvency and Receivership Risks" and
"Certain Legal Aspects of the Receivables."
PFR PURCHASE AGREEMENT
Pursuant to the PFR Purchase Agreement, the Bank sells to
PFR all of its right, title and interest in and to (i) all of the
Receivables acquired by the Bank from the Account Originators
pursuant to the Account Originator Purchase Agreements and (ii)
all of the Receivables created in the Accounts following the date
of the PFR Purchase Agreement. In connection with such sale of
Receivables to PFR, the Bank will indicate in its computer
records that such Receivables have been sold to PFR by such
Account Originator. In addition, the Bank will provide or cause
to be provided to PFR a computer file or a microfiche list
containing a true and complete list showing each Account licensed
to the Bank by Holdings, identified by account number and by
total outstanding balance of the related Receivables on the
applicable Series date of designation or addition date for
Additional Accounts, as the case may be. The Bank, as seller,
will file UCC financing statements meeting the requirements of
applicable state law in each of the jurisdictions in which the
books and records relating to the Accounts are maintained with
respect to the Receivables. See "Risk Factors Characteristics
as a Sale; Insolvency and Receivership Risks" and "Certain Legal
Aspects of the Receivables."
TRANSFEROR PURCHASE AGREEMENT
Sale of Receivables. Pursuant to the Transferor Purchase
Agreement, PFR sells to the Transferor all its right, title and
interest in and to (i) all of the Receivables acquired by PFR
from the Account Originators and from the Bank and all of the
Receivables created in the Accounts following the date of the
Transferor Purchase Agreement and (ii) the Receivables in each
Additional Account designated from time to time for inclusion as
an Account as of the date of such designation, whether such
Receivables shall then be existing or shall thereafter be
created.
In connection with such sale of the Receivables to the
Transferor, PFR will indicate in its computer records that the
Receivables have been sold to PFRFC by it and PFRFC will indicate
in its files that such Receivables will be sold or transferred by
it to the Trust. In addition, PFR will provide or cause to be
provided to the Transferor a computer file or a microfiche list
containing a true and complete list showing each Account
identified by account number and by total outstanding balance of
the related Receivables on the applicable Series date of
designation or addition date for Additional Accounts, as the case
may be. The records and agreements relating to the Receivables
may not be segregated by PFR from other documents and agreements
relating to other receivables and may not be stamped or marked to
reflect the sale or transfer of the Receivables to the
Transferor, but the records of PFR will be marked to evidence
such sale or transfer. PFR, as debtor/seller, will file or cause
to be filed UCC financing statements meeting the requirements of
applicable state law in each of the jurisdictions in which the
books and records relating to the Accounts are maintained with
respect to the Receivables. See "Risk Factors Characteristics
as a Sale; Insolvency and Receivership Risks" and "Certain Legal
Aspects of the Receivables."
Pursuant to the Transferor Purchase Agreement, the
Transferor will, subject to certain conditions, if the
designation of Additional Accounts is required under the Pooling
and Servicing Agreement, designate Additional Accounts to be
included as Accounts under the Transferor Purchase Agreement. See
"Description of the Pooling and Servicing Agreement Additions
of Accounts or Participation Interests."
Representations and Warranties. In the Transferor Purchase
Agreement, PFR represents and warrants to the Transferor to the
effect that, among other things, (a) as of the date of the
Transferor Purchase Agreement and as of each date of designation
of Additional Accounts under the Transferor Purchase Agreement,
it is duly organized and in good standing and that it has the
authority to consummate the transactions contemplated by the
Transferor Purchase Agreement, (b) as of the Initial Cut-Off Date
and as of each date of designation of Additional Accounts under
the Transferor Purchase Agreement, each Additional Account will
be an Eligible Account and (c) as of the Initial Cut-Off Date and
as of each date of designation of Additional Accounts under the
Transferor Purchase Agreement, each Receivable generated
thereunder is, on such date of designation, an Eligible
Receivable. In the event of a breach of any representation and
warranty set forth in the Transferor Purchase Agreement which
results in the requirement that the Transferor accept retransfer
of an Ineligible Receivable, then PFR will be obligated to
repurchase such Ineligible Receivable from the Transferor on the
date of such retransfer. The purchase price for any such
Ineligible Receivable will be the principal amount thereof plus
applicable finance charges.
PFR also represents and warrants to the Transferor that,
among other things, as of the date of the Transferor Purchase
Agreement and as of each date of designation of Additional
Accounts (a) the Transferor Purchase Agreement constitutes a
valid and binding obligation of PFR and (b) the Transferor
Purchase Agreement constitutes a valid sale to the Transferor of
all right, title and interest of PFR in and to the Receivables
then existing and thereafter created in the Accounts and in the
proceeds thereof. If the breach of any of the representations and
warranties described in this paragraph results in the obligation
of the Transferor under the Pooling and Servicing Agreement to
accept retransfer of the Receivables, PFR will repurchase the
Receivables retransferred to the Transferor for an amount of cash
at least equal to the amount of cash the Transferor is required
to deposit under the Pooling and Servicing Agreement in
connection with such retransfer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Under the Purchase Agreements, the Account Originators sell
the Receivables to the Bank and to PFR, the Bank sells the
Receivables it purchased from the Account Originators to PFR, and
PFR sells the Receivables it purchased from the Account
Originators and the Bank to the Transferor. Under the Pooling
and Servicing Agreement, the Transferor, in turn, transfers the
Receivables to the Trust. Each Account Originator, the Bank, PFR
and the Transferor represents and warrants that its respective
transfers constitute valid sales and assignments of all of its
respective right, title and interest in and to the Receivables
subject to the Purchase Agreement to which it is a party. The
Transferor also represents and warrants that, if the transfer of
Receivables by the Transferor to the Trust is deemed to create a
security interest under the UCC, there exists a valid, subsisting
and enforceable first priority perfected security interest in the
Receivables in existence at the time of the formation of the
Trust or at the date of designation of any Additional Accounts,
as the case may be, in favor of the Trust and a valid, subsisting
and enforceable first priority perfected security interest in the
Receivables created thereafter in favor of the Trust on and after
their creation, in each case until termination of the Trust. For
a discussion of the Trust's rights arising from these
representations and warranties not being satisfied, see
"Description of the Pooling and Servicing Agreement
Representations and Warranties."
Each Account Originator, the Bank, PFR and the Transferor
represents that the Receivables are "accounts" or "general
intangibles" for purposes of the UCC. Both the sale of accounts
and the transfer of accounts as security for an obligation are
treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions and the filing
of an appropriate financing statement or statements is required
to perfect the interest of the Trust in the Receivables. If a
transfer of general intangibles is deemed to create a security
interest rather than a sale, Article 9 of the UCC applies and
filing an appropriate financing statement or statements is also
required in order to perfect the security interest of the Trust.
Financing statements covering the Receivables will be filed under
the UCC to protect the Transferor and the Trust if any of the
transfers under the Purchase Agreements or the Pooling and
Servicing Agreements are deemed to be subject to the UCC. If a
transfer of general intangibles is deemed to be a sale, then the
UCC is not applicable and no further action under the UCC is
required to protect the Trust's interest from third parties.
There are certain limited circumstances under the UCC in
which prior or subsequent transferees of Receivables coming into
existence after the Initial Series Closing Date could have an
interest in such Receivables with priority over the Trust's
interest. A tax or other government lien or other nonconsensual
lien on property of an Account Originator, the Bank, PFR or 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. Furthermore, if the FDIC were appointed as a
conservator or receiver of an Account Originator or the Bank, the
conservator's or receiver's administrative expenses may also have
priority over the interest of the Trust in such related
Receivables. Under the Purchase Agreements, however, each
Account Originator, the Bank and PFR warrants that it has
transferred the Receivables free and clear of the lien of any
third party. In addition, each Account Originator, the Bank and
PFR covenants that it will not sell, pledge, assign, transfer or
grant any lien on any Receivable (or any interest therein) other
than pursuant to the Purchase Agreement to which it is a party.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Transferor will not engage in any activities except
purchasing accounts receivable from PFR, forming trusts,
transferring such accounts receivable to such trusts, issuing
notes or certificates and engaging in activities incident to, or
necessary or convenient to accomplish, the foregoing. The
Transferor has no intention of filing a voluntary petition under
the United States Bankruptcy Code or any similar applicable state
law so long as the Transferor is solvent and does not reasonably
foresee becoming insolvent.
Each Account Originator, the Bank and PFR has represented
and warranted in the Purchase Agreement to which it is a party
that the transfer of Receivables pursuant such Purchase Agreement
is a valid sale of the Receivables. In addition, each Account
Originator, the Bank, PFR and the Transferor has treated and will
treat the transaction described in the Purchase Agreement to
which it is a party as sales of the Receivables. Each Account
Originator has taken or will take all actions that are required
under the UCC to perfect the Bank's interest or PFR's interest,
as applicable, in the Receivables conveyed to the Bank or to PFR,
as applicable, by such Account Originator and the Bank has taken
or will take all actions that are required under the UCC to
perfect PFR's interest in the Receivables conveyed to PFR by the
Bank. PFR has taken or will take all actions that are required
under the UCC to perfect the Transferor's ownership interest in
the Receivables. However, in the event of an insolvency,
receivership or conservatorship of an Account Originator or the
Bank, it is possible that a receiver or conservator could attempt
to recharacterize the transfer by such Account Originator or the
Bank as a pledge of the subject Receivables rather than a true
sale. The Federal Deposit Insurance Act ("FDIA"), as amended by
FIRREA, which became effective August 9, 1989, sets forth certain
powers that the FDIC could exercise if it were appointed as
conservator or receiver of an Account Originator or of the Bank.
Among other things, the FDIA grants such a conservator or
receiver the power to repudiate contracts of, and to request a
stay of up to 90 days of any judicial action or proceeding
involving, an Account Originator or the Bank. In the event that
PFR were to become a debtor in a bankruptcy case and a creditor
or trustee-in-bankruptcy of such debtor or such debtor itself
were to take the position that the sale of Receivables from PFR
to the Transferor should be recharacterized as a pledge of such
Receivables to secure a borrowing from such debtor, then delays
in payments of collections of Receivables to the Transferor (and
therefore to the Trust and to Certificateholders) could occur and
(should the court rule in favor of any such trustee, debtor in
possession or creditor) reductions in the amount of such payments
could result.
To the extent that (i) an Account Originator or the Bank
granted a security interest in the Receivables, (ii) the interest
was validly perfected before the insolvency of the Account
Originator or the Bank, as the case may be, (iii) the interest
was not taken or granted in contemplation of the Account
Originator's or the Bank's insolvency or with the intent to
hinder, delay or defraud the Account Originator or the Bank, as
applicable, or its respective creditors, (iv) the applicable
Purchase Agreement is continuously a record of such Account
Originator or of the Bank, as applicable, and (v) the applicable
Purchase Agreement represents a bona fide and arm's length
transaction undertaken for adequate consideration in the ordinary
course of business, such valid perfected security interest of the
Bank or of PFR, in the case of the transfer by the Account
Originator under the Account Originator Purchase Agreement, or of
PFR, in the case of the transfer by the Bank under the PFR
Purchase Agreement, should be enforceable (to the extent of the
Bank's or PFR's "actual direct compensatory damages")
notwithstanding the insolvency of, or the appointment of a
receiver or conservator for, the Account Originator or the Bank
and payments to the Trust with respect to the Receivables (up to
the amount of such damages) should not be subject to an automatic
stay of payment or to recovery by the FDIC as conservator or
receiver of the Account Originator or the Bank. If, however, the
FDIC were to require the Transferor to establish its right to
those payments by submitting to and completing the administrative
claims procedure established under FIRREA, or the conservator or
receiver were to request a stay of proceedings with respect to
the Account Originator or the Bank as provided under FIRREA,
delays in payments on the Certificates and possible reductions in
the amount of those payments could occur. The FDIA does not
define the term "actual direct compensatory damages." On April
10, 1990, the RTC, formerly a sister agency of the FDIC, adopted
a statement of policy (the "RTC Policy Statement") with respect
to the payment of interest on collateralized borrowings. The RTC
Policy Statement states that interest on such borrowings will be
payable at the contract rate up to the date of the redemption or
payment by the conservator, receiver, or the trustee of an amount
equal to the principal owed plus the contract rate of interest up
to the date of such payment or redemption, plus any expenses of
liquidation if provided for in the contract, to the extent
secured by the collateral. In a 1993 case involving zero-coupon
bonds, however, a federal district court held that the RTC was
instead obligated to pay bondholders the fair market value of
repudiated bonds as of the date of repudiation. The FDIC itself
has not adopted a policy statement on payment of interest on
collateralized borrowings.
In the event of an insolvency, receivership or
conservatorship of an Account Originator or the Bank, and a
creditor or conservator of the Account Originator or the Bank, as
applicable, were to request a court to order that the Account
Originator or the Bank, as applicable, should be substantively
consolidated with the Transferor, delays in payments on the
Certificates and possible reductions in such payments could
result. In addition, in the event of an insolvency, receivership,
conservatorship or bankruptcy of PFR, and a creditor or trustee-
in-bankruptcy of PFR or PFR itself, as debtor in possession, were
to request a court to order that PFR should be substantively
consolidated with the Transferor, delays in payments on the
Certificates and possible reductions in such payments could
result.
The Transferor will take all actions that are required under
the UCC to perfect the Trust's interest in the Receivables and
the Transferor has warranted to the Trust that the Trust will
have a first priority security interest therein and, with certain
exceptions, in the proceeds thereof. Nevertheless, a tax or
government lien or other nonconsensual lien on property of the
Transferor arising prior to the time a Receivable is conveyed to
the Trust may have priority over the interest of the Trust in
such Receivable. The Transferor has been structured such that (i)
the voluntary or involuntary application for relief under the
Bankruptcy Code or similar applicable state laws, and (ii) the
substantive consolidation of the Transferor and PFR are unlikely.
The Transferor is a separate, special purpose subsidiary, the
certificate of incorporation of which provides that it shall not
file a voluntary petition for relief under the Bankruptcy Code
without the unanimous affirmative vote of all of its directors.
Pursuant to the Pooling and Servicing Agreement, the Trustee
covenants that it will not at any time institute against the
Transferor any bankruptcy, reorganization or other proceedings
under any Federal or state bankruptcy or similar law. In
addition, certain other steps will be taken to avoid the
Transferor's becoming a debtor in a bankruptcy case.
Notwithstanding such steps, if the Transferor were to become a
debtor in a bankruptcy case, and a bankruptcy trustee for the
Transferor or a creditor of the Transferor or the Transferor
itself were to take the position that the transfer of the
Receivables from the Transferor to the Trust should be
recharacterized as a pledge of such Receivables, then delays in
payments on the Certificates and possible reductions in the
amount of such payments could result.
Upon the appointment of a bankruptcy trustee, receiver or
conservator or upon the commencement of a bankruptcy,
receivership, conservatorship or similar proceeding with respect
to PFRFC, the Servicer will promptly give notice thereof to the
Trustee and a Pay Out Event or Reinvestment Event may occur with
respect to a Series (or all of the Series). Pursuant to the
Pooling and Servicing Agreement, newly created Receivables will
not be transferred to the Trust on and after any such appointment
or voluntary liquidation. In the event of an Insolvency Event,
the Trustee will proceed to sell, dispose of or otherwise
liquidate the Receivables in a commercially reasonable manner and
on commercially reasonable terms, unless within a specified
period of time Certificateholders representing undivided
interests aggregating more than 50% of the Invested Amount of
each Series of Certificates issued and outstanding (or, with
respect to any Series with two or more Classes, 50% of the
Invested Amount of each Class) and possibly certain other persons
specified in the Supplement for a Series instruct otherwise
(assuming that the bankruptcy trustee, conservator or receiver
does not order such a sale despite such instructions). The
proceeds from the sale of the Receivables would be treated as
collections of the Receivables and deposited into the Collection
Account and after distribution of such amounts the Trust will
terminate. This procedure could be delayed, as described above.
In addition, upon the occurrence of a Pay Out Event or
Reinvestment Event, if a trustee in bankruptcy, a conservator or
receiver is appointed for the Transferor and no Pay Out Event or
Reinvestment Event other than such conservatorship or
receivership or bankruptcy or insolvency of the Transferor
exists, the bankruptcy trustee, conservator or receiver may have
the power to prevent the early sale, liquidation or disposition
of the Receivables and the commencement of the Early Amortization
Period or Early Accumulation Period and may be able to require
that new Principal Receivables be transferred to the Trust. In
addition, the trustee, receiver or conservator for the Transferor
may have the power to cause early sale of the Receivables and the
early payment of the Certificates or to prohibit the continued
transfer of Receivables to the Trust. See "Description of the
Certificates Pay Out Events and Reinvestment Events."
While the Bank is the Servicer, cash collections held by the
Bank may, subject to certain conditions, be commingled and used
for the benefit of the Bank prior to each Distribution Date and,
in the event of the insolvency, receivership or conservatorship
of the Bank or, in certain circumstances, the lapse of certain
time periods, the Trust may not have a perfected security
interest in such collections and accordingly, be entitled to such
collections. The Bank will be allowed to make monthly rather than
daily deposits of collections to the Collection Account if (i)
either the Bank obtains a commercial paper rating of at least A-1
and P-1 (or its equivalent) by the applicable Rating Agency or
(ii) the Bank makes other arrangements that satisfy the Rating
Agency Condition. Unless otherwise provided in the related
Prospectus Supplement, if either of the foregoing conditions are
not satisfied, then the Bank will, within five business days,
commence the deposit of collections directly into the Collection
Account within two business days of the Date of Processing.
In the event of a Servicer Default relating to the
insolvency of the Servicer, and no Servicer Default other than
such insolvency related Servicer Default exists, the conservator
or receiver may have the power to prevent either the Trustee or
the Certificateholders from appointing a successor Servicer. See
"Description of the Pooling and Servicing Agreement Servicer
Default."
CONSUMER PROTECTION LAWS
The relationship of the cardholder and credit card issuer is
extensively regulated by Federal and state consumer protection
laws. With respect to credit cards issued by the Account
Originators and the Bank, the most significant federal laws
include the Federal Truth-in-Lending, Equal Credit Opportunity,
Fair Credit Billing, Equal Credit Opportunity, Electronic Funds
Transfer, Fair Credit Reporting and Fair Debt Collection
Practices Acts. These statutes impose various disclosure
requirements either before or when an Account is opened, or both,
and at the end of monthly billing cycles, and, in addition, limit
cardholder liability for unauthorized use, prohibit certain
discriminatory practices in extending credit, and regulate
practices followed in collections. In addition, cardholders are
entitled under these laws to have payments and credits applied to
the credit card account promptly and to request prompt resolution
of billing errors. Congress and the states may enact new laws and
amendments to existing laws to regulate further the credit card
industry. The Trust may be liable for certain violations of
consumer protection laws that apply to the Receivables, either as
assignee from the Transferor (as the applicable Account
Originator's or the Bank's assignee) with respect to obligations
arising before transfer of the Receivables to the Trust or as the
party directly responsible for obligations arising after the
transfer. In addition, a cardholder may be entitled to assert
such violations by way of set-off against the obligation to pay
the amount of Receivables owing. All Receivables that were not
created in compliance in all material respects with the
requirements of such laws (if such noncompliance has a material
adverse effect on the Certificateholders' interest therein) will
be reassigned to the Transferor and ultimately back to PFR. The
Servicer has also agreed in the Pooling and Servicing Agreement
to indemnify the Trust, among other things, for any liability
arising from such violations. For a discussion of the Trust's
rights if the Receivables were not created in compliance in all
material respects with applicable laws, see "Description of the
Pooling and Servicing Agreement -- Representations and
Warranties."
Application of federal and state bankruptcy and debtor
relief laws would affect the interests of the Certificateholders
if such laws result in any Receivables being charged off as
uncollectible. See "Description of the Pooling and Servicing
Agreement Defaulted Receivables; Rebates and Fraudulent
Charges."
PROPOSED LEGISLATION
Congress and the states may enact new laws and amendments to
existing laws to regulate further the credit card industry or to
reduce finance charges or other fees or charges applicable to
credit card accounts. The potential effect of any such
legislation could be to reduce the yield on the Accounts. If such
yield is reduced, a Pay Out Event or Reinvestment Event could
occur, and the Early Amortization Period or Early Accumulation
Period would commence. See "Description of the Certificates Pay
Out Events and Reinvestment Events."
U.S. FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing certain 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. 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 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). 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
Unless otherwise specified in the related Prospectus
Supplement, special tax counsel to the Transferor ("Special Tax
Counsel") specified in such Prospectus Supplement will, upon
issuance of a Series of Certificates, issue an opinion to the
Transferor based on the assumptions and qualifications set forth
in the opinion that the Certificates of such Series that are
offered pursuant to a Prospectus Supplement (the "Offered
Certificates;" and for purposes of this section "U.S. Federal
Income Tax Consequences" the term "Certificate Owner" refers to a
holder of a beneficial interest in an Offered Certificate) will
be treated as indebtedness for Federal income tax purposes.
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 Pooling and Servicing
Agreement its intent that for Federal, state and local 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 Pooling and Servicing 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.
Unless otherwise set forth in a Prospectus Supplement, it is
expected that, as set forth in its opinion, Special Tax Counsel
will 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.
Unless otherwise specified in a Prospectus Supplement, it is
expected that Special Tax Counsel will 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, it is expected that, unless otherwise
specified in a Prospectus Supplement, Special Tax Counsel will
issue an opinion to the Transferor that the Offered Certificates
will constitute indebtedness for Federal income tax purposes, and
accordingly, interest thereon 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 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.
While it is not anticipated that the Offered Certificates
will be issued at a greater than de minimis discount, under
applicable Treasury regulations (the "Regulations") the Offered
Certificates may nevertheless be deemed to have been issued with
original issue discount ("OID"). This could be the case, for
example, if interest payments for a Series are not treated as
"qualified stated interest" because the IRS determines that (i)
no reasonable legal remedies exist to compel timely payment and
(ii) the Offered Certificates do not have terms and conditions
that make the likelihood of late payment (other than a late
payment that occurs within a reasonable grace period) or
nonpayment a remote contingency. The Regulations provide that,
for purposes of the foregoing test, the possibility of nonpayment
due to default, insolvency, or similar circumstances, is ignored.
Although this does not directly apply to the Offered Certificates
(because they have no actual default provisions) the Transferor
intends to take the position that, because nonpayment can occur
only as a result of events beyond its control (principally, loss
rates and payment delays on the Receivables substantially in
excess of those anticipated), nonpayment is a remote contingency.
Based on the foregoing, and on the fact that generally interest
will accrue on the Offered Certificates at a "qualified floating
rate," the Transferor intends to take the position that interest
payments on the Offered Certificates constitute qualified stated
interest. If, however, interest payments for a Series were not
classified as "qualified stated interest," all of the taxable
income to be recognized with respect to the Offered Certificates
would be includible in income as OID but would not be includible
again when the interest is actually received.
If the Offered Certificates are in fact issued at a greater
than de minimis discount or are treated as having been issued
with OID under the 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. 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 (a "Prepayable 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
advisor regarding the impact to it of the OID rules if the
Offered Certificates are issued with OID. Under the 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 holding
requirement for preferential capital gain treatment, any such
gain or loss generally will be such capital gain, provided that
the Offered Certificate was held as a capital asset and provided,
further, that if the rules applicable to Prepayable Instruments
apply, any OID not previously accrued will be treated as ordinary
income. The maximum ordinary income rate for individuals,
estates, and trusts exceeds the maximum such capital gains rate
for such taxpayers. In addition, capital losses generally may be
used only to offset capital gains.
TAX CHARACTERIZATION OF THE TRUST
The Pooling and Servicing 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 partnership
in which the Transferor and certain classes of Certificateholders
are partners, and which has issued debt represented by other
Classes of Certificates (including, unless otherwise specified in
a Supplement, the Offered Certificates). In connection with the
issuance of Certificates of any Series, Special Tax Counsel will
render an opinion to the Transferor, 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 characterized for Federal income tax purposes as
an association (or publicly traded partnership) taxable as a
corporation.
The opinion of Special Tax Counsel with respect to Offered
Certificates and the Trust 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 Transferor
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. Unless
otherwise specified in a Prospectus Supplement for a Series, the
Transferor intends to treat the certificates of each Series that
are sold to investors as indebtedness for Federal income tax
purposes and intends to treat any Participation as a shared
ownership interest in the Receivables, rather than an interest in
a partnership. Accordingly, the Transferor currently does not
intend to file the Federal income tax reports that would apply if
any Class of Certificates or any Participation was treated as an
interest in a partnership or corporation (unless, as is permitted
by the Pooling and Servicing Agreement, an interest in the Trust
is issued or sold that is intended to be classified as an
interest in a partnership).
If the Trust were treated in whole or in part as a
partnership in which some or all Certificate Owners of one or
more Series were partners, that partnership could be classified
as a publicly traded partnership taxable as a corporation. A
partnership will be classified as a publicly traded partnership
taxable as a corporation if equity interests therein are traded
on an "established securities market," or are "readily tradeable"
on a "secondary market" or its "substantial equivalent" unless
certain exceptions apply. One such exception would apply if the
Trust is not engaged in a "financial business" and 90% or more of
its income consists of interest and certain other types of
passive income. Because Treasury regulations do not clarify the
meaning of a "financial business" for this purpose, it is unclear
whether this exception applies. The Transferor intends to take
measures designed to reduce the risk that the Trust could be
classified as a publicly traded partnership taxable as a
corporation by reason of trading of interests in the Trust other
than the Offered Certificates and other certificates with respect
to which an opinion is rendered that such certificates constitute
debt for Federal income tax purposes. Although the Transferor
expects that such measures would be successful, there can be no
absolute assurance that the Trust could not become a publicly
traded partnership, because certain of the actions necessary to
comply with such exceptions are not fully within the control of
the Transferor.
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 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, 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) might, under certain
circumstances, constitute "unrelated business taxable income"
which generally would be taxable to the holder under the Code.
Partnership characterization also may have adverse state and
local income or franchise tax consequences for a Certificate
Owner.
If it were determined that a transaction created an entity
classified as an association or 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.
FASIT
Certain provisions of the Code provide for the creation of a
new type of entity for federal income tax purposes, the
"financial asset securitization investment trust" ("FASIT").
While these provisions became effective September 1, 1997, many
technical issues concerning FASITs must be addressed by Treasury
regulations (which have not yet been issued). The Pooling and
Servicing Agreement may be amended in accordance with the
provisions thereof to provide that the Transferor may cause a
FASIT election to be made for the Trust if the Transferor
delivers to the Trustee an opinion of counsel to the effect that,
for Federal income tax purposes, (i) the issuance of FASIT
regular interests 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, (ii) following such issuance the Trust will not
be deemed to be an association (or publicly traded partnership)
taxable as a corporation and (iii) such issuance will not cause
or constitute an event in which gain or loss would be recognized
by any Certificateholder or the Trust.
FOREIGN INVESTORS
As set forth above, it is expected that 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, (iii) an estate the income of which is includible in
gross income for U.S. Federal income tax purposes, regardless of
its source or (iv) a trust the income of which is includible in
gross income for U.S. Federal income tax purposes, regardless of
its source or, for tax years beginning after December 31, 1996
(and, if a trustee so elects, for tax years ending after August
20, 1996), a trust if a U.S. court is able to exercise primary
supervision over the administration of such trust and one or more
U.S. fiduciaries have the authority to control all substantial
decisions of such trust.
Interest, including OID, paid to a Foreign Investor will be
subject to U.S. withholding taxes at a rate of 30% unless (x) the
income is "effectively connected" with the conduct by such
Foreign Investor of a trade or business in the United States
evidenced by IRS Form 4224, signed by the Certificate Owner or
such owner's agent, claiming exemption from withholding of tax on
income effectively connected with the conduct of a trade or
business in the United States; (y) 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 (z) 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, in addition (i) the non-U.S.
Certificate Owner does not actually or constructively own 10
percent or more of the total combined voting power of all classes
of stock of the Transferor entitled to vote (or of a profits or
capital interest of the Trust if characterized as a partnership),
(ii) the non-U.S. Certificate Owner is not a controlled foreign
corporation that is related to the Transferor (or a trust treated
as a partnership) through stock ownership, (iii) the non-U.S.
Certificate Owner is not a bank receiving interest described in
Code Section 881(c)(3)(A), (iv) such interest is not contingent
interest described in Code Section 871(h)(4), and (v) the non-
U.S. Certificate Owner does not bear certain relationships to any
holder of the Exchangeable Transferor Certificate other than the
Transferor or any holder of the Certificates of any Series not
properly characterized as debt. Applicable identification
requirements generally will be satisfied if there is delivered to
a securities clearing organization (i) 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 (x), (y) or
(z) the appropriate form will be effective provided that (a) the
applicable form is delivered pursuant to applicable procedures
and is properly transmitted to the United States entity otherwise
required to withhold tax and (b) none of the entities receiving
the form has actual knowledge that the Certificate Owner is a
U.S. person.
Recently proposed Treasury regulations (the "Proposed
Regulations") could affect the procedures to be followed by a
Foreign Investor in complying with United States Federal
withholding, backup withholding and information reporting rules.
The Proposed Regulations are not currently effective but, if
finalized in their current form, would be effective for payments
made after December 31, 1997. Prospective investors are urged to
consult their tax advisors regarding the effect, if any, of the
Proposed Regulations on the purchase, ownership, and disposition
of the Offered Certificates.
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 second preceding paragraph are satisfied.
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. Federal 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 or 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 the Employee Retirement Income Security Act
of 1974, as amended ("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 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. Assuming that
interests in Certificates of a Series are equity interests in the
Trust, 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 of the issuer and of one
another at the conclusion of the 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 Benefit Plan as part
of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and the
class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such later
time as may be allowed by the Commission) after the end of the
fiscal year of the issuer during which the offering of such
securities to the public occurred.
In addition, the Final Regulation provides that if a Benefit
Plan invests in an "equity interest" of an entity that is neither
a "publicly-offered security" nor a security issued by an
investment company registered under the Investment Company Act of
1940, as amended, the Benefit Plan's assets include both the
equity interest and an undivided interest in each of the entity's
underlying assets, unless it is established that equity
participation by "benefit plan investors" is not "significant" or
that another exception applies. Under the Final Regulation,
equity participation in an entity by "benefit plan investors" is
"significant" on any date if, immediately after the most recent
acquisition of any equity interest in the entity (other than a
publicly-offered class of equity), 25% or more of the value of
any class of equity interests in the entity (other than a
publicly-offered class) is held by "benefit plan investors." For
purposes of this determination, the value of equity interests
held by a person (other than a benefit plan investor) that has
discretionary authority or control with respect to the assets of
the entity or that provides investment advice for a fee with
respect to such assets (or any affiliate of such person) is
disregarded. The term "benefit plan investor" is defined in the
Final Regulation as (a) any employee benefit plan (as defined in
Section 3(3) of ERISA), whether or not it is subject to the
provisions of Title I of ERISA, (b) any plan described in Section
4975(e)(1) of the Code and (c) any entity whose underlying assets
include plan assets by reason of any such plan's investment in
the entity.
It is anticipated that interests in the Certificates of a
Series will meet the criteria of publicly-offered securities as
set forth above. The underwriters expect (although no assurances
can be given) that interests in certain Classes of Certificates
of each Series, as specified in the related Prospectus
Supplement, will be held by at least 100 independent investors at
the conclusion of the offering for such Series; there are no
restrictions imposed on the transfer of interests in the
Certificates of such Classes of such Series; and interests in
the Certificates of such Classes of such Series will be sold as
part of an offering pursuant to an effective registration
statement under the Securities Act and then 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 investment by
benefit plan investors is or becomes significant so that 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.
In addition, the Transferor 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 Section 4975 of the
Code unless such investment is subject to a statutory or
administrative exemption. 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 plan could constitute a prohibited transaction. 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), 91-38 (Class Exemption
for Certain Transactions Involving Bank Collective Investment
Funds), 90-1 (Class Exemption for Certain Transactions Involving
Insurance Company Pooled Separate Accounts), 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company
General Accounts) and 96-23 (Class Exemption for Plan Asset
Transactions Determined by In-House Asset Managers). There is no
assurance that 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.
In particular, insurance companies considering the purchase
of interests in Certificates of any Series should consult their
own employee benefits counsel 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. 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 of the transactions that could occur as the result of
the acquisition and holding of interests in 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 and PTE 95-60 or
any other exemption may have an impact with respect to their
purchase of the Certificates of any Series.
In addition, insurance companies considering the purchase of
Certificates using assets of a general account should consult
their own employee benefits counsel or other appropriate counsel
with respect to the effect of the Small Business Job Protection
Act of 1996 which added a new Section 401(c) to ERISA relating to
the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. Pursuant to Section
401(c), the DOL is required to issue final regulations (the
"General Account Regulations") not later than December 31, 1997
with respect to insurance policies issued on or before December
31, 1998 that are supported by an insurer's general account. The
General Account Regulations are intended to provide guidance on
which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Code. Section 401(c) also provides that,
except in the case of avoidance of the General Account
Regulations and actions brought by the Secretary of Labor
relating to certain breaches of fiduciary duties that also
constitute breaches of state or Federal criminal law, until the
date that is 18 months after the General Account Regulations
become final, no liability under the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 may
result on the basis of a claim that the assets of the general
account of an insurance company constitute the plan assets of any
Benefit Plan. The plan asset status of insurance company
separate accounts is unaffected by new Section 401(c) of ERISA,
and separate account assets continue to be treated as the plan
assets of any Benefit Plan invested in a separate account.
PLAN OF DISTRIBUTION
The Transferor may sell Certificates (a) through
underwriters or dealers, (b) directly to one or more purchasers,
or (c) through agents. The related Prospectus Supplement will set
forth the terms of the offering of any Certificates offered
hereby, including, without limitation, the 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 public offering price and any discounts
or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Certificates of a
Series offered hereby, such Certificates will be acquired by the
underwriters for their own account and may be resold from time to
time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices to be determined at the time of sale or at the time of
commitment therefor. Such Certificates may be offered to the
public either through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate.
Unless otherwise set forth in the related Prospectus Supplement,
the obligations of the underwriters to purchase such Certificates
will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all of such
Certificates if any of such Certificates are purchased. Any
initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time
to time.
Certificates may also be sold directly by the Transferor or
through agents designated by the Transferor from time to time.
Any agent involved in the offer or sale of Certificates will be
named, and any commissions payable by the Transferor to such
agent will be set forth, in the related Prospectus Supplement.
Unless otherwise indicated in the related Prospectus Supplement,
any such agent will act on a best efforts basis for the period of
its appointment.
Any underwriters, agents or dealers participating in the
distribution of Certificates may be deemed to be underwriters,
and any discounts or commissions received by them on the sale or
resale of Certificates may be deemed to be underwriting discounts
and commissions, under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with
the Transferor and [the Bank] to indemnification by the
Transferor and [the Bank] against certain civil liabilities,
including liabilities under the Securities Act, or to
contribution with respect to payments that the agents or
underwriters may be required to make in respect thereof. Agents
and underwriters may be affiliates or customers of, engage in
transactions with, or perform services for, the Transferor and
[the Bank] or their affiliates in the ordinary course of
business.
LEGAL MATTERS
Certain legal matters and Federal income tax matters
relating to the issuance of the Certificates will be passed upon
for the Transferor and the Trust by Skadden, Arps, Slate, Meagher
& Flom LLP, New York, New York. Certain legal matters will be
passed upon for the Underwriters by the counsel named in the
Prospectus Supplement.
INDEX OF DEFINED TERMS
Terms Page(s)
Account Originator Purchase Agreement . . . . . . . . . . . . 71
Account Originators . . . . . . . . . . . . . . . . . . . . . . 8
Accounts . . . . . . . . . . . . . . . . . . . . . . . 2, 9, 34
Accumulation Period Length . . . . . . . . . . . . . . . . . 47
Additional Accounts . . . . . . . . . . . . . . . . . . . . . 33
Adverse Effect . . . . . . . . . . . . . . . . . . . . . 32, 54
Aggregate Addition . . . . . . . . . . . . . . . . . . . . . 33
Aggregate Addition Accounts . . . . . . . . . . . . . . . . . 32
Alliance Partners . . . . . . . . . . . . . . . . . . . . . . 35
Alliances . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Average Rate . . . . . . . . . . . . . . . . . . . . . . . . 30
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 83
Billing Cycle . . . . . . . . . . . . . . . . . . . . . . . . 38
BKB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
BKB Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 35
Cash Collateral Account . . . . . . . . . . . . . . . . . . . 66
Cash Collateral Guaranty . . . . . . . . . . . . . . . . . . 66
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 43
Cedel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Cedel Participants . . . . . . . . . . . . . . . . . . . . . 45
Certificate Owner . . . . . . . . . . . . . . . . . . . . . . 77
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . 7
Certificate Rate . . . . . . . . . . . . . . . . . . . . . . . 7
Certificateholders . . . . . . . . . . . . . . . . . . . . . . 7
Certificateholders' Interest . . . . . . . . . . . . . . . . 10
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 2
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Collateral Interest . . . . . . . . . . . . . . . . . . . . . 67
Collection Account . . . . . . . . . . . . . . . . . . . . . 59
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Controlled Accumulation Amount . . . . . . . . . . . . . . . 16
Controlled Accumulation Period . . . . . . . . . . . . . . . 15
Controlled Amortization Amount . . . . . . . . . . . . . . . 17
Controlled Amortization Period . . . . . . . . . . . . . . . 17
Controlled Deposit Amount . . . . . . . . . . . . . . . . . . 16
Controlled Distribution Amount . . . . . . . . . . . . . . . 17
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . 45
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . 21
Credit Enhancer . . . . . . . . . . . . . . . . . . . . . . . 66
Date of Processing . . . . . . . . . . . . . . . . . . . . . 22
Defaulted Amount . . . . . . . . . . . . . . . . . . . . . . 65
Defaulted Receivables . . . . . . . . . . . . . . . . . . . . 65
Definitive Certificates . . . . . . . . . . . . . . . . . . . 43
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . 43
Depository . . . . . . . . . . . . . . . . . . . . . . . . . 43
Determination Date . . . . . . . . . . . . . . . . . . . . . 22
Disclosure Document . . . . . . . . . . . . . . . . . . . . . 11
Discount Option Receivables . . . . . . . . . . . . . . . . . 55
Discount Percentage . . . . . . . . . . . . . . . . . . . . . 55
Distribution Date . . . . . . . . . . . . . . . . . . . . . . 22
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Early Accumulation Period . . . . . . . . . . . . . . . . . . 16
Early Amortization Period . . . . . . . . . . . . . . . . . . 17
Eligible Account . . . . . . . . . . . . . . . . . . . . . . 33
Eligible Institution . . . . . . . . . . . . . . . . . . . . 59
Eligible Investments . . . . . . . . . . . . . . . . . . . . 60
Eligible Receivable . . . . . . . . . . . . . . . . . . . . . 52
Enhancement Invested Amount . . . . . . . . . . . . . . . 10, 66
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . 45
Euroclear Participants . . . . . . . . . . . . . . . . . . . 45
Euroclear Provisions . . . . . . . . . . . . . . . . . . . . 45
Excess Allocation Series . . . . . . . . . . . . . . . . . . 18
Excess Finance Charge Collections . . . . . . . . . . . . . . 63
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . 7
Expected Final Payment Date . . . . . . . . . . . . . . . . . 14
FAMIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FASIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
FDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
FDIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FDR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 35
FICO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Final Regulation . . . . . . . . . . . . . . . . . . . . . . 83
Finance Charge Receivables . . . . . . . . . . . . . . . . . 13
FIRREA . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Floating Allocation Percentage . . . . . . . . . . . . . . . 61
Foreign Investors . . . . . . . . . . . . . . . . . . . . . . 81
Full Invested Amount . . . . . . . . . . . . . . . . . . . . 20
Funding Period . . . . . . . . . . . . . . . . . . . . . . . 20
General Account Regulations . . . . . . . . . . . . . . . . . 84
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Group Investor Additional Amounts . . . . . . . . . . . . . . 62
Group Investor Default Amount . . . . . . . . . . . . . . . . 62
Group Investor Finance Charge Collections . . . . . . . . . . 62
Group Investor Monthly Fees . . . . . . . . . . . . . . . . . 62
Group Investor Monthly Interest . . . . . . . . . . . . . . . 62
Harris . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Harris Portfolio . . . . . . . . . . . . . . . . . . . . . . 35
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Indirect Participants . . . . . . . . . . . . . . . . . . . . 44
Ineligible Receivables . . . . . . . . . . . . . . . . . . . 51
Initial Accounts . . . . . . . . . . . . . . . . . . . . . . 12
Initial Cut-Off Date . . . . . . . . . . . . . . . . . . . . 12
Initial Receivables . . . . . . . . . . . . . . . . . . . . 8, 50
Initial Series Closing Date . . . . . . . . . . . . . . . . . . 7
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . 27
Interchange . . . . . . . . . . . . . . . . . . . . . . . . 9, 40
Interest Funding Account . . . . . . . . . . . . . . . . . . 14
Interest Payment Date . . . . . . . . . . . . . . . . . . . . 58
Invested Amount . . . . . . . . . . . . . . . . . . . . . . . 58
Investor Finance Charge Collections . . . . . . . . . . . . . 62
IRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
John Hancock . . . . . . . . . . . . . . . . . . . . . . . . 84
L/C Issuer . . . . . . . . . . . . . . . . . . . . . . . . . 66
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
MasterCard . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Minimum Monthly Payment . . . . . . . . . . . . . . . . . . . 38
Monthly Period . . . . . . . . . . . . . . . . . . . . . . . 10
Monthly Servicing Fee . . . . . . . . . . . . . . . . . . . . 50
New Accounts . . . . . . . . . . . . . . . . . . . . . . . . 33
New Issuance . . . . . . . . . . . . . . . . . . . . . . . . 58
Offered Certificates . . . . . . . . . . . . . . . . . . . . 77
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Paired Series . . . . . . . . . . . . . . . . . . . . . . . . 19
Participants . . . . . . . . . . . . . . . . . . . . . . . . 43
Participation . . . . . . . . . . . . . . . . . . . . . . 12, 59
Participation Interests . . . . . . . . . . . . . . . . . . . . 9
Participation Percentage . . . . . . . . . . . . . . . . . . 59
Participation Supplement . . . . . . . . . . . . . . . . 12, 59
Pay Out Event . . . . . . . . . . . . . . . . . . . . . . . . 48
PFR Purchase Agreement . . . . . . . . . . . . . . . . . . . . 8
PFRFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . 2
Portfolio Yield . . . . . . . . . . . . . . . . . . . . . . . 30
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . 20
Pre-Funding Amount . . . . . . . . . . . . . . . . . . . . . 20
Premium Option Receivables . . . . . . . . . . . . . . . . . 56
Premium Percentage . . . . . . . . . . . . . . . . . . . . . 56
Prepayable Instrument . . . . . . . . . . . . . . . . . . . . 78
Principal Allocation Percentage . . . . . . . . . . . . . 20, 61
Principal Commencement Date . . . . . . . . . . . . . . . . . 14
Principal Funding Account . . . . . . . . . . . . . . . . . . 16
Principal Receivables . . . . . . . . . . . . . . . . . . . . 13
Principal Sharing Series . . . . . . . . . . . . . . . . . . 19
Principal Shortfalls . . . . . . . . . . . . . . . . . . . . 63
Principal Terms . . . . . . . . . . . . . . . . . . . . . . . 58
Prior Series . . . . . . . . . . . . . . . . . . . . . . . . 19
Proposed Regulations . . . . . . . . . . . . . . . . . . . . 81
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . 2
PTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Purchase Agreements . . . . . . . . . . . . . . . . . . . . . . 8
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . 23
Rating Agency Condition . . . . . . . . . . . . . . . . . . . 32
Reallocated Investor Finance Charge Collections . . . . . . . 62
Reallocation Group . . . . . . . . . . . . . . . . . . . . . 19
Receivables . . . . . . . . . . . . . . . . . . . . . . . . 2, 9
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . 43
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . 9, 41
Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 78
Reinvestment Events . . . . . . . . . . . . . . . . . . . . . 49
Removed Accounts . . . . . . . . . . . . . . . . . . . . . . 13
Required Minimum Principal Balance . . . . . . . . . . . . . 54
Required Transferor Amount . . . . . . . . . . . . . . . . . 11
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . 67
Revolving Period . . . . . . . . . . . . . . . . . . . . . . 15
RTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
RTC Policy Statement . . . . . . . . . . . . . . . . . . . . 75
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . 7
Series . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Series Adjusted Invested Amount . . . . . . . . . . . . . . . 60
Series Allocable Defaulted Amount . . . . . . . . . . . . . . 60
Series Allocable Finance Charge Collections . . . . . . . 60, 62
Series Allocable Principal Collections . . . . . . . . . . . 60
Series Allocation Percentage . . . . . . . . . . . . . . . . 60
Series Closing Date . . . . . . . . . . . . . . . . . . . . . 15
Series Cut-Off Date . . . . . . . . . . . . . . . . . . . . . 15
Series Enhancement . . . . . . . . . . . . . . . . . . . . . . 9
Series Invested Amount . . . . . . . . . . . . . . . . . . . 54
Series Required Transferor Amount . . . . . . . . . . . . . . 60
Series Termination Date . . . . . . . . . . . . . . . . . . . 16
Service Transfer . . . . . . . . . . . . . . . . . . . . . . 69
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Servicer Default . . . . . . . . . . . . . . . . . . . . . . 69
Servicer Interchange . . . . . . . . . . . . . . . . . . . . 50
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . 7, 50
Shared Principal Collections . . . . . . . . . . . . . . . . 63
Special Funding Account . . . . . . . . . . . . . . . . . . . 64
Special Payment Date . . . . . . . . . . . . . . . . . . . . 49
Special Tax Counsel . . . . . . . . . . . . . . . . . . . . . 77
Supplement . . . . . . . . . . . . . . . . . . . . . . . . . 11
Supplemental Certificate . . . . . . . . . . . . . . . . . . 53
Supplemental Certificates . . . . . . . . . . . . . . . . . . 11
Swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 59
Termination Notice . . . . . . . . . . . . . . . . . . . . . 69
Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . 22
Transferor . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Transferor Amount . . . . . . . . . . . . . . . . . . . . 10, 52
Transferor Certificate . . . . . . . . . . . . . . . . . . . 11
Transferor Certificates . . . . . . . . . . . . . . . . . . . 11
Transferor Purchase Agreement . . . . . . . . . . . . . . . . . 8
Transferor Servicing Fee . . . . . . . . . . . . . . . . . . 50
Transferor's Interest . . . . . . . . . . . . . . . . . . . . 10
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Trust Adjusted Invested Amount . . . . . . . . . . . . . . . 60
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . 9
Trust Portfolio . . . . . . . . . . . . . . . . . . . . . . . 34
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
VISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Yield Supplement Account . . . . . . . . . . . . . . . . . . 13
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses
to be incurred in connection with the offering of the securities
being offered hereunder other than underwriting discounts and
commissions.
Registration Fee . . . . . . . . . . . . . . . . . . . . . $303.03
Printing and Engraving . . . . . . . . . . . . . . . . . . *
Trustee's Fees . . . . . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . *
Accountant's Fees and Expenses . . . . . . . . . . . . . . *
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . *
Miscellaneous Fees . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . . . . . . *
_________________
* To be supplied by amendment.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article IX of the Registrant's Certificate of Incorporation
("Article IX") provides that no person shall be personally liable
to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided, however, that
the foregoing does not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to
the Registrant or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware or any successor
provision or (iv) for any transaction from which the director
derived an improper personal benefit. Article IX also provides
that, if the General Corporation Law of the State of Delaware is
amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability
of a director of the Transferor shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended from time to time. The right
of indemnification provided in Article IX is not exclusive of any
other rights to which any person seeking indemnification may
otherwise be entitled, and will be applicable to matters
otherwise within its scope whether or not such matters arose or
arise before or after the adoption of Article IX. Without
limiting the generality or the effect of the foregoing, the
Registrant may adopt by-laws, or enter into one or more
agreements with any person, which provide for indemnification
greater or different than that provided in Article IX. No repeal
or modification of Article IX by the stockholders of the
Registrant may adversely affect any right or protection of a
director of the Registrant existing by virtue of Article IX at
the time of such repeal or modification.
Section 145 of the Delaware General Corporation Law provides
generally and in pertinent part that a Delaware corporation may
indemnify its directors and officers against expenses, judgments,
fines and settlements actually and reasonably incurred by them in
connection with any civil, criminal, administrative, or
investigative suit or action, except actions by or in the right
of the corporation if, in connection with the matters in issue,
they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation,
and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonable
cause to believe their conduct was unlawful. Section 145 further
provides that in connection with the defense or settlement of any
action by or in the right of the corporation, a Delaware
corporation may indemnify its directors and officers against any
expenses actually and reasonably incurred by them if, in
connection with the matters in issue, they acted in good faith in
a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification
may be made with respect to any claim, issue or matter as to
which such person has been adjudged liable to the corporation
unless the Court of Chancery or the court in which such action or
suit is brought approves such indemnification. Section 145
further permits a Delaware corporation to grant its directors and
officers additional rights of indemnification through bylaw
provisions and otherwise, and to purchase indemnity insurance on
behalf of its directors and officers.
Section 102(b)(7) of the Delaware General Corporation Law
provides that a Delaware corporation may eliminate or limit the
personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as
director, provided that such corporation shall not eliminate or
limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law; (iii) under SECTION 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the director derived
an improper personal benefit.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
1.1 Form of Underwriting Agreement.**
4.1 Form of Pooling and Servicing Agreement and related
agreements as exhibits thereto dated as of ,
1997 among the Bank, the Transferor and the Trustee.**
4.2 Form of Series 1997-1 Supplement dated as of , 1997
among the Bank, the Transferor and the Trustee.**
4.3 Form of Receivables Purchase Agreement, dated as
of _________ __, 1997 between the Bank and the Transferor.**
4.4 Form of Prospectus Supplement.
5.1 Form of opinion of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to legality.**
8.1 Form of opinion of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to tax matters.**
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in its opinion, filed as Exhibit 5.1).**
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in its opinions filed as Exhibit 8.1).**
24 Power of Attorney.**
____________________
**Previously filed.
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(i) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act; (ii) to reflect in the prospectus
any facts or events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the registration statement; (iii) to include any material
information with respect to the plan of distribution not
previously disclosed in the registration statement or any
material change to such information in the registration
statement; provided, however, that (a)(i) and (a)(ii) will not
apply if the information required to be included in a
post-effective amendment by those sub-paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(ii) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(iii) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(iv) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Amendment No. 3 to the Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on October 15, 1997.
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
(Registrant)
By *
----------------------------
Name: Jeff H. Slawsky
Title: President
Pursuant to the Requirements of the Securities Act of 1933,
this Amendment No. 3 to the Registration Statement has been
signed by the following persons in the capacities and on the
dates indicated.
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
SIGNATURE TITLE
*
------------------------
Kathleen M. McGillycuddy Chairman October 15, 1997
(Principal Executive
Officer) and Director
*
------------------------
Jeff H. Slawsky President and Director October 15, 1997
*
------------------------
Rhanna Kidwell Secretary and Treasurer October 15, 1997
(Principal Financial
Officer Principal
Accounting Officer)
*
------------------------
William M. Parent Director October 15, 1997
The undersigned, by signing his name hereto, does sign and
execute this Amendment No. 3 to the Registration Statement pursuant
to the Power of Attorney executed by the above named officers and
directors.
*By /s/ Rhanna Kidwell
-----------------------
Name: Rhanna Kidwell
Attorney-in-Fact
EXHIBIT INDEX
Exhibit No. Description
1.1 Form of Underwriting
Agreement.**
4.1 Form of Pooling and Servicing
Agreement and related agreements
as exhibits thereto dated as of
________ __, 1997 among the
Bank, the Trustee and the
Transferor.**
4.2 Form of Series 1997-1 Supplement
dated as of _______ __, 1997
among the Bank, the Trustee and
the Transferor.**
4.3 Form of Receivables Purchase
Agreement, dated as of _______
__, 1997 between the Bank and
the Transferor.**
4.4 Form of Prospectus Supplement.
5.1 Form of opinion of Skadden,
Arps, Slate, Meagher & Flom LLP
with respect to legality.**
8.1 Form of opinion of Skadden,
Arps, Slate, Meagher & Flom LLP
with respect to tax matters.**
23.1 Consent of Skadden, Arps, Slate,
Meagher & Flom LLP (included in
its opinion filed as Exhibit
5.1).**
23.2 Consent of Skadden, Arps, Slate,
Meagher & Flom LLP (included in
its opinion filed as Exhibit
8.1).**
24 Power of Attorney .**
____________________
** Previously filed.
EXHIBIT 4.4
SUBJECT TO COMPLETION, DATED _______ __, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1997)
$----------------
PARTNERS FIRST CREDIT CARD MASTER TRUST
$__________ _____% CLASS A SERIES 1997-1 ASSET BACKED
CERTIFICATES
$__________ _____% CLASS B SERIES 1997-1 ASSET BACKED
CERTIFICATES
PARTNERS FIRST RECEIVABLES FUNDING CORPORATION
TRANSFEROR
PARTNERS FIRST NATIONAL BANK
SERVICER
_______________
The _____% Class A Series 1997-1 Asset Backed Certificates (the "Class
A Certificates") and the _____% Class B Series 1997-1 Asset Backed
Certificates (the "Class B Certificates" and, together with the Class A
Certificates, the "Offered Certificates") offered hereby will represent
undivided interests in certain assets of the Partners First Credit Card
Master Trust (the " Trust") created pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") among Partners First
Receivables Funding Corporation ("PFRFC"), as transferor (in such capacity,
the "Transferor"), Partners First National Bank (the "Bank"), as servicer
(in such capacity, the "Servicer"), and The Bank of New York, as trustee
(the "Trustee"). The property of the Trust includes the receivables (the "
Receivables") that are generated from time to time in a portfolio of
consumer revolving credit card accounts (the "Accounts"), collections
thereon, monies on deposit in certain accounts of the Trust, any
Participation Interests included in the Trust, collections thereon and the
benefits of a Yield Supplement Account and a Cash Collateral Account. In
addition, the Collateral Interest (as defined herein) will be issued in the
initial amount of $ and will be subordinated to the Offered Certificates as
described herein. The Transferor initially will own the remaining undivided
interest in the Trust not represented by the Offered Certificates, the
Collateral Interest and the other investor certificates or interests issued
by the Trust. (continued on next page)
THE FRACTIONAL UNDIVIDED INTEREST IN THE TRUST REPRESENTED BY THE
CLASS B CERTIFICATES WILL BE SUBORDINATED TO THE EXTENT NECESSARY TO FUND
PAYMENTS WITH RESPECT TO THE CLASS A CERTIFICATES TO THE EXTENT DESCRIBED
HEREIN.
POTENTIAL INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH IN "RISK
FACTORS" COMMENCING ON PAGE S-18 HEREIN AND ON PAGE 24 IN THE PROSPECTUS.
THE OFFERED CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRANSFEROR, THE BANK
OR ANY AFFILIATE OF EITHER THEREOF. AN OFFERED CERTIFICATE IS NOT
A DEPOSIT AND NEITHER THE OFFERED CERTIFICATES NOR THE
UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Price to Underwriting Proceeds to the
Public(1) Discount Transferor(1)(2)
Per Class A % % %
Certificate
Per Class B % % %
Certificate
Total . . $ $ $
__________
(1) Plus accrued interest, if any, at the Class A Certificate Rate or
the Class B Certificate Rate, as applicable, from , 1997.
(2) Before deduction of expenses payable by the Transferor, estimated
to be $ .
The Offered Certificates are offered by the Underwriters when, as and
if issued by the Trust and accepted by the Underwriters and subject to the
Underwriters' right to reject orders in whole or in part. It is expected
that the Offered Certificates will be delivered in book-entry form on or
about , 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.
UNDERWRITERS OF THE CLASS B CERTIFICATES
MERRILL LYNCH & CO.
_______________
The date of this Prospectus Supplement is _______________, 1997.
The Transferor may offer from time to time other series of
certificates that evidence undivided interests in certain assets of the
Trust, which may have terms significantly different from the Offered
Certificates and which are not offered hereby. The issuance of additional
series of certificates may impact the timing or amount of payments received
by holders of the Offered Certificates.
Interest will accrue on the Class A Certificates at the rate of ____%
per annum (the "Class A Certificate Rate"). Interest will accrue on the
Class B Certificates at the rate of ____% per annum (the "Class B
Certificate Rate"). Interest with respect to the Certificates will be paid
on ______________ and on the ____th day of each month thereafter (or, if
any such ____th day is not a business day, the next succeeding business
day) (each, a "Distribution Date"). Interest on the Offered Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-
day months.
Principal with respect to the Class A Certificates is scheduled to be
distributed on the ___________ Distribution Date (the "Class A Scheduled
Payment Date"), but may be paid earlier or later under certain limited
circumstances described herein. Principal with respect to the Class B
Certificates is scheduled to be distributed on the ___________
Distribution Date (the "Class B Scheduled Payment Date"), but may be paid
earlier or later under certain limited circumstances described herein. See
"Maturity Considerations" and "Series Provisions Pay Out Events" herein
and "Description of the Certificates Pay Out Events and Reinvestment
Events" in the Prospectus. Principal payments will not be made to Class B
Certificateholders until the final principal payment has been made in
respect of the Class A Certificates. See "Series Provisions Principal
Payments."
There currently is no secondary market for the Offered Certificates, and
there is no assurance that one will develop or, if one does develop, that
it will continue until the Offered Certificates are paid in full.
_______________
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
OFFERED CERTIFICATES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE
PURCHASE OF THE OFFERED CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
_______________
THE OFFERED CERTIFICATES CONSTITUTE A SEPARATE SERIES OF INVESTOR
CERTIFICATES BEING OFFERED BY THE TRUST FROM TIME TO TIME PURSUANT TO A
PROSPECTUS DATED , 1997. THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN
COMPLETE INFORMATION ABOUT THE OFFERING OF THE OFFERED 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 OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UPON RECEIPT OF A REQUEST BY AN INVESTOR, OR HIS OR HER
REPRESENTATIVE, WITHIN THE PERIOD DURING WHICH THERE IS A PROSPECTUS
DELIVERY OBLIGATION, THE UNDERWRITERS WILL TRANSMIT OR CAUSE TO BE
TRANSMITTED PROMPTLY, WITHOUT CHARGE AND IN ADDITION TO ANY SUCH DELIVERY
REQUIREMENTS, A PAPER COPY OF A PROSPECTUS SUPPLEMENT AND A PROSPECTUS OR A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS IN ELECTRONIC FORMAT.
TABLE OF CONTENTS
SUMMARY OF SERIES TERMS . . . . . . . . . . . . . . . . . . . . . . . S-4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
MATURITY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . S-17
THE BANK PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . S-19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Loss and Delinquency Experience . . . . . . . . . . . . . . . . S-19
Revenue Experience . . . . . . . . . . . . . . . . . . . . . . . S-21
Interchange . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Payment Rates . . . . . . . . . . . . . . . . . . . . . . . . . S-22
THE RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
THE SERVICER . . . . . . . . . . . . . . . . . . . . . . . . . . . .. S-24
SERIES PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Interest Payments . . . . . . . . . . . . . . . . . . . . . . . S-25
Principal Payments . . . . . . . . . . . . . . . . . . . . . . . S-26
Subordination of the Class B Certificates and the Collateral
Interest . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Allocation Percentages . . . . . . . . . . . . . . . . . . . . . S-27
Principal Funding Account . . . . . . . . . . . . . . . . . . . S-30
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . S-30
Reallocation of Cash Flows . . . . . . . . . . . . . . . . . . . S-31
Application of Collections . . . . . . . . . . . . . . . . . . . S-33
Cash Collateral Account; Required Enhancement Amount . . . . . . S-37
Defaulted Receivables; Investor Charge-Offs . . . . . . . . . . S-38
Paired Series . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Pay Out Events . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Servicing Compensation and Payment of Expenses . . . . . . . . . S-41
Series Termination . . . . . . . . . . . . . . . . . . . . . . . S-42
Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
INDEX OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . S-45
SUMMARY OF SERIES TERMS
The following is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus
Supplement and the accompanying Prospectus. Reference is made to
the Index of Defined Terms beginning on page S-46 of this
Prospectus Supplement and on page 86 of the Prospectus for the
location herein and therein of the definitions of certain
capitalized terms used herein. Certain capitalized terms used but
not defined herein have the meanings assigned to them in the
Prospectus.
Trust . . . . . . . . . Partners First Credit Card Master
Trust (the "Trust").
Title of Securities . . $____________ aggregate principal
amount of ___% Class A Series 1997-1
Asset Backed Certificates (the
"Class A Certificates") and
$__________ aggregate principal
amount of ___% Class B Series 1997-1
Asset Backed Certificates (the
"Class B Certificates" and, together
with the Class A Certificates, the
"Offered Certificates").
Initial Invested Amount $ (the "Initial
Invested Amount").
Class A Initial Invested
Amount . . . . . . . . . $ (the " Class A
Initial Invested Amount").
Class B Initial Invested
Amount . . . . . . . . . $ (the " Class B Initial
Invested Amount").
Collateral Initial Invested
Amount . . . . . . . . . $ (the " Collateral Initial
Invested Amount").
Required Transferor Amount For any date, 7% of the sum of (i)
the average Principal Receivables for
such period and (ii) the average
principal amount on deposit in the
Special Funding Account, the Principal
Funding Account and any other account
specified from time to time pursuant to
the Pooling and Servicing Agreement or
any Series Supplement for such period;
provided, however, that the Transferor
may reduce the Required Transferor Amount
to not less than 2% of the sum of the
amount specified in clauses (i) and (ii)
above upon satisfaction of the Rating
Agency Condition and certain other
conditions to be set forth in the Pooling
and Servicing Agreement.
Class A Certificate Rate ____% per annum.
Class B Certificate Rate ____% per annum.
Distribution Dates . . On __________, 1997 and on the ___th
day of each month thereafter (or if
any such ___th day is not a business
day, the next succeeding business
day).
Controlled Accumulation
Amount . . . . . . . . . For each Distribution Date with respect
to the Controlled Accumulation Period,
$___; except that, if the commencement of
the Controlled Accumulation Period is
delayed as described herein under "Series
Provisions Principal Payments," the
Controlled Accumulation Amount for each
Distribution Date with respect to the
Controlled Accumulation Period will be
determined as described under "Series
Provisions Application of Collections
Payments of Principal."
Class A Scheduled Payment
Date . . . . . . . . . . . The _____________ Distribution Date.
Class B Scheduled Payment
Date . . . . . . . . . . . The _____________ Distribution Date.
Closing Date . . . . . . ____________, 1997 (the "Closing Date").
Series Invested Amount . . The Initial Invested Amount.
The Offered Certificates;
the Collateral Interest . Each of the Offered Certificates
represents an undivided interest in
the Trust. The portion of the Trust
Assets allocated to Series 1997-1
(the "Offered Series") as described
under "Description of the Pooling
and Servicing Agreement
Allocations" in the Prospectus will
be further allocated among the
interest of the holders of the Class
A Certificates (the "Class A
Certificateholders' Interest"), the
interest of the holders of the Class
B Certificates (the "Class B
Certificateholders' Interest") and
the interest of the Collateral
Interest Holder (as defined below),
and the interest of the holders of
the Transferor Certificate (the "
Transferor's Interest"), as
described below. The Class A
Certificateholders' Interest and the
Class B Certificateholders' Interest
are sometimes collectively referred
to herein as the "Offered
Certificateholders' Interest." The
holders of the Offered
Certificateholders' Interest are
referred to herein as the "Series
Certificateholders." A specified
undivided interest in the Trust
Assets (the "Collateral Interest")
in the initial amount of $
(which amount represents ___% of the
sum of the Class A Initial Invested
Amount, the Class B Initial Invested
Amount and the Collateral Initial
Invested Amount) and funds on
deposit in the Cash Collateral
Account in an initial amount of
$_______ (which amount represents
___% of the sum of the Class A
Initial Invested Amount, the Class B
Initial Invested Amount and the
Collateral Initial Invested Amount)
constitute Credit Enhancement for
the Offered Certificates. The holder
of the Collateral Interest is
referred to herein as the
"Collateral Interest Holder."
Allocations will be made to the
Collateral Interest and the
Collateral Interest Holder will have
voting and certain other rights as
if the Collateral Interest were a
subordinated class of Offered
Certificates. For purposes of this
Prospectus Supplement, the
"Collateral Interest" will be deemed
to be the "Enhancement Invested
Amount" for the Offered Certificates
for all purposes under the
Prospectus. The Transferor's
Interest will represent the right to
the assets of the Trust not
allocated to the Class A
Certificateholders' Interest, the
Class B Certificateholders'
Interest, the Collateral Interest or
the holders of other interests in
the Trust. The principal amount of
the Transferor's Interest will
fluctuate as the amount of
Receivables in the Trust changes
from time to time.
The aggregate amount of Principal
Receivables allocated to the Offered
Certificateholders' Interest and the
Collateral Interest (the "Invested
Amount") will be $ on the
Closing Date (the "Initial Invested
Amount").
The aggregate amount of Principal
Receivables allocable to the Class A
Certificateholders' Interest (as
more fully defined herein, the
"Class A Invested Amount") will be
$____ on the Closing Date (the "Class
A Initial Invested Amount"). The
aggregate amount of Principal
Receivables allocable to the Class B
Certificateholders' Interest (as
more fully defined herein, the
"Class B Invested Amount") will be
$ ____ on the Closing Date (the "Class
B Initial Invested Amount"). The
aggregate amount of Principal
Receivables allocable to the
Collateral Interest (as more fully
defined herein, the "Collateral
Invested Amount") will be $
on the Closing Date (the "Collateral
Initial Invested Amount"). The Class
B Certificateholders' Interest will
decline in certain circumstances as
a result of (a) the allocation to
the Class B Certificateholders'
Interest of certain Defaulted
Amounts, including such amounts
otherwise allocable to the Class A
Certificateholders' Interest when
the Collateral Interest is zero, and
(b) the reallocation of collections
of Principal Receivables otherwise
allocable to the Class B
Certificateholders' Interest to fund
certain payments in respect of the
Class A Certificates. Any such
reductions in the Class B
Certificateholders' Interest may be
reimbursed out of Excess Spread, if
any, Excess Finance Charge
Collections allocable to the Offered
Series, if any, and the reallocation
of certain amounts allocable to the
Collateral Interest as described
herein. During the Controlled
Accumulation Period, for the purpose
of allocating collections of Finance
Charge Receivables and the Defaulted
Amount with respect to each Monthly
Period, the Class A
Certificateholders' Interest will be
further reduced (in an amount not to
exceed the Class A Invested Amount)
by the amount on deposit in the
Principal Funding Account (as so
reduced, the "Class A Adjusted
Invested Amount") and the Class B
Certificateholders' Interest will be
further reduced by the amount by
which the amount on deposit in the
Principal Funding Account exceeds
the Class A Invested Amount (as so
reduced, the "Class B Adjusted
Invested Amount," and, together with
the Class A Adjusted Invested Amount
and the Collateral Invested Amount,
the "Adjusted Invested Amount"). The
principal amount of the Transferor's
Interest will fluctuate as the
amount of Principal Receivables in
the Trust, the adjusted invested
amount of each Series and the
amounts on deposit in the Special
Funding Account change from time to
time.
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 payments of interest
on each Interest Payment Date at the
applicable certificate rate and
payments of principal and subject to
any reallocation of such amounts as
described herein), varying
percentages of the collections of
Finance Charge Receivables and
Principal Receivables and will be
allocated varying percentages of the
Defaulted Amount with respect to
each Monthly Period. Collections of
Finance Charge Receivables and
Principal Receivables and the
Defaulted Amount will be allocated
to the Offered Series based on the
Series Allocation Percentage for the
Offered Series (subject to
reallocation, in the case of certain
Series Allocable Finance Charge
Collections, to other Series in
Group I as described under
"Description of the Pooling and
Servicing Agreement Reallocations
Among Certificates of Different
Series within a Reallocation Group"
in the Prospectus). Reallocated
Investor Finance Charge Collections
and the Investor Default Amount will
be further allocated to the holders
of the Class A Certificates and the
holders of the Class B Certificates
and the Collateral Interest based on
the Class A Floating Percentage and
the Class B Floating Percentage and
the Collateral Floating Percentage,
respectively (each defined herein).
The Principal Allocation Percentage
of Series Allocable Principal
Collections will be allocated to the
holders of the Class A Certificates,
the Class B Certificates and the
Collateral Interest based on the
Class A Principal Percentage, the
Class B Principal Percentage and the
Collateral Principal Percentage,
respectively (each defined herein).
Other Series . . . . . The Offered Certificates will be the
first Series of investor
certificates issued by the Trust.
Additional Series are expected to be
issued from time to time by the
Trust. See "Description of the
Pooling and Servicing Agreement
New Issuances" and "Reallocations
Among Certificates of Different
Series within a Reallocation Group"
in the Prospectus and "Maturity
Considerations" herein.
Receivables . . . . . . The Receivables arise in Accounts
that have been selected from the
total portfolio of VISA and
MasterCard accounts serviced by the
Bank, based on criteria provided in
the Pooling and Servicing Agreement
as applied on the Initial Cut-Off
Date and as more fully described
herein under "The Bank Portfolio."
The aggregate amount of Receivables
in the Accounts as of , 1997
was $ , comprised of $ of
Principal Receivables and $ of
Finance Charge Receivables.
Denominations . . . . . Beneficial interests in the Offered
Certificates will be offered for
purchase in denominations of $1,000
and integral multiples thereof.
Registration of the
Offered Certificates . . The Offered Certificates initially will
be represented by Certificates registered
in the name of Cede, as the nominee of
DTC. No purchaser of an Offered
Certificate will be entitled to receive a
definitive certificate except under
certain limited circumstances described
in the Prospectus. Purchasers of the
Offered Certificates may elect to hold
their Certificates through DTC (in the
United States) or Cedel or Euroclear (in
Europe). See "Description of the
Certificates Definitive Certificates" in
the Prospectus.
Servicing Fee . . . . . The Servicing Fee Rate for the
Offered Certificates will be 2.0%
per annum. On each Transfer Date,
Servicer Interchange with respect to
the related Monthly Period will be
withdrawn from the Collection
Account and paid to the Servicer in
respect of the Servicing Fee. The
Class A Servicing Fee, the Class B
Servicing Fee and the Collateral
Interest Servicing Fee will be paid
on each Distribution Date as
described under "Series Provisions
Application of Collections Payment
of Fees, Interest and Other Items"
and " Servicing Compensation and
Payment of Expenses" herein. See
"Description of the Certificates
Servicing Compensation and Payment
of Expenses" in the Prospectus.
Revolving Period and
Controlled Accumulation
Period . . . . . . . . . The "Revolving Period" with respect to the
Offered Certificates means the period
from and excluding , 1997 (the "Series
Cut-Off Date"), to, but not including,
the earlier of (a) the commencement of
the controlled accumulation period with
respect to the Offered Certificates (the
"Controlled Accumulation Period") and (b)
the commencement of the Early
Amortization Period. Unless a Pay Out
Event has occurred, the Controlled
Accumulation Period will commence at the
close of business on ; provided, that
subject to the conditions set forth under
"Series Provisions Principal Payments"
herein, the day on which the Revolving
Period ends and the Controlled
Accumulation Period begins may be delayed
to no later than the close of business on
____________. The Controlled Accumulation
Period will end on the earliest of (a)
the commencement of the Early
Amortization Period, (b) the payment in
full of the Invested Amount and (c) the
Series Termination Date for the Offered
Series (the " Stated Series Termination
Date"). No principal will be payable to
Class A Certificateholders until the
____________ Distribution Date (the "
Class A Scheduled Payment Date"), or,
upon the occurrence of a Pay Out Event as
described herein, the first Distribution
Date with respect to the Early
Amortization Period. No principal will be
payable to the Class B Certificateholders
until the Class A Invested Amount is paid
in full. Principal with respect to the
Class B Certificates is expected to be
distributed on the _____ Distribution
Date (the "Class B Scheduled Payment
Date"). No principal will be payable to
the Collateral Interest Holder until the
Class B Invested Amount is paid in full;
provided, that during the Revolving
Period or the Controlled Accumulation
Period, certain collections of Principal
Receivables allocable to the Offered
Certificateholders' Interest and the
Collateral Interest will be paid to the
Collateral Interest Holder to the extent
the sum of the Collateral Invested Amount
and the Available Cash Collateral Amount
exceeds the Required Enhancement Amount.
For the period beginning on the Closing
Date and ending with the commencement of
the Controlled Accumulation Period or the
Early Amortization Period, collections of
Principal Receivables otherwise allocable
to the Offered Certificateholders'
Interest and the Collateral Interest
(other than collections of Principal
Receivables allocated to the Class B
Certificateholders' Interest and the
Collateral Interest ("Reallocated
Principal Collections") that are used to
pay any deficiency in the Class A
Required Amount or Class B Required
Amount) will, subject to certain
limitations, be treated as Shared
Principal Collections and applied to
cover principal payments due to or for
the benefit of certificateholders of
other Principal Sharing Series, or paid
to the holders of the Transferor
Certificates or, in certain
circumstances, deposited in the Special
Funding Account. See "Series Provisions
Pay Out Events" herein and "Description
of the Certificates Pay Out Events and
Reinvestment Events" in the Prospectus
for a discussion of the events which
might lead to the termination of the
Revolving Period prior to the
commencement of the Con trolled
Accumulation Period. In addition, see
"Series Provisions Principal Payments"
herein and "Description of the Pooling
and Servicing Agreement Shared Principal
Collections" in the Prospectus.
Early 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
Invested Amount in full and (b) the
Stated Series Termination Date (the
"Early Amortization Period"), Available
Principal Collections (as defined herein)
will be distributed monthly on each
Distribution Date to the holders of the
Class A Certificates and, following
payment in full of the Class A Invested
Amount, to the holders of the Class B
Certificates and, following payment in
full of the Class B Invested Amount, to
the Collateral Interest Holder beginning
with the Distribution Date in the month
following the commencement of the Early
Amortization Period. See "Series
Provisions Pay Out Events" herein and
"Description of the Certificates Pay Out
Events and Reinvestment Events" in the
Prospectus for a discussion of the events
which might lead to the commencement of
the Early Amortization Period.
Subordination of the
Class B Certificates
and the Collateral
Interest . . . . . . . . The Class B Certificates and the
Collateral Interest will be subordinated,
as described herein, to the extent
necessary to fund payments with respect
to the Class A Certificates as described
herein. In addition, the Collateral
Interest will be subordinated to the
extent necessary to fund certain payments
with respect to the Class B Certificates.
If the Collateral Interest is reduced to
zero, holders of the Class B Certificates
will bear directly the credit and other
risks associated with their interest in
the Trust. To the extent the Class B
Invested Amount is reduced, the
percentage of collections of Finance
Charge Receivables allocable to holders
of the Class B Certificates in subsequent
Monthly Periods will be reduced.
Moreover, to the extent the amount of
such reduction in the Class B Invested
Amount is not reimbursed, the amount of
principal distributable to holders of the
Class B Certificates will be reduced.
Such reductions of the Class B Invested
Amount will thereafter be reimbursed and
the Class B Invested Amount increased on
each Distribution Date by the amount, if
any, of Excess Spread and Excess Finance
Charge Collections allocable to the
Offered Series for such Distribution Date
available for that purpose. See
"Description of the Pooling and Servicing
Agreement Credit Enhancement
Subordination" in the Prospectus.
Cash Collateral Account . The Offered Certificates will have
the benefit of an account (the "Cash
Collateral Account"), which will be
held in the name of the Trustee for
the benefit of the Series
Certificateholders. On the Closing
Date, the Transferor will deposit
$____________ (the "Initial Cash
Collateral Amount") into the Cash
Collateral Account from the proceeds
of the sale of the Offered
Certificates. Withdrawals will be
made from the Cash Collateral
Account, to the extent of available
funds on deposit therein, to pay the
Class A Required Amount and the
Class B Required Amount. The amount
of funds available on deposit in the
Cash Collateral Account may be
increased (i) under certain
circumstances, and subject to
certain conditions described herein,
in connection with the application
of collections of Principal
Receivables to decrease the
Collateral Invested Amount and (ii)
to the extent Excess Spread and
Excess Finance Charge Collections
are required and available to be
deposited therein. See "Series
Provisions Cash Collateral
Account; Required Enhancement
Amount."
Yield Supplement Account . The Offered Certificates will have
the benefit of an account (the "Yield
Supplement Account"), which will be held
in the name of the Trustee for the
benefit of the holders of the Offered
Certificates. On the Closing Date, the
Transferor will deposit $__________ (the
"Initial Yield Supplement Deposit") into
the Yield Supplement Account from the
proceeds of the issuance of the Offered
Certificates. On each Distribution Date,
an amount equal to the Yield Supplement
Draw Amount will be released and
deposited into the Collection Account and
will be treated as collections of Finance
Charge Receivables allocable to the
Offered Certificates. The Yield
Supplement Account will not be
replenished following the withdrawals of
amounts on deposit therein on any
Distribution Date. The "Yield Supplement
Draw Amount" means ___% of the Initial
Yield Supplement Deposit for the six
Distribution Dates from and including the
______ __, 199_ Distribution Date through
and including the ______ ___, 1998
Distribution Date, and ___% of the
Initial Yield Supplement Deposit for the
six Distribution Dates from and including
the ________ __, 1998 Distribution Date
through and including the ___________ __,
199_ Distribution Date. See "Description
of the Certificates -- Yield Supplement
Account."
Additional Amounts
Available to Series
Certificateholders . . . With respect to any Distribution Date,
Excess Spread and Excess Finance Charge
Collections allocable to the Offered
Series will be applied to fund the Class
A Required Amount and the Class B
Required Amount, as well as certain other
items. The " Class A Required Amount"
means with respect to any Distribution
Date the amount, if any, by which the sum
of (a) the Class A Monthly Interest due
on such Distribution Date and any overdue
Class A Monthly Interest and Class A
Additional Interest thereon, (b) if the
Bank or an affiliate of the Bank is no
longer the Servicer, 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 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) if
the Bank or an affiliate of the Bank is
no longer the Servicer, the Class B
Servicing Fee for the related Monthly
Period and any overdue Class B Servicing
Fee exceeds the Class B Available Funds
for the related Monthly Period and (b)
the Class B Investor Default Amount, if
any, for the related Monthly Period. The
" Required Amount" for any Monthly Period
shall mean the sum of (a) the Class A
Required Amount and (b) the Class B
Required Amount for such Monthly Period.
" Excess Spread" for any Transfer Date
will equal the sum of (a) the excess of
(i) Class A Available Funds for the
related Monthly Period over (ii) the sum
of the amounts referred to in clauses
(a), (b) and (c) in the definition of
"Class A Required Amount" above and (b)
the excess of (i) Class B Available Funds
for the related Monthly Period over (ii)
the sum of the amounts referred to in
clauses (a)(i) and (ii) in the definition
of "Class B Required Amount" above and
(c) Collateral Available Funds (defined
herein) for the related Monthly Period
not used, if the Bank or an affiliate of
the Bank is no longer the Servicer, to
pay the Collateral Interest Servicing
Fee, as described herein.
If, on any Distribution Date, Excess
Spread and Excess Finance Charge
Collections allocable to the Offered
Series are less than the Class A Required
Amount, the amount, if any, available on
deposit in the Cash Collateral Account
will be used to fund the remaining Class
A Required Amount. If such amount on
deposit in the Cash Collateral Account is
exhausted, Reallocated Principal
Collections allocable first to the
Collateral Interest and then to the Class
B Certificateholders' 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 Distribution Date,
then the Collateral Invested Amount
(after giving effect to reductions for
any Collateral Charge-Offs (defined
herein) and Reallocated Principal
Collections on such Distribution 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
Invested Amount to be a negative number,
the Collateral Invested Amount will be
reduced to zero, and the Class B Invested
Amount (after giving effect to reductions
for any Class B Investor Charge-Offs
(defined below) and any Reallocated Class
B Principal Collections on such
Distribution Date) will be reduced by the
amount by which the Collateral Invested
Amount would have been reduced below zero
(but not by more than the excess of the
Class A Investor Default Amount, if any,
for such Monthly Period over the amount
of such reduction, if any, of the
Collateral Invested Amount with respect
to such Monthly Period). In the event
that such reduction would cause the Class
B Invested Amount to be a negative
number, the Class B Invested Amount will
be reduced to zero and the Class A
Invested Amount will be reduced by the
amount by which the Class B Invested
Amount would have been reduced below zero
(but not by more than the excess, if any,
of the Class A Investor Default Amount
for such Monthly Period over such
reductions in the Collateral Invested
Amount and the Class B Invested Amount
with respect to such Monthly Period)
(such reduction, a "Class A Investor
Charge-Off"). If the Cash Collateral
Account is exhausted and the Collateral
Invested Amount and the Class B
Invested Amount are reduced to zero,
the Class A Certificate holders will
bear directly the credit and other
risks associated with their
undivided interest in the Trust. See
"Series Provisions Reallocation of
Cash Flows" and " Defaulted
Receivables; Investor Charge-Offs."
If, on any Distribution Date, Excess
Spread and Excess Finance Charge
Collections allocated to the Offered
Series not required to pay the Class A
Required Amount or reimburse Class A
Investor Charge-Offs is less than the
Class B Required Amount, the amount, if
any, available on deposit in the Cash
Collateral Account not required to fund
the Class A Required Amount will be used
to fund the remaining Class B Required
Amount. If such amount on deposit in the
Cash Collateral Account is exhausted,
Reallocated Principal Collections
allocable to the Collateral Interest for
the related Monthly Period not required
to pay the Class A Required Amount will
be used to fund the remaining Class B
Required Amount. If such remaining
Reallocated Principal Collections
allocable to the Collateral Interest with
respect to such Monthly Period are
insufficient to fund the remaining Class
B Required Amount for such Distribution
Date, then the Collateral Invested Amount
(after giving effect to reductions for
any Collateral Charge-Offs, Reallocated
Principal Collections and any adjustments
made thereto for the benefit of the Class
A Certificateholders) will be reduced by
the amount of such deficiency (but not by
more than the Class B Investor Default
Amount for such Monthly Period). In the
event that such reduction would cause the
Collateral Invested Amount to be a
negative number, the Collateral Invested
Amount will be reduced to zero, and the
Class B Invested Amount will be reduced
by the amount by which the Collateral
Invested Amount would have been reduced
below zero (but not by more than the
excess, if any, of the Class B Investor
Default Amount for such Monthly Period
over such reduction in the Collateral
Invested Amount with respect to such
Monthly Period) (such reduction, a "Class
B Investor Charge-Off"). In the event of
a reduction of the Class A Invested
Amount, the Class B Invested Amount
or the Collateral Invested Amount,
the 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."
Available Enhancement Amount . The Cash Collateral Account and the
Collateral Invested Amount constitute the
Credit Enhancement for the Offered
Certificates. On each Distribution Date,
the amount of Credit Enhancement
available to the holder of the Offered
Certificates will equal the lesser of (a)
the sum of the Collateral Invested Amount
and the amount, if any, on deposit in the
Cash Collateral Account (the " Available
Enhancement Amount") and (b) the Required
Enhancement Amount. The " Required
Enhancement Amount" with respect to any
Distribution Date means, subject to
certain limitations more fully described
herein, (a) $__________ on the initial
Distribution Date and (b) on any
Distribution Date thereafter, an amount
equal to the greater of (i) __% of the
sum of the Class A Adjusted Invested
Amount and the Class B Adjusted Invested
Amount on such Distribution Date (in each
case after taking into account deposits
into the Principal Funding Account and
payments to be made on such Distribution
Date), and the Collateral Invested Amount
on the prior Distribution Date after any
adjustments made to the Collateral
Invested Amount on such prior
Distribution Date, and (ii) the sum of
(A) the product of (I) $___________, (II)
_% and (III) a fraction the numerator of
which is the Available Cash Collateral
Amount as of the immediately preceding
Distribution Date and the denominator of
which is the Total Enhancement as of such
immediately preceding Distribution Date
(in each case after giving effect to all
deposits, withdrawals and payments made
with respect to such immediately
preceding Distribution Date) and (B) the
product of (I) $___________, (II) _% and
(III) a fraction the numerator of which
is the Collateral Invested Amount as of
the immediately preceding Distribution
Date and the denominator of which is the
Total Enhancement as of such immediately
preceding Distribution Date (in each case
after giving effect to all deposits,
withdrawals and payments made with
respect to such immediately preceding
Distribution Date); provided, however,
(x) if certain reductions in the
Collateral Invested Amount occur or if a
Pay Out Event occurs, the Required
Enhancement Amount for such Distribution
Date will equal the Required Enhancement
Amount for the Distribution Date
immediately preceding the occurrence of
such reduction or Pay Out Event; (y) in
no event will the Required Enhancement
Amount exceed the unpaid principal amount
of the Offered Certificates as of the
last day of the Monthly Period preceding
such Distribution Date after taking into
account payments to be made on such
preceding Distribution Date and
subtracting amounts then on deposit in
the Principal Funding Account; and (z)
the Required Enhancement Amount may be
reduced at any time to a lesser amount if
the Rating Agency Condition is satisfied.
" Total Enhancement" means, on any date
of determination, the sum of the
Available Cash Collateral Amount and the
Collateral Invested Amount. See
"Description of the Certificates Cash
Collateral Account; Required Enhancement
Amount."
If on any Distribution Date, the
Available Enhancement Amount is less than
the Required Enhancement Amount, Excess
Spread and Excess Finance Charge
Collections, if available, will be used
to increase the Collateral Invested
Amount to the extent of certain prior
unreimbursed reductions thereof and then
deposited in the Cash Collateral Account
to the extent of such shortfall. If on
any Distribution Date the Available
Enhancement Amount equals or exceeds the
Required Enhancement Amount, any such
Excess Spread and Excess Finance Charge
Collections 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 and will not be available to
the Series Certificateholders.
Reallocated Investor
Finance Charge
Collections . . . . . . The Offered Certificates will be the
first Series issued by the Trust in a
Group of Series ("Group I"), constituting
a Reallocation Group, which may be issued
by the Trust from time to time.
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 Pooling and Servicing
Agreement 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 Offered Certificates.
See "Risk Factors Issuance of New Series"
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 Principal
Collections . . . . . . The Offered Series has been designated
as a Principal Sharing Series.
Collections of Principal Receivables and
certain other amounts otherwise allocable
to other Principal Sharing Series, if
any, to the extent such collections are
not needed to make payments to or
deposits for the benefit of the
certificateholders of such other Series,
will be applied to cover principal
payments due to or for the benefit of the
holders of the Offered Certificates and
the Collateral Interest. See "Description
of the Pooling and Servicing Agreement
Shared Principal Collections" in the
Prospectus. There can be no assurance
that any Series issued by the Trust in
the future will be designated a Principal
Sharing Series.
Excess Finance Charge
Collections . . . . . . The Offered Series has been designated
as an Excess Allocation Series. See
"Description of the Pooling and Servicing
Agreement Sharing of Excess Finance
Charge Collections Among Excess
Allocation Series" in the Prospectus.
There can be no assurance that any Series
issued by the Trust in the future will be
designated an Excess Allocation Series.
Optional Repurchase . . The Offered Certificateholders'
Interest and the Collateral Interest will
be subject to optional repurchase by the
Transferor on any Distribution Date on or
after the Distribution Date on which the
sum of the Class A Invested Amount, the
Class B Invested Amount and the
Collateral Invested Amount, if any, is
reduced to an amount which is not more
than $ (10% of the Initial Invested
Amount). The purchase price will be equal
to the sum of the Class A Invested Amount
and the Class B Invested Amount (less the
Principal Funding Account Balance, if
any), the Collateral Invested Amount, if
any, and accrued and unpaid interest on
the Offered Certificates and the
Collateral Interest (and accrued and
unpaid interest with respect to interest
amounts that were due but not paid on a
prior Interest Payment Date) through the
day preceding such Distribution Date.
Stated Series Termination
Date . . . . . . . . . . . The ______ Distribution Date. See
"Series Provisions - Series
Termination."
Trustee . . . . . . . . . The Bank of New York, in its
capacity as Trustee under the
Pooling and Servicing Agreement.
Tax Status . . . . . . . Special tax counsel to the
Transferor is of the opinion that
under existing law the Offered
Certificates will be characterized
as debt for federal income tax
purposes. Under the Pooling and
Servicing Agreement, the Certificate
Owners will agree to treat the
Offered Certificates as debt of the
Transferor for federal income 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 the considerations
described below, the Class A Certificates
are eligible for purchase by employee
benefit plan investors. Under a
regulation issued by the Department of
Labor, the Trust's assets would not be
deemed "plan assets" of an employee
benefit plan holding the Class A
Certificates if certain conditions are
met, including that the Class A
Certificates must be held, upon
completion of the public offering made
hereby, by at least 100 investors who are
independent of the Transferor and of one
another. The Class A Underwriters expect
that the Class A Certificates will be
held by at least 100 independent
investors at the conclusion of the
offering, although no assurance can be
given, and no monitoring or other
measures will be taken to ensure, that
such condition will be met with respect
to the Class A Certificates. The
Transferor anticipates that the other
conditions of the regulation will be met.
If the Trust's assets were deemed to be
"plan assets" of an employee benefit plan
investor (e.g., if the 100 independent
investor criterion is not satisfied),
violations of the "prohibited
transaction" rules of the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), could result and
generate excise tax and other liabilities
under ERISA and Section 4975 of the
Internal Revenue Code of 1986 as amended
(the "Code"), unless a statutory,
regulatory or administrative exemption is
available. It is uncertain whether
existing exemptions from the "prohibited
transaction" rules of ERISA would apply
to all transactions involving the Trust's
assets. Accordingly, fiduciaries or other
persons contemplating purchasing the
Offered 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 Class B Underwriters currently do not
expect that the Class B Certificates will
be held by at least 100 independent
investors and, therefore, do not expect
that such Class B Certificates will
qualify as publicly offered securities
under the regulation referred to in the
preceding paragraph. Accordingly, the
Class B Certificates may not be acquired
by (a) any employee benefit plan that is
subject to ERISA, (b) any plan or other
arrangement (including an individual
retirement account or Keogh plan) that is
subject to Section 4975 of the Code, or
(c) any entity whose underlying assets
include "plan assets" under the
regulation by reason of any such plan's
investment in the entity. By its
acceptance of a Class B Certificate, each
Class B Certificateholder 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 nationally recognized rating
agency. The rating of the Class A
Certificates is based primarily on the
value of the Receivables, the terms of
the Class B Certificates and the benefits
of the Collateral Interest, the Yield
Supplement Account and the Cash
Collateral Account. See "Risk Factors
Limited Nature of Rating" in the
Prospectus.
Class B Certificate
Rating . . . . . . . . It is a condition to the issuance of the
Class B Certificates that they be rated
in one of the three highest rating
categories by at least one nationally
recognized 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, the Yield Supplement Account
and the Cash Collateral Account. See
"Risk Factors Limited Nature of Rating"
in the Prospectus.
RISK FACTORS
Potential investors should consider the risk factors discussed under
"Risk Factors" in the Prospectus and the following risk factors in
connection with the purchase of the Offered Certificates.
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,
by the Collateral Interest, Yield Supplement Account and the Cash
Collateral Account, and with respect to the Class B Certificates, will be
provided by the Collateral Interest, Yield Supplement Account and the Cash
Collateral Account, the amount available thereunder is limited, may decline
during the Controlled Accumulation Period and will be reduced by payments
made pursuant thereto. If the Available Enhancement Amount 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 Invested Amount may be reduced. If the Class B Invested Amount is reduced
to zero, Class A Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust. Further, in
the event of a reduction of the Class B Invested Amount or the Available
Enhancement Amount, 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.
Effect of Subordination of Class B Certificates; Principal Payments.
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 Invested Amount 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 the Offered Series, amounts available on deposit in the Cash Collateral
Account not required to fund the Class A Required Amount, Reallocated
Principal Collections with respect to the Collateral Interest and
reductions in the Collateral Invested Amount, if any. To the extent the
Class B Invested Amount is reduced, the percentage of collections of
Finance Charge Receivables allocable to the Class B Certificateholders'
Interest in future Monthly Periods will be reduced. Moreover, to the extent
the amount of such reduction in the Class B Invested Amount is not
reimbursed, the amount of principal and interest distributable to the Class
B Certificateholders will be reduced. See "Series Provisions Allocation
Percentages" and " Subordination of the Class B Certificates and the
Collateral Interest" herein. If the Class B Invested Amount is reduced to
zero, the holders of the Class A Certificates will bear directly the credit
and other risks associated with their undivided interest in the Trust.
MATURITY CONSIDERATIONS
The Pooling and Servicing Agreement and the Supplement for the Offered
Series (the "Offered Series Supplement") provide that the Class A
Certificateholders will not receive payments of principal until the Class A
Scheduled Distribution Date, or earlier in the event of a Pay Out Event
which results in the commencement of the Early Amortization Period. Class A
Certificateholders will receive payments of principal on each Distribution
Date following the Monthly Period in which a Pay Out Event occurs until the
Class A Invested Amount has been paid in full or the Stated Series
Termination Date has occurred. The Class B Certificateholders will not
receive payments of principal until the Class B Scheduled Payment Date, or
earlier in the event of a Pay Out Event which results in the commencement
of the Early Amortization Period, but not until the Class A Invested Amount
has been paid in full. The Class B Certificateholders will not begin to
receive payments of principal until the final principal payment on the
Class A Certificates has been made.
On each Distribution Date during the Controlled Accumulation Period,
amounts equal to the least of (a) Available Principal Collections (see
"Series Provisions Principal Payments") for the related Monthly Period on
deposit in the Collection Account, (b) the Controlled Deposit Amount, which
is equal to the sum of the Controlled Accumulation Amount for such Monthly
Period and any Deficit Controlled Accumulation Amount (both as defined
under "Series Provisions Application of Collections Payments of
Principal") and (c) the sum of the Class A Adjusted Invested Amount and the
Class B Adjusted Invested Amount (prior to any deposits on such day) will
be deposited in the Principal Funding Account for the Offered Series held
by the Trustee (the "Principal Funding Account") until the principal amount
on deposit in the Principal Funding Account (the "Principal Funding Account
Balance") equals the sum of the Class A Invested Amount and the Class B
Invested Amount or the first Distribution Date with respect to the Early
Amortization Period. After the Class A Invested Amount has been paid in
full, or following the first Distribution Date on which the Principal
Funding Account Balance has increased to the Class A Invested Amount,
Available Principal Collections, to the extent required will be distributed
to the Class B Certificateholders on each Distribution Date beginning,
during the Controlled Accumulation Period, on the Class B Scheduled Payment
Date, until the earlier of the Distribution Date on which the Class B
Invested Amount has been paid in full and the Stated Series Termination
Date. Amounts in the Principal Funding Account are expected to be
available to pay the Class A Invested Amount on the Class A Scheduled
Payment Date. After payment of the Class A Invested Amount in full,
Available Principal Collections are expected to be available to pay the
Class B Invested Amount on the Class B Scheduled Payment Date. Although it
is anticipated that collections of Principal Receivables will be available
on each Distribution Date during the Controlled Accumulation Period to make
a deposit of the applicable Controlled Deposit Amount and that the Class A
Invested Amount will be paid to the Class A Certificateholders on the Class
A Scheduled Distribution date and that the Class B Invested Amount will be
paid to the Class B Certificateholders on the Class B Scheduled
Distribution date, respectively, no assurance can be given in this regard.
See "Series Provisions Principal Payments" for a discussion of the
circumstances under which the commencement of the Controlled Accumulation
Period may be delayed.
The Transferor may, at or after the time at which the Controlled
Accumulation Period commences for the Offered Series, cause the Trust to
issue another Series (or some portion thereof, to the extent that the full
principal amount of such other Series is not otherwise outstanding at such
time) as a Paired Series with respect to the Offered Series to be used to
finance the increase in the Transferor Amount caused by the accumulation of
principal in the Principal Funding Account with respect to the Offered
Series. Although no assurances can be given as to whether such other Series
will be issued and, if issued, the 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 the Offered Certificates), and the interest
rate with respect to certificates of such other Series may be established
on its date of issuance and may be reset periodically. Further, since the
terms of the Offered Certificates will vary from the terms of such other
Series, the Pay Out Events or Reinvestment Events with respect to such
other Series will vary from the Pay Out Events with respect to the Offered
Series and may include Pay Out Events or Reinvestment Events which are
unrelated to the status of the Transferor or the Servicer or the
Receivables, such as Pay Out Events or Reinvestment Events related to the
continued availability and rating of certain providers of Series
Enhancement to such other Series. If a Pay Out Event or Reinvestment Event
does occur with respect to any such Paired Series prior to the payment in
full of the Offered Certificates, the final payment of principal to the
Series Certificateholders may be delayed.
Should a Pay Out Event occur with respect to the Offered Certificates
and the Early Amortization Period commence, any amount on deposit in the
Principal Funding Account will be paid to the Class A Certificateholders on
the Distribution Date in the month following the commencement of the Early
Amortization Period and the Class A Certificateholders will be entitled to
receive Available Principal Collections on each Distribution Date with
respect to such Early Amortization Period as described herein until the
Class A Invested Amount has been paid in full or until the Stated Series
Termination Date occurs. After the Class A Invested Amount has been paid
in full and if the Stated Series Termination Date has not occurred,
Available Principal Collections will be paid to the Class B Certificates on
each Distribution Date until the earlier to occur of the date on which the
Class B Invested Amount has been paid in full and the Stated Series
Termination Date.
Should a Pay Out Event occur with respect to the Offered Certificates
and the Early Amortization Period commence, any amount on deposit in the
Special Funding Account will be released and treated as Shared Principal
Collections to the extent needed to cover principal payments due to or for
the benefit of any Series, including the Offered Series, entitled to the
benefits of Shared Principal Collections. See "Description of the
Certificates Pay Out Events and Reinvestment Events" in the Prospectus
and "Series Provisions Pay Out Events" herein.
The ability of the Class A Certificateholders and the Class B
Certificateholders to receive payments of principal on the Class A
Scheduled Payment Date and on the Class B Scheduled Payment Date,
respectively, depends on the payment rates on the Receivables, the amount
of outstanding Receivables, delinquencies, charge-offs and new borrowings
on the Accounts, the potential issuance by the Trust of additional Series
and the availability of Shared Principal Collections. Monthly payment rates
on the Receivables may vary because, among other things, cardholders may
fail to make required minimum payments, may only make payments as low as
the minimum required amount or may make payments as high as the entire
outstanding balance. Monthly payment rates may also vary due to seasonal
purchasing and payment habits of cardholders and to changes in any terms of
rebate programs in which cardholders participate. See the table entitled
"Cardholder Monthly Payment Rates Bank Portfolio" under "The Bank
Portfolio Payment Rates" herein. The Transferor cannot predict, and no
assurance can be given, as to the cardholder monthly payment rates that
will actually occur in any future period, as to the actual rate of payment
of principal of the Offered Certificates or whether the terms of any
subsequently issued Series might have an impact on the amount or timing of
any such payment of principal. See "Risk Factors Generation of Additional
Receivables; Dependency on Cardholder Repayments" and "Description of the
Pooling and Servicing Agreement Shared Principal Collections" in the
Prospectus.
In addition, the amount of outstanding Receivables and the
delinquencies, charge-offs and new borrowings on the Accounts may vary from
month to month due to seasonal variations, the availability of other
sources of credit, legal factors, general economic conditions and spending
and borrowing habits of individual cardholders. There can be no assurance
that collections of Principal Receivables with respect to the Trust
Portfolio, and thus the rate at which the Series Certificateholders could
expect to receive payments of principal on their Certificates during the
Early Amortization Period or the rate at which the Principal Funding
Account could be funded during the Controlled Accumulation Period, will be
similar to the historical experience set forth in the table entitled
"Cardholder Monthly Payment Rates Bank Portfolio" under "The Bank
Portfolio Payment Rates" herein. As described under "Series Provisions
Principal Payments," the Transferor may shorten the 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 Invested Amount
and the Class B Invested Amount on the Class A Scheduled Payment Date and
on the Class B Scheduled Payment Date, respectively. In addition, the
Trust, as a master trust, may issue additional Series from time to time,
and there can be no assurance that the terms of any such Series might not
have an impact on the timing or amount of payments received by the Series
Certificateholders. Further, if a Pay Out Event occurs, the average life
and maturity of the Class A Certificates and the Class B Certificates could
be significantly reduced.
Due to the reasons set forth above, there can be no assurance that
deposits in the Principal Funding Account will be made on or prior to the
Class A Scheduled Payment Date in an amount sufficient to pay the Class A
Invested Amount to the Class A Certificateholders on the Class A Scheduled
Payment Date, or that the amount remaining in the Principal Funding Account
following payment in full of the Class A Certificates together with
Available Principal Collections will be sufficient to pay the Class B
Invested Amount in full on the Class B Scheduled Payment Date or that the
actual number of months elapsed from the date of issuance of the Class A
Certificates and Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. See "Risk
Factors Generation of Additional Receivables; Dependency on Cardholder
Repayments" in the Prospectus.
THE BANK PORTFOLIO
GENERAL
The Transferor has identified a pool of consumer revolving credit card
accounts serviced by the Bank (the "Bank Portfolio"). The Receivables to
be conveyed to the Trust pursuant to the Pooling and Servicing Agreement
have been or will be generated from transactions made by holders of certain
credit card accounts (the "Trust Portfolio") that have been selected from
the total portfolio of VISA and MasterCard accounts contributed by BKB (the
"BKB Portfolio") and Harris (the "Harris Portfolio"). The BKB Portfolio
includes all of its accounts with the exception of those accounts of
cardholders with billing addresses in Massachusetts, Rhode Island,
Connecticut and New Hampshire and student, VIP, foreign accounts and
relationship accounts which accounts were retained by BKB and are only
managed by Partners First; the Harris Portfolio includes all of its
accounts except corporate accounts and secured accounts. The Receivables
also will include all fees billed to the Accounts. The accounts were
generated under the VISA and MasterCard associations of which BKB and
Harris are members. The Accounts and Receivables will primarily be
serviced by First Data Resources, Inc. ("FDR"). Additional Accounts may be
designated from time to time and Receivables arising therein will be
included in the Trust on and after their respective cut-off dates. See
"Risk Factors Addition of Trust Assets" in the Prospectus for a
description of applicable eligibility criteria. Set forth below is certain
information with respect to the Bank Portfolio. See "Credit Card
Activities" and "The Accounts" in the Prospectus. Because the Trust's
assets consist of Receivables, more than half of which were generated
from Accounts originated since September 1995, the historical information
set forth below with respect to the Bank Portfolio may not be indicative of
the performance of the Bank Portfolio as the Receivables and the Accounts
mature. There can be no assurance that the yield, loss and delinquency
experience with respect to the Receivables will be comparable to that set
forth below with respect to the entire Bank Portfolio.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience for
the Bank Portfolio for each of the periods shown.
LOSS EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
Nine Months
Ended Year Ended December 31,
September 30, 1997 1996 1995(5) 1994(4)
Average Receivables
Outstanding(1) . . . . . . . . .
Total Net Charge-Offs(2) . . . .
Total Net Charge-Offs as a
Percentage of Average
Receivables Outstanding(3) .
__________
(1) Average Receivables Outstanding ("Average Receivables Outstanding") is
calculated by determining the daily average of outstanding account
balances for each month during the period indicated and then dividing
the sum of such daily averages for such months by the number of months
in such period.
(2) 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. Net Charge-Offs are Gross Charge-
Offs less recoveries.
(3) The percentage reflected for the periods shown above, other than the
year ended December 31, 1996, are annualized figure s.
(4) Includes information with respect to the Harris Portfolio only.
(5) Includes information with respect to the Harris Portfolio for 12
months and with respect to the BKB Portfolio for the last 4 months.
DELINQUENCIES AS A PERCENTAGE OF THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
Nine Months
Ended Year Ended December 31,
September 30, 1997 1996 1995(3) 1994(2)
Receivables Outstanding(1) . .
Receivables Delinquent: . . . .
30- 59 Days . . . . . . . .
60- 89 Days . . . . . . . .
90-119 Days . . . . . . . . .
120 Days or More . . . . . .
Total . . . . . . . . . . . . .
__________
(1) The Receivables Outstanding in the Accounts consist of all amounts due
from cardholders as posted to the Accounts.
(2) Includes information with respect to the Harris Portfolio only.
(3) Includes information with respect to the Harris Portfolio for 12
months and with respect to the BKB Portfolio for the last 4 months.
[Discuss significant trends in loss and delinquency tables]
REVENUE EXPERIENCE
The revenues for the Bank Portfolio from finance charges and fees
billed to cardholders and Interchange are set forth in the following table
for each of the periods shown.
The historical revenue figures in the tables include interest on
purchases and cash advances and fees accrued during the cycle. Cash
collections on the receivables may not reflect the historical experience in
the table. During periods of increasing delinquencies, billings of finance
charges and fees may exceed cash payments as amounts collected on credit
card receivables lag behind amounts billed to cardholders. Conversely, as
delinquencies decrease, cash payments may exceed billings of finance
charges and fees as amounts collected in a current period may include
amounts billed during prior periods. Revenues from finance charges and fees
on both a billed and a cash basis will be affected by numerous factors,
including the periodic finance charges on the receivables, the amount of
fees paid by cardholders, the percentage of cardholders who pay off their
balances in full each month and do not incur periodic finance charges on
purchases and changes in the level of delinquencies on the receivables. See
"Risk Factors" in the Prospectus. See also " Loss and Delinquency
Experience" for a description of factors that have affected the revenue
experience for the Bank Portfolio.
REVENUE EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
Nine Months
Ended Year Ended December 31,
September 30, 1997 1996 1995(7) 1994(6)
Average Receivables Out-
standing(1) . . . . . . . . .
Total Finance Charges and Fees
Billed(2) . . . . . . . . . . .
Interchange(3) . . . . . . . .
Total Finance Charges and Fees
Billed . . . . . . . . . . . .
__________
(1) Average Receivables Outstanding is calculated by determining the daily
average of outstanding account balances for each month during the
period indicated and then dividing the sum of such daily averages for
such months by the number of months in such period.
(2) Total Finance Charges and Fees Billed are comprised of periodic
finance charges, cash advance fees, annual membership fees and other
charges.
(3) Interchange represents revenue attributable to Interchange received
during the period indicated. The amount of Interchange allocable to
each period indicated above has been estimated.
(4) Average Revenue Yield is the result of dividing Total Finance Charges
and Fees Billed and Interchange by the Average Receivables Outstanding
during the period indicated.
(5) The percentage reflected for the periods show above, other than the
year ended December 31, 1996, are annualized figures.
(6) Includes information with respect to the Harris Portfolio only.
(7) Includes information with respect to the Harris Portfolio for 12
months and with respect to the BKB Portfolio for the last 4 months.
The revenues for the Bank Portfolio shown in the tables above are
related to finance charges, together with fees, billed to holders of the
accounts and Interchange. The revenues related to finance charges depend in
part upon the collective preference of cardholders to use their credit
cards as revolving debt instruments for purchases and cash advances and
paying off credit card account balances over several months as opposed to
convenience use, where the cardholders prefer instead to pay off their
entire balance each month, thereby avoiding finance charges on purchases,
and upon other services of which cardholders choose to avail themselves and
which are paid for by the use of the card. Revenues related to finance
charges and fees also depend on the types of charges and fees assessed by
the Account Originator or the Bank on the accounts in the Bank Portfolio
and on whether such accounts are nonpremium or premium credit card
accounts. Accordingly, revenues will be affected by future changes in the
types of charges and fees assessed on the accounts and on the respective
percentages of the receivable balances of nonpremium and premium credit
card accounts. Revenues could be adversely affected by future changes in
the charges and fees assessed by the Account Originator or the Bank and
other factors. See "Certain Legal Aspects of the Receivables Consumer
Protection Laws" in the Prospectus. Neither the Servicer nor any of its
affiliates has any basis to predict how any future changes in the usage of
the accounts by cardholders or in the terms of accounts may affect the
revenue for the Bank Portfolio.
INTERCHANGE
The Transferor will be required, pursuant to the terms of the Offered
Series Supplement, to transfer to the Trust for the benefit of the Offered
Series, a percentage of the Interchange attributed to cardholder charges
for goods and services in the Accounts. Interchange arising under the
Accounts will be allocated to the Offered Series on the basis of the Series
Allocation Percentage for the Offered Series of the amount of Interchange
attributable to the Accounts, 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 a portion of Series Allocable Finance Charge Collections for the
purposes of allocating collections of Finance Charge Receivables, making
required monthly payments, and calculating the Portfolio Yield. See "Credit
Card Activities Interchange" in the Prospectus.
In the future, subject to certain requirements contained in the
Offered Series Supplement and the Pooling and Servicing Agreement, the
Transferor may, in lieu of transferring Interchange to the Trust as set
forth above, allocate Interchange to the Trust and the Offered Series by
treating a percentage of collections of the Principal Receivables (whether
arising from cardholder charges for goods and services or cash advances),
as collections of Finance Charge Receivables approximately equivalent to
the then current Interchange on the credit card accounts in the Bank
Portfolio (subject to adjustment at the option of the Transferor upon the
satisfaction of certain conditions as described in the Prospectus under
"Description of the Pooling and Servicing Agreement Discount Option").
PAYMENT RATES
The following table sets forth the highest and lowest cardholder
monthly payment rates for the Bank Portfolio during any month in the period
shown and the average cardholder monthly payment rates for all months
during each period shown, calculated as the percentage equivalent of a
fraction. For the highest and lowest monthly payment rates, the numerator
of the fraction is equal to all payments from cardholders as posted to the
accounts during the applicable month and the denominator is equal to the
Average Receivables Outstanding for such month. For the monthly average
payment rate, the numerator of the fraction is equal to all payments from
cardholders as posted to the accounts during the indicated period divided
by the number of months in the period, and the denominator is equal to the
Average Receivables Outstanding. See " Loss and Delinquency Experience"
for a description of factors that have affected the payment rates for the
Bank Portfolio.
CARDHOLDER MONTHLY PAYMENT RATES
BANK PORTFOLIO
Nine Months
Ended Year Ended December 31,
September 30, 1997 1996 1995(2) 1994(1)
Average Receivables Out-
standing(1) . . . . . . . .
Total Finance Charges and Fees
Billed(2) . . . . . . . . . . .
Interchange(3) . . . . . . . .
Total Finance Charges and Fees
Billed . . . . . . . . . . . .
__________
(1) Includes information with respect to the Harris Portfolio only.
(2) Includes information with respect to the Harris Portfolio for 12
months and with respect to the BKB Portfolio for the last 4 months.
THE RECEIVABLES
The Receivables in the Trust Portfolio as of _____ __, 1997, included
$________ of Principal Receivables and $_______ of Finance Charge
Receivables. The Accounts had an average total receivables balance of $____
and an average credit limit of $_____. The percentage of the aggregate
total receivables balance to the aggregate total credit limit was ___%. The
average age of the Accounts was approximately ___ months. As of _____ __,
1997, all of the Accounts in the Trust Portfolio were VISA or MasterCard
credit card accounts, of which ___% were non-premium accounts and ___% were
premium accounts, and the total receivables balances of non-premium
accounts and premium accounts, as a percentage of the total receivables,
were ___% and ___%, respectively. Approximately ___%, ___%, ___%, ___% and
___% of the Receivables related to cardholders having billing addresses in
[New York, Florida, Texas and New Jersey], respectively. Not more than ___%
of the Receivables related to cardholders having billing addresses in any
other single state.
The following tables summarize the Trust Portfolio by various criteria
as of _____ __, 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 time subsequent to _____ __,
1997. References to "Receivables Outstanding," "Receivables" and to "total
receivables" in the preceding paragraph and in the following tables include
Finance Charge Receivables and Principal Receivables.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
Credit Balance ......
No Balance ..........
$ 0.0 1-$5,000.00..
$5,000.01-$10,000.00.
$10,000.01-$15,000.00
$15,000.01-$20,000.00
$20,000.01-$25,000.00
$25,000.01-or More....
TOTAL ..........
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT RANGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
Less than or equal
to $5,000.00........
$ 5,000.01-$10,000.00
$10,000.01-$15,000.00
$15,000.01-$20,000.00
$20,000.01-$25,000.00
$25,000.01 or More...
TOTAL .........
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
PERCENTAGE PERCENTAGE
PERIOD OF DELINQUENCY OF TOTAL OF TOTAL
(DAYS CONTRACTUALLY NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
DELINQUENT) ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
Not Delinquent .......
30-59 Days ..........
60-89 Days ..........
90-119 Days ..........
120 or More Days ....
TOTAL ..........
<TABLE>
<CAPTION>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT AGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
<S> <C> <C> <C> <C>
Not More than 6 Months......
Over 6 Months to 12 Months..
Over 12 Months to 24 Months.
Over 24 Months to 36 Months.
Over 36 Months to 48 Months.
Over 48 Months to 60 Months.
Over 60 Months to 72 Months.
Over 72 Months..............
TOTAL ................ 100.0% 100.0%
</TABLE>
USE OF PROCEEDS
The net proceeds from the issuance of the Offered Certificates will be paid
to the Transferor. The Transferor will use such proceeds to make initial
deposits to the Yield Supplement Account and the Cash Collateral Account
and to pay to the Bank the purchase price of the Receivables.
THE SERVICER
As of _______ 1997, the Bank had approximately $_________ in total assets,
approximately $________ in total liabilities and approximately $_______ in
shareholder's equity.
SERIES PROVISIONS
The Offered Certificates will be issued pursuant to the Pooling and
Servicing Agreement and the Offered Series Supplement specifying the
Principal Terms of the Certificates, the forms of which have been filed as
exhibits to the Registration Statement of which the Prospectus and this
Prospectus Supplement are a part. The following summary describes certain
terms applicable to the Offered Certificates. Reference should be made to
the Prospectus for additional information concerning the Offered
Certificates and the Pooling and Servicing Agreement. See "Description of
the Pooling and Servicing Agreement" in the Prospectus.
INTEREST PAYMENTS
Interest on the Class A Certificates and the Class B Certificates will
accrue from the Closing Date on the outstanding principal balance of the
Class A Certificates and the Class B Invested Amount at the Class A
Certificate Rate and Class B Certificate Rate, respectively. Interest will
be distributed on _______ __, 199_, and on the ___th day of each month
thereafter, or if any such ___th day is not a business day, the next
succeeding business day (each, a "Distribution Date"), to the Series
Certificateholders in whose names the Offered Certificates were registered
at the close of business on the preceding Record Date. Interest for any
Distribution Date will accrue from and including the preceding Distribution
Date (or in the case of the first Distribution Date, from and including the
Closing Date) to but excluding such Distribution Date. "Record Date"
means, with respect to any Distribution Date, the business day preceding
such Distribution Date, except that, with respect to any Definitive
Certificates, Record Date means, with respect to any Distribution Date, the
fifth day of the Monthly Period during which such Distribution Date occurs.
Interest payments on the Offered Certificates with respect to each
Distribution Date will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
Interest payments with respect to the Class A Certificates for each
Distribution Date will be calculated on the outstanding principal balance
of the Class A Certificates as of the preceding Record Date (or in the case
of the initial Distribution Date, on the Class A Initial Invested Amount).
On each Distribution Date, Class A Available Funds for the related Monthly
Period will be applied to pay Class A Monthly Interest and Class A Monthly
Interest previously due but not paid to the Class A Certificateholders and
any Class A Additional Interest. To the extent Class A Available Funds
allocated to the Class A Certificateholders' Interest for such Monthly
Periods are insufficient to pay such interest, Excess Spread and Excess
Finance Charge Collections allocated to the Offered Series, amounts, if
any, available on deposit in the Cash Collateral Account and Reallocated
Principal Collections allocable first to the Collateral Invested Amount and
then the Class B Invested Amount will be used to make such payments. "Class
A Available Funds" means, with respect to any Monthly Period, an amount
equal to the sum of (i) the Class A Floating Percentage of the sum of the
Reallocated Investor Finance Charge Collections allocated to the Offered
Certificates and the Collateral Interest with respect to such Monthly
Period (including any investment earnings and certain other amounts that
are to be treated as collections of Finance Charge Receivables allocable to
the Offered Series in accordance with the Pooling and Servicing Agreement
and the Offered Series Supplement) and the amounts withdrawn from the Yield
Supplement Account on the related Distribution Date, (ii) if such Monthly
Period relates to a Distribution Date with respect to the Controlled
Accumulation Period, Principal Funding Investment Proceeds, if any, with
respect to the related Distribution Date, and (iii) amounts, if any, to be
withdrawn from the Reserve Account that must be included in Class A
Available Funds pursuant to the Offered Series Supplement with respect to
such Distribution Date.
Interest payments with respect to the Class B Certificates for each
Distribution Date will be calculated on the Class B Invested Amount as of
the preceding Record Date (or in the case of the initial Distribution Date,
on the Class B Initial Invested Amount). On each Distribution Date Class B
Available Funds for the related Monthly Period will be applied to pay Class
B Monthly Interest and Class B Monthly Interest previously due but not paid
to the Class B Certificateholders and any Class B Additional Interest. To
the extent Class B Available Funds allocated to the Class B
Certificateholders' Interest for such Monthly Period are insufficient to
pay such interest, Excess Spread and Excess Finance Charge Collections
allocated to the Offered Series, amounts, if any, on deposit in the Cash
Collateral Account and Reallocated Principal Collections allocable to the
Collateral Invested Amount, in each case not required to pay the Class A
Required Amount or reimburse Class A Investor Charge-Offs will be used to
make such payments. "Class B Available Funds" means, with respect to any
Monthly Period, an amount equal to the Class B Floating Percentage of the
sum of the Reallocated Investor Finance Charge Collections allocated to the
Offered Certificates and the Collateral Interest with respect to such
Monthly Period (including any investment earnings and certain other amounts
that are to be treated as collections of Finance Charge Receivables in
accordance with the Pooling and Servicing Agreement) and the amounts
withdrawn from the Yield Supplement Account on the related Distribution
Date.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Series Cut-Off Date
and ends on the day before the commencement of the Controlled Accumulation
Period or, if earlier, the Early Amortization Period), no principal
payments will be made to the Series Certificateholders. During the
Controlled Accumulation Period (on or prior to the Class A Scheduled
Payment Date), principal will be deposited in the Principal Funding Account
as described below and on the Class A Scheduled Payment Date will be
distributed to Class A Certificateholders up to the Class A Invested Amount
and then to Class B Certificateholders up to the Class B Invested Amount.
During the Early Amortization Period, which will begin upon the occurrence
of a Pay Out Event, and until the Stated Series Termination Date occurs,
principal will be paid first to the Class A Certificateholders until the
Class A Invested Amount has been paid in full, and then to the Class B
Certificateholders until the Class B Invested Amount has been paid in full.
Unless a reduction in the Required Enhancement Amount has occurred, no
principal payments will be made in respect of the Collateral Invested
Amount until the final principal payment has been made to the Class A
Certificateholders and the Class B Certificateholders.
On each Distribution Date with respect to the Controlled Accumulation
Period, the Trustee will deposit in the Principal Funding Account an amount
equal to the least of (a) Available Principal Collections on deposit in the
Collection Account with respect to such Distribution Date, (b) the
Controlled Deposit Amount for such Distribution Date and (c) the sum of the
Class A Adjusted Invested Amount and the Class B Adjusted Invested Amount,
until the Principal Funding Account Balance equals the sum of the Class A
Invested Amount and the Class B Invested Amount. Amounts on deposit in the
Principal Funding Account up to the Class A Invested Amount will be paid to
the Class A Certificateholders on the Class A Scheduled Payment Date. If
the amount on deposit in the Principal Funding Account on the Class A
Scheduled Payment Date exceeds the Class A Invested Amount, the amount of
such excess, up to the Class B Invested Amount will be paid to the Class B
Certificateholders on the Class B Scheduled Payment Date. After the Class
A Invested Amount has been paid in full, on each Distribution Date during
the Controlled Accumulation Period, amounts equal to the lesser of (a)
Available Principal Collections with respect to such Distribution Date and
(b) the Class B Invested Amount will be deposited in the Collection Account
for distribution to the Class B Certificateholders until the Class B
Invested Amount has been paid in full. Such amounts in the Collection
Account will be paid to the Class B Certificateholders on the Class B
Scheduled Payment Date.
If a Pay Out Event occurs with respect to the Offered Certificates
during the Controlled Accumulation Period, the Early Amortization Period
will commence and any amount on deposit in the Principal Funding Account
will be paid first to the Class A Certificateholders on the first
Distribution Date with respect to the Early Amortization Period and then,
after the Class A Invested Amount is paid in full, to the Class B
Certificateholders. After payment in full of the Class A Invested Amount,
the Class B Certificateholders will be entitled to receive an amount equal
to the Class B Invested Amount.
"Available Principal Collections" means, with respect to any Monthly
Period, an amount equal to the sum of (1) an amount equal to the Principal
Allocation Percentage of the Series Allocation Percentage of all
collections of Principal Receivables received during such Monthly Period
(minus the Reallocated Principal Collections, if any, used to fund the
Required Amount), (2) any Shared Principal Collections with respect to
other Principal Sharing Series that are allocated to the Offered Series,
and (3) certain other amounts which pursuant to the Offered Series
Supplement are to be treated as Available Principal Collections with
respect to the related Distribution Date.
The Controlled Accumulation Period is currently expected to commence
at the close of business on ____________; however, the date on which the
Controlled Accumulation Period actually commences may be delayed if the
Controlled Accumulation Period Length (determined as described below) is
less than twelve months. Beginning on the Determination Date immediately
preceding the ____________ Distribution Date and on each Determination Date
thereafter until the Controlled Accumulation Period actually commences, the
Transferor will determine the "Controlled Accumulation Period Length" based
on, among other things, the then current principal payment rate on the
Accounts and the principal amount of Principal Sharing Series that are
entitled to share principal with the Offered Series; provided, however,
that the Controlled Accumulation Period Length will not be less than one
month. If the Controlled Accumulation Period Length is less than twelve
months, the Controlled Accumulation Period will commence no later than the
close of business on ____________, and the number of months in the
Controlled Accumulation Period will be equal to the Controlled Accumulation
Period Length. The effect of the foregoing calculation is to reduce the
Controlled Accumulation Period Length based on the invested amounts of
other Principal Sharing Series that are scheduled to be in their revolving
periods and thus scheduled to make Shared Principal Collections available
to the Offered Series during the Controlled Accumulation Period. In
addition, if the Controlled Accumulation Period Length shall have been
determined to be less than 12 months and, after the date on which such
determination is made, a Pay Out Event or Reinvestment Event (as those
terms are defined in the Supplement for such Series) shall occur with
respect to any outstanding Principal Sharing Series, the Controlled
Accumulation Period will commence on the earlier of (i) the date that such
Pay Out Event or Reinvestment Event shall have occurred with respect to
such Series and (ii) the date on which the Controlled Accumulation Period
is then scheduled to commence.
On each Distribution Date with respect to the Early Amortization
Period until the Class A Invested Amount has been paid in full or the
Stated Series Termination Date occurs, the holders of the Class A
Certificates will be entitled to receive Available Principal Collections in
an amount up to the Class A Invested Amount. After payment in full of the
Class A Invested Amount, the holders of the Class B Certificates will be
entitled to receive, on each Distribution Date, Available Principal
Collections until the earlier of the date the Class B Invested Amount is
paid in full and the Stated Series Termination Date. After payment in full
of the Class B Invested Amount, the Collateral Interest Holder will be
entitled to receive, on each Distribution Date, Available Principal
Collections until the earlier of the date the Collateral Invested Amount is
paid in full and the Stated Series Termination Date.
SUBORDINATION OF THE CLASS B CERTIFICATES AND THE COLLATERAL INTEREST
The Class B Certificateholders' Interest and the Collateral Interest
will be subordinated to the extent necessary to fund certain payments with
respect to the Class A Certificates. In addition, the Collateral Interest
will be subordinated to the extent necessary to fund certain payments with
respect to the Class B Certificates. Certain principal payments otherwise
allocable to the Class B Certificateholders may be reallocated to the Class
A Certificateholders and the Class B Invested Amount may be reduced.
Similarly, certain principal payments otherwise allocable to the Collateral
Interest may be reallocated to the Class A Certificateholders and the Class
B Certificateholders and the Collateral Invested Amount may be reduced. If
the Collateral Invested Amount is reduced to zero and there are no funds on
deposit in the Cash Collateral Account, holders of the Class B Certificates
will bear directly the credit and other risks associated with their
interest in the Trust. To the extent the Class B Invested Amount is
reduced, the percentage of collections of Finance Charge Receivables
allocated to the Class B Certificateholders in subsequent Monthly Periods
will be reduced. Moreover, to the extent the amount of such reduction in
the Class B Invested Amount is not reimbursed, the amount of principal
distributable to the Class B Certificateholders will be reduced. If the
Class B Invested Amount is reduced to zero, the Class A Certificateholders
will bear directly the credit and other risks associated with their
undivided interest in the Trust. In the event of a reduction in the Class A
Invested Amount, the Class B Invested Amount or the Collateral Invested
Amount, 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 " Allocation Percentages," " Reallocation of Cash
Flows," " Application of Collections Excess Spread; Excess Finance
Charge Collections" below.
ALLOCATION PERCENTAGES
Pursuant to the Pooling and Servicing Agreement, the Servicer will
allocate among the Offered Series and all other Series outstanding all
collections of Finance Charge Receivables and Principal Receivables and the
Defaulted Amount with respect to such Monthly Period as described under
"Description of the Pooling and Servicing Agreement Allocations" in the
Prospectus and, with respect to the Offered Series specifically, as
described below.
Pursuant to the Pooling and Servicing Agreement, during each Monthly
Period, the Servicer will allocate to the Offered Series its Series
Allocable Finance Charge Collections, Series Allocable Principal
Collections and Series Allocable Defaulted Amount.
"Series Allocable Finance Charge Collections," "Series Allocable
Principal Collections" and "Series Allocable Defaulted Amount" mean, with
respect to the Offered Series and for any Monthly Period, the product of
(a) the Series Allocation Percentage for the Offered Series and (b) the
amount of collections of Finance Charge Receivables deposited in the
Collection Account, the amount of collections of Principal Receivables
deposited in the Collection Account and the amount of all Defaulted Amounts
with respect to such Monthly Period, respectively.
"Series Allocation Percentage" means, with respect to the Offered
Series and for any Monthly Period, the percentage equivalent of a fraction,
the numerator of which is the sum of the Series Adjusted Invested Amount
for the Offered Series as of the last day of the immediately preceding
Monthly Period plus the Required Transferor Amount for the Offered Series
as of the last day of the immediately preceding Monthly Period and the
denominator of which is the Trust Adjusted Invested Amount plus the sum of
all Required Transferor Amounts as of such last day.
"Series Adjusted Invested Amount" means, with respect to the Offered
Series and for any Monthly Period, the Series Invested Amount for the
Offered Series, less the excess, if any, of all reductions in the Invested
Amount (other than any reductions occasioned by payments of principal to
the Series Certificateholders or to the Collateral Interest Holder) as of
the last day of the preceding Monthly Period over the aggregate amount of
any reimbursement of such reductions as of such last day.
The Series Allocable Finance Charge Collections and the Series
Allocable Defaulted Amount for the Offered Series with respect to any
Monthly Period will be allocated to the Offered Certificates and the
Collateral Interest based on the Floating Allocation Percentage and the
remainder of such Series Allocable Finance Charge Collections and Series
Allocable Defaulted Amount will be allocated to the Transferor's Interest.
The "Floating Allocation Percentage" means, with respect to any Monthly
Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is the Adjusted Invested Amount
as of the last day of the preceding Monthly Period (or with respect to the
first Monthly Period, the Initial Invested Amount) and the denominator of
which is the product of (a) the sum of the total amount of the Principal
Receivables in the Trust as of such day (subject to adjustment to give
effect to designations of Additional Accounts and Removed Accounts) (or
with respect to the first Monthly Period, the total amount of Principal
Receivables in the Trust on the Closing Date) and the principal amount on
deposit in the Special Funding Account as of such day and (b) the Series
Allocation Percentage.
Investor Finance Charge Collections (which for any Monthly Period is
equal to the product of the Floating Allocation Percentage and the Series
Allocable Finance Charge Collections) will be reallocated among all Series
in Group I as set forth in "Description of the Pooling and Servicing
Agreement Reallocations Among Certificates of Different Series within a
Reallocation Group" in the Prospectus. Reallocated Investor Finance Charge
Collections allocated to the Offered Series and the Investor Default Amount
will be further allocated between the Class A Certificateholders, the Class
B Certificateholders and the Collateral Interest Holder in accordance with
the Class A Floating Percentage, the Class B Floating Percentage and the
Collateral Floating Percentage, respectively. The "Class A Floating
Percentage" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Adjusted Invested Amount 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 Invested Amount as of the
close of business on such day (or, with respect to the first Monthly
Period, the Initial Invested Amount). The "Class B Floating Percentage"
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 Adjusted Invested Amount 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 Invested Amount at the close of business on
such day (or with respect to the first Monthly Period, the Initial Invested
Amount). The "Collateral Floating Percentage" 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 Invested Amount 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 Invested Amount as of the close of business on such day (or with
respect to the first Monthly Period, the Initial Invested Amount).
The Series Allocable Principal Collections for the Offered Series will
be allocated to the Offered Certificates and the Collateral Interest based
on the Principal Allocation Percentage and the remainder of such Series
Allocable Principal Collections will be allocated to the Transferor's
Interest. The "Principal Allocation Percentage" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never
exceed 100%) of a fraction, the numerator of which is (a) during the
Revolving Period, the Series Adjusted Invested Amount for the Offered
Series as of the last day of the immediately preceding Monthly Period (or,
in the case of the first Monthly Period, the Closing Date) and (b) during
the Controlled Accumulation Period or the Early Amortization Period, the
Series Adjusted Invested Amount for the Offered Series as of the last day
of the Revolving Period and the denominator of which is the product of (i)
the sum of the total amount of Principal Receivables in the Trust as of the
last day of the immediately preceding Monthly Period (subject to adjustment
to give effect to designations of Additional Accounts and Removed Accounts)
and the principal amount on deposit in the Special Funding Account as of
such last day (or, in the case of the first Monthly Period, the Closing
Date) and (ii) the Series Allocation Percentage for the Offered Series as
of the last day of the immediately preceding Monthly Period; provided,
however, that because the Offered Certificates are subject to being paired
with a future Series, if a Pay Out Event or a Reinvestment Event (as those
terms are defined in the related Supplement) occurs with respect to a
Paired Series during the Controlled Accumulation Period with respect to the
Offered Series, the Transferor may, by written notice delivered to the
Trustee and the Servicer, designate a different numerator for the foregoing
fraction, provided that such numerator is not less than the Adjusted
Invested Amount as of the last day of the revolving period for such Paired
Series and the Transferor shall have received written notice from each
Rating Agency that such designation will satisfy the Rating Agency
Condition 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 the 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 lapse of time, would constitute a Pay
Out Event, to occur with respect to the Offered Series.
Such amounts so allocated to the Offered Certificates and the
Collateral Interest will be further allocated to the Class A
Certificateholders, the Class B Certificateholders and the Collateral
Interest Holder based on the Class A Principal Percentage, the Class B
Principal Percentage and the Collateral Principal Percentage, respectively.
The "Class A Principal Percentage" means, with respect to any Monthly
Period (a) during the Revolving Period, the percentage equivalent (which
shall never exceed 100%) of a fraction, the numerator of which is equal to
the Class A Invested Amount as of the last day of the immediately preceding
Monthly Period (or, in the case of the first Monthly Period, the Class A
Initial Invested Amount), and the denominator of which is equal to the
Invested Amount as of such day (or, in the case of the first Monthly
Period, the Initial Invested Amount) and (b) during the Controlled
Accumulation Period or the Early Amortization Period, the percentage
equivalent (which shall never exceed 100%) of a fraction, the numerator of
which is the Class A Invested Amount as of the end of the Revolving Period,
and the denominator of which is the Invested Amount as of such day. The
"Class B Principal Percentage" means, with respect to any Monthly Period,
(i) during the Revolving Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which
is the Class B Invested Amount as of the last day of the immediately
preceding Monthly Period (or, in the case of the first Monthly Period, the
Class B Initial Invested Amount) and the denominator of which is the
Invested Amount as of such day (or, in the case of the first Monthly
Period, the Initial Invested Amount) and (ii) during the Controlled
Accumulation Period or the Early Amortization Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is the Class B Invested Amount as of the end of the
Revolving Period, and the denominator of which is the Invested Amount as of
such day. The "Collateral Principal Percentage" means, with respect to any
Monthly Period, (i) during the Revolving Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of
which is the Collateral Invested Amount as of the last day of the
immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Collateral Initial Invested Amount) and the denominator of
which is the Invested Amount as of such day (or in the case of the first
Monthly Period, the Initial Invested Amount) and (ii) during the Controlled
Accumulation Period or the Early Accumulation Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is the Collateral Invested Amount as of the end of the
Revolving Period, and the denominator of which is the Invested Amount as of
such day.
As used herein, the following terms have the meanings indicated:
"Class A Invested Amount" for any date means an amount equal to
(i) the Class A Initial Invested Amount, less (ii) the amount of
principal payments made to holders of the Class A Certificates on or
prior to such date, less (iii) the excess, if any, of the aggregate
amount of Class A Investor Charge-Offs for all prior Distribution
Dates over the aggregate amount of any reimbursements of Class A
Investor Charge-Offs for all Distribution Dates prior to such date.
"Class B Invested Amount" for any date means an amount equal to
(i) the Class B Initial Invested Amount, less (ii) the amount of
principal payments made to holders of the Class B Certificates on or
prior to such date, less (iii) the aggregate amount of Class B
Investor Charge-Offs for all prior Distribution Dates, less (iv) the
aggregate amount of Reallocated Principal Collections for all prior
Distribution Dates which have been used to fund the Required Amount
with respect to such Distribution Dates (excluding any Reallocated
Principal Collections that have resulted in a reduction of the
Collateral Invested Amount), less (v) an amount equal to the amount by
which the Class B Invested Amount has been reduced to cover the Class
A Investor Default Amount on all prior Distribution Dates as described
herein under " Defaulted Receivables; Investor Charge-Offs," plus
(vi) the aggregate amount of Excess Spread and Excess Finance Charge
Collections allocated to the Offered Series and applied on all prior
Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (iii), (iv) and (v); provided,
however, that the Class B Invested Amount may not be reduced below
zero.
"Class A Adjusted Invested Amount" for any date means an amount
equal to the then current Class A Invested Amount less the funds on
deposit in the Principal Funding Account (up to the Class A Invested
Amount) on such date.
"Class B Adjusted Invested Amount" for any date means an amount
equal to the Class B Invested Amount less the funds on deposit in the
Principal Funding Account in excess of the Class A Invested Amount on
such date.
"Collateral Invested Amount" for any date means an amount equal
to (a) the Collateral Initial Invested Amount, less (b) the aggregate
amount of principal payments made to the Collateral Interest Holder
prior to such date, less (c) the aggregate amount of Collateral
Charge-Offs for all prior Distribution Dates, less (d) the aggregate
amount of Reallocated Principal Collections for all prior Distribution
Dates, less (e) an amount equal to the aggregate amount by which the
Collateral Invested Amount has been reduced to fund the Class A
Investor Default Amount and the Class B Investor Default Amount on all
prior Distribution Dates as described under " Defaulted Receivables;
Investor Charge-Offs," and plus (f) the aggregate amount of Excess
Spread and Excess Finance Charge Collections allocated to the Offered
Series and applied on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c),
(d) and (e); provided, however, that the Collateral Invested Amount
may not be reduced below zero.
"Invested Amount" for any date means an amount equal to the sum
of the Class A Invested Amount, the Class B Invested Amount and the
Collateral Invested Amount on such date.
PRINCIPAL FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee,
on behalf of the Trust, the Principal Funding Account as a deposit account
meeting the eligibility requirements specified in the Pooling and Servicing
Agreement (an "Eligible Deposit Account") held for the benefit of the
Series Certificateholders. During the Controlled Accumulation Period, the
Servicer will transfer collections in respect of Principal Receivables,
Shared Principal Collections allocated to the Offered Series and other
amounts described herein to be treated in the same manner as collections of
Principal Receivables from the Collection Account to the Principal Funding
Account as described below under " Application of Collections."
Unless a Pay Out Event has occurred with respect to the Offered
Certificates, all amounts on deposit in the Principal Funding Account (the
"Principal Funding Account Balance") on any Distribution Date (after giving
effect to any deposits to, or withdrawals from, the Principal Funding
Account to be made on such Distribution Date) will be invested to the
following Distribution Date by the Trustee at the direction of the Servicer
in Eligible Investments. On each Distribution Date with respect to the
Controlled Accumulation Period the interest and other investment income
(net of investment expenses and losses) earned on such investments (the "
Principal Funding Investment Proceeds") will be withdrawn from the
Principal Funding Account and will be treated as a portion of Class A
Available Funds. If such investments with respect to any such Distribution
Date yield less than the Class A Certificate Rate, the Principal Funding
Investment Proceeds with respect to such Distribution Date will be less
than the Covered Amount for such Distribution Date. It is intended that any
such shortfall will be funded from other Class A Available Funds (including
a withdrawal from the Reserve Account, if necessary, as described below
under " Reserve Account"). The Available Reserve Account Amount at any
time will be limited and there can be no assurance that sufficient funds
will be available to fund any such shortfall. The "Covered Amount" for any
Distribution Date with respect to the Controlled Accumulation Period or the
first Distribution Date with respect to the Early Amortization Period Date,
means if such Distribution Date occurs prior to the payment in full of the
Class A Invested Amount, an amount equal to one-twelfth of the product of
(i) the weighted average of the Class A Certificate Rate and the Class B
Certificate Rate and (ii) the Principal Funding Account Balance, if any,
as of the preceding Distribution Date.
RESERVE ACCOUNT
The Servicer will establish and maintain in the name of the Trustee,
on behalf of the Trust, an Eligible Deposit Account for the benefit of the
Class A Certificateholders and the Collateral Interest Holder (the "Reserve
Account"). The Reserve Account is established to assure the subsequent
distribution of interest on the Class A Certificates as provided in this
Prospectus Supplement during the Controlled Accumulation Period. On each
Distribution Date from and after the Reserve Account Funding Date, but
prior to the termination of the Reserve Account, the Trustee, acting
pursuant to the Servicer's instructions, will apply Excess Spread and
Excess Finance Charge Collections allocated to the Offered Series (in the
order of priority described below under " Application of Collections
Excess Spread; Excess Finance Charge Collections") to increase the amount
on deposit in the Reserve Account (to the extent such amount is less than
the Required Reserve Account Amount). In addition, on each such
Distribution Date, the Transferor will have the option, but will not be
required, to make a deposit in the Reserve Account to the extent that the
amount on deposit in the Reserve Account, after giving effect to any Excess
Spread and Excess Finance Charge Collections allocated and available to be
deposited in the Reserve Account on such Distribution Date, is less than
the Required Reserve Account Amount. The "Reserve Account Funding Date"
will be the Distribution Date with respect to the Monthly Period that
commences three months prior to the Distribution Date with respect to the
first Monthly Period in the Controlled Accumulation Period, or such earlier
date as the Transferor may determine. The "Required Reserve Account Amount"
for any Distribution Date on or after the Reserve Account Funding Date will
be equal to 0.5% of the Class A Invested Amount as of the preceding
Distribution Date, or any other amount designated by the Transferor
provided that the Transferor has received written notice from each Rating
Agency that such designation will satisfy the Rating Agency Condition. On
each Distribution Date, after giving effect to any deposit to be made to,
and any withdrawal to be made from, the Reserve Account on such
Distribution Date, the Trustee will withdraw from the Reserve Account an
amount equal to the excess, if any, of the amount on deposit in the Reserve
Account over the Required Reserve Account Amount and shall distribute such
excess to the Collateral Interest Holder for application in accordance with
the terms of the Loan Agreement.
Provided that the Reserve Account has not terminated as described
below, all amounts on deposit in the Reserve Account on any Distribution
Date (after giving effect to any deposits to, or withdrawals from, the
Reserve Account to be made on such Distribution Date) will be invested to
the following Distribution Date by the Trustee at the direction of the
Servicer in Eligible Investments. The interest and other investment income
(net of investment expenses and losses) earned on such investments will be
retained in the Reserve Account (to the extent the amount on deposit
therein is less than the Required Reserve Account Amount) or deposited in
the Collection Account and treated as collections of Finance Charge
Receivables allocable to the Offered Series.
On or before each Distribution Date with respect to the Controlled
Accumulation Period and on the first Distribution Date with respect to the
Early Amortization Period, a withdrawal will be made from the Reserve
Account, and the amount of such withdrawal will be deposited in the
Collection Account and included in collections of Finance Charge
Receivables in an amount equal to the lesser of (a) the Available Reserve
Account Amount with respect to such Distribution Date and (b) the excess,
if any, of the Covered Amount with respect to such Distribution Date over
the Principal Funding Investment Proceeds with respect to such Distribution
Date; provided that the amount of such withdrawal will be reduced to the
extent that funds otherwise would be available to be deposited in the
Reserve Account on such Distribution Date. On each Distribution 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 Distribution Date) and the Required
Reserve Account Amount for such Distribution Date.
The Reserve Account will be terminated following the earlier to occur
of (a) the termination of the Trust pursuant to the Pooling and Servicing
Agreement, (b) the date on which the Offered Certificates are paid in full
and (c) if the Controlled Accumulation Period has not commenced, the
occurrence of a Pay Out Event with respect to the Offered Certificates or,
if the Controlled Accumulation Period has commenced, the earlier of the
first Distribution Date with respect to the Early Amortization Period and
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 Class A
Certificateholders.
REALLOCATION OF CASH FLOWS
With respect to each Distribution Date, on each Determination Date,
the Servicer will determine the amount (the "Class A Required Amount"),
which will be equal to the amount, if any, by which (a) the sum of (i)
Class A Monthly Interest for such Distribution Date, (ii) any Class A
Outstanding Monthly Interest, (iii) any Class A Additional Interest, (iv)
if the Bank or an affiliate of the Bank is no longer the Servicer, the
Class A Servicing Fee for such Distribution Date and any unpaid Class A
Servicing Fee and (v) the Class A Investor Default Amount, if any, for such
Distribution Date exceeds the Class A Available Funds for the related
Monthly Period. If the Class A Required Amount is greater than zero,
Excess Spread and Excess Finance Charge Collections allocated to the
Offered Series and available for such purpose will be used to fund the
Class A Required Amount with respect to such Distribution Date. If such
Excess Spread and Excess Finance Charge Collections are insufficient to
fund the Class A Required Amount, the amounts, if any, available on deposit
in the Cash Collateral Account will be used to fund the remaining Class A
Required Amount. If such amounts on deposit in the Cash Collateral Account
are insufficient to fund the remaining Class A Required Amount,collections
of Principal Receivables allocable first to the Collateral Invested Amount
and then to the Class B Certificates for the related Monthly Period ("
Reallocated Principal Collections") will then 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 and Excess
Finance Charge Collections allocated to the Offered Series, and the
amounts, if any, available on deposit in the Cash Collateral Account are
insufficient to fund the Class A Required Amount for such related Monthly
Period, then the Collateral Invested Amount (after giving effect to
reductions for any Collateral Charge-Offs and Reallocated Principal
Collections on such Distribution Date) will be reduced by the amount of
such excess (but not by more than the Class A Investor Default Amount for
such Distribution Date). In the event that such reduction would cause the
Collateral Invested Amount to be a negative number, the Collateral Invested
Amount will be reduced to zero, and the Class B Invested Amount (after
giving effect to reductions for any Class B Investor Charge-Offs and any
Reallocated Class B Principal Collections for which the Collateral Invested
Amount was not reduced on such Distribution Date) will be reduced by the
amount by which the Collateral Invested Amount would have been reduced
below zero (but not by more than the excess of the Class A Investor Default
amount, if any, for such Distribution Date over the amount of such
reduction, if any, of the Collateral Invested Amount with respect to such
Distribution Date). In the event that such reduction would cause the Class
B Invested Amount to be a negative number, the Class B Invested Amount will
be reduced to zero and the Class A Invested Amount will be reduced by the
amount by which the Class B Invested Amount would have been reduced below
zero (but not by more than the excess, if any, of the Class A Investor
Default Amount for such Distribution Date over the amount of the
reductions, if any, of the Collateral Invested Amount and the Class B
Invested Amount with respect to such Distribution Date as described above).
Any such reduction in the Class A Invested Amount will have the effect of
slowing or reducing the return of principal and interest to the Class A
Certificateholders. In such case, the Class A Certificateholders will bear
directly the credit and other risks associated with their undivided
interest in the Trust. See " Defaulted Receivables; Investor Charge-Offs"
below.
With respect to each Distribution Date, on each Determination 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 for such Distribution Date, (ii) any Class
B Outstanding Monthly Interest, (iii) any Class B Additional Interest, and
(iv) if the Bank or an affiliate of the Bank is no longer the Servicer, the
Class B Servicing Fee for such Distribution Date and any unpaid Class B
Servicing Fee exceeds the Class B Available Funds for the related Monthly
Period and (b) the Class B Investor Default Amount. If the Class B Required
Amount is greater than zero, Excess Spread and Excess Finance Charge
Collections allocated to the Offered Series and 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 Distribution
Date. If such Excess Spread and Excess Finance Charge Collections available
with respect to such Distribution Date are less than the Class B Required
Amount, the amounts, if any, available on deposit in the Cash Collateral
Account not required to fund the Class A Required Amount will be used to
fund the remaining Class B Required Amount. If such amounts on deposit in
the Cash Collateral Account are insufficient to fund the remaining Class B
Required Amount, Reallocated Principal Collections allocable to the
Collateral Interest and not required to fund the Class A Required Amount
for the related Monthly Period will then be used to fund the remaining
Class B Required Amount. If such Reallocated Principal Collections
allocable to the Collateral Interest with respect to the related Monthly
Period are insufficient to fund the remaining Class B Required Amount, then
the Collateral Invested Amount (after any adjustments made thereto for the
benefit of the Class A Certificateholders) will be reduced by the amount of
such insufficiency (but not by more than the Class B Investor Default
Amount for such Distribution Date). In the event that such reduction would
cause the Collateral Invested Amount to be a negative number, the
Collateral Invested Amount will be reduced to zero, and the Class B
Invested Amount will be reduced by the amount by which the Collateral
Invested Amount would have been reduced below zero (but not by more than
the excess of the Class B Investor Default Amount for such Distribution
Date over the amount of such reduction of the Collateral Invested Amount),
and the Class B Certificateholders will bear directly the credit and other
risks associated with their undivided interests in the Trust. See "
Defaulted Receivables; Investor Charge-Offs" below.
Reductions of the Class A Invested Amount or Class B Invested Amount
shall thereafter be reimbursed and the Class A Invested Amount or Class B
Invested Amount increased on each Distribution Date by the amount, if any,
of Excess Spread and Excess Finance Charge Collections allocable and
available to reimburse such amounts. See " Application of Collections
Excess Spread; Excess Finance Charge Collections" below. When such
reductions of the Class A Invested Amount and Class B Invested Amount have
been fully reimbursed, reductions of the Collateral Invested Amount shall
be reimbursed to the extent of the full amount of any prior reduction
thereof.
APPLICATION OF COLLECTIONS
Payment of Fees, Interest and Other Items. On each Distribution Date,
the Trustee, acting pursuant to the Servicer's instructions, will apply the
Class A Available Funds, Class B Available Funds and Collateral Available
Funds (see " Interest Payments" above) on deposit in the Collection
Account in the following priority:
(A) On each Distribution Date, an amount equal to the Class A
Available Funds with respect to such Distribution Date will be
distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for such
Distribution Date, plus any Class A Outstanding Monthly Interest, plus
additional interest with respect to any such Class A Outstanding
Monthly Interest at a rate equal to the Class A Certificate Rate plus
2% per annum (the "Class A Additional Interest"), will be distributed
to holders of the Class A Certificates;
(ii) if the Bank or an affiliate of the Bank is no longer the
Servicer, an amount equal to the Class A Servicing Fee for such
Distribution Date, plus the amount of any Class A Servicing Fee
previously due but not distributed to the Servicer on a prior
Distribution Date, will be distributed to the Servicer;
(iii) an amount equal to the Class A Investor Default Amount for
such Distribution Date will be treated as a portion of Available
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed or deposited as described under "
Excess Spread; Excess Finance Charge Collections" below.
(B) On each Distribution Date, an amount equal to the Class B
Available Funds with respect to such Distribution Date will be
distributed in the following priority:
(i) an amount equal to Class B Monthly Interest for such
Distribution Date, plus the amount of any Class B Outstanding Monthly
Interest, plus any additional interest with respect to any such Class
B Outstanding Monthly Interest at a rate equal to the Class B
Certificate Rate plus 2% per annum ("Class B Additional Interest"),
will be distributed to the holders of the Class B Certificates;
(ii) if the Bank or an affiliate of the Bank is no longer the
Servicer, an amount equal to the Class B Servicing Fee for such
Distribution Date, plus the amount of any Class B Servicing Fee
previously due but not distributed to the Servicer on a prior
Distribution Date, will be distributed to the Servicer; and
(iii) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed or deposited as described under "
Excess Spread; Excess Finance Charge Collections" below.
(C) On each Distribution Date, an amount equal to the Collateral
Available Funds with respect to such Distribution Date will be
distributed or deposited in the following priority:
(i) if the Bank or an affiliate of the Bank is no longer the
Servicer, an amount equal to the Collateral Interest Servicing Fee for
such Distribution Date, plus the amount of any Collateral Interest
Servicing Fee previously due but not distributed to the Servicer on a
prior Distribution Date, 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 or deposited as described
under " Excess Spread; Excess Finance Charge Collections" below.
"Class A Monthly Interest" means, with respect to any Distribution
Date, an amount equal to one-twelfth of the product of the Class A
Certificate Rate and (ii) the outstanding principal balance of the Class A
Certificates as of the close of business on the preceding Record Date (or
with respect to the initial Distribution Date, the Closing Date).
"Class A Outstanding Monthly Interest" means, with respect to any
Distribution Date, the amount of Class A Monthly Interest previously due
but not paid to the Class A Certificateholders.
"Class B Monthly Interest" means, with respect to any Distribution
Date, an amount equal to one-twelfth of the product of (i) the Class B
Certificate Rate and (ii) the Class B Invested Amount as of the close of
business on the last day of the preceding Record Date (or with respect to
the initial Distribution Date, the Closing Date).
"Class B Outstanding Monthly Interest" means, with respect to any
Distribution Date, the amount of Class B Monthly Interest previously due
but not paid to the Class B Certificateholders.
"Collateral Available Funds" means, with respect to any Monthly
Period, an amount equal to the Collateral Floating Percentage of the sum of
the Reallocated Investor Finance Charge Collections (including any
investment earnings and certain other amounts that are to be treated as
collections of Finance Charge Receivables allocable to the Offered Series
in accordance with the Pooling and Servicing Agreement and the Offered
Series Supplement) and the amounts withdrawn from the Yield Supplement
Account on the related Distribution Date.
"Excess Spread" means, with respect to any Distribution Date, an
amount equal to the sum of the amounts described in clause (A)(iv) above,
clause (B)(iii) above and clause (C)(ii) above.
Excess Spread; Excess Finance Charge Collections. On each
Distribution Date, the Trustee, acting in accordance with the applicable
monthly Servicer's Certificate, will apply Excess Spread and Excess Finance
Charge Collections allocated to the Offered Series with respect to the
related Monthly Period, to make the following distributions or deposits in
the following priority:
(a) an amount equal to the Class A Required Amount, if any, with
respect to the related Monthly Period will be used to fund any
deficiency pursuant to clauses (i), (ii) and (iii) above under "
Payment of Fees, Interest and Other Items" in such order of priority;
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed will be treated
as a portion of Available Principal Collections for such Distribution
Date as described under " Payments of Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with
respect to such Distribution Date will be (I) used to fund any
deficiency pursuant to clauses (B)(i) and (ii) above under " Payment
of Fees, Interest and Other Items" in such order of priority and then
(II) treated, up to the Class B Investor Default Amount, as a portion
of Available Principal Collections for such Distribution Date;
(d) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (iii), (iv) and
(v) of the definition of "Class B Invested Amount" under " Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be treated
as a portion of Available Principal Collections for such Distribution
Date;
(e) an amount equal to Collateral Monthly Interest for such
Distribution Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Interest Holder
on a prior Distribution Date and any Collateral Additional Interest
previously due but not distributed to the Collateral Interest Holder
on a prior Distribution Date, will be distributed to the Collateral
Interest Holder for application in accordance with the Loan Agreement;
(f) an amount equal to the Monthly Servicing Fee due but not paid
to the Servicer on such Distribution Date or a prior Distribution Date
shall be paid to the Servicer;
(g) an amount equal to the Collateral Default Amount shall be
treated as a portion of Available Principal Collections with respect
to such Distribution Date;
(h) an amount equal to the aggregate amount by which the
Collateral Invested Amount has been reduced pursuant to clauses (c),
(d) and (e) of the definition of "Collateral Invested Amount" under "
Allocation Percentages" above (but not in excess of the aggregate
amount of such reductions which have not been previously reimbursed)
shall be treated as a portion of Available Principal Collections for
such Distribution Date;
(i) an amount up to the excess, if any, of the Required Cash
Collateral Amount over the amount that would otherwise remain in the
Cash Collateral Account on such Distribution Date will be deposited
into the Cash Collateral Account;
(j) on each Distribution 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" above, an amount up
to the excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount shall be deposited into the Reserve
Account;
(k) an amount equal to the aggregate of any other amounts then
required to be applied pursuant to the Loan Agreement among the
Transferor, the Trustee, the Servicer and the Collateral Interest
Holder (the "Loan Agreement") (to the extent such amounts are required
to be applied pursuant to the Loan Agreement out of Excess Spread and
Excess Finance Charge Collections) shall be distributed to the
Collateral Interest Holder for application in accordance with the Loan
Agreement; and
(l) the balance, if any, will constitute a portion of Excess
Finance Charge Collections for such Distribution Date and will be
available for allocation to other Excess Allocation Series or to the
holders of the Transferor Certificates as described in "Description of
the Pooling and Servicing Agreement Sharing of Excess Finance Charge
Collections Among Excess Allocation Series" in the Prospectus.
"Collateral Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i)(A) a fraction, the numerator of
which is the actual number of days in the period from and including the
preceding Distribution Date to but excluding such Distribution Date and the
denominator of which is 360, times (B) the Collateral Rate and (ii) the
Collateral Invested Amount as of the preceding Record Date; provided,
however, with respect to the first Distribution Date, Collateral Monthly
Interest shall be equal to the interest accrued on the Collateral Initial
Invested Amount at the Collateral Rate for the period from the Closing Date
to but excluding the first Distribution Date.
"Collateral Rate" means a rate specified in the Loan Agreement not to
exceed one-month LIBOR plus [1.00]% per annum.
"Collateral Additional Interest" means, with respect to any
Distribution Date, additional interest with respect to Collateral Monthly
Interest due but not paid to the Collateral Interest Holder on a prior
Distribution Date at a rate equal to the Collateral Rate.
Payments of Principal. On each Distribution Date, the Trustee, acting
pursuant to the Servicer's instructions, will distribute Available
Principal Collections (see " Principal Payments" above) on deposit in the
Collection Account in the following priority:
(i) on each Distribution Date with respect to the Revolving
Period, all such Available Principal Collections will be distributed
or deposited in the following priority:
(A) an amount equal to the Collateral Monthly Principal will be
paid to the Collateral Interest Holder to be applied in accordance
with the terms of the Loan Agreement; and
(B) the balance will be treated as Shared Principal Collections
and applied as described under "Description of the Pooling and
Servicing Agreement Shared Principal Collections" in the Prospectus;
(ii) on each Distribution Date with respect to the Controlled
Accumulation Period, all such Available Principal Collections will be
distributed or deposited in the following priority:
(A) an amount equal to the lesser of (x) the Controlled Deposit
Amount and (y) the sum of the Class A Adjusted Invested Amount and the
Class B Adjusted Invested Amount will be deposited in the Principal
Funding Account;
(B) for each Distribution Date before the Class B Invested
Amount is paid in full with respect to which a reduction in the
Required Enhancement Amount has occurred, an amount equal to the
Collateral Monthly Principal will be paid to the Collateral Interest
Holder to be applied in accordance with the Loan Agreement;
(C) for each Distribution Date beginning on the Distribution
Date on which the Class B Invested Amount is paid in full, an amount
up to the Collateral Invested Amount will be paid to the Collateral
Interest Holder to be applied in accordance with the Loan Agreement;
and
(D) for each Distribution Date, the balance, if any, of
Available Principal Collections not applied pursuant to paragraphs (A)
and (B) or (C) (as applicable) above will be treated as Shared
Principal Collections and applied as described under "Description of
the Pooling and Servicing Agreement Shared Principal Collections" in
the Prospectus; and
(iii) on each Distribution Date with respect to the Early
Amortization Period, all such Available Principal Collections will be
distributed as follows:
(A) an amount up to the Class A Adjusted Invested Amount will be
distributed to the Class A Certificateholders;
(B) for each Distribution Date beginning on the Distribution
Date on which the Class A Invested Amount is paid in full, an amount
up to the Class B Adjusted Invested Amount will be distributed to the
Class B Certificateholders;
(C) for each Distribution Date beginning on the Distribution
Date on which the Class B Invested Amount is paid in full, an amount
up to the Collateral Invested Amount will be paid to the Collateral
Interest Holder; and
(D) for each Distribution Date, after giving effect to
paragraphs (A), (B) and (C) above, an amount equal to the balance, if
any, of such Available Principal Collections will be allocated to
Shared Principal Collections and applied in accordance with the
Pooling and Servicing Agreement.
"Controlled Accumulation Amount" means for any Distribution Date with
respect to the Controlled Accumulation Period, $________; provided,
however, that, if the commencement of the Controlled Accumulation Period is
delayed as described above under " Principal Payments," the Controlled
Accumulation Amount for each Distribution Date with respect to the
Controlled Accumulation Period may be different for each Distribution Date
with respect to the Controlled Accumulation Period and will be determined
by the Transferor in accordance with the Offered Series Supplement based on
the principal payment rates for the Accounts and on the invested amounts of
other Principal Sharing Series that are scheduled to be in their revolving
periods and then scheduled to create Shared Principal Collections during
the Controlled Accumulation Period.
"Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the Controlled Accumulation Period, the
excess, if any, of the Controlled Accumulation Amount for such Distribution
Date over the amount deposited in the Principal Funding Account on such
Distribution Date and (b) on each subsequent Distribution Date with respect
to the Controlled Accumulation Period, the excess, if any, of the
Controlled Deposit Amount for such subsequent Distribution Date over the
amount deposited in the Principal Funding Account on such subsequent
Distribution Date.
"Controlled Deposit Amount" shall mean, for any Distribution Date with
respect to the Controlled Accumulation Period, an amount equal to the sum
of the Controlled Accumulation Amount for such Distribution Date and any
Deficit Controlled Accumulation Amount for the immediately preceding
Distribution Date.
"Collateral Monthly Principal" means (a) with respect to any
Distribution Date relating to the Revolving Period, an amount equal to the
lesser of (i) the excess, if any, of the sum of the Collateral Invested
Amount (after giving effect to reductions for any Collateral Charge-Offs
and Reallocated Principal Collections on such Distribution Date and after
giving effect to any adjustments thereto for the benefit of the holders of
the Offered Certificates on such Distribution Date) and the amount on
deposit in the Cash Collateral Account (after giving effect to any deposits
to be made therein or withdrawals to be made therefrom on such Distribution
Date) over the Required Enhancement Amount on such Distribution Date, and
(ii) the Available Principal Collections on such Distribution Date or (b)
with respect to any Distribution Date relating to the Controlled
Accumulation Period an amount equal to the lesser of (i) the excess, if
any, of the sum of the Collateral Invested Amount (after giving effect to
reductions for any Collateral Charge-Offs and Reallocated Principal
Collections on such Distribution Date and after giving effect to any
adjustments thereto for the benefit of the holders of the Offered
Certificates on such Distribution Date) and the amount on deposit in the
Cash Collateral Account (after giving effect to any deposits to be made
therein on such Distribution Date) over the Required Enhancement Amount on
such Distribution Date, and (ii) the excess, if any, of (A) the Available
Principal Collections on such Distribution Date over (B) the lesser of (x)
the Controlled Deposit Amount and (y) the sum of the Class A Adjusted
Invested Amount and the Class B Adjusted Invested Amount for such
Distribution Date.
YIELD SUPPLEMENT ACCOUNT
The Offered Certificates will have the benefit of an account (the "
Yield Supplement Account"), which will be held in the name of the Trustee
for the benefit of the holders of the Offered Certificates. On the Closing
Date, the Transferor will deposit $__________ (the "Initial Yield
Supplement Deposit") into the Yield Supplement Account from the proceeds of
the issuance of the Offered Certificates. On each Distribution Date, an
amount equal to the Yield Supplement Draw Amount will be released and
deposited into the Collection Account and will be treated as collections of
Finance Charge Receivables allocable to the Offered Certificates. The
Yield Supplement Account will not be replenished following the withdrawals
of amounts on deposit therein on any Distribution Date. The "Yield
Supplement Draw Amount" means ___% of the Initial Yield Supplement Deposit
for the six Distribution Dates from and including the______ ___, 199_
Distribution Date through and including the ______ ___, 1998 Distribution
Date, and ___% of the Initial Yield Supplement Deposit for the six
Distribution Dates from and including the ______ ___, 1998 Distribution
Date through and including the ______ ___, 199_ Distribution Date. See
"Description of the Certificates Yield Supplement Account."
CASH COLLATERAL ACCOUNT; REQUIRED ENHANCEMENT AMOUNT
The Servicer will establish and maintain in the name of the Trustee,
on behalf of the Trust, an Eligible Deposit Account for the benefit of the
holders of the Offered Certificates and the Collateral Interest Holder (the
"Cash Collateral Account"). Amounts on deposit in the Cash Collateral
Account are part of the Credit Enhancement for the Offered Certificates.
The Cash Collateral Account will have an initial Available Cash
Collateral Amount of $________. On each Distribution Date, the amount
available to be withdrawn from the Cash Collateral Account (the "Available
Cash Collateral Amount") will be equal to the lesser of (i) the amount on
deposit in the Cash Collateral Account (before giving effect to any deposit
to, or withdrawal from, the Cash Collateral Account on such Distribution
Date) and (ii) the Required Cash Collateral Amount. The "Required Cash
Collateral Amount" means, on any date of determination, the Required
Enhancement Amount less the Collateral Invested Amount, or any higher
amount designated by the Transferor.
The "Required Enhancement Amount" with respect to any Distribution
Date means (a) $___________ on the initial Distribution Date and (b) on any
Distribution Date thereafter, an amount equal to the greater of (i) ___% of
the sum of the Class A Adjusted Invested Amount and the Class B Invested
Amount on such Distribution Date, after taking into account deposits into
the Principal Funding Account on such Distribution Date and payments to be
made on such Distribution Date, and the Collateral Invested Amount on the
prior Distribution Date after any adjustments made on such prior
Distribution Date and (ii) the sum of (A) the product of (I) $__________,
(II) _% and (III) a fraction the numerator of which is the Available Cash
Collateral Amount as of the immediately preceding Distribution Date and the
denominator of which is the Total Enhancement as of such immediately
preceding Distribution Date (in each case after giving effect to all
deposits, withdrawals and payments made with respect to such immediately
preceding Distribution Date) and (B) the product of (I) $_____________,
(II) __% and (III) a fraction the numerator of which is equal to the
Collateral Invested Amount as of the immediately preceding Distribution
Date and the denominator of which is the Total Enhancement as of such
immediately preceding Distribution Date (in each case after giving effect
to all deposits, withdrawals and payments made with respect to such
immediately preceding Distribution Date); provided, however, (1) that if
certain reductions in the Collateral Invested Amount are made or if a Pay
Out Event occurs, the Required Enhancement Amount for such Distribution
Date shall equal the Required Enhancement Amount for the Distribution Date
immediately preceding the occurrence of such reduction or Pay Out Event,
(2) in no event shall the Required Enhancement Amount exceed the unpaid
principal amount of the Offered Certificates as of the last day of the
Monthly Period preceding such Distribution Date after taking into account
payments to be made on such Distribution Date and (3) the Required
Enhancement Amount may be reduced to a lesser amount at any time if the
Rating Agency Condition is satisfied. "Total Enhancement" means, on any
date of determination, the sum of the Available Cash Collateral Amount and
the Collateral Invested Amount.
With respect to any Distribution Date, if the Available Enhancement
Amount is less than the Required Enhancement Amount, Excess Spread and
Excess Finance Charge Collections allocated to the Offered Series and
available for such purposes will be allocated to increase the Collateral
Invested Amount to the extent of certain prior unreimbursed reductions
thereof and then deposited in the Cash Collateral Account to the extent of
such shortfall. See " Application of Collections Excess Spread; Excess
Finance Charge Collections."
All amounts on deposit in the Cash Collateral Account on any
Distribution Date (after giving effect to any deposits to, or withdrawals
from, the Cash Collateral Account to be made on such Distribution Date)
will be invested to the following Distribution Date by the Trustee at the
direction of the Servicer in Eligible Investments. The interest and other
investment income (net of investment expenses and losses) earned on such
investments will be retained in the Cash Collateral Account (to the extent
the amount on deposit therein is less than the Required Cash Collateral
Amount) or deposited in the Collection Account and treated as collections
of Finance Charge Receivables allocable to the Offered Series.
Under certain circumstances specified in the Loan Agreement, the
Transferor will have the option to elect to deposit certain amounts held
pursuant to the Loan Agreement into the Cash Collateral Account, which will
result in a reduction of the Collateral Invested Amount. Any such election
will have the effect of converting all or a portion of the Credit
Enhancement in the form of the Collateral Interest into Credit Enhancement
in the form of amounts on deposit in the Cash Collateral Account.
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On each Determination 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 (i) the Floating
Allocation Percentage with respect to such Monthly Period and (ii) the
Series Allocable Defaulted Amount for such Monthly Period. A portion of the
Investor Default Amount will be allocated to the Class A Certificates (the
"Class A Investor Default Amount") on each Distribution Date in an amount
equal to the product of the Class A Floating Percentage 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 Certificates (the "Class B Investor Default Amount") in an amount
equal to the product of the Class B Floating Percentage applicable during
the related Monthly Period and the Investor Default Amount for such Monthly
Period. An amount equal to the Class A Investor Default Amount for each
Monthly Period will be paid from Class A Available Funds, Excess Spread and
Excess Finance Charge Collections allocated to the Offered Series, from
amounts on deposit in the Cash Collateral Account to the extent of the
Available Cash Collateral Amount and from Reallocated Principal
Collections, if applicable, and applied as described above in "
Application of Collections Payment of Fees, Interest and Other Items." An
amount equal to the Class B Investor Default Amount for each Monthly Period
will be paid from Excess Spread and Excess Finance Charge Collections
allocated to the Offered Series, from amounts on deposit in the Cash
Collateral Account to the extent of the Available Cash Collateral Amount
remaining after application thereof with respect to the Class A Required
Amount and from Reallocated Principal Collections allocable to the
Collateral Invested Amount, if applicable, and applied as described above
under " Application of Collections Excess Spread; Excess Finance Charge
Collections."
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance
Charge Collections allocable to the Offered Series, amounts on deposit in
the Cash Collateral Account to the extent of the Available Cash Collateral
Amount and Reallocated Principal Collections, the Collateral Invested
Amount (after giving effect to reductions for any Collateral Charge-Offs
and any Reallocated Principal Collections on such Distribution Date) will
be reduced by the amount of such excess, but not by more than the lesser of
the Class A Investor Default Amount and the Collateral Invested Amount
(after giving effect to reductions for any Collateral Charge-Offs and any
Reallocated Principal Collections on such Distribution Date) for such
Distribution Date. In the event that such reduction would cause the
Collateral Invested Amount to be a negative number, the Collateral Invested
Amount will be reduced to zero, and the Class B Invested Amount (after
giving effect to reductions for any Class B Investor Charge-Offs and any
Reallocated Class B Principal Collections on such Distribution Date) will
be reduced by the amount by which the Collateral Invested Amount would have
been reduced below zero, but not by more than the excess, if any, of the
Class A Investor Default Amount for such Distribution Date over the amount
of such reduction, if any, of the Collateral Invested Amount with respect
to such Distribution Date. In the event that such reduction would cause the
Class B Invested Amount to be a negative number, the Class B Invested
Amount will be reduced to zero, and the Class A Invested Amount will be
reduced by the amount by which the Class B Invested Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class A
Investor Default Amount for such Distribution Date over the amount of the
reductions, if any, of the Collateral Invested Amount and of the Class B
Invested Amount with respect to such Distribution Date as described above
(a "Class A Investor Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the holders of the Class A
Certificates. If the Class A Invested Amount has been reduced by the amount
of any Class A Investor Charge-Offs, it will thereafter be increased on any
Distribution Date (but not by an amount in excess of the aggregate Class A
Investor Charge-Offs) by the amount of Excess Spread and Excess Finance
Charge Collections allocable to the Offered Series available for such
purpose as described above under " Application of Collections Excess
Spread; Excess Finance Charge Collections."
On each Distribution Date, if the Class B Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance
Charge Collections allocable to the Offered Series and not required to pay
the Class A Required Amount or reimburse Class A Investor Charge-Offs,
amounts on deposit in the Cash Collateral Account to the extent of the
Available Cash Collateral Amount not required to fund the Class A Required
Amount and Reallocated Principal Collections allocable to the Collateral
Interest and not required to fund the Class A Required Amount, then the
Collateral Invested Amount (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Distribution Date and after giving effect with respect to any adjustments
thereto as described in the preceding paragraph) will be reduced by the
amount of such excess, but not by more than the lesser of the Class B
Investor Default Amount and the Collateral Invested Amount (after giving
effect to reductions for any Collateral Charge-Offs and any Reallocated
Principal Collections on such Distribution Date and after giving effect
with respect to any adjustments thereto as described in the preceding
paragraph) for such Monthly Period. In the event that such reduction would
cause the Collateral Invested Amount to be a negative number, the
Collateral Invested Amount will be reduced to zero, and the Class B
Invested Amount will be reduced by the amount by which the Collateral
Invested Amount would have been reduced below zero, but not by more than
the excess, if any, of the Class B Investor Default Amount for such
Distribution Date over the amount of such reduction, if any, of the
Collateral Invested Amount with respect to such Distribution Date (a "Class
B Investor Charge-Off"). The Class B Invested Amount will also be reduced
by the amount of Reallocated Principal Collections in excess of the
Collateral Invested Amount (after giving effect to reductions for any
Collateral Charge-Offs and any Reallocated Principal Collections on such
Distribution Date) and the amount of any portion of the Class B Invested
Amount allocated to the Class A Certificates to avoid a reduction in the
Class A Invested Amount. The Class B Invested Amount will thereafter be
increased on any Distribution Date (but not by an amount in excess of the
amount of such reductions in the Class B Invested Amount) by the amount of
Excess Spread and Excess Finance Charge Collections allocable to the
Offered Series available for such purpose as described above under "
Application of Collections Excess Spread; Excess Finance Charge
Collections."
On each Distribution Date, if the Collateral Floating Percentage of
the Investor Default Amount (the "Collateral Default Amount") for such
Distribution Date exceeds the amount of Excess Spread and Excess Finance
Charge Collections allocated to the Offered Series which is allocated and
available to fund such amount as described under " Application of
Collections Excess Spread; Excess Finance Charge Collections," and
amounts on deposit in the Cash Collateral Account to the extent of the
Available Cash Collateral Amount not required to fund the Class A Required
Amount or the Class B Required Amount, the Collateral Invested Amount will
be reduced by the amount of such excess but not more than the lesser of the
Collateral Default Amount and the Collateral Invested Amount for such
Distribution 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 Invested Amount allocated to the
Class A Certificates to avoid a reduction in the Class A Invested Amount or
to the Class B Certificates to avoid a reduction in the Class B Invested
Amount. The Collateral Invested Amount will thereafter be increased on any
Distribution Date (but not by an amount in excess of the amount of such
reductions in the Collateral Invested Amount) by the amount of Excess
Spread and Excess Finance Charge Collections allocated to the Offered
Series allocated and available for that purpose as described under "
Application of Collections Excess Spread; Excess Finance Charge
Collections."
PAIRED SERIES
The Offered Certificates may be paired with one or more other Series
(each, a "Paired Series") at or after the commencement of the Controlled
Accumulation Period. As funds are accumulated in the Principal Funding
Account, the invested amount in the Trust of such Paired Series will
increase by up to a corresponding amount. Upon payment in full of the
Offered Certificates, assuming that there have been no unreimbursed charge-
offs with respect to any related Paired Series, the aggregate invested
amount of such related Paired Series will have been increased by an amount
up to an aggregate amount equal to the Invested Amount paid to or deposited
for the benefit of the Series Certificateholders after the Offered
Certificates were paired with the Paired Series. The issuance of a Paired
Series will be subject to the conditions described under "Description of
the Pooling and Servicing Agreement New Issuances" 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
the Series Certificateholders. See "Risk Factors Issuance of New Series"
and "Description of the Pooling and Servicing Agreement Paired Series" in
the Prospectus.
PAY OUT EVENTS
The "Pay Out Events" with respect to the Offered Certificates will
include each of the following:
(a) the occurrence of an Insolvency Event relating to the
Transferor or the occurrence of certain events of insolvency with
respect to the Bank unless, in the latter case, the Rating Agency
Condition is satisfied with respect to the deletion of the Bank from
this Pay Out Event;
(b) the Trust becomes an investment company within the meaning
of the Investment Company Act of 1940, as amended;
(c) a failure on the part of the Transferor (i) to make any
payment or deposit required under the Pooling and Servicing Agreement
or the Offered Series Supplement within five business days after the
day such payment or deposit is required to be made; or (ii) to observe
or perform any other covenants or agreements of the Transferor set
forth in the Pooling and Servicing Agreement or the Offered Series
Supplement, which failure has a material adverse effect on the Series
Certificateholders and which continues unremedied for a period of 60
days after written notice;
(d) any representation or warranty made by the Transferor in the
Pooling and Servicing Agreement or the Offered Series Supplement or
any information required to be given by the Transferor to the Trustee
to identify the Accounts proves to have been incorrect in any material
respect when made and continues to be incorrect in any material
respect for a period of 60 days after written notice and as a result
of which the interests of the Series Certificateholders are materially
and adversely affected; provided, however, that a Pay Out Event shall
not be deemed to occur thereunder if the Transferor has repurchased
the related Receivables or all such Receivables, if applicable, during
such period in accordance with the provisions of the Pooling and
Servicing Agreement;
(e) a failure by the Transferor to make an Addition to the Trust
within five business days after the day on which it is required to
make such Addition pursuant to the Pooling and Servicing Agreement or
the Offered Series Supplement;
(f) the occurrence of any Servicer Default;
(g) a reduction of the average Series Adjusted Portfolio Yield
for any three consecutive Monthly Periods to a rate less than the
average of the Base Rates for such three Monthly Periods; and
(h) the Transferor is unable for any reason to transfer
Receivables to the Trust in accordance with the Pooling and Servicing
Agreement or the Offered Series Supplement.
Then, in the case of any event described in subparagraph (c), (d) or
(f), after the applicable grace period, if any, set forth in such
subparagraphs, either the Trustee or the holders of Offered Certificates
evidencing more than 50% of the aggregate unpaid principal amount of
Offered Certificates by notice then given in writing to the Transferor and
the Servicer (and to the Trustee if given by the Series Certificateholders)
may declare that a Pay Out Event has occurred with respect to the Offered
Series as of the date of such notice, and, in the case of any event
described in subparagraph (a), (b), (e), (g) or (h), a Pay Out Event shall
occur with respect to the Offered Series without any notice or other action
on the part of the Trustee immediately upon the occurrence of such event.
For purposes of the Pay Out Event described in clause (g) above, the
terms "Base Rate" and "Series Adjusted Portfolio Yield" will be defined as
follows with respect to the Offered Certificates:
"Base Rate" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which
is equal to the sum of Class A Monthly Interest, Class B Monthly
Interest, Collateral Monthly Interest and the Monthly Servicing Fee
with respect to the Offered Certificates and the Collateral Interest
for the related Distribution Date and the denominator of which is the
Invested Amount as of the last day of the preceding Monthly Period.
"Series Adjusted Portfolio Yield" means, with respect to any
Monthly Period, the annualized percentage equivalent of a fraction,
(A) the numerator of which is equal to (a) Reallocated Investor
Finance Charge Collections (including any investment earnings and
certain other amounts that are to be treated as collections of Finance
Charges Receivables allocable to the Offered Series in accordance with
the Pooling and Servicing Agreement) for such Monthly Period, plus (b)
the amount of Principal Funding Investment Proceeds for the related
Distribution Date, plus (c) provided that each Rating Agency has
consented to the inclusion thereof in calculating the Series Adjusted
Portfolio Yield, any Excess Finance Charge Collections that are
allocated to the Offered Series, plus (d) the amount of funds
withdrawn from the Reserve Account and included in Class A Available
Funds for the Distribution Date with respect to such Monthly Period
and plus (e) the aggregate amount of funds withdrawn from the Yield
Supplement Account and included in Class A Available Funds, Class B
Available Funds and Collateral Available Funds for the Distribution
Date with respect to such Monthly Period, and less (f) the Investor
Default Amount for the Distribution Date with respect to such Monthly
Period, and (B) the denominator of which is the Invested Amount as of
the last day of the preceding Monthly Period.
If the proceeds of any sale of the Receivables following the
occurrence of an Insolvency Event with respect to the Transferor, as
described in the Prospectus under "Description of the Certificates Pay
Out Events and Reinvestment Events," allocated to the Class A Invested
Amount and the proceeds of any collections on the Receivables in the
Collection Account and any amounts on deposit in the Interest Funding
Account are not sufficient to pay in full the remaining amount due on the
Class A Certificates, the Class A Certificateholders will suffer a
corresponding loss and no such proceeds will be available to the Class B
Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to the Series
Certificateholders and the Collateral Interest Holder with respect to any
Distribution Date (the "Monthly Servicing Fee") shall be equal to one-
twelfth of the product of (a) 2.0% (the "Servicing Fee Rate") and (b) (i)
the Adjusted Invested Amount as of the last day of the Monthly Period
preceding such Distribution Date, less (ii) the product of (A) any amount
on deposit in the Special Funding Account as of the last day of the Monthly
Period preceding such Distribution Date and (B) the Series Allocation
Percentage for the Offered Series with respect to such Monthly Period (the
amount calculated pursuant to this clause (b) is referred to as the "
Servicing Base Amount"); provided, however, with respect to the first
Distribution Date, the Monthly Servicing Fee shall be equal to $ .
On each Distribution Date a portion of Interchange with respect to the
related Monthly Period that is on deposit in the Collection Account will be
withdrawn from the Collection Account and paid to the Servicer in payment
of a portion of the Monthly Servicing Fee with respect to such Monthly
Period ("Servicer Interchange"). The Servicer Interchange for any Monthly
Period will be an amount equal to the portion of collections of Finance
Charge Receivables allocated to the Invested Amount with respect to such
Monthly Period that is attributable to Interchange; provided, however, that
Servicer Interchange for a Monthly Period may not exceed one-twelfth of the
product of the Adjusted Invested Amount, as of the last day of such Monthly
Period and (ii) .75%. In the case of any insufficiency of Servicer
Interchange on deposit in the Collection Account on any Distribution Date,
a portion of the Monthly Servicing Fee with respect to such Monthly Period
will not be paid to the extent of such insufficiency and in no event shall
the Trust, the Trustee or the holders of the Offered Certificates or the
Collateral Interest Holder be liable for the share of the Monthly Servicing
Fee to be paid out of Servicer Interchange. The share of the Monthly
Servicing Fee allocable to the Class A Certificateholders with respect to
any Distribution Date (the "Class A Servicing Fee") shall be equal to one-
twelfth of the product of (a) the Class A Floating Percentage, (b) 1.25%
(the "Net Servicing Fee Rate") and (c) the Servicing Base Amount; provided,
however, that with respect to the first Distribution Date, the Class A
Servicing Fee shall be equal to $________. The share of the Monthly
Servicing Fee allocable to the Class B Certificateholders with respect to
any Distribution Date (the "Class B Servicing Fee") shall be equal to one-
twelfth of the product of (a) the Class B Floating Percentage, (b) the Net
Servicing Fee Rate and (c) the Servicing Base Amount; provided, however,
that with respect to the first Distribution Date, the Class B Servicing Fee
shall be equal to $_______. The share of the Monthly Servicing Fee
allocable to the Collateral Interest with respect to any Distribution Date
(the "Collateral Interest Servicing Fee") shall be equal to one-twelfth of
the product of (a) the Collateral Floating Percentage, (b) the Net
Servicing Fee Rate and (c) the Servicing Base Amount; provided, however,
that with respect to the first Distribution Date, the Collateral Interest
Servicing Fee shall be equal to $_______. The remainder of the Servicing
Fee shall be paid by the holders of the Transferor Certificates or the
certificateholders of other Series (as provided in the related
Supplements) and in no event will the Trust, the Trustee or the Series
Certificateholders be liable for the share of the Servicing Fee to be paid
by the holders of the Transferor Certificates or the certificateholders of
any other Series.
SERIES TERMINATION
If, on the Distribution Date which is two months prior to the Stated
Series Termination Date, the Invested Amount (after giving effect to all
changes therein on such date) exceeds zero, the Servicer will, within the
40-day period beginning on such date, solicit bids for the sale of
interests in the Principal Receivables or certain Principal Receivables,
together in each case with the related Finance Charge Receivables, in an
amount equal to the Invested Amount at the close of business on the last
day of the Monthly Period preceding the Termination Date (after giving
effect to all distributions required to be made on the Termination Date
other than from the proceeds of the sale). The Transferor and the
Collateral Interest Holder will be entitled to participate in, and to
receive notice of each bid submitted in connection with, such bidding
process. Upon the expiration of such 40-day period, the Trustee will
determine (a) which bid is the highest cash purchase offer (the "Highest
Bid") and (b) the amount (the "Available Final Distribution Amount") which
otherwise would be available in the Collection Account on the Termination
Date for distribution to the Series Certificateholders and the Collateral
Interest Holder. The Servicer will sell such Receivables on the Termination
Date to the bidder who provided the Highest Bid and will deposit the
proceeds of such sale in the Collection Account for allocation (together
with the Available Final Distribution Amount) to the Offered
Certificateholders' Interest and the Collateral Interest in the order of
priority specified herein.
REPORTS
No later than the second business day prior to each Distribution Date,
the Servicer will forward to the Trustee, the Paying Agent, each Rating
Agency and the Collateral Interest Holder, a statement (the "Monthly
Report") prepared by the Servicer setting forth certain information with
respect to the Trust and the Class A Certificates and the Class B
Certificates, including: (a) the aggregate amount of Principal Receivables
and Finance Charge Receivables in the Trust as of the end of such Monthly
Period; (b) the Invested Amount, the Class A Invested Amount, the Class B
Invested Amount and the Collateral Invested Amount at the close of business
on the last day of the preceding Monthly Period; (c) the amounts on deposit
in the Yield Supplement Account, the Cash Collateral Account and the
Available Credit Enhancement at the close of business on the last day of
the preceding Monthly Period; (d) the Series Allocation Percentage, the
Floating Allocation Percentage, the Class A Floating Percentage, the Class
B Floating Percentage and the Collateral Floating Percentage and the
Principal Allocation Percentage, the Class A Principal Percentage, the
Class B Principal Percentage and the Collateral Principal Percentage; (e)
the amount of collections of Principal Receivables and Finance Charge
Receivables processed during the related Monthly Period and the portion
thereof allocated to the Offered Certificateholders' Interest; (f) the
aggregate outstanding balance of Accounts that were 30, 60 and 90 days
or more delinquent as of the end of such Monthly Period; (g) the Investor
Default Amount, the Class A Investor Default Amount, the Class B Investor
Default Amount and the Collateral Default Amount and the Defaulted Amount
with respect to such Monthly Period; (h) the aggregate amount, if any, of
Class A Investor Charge-Offs, Class B Investor Charge-Offs, any reductions
in the Class B Invested Amount pursuant to clauses (iv) and (v) of the
definition of "Class B Invested Amount," under " Allocation Percentages"
above, and the amounts by which the Collateral Invested Amount has been
reduced pursuant to clauses (c), (d) and (e) of the definition of
"Collateral Invested Amount" under " - Allocation Percentages" above, and
any Class A or Class B Investor Charge-Offs reimbursed on the related
Monthly Period, for such Monthly Period; (i) the Monthly Servicing Fee,
Class A Servicing Fee, Class B Servicing Fee and Collateral Interest
Servicing Fee for such Monthly Period; (j) the Series Adjusted Portfolio
Yield for such Monthly Period; (k) the Base Rate for such Monthly Period;
(l) Reallocated Principal Collections; and (m) Shared Principal
Collections.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") among the Transferor, the Bank,
the underwriters of the Class A Certificates named below (the "Class A
Underwriters") and the underwriters of the Class B Certificates named below
(the "Class B Underwriters," and together with the Class A Underwriters,
the "Underwriters"), the Transferor has agreed to cause the Trust to sell
to the Underwriters, and the Underwriters have agreed to purchase, the
principal amount of the Class A Certificates and Class B Certificates set
forth opposite their names:
PRINCIPAL
AMOUNT OF
UNDERWRITERS OF THE CLASS A CLASS A
CERTIFICATES CERTIFICATES
Merrill Lynch, Pierce, Fenner & Smith
Incorporated $
$
Total . . . . . . . .
PRINCIPAL
AMOUNT OF
UNDERWRITERS OF THE CLASS B CLASS A
CERTIFICATES CERTIFICATES
Merrill Lynch, Pierce, Fenner & Smith
Incorporated $
$
Total . . . . . . . .
The Underwriting Agreement provides that the obligation of the Class A
Underwriters to pay for and accept delivery of the Class A Certificates and
the obligation of the Class B Underwriters to pay for and accept delivery
of the Class B Certificates are subject to the approval of certain legal
matters by their counsel and to certain other conditions. All of the
Offered Certificates will be issued if any are issued.
The Underwriters presently intend to make a market in the Offered
Certificates; however, they are not obligated to do so, any market-making
may be discontinued at any time, and there can be no assurance that an
active public market for the Offered Certificates will develop.
If the Underwriters create a short position in the Offered
Certificates in connection with the offering, i.e., if they sell more
Offered Certificates than are set forth on the cover page of this
Prospectus Supplement, the Underwriters may reduce that short position by
purchasing Offered Certificates in the open market.
In general, the purchase of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchase.
None of the Transferor, the Servicer, or the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the prices of the Offered
Certificates. In addition, none of the Transferor, the Servicer, or the
Underwriters makes any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without not ice.
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
% 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 % of the principal amount of the Class A Certificates to
certain brokers and dealers. After the initial public offering, the public
offering price and other selling terms may be changed by the Class A
Underwriters.
The Class B Underwriters propose initially to offer the Class B
Certificates to the public at the price set forth on the cover page hereof
and to certain dealers at such price less concessions not in excess of %
of the principal amount of the Class B Certificates. The Class B
Underwriters may allow, and such dealers may reallow, concessions not in
excess of % of the principal amount of the Class B Certificates to
certain brokers and dealers. After the initial public offering, the public
offering price and other selling terms may be changed by the Class B
Underwriters.
Each Underwriter has represented and agreed that (a) it has only
issued, distributed or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of
the Offered 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 or passed on, (b) 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 Offered Certificates in, from or
otherwise involving the United Kingdom and (c) if that Underwriter is an
authorized person under the Financial Services Act 1986, it has only
promoted and will only promote (as that term is defined in Regulation
1.02(2) of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991) to any person in the United Kingdom the scheme described
herein if that person is 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 1 991.
The Transferor and the Bank will indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof. The Underwriters have agreed to reimburse the Transferor for
certain expenses of the issuance and distribution of the Offered
Certificates.
LEGAL MATTERS
Certain legal matters relating to the Offered Certificates will be
passed upon for the Transferor and the Trust by Skadden, Arps, Slate,
Meagher & Flom LLP. Certain legal matters will be passed upon for the
Underwriters by Orrick, Herrington & Sutcliffe LLP. Certain legal matters
relating to the federal tax consequences of the issuance of the Offered
Certificates will be passed upon for the Transferor by Skadden, Arps,
Slate, Meagher & Flom LLP.
INDEX OF DEFINED TERMS
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Adjusted Invested Amount . . . . . . . . . . . . . . . . . . . . . . . S-6
Available Cash Collateral Amount . . . . . . . . . . . . . . . . . . . S-39
Available Enhancement Amount . . . . . . . . . . . . . . . . . . . . . S-13
Available Final Distribution Amount . . . . . . . . . . . . . . . . . . S-44
Available Principal Collections . . . . . . . . . . . . . . . . . . . . S-28
Available Reserve Account Amount . . . . . . . . . . . . . . . . . . . S-33
Average Receivables Outstanding . . . . . . . . . . . . . . . . . . . . S-20
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Base Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Cash Collateral Account . . . . . . . . . . . . . . . . . . . . . S-10, S-39
Class A Additional Interest . . . . . . . . . . . . . . . . . . . . . . S-35
Class A Adjusted Invested Amount . . . . . . . . . . . . . . . . .S-6, S-31
Class A Available Funds . . . . . . . . . . . . . . . . . . . . . . . . S-27
Class A Certificateholders' Interest . . . . . . . . . . . . . . . . . S-5
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Class A Floating Percentage . . . . . . . . . . . . . . . . . . . . . . S-30
Class A Initial Invested Amount . . . . . . . . . . . . . . . . . . . . S-4
Class A Invested Amount . . . . . . . . . . . . . . . . . . . . . .S-5, S-31
Class A Investor Charge-Off . . . . . . . . . . . . . . . . . . . S-12, S-41
Class A Investor Default Amount . . . . . . . . . . . . . . . . . . . . S-40
Class A Monthly Interest . . . . . . . . . . . . . . . . . . . . . . . S-36
Class A Outstanding Monthly Interest . . . . . . . . . . . . . . . . . S-36
Class A Principal Percentage . . . . . . . . . . . . . . . . . . . . . S-31
Class A Required Amount . . . . . . . . . . . . . . . . . . . . . S-10, S-33
Class A Scheduled Payment Date . . . . . . . . . . . . . . . . . . S-2, S-8
Class A Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Class A Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Class B Additional Interest . . . . . . . . . . . . . . . . . . . . . . S-35
Class B Adjusted Invested Amount . . . . . . . . . . . . . . . . .S-6, S-32
Class B Available Funds . . . . . . . . . . . . . . . . . . . . . . . . S-27
Class B Certificateholders' Interest . . . . . . . . . . . . . . . . . S-5
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Class B Floating Percentage . . . . . . . . . . . . . . . . . . . . . S-30
Class B Initial Invested Amount . . . . . . . . . . . . . . . . . . . . S-4
Class B Invested Amount . . . . . . . . . . . . . . . . . . . . . .S-6, S-31
Class B Investor Charge-Off . . . . . . . . . . . . . . . . . . . S-13, S-41
Class B Investor Default Amount . . . . . . . . . . . . . . . . . . . S-40
Class B Monthly Interest . . . . . . . . . . . . . . . . . . . . . . . S-36
Class B Outstanding Monthly Interest . . . . . . . . . . . . . . . . . S-36
Class B Principal Percentage . . . . . . . . . . . . . . . . . . . . . S-31
Class B Required Amount . . . . . . . . . . . . . . . . . . . . . S-11, S-34
Class B Scheduled Payment Date . . . . . . . . . . . . . . . . . . S-2,S-8
Class B Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Class B Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Collateral Additional Interest . . . . . . . . . . . . . . . . . . . . S-37
Collateral Available Funds . . . . . . . . . . . . . . . . . . . . . . S-36
Collateral Charge-Off . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Collateral Default Amount . . . . . . . . . . . . . . . . . . . . S-37, S-41
Collateral Floating Percentage . . . . . . . . . . . . . . . . . . . . S-30
Collateral Initial Invested Amount . . . . . . . . . . . . . . . . . . S-4
Collateral Interest . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Collateral Interest Holder . . . . . . . . . . . . . . . . . . . . . . S-5
Collateral Interest Servicing Fee . . . . . . . . . . . . . . . . . . . S-44
Collateral Invested Amount . . . . . . . . . . . . . . . . . . . .S-6, S-32
Collateral Monthly Interest . . . . . . . . . . . . . . . . . . . . . . S-37
Collateral Monthly Principal . . . . . . . . . . . . . . . . . . . . . S-39
Collateral Principal Percentage . . . . . . . . . . . . . . . . . . . . S-31
Collateral Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Controlled Accumulation Amount . . . . . . . . . . . . . . . . . . . . S-38
Controlled Accumulation Period . . . . . . . . . . . . . . . . . . . . S-8
Controlled Accumulation Period Length . . . . . . . . . . . . . . . . . S-28
Controlled Deposit Amount . . . . . . . . . . . . . . . . . . . . . . . S-39
Covered Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Deficit Controlled Accumulation Amount . . . . . . . . . . . . . . . . S-38
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . .S-2, S-27
Early Amortization Period . . . . . . . . . . . . . . . . . . . . . . . S-9
Eligible Deposit Account . . . . . . . . . . . . . . . . . . . . . . . S-32
Enhancement Invested Amount . . . . . . . . . . . . . . . . . . . . . . S-5
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Excess Spread . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-36
Floating Allocation Percentage . . . . . . . . . . . . . . . . . . . . S-30
Group I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Highest Bid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Initial Cash Collateral Amount . . . . . . . . . . . . . . . . . . . . S-10
Initial Invested Amount . . . . . . . . . . . . . . . . . . . . . . . . S-4
Invested Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Investor Default Amount . . . . . . . . . . . . . . . . . . . . . . . . S-40
Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Monthly Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Monthly Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Net Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . S-44
Offered Certificateholders' Interest . . . . . . . . . . . . . . . . . S-5
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Offered Series Supplement . . . . . . . . . . . . . . . . . . . . . . S-17
Paired Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Pay Out Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
PFRFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . S-1
Principal Allocation Percentage . . . . . . . . . . . . . . . . . . . . S-30
Principal Funding Account . . . . . . . . . . . . . . . . . . . . . . S-17
Principal Funding Account Balance . . . . . . . . . . . . . . . . S-17, S-32
Principal Funding Investment Proceeds . . . . . . . . . . . . . . . . . S-32
Reallocated Principal Collections . . . . . . . . . . . . . . . . .S-8, S-34
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-27
Required Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Required Cash Collateral Amount . . . . . . . . . . . . . . . . . . . . S-39
Required Enhancement Amount . . . . . . . . . . . . . . . . . . . S-13, S-39
Required Reserve Account Amount . . . . . . . . . . . . . . . . . S-32, S-33
Required Transferor Amount . . . . . . . . . . . . . . . . . . . . . . S-4
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Reserve Account Funding Date . . . . . . . . . . . . . . . . . . . . . S-33
Revolving Period . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Series Adjusted Invested Amount . . . . . . . . . . . . . . . . . . . . S-29
Series Adjusted Portfolio Yield . . . . . . . . . . . . . . . . . . . . S-43
Series Allocable Defaulted Amount . . . . . . . . . . . . . . . . . . . S-29
Series Allocable Finance Charge Collections . . . . . . . . . . . . . . S-29
Series Allocable Principal Collections . . . . . . . . . . . . . . . . S-29
Series Allocation Percentage . . . . . . . . . . . . . . . . . . . . . S-29
Series Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Servicer Interchange . . . . . . . . . . . . . . . . . . . . . . . . .S-43
Servicing Base Amount . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Stated Series Termination Date . . . . . . . . . . . . . . . . . . . . S-8
Total Enhancement . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-40
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Transferor's Interest . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Trust Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-45
Yield Supplement Account . . . . . . . . . . . . . . . . . . . .S-10, S-39
============================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Transferor. Neither this Prospectus Supplement nor the
accompanying Prospectus constitutes an offer or a solicitation by anyone in
any state in which such offer or solicitation is not qualified or to anyone
to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus Supplement or the accompanying Prospectus, nor
any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Transferor
since the date hereof or thereof or that the information contained or
incorporated by reference herein or therein is correct as of any time
subsequent to its date.
_______________
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Series
Terms . . . . . . . . S-4
Risk Factors . . . . S-17
Maturity Considera-
tions . . . . . . . S-17
The Bank Portfolio . S-19
The Receivables . . . S-24
Use of Proceeds . . . S-25
The Servicer . . . . S-25
Series Provisions . . S-25
Underwriting . . . . S-43
Legal Matters . . . . S-45
Index of Defined Terms S-46
PROSPECTUS
Prospectus Supplement. v
Reports to Certifi-
cateholders . . . . v
Available Information v
Incorporation of
Certain Documents by
Reference . . . . . v
Prospectus Summary. . 1
Risk Factors . . . . 17
Use of Proceeds . . . 25
The Trust . . . . . . 26
Credit Card Activities 26
The Bank . . . . . . 31
Partners First Receiv-
ables Funding
Corporation . . . . . 31
The Accounts . . . . . 31
Description of the
Certificates . . . . 32
Description of the
Pooling and Servicing
Agreement . . . . . . . 40
Description of the
Purchase Agreements . . 60
Certain Legal Aspects
of the Receivables . . 61
U.S. Federal Income
Tax Consequences . 65
ERISA Considerations . 70
Plan of Distribution . 73
Legal Matters . . . . . 74
Index of Defined Terms. 75
UNTIL _____ (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===========================================================================
PARTNERS FIRST CREDIT
CARD MASTER TRUST
$_________ ___% CLASS A
SERIES 1997-1
ASSET BACKED CERTIFICATES
$___________ ___% CLASS B
SERIES 1997-1
ASSET BACKED CERTIFICATES
PARTNERS FIRST RECEIVABLES
FUNDING CORPORATION
TRANSFEROR
PARTNERS FIRST
NATIONAL BANK
SERVICER
_______________
PROSPECTUS SUPPLEMENT
____________, 1997
_______________
UNDERWRITERS OF THE CLASS A CERTIFICATES
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
UNDERWRITERS OF THE CLASS B CERTIFICATES
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
=========================================================================
