AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-29495
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 7
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PARTNERS FIRST RECEIVABLES FUNDING, LLC
(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 Securities)
DELAWARE 52-2072056
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
PARTNERS FIRST RECEIVABLES FUNDING, LLC
900 ELKRIDGE LANDING ROAD
SUITE 301
LINTHICUM, MARYLAND 21090-2925
(410) 855-8600
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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TERENCE F. BROWNE, ESQ.
GENERAL COUNSEL
PARTNERS FIRST HOLDINGS, LLC
900 ELKRIDGE LANDING ROAD
SUITE 300
LINTHICUM, MARYLAND 21090-2925
(410) 865-8700
(Name, address, including zip code, and telephone number, including area
code, of agents for service)
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COPIES TO:
ANDREW M. FAULKNER, ESQ. EDWARD M. DESEAR, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
919 THIRD AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10022-3897 NEW YORK, NEW YORK 10103
(212) 735-2853 (212) 506-5000
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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. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================
PROPOSED
TITLE OF EACH CLASS MAXIMUM PROPOSED
OF OFFERING MAXIMUM
SECURITIES TO BE AMOUNT TO PRICE OFFERING AMOUNT OF
REGISTERED BE REGISTERED PER UNIT PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed
Securities.... $2,000,000,000 100% $2,000,000,000 $590,000.00(1)
================================================= ================ ================
(1) $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.
===================================================================================
The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JUNE 9, 1998
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PROSPECTUS
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PARTNERS FIRST CREDIT CARD MASTER TRUST
ASSET BACKED SECURITIES
PARTNERS FIRST RECEIVABLES FUNDING, LLC
TRANSFEROR
PARTNERS FIRST HOLDINGS, LLC
SERVICER
---------------
Partners First Receivables Funding, LLC ("PFRF"), as transferor (in
such capacity, the "Transferor"), may sell from time to time one or more
series (each, a "Series") of asset backed securities (the "Securities")
evidencing undivided interests in certain assets of the Partners First
Credit Card Master Trust (the "Trust"), created pursuant to an Amended and
Restated Pooling and Servicing Agreement, dated as of May 13, 1998 (the
"Pooling and Servicing Agreement") among the Transferor, Partners First
Holdings, LLC, as Servicer (in such capacity, the "Servicer"), and The Bank
of New York, as trustee (the "Trustee"). The property of the Trust
includes, 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 PFRF and then transferred by PFRF
to the Trust as more fully described herein. All of the Receivables in the
Trust on the date hereof were originated or acquired by BankBoston (NH),
National Association ("BKB") and Harris Trust and Savings Bank ("Harris").
As more fully set forth herein, it is anticipated that in the future,
Receivables originated by financial institutions other than BKB and Harris
may be included in the Trust, upon satisfaction of certain conditions,
including the Rating Agency Condition. Each of BKB and Harris has retained
, and any such other financial institution may retain, the receivables in
certain of their respective accounts.
Securities 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 Securities (each, a "Class").
Each Security 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
Securities 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 29 HEREIN.
---------------
THE SECURITIES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF THE TRANSFEROR, THE
SERVICER OR ANY AFFILIATE OF EITHER OF THEM. A SECURITY IS NOT A DEPOSIT
AND NEITHER THE SECURITIES 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.
---------------
Securities 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 Securities 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 Securities 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 Securities less such discount in the
case of an underwriter, the purchase price of such Securities less such
commission in the case of an agent or the purchase price of such Securities
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
Securities. See "Plan of Distribution."
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF SECURITIES OF
ANY SERIES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
---------------
THE DATE OF THIS PROSPECTUS IS _____ __, 1998
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT........................................................6
REPORTS TO SECURITYHOLDERS...................................................6
AVAILABLE INFORMATION........................................................6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................6
PROSPECTUS SUMMARY...........................................................8
RISK FACTORS................................................................29
USE OF PROCEEDS.............................................................40
THE TRUST...................................................................40
CREDIT CARD ACTIVITIES......................................................41
General...............................................................41
Development of the Business Model of Partners First;
The Role of FAMIS...................................................42
Business Strategy.....................................................44
Processing and Servicing of Credit Card Accounts......................44
Account Origination...................................................45
Underwriting Procedures...............................................46
Additional Accounts...................................................47
Billing and Payments..................................................47
Interchange...........................................................49
Collection of Delinquent Accounts.....................................49
Recoveries............................................................50
Fraud Prevention......................................................50
PARTNERS FIRST HOLDINGS, LLC................................................51
PARTNERS FIRST RECEIVABLES FUNDING, LLC.....................................51
THE ACCOUNTS................................................................51
DESCRIPTION OF THE SECURITIES...............................................52
General...............................................................52
Book-Entry Registration...............................................53
Definitive Securities.................................................55
Interest..............................................................56
Principal.............................................................56
Pay Out Events and Reinvestment Events................................58
Servicing Compensation and Payment of Expenses........................59
Termination of the Trust..............................................60
Conveyance of Receivables.............................................60
Eligible Accounts and Receivables.....................................61
Representations and Warranties........................................62
Transferor Securities.................................................63
Additions of Accounts or Participation Interests......................64
Removal of Accounts...................................................65
Discount Option.......................................................65
Yield Supplement Account..............................................66
Premium Option........................................................66
Indemnification.......................................................67
Collection and Other Servicing Procedures.............................67
New Issuances.........................................................68
Collection Account....................................................70
Allocations...........................................................70
Groups of Series......................................................71
Reallocations Among Securities of Different Series within a
Reallocation Group..............................................72
Sharing of Excess Finance Charge Collections Among Excess Allocation
Series..........................................................73
Shared Principal Collections..........................................74
Paired Series.........................................................74
Special Funding Account...............................................74
Funding Period; Pre-Funding Account...................................75
Defaulted Receivables; Rebates and Fraudulent Charges.................75
Credit Enhancement....................................................76
Interest Rate Swaps and Related Caps, Floors and Collars..............78
Servicer Covenants....................................................78
Certain Matters Regarding the Servicer................................79
Servicer Default......................................................79
Evidence as to Compliance.............................................80
Amendments............................................................81
List of Securityholders...............................................81
The Trustee...........................................................82
DESCRIPTION OF THE PURCHASE AGREEMENTS......................................82
PFR Purchase Agreements...............................................82
Transferor Purchase Agreement...................................84
Formation Transactions; Account Origination...........................85
Limitations on Liability..............................................85
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES....................................86
Transfer of Receivables...............................................86
Certain Matters Relating to Insolvency................................87
Consumer Protection Laws..............................................89
Proposed Legislation..................................................90
U.S. FEDERAL INCOME TAX CONSEQUENCES........................................90
General...............................................................90
Characterization of the Securities as Indebtedness....................90
Taxation of Interest Income of Securityholders........................91
Sale of a Security....................................................92
Tax Characterization of the Trust.....................................92
FASIT ................................................................93
Foreign Investors.....................................................94
Defeasance............................................................95
STATE AND LOCAL TAXATION....................................................95
ERISA CONSIDERATIONS........................................................96
PLAN OF DISTRIBUTION........................................................99
LEGAL MATTERS...............................................................99
INDEX OF DEFINED TERMS.....................................................100
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 Security (the "Security Rate") (or method of determining the Security
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 Securities of such Class ("Securityholders"); (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 SECURITYHOLDERS
Unless and until Definitive Securities (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 Securities pursuant to the
Pooling and Servicing Agreement. Such reports will be made available by DTC
and its participants to the Securityholders 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 Securityholders or to
the owners of beneficial interests in the Securities ("Security 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 Securities 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 Securities 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 Holdings, LLC; 900
Elkridge Landing Road, Suite 300, Linthicum, Maryland 21090-2925;
Attention: Chief Financial Officer. Telephone requests for such copies
should be directed to (410) 865-8700.
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 100 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
Securities (each, a "Series") from time
to time. See "The Trust."
Servicer...................... Partners First Holdings, LLC, a Delaware
limited liability company ("Partners
First"), 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,
Partners First 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 (Partners First, or any such
successor Servicer, is referred to
herein as the "Servicer"). Partners
First 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. Partners First has delegated
substantially all of its servicing
duties to First Data Resources Inc.
("FDR"). See "Description of the
Securities -- Servicing Compensation and
Payment of Expenses."
Trustee....................... The Bank of New York (the "Trustee"), a
New York banking corporation.
Transferor.................... Partners First Receivables Funding, LLC
("PFRF" or, in its capacity as
transferor, the "Transferor"), a
Delaware limited liability company and a
special purpose wholly owned subsidiary
of Partners First Receivables, LLC
("PFR"), a Delaware limited liability
company. PFR is a wholly owned
subsidiary of Partners First.
Account Originators........... The Partners First Portfolio will be
originated and serviced following a
business model which evolved from a
business model originally established by
BankBoston, N.A. ("BankBoston") and
First Annapolis Marketing Information
Services, Inc. ("FAMIS"). Currently,
under such business model: (i) the
functions required to be performed by an
insured financial institution under
applicable law and the rules of
MasterCard and VISA are performed by BKB
(and, in certain circumstances, may be
performed by Harris) and, as described
below, would be assumed by the Bank (as
defined below) following its
establishment; (ii) credit processing,
cardholder communication, customer
payment processing, certain collection
activities and certain other account
servicing functions are performed by
FDR; and (iii) the account marketing and
portfolio management activities,
including brand strategy, development of
credit policy and product pricing are
performed by Partners First, which also
proactively monitors and supervises
FDR's activities to ensure compliance
with performance standards established
by Partners First. See "Credit Card
Activities -- Development of the
Business Model of Partners First; The
Role of FAMIS."
Pursuant to separate Contribution
Agreements (each, a "Contribution
Agreement"), on January 29, 1998, the
date of issuance of the first Series of
Securities, 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 contributed to Partners
First all of their respective rights
under specified consumer revolving
credit card accounts originated by BKB
or Harris, as applicable, except (i) the
related cardholder agreements, (ii) all
rights to create, enforce and collect
receivables and any other amounts owing
under the Partners First Portfolio (as
defined below) and (iii) all rights to
amend and modify the related cardholder
agreements (collectively, the "Retained
Rights"). As used herein "Partners First
Portfolio" means (i) the credit card
accounts originated or acquired by BKB
and Harris and contributed to Partners
First pursuant to the Contribution
Agreements on January 29, 1998, (ii) any
other consumer revolving credit card
accounts originated by BKB or Harris, as
applicable, following January 29, 1998
and transferred to Partners First by BKB
or Harris pursuant to the Assistance
Agreements and (iii) as described in the
following paragraph, any other credit
card accounts over which Partners First
has acquired the right to designate the
financial institution that will exercise
the Retained Rights with respect to such
credit card accounts.
Under the Contribution Agreements and
the Assistance Agreements, Partners
First has the right to designate the
financial institutions that will
exercise the Retained Rights with
respect to the credit card accounts in
the Partners First Portfolio. On January
29, 1998, Partners First designated each
of BKB and Harris as the Account
Originator with respect to specified
credit card accounts in the Partners
First Portfolio. As used herein,
"Account Originator" means, as of any
date of determination, each financial
institution which (i) has been
designated by Partners First as the
financial institution that will exercise
the Retained Rights with respect to
credit card accounts in the Partners
First Portfolio, (ii) if such financial
institution is not an affiliate of
Partners First, has entered into a
written agreement with Partners First in
the form of, or substantially similar
to, the Assistance Agreements (as
defined below) and (iii) has entered
into a receivables purchase agreement
with PFR in, or substantially in, the
form of the PFR Purchase Agreements (as
defined below) pursuant to which PFR
purchases receivables which are Eligible
Receivables (as defined below),
including receivables which are then
sold to the Transferor pursuant to the
Transferor Purchase Agreement and then
transferred to the Trust pursuant to the
Pooling and Servicing Agreement.
On January 29, 1998, Partners First
entered into separate Assistance
Agreements (each, an "Assistance
Agreement") with each of BKB and Harris,
pursuant to which each of BKB and Harris
appointed Partners First its sole and
exclusive agent to exercise all of its
rights and perform all of its
obligations with respect to the credit
card accounts in the Partners First
Portfolio originated by BKB and Harris,
respectively, except for the power to
determine the terms under which new
credit card accounts will be originated,
whether to extend credit under the
credit card accounts, and to effect
Interchange (as defined below)
settlement. In connection with such
appointment, Partners First authorized
each of BKB and Harris to use, on a
non-exclusive basis, Partners First's
rights under the credit card accounts in
the Partners First Portfolio and related
assets including certain proprietary
information related thereto, to the
extent necessary for each of BKB and
Harris to perform the forgoing
functions. In its capacity as agent
under the Assistance Agreements,
Partners First will perform certain
functions including, making
recommendations with respect to the
Credit Card Guidelines (as defined
below), administering the Credit Card
Guidelines, managing the Partners First
Portfolio, arranging for the billing and
collection of any receivables arising
thereunder, and otherwise servicing and
administering the credit card accounts
in the Partners First Portfolio and the
related receivables. As used herein,
"Credit Card Guidelines" means, with
respect to any credit card account and
the related receivables, the respective
policies and procedures of the
applicable Account Originator, relating
to (i) the determination of the
creditworthiness of cardholders and
potential cardholders, (ii) the
extension of credit under the credit
card accounts, and (iii) the maintenance
and enforcement of the credit card
accounts and the collection of the
related receivables.
Until March 1998, each of BKB and Harris
remained Account Originators, originated
new credit card accounts into the
Partners First Portfolio and exercised
the Retained Rights with respect to the
credit card accounts originated by BKB
and Harris, respectively. In March 1998,
Partners First designated BKB as the
Account Originator with respect to the
existing credit card accounts in the
Partners First Portfolio, including the
Accounts. Going forward, Harris may
continue to be an Account Originator
with respect to any new credit card
accounts, originated through Harris'
marketing efforts, including any New
Accounts. In addition, it is anticipated
that Partners First will establish a
federally insured financial institution
as a subsidiary (the "Bank"), which will
either be a newly chartered financial
institution formed by Partners First, or
an existing financial institution
acquired by Partners First. Upon its
establishment Partners First will
designate the Bank as the sole Account
Originator with respect to the credit
card accounts in the Partners First
Portfolio, including the Accounts and
any New Accounts. Effective as of the
date of the Bank's appointment as
Account Originator, each of BKB and
Harris will cease to be an Account
Originator.
It is anticipated that the Partners
First Portfolio may include credit card
accounts originated by financial
institutions other than BKB, Harris or
the Bank. In addition, prior to the
establishment of the Bank, Partners
First may designate other financial
institutions as Account Originators with
respect to the Partners First Portfolio,
including the Accounts. Any such
financial institution would originate
credit card accounts. However, any such
credit card accounts and any credit card
accounts originated by the Bank may only
be designated as Accounts and the
related Receivables may only be included
in the Trust, if certain conditions,
including the Rating Agency Condition,
are satisfied. See "Risk Factors --
Addition of Trust Assets" and
"Description of the Pooling and
Servicing Agreement -- Addition of
Accounts or Participation Interests."
The Partners First Portfolio includes
all of the credit card accounts
originated or acquired by Harris except
corporate accounts and all of the credit
card accounts originated or acquired by
BKB except for (i) those accounts of
cardholders who reside in the primary
geographic market of BKB and its
affiliates (i.e., Massachusetts, Rhode
Island, Connecticut and New Hampshire),
(ii) those accounts of other cardholders
having other banking relationships with
BKB or its affiliates and (iii) student,
VIP, foreign accounts and accounts with
employees of BKB and its affiliates. In
addition, any other financial
institution designated by Partners First
as an Account Originator may choose not
to include all of its credit card
accounts in the Partners First
Portfolio, particularly if, similar to
BKB, such financial institution chooses
to retain its regional or relationship
customers.
Transfer of Receivables....... Pursuant to separate PFR Purchase
Agreements entered into between PFR and
each of BKB and Harris on January 29,
1998, each of BKB and Harris sold to
PFR, all of their respective right,
title and interest in and to (i) the
receivables existing on January 29, 1998
in designated credit card accounts
originated by BKB and Harris, as
applicable, (ii) all of the receivables
created in such credit card accounts
following January 29, 1998 and (iii) the
receivables in each new designated
credit card account originated following
January 29, 1998 by BKB and Harris, as
applicable, whether such receivables are
then existing or are thereafter created.
Pursuant to the PFR Purchase Agreements,
on January 29, 1998, PFR acquired
approximately $1,870,000,000 aggregate
principal amount of receivables of which
approximately $1,190,000,000 aggregate
principal amount of receivables were
conveyed to PFR by BKB and approximately
$680,000,000 aggregate principal amount
of receivables were conveyed to PFR by
Harris. As used herein, "PFR Purchase
Agreement" means a receivables purchase
agreement entered into between PFR and
an Account Originator providing for the
sale by such Account Originator to PFR
of all of its right, title and interest
in and to receivables created under
specified credit card accounts
originated by such Account Originator,
and includes the Original PFR Purchase
Agreements (as defined below) and any
Additional PFR Purchase Agreements (as
defined below). See "Description of the
Purchase Agreements-- PFR Purchase
Agreements."
In connection with the anticipated
establishment by Partners First of the
Bank, PFR and the Bank will enter into
one or more receivables purchase
agreements in, or substantially in, the
form of the PFR Purchase Agreements
entered into between PFR and each of BKB
and Harris.
Pursuant to the receivables purchase
agreement entered into between PFR and
the Transferor on January 29, 1998 (as
may be amended from time to time, the
"Transferor Purchase Agreement" and,
together with the PFR Purchase
Agreements, the "Purchase Agreements"),
PFR sells to the Transferor all of the
Eligible Receivables included in the
receivables purchased from BKB and
Harris immediately upon giving effect to
any such purchase by PFR. Subject to
satisfaction of certain conditions
(including the Rating Agency Condition),
upon the execution of a PFR Purchase
Agreement between PFR and the Bank or
any other Account Originator, PFR will
sell to the Transferor all of the
Eligible Receivables included in the
receivables acquired by PFR pursuant to
the PFR Purchase Agreement with such
other Account Originator. Pursuant to
the Transferor Purchase Agreement, on
January 29, 1998, PFR sold
approximately $1,846,000,000 aggregate
principal amount of Receivables (the
"Initial Receivables") to the
Transferor. The Transferor in turn
transferred the Initial Receivables to
the Trust pursuant to the Pooling and
Servicing Agreement in exchange for the
Transferor Security and a Series of
Investor Securities which the Transferor
sold privately. The Initial Receivables
constituted all of the Eligible
Receivables acquired by PFR from BKB and
Harris on January 29, 1998.
If so provided in a PFR Purchase
Agreement, the Account Originator will
assign to PFR the right to Recoveries
(as defined herein) and Interchange (as
defined herein) allocable to the
receivables subject to such PFR Purchase
Agreement. Pursuant to their respective
PFR Purchase Agreements, each of BKB and
Harris assigns to PFR the right to
Recoveries and Interchange allocable to
the receivables conveyed by BKB or
Harris, as applicable, to PFR or its
approximate equivalent in the form of
Discount Option Receivables (as defined
herein) allocable to the Receivables.
See "Description of the Purchase
Agreements."
Pursuant to the Transferor Purchase
Agreement, PFR assigns to the Transferor
all of its rights to Recoveries, if any,
and Interchange, if any, assigned to it
pursuant to the PFR Purchase Agreements.
See "Description of the Purchase
Agreements -- Transferor Purchase
Agreement."
The Transferor in turn transfers the
Receivables and the rights to Recoveries
and Interchange acquired by it under the
Transferor Purchase Agreement to the
Trust pursuant to the Pooling and
Servicing Agreement. See "Description of
the Pooling and Servicing Agreement --
Conveyance of Receivables."
Trust Assets.................. The assets of the Trust (the "Trust
Assets") include the receivables
("Receivables") arising under certain
VISA(R)and MasterCard(R)* revolving
credit card accounts (the "Accounts"),
and the proceeds thereof, including
recoveries on charged-off Receivables
("Recoveries"), and any other fees,
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 Securities, funds on deposit in
certain accounts of the Trust for the
benefit of Securityholders,
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 Securityholders will not be
available to the Securityholders of any
other Series or Class). "Interchange"
consists of certain fees received by
Account Originators 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 Securities,
any Credit Enhancement (as defined
herein), interest rate swap agreement,
interest rate cap agreement or other
similar arrangement for the benefit of
Securityholders of such Series or Class.
The subordination of any Series or Class
of Securities to another Series or Class
of Securities 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."
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).
- --------
* VISA and MasterCard are registered trademarks of VISA U.S.A. Inc. ("VISA")
and MasterCard International Incorporated ("MasterCard"), respectively.
The Securities................ The Securities 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 Securities of any
previously issued Series.
The Securities 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 Securities --
Definitive Securities" and in the
related Prospectus Supplement. Interests
in the Trust Assets will be allocated
among (a) the Securityholders, including
Credit Enhancers (as defined herein)
holding uncertificated subordinated
interests (each, an "Enhancement
Invested Amount"), of a particular
Series (the "Securityholders'
Interest"), (b) the Securityholders
(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 Securities with a variable principal
amount, remain fixed at the aggregate
initial principal amount of the
Securities of such Series. The
Securityholders' 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
Securities --Interest" and "--
Principal." If the Securities of a
Series offered hereby include more than
one Class of Securities, 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 Securityholders'
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 securities: (a) one or more
Series of Securities, (b) Participations
representing participation interests in
the Receivables, as described below, (c)
a security evidencing the Transferor's
Interest in the Trust retained by the
Transferor (the "Transferor Security"),
which Transferor Security will be held
by the Transferor, and (d) securities
("Supplemental Securities") held by
transferees of a portion of the
Transferor Security. The Transferor
Security and any Supplemental Securities
are collectively referred to as the
"Transferor Securities." See
"Description of the Pooling and
Servicing Agreement -- Transferor
Securities." On January 29, 1998, the
Transferor issued a Supplemental
Security to an affiliate of the
Transferor.
The Pooling and Servicing Agreement
provides that, pursuant to any one or
more supplements to the Pooling and
Servicing Agreement (each, as may be
amended from time to time, a
"Supplement"), the Transferor may cause
the Trustee without the consent of the
Securityholders to issue one or more new
Series and accordingly cause a reduction
in the Transferor's Interest represented
by the Transferor Securities. 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 Securityholder 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."
In addition to the foregoing, it is a
condition to the issuance of each Series
offered hereby, that on the related
Series Issuance Date, the aggregate
amount of Receivables which are more
than 30-days past due, will not exceed
20% of the aggregate amount of
Receivables in the Trust.
The Accounts.................. The Accounts generally consist of VISA and
MasterCard consumer revolving credit
card accounts included in the Partners
First Portfolio, which were 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 controlled
and held by the Account Originators
unless transferred as described herein.
See "Credit Card Activities" and
"Description of the Purchase
Agreements."
The Transferor conveyed to the Trust
Receivables existing on January 29, 1998
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 January 29, 1998 and will
convey Receivables arising in the
Initial Accounts from time to time
thereafter until the termination of the
Trust. The Initial Accounts constituted
all of the Eligible Accounts in the
Partners First Portfolio on January 29,
1998. 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
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, overlimit 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 receivables arising in the Partners
First Portfolio will automatically be
sold to PFR. Pursuant to the Transferor
Purchase Agreement, all new Eligible
Receivables arising in the Accounts
during the term of the Trust will
automatically be sold by PFR to the
Transferor and then transferred by the
Transferor to the Trust. Accordingly,
the amount of Receivables in the Trust
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 Securityholders of such Series
(each, a "Yield Supplement Account").
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 Securities
of the related Series. The Yield
Supplement Account for any Series will
be funded with proceeds from the
offering of the related Series of
Securities.
Clearance and
Settlement.................... Unless otherwise specified in the related
Prospectus Supplement, the Securities
will be available for purchase in
minimum denominations of $1,000 and
integral multiples thereof in book-
entry form only. Securityholders may
elect to hold their Securities 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
Securities -- Book-Entry Registration."
Interest...................... Interest will accrue on the Invested
Amount or outstanding principal amount
of the Securities 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 Securityholders 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 Securityholders 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
Securityholders of such Series or Class
on the following Interest Payment Date
with respect thereto. If a Series has
more than one Class of Securities, each
such Class may have a separate Interest
Funding Account. See "Description of the
Securities -- Interest."
Principal..................... The principal of the Securities 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 Securities, 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 Securities
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
Securities 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 Securities. See
"Description of the Securities --
Principal."
Revolving Period.............. The Securities 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 Issuance 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
Securityholders' Interest of such Series
will be treated as Shared Principal
Collections and will be distributed to,
or for the benefit of, the
Securityholders of other Principal
Sharing Series or the holders of the
Transferor Securities 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
Securityholders' Interest of such Series
will be paid to the holders of the
Transferor Securities or deposited into
the Special Funding Account, as more
fully described in the related
Prospectus Supplement. See "Description
of the Securities-- 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
Securities 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 Securities 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 Securities
--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
Securityholders' 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 Securityholders of such Series
(each, a "Principal Funding Account")
and used to make principal distributions
to the Securityholders 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 Securities, 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 Securities 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
Securityholders' 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 Securityholders 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
Securities -- 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 Securities 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 Securities 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 Securityholders'
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
Securityholders of such Series or any
Class thereof then scheduled to receive
such distributions. The amount to be
distributed to Securityholders 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 Securities, 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 Securities 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
Securityholders' Interest of such Series
(including Shared Principal Collections,
if any, allocable to such Series) will
be distributed as principal payments to
the Securityholders 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 Securityholders 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 Securityholders of the
relevant Class or Series on the first
Special Payment Date with respect to
such Series. See "Description of the
Securities -- 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 Securityholders, any Series
Enhancement and the holders of the
Transferor Securities pursuant to the
terms of the related Supplement.
Sharing of Excess Finance
Charge Collections 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
Securityholders' 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 Securityholders'
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 Securityholders' Interest of any
Principal Sharing Series are not needed
to make payments to the Securityholders
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 Securityholders 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 Reallocation Group....... If so provided in the related Prospectus
Supplement, the Securities 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 Securities
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 Securities 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
Securityholders 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 Securityholders'
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 will not
distribute to the holders of the
Transferor Securities any collections of
Principal Receivables that otherwise
would be distributed to the holders of
the Transferor Securities, 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 Securities
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 Securities may specify that
for a period beginning on the Series
Issuance 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 Securities 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 Securityholders 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 Issuance Date with respect
to such Series, the aggregate principal
amount of the Securities 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 Securities 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 Securityholders 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 Securities 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
Securities 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 Issuance
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..................... Partners First, 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. Partners
First has delegated the majority of the
credit card processing and account
servicing and a significant portion of
the collection functions to FDR,
following the business model originally
established by BankBoston and FAMIS as
described in "Credit Card Activities --
Development of the Business Model of
Partners First; The Role of FAMIS." See
"Credit Card Activities-- Processing and
Servicing of Credit Card Accounts." 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 Securities 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 Securityholders of each Class or
Series, the holders of any
Participations and the holders of the
Transferor Securities as described
herein in respect of collections of
Receivables received with respect to the
preceding Monthly Period.
Income Tax Withholding........ Interest on the Securities 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
Securities 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 Security Owners will
agree to treat the Securities 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.
Security Rating............... It will be a condition to the issuance of
each Series of Securities 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
Securities 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
Securities 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 Securities.
Limited Liquidity. It is anticipated that, to the extent permitted,
the underwriters of any Series of Securities offered hereby will make a
market in such Securities, but in no event will any such underwriters 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 Securityholders of any Series offered hereby with liquidity of
investment or that it will continue for the life of such Securities.
Limited Information with Respect to Certain Receivables and Accounts.
It is anticipated that the Accounts will include credit card accounts
acquired from credit card issuers other than BKB and Harris. In originating
such credit card accounts, any such other credit card issuers may have
applied underwriting criteria different from the criteria applied with
respect to the Initial Accounts and any such credit card accounts may not
have been subject to the same level of credit review as the Initial
Accounts. Upon designation of such credit card accounts as Accounts, the
Receivables arising therein will be included in the Trust. There can be no
assurance that any such credit card accounts will be of the same credit
quality as the Initial Accounts. To the extent that any such credit card
accounts are designated to have their Receivables included in the Trust
following the issuance of a Series of Securities, the related Prospectus
Supplement will not include any information with respect to such
Receivables or the criteria used in originating the related Accounts.
Consequently, prospective purchasers of Securities issued prior to the
inclusion of any such Receivables in the Trust will not have such
information available to them when making the decision to purchase the
Securities.
Limited Operating History. Partners First commenced operations in
January 1998 and has limited operating history, underwriting or servicing
experience, or delinquency, default and loss experience with respect to
credit card accounts, other than through BKB and Harris. Partners First
will delegate substantially all of its servicing functions to FDR, which
will service the credit card accounts in the Partners First Portfolio,
including the Accounts, following the business model originally established
by BankBoston and FAMIS. See "Credit Card Activities -- Development of the
Business Model of Partners First; The Role of FAMIS." BKB began originating
and servicing credit card accounts in September 1995 and therefore, has
limited underwriting and servicing experience, and limited delinquency,
default and loss experience with respect to the Accounts. As of January 29,
1998, approximately 63% of the Receivables designated to be included in the
Trust were originated or purchased by BKB. Until March 1998, each of BKB
and Harris remained Account Originators and exercised the Retained Rights
with respect to the Accounts originated by BKB and Harris, as applicable.
In March 1998, Partners First designated BKB as the sole Account Originator
with respect to the existing credit card accounts in the Partners First
Portfolio, including the Accounts. Harris may continue to act as an Account
Originator with respect to new credit card accounts originated by it,
including New Accounts. In addition, it is anticipated that Partners First
will establish a federally insured financial institution as a subsidiary
(the "Bank"), which will either be a newly chartered financial institution
formed by Partners First, or an existing financial institution acquired by
Partners First. Partners First will designate the Bank as the sole Account
Originator with respect to the credit card accounts in the Partners First
Portfolio, including the Accounts and any New Accounts. Effective as of the
date of the Bank's appointment as Account Originator, each of BKB and
Harris will cease to be an Account Originator. As an Account Originator,
the Bank will also originate credit card accounts; however, none of such
credit card accounts may be designated as Accounts and none of the related
receivables may be transferred to the Trust unless certain conditions,
including the Rating Agency Condition, are satisfied. The Bank will have
little or no operating history, underwriting or servicing experience, or
delinquency, default or loss experience with respect to credit card
accounts, and will rely on the experience of Partners First to assist the
Bank in setting the Credit Card Guidelines, including assisting the Bank in
determining the underwriting and origination policies with respect to the
Accounts and will rely on FDR for the implementation of such policies.
Limited Seasoning of Trust Portfolio. 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 95% of the Receivables transferred to the Trust
that were created under Accounts in the BKB Portfolio were generated under
Accounts which BKB originated within the 24-month period preceding January
29, 1998 and over 48% of such Receivables were generated under Accounts
which BKB originated within the 12-month period preceding January 29, 1998.
Approximately 12% of the Receivables transferred to the Trust that were
created under Accounts in the Harris Portfolio were generated under
Accounts which Harris originated within the 24-month period preceding
January 29, 1998. The Accounts originated or purchased by BKB 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
January 1998, and the Trust was formed on January 29, 1998. The Transferor
and the Trust have no substantial assets other than their respective
interests in the Receivables and the proceeds thereof as described herein.
Reliance on First Data Resources Inc. Partners First has delegated
the majority of the credit card processing and account servicing and a
significant portion of the collection functions to FDR, a subsidiary of
First Data Corp. ("FDC"), pursuant to a seven-year contract, automatically
renewable for an additional two-year period, entered into on January 29,
1998. Under the terms of this contract, Partners First will be required to
obtain some of these services from FDR on an exclusive basis. If FDR should
fail to perform its functions or become insolvent or if the agreement is
terminated, a Pay Out Event could occur and delays in payments on the
Receivables and possible reductions in the dollar amounts thereof could
also occur. See "Credit Card Activities -- Processing and Servicing of
Credit Card Accounts."
Non-Recourse to the Account Originators, PFR, the Transferor or
Affiliates Thereof. No Securityholder will have recourse for payment of its
Securities to any assets of the Account Originators, PFR, the Transferor
(other than the Transferor Security, to the extent described herein), or
any affiliate thereof. Consequently, Securityholders must rely solely upon
payments on the Receivables for the payment of principal of and interest on
the Securities. Furthermore, under the Pooling and Servicing Agreement, the
Securityholders have an interest in the Receivables and collections thereon
only to the extent of the Securityholders' Interest and, to the limited
extent described herein, the Transferor's Interest. Should the Securities
not be paid in full on a timely basis, Securityholders may not look to any
assets of any of the Account Originators, PFR, the Transferor (other than
the Transferor Security, to the extent described herein), or any affiliate
thereof to satisfy their claims.
Characteristics as a Sale; Insolvency and Receivership Risks. Each
Account Originator 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, or if notwithstanding their intent, the
respective transfers of Receivables are not treated as sales, the
respective Purchase Agreements will be deemed to create a first priority
security interest in the Receivables.
With respect to Receivables conveyed by an Account Originator to PFR,
in a receivership or conservatorship of the Account Originator, if the
conveyance of Receivables by such Account Originator is not treated as a
sale, but is deemed to create a security interest in the Receivables
conveyed, PFR's interest in such Receivables may be subject to tax or other
governmental liens relating to the Account Originator 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 PFR's interest in the Receivables conveyed by such
Account Originator.
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. However,
notwithstanding the insolvency of, or the appointment of a receiver or
conservator for, an Account Originator, subject to certain qualifications,
a valid perfected security interest of PFR in the Receivables conveyed to
it by the Account Originator should be enforceable (to the extent of PFR's
"actual direct compensatory damages" (as described below)) and payments to
PFR 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 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, as
provided under FIRREA, delays in payments to the Trust and on the
Securities 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 Securities 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. On April 10, 1990, the Resolution Trust Corporation
(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 one case involving the repudiation by the RTC of certain secured
zero-coupon bonds issued by a savings association, a United States federal
district court held that "actual direct compensatory 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 PFR's
"actual direct compensatory damages" in the event a conservator or receiver
of an Account Originator repudiated the Purchase Agreement pursuant to
which the subject Receivables were conveyed, the amount paid to
Securityholders could, depending upon circumstances existing on the date of
the repudiation, be less than the principal of the Securities and the
interest accrued thereon to the date of payment. See "Certain Legal Aspects
of the Receivables -- Certain Matters Relating to Insolvency."
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 Account
Originators.
In a receivership or conservatorship of an Account Originator, or in
a bankruptcy proceeding involving PFR, if a receiver or conservator for the
Account Originator, 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 Securities or
(should the bankruptcy court rule in favor of any such trustee, debtor in
possession or creditor) reductions in such payments on such Securities
could result. In addition, in a bankruptcy proceeding involving Partners
First or PFR, if a bankruptcy trustee for Partners First, Partners First as
debtor in possession, or a creditor of Partners First, 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 Partners First, PFR or the Transferor should be
substantively consolidated, then delays in payments on the Securities or
(should the bankruptcy court rule in favor of any such trustee, debtor in
possession or creditor) reductions in such payments on such Securities
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
Securities 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 Security and any other Class of Securities that may be issued
and retained by the Transferor or by the issuance of a Supplemental
Security to an Affiliate of 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
Securities 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 Securityholders 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 Securities 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 Securityholders 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 Securities or to prohibit the
continued transfer of Receivables to the Trust. See "Certain Legal Aspects
of the Receivables --Certain Matters Relating to Insolvency."
While Partners First is the Servicer, cash collections held by
Partners First may, subject to certain conditions, be commingled and used
for the benefit of Partners First prior to each Transfer Date and, in the
event of the insolvency or bankruptcy of Partners First 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. Partners First will be allowed to make
monthly rather than daily deposits of collections to the Collection Account
if either (i) Partners First or an affiliate of Partners First which has
guaranteed the obligations of Partners First and is otherwise acceptable to
the Rating Agencies obtains a commercial paper rating of at least A-1 and
P-1 (or its equivalent) by the applicable Rating Agency or (ii) or Partners
First 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 Partners First 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
or any subservicer to comply with such requirements could adversely affect
the ability of the Servicer, as agent for and on behalf of the related
Account Originator, 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 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 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 Securities in full, the amount of principal
returned to Securityholders will be reduced and some or all of the
Securityholders will incur a loss. In addition, because the proceeds of any
such reassignment will be distributed to Securityholders as principal prior
to the scheduled date of such repayment, Securityholders would not receive
the benefit of the interest rate on the Securities specified in the
applicable Prospectus Supplement for the period of time originally expected
on the amount of such early repayment, and accordingly, Securityholders
will bear the reinvestment risk resulting from faster payment of principal
of the Securities. There can be no assurance that a Securityholder 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 Securityholders 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 Securities -- Pay Out Events and Reinvestment
Events."
Generation of Additional Receivables; Dependency on Cardholder
Repayments. On January 29, 1998, each of BKB and Harris contributed to
Partners First all of their respective rights under the credit card
accounts in the Partners First Portfolio, including the Accounts, except
(i) the related cardholder agreements, (ii) all rights to create, enforce
and collect receivables and any other amounts arising under the credit card
accounts in the Partners First Portfolio and (iii) all rights to amend and
modify the related cardholder agreements. Under the Contribution Agreements
and the Assistance Agreements, Partners First designated each of BKB and
Harris as the Account Originators with respect to the credit card accounts
in the Partners First Portfolio originated by BKB and Harris, respectively.
Since the March 1998 designation of BKB as the Account Originator with
respect to the credit card accounts in the Partners First Portfolio,
including the Accounts, BKB maintains the cardholder relationships under
such credit card accounts, including the Accounts and any New Accounts
originated by BKB. Upon the anticipated establishment of the Bank, the Bank
will maintain the cardholder relationships under all of the Accounts
originated by each of BKB and Harris. There can be no assurance that
holders of Harris credit cards whose account relationships will be
maintained by BKB, or that the holders of BKB and Harris credit cards,
whose account relationships will be maintained by the Bank, will be willing
to continue their credit card relationship with BKB or the Bank, as
applicable. The failure of BKB 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. Under the PFR Purchase Agreement, the receivables in each newly
originated credit card account are sold to PFR. However, if the Account
Originators fail to originate enough new credit card accounts and as a
result 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 Securityholders against
defaults under the Accounts.
Non-relationship Accounts. For business reasons, BKB has excluded
from the BKB Portfolio accounts of cardholders with whom BKB had banking
relationships or potential banking relationships in addition to the credit
card relationship. Accordingly, the Receivables in the Trust which arise
under the Accounts included in the BKB Portfolio include only credit card
accounts with cardholders that do not have and are not expected to have any
other significant banking relationship with BKB. Additionally, the Harris
Portfolio includes all of its credit card accounts except corporate
accounts.
Limitations on Liability. In the event of a breach of a
representation or warranty by BKB or Harris under their respective Purchase
Agreements or Assignment and Assumption Agreements, BKB or Harris, as
applicable, will be liable to PFR for damages. Partners First has agreed to
indemnify BKB and Harris for any losses suffered by BKB or Harris, as
applicable, resulting from, among other things, damages payable to PFR in
respect of a breach by BKB or Harris of any of their respective
representations or warranties under the applicable Assignment and
Assumption Agreement, to the extent that BKB or Harris, as applicable,
would not have suffered such losses under the Initial Receivables Purchase
Agreements, and except for any such losses caused by the gross negligence
or willful misconduct of BKB or Harris, as applicable. In each of the
Assistance Agreements, Partners First agrees to indemnify BKB and Harris
for any losses suffered by BKB or Harris, as applicable, resulting from,
among other things, damages payable to PFR in respect of a breach by BKB or
Harris of any of their respective representations or warranties under the
Additional Receivables Purchase Agreements, except to the extent caused by
the gross negligence or willful misconduct of BKB or Harris, as applicable.
Under the Additional Receivables Purchase Agreements, the liability of BKB
and Harris for any breach of any representation or warranty is limited to
the amount of any recovery by BKB or Harris, as applicable, from Partners
First pursuant to Partners First's obligation to indemnify BKB and Harris.
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 Partners First are
unable to determine and have no basis to predict whether or to what extent
social, legal, technological or economic 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 Account Originators 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 Account
Originators.
Ability of the Account Originators 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 Account Originators and,
upon the anticipated establishment of the Bank, the Bank will have 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, each Account Originator 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 (as defined in the applicable
Prospectus Supplement) 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 security 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 Securities of such Series or Class and the
denominator of which is the aggregate unpaid principal amount of all
Securities within such Group. In addition, each Account Originator also
agrees that, unless required by law and except as provided above, such
Account Originator 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, such Account Originator reasonably believes will
have a material adverse effect on PFR and the Transferor and the
Securityholders, 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 an Account Originator 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 an Account Originator to decrease customer finance
charges, fees 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 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
Securityholders 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, Securityholders would
receive a principal payment earlier than they expected. In addition,
Securityholders would not receive the benefit of the interest rate on the
Securities specified in the applicable Prospectus Supplement for the period
of time originally expected on the amount of such early repayment and,
accordingly, Securityholders will bear the reinvestment risk resulting from
faster payment of principal of the Securities. There can be no assurance
that a Securityholder 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 Securityholders 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 Securities and cover losses allocated
to the Securities. 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 another specified index. Any Class of
Securities 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 Securities 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 Securityholders 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 Securities of a
Series or a Class by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Securityholders 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 Securities 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. Securityholders. 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 Securities of a Class or Series will not
be a recommendation to purchase, hold or sell such Securities, and such
rating will not comment as to the marketability of such Securities, 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 Securities 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 Securities 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 the
Securityholders 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
Securityholder. 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 Securities 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 security 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 of 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 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
credit quality as those 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
semi-annually, 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,
Partners First 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 January 29, 1998, are collectively referred to herein as an
"Aggregate Addition." 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, 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 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 Securities 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 Account Originators the
purchase price of the Receivables acquired from such parties.
THE TRUST
The Trust has been 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 Securities, the Transferor
Security, Participations and any Supplemental Security 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 Eligible Receivables existing in the Initial Accounts at the close
of business on January 29, 1998, and will convey to the Trust, without
recourse, its interest in all Eligible Receivables arising under such
Accounts thereafter, in exchange for the net cash proceeds from the sale of
one or more Series of Securities plus the Transferor Security 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 Eligible 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 Eligible Receivables arising under certain VISA(R)
and MasterCard(R) revolving credit card accounts (the "Accounts"), and the
proceeds thereof, including recoveries on charged-off Receivables, any
other fees, proceeds of credit insurance policies relating to the
Receivables and may include the right to receive Interchange, if any,
allocable to the Securities, funds on deposit in certain accounts of the
Trust for the benefit of Securityholders, 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 Securityholders will not be available to the Securityholders of
any other Series or Class). Pursuant to the Transferor Purchase Agreement,
the Transferor has the right (subject to certain limitations and
conditions, including satisfaction of the Rating Agency Condition) 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 Eligible
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 conveyed and 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 Partners First Portfolio
including the total portfolio of VISA and MasterCard accounts originated or
acquired by BKB (the "BKB Portfolio") and Harris (the "Harris Portfolio").
The BKB Portfolio includes all credit card accounts originated or acquired
by it with the exception of (i) those accounts of cardholders who reside in
the primary geographic market of BKB and its affiliates (i.e.,
Massachusetts, Rhode Island, Connecticut and New Hampshire), (ii) those
accounts of other cardholders having other banking relationships with BKB
or its affiliates and (iii) student, VIP, foreign accounts and accounts
with employees of BKB and its affiliates. The Harris Portfolio includes all
of its credit card accounts except corporate accounts. Going forward, it is
anticipated that BKB and Harris (and, following its establishment, the
Bank) will originate new Accounts to be included in the Partners First
Portfolio. See "-- Account Origination." Such new Accounts will be
originated and serviced following the business model currently used in
originating and servicing the Partners First Portfolio. That business model
evolved from the business model originally developed by BKB and FAMIS. See
"-- Development of the Business Model of Partners First; The Role of
FAMIS."
The Partners First Portfolio may in the future also include accounts
originated by financial institutions other than BKB or Harris. Any such
other financial institutions may choose not to include all of their credit
card accounts in the Partners First Portfolio, particularly if, similar to
BKB, any such financial institution chooses to retain its regional or
relationship accounts. See "-- Account Origination." Following the
acquisition of any such new accounts, the receivables arising under such
Accounts will be originated and serviced following the business model
currently used in originating and servicing the Partners First Portfolio.
See "-- Development of the Business Model of Partners First; The Role of
FAMIS." Receivables originated by financial institutions other than BKB and
Harris may be included in the Trust Portfolio upon satisfaction of certain
conditions, including the Rating Agency Condition. It is anticipated that
Partners First will continue operating its business as described herein and
that the Account Originators will continue to originate new Accounts
regardless of whether the Bank is established or whether additional
portfolios of accounts are acquired.
The Accounts were generated under the VISA and MasterCard
associations of which BKB and Harris are members. 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 same finance
charges are applied to its 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. 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 Account Originator. 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 Account Originator. The balances so transferred are then
consolidated with their account at the Account Originator. Balance
consolidations, which have been treated by BKB in the same manner as
purchases and by Harris as cash advances, may be done by cardholders either
at the time an account is originated or anytime thereafter. The Servicer
will treat balance consolidations for the BKB Portfolio in the same manner
as purchases and by the end of 1998, consistent with the conversion of the
Harris Portfolio to the FDR processing system, the Servicer will treat
balance consolidations for the Harris Portfolio in the same manner as
purchases. Cardholders also receive and may utilize special convenience
checks issued by an Account Originator. Convenience checks may be used by
cardholders to draw against their VISA and MasterCard credit card accounts
at any time. The Servicer 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 Account
Originator governing the terms and conditions of the related VISA or
MasterCard credit card account. Pursuant to each such agreement, except as
described herein, the Account Originator 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.
DEVELOPMENT OF THE BUSINESS MODEL OF PARTNERS FIRST; THE ROLE OF FAMIS
The Partners First Portfolio will be originated and serviced
following a business model originally established by BankBoston, N.A.
("BankBoston") and First Annapolis Marketing Information Services, Inc.
("FAMIS"), a subsidiary of First Annapolis Consulting, Inc. ("First
Annapolis"). Currently, under such business model: (i) the functions
required to be performed by an insured financial institution under
applicable law and the rules of MasterCard and VISA are performed by BKB
(and, in certain circumstances, may be performed by Harris) and, as
described herein, would be assumed by the Bank following its establishment;
(ii) credit processing, cardholder communication, customer payment
processing, certain collection activities and certain other account
servicing functions are performed by FDR; and (iii) the account marketing
and portfolio management activities, including brand strategy, development
of credit policy and product pricing are performed by Partners First, which
also proactively monitors and supervises FDR's activities to ensure
compliance with performance standards established by Partners First.
In 1995, BankBoston determined to enter the domestic credit card
business, and entered into a contract with FAMIS to facilitate the bank's
credit card activities. BankBoston began soliciting accounts in September
1995. Under its agreement with BankBoston, FAMIS utilized its database
management, data mining, and predictive modeling techniques to develop
credit card performance models. These models were used by BankBoston, in
connection with the origination of new credit card accounts, to provide a
statistical correlation of certain characteristics of potential cardholders
with credit risk and to formulate target cardholder profiles to be used in
monthly direct mailings. Under its agreement with BankBoston, FAMIS was
also responsible for performing most of BankBoston's account marketing and
portfolio management activities, including functions pertaining to brand
strategy and development of credit policy and product pricing. BankBoston
was responsible for the performance of functions required to be performed
by an insured financial institution under applicable law and the rules of
MasterCard and VISA, including entering into credit card agreements with
cardholders, issuing credit cards, making all final credit decisions and
providing certain settlement services.
Concurrent with the formation of its relationship with FAMIS,
BankBoston also entered into an agreement with FDR to provide support to
FAMIS primarily with respect to account servicing. Under the terms of its
agreement with BankBoston, FDR performed account servicing functions
including (i) processing credit requests in accordance with the credit
policies developed by FAMIS and adopted by BankBoston, (ii) communicating
with cardholders and potential cardholders, all final determinations with
respect to credit card applications, (iii) providing credit card "plastics"
to customers approved for accounts in accordance with the models developed
by FAMIS and adopted by BankBoston, (iv) handling customer inquiries and
similar customer service functions, (v) processing customer payments and
facilitating settlement of merchant payments and interchange, and (vi)
certain collection activities. FAMIS was responsible for supervising, on
behalf of BankBoston, all of FDR's activities and developed various systems
to perform these monitoring functions proactively. FAMIS also was
responsible for evaluating FDR's compliance with performance standards
established by FAMIS.
In order to consolidate its affiliates' credit card activities, in
April 1997, BankBoston formed and transferred all of its customer credit
card accounts to BKB and assigned to BKB its agreements with each of FAMIS
and FDR. Additional accounts generated by other bank affiliates of
BankBoston were also subsequently transferred to BKB.
By mid-1997, BKB and FAMIS had structured a unique business model
(substantially similar to the current model employed by Partners First and
FAMIS) for engaging in the consumer credit card business in which BKB
provided basic functions related to its status as an insured financial
institution while all other account servicing and management functions were
performed by unaffiliated third parties with expertise in those areas. As
of December 31, 1997, BKB had approximately $1.7 billion in outstanding
credit card receivables maintained under the business model developed with
FAMIS.
Pursuant to an agreement entered into on January 29, 1998, BKB and
First Annapolis entered into a joint venture with Bankmont pursuant to
which Partners First was created. As part of this transaction, Harris, a
subsidiary bank of Bankmont, contributed to Partners First the Harris
Portfolio and $115 million in cash in exchange for a 69% equity interest in
Partners First. BKB contributed to Partners First the BKB Portfolio in
exchange for a 19% equity interest in Partners First. First Annapolis
contributed to Partners First substantially all of the assets and
liabilities of FAMIS (approximately 70 employees of FAMIS, including
management, are now employed by Partners First); its models, databases and
intellectual property; its equipment (including sophisticated hardware and
software); and all of its other intangible property (including its
marketing and analysis expertise), in exchange for a 12% equity interest in
Partners First. In exchange for such contributions, Partners First agreed
to provide essentially the same services with respect to the BKB Portfolio
and the Harris Portfolio as FAMIS provided to BankBoston and BKB with
respect to their credit card business, including marketing and account
solicitation and management services, and monitoring FDR's account
servicing functions.
Partners First concurrently entered into a services agreement with
FDR pursuant to which FDR performs substantially the same services with
respect to the accounts in the BKB and Harris Portfolios as it performed
with respect to the credit card business of BankBoston and BKB.
Partners First also entered into an Assistance Agreement with BKB
pursuant to which BKB provides similar services with respect to the BKB
Portfolio and Harris Portfolio as BKB had provided with respect to the
accounts originated under its agreement with FAMIS. Under the Assistance
Agreement, BKB, as an Account Originator, acts as the insured financial
institution party (either as the original issuer or by assignment) to the
cardholder agreements pertaining to the BKB Portfolio and the Harris
Portfolio. Similar to the prior agreement with FAMIS, while BKB has adopted
the credit policies devised by Partners First, BKB is responsible for all
final credit decisions, as well as providing certain settlement services
with respect to the accounts. Partners First may enter into an agreement
with Harris for the provision of substantially similar services by Harris
with respect to new accounts originated as a result of Harris' marketing
initiatives.
Partners First contemplates that, in the future, it will establish a
federally insured financial institution as a subsidiary (the "Bank"), which
will either be a newly chartered financial institution formed by Partners
First, or an existing financial institution acquired by Partners First and
that the Bank will replace BKB as the Account Originator with respect to
the BKB Portfolio and the Harris Portfolio and consistent therewith, will
perform BKB's issuing functions. At such time, the Purchase Agreements
pertaining to the BKB Portfolio and the Harris Portfolio will be assigned
to the Bank, and the Assistance Agreement with BKB and any similar
Assistance Agreement with Harris will be terminated. It is anticipated that
any such new relationship will be structured in a manner consistent with
the current BKB-Partners First arrangement, as well as the former
BankBoston-BKB-FAMIS arrangement, in that the Bank will adopt credit
policies devised by Partners First (in accordance with requirements of any
applicable federal regulatory agencies) and will only perform those limited
credit, issuing and settlement functions as had been performed by BKB, and
that the bulk of the credit card business will be conducted by Partners
First with the assistance of FDR.
BUSINESS STRATEGY
Following the business strategy and credit card performance models
established by FAMIS, Partners First 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. Partners First will collect information
about credit card issuers, the consumer credit market, and current as well
as historical behavior of individual customers and prospective customers
from both internal and external sources. Factors which Partners First will
consider include credit scores, balance amounts, purchase types and
amounts, finance charges paid and other indicia of cardholder behavior over
time.
It is anticipated that following the establishment of the Bank, the
Bank may enter into alliances with credit card issuers who have concluded,
among other things, that their current size and operational capacities are
too limited to allow them to maintain successful credit card businesses on
a stand alone basis. It is anticipated that such arrangements may involve
the selling of such a credit card issuer's non-strategic accounts to the
Bank at fair market value and the retention by such credit card issuer of
those assets it considers strategic (e.g., relationship or regional
accounts). Any such non-strategic accounts acquired by the Bank would be
included as Accounts and the Receivables arising thereunder added to the
Trust only if certain conditions, including the Rating Agency Condition,
are satisfied.
Partners First may provide management and advisory services for the
strategic credit card accounts retained by any such credit card issuer in a
manner analogous to FAMIS's prior relationship with BKB; however, any such
retained strategic credit card accounts would not be included in the
Partners First Portfolio and the receivables arising in such credit card
accounts would not be included in the Trust.
PROCESSING AND SERVICING OF CREDIT CARD ACCOUNTS
Historically, following the business model developed with FAMIS, BKB
delegated the processing, servicing and collection of its accounts to FDR.
In addition, FAMIS performed the functions related to the development of
credit policy and risk management, marketing acquisition and account
management, data mining and FDR oversight as described above in "--
Development of the Business Model of Partners First; The Role of FAMIS."
Historically, the Harris Portfolio was serviced by Harris' employees
in Buffalo Grove, Illinois. As of January 29, 1998, the accounts in the
Harris Portfolio were maintained on the system utilized by Harris prior to
January 29, 1998, which is the CardPac System. FDR has recently acquired
the Buffalo Grove facility, has hired certain of its employees and is
servicing the Harris Portfolio. The Harris Portfolio was converted to the
FDR processing system in March 1998.
Continuing the practice established by FAMIS and BankBoston as
described above (see "-- Development of the Business Model of Partners
First; The Role of FAMIS"), Partners First has delegated the majority of
the credit card processing and a significant portion of the account
servicing and collection functions to FDR, a subsidiary of First Data Corp.
("FDC"), pursuant to a seven-year contract, automatically renewable for an
additional two-year period, entered into on January 29, 1998. Certain
database management, data mining and predictive model creating functions
and all daily oversight of FDR and FDR activities will be performed
in-house by employees of Partners First. 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,
Matteson, 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 recommended by
Partners First. 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
Account Originators cease to be members 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.
ACCOUNT ORIGINATION
BankBoston began originating accounts in September 1995 through (i)
direct mail solicitations of individuals residing in the United States who
had been prescreened at credit bureaus on the basis of criteria furnished
by FAMIS; (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 BankBoston's branch
offices or by telephone or via written letter. Consistent with the
methodology formulated by FAMIS and BankBoston, BKB later 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 approximately $19
million of Receivables were transferred to the Trust on January 29, 1998.
In 1966, 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 a portfolio of credit card accounts with
approximately $207 million of outstanding receivables from United Jersey
Bank ("UJB"). As of December 1997, the UJB portfolio comprised
approximately 36,830 active accounts and $80 million of receivables
outstanding.
In March 1998, Partners First designated BKB as the Account
Originator with respect to the credit card accounts in the Partners First
Portfolio, including the Accounts originated by Harris. Going forward, it
is anticipated that BKB and Harris (and, following its establishment, the
Bank) will originate new Accounts to be included in the Partners First
Portfolio. Prior to the establishment of the Bank, Partners First may also
designate other financial institutions as Account Originators and any such
Account Originator would originate credit card accounts into the Partner
First Portfolio. Any such new Accounts will be originated and serviced
following the business model currently used in originating and servicing
the Partners First Portfolio. See "-- Development of the Business Model of
Partners First; The Role of FAMIS." Following the establishment of the
Bank, the Bank will be the sole Account Originator with respect to the
Accounts and any New Accounts. In addition, it is anticipated that the Bank
or Partners First will acquire accounts through the selective acquisition
of portfolios. None of the credit card accounts originated by the Bank or
any Account Originator may be designated as Accounts and none of the
receivables arising under such credit card accounts may be transferred to
the Trust unless certain conditions, including the Rating Agency Condition,
are satisfied.
Going forward, the Account Originators will continue to originate
accounts through pre-approved and non-prescreened direct mail solicitations
to creditworthy consumers on a nationwide basis.
Partners First has developed and will undertake in connection with
any portfolio acquisitions a detailed due diligence process with respect to
the related accounts, including analyzing all available data and other
information pertaining to such accounts, and initiating direct dialogue
between Partners First management officials who are primarily responsible
for certain functions (particularly marketing and product management, risk,
collections, credit and legal and regulatory compliance) and their
counterparts at any such prospective account originator.
Partners First generally seeks to acquire accounts which will
complement its existing credit card management strategy. Partners First's
due diligence process focuses on credit quality, card utilization and
activation, pricing, and whether the anticipated revenue on the accounts in
the portfolio is sufficient to justify the acquisition thereof.
On April 3, 1998, Partners First purchased a credit card portfolio
consisting of approximately 101,000 Visa and MasterCard consumer revolving
credit card accounts with outstanding principal receivables of
approximately $188 million from Comerica Bank Midwest, N.A. ("Comerica").
Partners First determined to make this acquisition after concluding,
following a detailed due diligence review with respect to this portfolio,
that the acquisition was consistent with Partners First's portfolio
acquisition objectives, as described above. None of the accounts in the
Comerica portfolio has been designated as an Additional Account. While no
decision has been made as to whether receivables in these accounts
originated by Comerica will be added at any time to the Trust, such a
decision may be made in the future. Any such addition would be subject to
the restrictions on additions of Accounts in the Pooling and Servicing
Agreement, including the Rating Agency Condition. See "Description of the
Pooling and Servicing Agreement -- Additions of Accounts or Participation
Interests."
The accounts which Partners First purchased from Comerica have not
been included in the Trust. Such accounts are currently being financed with
borrowings under certain credit lines which are secured by the receivables
arising therein. Going forward, to the extent Partners First determines not
to include the receivables arising in any of such accounts in the Trust, it
is anticipated that such accounts will continue to be financed with
borrowings under such credit lines.
UNDERWRITING PROCEDURES
Historically, Harris, BankBoston and later BKB reviewed all
applications for credit card accounts for completeness and creditworthiness
based on credit underwriting criteria established by BKB and Harris, as
applicable. 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 Account
Originators will be prescreened direct mail solicitation of qualified
prospective cardholders. Following the model established by FAMIS with
respect to the credit card business of BankBoston and BKB, underwriting
criteria included in the Credit Card Guidelines recommended by Partners
First, will be utilized by the Account Originator at the credit bureaus to
generate a list of qualifying prospective cardholders. Account Originators
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 Account
Originators 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, similar to those designed by FAMIS
as described above (see "-- Development of the Business Model of Partners
First; The Role of FAMIS"), will be developed by Partners First using
statistics to evaluate common characteristics and their correlation with
credit risk. The credit scoring models used will often be reviewed and
updated to reflect more current statistical data.
Partners First will also use information obtained on behalf of the
Account Originators from various third-party sources and Partners First's
internal database and then apply 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
Partners First to verify the potential cardholder's credit information. As
part of the verification process Partners First 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 by the Account Originators after this
verification process has been completed and will be in an amount
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 Servicer 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 by the Account Originators accordingly. Applicants whose credit
score lies between these pre-set thresholds will be reviewed manually by a
credit analyst as part of the determination of the applicant's
creditworthiness. Account Originators have the ability to override
decisions made by the scorecard upon receipt of additional information from
the applicant. Credit lines will be assigned by the Account Originators
based upon the cardholder's credit score, income and credit profile.
Generally, the Account Originators 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 and usage of the
cardholder satisfy certain criteria.
ADDITIONAL ACCOUNTS
Eligible Receivables from Additional Accounts, if needed, will be
added to the Trust from accounts originated or acquired by the Account
Originators through pre-approved applications and other sources, as
described above. It is expected that portfolios of credit card accounts
purchased by an Account Originator from other credit card issuers will be
added to the Trust from time to time. Any such addition would be subject to
the restrictions on additions of Accounts in the Pooling and Servicing
Agreement, including the Rating Agency Condition. See "Risk Factors --
Addition of Trust Assets."
BILLING AND PAYMENTS
The VISA and MasterCard credit card accounts of the BKB Portfolio
and, since the conversion of the Harris Portfolio to the FDR system in
March 1998, the Harris Portfolio are currently grouped into twenty-one
billing cycles (each, a "Billing Cycle") ending on various days throughout
each month. 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. FDR sends a
monthly billing statement to each BKB Portfolio 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. Monthly statements are sent to each
Harris Portfolio cardholder unless (i) the account has been charged off,
(ii) the account has a zero balance with no activity, (iii) the account is
coded as having a bankrupt or deceased cardholder, (iv) the account
activity has been confirmed as fraudulent or (v) the account has had a
credit balance for more than six months.
With respect to the BKB Portfolio, each month cardholders generally
are required to make at least a minimum payment (the "Minimum Monthly
Payment") equal to the sum of (i) the greater of 2.0% of the new balance
shown on the monthly statement or $15, or if the new balance is less than
$15, the amount of the new balance, (ii) any past due amount from prior
months, (iii) any amounts in excess of the credit limit, (iv) any assessed
fees, and (v) any credit insurance premiums.
With respect to the Harris Portfolio, the Minimum Monthly Payment
varies depending on the account and equals (i) for accounts where the
current balance is less than the credit limit, the greater of either 1/33rd
or 1/36th (depending on the account) of the current balance (not including
amounts in dispute) or an amount between $5.00 and $15.00 (depending on the
account) and (ii) for accounts that are overlimit, the amount the account
balance is above the credit limit.
Going forward, BKB's policy will generally continue to be applied to
new accounts in the Partners First Portfolio.
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. Finance charges in connection with
such skipped payments continue 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. BKB's policy will continue to be applied
with respect to both new accounts originated by the Account Originators and
accounts from the Harris Portfolio.
Currently, for both the BKB Portfolio and the Harris Portfolio,
monthly periodic finance charges are calculated on both cash advances and
purchases by multiplying the average daily cash advance balance or average
daily purchase balance, as applicable, by the applicable monthly periodic
rate. Monthly periodic finance charges are currently calculated on cash
advances and purchases (including certain fees and unpaid finance charges)
from the later of (i) the date of the transaction or (ii) the first day of
the Billing Cycle in which the transaction is posted to the account, for
both the BKB Portfolio and, since the conversion of the Harris Portfolio to
the FDR processing system in March 1998, the Harris Portfolio. The monthly
periodic finance charges in new accounts originated by the Account
Originators will also be calculated in a manner consistent with this
policy. 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 due date specified in the monthly billing
statement, or if the purchases previous balance is zero. The next statement
closing date is on average 28-32 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 ranges from $15.00 to $20.00 for
standard accounts and from $18.00 to $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 Portfolio
accounts with an annual membership fee, generally the annual membership fee
is $20.00 for standard accounts and $35.00 for premium accounts.
Approximately 13% of the Harris Portfolio accounts are assessed an annual
fee. Harris reserved 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 determined a waiver to be necessary to operate
its credit card business on a competitive basis. In general for the Harris
Portfolio, membership fees have not been waived. Generally, an account is
closed upon determining that the related cardholder is unwilling to pay the
fee. 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 Portfolio accounts will be repriced
gradually over time to achieve consistency with this policy. However,
certain Harris relationship accounts may be given a more favorable
structure.
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 $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
2.0% of the amount of the advance subject to a minimum fee of $3.50, (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. 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
repriced gradually over time to achieve consistency with this policy.
With regard to the BKB Portfolio, payments by cardholders are
processed and applied first to annual membership fees, next to billed and
unpaid finance charges, next to any billed fees and other amounts not
subject to finance charges and then to billed and unpaid transactions. Any
excess is applied to unbilled transactions in the order determined by BKB
and then to unbilled finance charges. Since the conversion of the Harris
Portfolio to the FDR processing system in March 1998, Harris Portfolio
cardholder payments are processed and applied in the same manner that the
BKB Portfolio is processed and applied.
With respect to pricing, the accounts in the Harris Portfolio will
gradually be repriced according to the policy established and utilized in
connection with 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 Account Originators 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
with respect to each Account Originator will be allocated to PFR in an
amount equal to the product of (i) the total Interchange with respect to
the Account Originator's entire portfolio of credit card accounts and (ii)
a fraction, the numerator of which is the total credit card sales charges
arising in the credit card accounts included in the Partner First Portfolio
originated by such Account Originator, and the denominator of which is the
total credit card sales charges arising in the Account Originator's entire
portfolio of credit card accounts. Interchange received by PFR will be
allocated to the Trust in an amount equal to the product of (i) the
aggregate Interchange received by PFR from the Account Originators and (ii)
a fraction, the numerator of which is the total amount of Receivables
arising in the Accounts in the Trust Portfolio and the denominator of which
is the total credit card sales charges arising in all of the credit card
accounts in the Partners First Portfolio. Such amount 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 Portfolio and the BKB Portfolio, an
account is delinquent if a minimum payment due thereunder is not received
by the Servicer by the time the cardholder's next billing statement is
generated, which is generally within five days after the due date printed
in the previous statement. Delinquent accounts are routed to the
pre-collections system at FDR where they are prioritized and early stage
collection efforts are initiated. 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, 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. Account Originators generally reserve
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).
If notice is received that a cardholder has filed for bankruptcy then the
account is charged-off as soon as is practicable in the month following
confirmation of bankruptcy. Credit evaluation, servicing and charge-off
policies and collection practices may change over time in accordance with
the business judgment of the applicable Account Originator, applicable law,
guidelines established by applicable regulatory authorities and market
conditions.
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 Servicer utilizes FDR's facilities to
administer the recovery of defaulted receivables. The Servicer 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 Servicer 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 utilized internal facilities to administer
the recovery of defaulted receivables. Since the conversion of the Harris
Portfolio to the FDR processing system in March 1998, FDR administers the
recovery of defaulted receivables in a manner consistent with BKB
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, Partners First's
recommended fraud policy will follow that of BKB.
PARTNERS FIRST HOLDINGS, LLC
Partners First Holdings, LLC is a limited liability company organized
in the State of Delaware on December 17, 1997. Its principal executive
office is located at 900 Elkridge Landing Road, Suite 300, Linthicum, MD
21090-2925, and its telephone number is (410) 865-8700. The Prospectus
Supplement for each Series will provide additional information relating to
the Servicer.
Partners First was formed in December 1997 pursuant to a Master
Agreement for the Formation of a Limited Liability Company, dated as of
September 2, 1997 (the "Master Formation Agreement"), among BankBoston
Corporation, a Massachusetts corporation, of which BKB is an indirect
subsidiary, Bankmont Financial Corp., a Delaware corporation ("Bankmont"),
Harris, which is an indirect subsidiary of Bankmont, and First Annapolis
Consulting, Inc., a Maryland corporation ("First Annapolis"). The owners of
Partners First are BKB, EFS (U.S.), Inc., a Delaware corporation and
subsidiary of Bankmont, and First Annapolis Marketing Information Services,
Inc. ("FAMIS"), a Maryland corporation and wholly-owned subsidiary of First
Annapolis. EFS (U.S.), Inc., BKB and FAMIS have a 69%, 19% and 12% interest
respectively, in the common equity of Partners First. Partners First has
been appointed as Servicer with respect to the Accounts and the related
Receivables. Partners First has delegated substantially all of its
servicing duties to FDR.
PARTNERS FIRST RECEIVABLES FUNDING, LLC
PFRF was organized under the laws of the State of Delaware on January
26, 1998 and is a special purpose wholly owned subsidiary of PFR. PFRF's
principal office is currently located at 900 Elkridge Landing Road, Suite
301, Linthicum, MD 21090-2925, and its telephone number is (410) 855-8600.
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 PFR, as the
sole member of the Transferor, nor the Transferor's board of managers
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 in the
Partners First Portfolio on the basis of criteria set forth in the Pooling
and Servicing Agreement. An account must be an Eligible Account to be
included in the Trust Portfolio. On January 29, 1998, the Trust Portfolio
represented approximately 97% of the credit card accounts in the Partners
First Portfolio.
Pursuant to the Transferor Purchase Agreement and the Pooling and
Servicing Agreement, the Transferor has the right or may be obligated
(subject to certain limitations and conditions) to require PFR 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 Transferor 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 Transferor 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 January 29, 1998 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 Issuance 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 Issuance 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 SECURITIES
GENERAL
The Securities 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 Securities will evidence undivided beneficial interests in the
Trust Assets allocated to such Securities, 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 Securities will initially be represented by one or more
Securities 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 Securities 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 Securities. Except under the limited circumstances described
herein, no Securityholder will be entitled to receive Securities in fully
registered, certificated form ("Definitive Securities") representing such
person's interest in the Securities. Unless and until Definitive Securities
are issued under the limited circumstances described herein, all references
herein to actions by Securityholders 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
Securityholders shall refer to distributions, notices, reports and
statements to Cede, as the registered holder of the Securities, for
distribution to the beneficial owners of the Securities in accordance with
DTC procedures. See "--Book-Entry Registration" and "-- Definitive
Securities."
Payments of interest and principal will be made on each related
Interest Payment Date to the Securityholders in whose names the Securities
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,
Securityholders may hold their Securities 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 Security or
Securities. 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
securities. 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.
Securityholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions
of principal and interest on the Securities from the Trustee through DTC
and its Participants. Under a book-entry format, Securityholders 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 Securities. It is
anticipated that the only Securityholder will be Cede, as nominee of DTC,
and that holders of beneficial interests in the Securities will not be
recognized by the Trustee as Securityholders under the Pooling and
Servicing Agreement. Holders of beneficial interests in the Securities will
only be permitted to exercise the rights of Securityholders 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 Security is registered
(expected to be Cede) as the absolute owner thereof (whether or not such
Security 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 Securities and is
required to receive and transmit distributions of principal of and interest
on the Securities. Participants and Indirect Participants with which
holders of beneficial interests in the Securities 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 Securities to pledge Securities to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such Securities, may be limited due to the lack
of a Definitive Security for such Securities.
DTC has advised the Transferor that it will take any action permitted
to be taken by a Securityholder 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 Securities are credited.
Additionally, DTC has advised the Transferor that it may take actions with
respect to the Securityholders' 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 securities. 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 securities 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
securities 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 Securities 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 Securityholder 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 Securities 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 SECURITIES
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each Series will be issued as Definitive Securities in fully
registered, certificated form to Security 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 Securities,
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, Security Owners evidencing not less than 50% of the aggregate
unpaid principal amount of the Securities, 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 Security 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 Securities. Upon surrender by DTC of
the definitive securities representing the Securities and instructions for
re-registration, the Trustee will issue the Securities in the form of
Definitive Securities, and thereafter the Trustee will recognize the
holders of such Definitive Securities as Securityholders under the Pooling
and Servicing Agreement and the related Supplement ("Holders").
Distribution of principal and interest on the Securities 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 Securities 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 Security
(whether Definitive Securities or Securities registered in the name of
Cede), however, will be made only upon presentation and surrender of such
Security on the final payment date at such office or agency as is specified
in the notice of final distribution to Securityholders. The Trustee will
provide such notice to registered Securityholders not later than the fifth
day of the month of the final distribution.
Definitive Securities 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 Invested Amount or outstanding principal
amount of the Securities 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 Securityholders' Interest of a Series or Class offered
hereby will generally be used to make interest payments to Securityholders
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 Securityholders 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 Securityholders of such
Series or Class on the following Interest Payment Date. If a Series has
more than one Class of Securities, 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 Securities of each Series
offered hereby will accrue and be calculated on the basis described in the
related Prospectus Supplement.
PRINCIPAL
The Securities 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
Securityholders of other Series in such Group or, if not required for such
purpose, the holders of the Transferor Securities 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 Securities 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, if so specified in the
related Prospectus Supplement, certain other amounts allocable to the
Securityholders' 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 Securityholders 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 Securities, 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 (as defined in the applicable Prospectus Supplement)
for such Series, based on (a) the expected monthly collections of Principal
Receivables expected to be distributable to the Securityholders 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 Securityholders 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 Issuance 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 Securityholders 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 Securityholders' 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
Securityholders then scheduled to receive such distributions. If so
specified in the related Prospectus Supplement, the amount to be
distributed to Securityholders 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
Securities, 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 Securityholders' 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 Securityholders 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 Securityholders' Interest of such Series (including Shared Principal
Collections, if any, allocable to such Series) will be distributed as
principal payments to the applicable Securityholders 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 Securityholders 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 Securityholders 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 Securities 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 Securityholders), (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 (as defined in the applicable Prospectus Supplement) 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 Securityholders
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
Securityholders 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, Securityholders 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 Securities may be
reduced or increased. If a Series has more than one Class of Securities,
each Class may have different Pay Out Events which, in the case of any
Series of Securities 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 Securities, each Class may
have different Reinvestment Events (or may have only Pay Out Events) which,
in the case of any Series of Securities 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 and on commercially reasonable terms unless
instructions otherwise are received within a specified period from
Securityholders holding Securities evidencing more than 50% of the Invested
Amount of each Series of Securities 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
Securityholders 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
Securityholders of each Series. The portion of the Servicing Fee allocable
to each Series of Securities 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 Securityholders' 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 Securityholders 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.
TERMINATION OF THE TRUST
The Trust and the respective obligations and responsibilities of the
Transferor, the Servicer and the Trustee created pursuant to the Pooling
and Servicing Agreement (other than the obligation of the Trustee to make
payments to Investor Securityholders as hereinafter set forth) shall
terminate upon the earliest to occur of (i) December 31, 2029, (ii) at the
option of the Transferor, the day following the Distribution Date on which
the Invested Amount for each Series is zero and (iii) the day an Insolvency
Event has occurred.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
CONVEYANCE OF RECEIVABLES
On January 29, 1998, PFR acquired approximately $1,870,000,000
aggregate principal amount of Receivables, of which approximately
$1,190,000,000 aggregate principal amount of receivables were conveyed to
PFR by BKB and approximately $680,000,000 aggregate principal amount of
receivables were conveyed to PFR by Harris. Immediately upon giving effect
to such transactions, PFR conveyed approximately $1,846,000,000 aggregate
principal amount of Receivables (the "Initial Receivables") to the
Transferor, which in turn transferred the Initial Receivables to the Trust.
The Initial Receivables constituted all of the Eligible Receivables
acquired by PFR from BKB and Harris on January 29, 1998. 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 Issuance Date, the Trustee will authenticate and
deliver one or more securities representing the Series or Class of
Securities, in each case against payment to the Transferor of the net
proceeds of the sale of the Securities. In the case of January 29, 1998,
the Trustee will deliver to the Transferor the Transferor Security,
representing the Transferor's Interest.
In connection with the transfers of the Receivables, each Account
Originator will indicate in its respective computer records that the
applicable Receivables have been conveyed from such party to PFR. PFR will
indicate in its computer records that the Receivables have been 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 Securityholders. 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."
ELIGIBLE ACCOUNTS AND RECEIVABLES
"Eligible Account" means a revolving credit card account owned by the
applicable Account Originator which, as of the respective date of
designation, (a) is a revolving credit card account in existence and
maintained by the applicable Account Originator, (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) is not sold
or pledged to any other party except for any sale by the applicable Account
Originator to PFR, (g) does not have receivables which have been sold or
pledged by the applicable Account Originator to any other party other than
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 applicable
Account Originator, and (k) with respect to Additional Accounts and certain
other accounts, 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.
"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 Partners First 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 related Account Originator 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.
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 Issuance 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 Securityholders' 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.
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 Securityholders or the Trustee on behalf of
Securityholders. 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 plus (ii) the amount on deposit in the Special Funding Account at
such time plus (iii) the aggregate principal amount on deposit in the
Principal Funding Account and the Pre-Funding Account for each Series minus
(iv) the aggregate 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 Issuance 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 Issuance 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 Securityholders) 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 Securityholders) 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 Securityholders' 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 Securityholders holding
Securities evidencing not less than 50% of the aggregate unpaid principal
amount of all outstanding Securities, by written notice to the Transferor
and the Servicer (and to the Trustee if given by the Securityholders), 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
Securityholders' Interest and such funds will be distributed upon
presentation and surrender of the Securities. If the Trustee or
Securityholders 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
Securityholders or the Trustee on behalf of Securityholders. See
"Description of the Purchase Agreements -- Transferor Purchase Agreement."
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.
TRANSFEROR SECURITIES
The Transferor Security represents the undivided interest in the
Trust not represented by the Securities 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 Security. The Transferor's Interest at any
time represents the right to the Trust Assets in excess of the
Securityholders' 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 Security for one or more additional securities (each, a
"Supplemental Security") 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 Security by a person other than the Transferor
will be subject to the condition set forth in clause (c) above. On January
29, 1998, the Transferor issued to one of its affiliates a Supplemental
Security representing the excess of the Transferor Amount over a minimum
retained Transferor Amount representing at least 2.0% of the aggregate
Invested Amount of all Series.
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 timing or
amount of payments to the Securityholders 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 an 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 numerators used in the Principal
Allocation Percentage for each Series outstanding on such date minus the
amount on deposit in the Special Funding Account minus the amount on
deposit in the Principal Funding Account for each Series outstanding on
such date minus the amount on deposit in the Pre-Funding Account for each
Series outstanding on such date. 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 January 29, 1998 may not have been a part of the
portfolio of accounts of PFR as of January 29, 1998, 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 (with a copy to each Rating Agency) to the
effect that the Transferor reasonably believes that (a) such removal will
not have an Adverse Effect; (b) either (x) no selection procedure
reasonably believed by the Transferor to be materially adverse to the
interests of the Securityholders 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 (c) the Transferor Amount as of the Removal
Date (determined after giving effect to such removal and to the Principal
Receivables or Participation Interests transferred to the Trust on such
date) is greater than or equal to the Required Transferor Amount; 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. If on the applicable
Removal Date, the long-term unsecured debt obligations of Partners First or
PFR are not rated at least in the third highest rating category by the
Rating Agency, the Transferor will be required to deliver to the Trustee,
with a copy to the Rating Agency, an officer's certificate which shall have
attached to it the relevant fraudulent conveyance statute, if any, and set
forth the factual basis for a conclusion that such Removal would not
constitute a fraudulent conveyance of the Transferor. The foregoing
conditions may be amended with the consent of each Rating Agency but
without the consent of Securityholders if such amendment is required to
comply with any accounting or regulatory restrictions to which the Trust,
the Transferor, Partners First 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
Securityholders, 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
Securityholders 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 Securities of the related Series. The
Yield Supplement Account for any Series will be funded with proceeds from
the offering of the Securities of the related Series.
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 Securityholders, 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 Securityholders 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.
Except as provided in the preceding paragraph, 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
Securityholders, 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 Securityholders with respect to the Pooling
and Servicing Agreement and the rights and duties of the parties thereto
and the interests of the Securityholders 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 Additional Receivables Purchase Agreements, except as
otherwise required by any requirement of law or as is deemed by the related
Account Originator (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, an Account Originator 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 related Account Originator also covenants that unless required
by law and except as provided above, such Account Originator 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, such
Account Originator reasonably believes will have a material adverse effect
on the Transferor or the Securityholders.
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 Securityholders 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 security 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
Securityholders 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 Securities of such Series may be repurchased;
(j) the Series Termination Date; (k) the number of Classes of Securities 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 Securities
of such Series will be issuable in temporary or permanent global form (and,
in such case, the depositary for such global security or securities, the
terms and conditions, if any, upon which such global security or securities
may be exchanged, in whole or in part, for definitive securities, and the
manner in which any interest payable on such global security or securities
will be paid); (m) whether the Securities 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 Securityholder 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.
In addition to the foregoing, it is a condition to the issuance of
each Series offered hereby, that on the related Series Issuance Date, the
aggregate amount of Receivables which are more than 30-days past due, will
not exceed 20% of the aggregate amount of Receivables in the Trust.
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 Securityholders 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
Securityholder 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 Securities 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 Securities 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 Securityholders; and (iv) except as is otherwise
provided in a Supplement with respect to any Series or Class thereof, the
Securities 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) and (iv) 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 Securities 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 Security) 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. 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 Securityholders 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, including the
District of Columbia (or any domestic branch of a foreign bank) which
depository institution at all times is a member of the FDIC and (i) whose
short-term unsecured debt obligations are acceptable to each Rating Agency
or (ii) which has a certificate of deposit 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 Securityholders' 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 Securities
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 Securities 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 Securities 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 SECURITIES 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 Securityholders' 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 prorata 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 security rate) will
receive a proportionately larger allocation than such other Series.
The amount of Group Investor Finance Charge Collections allocated to
the Securityholders' Interest (including any Enhancement Invested Amount)
for a particular Series offered hereby as described above is referred to
herein as "Redirected 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 Securities 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
Securities or Enhancement Invested Amounts of such Series and (b) if the
related Supplement so provides, the amount of interest at the applicable
security 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 Redirected 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 Securities or Enhancement Invested
Amount (if any) of such Series, the Defaulted Amount allocable to the
Securityholders' 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 Securityholders' 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, Partners
First 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 Securities. 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, Partners First, 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 Securityholders'
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
Securityholders 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 Securityholders 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
Securityholders' 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 Securities, provided that (a) such Shared Principal
Collections will be distributed to the holders of the Transferor Securities
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 Securityholders 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 Securities 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 Securityholders 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
Securityholders 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 Securities 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
Securityholders 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 Securities, 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 Securities 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 Securityholders 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
Securities 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 Partners
First 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 (any such
downward adjustment, a "Dilution"), 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 (any such payment, an
"Adjustment Payment").
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 Securities 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 Securityholders of such
Class of the full amount of principal and interest with respect thereto and
to decrease the likelihood that such Securityholders 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 Securities and interest
thereon. If losses occur that exceed the amount covered by the Credit
Enhancement or that are not covered by the Credit Enhancement,
Securityholders 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, Securityholders of any such Class or Series
will be subject to the risk that such Credit Enhancement will be exhausted
by the claims of Securityholders 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 Securityholders 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 Securities 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
Securityholders 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 Securities to receive
distributions of principal or interest on any payment date will be
subordinated to such rights of the holders of the Securities that are
senior to such subordinated Securities 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 Securities in a Series or of the subordinated
Securities 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 Securities will be distributed to holders of Securities
that are senior to such subordinated Securities. The amount of
subordination will decrease whenever amounts otherwise payable to the
holders of subordinated Securities are paid to the holders of the
Securities that are senior to such subordinated Securities.
Letter of Credit. If so specified in the related Prospectus
Supplement, a letter of credit with respect to a Series or Class of
Securities 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 Securities, including the subordinated Securities, 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 Securities 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 Securityholders 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 Securities of
the related Series. The Yield Supplement Account for any Series will be
funded with the proceeds from offering of the Securities of the related
Series.
Collateral Interest. If so specified in the related Prospectus
Supplement, support for a Series of Securities 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 Securities 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
Securities 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
Securities offered hereby to assure distributions of interest or principal
with respect to such Series or Class of Securities 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 Securities 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
Securityholders 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 Securityholders; (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 Securityholders 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 Securityholders'
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 Securityholders 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, Partners First may assign part or
all of its obligations and duties as Servicer under the Pooling and
Servicing Agreement to an affiliate of Partners First as long as Partners
First 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 Securityholders holding Securities evidencing more than 50% of
the aggregate unpaid principal amount of all Securities, by written notice
to the Servicer (and to the Trustee if given by the Securityholders) (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 Securityholders' Interest on
the Distribution Date in the next calendar month. The purchase price for
the Securityholders' 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 Securities 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 Securityholders 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 Series Issuance
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 Security, 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
Securityholders 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
Securityholders evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the Securities 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 Securityholders. No such amendment, however, may (a) reduce in
any manner the amount of, or delay the timing of, deposits or distributions
on any Security without the consent of each Securityholder, (b) (i) change
the definition or the manner of calculating the Securityholders' Interest
or the Invested Amount or (ii) reduce the aforesaid percentage of the
aggregate unpaid principal amount of the Securities the holders of which
are required to consent to any such amendment, in each case without the
consent of each Securityholder or (c) adversely affect the rating of any
Series or Class by a Rating Agency without the consent of the holders of
Securities of such Series or Class evidencing not less than 66 2/3% of the
aggregate unpaid principal amount of the Securities 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 Securityholder. Notwithstanding the foregoing, any
Supplement executed in connection with the issuance of one or more new
Series of Securities will not be considered an amendment to the Pooling and
Servicing Agreement.
LIST OF SECURITYHOLDERS
Upon written request of any Holder or group of Holders of Securities
of any Series or of all outstanding Series of record holding Securities
evidencing not less than 10% of the aggregate unpaid principal amount of
the Securities of such Series or all Series, as applicable, the Trustee
will afford such Holder or Holders of Securities access during business
hours to the current list of Securityholders of such Series or of all
outstanding Series, as the case may be, for purposes of communicating with
other Holders of Securities with respect to their rights under the Pooling
and Servicing Agreement. See "Description of the Securities --Book-Entry
Registration" and "--Definitive Securities."
The Pooling and Servicing Agreement does not provide for any annual
or other meetings of Securityholders.
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 Securities in their own
names; however, any Securities so held shall not be entitled to participate
in any decisions made or instructions given to the Trustee by the
Securityholders 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
PFR PURCHASE AGREEMENTS
On January 29, 1998, each of BKB and Harris entered into three
separate receivables purchase agreements with PFR providing for the sale by
BKB or Harris, as applicable, to PFR of all of its right, title and
interest in and to the (i) receivables in existence on January 29, 1998
which were not more than 29 days past due as of January 29, 1998 (the
"Current Initial Receivables Purchase Agreement"), (ii) receivables in
existence on January 29, 1998 which were at least 30 days past due as of
January 29, 1998 and certain other receivables which were otherwise
impaired (the "Overdue Initial Receivables Purchase Agreement" and together
with the Current Initial Receivables Purchase Agreement, the "Initial
Receivables Purchase Agreements") and (iii) all receivables arising in the
Accounts (including any Additional Accounts) originated by BKB or Harris,
as applicable, which arise after January 29, 1998 (the "Additional
Receivables Purchase Agreements"). Each of BKB and Harris entered into
separate assignment and assumption agreements with PFR (each, an
"Assignment and Assumption Agreement" and together with the Initial
Receivables Purchase Agreements and the Additional Receivables Purchase
Agreements, the "Original PFR Purchase Agreements"), pursuant to which (i)
each of BKB and Harris assigned to PFR all of their respective right, title
and interest in, to and under the receivables subject to the applicable
Initial Receivables Purchase Agreement and (ii) PFR assumed all obligations
with respect to such receivables. In connection with such sale of
receivables to PFR, each of BKB and Harris indicated in its respective
computer records that the subject receivables were sold to PFR. In
addition, each of BKB and Harris will provide to PFR a computer file or a
microfiche list containing a true and complete list showing each Account
owned by BKB or Harris, as applicable, identified by account number and by
total outstanding balance of the related receivables on the applicable date
of designation or addition date for Additional Accounts, as the case may
be. Each of BKB and Harris, as seller, under the applicable Original PFR
Purchase Agreement, 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."
Under the Additional Receivables Purchase Agreements, each newly
originated Additional Account will, subject to certain conditions, be
deemed to be an Account. Each of BKB and Harris are required under their
respective Additional Receivables Purchase Agreement to take all actions
necessary to comply, or to enable PFR to comply, with the requirements
under the Transferor Purchase Agreement relating to Additional Accounts.
Representations and Warranties; Initial Receivables Purchase
Agreements. In each Initial Receivables Purchase Agreement, each of BKB and
Harris represented and warranted to PFR that, as of January 29, 1998, (a)
each Initial Receivables Purchase Agreement constituted a valid and binding
obligation of BKB or Harris, as applicable; (b) it was the sole owner of
all right, title and interest in, to and under all of the receivables sold
by it to PFR, and had the right, power and authority to sell and transfer
the subject receivables to PFR; (c) the receivables sold by it to PFR were
not subject to any assignment, lien, charge, encumbrance or security
interest, except as specified in the related cardholder agreements (other
than the right of cardholders to assert claims and defenses pursuant to
applicable laws); (d) to the best of its knowledge, the related Accounts
were not subject to claims, offsets or adjustments and represented the
legal, valid and binding obligations of the cardholders (other than the
right of cardholders to assert claims and defenses pursuant to applicable
laws); (e) it was in compliance with the applicable cardholder agreements,
except where the failure to so comply would not have had a material adverse
effect on the Receivables; and (f) it was licensed to participate in
programs offered by VISA and MasterCard to the full extent necessary to
generate the subject receivables.
Representations and Warranties; Assignment and Assumption Agreements.
Each of BKB and Harris represented and warranted to PFR in their respective
Assignment and Assumption Agreement, that as of January 29, 1998, (a) the
Assignment and Assumption Agreement and each of the related Initial
Receivables Purchase Agreements constituted a valid and binding obligation
of BKB or Harris, as applicable; (b) each of the Receivables conveyed by it
to PFR was free and clear of any lien (other than liens permitted under the
Pooling and Servicing Agreement) of any person claiming through or under
BKB or Harris, as applicable, and each of their respective affiliates; (c)
the Assignment and Assumption Agreement and the related Additional
Receivables Purchase Agreements each constituted a valid sale, transfer and
assignment to PFR of all right, title and interest of BKB or Harris, as
applicable, in its respective Receivables and the proceeds thereof and the
Interchange and Recoveries payable pursuant thereto, or if such is not the
case, such agreements constituted a grant of a first priority perfected
security interest in such property to PFR; (d) each Account designated by
BKB or Harris, as applicable, as an Eligible Account, was an Eligible
Account; (e) each subject Receivable then existing and designated as an
Eligible Receivable was an Eligible Receivable; and (f) no event of
insolvency had occurred with respect to BKB or Harris, as applicable, and
the transfer of the subject Receivables had not been made in contemplation
of the occurrence thereof.
Representations and Warranties; Additional Receivables Purchase
Agreements. Each of BKB and Harris represents and warrants to PFR in their
respective Additional Receivables Purchase Agreement that (a) as of the
date of the Additional Receivables Purchase Agreement and as of each date
of designation of Additional Accounts thereunder, it is duly organized and
in good standing and that it has the authority to consummate the
transactions contemplated by the Additional Receivables Purchase Agreement;
(b) the Additional Receivables Purchase Agreement constitutes a valid and
binding obligation of BKB or Harris, as applicable; (c) each of the
Receivables conveyed by it to PFR is free and clear of any lien (except for
liens permitted under the Pooling and Servicing Agreement) of any person
claiming through or under BKB or Harris, as applicable, or any of their
respective affiliates; (d) the Additional Receivables Purchase Agreement
constitutes a valid sale, transfer and assignment to PFR of all right,
title and interest of each of BKB or Harris, as applicable, in their
respective Receivables and the proceeds thereof and the Interchange and
Recoveries payable pursuant thereto, or if the Additional Receivables
Purchase Agreement does not constitute a sale of such property, then it
constitutes a grant of a first priority perfected security interest in such
property to PFR; (e) as of January 29, 1998, each Account was, and as of
each date of designation of Additional Accounts under the Additional
Receivables Purchase Agreement, each Additional Account will be, an
Eligible Account; and (f) as of January 29, 1998 and as of each date of
designation of Additional Accounts under the Additional Receivables
Purchase Agreement, each Receivable generated thereunder was or will be, on
such date of designation, an Eligible Receivable.
Additional PFR Purchase Agreements. Going forward, PFR may enter into
additional receivables purchase agreements with Account Originators
providing for the purchase by PFR of receivables arising under revolving
consumer credit card accounts originated by financial institutions other
than BKB or Harris ("Additional PFR Purchase Agreements"). Any Additional
PFR Purchase Agreements will contain terms and conditions, and will be
subject to representations and warranties of the related Account
Originator, substantially similar to those found in the Original PFR
Purchase Agreements entered into by BKB and Harris on January 29, 1998.
TRANSFEROR PURCHASE AGREEMENT
Sale of Receivables. Pursuant to the Transferor Purchase Agreement,
PFR sold to the Transferor all its right, title and interest in and to (i)
all of the Eligible Receivables acquired by PFR from the Account
Originators and all of the Eligible Receivables created in the Accounts
following the date of the Transferor Purchase Agreement and (ii) the
Eligible Receivables in each Additional Account designated from time to
time for inclusion as an Account as of the date of such designation,
whether such Eligible Receivables shall then be existing or shall
thereafter be created.
In connection with such sale of the Receivables to the Transferor,
PFR indicated in its computer records that the Receivables had been sold to
PFRF by it and PFRF indicated in its files that such Receivables were to 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 of PFR and agreements
relating to the Receivables will be marked to evidence such sale or
transfer. PFR, as debtor/seller, and PFRF, as the secured party/purchaser,
filed or caused to be filed, and 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, designate Additional Accounts to be included
as Accounts under the Transferor Purchase Agreement, if such designation of
Additional Accounts is required under the Pooling and Servicing Agreement.
See "Description of the Pooling and Servicing Agreement -- Additions of
Accounts or Participation Interests."
Representations and Warranties. In the Transferor Purchase Agreement,
PFR represented and warranted 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 was and will be duly organized and in good standing
and that it had and will have the authority to consummate the transactions
contemplated by the Transferor Purchase Agreement, (b) as of January 29,
1998, each Account was, 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 January 29, 1998 and as of each
date of designation of Additional Accounts under the Transferor Purchase
Agreement, each Receivable generated thereunder was or will be, on such
date of designation, an Eligible Receivable. If the breach of any
representation and warranty set forth in the Transferor Purchase Agreement
results in the requirement that the Transferor accept retransfer of an
Ineligible Receivable, then PFR will be obligated to repurchase any 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 represented and warranted 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 constituted and will constitute a valid and binding obligation of
PFR and (b) the Transferor Purchase Agreement constituted and will
constitute 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, or if the Transferor Purchase
Agreement does not constitute a sale of such property, then it constitutes
a grant of a first priority perfected security interest in such property to
the Transferor. 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.
FORMATION TRANSACTIONS; ACCOUNT ORIGINATION
Contribution Agreements. Pursuant to the Contribution Agreements, on
January 29, 1998, each of BKB and Harris contributed to Partners First all
of their respective rights under the credit card accounts in the Partners
First Portfolio, except (i) the related cardholder agreements, (ii) all
rights to create, enforce and collect the receivables and any other amounts
owing under the Partners First Portfolio and (iii) all rights to amend and
modify the related cardholder agreements (collectively, the "Retained
Rights"). Under the Contribution Agreements and the Assistance Agreements,
Partners First has the right to designate the financial institutions that
will exercise the Retained Rights with respect to the Partners First
Portfolio. On January 29, 1998, Partners First designated BKB and Harris as
the Account Originators with respect to the credit card accounts in the
Partners First Portfolio originated by BKB or Harris, respectively. Until
March 1998, each of BKB and Harris remained Account Originators and
exercised the Retained Rights with respect to the Accounts originated by
BKB and Harris, as applicable. In March 1998, Partners First designated BKB
as the sole Account Originator with respect to the existing credit card
accounts in the Partners First Portfolio, including the Accounts. Going
forward, Harris may continue to be an Account Originator with respect to
new credit card accounts originated through Harris' marketing efforts,
including any New Accounts. Prior to the establishment of the Bank,
Partners First may designate other financial institutions as Account
Originators, and any such Account Originators would originate credit card
accounts into the Partners First Portfolio. In addition, it is anticipated
that upon the establishment or acquisition by Partners First of the Bank,
Partners First will designate the Bank as the sole Account Originator with
respect to the credit card accounts in the Partners First Portfolio,
including the Accounts and any New Accounts, and, in connection therewith,
each of BKB and Harris will cease to be an Account Originator. As an
Account Originator, the Bank would also originate credit card accounts.
However, none of the credit card accounts originated by the Bank or any
other Account Originator may be designated as Accounts and none of the
related receivables may be transferred to the Trust unless certain
conditions, including the Rating Agency Condition, are satisfied.
Assistance Agreements. Pursuant to the Assistance Agreements, each of
BKB and Harris appointed Partners First as its sole and exclusive agent to
exercise all of its rights and perform all of its obligations with respect
to the credit card accounts in the Partners First Portfolio originated by
BKB and Harris, as applicable, except for the power to determine the terms
under which new credit card accounts will be originated, whether to extend
credit under the credit card accounts and to effect Interchange settlement.
In connection with such appointment, Partners First authorized each of BKB
and Harris to use, on a non-exclusive basis, Partners First's rights under
the credit card accounts in the Partners First Portfolio and related assets
including certain proprietary information related thereto, to the extent
necessary for each of BKB and Harris to perform the forgoing functions. In
its capacity as agent under the Assistance Agreements, Partners First will
perform certain functions, including making recommendations with respect to
the Credit Card Guidelines, administering the Credit Card Guidelines,
managing the Partners First Portfolio, arranging for the billing and
collection of any receivables arising thereunder, and otherwise servicing
and administering the credit card accounts in the Partners First Portfolio
and the related receivables.
Under the rules of the VISA and MasterCard associations, only certain
financial institutions may directly issue credit cards and advance credit
under the credit card accounts which bear the names and service marks of
VISA or MasterCard. The Assistance Agreements were required in connection
with the designation of BKB and Harris as Account Originators because
Partners First is not a financial institution. On a going forward basis the
Bank and other financial institutions, if any, designated by Partners First
as Account Originators, will enter into assistance agreements with Partners
First in the form of, or substantially similar to, the Assistance Agreement
executed by each of BKB and Harris.
LIMITATIONS ON LIABILITY
In the event of a breach of a representation or warranty by BKB or
Harris under their respective Purchase Agreements or Assignment and
Assumption Agreements, BKB or Harris, as applicable, will be liable to PFR
for damages. Partners First has agreed to indemnify BKB and Harris for any
losses suffered by BKB or Harris, as applicable, resulting from damages
payable to PFR in respect of a breach by BKB or Harris of any of their
respective representations or warranties under the applicable Assignment
and Assumption Agreement, to the extent that BKB or Harris, as applicable,
would not have suffered such losses under the Initial Receivables Purchase
Agreements, and except for any such losses caused by the gross negligence
or willful misconduct of BKB or Harris, as applicable. In each of the
Assistance Agreements, Partners First agrees to indemnify BKB and Harris
for any losses suffered by BKB or Harris, as applicable, resulting from,
among other things, damages payable to PFR in respect of a breach by BKB or
Harris of any of their respective representations or warranties under the
Additional Receivables Purchase Agreements, except to the extent caused by
the gross negligence or willful misconduct of BKB or Harris, as applicable.
Under the Additional Receivables Purchase Agreements, the liability of BKB
and Harris for any breach of any representation or warranty is limited to
the amount of any recovery by BKB or Harris, as applicable, from Partners
First pursuant to Partners First's obligation to indemnify BKB and Harris.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Under the PFR Purchase Agreements, the Account Originators sell the
Receivables to PFR. Under the Transferor Purchase Agreement, PFR sells the
Eligible Receivables it acquired from the Account Originators to the
Transferor. Under the Pooling and Servicing Agreement, the Transferor, in
turn, transfers the Eligible Receivables to the Trust. Each Account
Originator, 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, 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
January 29, 1998 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, 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, 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 and PFR warrants that it has transferred the Receivables free
and clear of the lien of any third party. In addition, each Account
Originator 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 securities 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 and PFR has represented and warranted in the
Purchase Agreements to which it is a party that the transfer of Receivables
pursuant to such Purchase Agreement is a valid sale and assignment of the
Receivables or if not a sale of the Receivables, a grant of a first
priority perfected security interest in the Receivables. In addition, each
Account Originator, PFR and the Transferor have 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 PFR's interest in
the Receivables conveyed to PFR by such Account Originator. 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,
it is possible that a receiver or conservator could attempt to
recharacterize the transfer by such Account Originator 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. 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. 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 Securityholders) 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 granted a security
interest in the Receivables, (ii) the interest was validly perfected before
the insolvency of the Account Originator, (iii) the interest was not taken
or granted in contemplation of the Account Originator's insolvency or with
the intent to hinder, delay or defraud the Account Originator or its
respective creditors, (iv) the applicable Purchase Agreement is
continuously a record of such Account Originator 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 PFR should be enforceable (to the
extent of PFR's "actual direct compensatory damages") notwithstanding the
insolvency of, or the appointment of a receiver or conservator for, the
Account Originator 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. 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 as provided under
FIRREA, delays in payments on the Securities 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, and a creditor or conservator of the Account Originator
were to request a court to order that the Account Originator should be
substantively consolidated with the Transferor, delays in payments on the
Securities or 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 bankruptcy trustee 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 Securities 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 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 formation of which provides that it
shall not file a voluntary petition for relief under 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 Securities 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 PFRF, 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 Securityholders representing undivided
interests aggregating more than 50% of the Invested Amount of each Series
of Securities 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 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 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 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 Securities or to prohibit the
continued transfer of Receivables to the Trust. See "Description of the
Securities -- Pay Out Events and Reinvestment Events."
While Partners First is the Servicer, cash collections held by
Partners First may, subject to certain conditions, be commingled and used
for the benefit of Partners First prior to each Distribution Date and, in
the event of the bankruptcy, insolvency, receivership or conservatorship of
Partners First 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. Partners
First will be allowed to make monthly rather than daily deposits of
collections to the Collection Account if Partners First obtains a
commercial paper rating of at least A-1 and P-1 (or its equivalent) by the
applicable Rating Agency, or Partners First makes other arrangements that
satisfy the Rating Agency Condition. Unless otherwise provided in the
related Prospectus Supplement, if any of the foregoing conditions are not
satisfied, then Partners First 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 bankruptcy or
insolvency of the Servicer, and no Servicer Default other than such
bankruptcy or insolvency related Servicer Default exists, the bankruptcy
trustee or the Servicer as debtor in possession, or the conservator or
receiver, as the case may be, may have the power to prevent either the
Trustee or the Securityholders 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 Originator, the most
significant federal laws include the Federal Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Billing, 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. 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 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 Securityholders' 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 Securityholders if such laws result in
any Receivables being written 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 Securities -- 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
Securities 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 Security
Owners of a Series in light of their personal investment circumstances or
to certain types of Security 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 SECURITIES, AS WELL AS
THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY,
OR OTHER TAXING JURISDICTION.
CHARACTERIZATION OF THE SECURITIES AS INDEBTEDNESS
Special tax counsel to the Transferor ("Special Tax Counsel")
specified in such Prospectus Supplement will, upon issuance of a Series of
Securities, issue an opinion to the Transferor based on the assumptions and
qualifications set forth in the opinion that the Securities of such Series
that are offered pursuant to a Prospectus Supplement (the "Offered
Securities;" and for purposes of this section "U.S. Federal Income Tax
Consequences" the term "Security Owner" refers to a holder of a beneficial
interest in an Offered Security) 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 Securities of each Series will be indebtedness secured by the
Receivables. The Transferor agrees and each Securityholder and Security
Owner, by acquiring an interest in an Offered Security, agrees or will be
deemed to agree to treat the Offered Securities 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 Security 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 Securities, 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 Securities 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 SECURITYHOLDERS
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 Securities will constitute indebtedness for
Federal income tax purposes, and accordingly, interest thereon will be
includible in income by Security 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 Securities 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 Securities will be
issued at a greater than de minimis discount, under applicable Treasury
regulations (the "Regulations") the Offered Securities 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 Securities 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 Securities (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
Securities at a "qualified floating rate," the Transferor intends to take
the position that interest payments on the Offered Securities 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 Securities would be includible in
income as OID but would not be includible again when the interest is
actually received.
If the Offered Securities 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 Security over the original
issue price (in this case, the initial offering price at which a
substantial amount of the Offered Securities are sold to the public) will
constitute OID. A Security Owner must include OID in income as interest
over the term of the Offered Security 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 Securities
(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 Security Owner should consult its own
tax advisor regarding the impact to it of the OID rules if the Offered
Securities are issued with OID. Under the Regulations, a holder of a
Security issued with de minimis OID must include such OID in income
proportionately as principal payments are made on a Class of Securities.
A holder who purchases an Offered Security 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
Security, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the Offered Security.
A subsequent holder who purchases an Offered Security at a premium
may elect to amortize and deduct this premium over the remaining term of
the Offered Security in accordance with rules set forth in Section 171 of
the Code.
SALE OF A SECURITY
In general, a Security Owner will recognize gain or loss upon the
sale, exchange, redemption, or other taxable disposition of an Offered
Security 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 Security Owner's tax
basis in the Offered Security (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 Security).
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 Security 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 Securities 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 Securities of all Series or (ii) a
partnership in which the Transferor and certain classes of Securityholders
are partners, and which has issued debt represented by other Classes of
Securities (including, unless otherwise specified in a Supplement, the
Offered Securities). In connection with the issuance of Securities 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 Securities 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 Securities
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
Security 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 Security Owners or Securityholders 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 securities 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 Securities 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 Security 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
Securities and other securities with respect to which an opinion is
rendered that such securities 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 Security Owners or Securityholders 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 Security Owners or Securityholders 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 Security Owner could differ
if the Offered Securities 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
Securities. Finally, all or a portion of any taxable income allocated to a
Security 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 Security 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 Security Owners,
possibly including Security 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
Security Owners. Cash distributions to the Security 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 Securities 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 Securityholder 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 Securities 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 Securities
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 Security 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 Security Owner or such Security 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 Securities on behalf of
the customer in the ordinary course of its trade or business, in the chain
between the Security 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. Security 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. Security 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. Security 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. Security Owner does not bear certain relationships to any holder
of the Transferor Security other than the Transferor or any holder of the
Securities 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 Security Owner, stating that the Security
Owner is not a U.S. person and providing such Security 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 Security Owner is a U.S.
person.
Recently finalized Treasury regulations (the "Withholding
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 Withholding Regulations
are not currently effective but will be effective for payments made after
December 31, 1998. Prospective investors are urged to consult their tax
advisors regarding the effect, if any, of the Withholding Regulations on
the purchase, ownership, and disposition of the Offered Securities.
A Security 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 Security, 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 Security Owner that is
an individual, such Security 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 Security 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 Security
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 Securityholder 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.
DEFEASANCE
The Securities are subject to defeasance in certain circumstances. It
is not clear under the existing authorities whether defeasance would, for
Federal income tax purposes, result in a deemed taxable sale or exchange of
the Securities in exchange for the amounts deposited in the Principal
Funding Account and the Reserve Account as a result of the defeasance;
however, if such a sale or exchange were deemed to occur, each
Securityholder would thereafter be deemed to own its pro rata share of the
assets in which such amount is invested, and would be required to report
its taxable income on such basis.
STATE AND LOCAL TAXATION
General. State income tax consequences to each Securityholder will
depend upon the provisions of the state tax laws to which the
Securityholder is subject. Most states modify or adjust the taxpayer's
federal taxable income to arrive at the amount of income potentially
subject to state tax. Resident individuals generally pay state tax on 100%
of such state-modified income, while corporations and other taxpayers
generally pay state tax only on that portion of state-modified income
assigned to the taxing state under the state's own apportionment and
allocation rules. Because each state's tax law is different, it is
impossible to predict the tax consequences to the Securityholders in all of
the state taxing jurisdictions in which they are already subject to tax.
Securityholders are urged to consult their own tax advisors with respect to
state taxes.
Illinois. Some of the activities to be undertaken by the Servicer in
servicing and collecting the Receivables will take place in Illinois.
Illinois imposes an income tax on corporations doing business in Illinois
measured by their net income apportioned to Illinois. This discussion is
based upon present provisions of Illinois law and regulations, and
applicable judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No opinion of counsel or ruling
from the Illinois Department of Revenue will be sought on any of the issues
discussed below..
Assuming (i) the Securities are treated as indebtedness and (ii) the
Trust is not a taxable entity for Federal income tax purposes, this
treatment will also apply for Illinois tax purposes. Pursuant to this
treatment, Securityholders not otherwise subject to Illinois tax would not
become subject to such tax solely because of their ownership of the
Securities. Securityholders already subject to taxation in Illinois as
corporations, however, could be required to pay tax on the income generated
from ownership of the Securities.
In the alternative, if the Securities are treated as interests in a
partnership (not taxable as a corporation) for Federal income tax purposes,
the same treatment would also apply for Illinois tax purposes. In such
case, Illinois could view the partnership as doing business in Illinois,
and the entity (or the Securityholders) could be subject to Illinois income
and personal property replacement taxes. Such taxes could reduce amounts
available for distribution to Securityholders. Also, a Securityholder not
otherwise subject to taxation in Illinois could become subject to Illinois
income taxes as a result of its mere ownership of Securities.
If the Securities are instead treated as ownership interests in a
"publicly traded partnership" taxable as a corporation, then the entity
could be subject to Illinois income taxes. Such taxes could reduce amounts
available for distribution to Securityholders. While there is no authority
directly on point, a Securityholder not otherwise subject to tax in
Illinois should not become subject to Illinois taxes as a result of its
mere ownership of such an interest.
Finally, even if the Securities are properly classified as debt
obligations for Federal Income tax purposes, they might be treated as debt
obligations of an entity owned by the Seller and the holders of any other
interest in the Trust (including any Collateral Interest). That entity
could be subject to Illinois income taxes. Such taxes could reduce amounts
available for distribution to Securityholders. A Securityholder not
otherwise subject to tax in Illinois would not become subject to Illinois
taxes as a result of its mere ownership of Securities.
Massachusetts. Some of the activities to be undertaken by the
Servicer in servicing the Receivables will take place in Massachusetts.
This discussion is based upon present provisions of Massachusetts law and
regulations, and applicable judicial and ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the Massachusetts Department of
Revenue.
Assuming the Securities are treated as indebtedness and the Trust is
treated as a security device for Federal income tax purposes, this
treatment will also apply for Massachusetts tax purposes. Pursuant to this
treatment, the Trust will not be subject to Massachusetts income tax and
Securityholders not otherwise subject to Massachusetts tax would not become
subject to such tax solely because of their ownership of Securities.
Alternatively, if any of the Securities or any other interests in the
Trust (including any Collateral Interest) were treated as interests in a
partnership for Federal income tax purposes, the same treatment would apply
for Massachusetts tax purposes. In such case, Massachusetts could view the
partnership as a corporate trust doing business in Massachusetts, and the
Trust could be subject to Massachusetts income tax at a rate of up to 12%
on its net income apportioned to Massachusetts. Such tax could reduce
amounts available for distribution to Securityholders. A Securityholder not
otherwise subject to taxation in Massachusetts would not become subject to
Massachusetts income taxes as a result of its mere ownership of Securities.
Other States. There can be no assurance that other states will not
claim that the Servicer has undertaken activities in such states. If such a
claim were made, no assurances can be given as to whether the Securities
would be treated as indebtedness or the Trust would be taxable by any
particular state.
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 Securities 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 Securities 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 Securities 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 Securities 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 Securities
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 Securities 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 Securities 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 Securities of such
Classes of such Series; and interests in the Securities 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 Securities 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 Securityholders, 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
Securities 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 Securities 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 SECURITIES 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 SECURITIES 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 Securities 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 Securities 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 Securities of any Series.
In addition, insurance companies considering the purchase of
Securities 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 Securities (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 Securities offered hereby, including, without limitation, the names of
any underwriters, the purchase price of such Securities 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 Securities of a Series
offered hereby, such Securities 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 Securities 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 Securities will be subject to certain conditions precedent,
and the underwriters will be obligated to purchase all of such Securities
if any of such Securities 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.
Securities 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 Securities 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 Securities may be deemed to be underwriters, and any discounts or
commissions received by them on the sale or resale of Securities 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 Securities 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..........................................................10
Accounts .........................................................1, 13, 40
Accumulation Period Length..................................................57
Additional Accounts.........................................................39
Additional PFR Purchase Agreements..........................................83
Additional Receivables Purchase Agreements..................................82
Adjustment Payment..........................................................76
Adverse Effect..........................................................38, 64
Aggregate Addition..........................................................39
Aggregate Addition Accounts.................................................39
Assignment and Assumption Agreement.........................................82
Assistance Agreement........................................................10
Average Rate................................................................36
Bank ........................................................11, 29, 43
BankBoston .............................................................9, 42
Bankmont ................................................................51
Benefit Plans...............................................................97
Billing Cycle...............................................................47
BKB ..............................................................1, 9
BKB Portfolio...............................................................41
Cash Collateral Account.....................................................77
Cash Collateral Guaranty....................................................77
Cede .............................................................6, 53
Cedel ................................................................19
Cedel Participants..........................................................54
Certificateholders...........................................................6
Class .................................................................1
Code ................................................................90
Collateral Interest.........................................................78
Collection Account..........................................................70
Comerica ................................................................46
Commission .................................................................6
Contribution Agreement.......................................................9
Controlled Accumulation Amount..............................................21
Controlled Accumulation Period..............................................20
Controlled Amortization Amount..............................................22
Controlled Amortization Period..............................................22
Controlled Deposit Amount...................................................21
Controlled Distribution Amount..............................................22
Cooperative ................................................................55
counterparties..............................................................78
Credit Card Guidelines......................................................10
Credit Enhancement..........................................................26
Credit Enhancer.............................................................76
Current Initial Receivables Purchase Agreement..............................82
Date of Processing..........................................................27
Defaulted Amount............................................................75
Defaulted Receivables.......................................................75
Definitive Securities.......................................................53
Depositaries................................................................53
Depository ................................................................52
Determination Date..........................................................27
Dilution ................................................................76
Disclosure Document.........................................................16
Discount Option Receivables.................................................65
Discount Percentage.........................................................65
Distribution Date...........................................................27
DOL ................................................................97
DTC .................................................................6
Early Accumulation Period...................................................21
Early Amortization Period...................................................22
Eligible Account............................................................61
Eligible Institution........................................................70
Eligible Investments........................................................70
Eligible Receivable.........................................................61
Enhancement Invested Amount.............................................14, 77
ERISA ................................................................96
Euroclear ................................................................19
Euroclear Operator..........................................................55
Euroclear Participants......................................................55
Euroclear Provisions........................................................55
Excess Allocation Series....................................................23
Excess Finance Charge Collections...........................................73
Exchange Act.................................................................6
Expected Final Payment Date.................................................19
FAMIS .........................................................9, 42, 51
FASIT ................................................................93
FDC ............................................................30, 44
FDIA ................................................................87
FDIC ................................................................31
FDR .................................................................8
FICO ................................................................46
Final Regulation............................................................97
Finance Charge Receivables..................................................18
FIRREA ................................................................30
First Annapolis.........................................................42, 51
Floating Allocation Percentage..............................................71
Foreign Investor............................................................94
Foreign Investors...........................................................94
Full Invested Amount........................................................25
Funding Period..............................................................25
General Account Regulations.................................................98
Group ................................................................14
Group Investor Additional Amounts...........................................72
Group Investor Default Amount...............................................72
Group Investor Finance Charge Collections...................................72
Group Investor Monthly Fees.................................................72
Group Investor Monthly Interest.............................................73
Harris ..............................................................1, 9
Harris Portfolio............................................................41
Holders ................................................................56
Indirect Participants.......................................................53
Ineligible Receivables......................................................62
Initial Accounts............................................................17
Initial Receivables.....................................................13, 60
Initial Receivables Purchase Agreements.....................................82
Insolvency Event............................................................32
Interchange ............................................................13, 49
Interest Funding Account....................................................19
Interest Payment Date.......................................................68
Invested Amount.............................................................68
Investor Finance Charge Collections.........................................73
IRA ................................................................97
IRS ................................................................90
John Hancock................................................................98
L/C Issuer ................................................................77
LIBOR ................................................................78
Master Formation Agreement..................................................51
MasterCard ................................................................13
Minimum Monthly Payment.....................................................47
Monthly Period..............................................................15
Monthly Servicing Fee.......................................................59
New Accounts................................................................39
New Issuance................................................................68
Offered Securities..........................................................90
OID ................................................................91
Original PFR Purchase Agreements............................................82
Overdue Initial Receivables Purchase Agreement..............................82
Paired Series...............................................................24
Participants................................................................53
Participation...........................................................16, 69
Participation Interests.....................................................14
Participation Percentage....................................................70
Participation Supplement................................................16, 69
Partners First...............................................................8
Partners First Portfolio.....................................................9
Pay Out Event...............................................................58
PFR .................................................................8
PFR Purchase Agreement......................................................12
PFRF ..............................................................1, 8
Pooling and Servicing Agreement..............................................1
Portfolio Yield.............................................................36
Pre-Funding Account.........................................................25
Pre-Funding Amount..........................................................25
Premium Option Receivables..................................................66
Premium Percentage..........................................................66
Prepayable Instrument.......................................................91
Principal Allocation Percentage.........................................25, 71
Principal Commencement Date.................................................19
Principal Funding Account...................................................21
Principal Receivables.......................................................18
Principal Sharing Series....................................................24
Principal Shortfalls........................................................74
Principal Terms.............................................................68
Prior Series................................................................24
Prospectus Supplement........................................................1
PTE ................................................................98
Purchase Agreements.........................................................12
Rating Agency...............................................................28
Rating Agency Condition.....................................................38
Reallocation Group..........................................................24
Receivables .............................................................1, 13
Record Date ................................................................53
Recoveries ............................................................13, 50
Redirected Investor Finance Charge Collections..............................72
Regulations ................................................................91
Reinvestment Events.........................................................59
Removed Accounts............................................................17
Required Minimum Principal Balance..........................................64
Required Transferor Amount..................................................15
Reserve Account.............................................................77
Retained Rights..........................................................9, 85
Revolving Period............................................................20
RTC ................................................................31
RTC Policy Statement....................................................31, 87
Section 11 ..............................................................II-1
Securities .................................................................1
Securities Act...............................................................6
Security Owner..............................................................90
Security Owners..............................................................6
Security Rate................................................................6
Securityholders..............................................................6
Securityholders' Interest...................................................14
Series ..............................................................1, 8
Series Adjusted Invested Amount.............................................70
Series Allocable Defaulted Amount...........................................71
Series Allocable Finance Charge Collections.............................71, 73
Series Allocable Principal Collections......................................71
Series Allocation Percentage................................................71
Series Cut-Off Date.........................................................20
Series Enhancement..........................................................14
Series Invested Amount......................................................64
Series Issuance Date........................................................20
Series Required Transferor Amount...........................................71
Series Termination Date.....................................................21
Service Transfer............................................................79
Servicer ..............................................................1, 8
Servicer Default............................................................80
Servicer Interchange........................................................60
Servicing Fee............................................................8, 59
Shared Principal Collections................................................74
Special Funding Account.....................................................74
Special Payment Date........................................................59
Special Tax Counsel.........................................................90
Supplement ................................................................16
Supplemental Securities.....................................................16
Supplemental Security.......................................................64
Swaps ................................................................78
Tax Opinion ................................................................69
Termination Notice..........................................................79
Transfer Date...............................................................27
Transferor ..............................................................1, 8
Transferor Amount.......................................................15, 62
Transferor Purchase Agreement...............................................12
Transferor Securities.......................................................16
Transferor Security.........................................................16
Transferor Servicing Fee....................................................59
Transferor's Interest.......................................................15
Trust ..............................................................1, 8
Trust Adjusted Invested Amount..............................................71
Trust Assets................................................................13
Trust Portfolio.............................................................41
Trustee ..............................................................1, 8
U.S. Federal Income Tax Consequences........................................90
UCC ................................................................32
UJB ................................................................45
VISA ................................................................13
Withholding Regulations.....................................................94
Yield Supplement Account....................................................18
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.......................................... $590,000.00
Printing and Engraving.................................... 80,000.00
Trustee's Fees............................................ 20,000.00
Legal Fees and Expenses................................... 500,000.00
Blue Sky Fees............................................. 15,000.00
Accountant's Fees and Expenses............................ 100,000.00
Rating Agency Fees........................................ 645,000.00
Miscellaneous Fees........................................ 30,000.00
-----------
Total................................................... $1,980,000.00
- -----------------
ITEM 15. INDEMNIFICATION OF OFFICERS AND MANAGERS
Section 11 of the Registrant's Limited Liability Company Agreement,
as amended on May 13, 1998 ("Section 11") provides that no person shall be
personally liable to the Registrant or its member for monetary damages for
breach of fiduciary duty as a manager; provided, however, that the
foregoing does not eliminate or limit the liability of a manager (i) for
any breach of the manager's duty of loyalty to the Registrant or its
member, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or (iii) for any
transaction from which the manager derived an improper personal benefit.
The right of indemnification provided in Section 11 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
Section 11. Without limiting the generality or the effect of the foregoing,
the Registrant may enter into one or more agreements with any person, which
provide for indemnification greater or different than that provided in
Section 11. No repeal or modification of Section 11 by the member of the
Registrant may adversely affect any right or protection of a manager of the
Registrant existing by virtue of Section 11 at the time of such repeal or
modification.
Section 18-108 of the Delaware Limited Liability Company Act provides
that Delaware limited liability companies may indemnify any manager or
other person from any and all claims whatsoever.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
1.1 Form of Underwriting Agreement.**
3.1 Amended and Restated Limited Liability Company Agreement of the
Transferor.**
4.1 Amended and Restated Pooling and Servicing Agreement and related
agreements as exhibits thereto among Partners First, the Transferor
and the Trustee.**
4.2 Form of Series Supplement among Partners First, the Transferor and
the Trustee.**
4.3 Form of Prospectus Supplement.**
4.4 Merger Agreement between the Transferor and Partner First Receivables
Funding Corporation.**
4.5 Amended and Restated Receivables Purchase Agreement between PFR and the
Transferor.**
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect to
legality.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect to tax
matters.
10.1 Master Agreement for the Formation of a Limited Liability Company among
BankBoston Corporation, Bankmont Financial Corp., Harris, and First
Annapolis Consulting, Inc.**
10.2 Contribution Agreement between BKB and Partners First.**
10.3 Receivables Purchase and Sale Agreement between BKB and PFR.**
10.4 Overdue Receivables Purchase and Sale Agreement between BKB and PFR.**
10.5 Receivables Purchase Agreement between BKB and PFR.**
10.6 Assignment and Assumption Agreement between BKB and PFR.**
10.7 Contribution Agreement between Harris and Partners First.**
10.8 Receivables Purchase and Sale Agreement between Harris and PFR.**
10.9 Overdue Receivables Purchase and Sale Agreement between Harris and PFR.*
10.10 Receivables Purchase Agreement between Harris and PFR.**
10.11 Assignment and Assumption Agreement between Harris and PFR.**
10.12 Servicing Agreement between First Data Resources Inc. and Partners
First.**
10.13 Assistance Agreement between BKB and Partners First.**
10.14 Assistance Agreement between Harris and Partners First.**
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.**
99.1 Letter to the Securities and Exchange Commission of Kathleen
McGillicuddy.**
99.2 Letter to the Securities and Exchange Commission of Rhanna Kidwell.**
99.3 Letter to the Securities and Exchange Commission of William Parent.**
--------------------
* To be filed by amendment
** 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. 7 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of
Arundel, State of Maryland, on June 9, 1998.
PARTNERS FIRST RECEIVABLES FUNDING, LLC
(Registrant)
By /s/ John R. Soderlund
-----------------------
Name: John R. Soderlund
Title: Chairman
PARTNERS FIRST CREDIT CARD MASTER TRUST
(Co-Registrant)
By PARTNERS FIRST RECEIVABLES
FUNDING, LLC
(Originator of the Registrant)
By /s/ John R. Soderlund
-----------------------
Name: John R. Soderlund
Title: Chairman
Pursuant to the Requirements of the Securities Act of 1933, this
Amendment No. 7 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
PARTNERS FIRST RECEIVABLES FUNDING, LLC
SIGNATURE TITLE
/s/ John R. Soderlund
- -----------------------
John R. Soderlund Chairman June 9, 1998
(Principal Executive Officer)
and Manager
/s/ Jeff H. Slawsky
- -----------------------
Jeff H. Slawsky President and Manager June 9, 1998
/s/ Mark J. Norwicz
- -----------------------
Mark J. Norwicz Treasurer and Manager June 9, 1998
(Principal Financial Officer
Principal Accounting Officer)
/s/ Terence F. Browne
- -----------------------
Terence F. Browne Secretary and Manager June 9, 1998
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1.1 Form of Underwriting Agreement.**
3.1 Amended and Restated Limited Liability Company Agreement of the
Transferor.**
4.1 Amended and Restated Pooling and Servicing Agreement and related
agreements as exhibits thereto among Partners First, the
Transferor and the Trustee.**
4.2 Form of Series Supplement among Partners First, the Transferor
and the Trustee.**
4.3 Form of Prospectus Supplement.**
4.4 Merger Agreement between the Transferor and Partner First
Receivables Funding Corporation.**
4.5 Amended and Restated Receivables Purchase Agreement between PFR
and the Transferor.**
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect
to legality.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP with respect
to tax matters.
10.1 Master Agreement for the Formation of a Limited Liability
Company among BankBoston Corporation, Bankmont Financial Corp.,
Harris, and First Annapolis Consulting, Inc.**
10.2 Contribution Agreement between BKB and Partners First.**
10.3 Receivables Purchase and Sale Agreement between BKB and PFR.**
10.4 Overdue Receivables Purchase and Sale Agreement between BKB and
PFR.**
10.5 Receivables Purchase Agreement between BKB and PFR.**
10.6 Assignment and Assumption Agreement between BKB and PFR.**
10.7 Contribution Agreement between Harris and Partners First.**
10.8 Receivables Purchase and Sale Agreement between Harris and PFR.**
10.9 Purchase Receivables Purchase and Sale Agreement between Harris
and PFR.**
10.10
Receivables Purchase Agreement between Harris and PFR.**
10.11
Assignment and Assumption Agreement between Harris and Partners
First.**
10.12 Servicing Agreement between First Data Resources Inc. and
Partners First.**
10.13 Assistance Agreement between BKB and Partners First.**
10.14 Assistance Agreement between Harris and Partners First.**
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.**
99.1 Letter to the Securities and Exchange Commission of Kathleen
McGillicuddy.**
99.2 Letter to the Securities and Exchange Commission of Rhanna
Kidwell.**
99.3 Letter to the Securities and Exchange Commission of William
Parent.**
--------------------
* To be filed by amendment.
** Previously filed.
</TABLE>
June 9, 1998
Partners First Receivables Funding, LLC
900 Elkridge Landing Road
Suite 301
Linthicum, MD 21090
Re: Registration Statement on Form S-3 Registration No.
333-29495
Ladies and Gentlemen:
We have acted as special counsel to Partners First Receivables
Funding, LLC, as transferor (the "Transferor"), in connection with the
transfer of receivables ("Receivables") generated from time to time in a
portfolio of Visa and MasterCard revolving credit card accounts by the
Transferor to The Bank of New York, as trustee (the "Trustee") for the
Partners First Credit Card Master Trust (the "Trust"), formed pursuant to a
Pooling and Servicing Agreement, dated as of January 29, 1998, by and among
the Transferor, Partners First Holdings, LLC, as servicer (the "Servicer")
and the Trustee, as amended or as supplemented from time to time (the
"Pooling and Servicing Agreement"), in exchange for certain Asset Backed
Certificates (the Certificates"), each such Certificate evidencing a
fractional undivided interest in the Trust, which Certificates will be
offered and sold pursuant to the Registration Statement No. 333-29495 filed
on Form S-3, as amended from time to time (as amended, the "Registration
Statement").
In connection with our engagement, we have examined and relied
upon the forms of the Pooling and Servicing Agreement and the Underwriting
Agreement included as exhibits to the Registration Statement. In addition,
we have examined and considered executed originals or counterparts, or
certified or other copies identified to our satisfaction as being true
copies of such securities, instruments, documents and other corporate
records of the Transferor and matters of fact and law as we deem necessary
for the purposes of the opinion expressed below.
In our examination we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the original of
such latter documents. As to any facts material to the opinions expressed
herein that we did not independently establish or verify, we have relied
upon statements and representations of officers and other representatives
of the Transferor and others.
We express no opinion as to the laws of any jurisdiction other
than the laws of the State of Delaware and the laws of the United States of
America to the extent specifically referred to herein.
Based upon and subject to the foregoing, we are of the opinion
that when the Offered Securities are executed and delivered by the
Transferor and authenticated by the Trustee in accordance with the
provisions of the Pooling and Servicing Agreement, and when the Offered
Securities are paid for by the Underwriters in accordance with the terms of
the Underwriting Agreement, the Offered Securities will be legally issued,
fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to Skadden, Arps, Slate,
Meagher & Flom LLP under the caption "Legal Matters" in the Prospectus
included in the Registration Statement.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
June 9, 1998
Partners First Receivables Funding, LLC
900 Elkridge Landing Road
Suite 301
Linthicum, MD 21090
Re: Registration Statement No. 333-29495 on Form S-3
relating to Partners First Credit Card Master Trust
Ladies and Gentlemen:
In connection with the filing of Registration Statement No. 333-
29495 on Form S-3 relating to Partners First Credit Card Master Trust (the
"Registration Statement") with the Securities and Exchange Commission, you
have requested our opinion regarding certain description of tax
consequences contained in the form of prospectus (the "Prospectus")
included in the Registration Statement.
Our opinion is based on an examination of the Prospectus, the
Pooling and Servicing Agreement, dated as of January 29, 1998, by and among
Partners First Receivables Funding, LLC, as Transferor, Partners First
Holdings, LLC, as Servicer, and The Bank of New York, as Trustee, as
amended or as supplemented from time to time (the "Agreement") and such
other documents, instruments and information as we considered necessary.
Our opinion is also based upon the Internal Revenue Code of 1986, as
amended, administrative rulings, judicial decisions, Treasury regulations
and other applicable authorities. The statutory provisions, regulation and
interpretations on which our opinion is based are subject to changes, and
such changes could apply retroactively. In addition, there can be no
assurance that positions contrary to those stated in our opinion may not be
taken by the Internal Revenue Service.
Based on the foregoing, we hereby confirm that the statements in
the Prospectus under the headings "Prospectus Summary Tax Status," "U.S.
Federal Income Tax Consequences" and "State and Local Taxation," subject to
the qualifications set forth therein, accurately describe the material
federal and Delaware income tax consequences to holders of the offered
Securities, under existing law and the assumptions stated therein.
We also note that the Prospectus and the Agreement do not relate
to a specific transaction. Accordingly, the above-referenced description
of federal income tax consequences may, under certain circumstances,
require modification in the context of an actual transaction. In such an
event, a new opinion will be filed as an exhibit to a Form 8-K or a post-
effective amendment to the Registration Statement.
We express no opinion with respect to the matters addressed in
this letter other than as set forth above.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom LLP
