<PAGE>
Rule No. 424(b)(2)
Registration No. 333-02361
PROSPECTUS SUPPLEMENT
To Prospectus Dated September 10, 1996
$900,000,000
FIRST CHICAGO MASTER TRUST II
FLOATING RATE ASSET BACKED CERTIFICATES SERIES 1996-Q
FCC NATIONAL BANK, SELLER AND SERVICER
Each of the Floating Rate Asset Backed Certificates Series 1996-Q (the "Class
A Certificates") offered hereby will evidence an undivided interest in the
First Chicago Master Trust II (the "Trust") created pursuant to a Pooling and
Servicing Agreement between FCC National Bank, as seller and servicer (the
"Bank"), and Norwest Bank Minnesota, National Association, as trustee. The
Trust assets include receivables (the "Receivables") generated from time to
time in the ordinary course of business in a portfolio of consumer revolving
credit card accounts and will include the benefits of funds, if any, on
deposit in the Cash Collateral Account, all as more fully described herein.
Certain assets of the Trust will be allocated to the holders of the Class A
Certificates (the "Class A Certificateholders"), including the right to
receive a varying percentage of each month's collections with respect to the
Receivables. In addition, the Collateral Interest Series 1996-Q (the
"Collateral Interest" and, together with the Class A Certificates, the
"Certificates") evidencing an undivided interest in the Trust will be issued
in the initial amount of $128,571,429 and will be subordinated to the Class A
Certificates as described herein. Only the Class A Certificates are being
offered hereby.
(Continued on the following page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CLASS A CERTIFICATES, AND THERE
IS NO ASSURANCE THAT ONE WILL DEVELOP. POTENTIAL INVESTORS SHOULD CONSIDER,
AMONG OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" BEGINNING ON
PAGE 15 IN THE PROSPECTUS.
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE BANK OR ANY AFFILIATE THEREOF
EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. NEITHER THE CLASS A
CERTIFICATES, THE UNDERLYING ACCOUNTS, THE RECEIVABLES NOR ANY COLLECTIONS
THEREON ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT BANK(1)(2)
<S> <C> <C> <C>
Per Class A Certificate.................. 100.000% 0.275% 99.725%
Total.................................... $900,000,000 $2,475,000 $897,525,000
</TABLE>
- -------------------------------------------------------------------------------
(1)Plus accrued interest, if any, at the Certificate Rate from September 25,
1996.
(2)Before deducting expenses payable by the Bank estimated to be $750,000.
The Class A Certificates are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the Class A Certificates will be made
in book-entry form only through the facilities of The Depository Trust
Company, Cedel Bank, societe anonyme and the Euroclear System on or about
September 25, 1996.
One or more affiliates of the Bank may from time to time purchase or acquire a
position in the Class A Certificates and may, at its option, hold or resell
such Class A Certificates. First Chicago Capital Markets, Inc. ("FCCM"), an
affiliate of the Bank, expects to offer and sell previously issued Class A
Certificates in the course of its business as a broker-dealer. FCCM may act as
a principal or agent in such transactions. The accompanying Prospectus and
this Prospectus Supplement may be used by FCCM in connection with such
transactions. Such sales, if any, will be made at varying prices related to
prevailing market prices at the time of sale.
SALOMON BROTHERS INC
FIRST CHICAGO CAPITAL MARKETS, INC.
CHASE SECURITIES INC.
CS FIRST BOSTON
LEHMAN BROTHERS
MERRILL LYNCH & CO.
The date of this Prospectus Supplement is September 13, 1996.
<PAGE>
(Continued from previous page)
The Cash Collateral Account, in an initial amount of $10,285,714, will provide
additional credit support for the Class A Certificates and will be available
to make distributions to the Class A Certificateholders as described herein.
The Bank owns the remaining interest in the Trust not allocable to the Class A
Certificates, the Collateral Interest or previously issued Series. From time
to time, the Bank may offer other Series which evidence undivided interests in
the Trust by exchanging a portion of its interest in the Trust. Interest will
accrue on the Class A Certificates from the Series Q Closing Date through
October 14, 1996, from October 15, 1996 through November 14, 1996 and with
respect to each Interest Period thereafter at 0.13% per annum above the London
interbank offered quotations for one-month United States dollar deposits
("LIBOR") prevailing on the related LIBOR Determination Date (as defined
herein). Interest with respect to the Class A Certificates is payable on the
15th day of each month (or, if such day is not a business day, the next
succeeding business day) (each, a "Distribution Date"), commencing with the
November 1996 Distribution Date. Principal with respect to the Class A
Certificates is payable on each Distribution Date beginning with the March
2001 Distribution Date (or sooner under certain limited circumstances
described herein).
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
The Class A Certificates offered hereby constitute a separate Series of
Certificates being offered by the Seller from time to time pursuant to its
Prospectus dated September 10, 1996. This Prospectus Supplement does not
contain complete information about the offering of the Class A Certificates.
Additional information is contained in the Prospectus and purchasers are urged
to read both this Prospectus Supplement and the Prospectus in full. Sales of
the Class A Certificates may not be consummated unless the purchaser has
received both this Prospectus Supplement and the Prospectus.
S-2
<PAGE>
The following summaries are qualified in their entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Certain capitalized terms which are used herein are
defined elsewhere in this Prospectus Supplement and the accompanying
Prospectus. See "Index of Terms for Prospectus Supplement" and "Index of Terms
for Prospectus." Unless the context otherwise requires, certain capitalized
terms, when used herein, relate only to the Class A Certificates and the
Collateral Interest. Other Series issued pursuant to other similar prospectuses
or disclosure documents may also use such capitalized terms in such
prospectuses or documents. However, in such cases, reference to such terms,
unless the context otherwise requires, is made only in the context of the
issuance of such other Series.
SUMMARY OF SERIES TERMS
Trust................. First Chicago Master Trust II.
Title of Security..... Floating Rate Asset Backed Certificates Series
1996-Q (the "Class A Certificates").
Initial Invested $1,028,571,429.
Amount...............
Class A Initial
Invested Amount......
$900,000,000.
Collateral Initial
Invested Amount......
$128,571,429.
Class A Certificate LIBOR plus 0.13% per annum.
Rate.................
Distribution Dates.... The fifteenth day of each month (or, if such
day is not a business day, the next succeeding
business day), commencing November 15, 1996.
Expected Initial
Principal Payment
Date.................
The March 2001 Distribution Date.
Controlled
Amortization Amount..
$75,000,000.
Class A Expected
Final Distribution
Date................. The February 2002 Distribution Date.
Series Q Closing September 25, 1996.
Date.................
Series Termination The April 2003 Distribution Date.
Date.................
SUMMARY OF SERIES PROVISIONS
Issuer................ The Class A Certificates and the Collateral
Interest (collectively, the "Certificates")
each represent an undivided interest in the
Trust. As used herein, the term "Series 1996-
Q" refers to the Class A Certificates and the
Collateral Interest, and the term
"Certificateholders" refers to holders of the
Class A Certificates and the holder of the
Collateral Interest, while the term "Series"
refers to any Series issued by the Trust,
including Series 1996-Q. Only the Class A
Certificates are being offered hereby.
S-3
<PAGE>
Seller................ FCC National Bank (the "Bank"), a national bank
and a wholly-owned subsidiary of First Chicago
NBD Corporation ("First Chicago NBD"), is the
transferor of ownership interests in certain
receivables and the originator of the Trust.
The Bank is referred to herein as the
"Seller."
Trustee............... Norwest Bank Minnesota, National Association
(the "Trustee").
The Accounts and the
Receivables..........
The aggregate amount of Receivables in the
Accounts as of the end of the August 1996 Due
Period was $16,049,493,739, of which
$15,719,769,777 were Principal Receivables and
$329,723,962 were Finance Charge Receivables
(including those for the related Due Period as
well as unpaid Finance Charge Receivables for
previous Due Periods). Certain Interchange
attributable to cardholder charges for
merchandise and services will be treated as
Finance Charge Receivables for purposes of the
Series 1996-Q Supplement. See "The Bank's
Credit Card Business--Interchange" in the
Prospectus.
The periodic charge currently assessed
(computed on either a monthly or daily basis),
when applicable, on all Principal Receivables
may be a fixed rate (currently, 19.8% per
annum on most fixed rate Accounts) or a
variable rate (currently equal on a per annum
basis to the prime rate as published from time
to time in The Wall Street Journal plus a
spread which varies from program to program
and generally ranges from 6.9% to 12.9%). In
addition, certain recently opened Accounts,
for an initial period (generally ranging from
6 to 15 months), may be assessed a fixed
periodic charge (generally, 6.9% or 9.9% per
annum) for purchases, which periodic rate will
then convert after such initial period into a
variable rate. See "The Accounts--Billing and
Payments" herein and in the Prospectus. As of
the end of the July 1996 Due Period, the
Receivables assessed a fixed periodic charge
and a variable periodic charge as a
percentage of the total Receivables balance of
the Accounts were approximately 6.35% and
93.65%, respectively.
Class A Certificates.. The Class A Certificates will be issued in
book-entry form only, in the Initial Class A
Invested Amount, on the Series Q Closing Date
and will initially be represented by Class A
Certificates registered in the name of Cede. A
Certificate Owner will not be entitled to
receive a definitive certificate representing
such person's interest, except in the event
that Definitive Certificates are issued under
the limited circumstances described in the
Prospectus. See "Description of the
Certificates and the Agreement--Definitive
Certificates" in the Prospectus. In such
event, interests in the Class A Certificates
will be available in denominations of $1,000
and in integral multiples thereof. All
references herein to Class A
Certificateholders shall refer to Certificate
Owners, except as otherwise specified herein.
The Trust's assets will be allocated to either
the interest of the Class A
Certificateholders, the interest of the holder
of the Collateral Interest (the "Collateral
Interest Holder"), the interest of the holders
of other outstanding Series or the interest of
the Seller (the last being referred
S-4
<PAGE>
to as the "First Chicago Interest"). Each
Class A Certificate offered hereby evidences
an undivided interest in the Trust assets
allocated to the Class A Certificateholders,
and represents the right to receive from such
Trust assets funds up to (but not in excess
of) the amounts required to make payments of
interest at the interest rate described on the
cover hereof and under "Monthly Interest"
below and payments of principal during the
Controlled Amortization Period and Rapid
Amortization Period to the extent of the Class
A Invested Amount (which may be less than the
aggregate unpaid principal balance of the
Class A Certificates as provided below). See
"Maturity and Principal Payment
Considerations" herein and in the Prospectus.
The Class A Invested Amount will, except if
there are unreimbursed Class A Investor
Charge-Offs or if a Liquidation Event occurs,
remain fixed at the Class A Initial Invested
Amount during the Revolving Period and decline
thereafter during any Controlled Amortization
Period or Rapid Amortization Period as
principal is paid on the Class A Certificates.
The Class A Invested Amount is subject to
reduction as a result of allocating Defaulted
Receivables to the Class A Certificates when
amounts available from Excess Spread, the Cash
Collateral Account and collections of
Principal Receivables allocable to the
Collateral Interest ("Reallocated Principal
Collections") have been exhausted and the
Collateral Invested Amount has been reduced to
zero.
The Collateral Interest will be issued on the
Series Q Closing Date to the Collateral
Interest Holder in the Collateral Initial
Invested Amount (the Collateral Initial
Invested Amount, together with the Class A
Initial Invested Amount, is referred to herein
as the "Initial Invested Amount"). The amount
of the Collateral Interest from time to time
(the "Collateral Invested Amount" and,
together with the Class A Invested Amount, the
"Invested Amount") will form a portion of the
Enhancement available to the Class A
Certificateholders.
As of the end of the day on the September 1996
Distribution Date, the Trust has issued and
outstanding the other Series identified in
Annex I to this Prospectus Supplement.
The Class A Certificates, to the extent of the
Class A Invested Amount, will include the
right to receive varying percentages of the
collections of Finance Charge Receivables and
Principal Receivables for each Due Period.
Collections of Finance Charge Receivables and
Defaulted Receivables will be allocated at all
times to the Class A Certificateholders based
on the Class A Floating Percentage of the
Floating Allocation Percentage with respect to
any Distribution Date. The "Class A Floating
Percentage" for any Distribution Date is the
percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the
numerator of which is the Class A Invested
Amount for such Distribution Date and the
denominator of which is the Invested Amount
for such Distribution Date. The "Floating
S-5
<PAGE>
Allocation Percentage" for any Distribution
Date is the percentage equivalent (which
percentage shall never exceed 100%) of a
fraction, the numerator of which is the
Invested Amount for such Distribution Date,
and the denominator of which is Aggregate
Principal Receivables for the related Due
Period. During the Revolving Period,
collections of Principal Receivables will be
allocated to the Class A Certificateholders,
and generally paid to the Seller or, under
certain circumstances, to the Collateral
Interest Holder or to other Series, based on
the Class A Principal Percentage of the
Floating Allocation Percentage with respect to
any Distribution Date. During the Controlled
Amortization Period or Rapid Amortization
Period, collections of Principal Receivables
will be allocated to the Class A
Certificateholders based on the Class A
Principal Percentage of the Fixed Allocation
Percentage. The "Class A Principal Percentage"
for any Distribution Date (i) relating to the
Revolving Period, is the percentage equivalent
(which percentage shall never exceed 100%) of
a fraction, the numerator of which is the
Class A Invested Amount for such Distribution
Date, and the denominator of which is the
Invested Amount for such Distribution Date and
(ii) relating to the Controlled Amortization
Period or the Rapid Amortization Period, is
the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the
numerator of which is the Class A Invested
Amount as of the end of the day on the last
Distribution Date relating to the Revolving
Period, and the denominator of which is the
Invested Amount as of such day. The "Fixed
Allocation Percentage" for any Distribution
Date is the percentage equivalent (which
percentage shall never exceed 100%) of a
fraction, the numerator of which is the
Invested Amount as of the end of the day on
the last Distribution Date relating to the
Revolving Period and the denominator of which
is the greater of (a) Aggregate Principal
Receivables for the Due Period related to the
current Distribution Date and (b) the sum of
the numerators used to calculate the Invested
Percentages with respect to Principal
Receivables for all Series outstanding for the
current Distribution Date. The Class A
Certificates will also be entitled to the
benefit of the subordination of certain
collections of Finance Charge Receivables and
Principal Receivables allocated to the
Collateral Interest as described herein. See
"Description of the Class A Certificates and
the Agreement--Allocation Percentages," "--
Allocation of Funds" and "--Liquidation
Events" herein.
As of the end of the August 1996 Due Period,
Principal Receivables totaled $15,719,769,777
and upon issuance of the Certificates, the sum
of the initial invested amounts (or full
invested amount for the Series 1991-D
Certificates) for all outstanding Series
issued by the Trust will be $9,014,285,717 and
the aggregate current invested amount for all
outstanding Series will be $8,039,285,717. See
Annex I to this Prospectus Supplement for
information regarding calculation of the
numerator in respect of Principal Receivables
for outstanding Series.
S-6
<PAGE>
In addition to their rights to collections of
Finance Charge Receivables and Principal
Receivables allocated to the Class A Invested
Amount, the Class A Certificates will also
have the benefits of the funds, if any,
available in the Cash Collateral Account as
described herein. See "Description of the
Class A Certificates and the Agreement--The
Cash Collateral Account" and "--Application of
Collections" herein.
The Class A Certificates represent undivided
interests in the Trust only and do not
represent interests in or obligations of the
Seller or any affiliate thereof except to the
limited extent described herein. Neither the
Class A Certificates, the Accounts, the
Receivables nor any collections thereon are
insured or guaranteed by the Federal Deposit
Insurance Corporation (the "FDIC") or any
other governmental agency.
Registration of Class
A Certificates.......
The Class A Certificates will initially be
represented by one or more Class A
Certificates registered in the name of Cede &
Co. ("Cede"), as the nominee of The Depository
Trust Company ("DTC"). No person acquiring an
interest in the Class A Certificates will be
entitled to receive a definitive certificate
representing such person's interest, except in
the event that Definitive Certificates are
issued under the limited circumstances
described in the Prospectus. See "Description
of the Certificates and the Agreement--
Definitive Certificates" in the Prospectus.
Class A Certificateholders may elect to hold
their Class A Certificates through DTC in the
United States or, in Europe, through Cedel,
societe anonyme ("Cedel") or the Euroclear
System ("Euroclear"). Transfers will be made
in accordance with the rules and operating
procedures described in the Prospectus. See
"Description of Certificates and the
Agreement--Book-Entry Registration" in the
Prospectus.
Monthly Interest...... Interest at the applicable Class A Certificate
Rate on the Class A Certificates for each
Interest Period will be distributed to Class A
Certificateholders on each Distribution Date,
in an amount equal to the product of (i)(a)
the actual number of days in the related
Interest Period divided by 360, times (b) the
Class A Certificate Rate for the related
Interest Period and (ii) the Class A Invested
Amount as of the preceding Record Date (or, in
the case of the first Distribution Date, as of
the Series Q Closing Date). Except as set
forth on the cover page hereof with respect to
the Interest Periods relating to the November
1996 Distribution Date, an "Interest Period,"
with respect to any Distribution Date, will be
the period from the previous Distribution Date
through the day preceding such Distribution
Date. Interest for any Distribution Date due
but not paid on such Distribution Date will be
due on the next succeeding Distribution Date
together with additional interest on such
amount at the applicable Class A Certificate
Rate plus 2% per annum. Interest payments on
the Class A Certificates will be derived from
collections allocated to Finance Charge
Receivables based on the Class A
S-7
<PAGE>
Floating Percentage of the Floating Allocation
Percentage with respect to a Due Period (as
well as any available Excess Spread and Excess
Finance Charge Collections) and, if necessary,
withdrawals from the Cash Collateral Account
and Reallocated Principal Collections.
Revolving Period...... No principal will be payable to the Class A
Certificateholders until the Expected Initial
Principal Payment Date or, upon the occurrence
of a Liquidation Event as described herein,
the first Distribution Date with respect to
the Rapid Amortization Period. For each Due
Period during the period from and including
the Series Q Closing Date, up to and including
the day prior to the day on which the
Controlled Amortization Period or the Rapid
Amortization Period commences (the "Revolving
Period"), collections of Principal Receivables
allocable to the Class A Certificateholders
will, subject to certain limitations, be paid
to the Seller, to the Collateral Interest
Holder or to other Series. See "Description of
the Class A Certificates and the Agreement--
Liquidation Events" for a discussion of the
events which might lead to the termination of
the Revolving Period prior to its scheduled
ending date.
Principal Payments;
Certain Allocations..
Collections of Principal Receivables with
respect to any Due Period will be allocated to
the Class A Invested Amount on the related
Determination Date on the basis of the Class A
Principal Percentage of the Invested
Percentage for Series 1996-Q applicable to
Principal Receivables for such Due Period.
Under the Agreement, such collections for a
Distribution Date will be paid (i) generally
to the Seller, to the Collateral Interest
Holder or to other Series, as described above,
during the Revolving Period, (ii) to the Class
A Certificateholders up to the Controlled
Amount, and to the Seller, to the Collateral
Interest Holder or to other Series to the
extent that such collections of Principal
Receivables exceed the Controlled Amount for
the Distribution Date, during the Controlled
Amortization Period, or (iii) to the Class A
Certificateholders up to the Class A Invested
Amount, during the Rapid Amortization Period.
Other Series offered by the Trust may or may
not have Amortization Periods like the
Controlled Amortization Period or the Rapid
Amortization Period for the Class A
Certificates, and such periods may have
different lengths and begin on different dates
than such Controlled Amortization Period or
Rapid Amortization Period. Thus, certain
Series may be in their Revolving Periods,
while others are in periods over which
collections of Principal Receivables are
distributed to or accumulated for the benefit
of such Series. Under certain circumstances,
one or more Series may be in their
Amortization Periods or Accumulation Periods,
while other Series are not. In addition, other
Series may allocate Principal Receivables
based upon different Invested Percentages. See
"Description of the Certificates and the
Agreement--Exchanges" in the Prospectus for a
discussion of the potential terms of other
Series. As of the date
S-8
<PAGE>
hereof, two series previously issued by the
Trust are currently in their Amortization
Periods.
Principal Payments;
Controlled
Amortization Period..
Unless or until an event which causes the
Certificates to enter the Rapid Amortization
Period (a "Liquidation Event") has occurred,
commencing on the first day of the Due Period
relating to the March 2001 Distribution Date
(the "Controlled Amortization Date") and
ending when the Invested Amount has been paid
in full, when Series 1996-Q terminates or
upon the occurrence of a Liquidation Event
(the "Controlled Amortization Period"),
collections of Principal Receivables allocable
to the Class A Certificates will be
distributed monthly, in payment of principal
of the Class A Certificates, as provided
herein, on each Distribution Date beginning
with the Distribution Date for the Due Period
commencing on the Controlled Amortization
Date. During such period, the amount of
collections of Principal Receivables allocable
to the Class A Certificates will equal the
product of such collections and the Class A
Principal Percentage of the Invested
Percentage for Series 1996-Q with respect to
Principal Receivables and such collections
will be paid to the Class A Certificateholders
as principal, to the extent of the lesser of
such product and the Controlled Amount.
Principal Payments;
Rapid Amortization
Period............... During the period beginning on the earlier of
the first day of the Due Period in which a
Liquidation Event occurs or is deemed to occur
and continuing to and including the earlier of
(a) the date on which the Invested Amount has
been paid in full and (b) the date on which
Series 1996-Q terminates (the "Rapid
Amortization Period"), collections of
Principal Receivables and certain other
amounts allocable to the Class A
Certificateholders will no longer be paid to
the Seller, to the Collateral Interest Holder
(except in certain cases when an Enhancement
Surplus exists) or to other Series but instead
will be distributed to the Class A
Certificateholders monthly, in payment of
principal on the Class A Certificates, on each
Distribution Date beginning with the first
Distribution Date related to such Rapid
Amortization Period. See "Description of the
Class A Certificates and the Agreement--
Liquidation Events" for a discussion of the
events which might lead to the commencement of
a Rapid Amortization Period.
Excess Finance Charge
Collections..........
To the extent that collections of Finance
Charge Receivables allocated to the
Certificates are not needed to make payments
to Certificateholders or other payments
required in respect of Series 1996-Q, such
collections may be applied to cover shortfalls
in amounts payable from collections of Finance
Charge Receivables allocable to certain other
Series. In addition, certain collections of
Finance Charge Receivables allocated to
certain other Series, to the extent such
collections are not needed to make payments
required in
S-9
<PAGE>
respect of each such Series, may be applied to
cover shortfalls in amounts payable from
collections of Finance Charge Receivables
allocable to Series 1996-Q.
Shared Collections of
Principal
Receivables..........
To the extent that collections of Principal
Receivables allocated to the Certificates are
not needed to make payments to
Certificateholders or other payments required
in respect of Series 1996-Q, such collections
may be applied to cover principal payments due
to or for the benefit of other Series. Any
such application of collections will not
result in a reduction of the Invested Amount
of the Certificates. In addition, certain
collections of Principal Receivables allocated
to certain other Series, to the extent such
collections are not needed to make payments
required in respect of each such Series, will
be applied, if necessary, to cover principal
payments due to Certificateholders of Series
1996-Q.
Cash Collateral The Certificates will have the benefit of an
Account.............. account (the "Cash Collateral Account"), which
will be held in the name of the Trustee for
the benefit of the Certificateholders. The
Cash Collateral Account will be funded on the
Series Q Closing Date in the amount of
$10,285,714 (the "Initial Cash Collateral
Amount"). Withdrawals will be made from the
Cash Collateral Account, to the extent of
available funds on deposit therein, to pay the
Class A Required Amount. See "Description of
the Class A Certificates and the Agreement--
Application of Collections." The amount of
funds available on deposit in the Cash
Collateral Account may be increased (i) under
certain circumstances, and subject to certain
conditions described herein, in connection
with the application of collections of
Principal Receivables to decrease the
Collateral Invested Amount and (ii) to the
extent Excess Spread and Excess Finance Charge
Collections are required and available to be
deposited therein as described herein. See
"Description of the Class A Certificates and
the Agreement--The Cash Collateral Account"
herein.
If the Class A Investor Default Amount for any
Distribution Date cannot be covered out of
excess collections of Finance Charge
Receivables allocable to Series 1996-Q as
described under "Description of the Class A
Certificates and the Agreement--Application of
Collections" herein, the Trustee will make a
withdrawal from the Cash Collateral Account
for any such deficiency up to the Available
Cash Collateral Amount. If the Cash Collateral
Account is exhausted, Reallocated Principal
Collections will be applied to reduce any such
deficiency. If such Reallocated Principal
Collections are insufficient to fund any such
deficiency, then the Collateral Invested
Amount (to the extent not already reduced)
will be reduced by the amount of such
remaining deficiency. In the event that such
reduction of the Collateral Invested Amount
would cause the Collateral Invested Amount to
be a negative number, the Collateral Invested
Amount will be reduced to zero and the Class A
Invested Amount will be reduced by the
S-10
<PAGE>
amount of such remaining deficiency (a "Class
A Investor Charge-Off"). Accordingly, in the
event that the Cash Collateral Account is
exhausted and the Collateral Invested Amount
has been reduced to zero, and there is such a
deficiency which has not been reimbursed, in
future Due Periods interest paid to Class A
Certificateholders and the amount of principal
returned to Class A Certificateholders will be
reduced. The "Class A Investor Default Amount"
for any Due Period is the product of the Class
A Floating Percentage for the related
Distribution Date and the Investor Default
Amount. The "Investor Default Amount" for any
Due Period is the Floating Allocation
Percentage for the related Distribution Date
times the amount of Defaulted Receivables.
Payment (made from the Cash Collateral Account
or otherwise) with respect to a Class A
Investor Default Amount will be treated in the
same manner as collections allocable to
Principal Receivables and generally will be,
(x) during the Revolving Period, paid to the
Seller, to the Collateral Interest Holder or
to other Series, and (y) during the Controlled
Amortization Period or Rapid Amortization
Period, paid to Class A Certificateholders
(and, in certain circumstances during the
Controlled Amortization Period, to the
Collateral Interest Holder) until the Class A
Invested Amount is paid in full. See
"Description of the Class A Certificates and
the Agreement--Application of Collections,"
"--Defaulted Receivables; Rebates and
Fraudulent Charges" and "--Liquidation Events"
herein.
Amounts Available as
Enhancement..........
The Cash Collateral Account and the Collateral
Interest constitute the Enhancement for Series
1996-Q. The amount of Enhancement available to
the Class A Certificateholders for any
Distribution Date will equal the lesser of (i)
the sum of the Collateral Invested Amount and
the amount, if any, on deposit in the Cash
Collateral Account (such sum, the "Available
Enhancement Amount") and (ii) the Required
Enhancement Amount. The "Required Enhancement
Amount" with respect to any Distribution Date
means, subject to certain limitations more
fully described herein, the greater of (i) the
product of (a) the Invested Amount related to
such Distribution Date and (b) 13.5% and (ii)
the sum of (A) $10,285,714 and (B) the product
of (I) two and (II) the excess, if any, of
$10,285,714 over the amount of funds on
deposit in the Cash Collateral Account with
respect to such Distribution Date. With
respect to any Distribution Date, if the
Available Enhancement Amount is less than the
Required Enhancement Amount, certain excess
collections of Finance Charge Receivables
allocable to Series 1996-Q will be deposited
into the Cash Collateral Account to the extent
of such shortfall. See "Description of the
Class A Certificates and the Agreement--
Application of Collections." On any
Distribution Date, after taking into account
all distributions, deposits and withdrawals to
be made for such date, the Servicer will
determine the amount by which the sum of the
amount on deposit in the Cash Collateral
Account and the Collateral Invested Amount
(prior to distributions
S-11
<PAGE>
to the Collateral Interest Holder) exceeds the
Required Enhancement Amount with respect to
the next succeeding Distribution Date (such
excess, the "Enhancement Surplus"). Collateral
Monthly Principal up to such amount may be
paid to the Collateral Interest Holder and
will not be available to the Class A
Certificateholders, thereby reducing the
Collateral Invested Amount. See "Description
of the Class A Certificates and the
Agreement--The Cash Collateral Account"
herein.
Final Payment of
Principal;
Termination of the
Trust................ The final distribution of principal and
interest on the Class A Certificates will be
made no later than the Series Termination Date
in the manner provided in "Description of the
Class A Certificates and the Agreement--Final
Payment of Principal; Termination of Trust"
herein. After such date, neither the Trust nor
the Seller will have any further obligation to
pay principal or interest on the Class A
Certificates.
The Class A Certificates will be subject to
optional repurchase by the Seller on any
Distribution Date on or after which the
Invested Amount of the Certificates is reduced
to an amount less than or equal to 5% of the
Initial Invested Amount, unless certain events
of bankruptcy, insolvency or receivership have
occurred with respect to the Seller. The
repurchase price will be equal to the Invested
Amount plus accrued and unpaid interest on the
Certificates through the day preceding the
Distribution Date on which the repurchase
occurs. In any event, the final payment of
principal on the Certificates will be no later
than the Series Termination Date. See
"Description of the Class A Certificates and
the Agreement--Final Payment of Principal;
Termination of Trust" herein.
Servicing Fee......... As servicing compensation from the Trust, the
Servicer receives a Servicing Fee payable from
Interchange and from allocations of Finance
Charge Receivables based upon the invested
amounts, from time to time, of Series issued
by the Trust, and from certain other amounts
as described herein. See "Description of the
Certificates and the Agreement--Servicing
Compensation and Payment of Expenses" in the
Prospectus and "Description of the Class A
Certificates and Agreement--Servicing
Compensation and Payment of Expenses" herein.
Tax Status............ Counsel is of the opinion that the Class A
Certificates will be characterized as debt for
Federal income tax purposes. Under the
Agreement, the Bank, the Class A
Certificateholders and Certificate Owners will
agree to treat the Class A Certificates as
debt for Federal and state tax purposes. If
the Class A Certificates are not characterized
as debt, there may be adverse tax consequences
for Certificateholders. See "Tax Matters" in
the Prospectus for additional information
concerning the application of Federal income
tax laws and certain state tax laws.
S-12
<PAGE>
ERISA Considerations.. The acquisition and holding of Class A
Certificates by employee benefit plans and
individual retirement accounts that are
subject to the "prohibited transaction" rules
of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and the
Internal Revenue Code of 1986, as amended (the
"Code"), may result in "prohibited
transactions." Under the regulations issued by
the Department of Labor, the Trust's assets
would not be deemed "plan assets" of any
employee benefit plan holding interests in the
Class A Certificates if certain conditions are
met, including that interests in the Class A
Certificates be held by at least 100 persons
upon completion of the public offering being
made hereby. Based on information provided by
the Underwriters, the Bank will notify the
Trustee as to whether or not the Class A
Certificates will be held by at least 100
separately named persons at the conclusion of
the offering, and it is anticipated that the
other conditions of the regulations will be
met. If the Trust's assets were deemed to be
"plan assets" of such a plan, there is
uncertainty as to whether existing exemptions
from the "prohibited transaction" rules of
ERISA would apply to all transactions
involving the Trust's assets. Accordingly,
employee benefit plans contemplating
purchasing interests in Class A Certificates
should consult their counsel before making a
purchase. See "ERISA Considerations" in the
Prospectus.
Rating of the Class A
Certificates.........
It is a condition to the issuance of the Class
A Certificates that they be rated in one of
the two highest rating categories by at least
one Rating Agency. The rating of the Class A
Certificates is based primarily on the value
of the Receivables, the Collateral Invested
Amount and the amount to be deposited in the
Cash Collateral Account. See "Risk Factors--
Rating of the Certificates" in the Prospectus.
S-13
<PAGE>
THE BANK'S CREDIT CARD PORTFOLIO
GENERAL
The interests in Receivables which the Seller has conveyed or will convey to
the Trust pursuant to the Agreement are generated from transactions made by
holders of certain Classic VISA and VISA Gold credit card accounts and certain
Standard MasterCard and Gold MasterCard credit card accounts. These accounts
were generated under the VISA or MasterCard International programs and were
either originated by the Bank or FNBC, or purchased by the Bank or FNBC from
other credit card issuers. Effective as of July 1, 1987, FNBC transferred its
credit card operation and all its credit card accounts to the Bank, although
FNBC retained ownership of all receivables comprising the existing balances in
such accounts. Subsequently, such receivables also were transferred to the
Bank. For a further description of the Bank's credit card business, see "The
Bank's Credit Card Business" in the Prospectus.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shown for
substantially all VISA and MasterCard consumer revolving credit card accounts
owned at the dates indicated by the Bank (excluding certain accounts not
originated by the Bank or FNBC) (the "Bank's Portfolio") during the periods
shown. As of the end of the July 1996 Due Period, the Receivables in the
Accounts represented substantially all Receivables in the Bank's Portfolio.
There can be no assurance, however, that the loss and delinquency experience
for the Receivables in the future will be similar to the historical experience
set forth below for the Bank's Portfolio.
LOSS EXPERIENCE FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- -----------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)......... $15,581,908 $11,478,998 $12,625,398 $9,763,242 $7,862,277
Gross Charge-offs(2).... 513,460 286,291 645,417 451,094 365,376
Gross Charge-offs as a
Percentage of Average
Receivables
Outstanding............ 6.59%(3) 4.99%(3) 5.11% 4.62% 4.65%
</TABLE>
- --------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Gross Charge-offs are charge-offs before recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud,
returned goods or customer disputes.
(3) On an annualized basis.
Charge-offs for the Bank's Portfolio measured as a percentage of average
receivables outstanding increased during 1995 and 1996 due, in part, to
certain strategies employed by the Bank to increase the cardholder base which
the Bank believes, in turn, will result in the increase of overall revenues
for the Bank's Portfolio in the future. In addition, during 1995 and 1996,
consumer debt service burden and defaults increased as a result of the growing
consumer debt levels coupled with stagnant real wage growth. The Bank believes
that the current level of unemployment and personal bankruptcy filings make
reductions in the loss rates unlikely in the immediate future and expects the
trend in charge-offs to continue in the near term. The timing of the peak
level of charge-offs is uncertain at this time. Losses are also affected by
other factors including competitive behavior and social conditions. The loss
rates for the Bank's Portfolio could increase in the future if economic
conditions were to worsen and could continue to increase for several months
even after such conditions begin to improve. The loss rates set forth above do
not reflect the reversal of unpaid fees and finance charges at the time a
charge-off occurs.
The Bank has policies to allow delinquent accounts whose cardholders are
making good faith efforts to repay overdue amounts to be deemed current
("reaged") provided certain conditions are satisfied. If an account
S-14
<PAGE>
is 90 days delinquent or greater, it qualifies for reaging treatment if the
sum of the payments received during the preceding five months (or in certain
circumstances the lesser of (a) five months or (b) the number of months since
the account was last current) is generally equal to the sum of the three
oldest minimum payments. The reaging process permits only one reaging of an
account from 90 days delinquent or greater categories in a 12-month period.
With respect to accounts that are 30 to 90 days delinquent, reaging treatment
occurs pursuant to a process which uses criteria that are more liberal than
the criteria described above. An account 30 to 90 days delinquent can be
reaged so long as these criteria are met. The entire process is system
controlled. In addition to automatic reaging, account closure and usage
restrictions are system controlled. When an account is 30 days delinquent,
charge privileges are suspended. Account closure occurs automatically when an
account is 60 days delinquent. Reinstatement of closed accounts requires a
full credit review; only a minimal number of closed accounts qualify for
reinstatement. The Bank may terminate, alter or modify its reaging process at
any time. Currently, the Bank is evaluating various collection strategies
which, if implemented, would alter the reaging process for certain accounts.
The delinquency information in the following tables reflects the application
of the Bank's current reaging process.
AVERAGE DELINQUENCIES FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
AVERAGE OF
SIX MONTHS ENDED AVERAGE OF TWELVE MONTHS ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993
------------------------ ------------------------ ------------------------ ------------------------
DELINQUENT DELINQUENT DELINQUENT DELINQUENT
PAYMENT STATUS AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1)
- -------------- ---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days delin-
quent............... $250,871 1.61% $189,476 1.50% $138,280 1.41% $112,934 1.44%
60-89 days delin-
quent............... 119,897 .77 83,191 .66 57,419 .59 46,686 .59
90 days delinquent or
more................ 224,636 1.44 148,808 1.18 102,171 1.05 80,700 1.03
-------- ---- -------- ---- -------- ---- -------- ----
Total.............. $595,404 3.82% $421,475 3.34% $297,870 3.05% $240,320 3.06%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- --------
(1)The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the applicable period.
Delinquencies as a percentage of average receivables outstanding reflect a
pattern similar to loss rates as a result of the same factors discussed with
respect to the table set forth above for Loss Experience for the Bank's
Portfolio.
REVENUE EXPERIENCE
The gross revenues from monthly periodic charges and fees billed to
cardholders on the Bank's Portfolio for each of the three years in the period
ended December 31, 1995, and the six months ended June 30, 1996 and 1995,
respectively, are set forth in the following table.
The historic gross revenue figures in the table are calculated on an as-
billed basis and represent amounts billed to cardholders in each billing cycle
before deduction of charge-offs, reductions due to fraud, returned goods and
customer disputes or other expenses. Cash collections on receivables may not
reflect the historical experience in the table. During periods of increasing
delinquencies, billings of periodic charges and fees may exceed cash as
amounts collected on credit card receivables lag behind amounts billed to
cardholders. Conversely, as delinquencies decrease, cash may exceed billings
of periodic charges and fees as amounts collected in a current period may
include amounts billed during prior periods. However, the Bank believes that,
during the periods shown, revenues on a billed basis closely approximated
revenues on a cash basis. Revenues from periodic charges and fees on both a
billed and a cash basis will be affected by numerous factors, including the
periodic charges on principal receivables, the amount of the annual membership
fees, the amount of other fees paid by cardholders, the percentage of
cardholders who pay off their balances in full each month and do not
S-15
<PAGE>
incur periodic charges on purchases, fees and finance charges and changes in
the delinquency rate on the Receivables. See "Risk Factors" in the Prospectus.
REVENUE EXPERIENCE FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- -----------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1)......... $15,581,908 $11,478,998 $12,625,398 $9,763,242 $7,862,277
Finance Charges and Fees
Billed................. 1,253,029 967,180 2,066,872 1,601,164 1,316,326
Average Finance Charges
and Fees Billed(2)..... 16.08%(3) 16.85%(3) 16.37% 16.40% 16.74%
</TABLE>
- --------
(1)Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Average Finance Charges and Fees Billed is the result of dividing Finance
Charges and Fees Billed by Average Receivables Outstanding and does not
include revenue attributable to Interchange.
(3) On an annualized basis.
The revenues for the Bank's Portfolio shown in the Revenue Experience table
are related to periodic charges and other fees billed to cardholders but do
not include revenue attributable to Interchange. The revenues related to
periodic charges and fees depend in part upon the collective preference of
cardholders to use their credit cards as revolving debt instruments for
purchases and cash advances and paying off account balances over several
months as opposed to convenience use, where the cardholders prefer instead to
pay off their entire balance each month, thereby avoiding periodic charges on
purchases, fees and finance charges. Revenues related to periodic charges and
fees also depend on the types of charges and fees assessed by the Bank on the
accounts. The Bank introduced a variable rate card in 1987. From 1989 through
1994, the Bank emphasized the origination of variable rate accounts and
substantially all new accounts originated during that time were variable rate
accounts. Depending upon fluctuations in interest rates, the variable rate
periodic charge (which is based on the prime rate) assessed on variable rate
accounts may change from month to month and could be less than the fixed
charge applicable to most standard fixed rate accounts. Commencing in 1994,
the Bank began offering certain new non-affinity accounts, for purchase
transactions, a fixed rate periodic charge for an initial period (ranging from
6 to 15 months) which then converts into a variable rate. The initial fixed
rate offered on such accounts is generally either 6.9% or 9.9% per annum, a
rate which is substantially lower than that currently assessed on the variable
rate accounts or the standard fixed rate accounts. The total yield on such
accounts during the initial fixed rate period is therefore lower than that of
a variable rate account or standard fixed rate account. As of the end of the
July 1996 Due Period, Receivables assessed a variable periodic charge
constituted approximately 93.65% of the total Receivables balance of Accounts
in the Trust. Fluctuations in the prime interest rate and/or the continued use
of the initial fixed/variable rate pricing for certain new accounts, may
affect future revenue experience. Throughout the periods shown above, the Bank
made certain changes in the charges and fees assessed on the accounts. In
1993, the Bank waived fees (including annual fees) and removed a minimum rate
floor of 19.8% per annum or offered a lower rate on some cash advances for
certain cardholders. In 1994 and 1995, the Bank continued to offer a lower
rate and/or no cash advance fee on some cash advances and/or purchases for
certain cardholders for limited periods of time. In addition, the Bank is
currently waiving annual fees and offering a lower variable interest rate on
certain selected accounts. Commencing in mid-1996, the Bank introduced certain
other pricing changes including increased fees and performance-based pricing
whereby certain delinquent accounts are assessed a higher variable periodic
rate. Also in 1996, the Bank reduced the minimum monthly payment required of
cardholders in those months when a fee is charged to their accounts. The Bank
has no basis to predict how these changes and any future changes in the terms
of accounts may affect the revenue for the Bank's Portfolio. See "The
Accounts--Billing and Payments" herein.
INTERCHANGE
Pursuant to the terms of the Series 1996-Q Supplement, the Seller will
transfer to the Trust the Floating Allocation Percentage of Interchange
attributable to cardholder charges for merchandise and services in the
S-16
<PAGE>
Accounts. Interchange allocable to Series 1996-Q in an amount equal to 1/12 of
the product of 1.25% per annum and the Invested Amount with respect to each
Due Period will be used exclusively to pay the Servicer part of its Monthly
Servicing Fee. See "Description of the Class A Certificates and the
Agreement--Servicing Compensation and Payment of Expenses." Interchange in
excess of the portion thereof required to be used exclusively to pay the
Servicer part of such Monthly Servicing Fee will be included in Finance Charge
Receivables pursuant to the Series 1996-Q Supplement for purposes of
determining the amount of Finance Charge Receivables and allocating
collections and payments to the Certificateholders. Interchange (including the
portion used exclusively to pay the Servicer) will be included in Finance
Charge Receivables for purposes of calculating the Portfolio Yield.
THE ACCOUNTS
The Receivables arising from the Accounts as of the end of the July 1996 Due
Period totaled $15,845,746,184 and included $15,522,991,562 of Principal
Receivables. The Accounts had an average Principal Receivables balance of
$1,127 and an average credit limit of $7,291. The aggregate total Receivables
balance as a percentage of the aggregate total credit limit was 15.78%.
The Receivables arising from the Accounts as of the end of the August 1996
Due Period totaled $16,049,493,739 and included $15,719,769,777 of Principal
Receivables.
The following tables summarize the Accounts by various criteria as of the
end of the July 1996 Due Period. Approximately 233,394 cardholder accounts
included in the Accounts as of the end of the July 1996 Due Period are Classic
VISA accounts with respect to which the cardholder has been upgraded to a VISA
Gold account. The upgraded accounts generally have certain additional
features, including higher credit limits, which are not generally included in
the Classic VISA accounts. For some period of time (not exceeding three
years), both accounts are active for a particular cardholder although the
Classic VISA account is eventually closed. Upon any cardholder upgrade, the
receivables balance in the Classic VISA account is transferred to the VISA
Gold account (which account is considered to have the same account opening
date as the Classic VISA account) and any new receivables created on the
Classic VISA account are immediately transferred to the VISA Gold account. In
addition, pursuant to the ordinary operating procedures of the Bank, accounts
which expire and have no outstanding balance are not removed immediately from
the Bank's Portfolio, but rather are removed periodically from the Bank's
Portfolio and therefore may still be included as an Account for some period of
time after expiration. As of the end of the July 1996 Due Period,
approximately 673,957 expired accounts with a credit balance or no balance
were included in the Accounts. Because the composition of the Accounts may
change in the future, these tables are not necessarily indicative of the
characteristics of the Trust at any time after the end of the July 1996 Due
Period.
COMPOSITION OF THE ACCOUNTS BY ACCOUNT BALANCES
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT BALANCE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
--------------- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Credit Balance(1)............ 158,581 1.15% $ (26,028,596) (.16)%
No Balance(2)................ 6,118,824 44.43 0 .00
$0.01 to $1,499.99........... 4,085,553 29.66 1,800,444,030 11.36
$1,500.00 to $2,999.99....... 1,269,998 9.22 2,822,252,410 17.81
$3,000.00 to $4,499.99....... 868,551 6.31 3,241,151,820 20.45
$4,500.00 to $9,999.99....... 1,226,428 8.90 7,471,202,405 47.15
$10,000 or more.............. 45,212 .33 536,724,115 3.39
---------- ------ --------------- ------
Total...................... 13,773,147 100.00% $15,845,746,184 100.00 %
========== ====== =============== ======
</TABLE>
- --------
(1) Credit Balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently with
a credit balance are included, as Receivables may be generated with
respect thereto in the future.
(2) Accounts currently with no balance are included, as Receivables may be
generated with respect thereto in the future.
S-17
<PAGE>
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
------------ ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
$0.01 to $1,499.99............ 345,070 2.51% $ 85,051,314 .54%
$1,500.00 to $2,999.99........ 437,395 3.18 507,332,780 3.20
$3,000.00 to $4,499.99........ 785,453 5.70 982,309,314 6.20
$4,500.00 to $9,999.99........ 8,847,015 64.23 9,875,108,396 62.32
$10,000 or more(1)............ 3,358,214 24.38 4,395,944,380 27.74
---------- ------ --------------- ------
Total....................... 13,773,147 100.00% $15,845,746,184 100.00%
========== ====== =============== ======
</TABLE>
- --------
(1)Maximum current credit limit on an Account is $65,000.
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
PAYMENT STATUS ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
-------------- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Current(1).................... 13,546,513 98.36% $15,041,173,947 94.92%
30-59 days delinquent......... 122,645 .89 393,894,036 2.49
60-89 days delinquent......... 40,201 .29 148,895,426 .94
90 days delinquent or more.... 63,788 .46 261,782,775 1.65
---------- ------ --------------- ------
Total....................... 13,773,147 100.00% $15,845,746,184 100.00%
========== ====== =============== ======
</TABLE>
- --------
(1) Includes Accounts on which the minimum payment has not yet been received
prior to the second billing date following the issuance of the related
bill.
COMPOSITION OF ACCOUNTS BY AGE
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
AGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
--- ---------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Not more than 6 months........ 762,875 5.54% $ 520,005,832 3.28%
Over 6 months to 12 months.... 1,436,282 10.43 1,798,809,493 11.35
Over 12 months to 24 months... 3,018,782 21.92 3,962,394,260 25.01
Over 24 months to 48 months... 3,885,168 28.21 4,157,312,795 26.24
Over 48 months................ 4,670,040 33.90 5,407,223,804 34.12
---------- ------ --------------- ------
Total....................... 13,773,147 100.00% $15,845,746,184 100.00%
========== ====== =============== ======
</TABLE>
S-18
<PAGE>
GEOGRAPHIC COMPOSITION OF THE ACCOUNTS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF RECEIVABLES
STATE ACCOUNTS OUTSTANDING
- ----- ---------- -----------
<S> <C> <C>
California............................................... 13.66% 16.69%
Illinois................................................. 7.18 7.83
New York................................................. 7.68 7.22
Texas.................................................... 5.79 6.00
Florida.................................................. 6.19 5.67
New Jersey............................................... 3.92 3.55
Pennsylvania............................................. 4.29 3.28
Ohio..................................................... 3.57 3.16
Colorado................................................. 2.47 3.13
Michigan................................................. 3.28 2.94
Washington............................................... 1.97 2.20
Virginia................................................. 2.08 2.15
Massachusetts............................................ 2.46 2.11
Indiana.................................................. 2.20 2.03
Minnesota................................................ 2.45 1.84
Maryland................................................. 1.92 1.83
Missouri................................................. 2.05 1.83
Georgia.................................................. 1.79 1.79
Tennessee................................................ 1.81 1.79
North Carolina........................................... 1.81 1.75
Arizona.................................................. 1.56 1.71
Oregon................................................... 1.44 1.63
Connecticut.............................................. 1.28 1.18
Louisiana................................................ 1.16 1.13
Alabama.................................................. 1.08 1.10
Hawaii................................................... .72 1.08
Iowa..................................................... 1.32 1.06
Oklahoma................................................. 1.11 1.02
All Other(1)............................................. 11.76 11.30
------ ------
Total................................................. 100.00% 100.00%
====== ======
</TABLE>
- --------
(1)States and foreign countries with less than 1.00% of Total Receivables
Outstanding.
BILLING AND PAYMENTS
The credit card accounts owned by the Bank include accounts originated or
purchased by the Bank or FNBC. These accounts have various billing and payment
structures, including varying annual fees and periodic charges. The following
is information on the current billing and payment characteristics of the
Accounts.
Monthly billing statements are sent by the Bank to cardholders. Currently,
each month, a cardholder generally must make a minimum payment equal to the
sum of: (i) 1/48 of the new balance (excluding any amount that is past due and
any fees charged on the Account by the Bank), but not less than the greater of
$10 or the amount of the finance charge (due to periodic rates) billed to the
Account for the billing period, plus (ii) any amount that is past due (unless
its inclusion in the minimum payment is waived in accordance with the
Servicer's guidelines), plus (iii) the amount of any fees charged to the
Account. Commencing with a cardholder's billing date in September 1996, a
cardholder generally will be required to make a minimum payment equal to the
sum of: (i) 1/48 of the new balance (excluding any amount that is past due),
but not less than the greater of $10 or
S-19
<PAGE>
the amount of the finance charge (due to periodic rates) billed to the Account
for the billing period, plus (ii) any amount that is past due (unless its
inclusion in the minimum payment is waived in accordance with the Servicer's
guidelines).
In either instance, balances under $10 must be paid in full. In addition, if
the new balance in the Account less the minimum payment amount computed as
described above exceeds the assigned credit limit, the difference between such
amounts may be added to the required minimum payment shown on the monthly
billing statement.
Currently, a monthly periodic charge is assessed on the Accounts. The
monthly periodic charge is calculated by multiplying the finance charge
balance in an Account by the applicable monthly periodic rate. The finance
charge balance is the average daily balance owing on the Account during the
billing period including in its calculation any fees charged to the Account by
the Bank and any billed but unpaid finance charge. Monthly periodic charges
are not assessed on purchases, fees or finance charges if all balances shown
on the billing statement are paid in full by the cardholder's payment due date
shown on the cardholder's billing statement each month. Commencing with a
cardholder's billing date in September 1996, a daily periodic charge will be
assessed on the Accounts. Finance charges due to periodic rates for a billing
cycle will be computed by applying the applicable daily periodic rates to the
related daily balances and then adding the resulting sums for each day in the
billing cycle. The daily periodic rates are determined by dividing the
applicable annual percentage rates for such billing cycle by 365. The daily
balances of purchases, advances, and fees and finance charges (on which
finance charges at the applicable daily periodic rates are computed) are
determined separately by taking the beginning balance of purchases, advances,
or fees and finance charges, adding any new purchases, advances, or fees and
finance charges that accrued or were posted that day, and subtracting any
payments or credits applied that day to such purchases, advances, or fees and
finance charges. Daily periodic charges are not assessed on purchases, finance
charges and fees if all balances shown on the billing statement are paid in
full by the cardholder's payment due date shown on the cardholder's billing
statement each month.
As of the end of the July 1996 Due Period, the Receivables assessed a fixed
periodic rate and a variable periodic rate as a percentage of the total
Receivables balance of the Accounts was approximately 6.35% and 93.65%,
respectively. The current periodic rate assessed on Receivables arising in
most standard fixed rate Accounts is 19.8% per annum, although certain fixed
rate Accounts are assessed at lower rates. With respect to Receivables arising
in the variable rate Accounts, the periodic rate assessed is equal on a per
annum basis to the interest rate index plus a spread. With respect to the
monthly periodic charge, the interest rate index is determined on each billing
date based on the prime rate listed in the money rate section of The Wall
Street Journal on the 15th day of the month (or if the 15th is a Saturday,
Sunday or holiday, the next business day) immediately preceding the month in
which the billing date occurs. With respect to daily periodic charges, the
interest rate index is determined on each billing date based on the prime rate
listed in the money rate section of The Wall Street Journal on the first day
of the month in which the beginning date of the billing period occurs (or if
that day is a Saturday, Sunday or holiday, the prior business day).
The spread on variable rate Accounts ranges generally from 6.9% to 12.9% per
annum. Commencing in 1994, the Bank began offering certain new non-affinity
Accounts a fixed rate monthly periodic charge on purchases for an initial
period (ranging from 6 to 15 months) which then converts into a variable rate.
The initial fixed rate offered on such Accounts is generally either 6.9% or
9.9% per annum. Upon conversion to a variable rate, the periodic charge is
computed as described above for variable rate Accounts.
Commencing in 1996, the Bank will begin assessing certain delinquent
Accounts a higher variable periodic rate equal to the greater of (i) the prime
rate (as determined as described above) plus a spread of 12.9% or (ii)
19.8% per annum. If such an Account subsequently makes all required minimum
payments for six consecutive billing periods, the variable periodic rate
decreases to the prime rate plus a spread of 9.9% except that the periodic
rate for cash advances will not be less than 19.8% per annum.
By the terms of the most recent cardholder agreements governing the
Accounts, the Bank may change the periodic rate at any time upon written
notice to the cardholders. In addition, the cardholder agreements governing
S-20
<PAGE>
most standard fixed rate Accounts give cardholders the option of electing a
variable periodic rate to be effective for transactions on or after the
election is processed, equal on a per annum basis to the interest rate index
plus 9.9% (with a minimum per annum rate of 19.8% for cash advances). Finally,
the Bank, under limited circumstances, has offered to existing cardholders a
variable periodic rate equal on a per annum basis to the interest rate index
plus 4.9%.
Since 1988, substantially all preapproved Accounts, which are not part of an
affinity program, have not been assessed an annual membership fee; in
addition, over the last few years, the Bank generally with respect to non-
affinity Accounts has not assessed or has waived the annual fee for most other
new Accounts and also has waived the annual fee for certain other selected
Accounts. The annual membership fee when assessed on Accounts ranges generally
from $12 to $100, in the case of certain affinity Accounts. Annual fees, to
the extent assessed on the Accounts, will be included in the Receivables
transferred to the Trust. The Bank may expand or discontinue the fee waiver
program or institute other similar programs in the future.
The Bank generally charges Accounts miscellaneous additional fees,
including, effective with a cardholder's billing period commencing in
September 1996: (i) a late fee not to exceed $20, if the Bank does not receive
the required minimum monthly payment by the billing date immediately following
the payment due date shown on the monthly billing statement; (ii) a returned
payment check fee not to exceed $20, for each cardholder check received by the
Bank and not paid by the cardholder's bank; (iii) an over-limit fee not to
exceed $20, if the new balance of an Account (less new periodic charges and
fees imposed on the current billing statement) exceeds the cardholder's stated
credit limit on the billing date; (iv) a returned convenience check fee equal
to $20, if a convenience check is returned unpaid because it exceeds a
cardholder's available credit at the time it is presented to the Bank for
payment or if the cardholder's account is delinquent at the time the
convenience check is presented to the Bank for payment; and (v) a cash advance
fee equal to 2.5% of the cash advance transaction amount (with a minimum fee
of $2.50) for cash advances obtained from a financial institution or an
automatic teller machine or for cash advances obtained by writing a check on
an Account. Previously, the fees described in clauses (i), (ii), (iii) and
(iv) of the prior sentence were limited to no more than $15; cash advance
fees, prior to September 1996, were equal to 2% of the cash advance
transaction amount. From time to time, the Bank has waived, and may continue
to waive, the cash advance fee for certain cash advance transactions including
certain balance transfers. Any of the fees described herein may be waived or
modified at any time. Currently, the above-described fees may not be charged
on certain Accounts or may be charged at lower rates under certain
circumstances. Certain of these fees assessed by various credit card issuers
have been challenged in lawsuits. See "Risk Factors--Certain Legal Aspects" in
the Prospectus.
Commencing in 1993, the Bank waived fees and removed the minimum rate floor
of 19.8% or offered a lower rate on some cash advances for certain
cardholders. The Bank has offered and, in the future, may continue to offer a
reduced rate for purchases and cash advances to certain accounts for a limited
period of time. Commencing in 1994, the Bank also introduced an initial fixed
rate/variable rate Account described above. The Bank may expand or discontinue
any of these programs or institute other similar programs in the future.
THE SELLER
As of June 30, 1996, and based on the Consolidated Reports of Condition and
Income (the "Call Report") of the Seller at such date, the Seller had total
deposits of approximately $1.11 billion, total assets of approximately $10.56
billion, net income (for the first two quarters of 1996) of approximately $82
million and total equity capital of approximately $914 million. The Call
Report is required to be prepared in accordance with regulatory accounting
principles, which differ in some respects from generally accepted accounting
principles.
S-21
<PAGE>
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS
The Series 1996-Q Supplement provides that the Controlled Amortization
Period will commence on the Controlled Amortization Date and that the Rapid
Amortization Period will commence on the first day of the Due Period during
which a Liquidation Event occurs or is deemed to occur. Although it is
anticipated that principal payments will be made to the Class A
Certificateholders in an amount equal to the Controlled Amortization Amount
beginning on the March 2001 Distribution Date, no assurance can be given in
that regard. Payments of Class A Monthly Principal are scheduled to be made to
Class A Certificateholders on each Distribution Date during the Controlled
Amortization Period, in an amount equal to the lesser of (a) the Controlled
Amount and (b) an amount ("Class A Available Principal Collections") equal to
the sum of (i) the Class A Principal Percentage of the Fixed Allocation
Percentage of all collections of Principal Receivables in respect of the
applicable Due Period, (ii) the amount of any Unallocated Principal
Collections allocable to the Certificates on deposit in the Collection Account
on such Distribution Date, (iii) the amount of certain collections of
Principal Receivables otherwise allocable to other Series, to the extent such
collections are not needed to make payments in respect of such other Series,
and (iv) certain other amounts that are treated as Class A Available Principal
Collections in accordance with the Series 1996-Q Supplement. Although the
Seller expects that there will be sufficient funds on each Distribution Date
of the Controlled Amortization Period to pay the Controlled Amount on such
date, no assurance can be given in this regard. The actual rate of payment of
principal will depend, among other factors, on the rate of repayment and the
rate of default by cardholders.
In the event of the occurrence of a Liquidation Event, the Rapid
Amortization Period will begin on the first day of the Due Period in which
such Liquidation Event occurs. During the Rapid Amortization Period,
distributions of principal to Class A Certificateholders will not be subject
to the Controlled Amount. In addition, principal payable to Class A
Certificateholders on the Distribution Date following a sale, disposition or
other liquidation of the Receivables (or interests therein) in the event of an
insolvency event as described herein under "Description of the Class A
Certificates and the Agreement-Liquidation Events" or in connection with the
Series Termination Date as described herein under "Description of the Class A
Certificates and the Agreement--Final Payment of Principal; Termination of
Trust," will be equal to the Class A Invested Amount. A "Liquidation Event"
occurs, with respect to the Certificates, either automatically or after a
specified period after notice, upon (i) failure of the Seller to make certain
payments or transfers of funds for the benefit of the Certificateholders
within the time periods stated in the Agreement, (ii) material breaches of
certain representations, warranties or covenants of the Seller, (iii) certain
insolvency events involving the Seller, (iv) the average Portfolio Yield for
any three consecutive Due Periods being less than the average of the Base
Rates for the related Interest Periods, (v) the Trust becoming an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
(vi) a failure by the Seller to convey the Receivables in Additional Accounts
to the Trust when required by the Agreement, (vii) failure to pay the Class A
Invested Amount on the February 2002 Distribution Date (the "Class A Expected
Final Distribution Date") or (viii) the occurrence of a Servicer Default which
would have a material adverse effect on the Certificateholders. The term
"Portfolio Yield" means, with respect to any Due Period, the annualized
percentage equivalent of a fraction the numerator of which is the amount of
the Finance Charge Receivables (including Interchange) collected during such
Due Period, calculated on a cash basis after subtracting certain Defaulted
Receivables during such period, and the denominator of which is Aggregate
Principal Receivables. The Term "Base Rate" means, with respect to any
Interest Period, the annualized percentage equivalent of a fraction, the
numerator of which is equal to the sum of (i) Class A Monthly Interest, (ii)
Collateral Monthly Interest and (iii) the Monthly Servicing Fee, and the
denominator of which is the Invested Amount as of the end of the day on the
first day of such Interest Period. Although the Seller believes that the
likelihood of a Liquidation Event occurring is remote, there can be no
assurance that a Liquidation Event will not occur. See "Description of the
Class A Certificates and the Agreement--Liquidation Events" herein.
S-22
<PAGE>
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Bank's Portfolio during any month in the period shown
and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening
monthly account balances during the periods shown. Payments shown in the table
include amounts which would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts but do not include
Interchange.
CARDHOLDER MONTHLY PAYMENT RATES FOR THE BANK'S PORTFOLIO
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------- -------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993
----- ------- ------- -------
Lowest...................................... 20.30% 21.08% 19.81% 19.51%
Highest..................................... 21.86 25.01 25.02 24.21
Monthly Average............................. 21.18 22.58 23.27 22.45
</TABLE>
The amount of collections on Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of
Principal Receivables with respect to the Accounts, and thus the rate at which
Class A Certificateholders can expect principal allocated on the basis of the
Class A Principal Percentage of the Fixed Allocation Percentage to be paid
during the Controlled Amortization Period or the Rapid Amortization Period,
will be similar to the historical experience set forth above. In addition,
since the Trust, as a master trust, may issue additional Series from time to
time, there can be no assurance that the issuance of additional Series or the
Principal Terms of any additional Series might not have an impact on the
timing of payments received by Class A Certificateholders. Further, if a
Liquidation Event occurs, the average life and maturity of the Class A
Certificates could be significantly reduced. Likewise, the sharing of
collections of Principal Receivables allocated to other Series with this
Series during a Rapid Amortization Period could significantly reduce the
duration of such period for the Class A Certificates. See "Description of the
Class A Certificates and the Agreement--Shared Collections of Principal
Receivables" herein.
Because there may be a slow-down in the payment rate with respect to the
Accounts or a Liquidation Event may occur which would initiate a Rapid
Amortization Period, there can be no assurance that the actual number of
months elapsed from the date of issuance of the Class A Certificates to the
final payment of the Class A Invested Amount will equal the expected number of
months. The amount of outstanding Receivables and the rates of payments,
delinquencies, charge-offs and new borrowings on the Accounts depend upon a
variety of factors, including seasonal variations, the availability of other
sources of credit, general economic conditions and consumer spending and
borrowing patterns. Accordingly, there can be no assurance that future
cardholder monthly payment rate experience will be similar to historical
experience.
DESCRIPTION OF THE CLASS A CERTIFICATES AND THE AGREEMENT
The Certificates will be issued pursuant to the Agreement and the Supplement
relating thereto (the "Series 1996-Q Supplement") entered into between the
Bank, as transferor of interests in the Receivables and as Servicer of the
Accounts and the Receivables and Norwest Bank Minnesota, National Association,
as Trustee for the Certificateholders. Pursuant to the Agreement, the Seller
may execute further Supplements thereto between the Seller and the Trustee in
order to issue additional Series. See "Description of the Certificates and the
Agreement--Exchanges" in the Prospectus. The following summary describes
certain terms of the Agreement and the Series 1996-Q Supplement and is
qualified in its entirety by reference to the Agreement and the Series 1996-Q
Supplement. See "Description of the Certificates and the Agreement" in the
Prospectus for additional information concerning the Class A Certificates and
the Agreement. Only the Class A Certificates are being offered hereby.
S-23
<PAGE>
GENERAL
Payments of interest and principal will be made on each related Distribution
Date to Class A Certificateholders in whose names the Class A Certificates
were registered on the last day of the calendar month preceding such
Distribution Date (each, a "Record Date"). Interest will be distributed to
Class A Certificateholders on the 15th day of each month (or, if such day is
not a business day, on the next succeeding business day) (each, a
"Distribution Date"), commencing November 15, 1996. Class A Monthly Interest
will be distributed to Certificateholders in an amount equal to the product of
(i)(a) the actual number of days in the related Interest Period divided by
360, times (b) the Class A Certificate Rate for the related Interest Period
and (ii) the Class A Invested Amount as of the preceding Record Date (or, in
the case of the first Distribution Date, as of the Series Q Closing Date).
Interest will be calculated on the basis of the actual number of days in the
related Interest Period and a 360-day year. Class A Monthly Interest due but
not paid on any Distribution Date will be due on the next succeeding
Distribution Date with additional interest on such amount at the Class A
Certificate Rate plus 2% per annum. Interest payments will be derived from
collections allocated to Finance Charge Receivables available to the Class A
Certificates (including Excess Spread and Excess Finance Charge Collections
allocable to Series 1996-Q) and, if necessary, withdrawals from the Cash
Collateral Account and Reallocated Principal Collections.
The Class A Certificate Rate will be 0.13% per annum above the rate for
deposits in United States dollar deposits ("LIBOR") determined as set forth
below.
The Servicer will determine LIBOR for the Interest Period from the Series Q
Closing Date through October 14, 1996 on the second business day prior to the
Series Q Closing Date. The Servicer will determine LIBOR on October 10, 1996
for the Interest Period from October 15, 1996 through November 14, 1996, and,
for each Interest Period thereafter, on the second business day prior to the
Distribution Date on which such Interest Period commences (each, a "LIBOR
Determination Date"). For purposes of calculating LIBOR, a business day is any
day on which banks in London and New York are open for the transaction of
international business. The Servicer will determine LIBOR in accordance with
the following provisions:
(i) On each LIBOR Determination Date, the Servicer will determine LIBOR
on the basis of the rate for deposits in United States dollars for the
Interest Period following the LIBOR Determination Date which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on such date. "Telerate
Page 3750" means the display page currently so designated on the Dow Jones
Telerate Service (or such other page as may replace such page on such
service for the purpose of displaying comparable rates or prices); or
(ii) If, on the LIBOR Determination Date, such rate does not appear on
Telerate Page 3750, LIBOR will be determined on the basis of the rates at
which deposits in United States dollars are offered by at least two of the
Reference Banks at approximately 1:00 a.m., London time, on such day to
prime banks in the London interbank market for the Interest Period
following such LIBOR Determination Date. "Reference Banks" means four major
banks in the London interbank market selected by the Servicer. The Servicer
will request the principal London office of each of the Reference Banks to
provide a quotation of its rate. If at least two such quotations are
provided, the rate for such LIBOR Determination Date will be the arithmetic
mean of such quotations (rounded, if necessary, to the nearest multiple of
0.0625% per annum); or
(iii) If, on the LIBOR Determination Date, only one or none of the
Reference Banks provides such offered quotations, LIBOR will be the rate
per annum (rounded as aforesaid) that the Servicer determines to be either
(x) the arithmetic mean of the offered quotations that leading banks in The
City of New York selected by the Servicer are quoting on the relevant LIBOR
Determination Date for one-month United States dollar deposits to the
principal London office of each of the Reference Banks or those of them
(being at least two in number) to which such offered quotations are, in the
opinion of the Servicer, being so made or (y) in the event the Servicer can
determine no such arithmetic mean, the arithmetic mean of the offered
quotations that leading banks in The City of New York selected by the
Servicer are quoting on such LIBOR Determination Date to leading European
banks for one-month United States dollar deposits; or
S-24
<PAGE>
(iv) If, on the LIBOR Determination Date, the banks selected as aforesaid
by the Servicer are not quoting as described in paragraph (iii) above,
LIBOR for such Interest Period will be LIBOR as determined on the previous
LIBOR Determination Date (or LIBOR as determined with respect to the Series
Q Closing Date, in the case of the first LIBOR Determination Date).
The Class A Certificate Rate applicable to the then current and immediately
preceding Interest Period may be obtained by telephoning the Servicer at (847)
931-3222.
No principal payments are scheduled to be made on the Class A Certificates
prior to the March 2001 Distribution Date. Monthly principal distributions
will begin on the first Distribution Date following the Due Period in which
either the Controlled Amortization Period or the Rapid Amortization Period
commences. The Controlled Amortization Period is scheduled to begin on the
first day of the Due Period relating to the March 2001 Distribution Date (the
"Controlled Amortization Date"). The Rapid Amortization Period may begin at
any time due to the occurrence of a Liquidation Event. See "--Liquidation
Events" below for a discussion of events which might lead to the commencement
of the Rapid Amortization Period.
The Class A Certificates will initially be represented by certificates
registered in the name of the nominee of The Depository Trust Company ("DTC").
The interests of holders of beneficial interests in the Class A Certificates
("Certificate Owners") will be available for purchase in denominations of
$1,000 and integral multiples thereof in book-entry form only. The Seller has
been informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is
expected to be the holder of record of the Class A Certificates. Unless and
until Definitive Certificates are issued under the limited circumstances
described under "Description of the Certificates and the Agreement--Definitive
Certificates" in the Prospectus, no Certificate Owner will be entitled to
receive a certificate representing such person's interest in the Class A
Certificates. All references herein to actions by Class A Certificateholders
shall refer to actions taken by DTC upon instructions from its participating
organizations (the "Participants") and all references herein to distributions,
notices, reports and statements to Class A Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Class A Certificates, as the case may be, for
distribution to Certificate Owners in accordance with DTC procedures.
Class A Certificateholders may hold their Certificates through DTC (in the
United States) or Cedel or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in
such systems. Cede, as nominee for DTC, will hold the global Class A
Certificates. Cedel and Euroclear will hold omnibus positions on behalf of the
Cedel Participants and the Euroclear Participants, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books
of their respective Depositaries which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
See "Description of the Certificates and Agreement--General," "--Book-Entry
Registration" and "--Definitive Certificates" in the Prospectus.
ALLOCATION PERCENTAGES
Pursuant to the Agreement, during each Due Period the Servicer will allocate
between Series 1996-Q, any other Series issued by the Trust and the First
Chicago Interest all amounts collected on Finance Charge Receivables and all
amounts collected on Principal Receivables and the amount of all Defaulted
Receivables. Collections of Finance Charge Receivables (including the
applicable portion of Interchange) and Defaulted Receivables will be allocated
at all times to Series 1996-Q, and collections of Principal Receivables will
be allocated during the Revolving Period with respect to Series 1996-Q and
generally paid to the Seller or, in certain circumstances, to the Collateral
Interest Holder or to other Series, based on the percentage equivalent of a
fraction, the numerator of which is the Invested Amount for such Distribution
Date, and the denominator of which is Aggregate Principal Receivables for the
related Due Period (the "Floating Allocation Percentage"). During the
Controlled Amortization Period or Rapid Amortization Period for Series 1996-
Q, collections of Principal Receivables will be allocated to Series 1996-Q
based on the percentage equivalent of a fraction, the numerator of which is
the Invested Amount as of the end of the day on the last Distribution Date
relating to the
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<PAGE>
Revolving Period for Series 1996-Q and the denominator of which is the
greater of (a) Aggregate Principal Receivables for the Due Period related to
the current Distribution Date and (b) the sum of the numerators used to
calculate the Invested Percentages with respect to Principal Receivables for
all Series outstanding for the current Distribution Date (the "Fixed
Allocation Percentage").
As used herein, the following terms have the following meanings:
"Class A Floating Percentage" means, with respect to any Distribution Date,
the percentage equivalent (which percentage shall never exceed 100%) of a
fraction, the numerator of which is the Class A Invested Amount for such
Distribution Date and the denominator of which is the Invested Amount for such
Distribution Date.
"Class A Invested Amount" means, on any date of determination, an amount
equal to (a) the Class A Initial Invested Amount, minus (b) the aggregate
amount of principal payments made to the Class A Certificateholders prior to
such date, minus (c) the excess, if any, of the aggregate amount of Class A
Investor Charge-Offs for all prior Distribution Dates over the aggregate
amount of Class A Investor Charge-Offs reimbursed prior to such date.
"Class A Principal Percentage" means, with respect to any Distribution Date
(i) relating to the Revolving Period for Series 1996-Q, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is the Class A Invested Amount for such Distribution Date,
and the denominator of which is the Invested Amount for such Distribution Date
and (ii) relating to the Controlled Amortization Period or the Rapid
Amortization Period for Series 1996-Q, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is
the Class A Invested Amount as of the end of the day on the last Distribution
Date relating to the Revolving Period for Series 1996-Q, and the denominator
of which is the Invested Amount as of such day.
"Collateral Floating Percentage" means, with respect to any Distribution
Date, the percentage equivalent (which percentage shall never exceed 100%) of
a fraction, the numerator of which is the Collateral Invested Amount for such
Distribution Date, and the denominator of which is the Invested Amount for
such Distribution Date.
"Collateral Invested Amount" means, for any date of determination, an amount
equal to (a) the Collateral Initial Invested Amount, minus (b) an amount equal
to the amount by which the Collateral Invested Amount has been reduced on all
prior Distribution Dates to avoid the occurrence of a Class A Investor Charge-
Off, minus (c) the amount of Collateral Charge-Offs for all prior Distribution
Dates, minus (d) the aggregate amount of principal payments made to the
Collateral Interest Holder prior to such date; provided, however, that the
Collateral Invested Amount may not be reduced below zero.
"Collateral Principal Percentage" means, with respect to any Distribution
Date (i) relating to the Revolving Period for Series 1996-Q, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is the Collateral Invested Amount for such Distribution
Date, and the denominator of which is the Invested Amount for such
Distribution Date and (ii) relating to the Controlled Amortization Period or
the Rapid Amortization Period, the percentage equivalent (which percentage
shall never exceed 100%) of a fraction, the numerator of which is the
Collateral Invested Amount as of the end of the day on the last Distribution
Date relating to the Revolving Period for Series 1996-Q, and the denominator
of which is the Invested Amount as of such day.
"Invested Amount" means, with respect to any date of determination, an
amount equal to the sum of (a) the Class A Invested Amount and (b) the
Collateral Invested Amount.
"Invested Percentage" means, on any date of determination with respect to
any Distribution Date: (a) when used with respect to Principal Receivables
during the Controlled Amortization Period or a Rapid Amortization
S-26
<PAGE>
Period for Series 1996-Q, the Fixed Allocation Percentage; and (b) when used
with respect to Principal Receivables during the Revolving Period for Series
1996-Q, and Finance Charge Receivables and Defaulted Receivables at any time,
the Floating Allocation Percentage.
"First Chicago Percentage" means when used with respect to allocations of
collections of Finance Charge Receivables and Principal Receivables and the
amount of Defaulted Receivables, 100% minus the sum of the applicable Invested
Percentages with respect to all Series then issued and outstanding.
APPLICATION OF COLLECTIONS
The Bank, as Servicer, uses for its own benefit all collections received
with respect to the Receivables in each Due Period until the related Transfer
Date at which time such collections are applied as described below and under
"Description of the Certificates and the Agreement--Application of
Collections" in the Prospectus.
Throughout the existence of the Trust, the Servicer allocates to the Seller,
as holder of the Exchangeable Seller's Certificate, an amount equal to the
First Chicago Percentage of the aggregate amount of Collections allocable to
Principal Receivables and Finance Charge Receivables in respect of such Due
Period. On each Determination Date with respect to the Revolving Period for
Series 1996-Q, the Servicer will allocate to the Seller or, in certain
circumstances, to other Series, from collections an amount equal to the
Floating Allocation Percentage of the aggregate amount of collections in
respect of Principal Receivables for the related Distribution Date, except
that the amount of such allocation with respect to Principal Receivables shall
not exceed the amount of the First Chicago Interest in Principal Receivables
(after giving effect to any new Receivables transferred to the Trust for the
Due Period relating to such Determination Date) and will exclude any such
collections to be applied as Collateral Monthly Principal.
On each Determination Date with respect to the Controlled Amortization
Period for Series 1996-Q, the Servicer will allocate to the Seller or, in
certain circumstances, to other Series, from collections an amount equal to
the excess of the Fixed Allocation Percentage for the related Distribution
Date of the aggregate amount of collections in respect of Principal
Receivables over the related Controlled Amount, except that the amount of such
allocation with respect to Principal Receivables shall not exceed the amount
of the First Chicago Interest in Principal Receivables (after giving effect to
any new Receivables transferred to the Trust for the Due Period relating to
such Determination Date) and will exclude any such collections to be applied
as Collateral Monthly Principal.
On each Distribution Date with respect to a Rapid Amortization Period, the
Servicer will distribute all collections in respect of Principal Receivables
allocable to Series 1996-Q with respect to the related Due Period in payment
of principal on the Certificates (as more fully described below under "--
Allocation of Funds").
REALLOCATION OF COLLECTIONS
With respect to each Distribution Date, on each Determination Date, the
Servicer will determine the amount (the "Class A Required Amount"), if any, by
which the sum of (i) Class A Monthly Interest for such Distribution Date, (ii)
any Class A Monthly Interest previously due but not paid to Class A
Certificateholders on a prior Distribution Date, (iii) any Class A Additional
Interest and any Class A Additional Interest previously due but not paid to
Class A Certificateholders on a prior Distribution Date, (iv) if there is a
successor Servicer not affiliated with the Seller, the Monthly Servicing Fee
for such Distribution Date and (v) the Class A Investor Default Amount, if
any, for such Distribution Date exceeds the Class A Available Funds (as
defined below under "--Allocation of Funds"). If the Class A Required Amount
is greater than zero, Excess Spread and Excess Finance Charge Collections
allocated to Series 1996-Q and available for such purpose will be used to fund
the Class A Required Amount with respect to such Distribution Date. If such
Excess Spread and Excess Finance Charge Collections available with respect to
such Distribution Date are less than the Class A Required Amount, amounts, if
any, on deposit in the Cash Collateral Account will then be used to fund the
remaining Class A Required Amount. If such Excess Spread and Excess Finance
Charge Collections and amounts, if any, on deposit
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in the Cash Collateral Account are insufficient to fund the Class A Required
Amount, collections of Principal Receivables allocable to the Collateral
Interest for the related Due Period ("Reallocated Principal Collections") will
then be used to fund the remaining Class A Required Amount which will have the
effect of reducing the Collateral Invested Amount. If Reallocated Principal
Collections with respect to the related Due Period, together with Excess
Spread and Excess Finance Charge Collections allocated to Series 1996-Q and
amounts, if any, on deposit in the Cash Collateral Account are insufficient to
fund the Class A Required Amount, then the Collateral Invested Amount will be
reduced by the amount of such excess (but not by more than the Class A
Investor Default Amount for such Distribution Date). In the event that such
reduction would cause the Collateral Invested Amount to be a negative number,
the Collateral Invested Amount will be reduced to zero, and the Class A
Invested Amount will be reduced by the amount by which the Collateral Invested
Amount would have been reduced below zero. Any such reduction in the Class A
Invested Amount will have the effect of slowing or reducing the return of
principal and interest to the Class A Certificateholders. In such case, the
Class A Certificateholders will bear directly the credit and other risks
associated with their interest in the Trust. See "-- Defaulted Receivables;
Rebates and Fraudulent Charges."
Reductions of the Class A Invested Amount will thereafter be reimbursed and
the Class A Invested Amount increased to the extent of Excess Spread and
Excess Finance Charge Collections and Reallocated Principal Collections
available for such purpose on each Distribution Date. See "--Allocation of
Funds Excess Spread-- Excess Finance Charge Collections."
ALLOCATION OF FUNDS
The Servicer shall apply, or shall instruct the Trustee (or the Paying
Agent, in the case of distributions to Class A Certificateholders) to apply,
Class A Available Funds, Collateral Available Funds, Class A Available
Principal Collections and Collateral Principal Collections on each
Distribution Date to make the following distributions from the Collection
Account for such Distribution Date.
Payment of Interest, Fees and Other Items.
(a) An amount equal to the Class A Available Funds with respect to such
Distribution Date will be distributed in the following order of priority:
(i) an amount equal to Class A Monthly Interest for such Distribution
Date, plus the amount of any Class A Monthly Interest previously due
but not paid to the Class A Certificateholders on a prior Distribution
Date, plus any additional interest with respect to interest amounts
that were due but not paid to the Class A Certificateholders on a prior
Distribution Date at a rate equal to the Class A Certificate Rate plus
2% per annum ("Class A Additional Interest"), will be distributed to
the Class A Certificateholders;
(ii) an amount equal to the Monthly Servicing Fee with respect to
Series 1996-Q, for such Distribution Date will be distributed to the
Servicer;
(iii) an amount equal to the Class A Investor Default Amount for such
Distribution Date will be treated as a portion of Class A Available
Principal Collections for such Distribution Date; and
(iv) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "--Excess Spread; Excess
Finance Charges Collections" below;
provided, however, that in the event that there are insufficient funds to
pay in full the amounts distributable pursuant to clauses (i), (ii) and
(iii) above (before giving effect to any Excess Spread or withdrawal from
the Cash Collateral Account, application of Reallocated Principal
Collections or reduction in the Collateral Invested Amount for such
purpose), such amounts shall be paid on a pro rata basis.
(b) An amount equal to the Collateral Available Funds with respect to
such Distribution Date will constitute Excess Spread and will be allocated
and distributed as described under "--Excess Spread; Excess Finance Charge
Collections" below.
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"Class A Available Funds" means, with respect to any Due Period, an amount
equal to the Class A Floating Percentage of the Floating Allocation Percentage
of Collections of Finance Charge Receivables (including any amounts that are
to be treated as Collections of Finance Charge Receivables in accordance with
the Series 1996-Q Supplement).
"Class A Monthly Interest" means, with respect to any Distribution Date, an
amount equal to the product of (i)(A) a fraction, the numerator of which is
the actual number of days in the Interest Period and the denominator of which
is 360, times (B) the Class A Certificate Rate and (ii) the Class A Invested
Amount as of the preceding Record Date; provided, however, with respect to the
first Distribution Date, Class A Monthly Interest shall be equal to the
interest accrued on the Class A Invested Amount at the applicable Class A
Certificate Rates for the Interest Periods from the Series Q Closing Date
through November 14, 1996.
"Collateral Available Funds" means, with respect to any Due Period, an
amount equal to the Collateral Floating Percentage of the Floating Allocation
Percentage of Finance Charge Receivables (including any amounts that are to be
treated as collections of Finance Charge Receivables in accordance with the
Series 1996-Q Supplement).
"Collateral Monthly Interest" means, with respect to any Distribution Date,
an amount equal to the product of (i)(A) a fraction, the numerator of which is
the actual number of days in the Interest Period and the denominator of which
is 360, times (B) the Collateral Rate and (ii) the Collateral Invested Amount
as of the preceding Record Date; provided, however, with respect to the first
Distribution Date, Collateral Monthly Interest shall be equal to the interest
accrued on the initial Collateral Invested Amount at the applicable Collateral
Rates for the Interest Periods from the Series Q Closing Date through November
14, 1996.
"Collateral Rate" means a rate not greater than LIBOR plus 1.00% per annum.
"Excess Spread" means, with respect to any Distribution Date, an amount
equal to the sum of the amounts described in clause (a) (iv) and clause (b)
above under "--Payment of Interest, Fees and Other Items."
Excess Spread; Excess Finance Charge Collections. On each Distribution Date,
the Trustee will apply or cause the Servicer to apply Excess Spread and Excess
Finance Charge Collections allocated to Series 1996-Q with respect to the
related Due Period to make the following distributions in the following order
of priority:
(a) an amount equal to the Class A Required Amount, if any, with respect
to such Distribution Date will be used to fund any deficiency pursuant to
clauses (a) (i), (ii) and (iii) above under "--Payment of Interest, Fees
and Other Items," in that order of priority; provided, however, that no
payment shall be made to fund a deficiency pursuant to such clause (a) (ii)
unless there is a successor Servicer not affiliated with the Seller;
(b) an amount equal to the aggregate amount of Class A Investor Charge-
Offs which have not been previously reimbursed will be treated as a portion
of Class A Available Principal Collections for such Distribution Date as
described under "--Payments of Principal" below;
(c) an amount equal to Collateral Monthly Interest for such Distribution
Date, plus the amount of any Collateral Monthly Interest previously due but
not paid to the Collateral Interest Holder on a prior Distribution Date,
plus any additional interest with respect to amounts that were due but not
paid to the Collateral Interest Holder on a prior Distribution Date at a
rate equal to the Collateral Rate ("Collateral Additional Interest") will
be distributed to the Collateral Interest Holder for application in
accordance with the agreement between the Collateral Interest Holder, the
Seller, the Servicer and the Trustee (the "Loan Agreement");
(d) an amount equal to the Collateral Default Amount for such
Distribution Date shall be treated as a portion of Collateral Principal
Collections with respect to such Distribution Date;
(e) an amount equal to the aggregate amount by which the Collateral
Invested Amount has been reduced pursuant to clauses (b) and (c) of the
definition of "Collateral Invested Amount" under "--
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Allocation Percentages" above (but not in excess of the aggregate amount of
such reductions which have not been previously reimbursed, including
pursuant to the Loan Agreement) will be applied in accordance with the Loan
Agreement;
(f) an amount up to the excess, if any, of the Required Cash Collateral
Amount over the remaining Available Cash Collateral Amount (without giving
effect to any deposit to the Cash Collateral Account made on such date)
shall be deposited into the Cash Collateral Account;
(g) an amount equal to any unpaid portion of the Monthly Servicing Fee
with respect to Series 1996-Q for such Distribution Date, plus the amount
of any such Monthly Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date shall be distributed to the Servicer;
and
(h) the balance shall be applied in accordance with the Loan Agreement.
Payments of Principal. On each Distribution Date, the Trustee will apply or
cause the Servicer to apply Class A Available Principal Collections and
Collateral Principal Collections in the following order of priority:
(a) on each Distribution Date with respect to the Revolving Period for
Series 1996-Q , all such Class A Available Principal Collections which are
not allocated at the option of the Seller as part of Collateral Monthly
Principal to make a payment with respect to the Collateral Interest will be
allocated to the Seller or to other Series;
(b) on each Distribution Date with respect to the Controlled Amortization
Period or the Rapid Amortization Period for Series 1996-Q , all such Class
A Available Principal Collections will be distributed or deposited in the
following order of priority:
(i) an amount equal to Class A Monthly Principal will be paid to the
Class A Certificateholders; and
(ii) the balance, if any, will be paid to the Collateral Interest
Holder, the Seller or to other Series;
(c) on each Distribution Date with respect to the Revolving Period for
Series 1996-Q, Collateral Principal Collections will be distributed or
deposited in the following order of priority:
(i) an amount equal to Collateral Monthly Principal for such
Distribution Date will be applied in accordance with the Loan
Agreement; and
(ii) balance, if any, will be treated as Class A Available Principal
Collections and applied as described in clause (a) above;
(d) on each Distribution Date with respect to the Controlled Amortization
Period for Series 1996-Q, Collateral Principal Collections will be
distributed or deposited in the following priority:
(i) an amount equal to Collateral Monthly Principal will be applied
in accordance with the Loan Agreement; and
(ii) the balance, if any, will be treated as Class A Available
Principal Collections and applied as described in clause (b) above; and
(e) on each Distribution Date with respect to the Rapid Amortization
Period, Collateral Principal Collections will be treated as Class A
Available Principal Collections.
"Class A Available Principal Collections" means, with respect to any
Distribution Date, the sum of (a) the Class A Principal Percentage of the
Invested Percentage of collections of Principal Receivables, (b) the amount,
if any, of Unallocated Principal Collections on deposit in the Collection
Account allocated to the Certificates, (c) Excess Principal Collections
allocated to the Certificates and (d) any other amounts which are to be
treated as Class A Available Principal Collections in accordance with the
Series 1996-Q Supplement.
"Class A Monthly Principal" means, on each Distribution Date beginning with
the earlier to occur of (i) the first Distribution Date to occur with respect
to any Rapid Amortization Period for Series 1996-Q and (ii) the
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first Distribution Date to occur with respect to the Controlled Amortization
Period for Series 1996-Q, an amount equal to Class A Available Principal
Collections; provided, however, that for each Distribution Date with respect
to the Controlled Amortization Period (unless and until a Liquidation Event is
deemed to have occurred), Class A Monthly Principal shall not exceed the
Controlled Amount for such Distribution Date; provided, further, that with
respect to any Distribution Date, Class A Monthly Principal shall not exceed
the Class A Invested Amount.
"Collateral Monthly Principal" means, on each Distribution Date, an amount
calculated as follows:
(i) on any Distribution Date prior to the Distribution Date on which the
Class A Invested Amount is paid in full, the lesser of (A) the sum of (x)
Collateral Principal Collections with respect to such Distribution Date and
(y) Class A Available Principal Collections not applied to Class A Monthly
Principal on such Distribution Date and (B) the Enhancement Surplus on such
Distribution Date; and
(ii) on the Distribution Date on which the Class A Invested Amount is
paid in full, the sum of (A) Collateral Principal Collections with respect
to such Distribution Date and (B) Class A Available Principal Collections
not applied to Class A Monthly Principal on such Distribution Date;
notwithstanding the foregoing, prior to the occurrence of a Liquidation
Event and under certain limited circumstances specified in the Series 1996-
Q Supplement, "Collateral Monthly Principal" shall mean for any applicable
Distribution Date, the sum of (I) Collateral Principal Collections with
respect to such Distribution Date and (II) Class A Available Principal
Collections not applied to Class A Monthly Principal on such Distribution
Date; provided, however, that an amount not less than the Collateral
Monthly Principal as so calculated is deposited into the Cash Collateral
Account on such Distribution Date.
"Collateral Principal Collections" means, with respect to any Due Period,
the Collateral Principal Percentage of the Invested Percentage of Collections
of Principal Receivables, plus any other amounts which are to be treated as
Collateral Principal Collections in accordance with the provisions of the
Series 1996-Q Supplement, minus the amount of Reallocated Principal
Collections with respect to such Due Period applied for the benefit of the
Class A Certificates.
"Controlled Amount" for any Distribution Date with respect to the Controlled
Amortization Period shall mean an amount equal to the sum of the Controlled
Amortization Amount and any existing Deficit Controlled Amortization Amount.
"Deficit Controlled Amortization Amount" means, on the first Distribution
Date with respect to the Controlled Amortization Period for Series 1996-Q, the
excess, if any, of the Controlled Amortization Amount over the amount of Class
A Monthly Principal for such Distribution Date and, on each subsequent
Distribution Date with respect to the Controlled Amortization Period for
Series 1996-Q, the excess, if any, of the Controlled Amount over the amount of
Class A Monthly Principal for such Distribution Date.
Payments to Certificateholders will be made from the Collection Account. In
addition to the amounts deposited in the Collection Account, as described
above, from payments on the Receivables, amounts required for any optional
repurchase or other purchase of the Certificates by the Seller or the proceeds
of any sale of the Receivables will be deposited in the Collection Account.
The paying agent (the "Paying Agent") will initially be FNBC. The Paying
Agent shall have the revocable power to withdraw funds from the Collection
Account for the purposes of making distributions to the Certificateholders.
SHARED COLLECTIONS OF FINANCE CHARGE RECEIVABLES
To the extent that collections of Finance Charge Receivables allocated to
the Certificates are not needed to make payments to Certificateholders or
other payments required in respect of Series 1996-Q, such collections may be
applied to cover shortfalls in amounts payable from collections of Finance
Charge Receivables allocable to certain other Series (including Series 1994-I,
Series 1994-J, Series 1994-K, Series 1994-L, Series 1995-M,
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Series 1995-N, Series 1995-O, Series 1995-P and certain subsequently issued
Series). To the extent collections of Finance Charge Receivables allocated to
certain other Series (including Series 1994-I, Series 1994-J, Series 1994-K,
Series 1994-L, Series 1995-M, Series 1995-N, Series 1995-O, Series 1995-P and
certain subsequently issued Series) are not needed to make payments required
in respect of each such Series, such collections ("Excess Finance Charge
Collections") may be applied to cover shortfalls in amounts payable from
collections of Finance Charge Receivables allocable to Series 1996-Q and to
other Series experiencing shortfalls. There can be no assurance that such
Excess Finance Charge Collections will be available to cover shortfalls in
amounts payable from collections of Finance Charge Receivables allocable to
the Class A Certificates. To the extent Excess Finance Charge Collections are
also allocated to other Series, the pro rata share of such Excess Finance
Charge Collections available to the Class A Certificates will be reduced.
SHARED COLLECTIONS OF PRINCIPAL RECEIVABLES
To the extent that collections of Principal Receivables allocated to the
Certificates are not needed to make payments to the Certificateholders, such
collections may be applied to cover principal payments due to or for the
benefit of any other Series. Any such application of collections will not
result in a reduction of the Invested Amount of the Certificates.
Similarly, certain collections of Principal Receivables allocated to other
Series (including Series 1993-F, Series 1993-G, Series 1993-H, Series 1994-I,
Series 1994-J, Series 1994-K, Series 1994-L, Series 1995-M, Series 1995-N,
Series 1995-O, Series 1995-P and certain subsequently issued Series), to the
extent such collections are not needed to make payments to or for the benefit
of such other Series ("Excess Principal Collections"), will be applied, if
necessary, to cover Class A Monthly Principal due to Class A
Certificateholders (and Collateral Monthly Principal due to the Collateral
Interest Holder). There can be no assurance that such Excess Principal
Collections will be available to cover Class A Monthly Principal due on any
Distribution Date. Such Excess Principal Collections may also be allocated to
other Series (including Series 1993-F, Series 1993-G, Series 1993-H, Series
1994-I, Series 1994-J, Series 1994-K, Series 1994-L, Series 1995-M, Series
1995-N, Series 1995-O, Series 1995-P and certain subsequently issued Series).
To the extent such Excess Principal Collections are also allocated to other
Series, the pro rata share of such Excess Principal Collections allocated to
the Certificates will be reduced.
THE CASH COLLATERAL ACCOUNT
The Trust will have the benefit of the Cash Collateral Account, which will
be held with the trust department of The First National Bank of Chicago for
the benefit of the Certificateholders. Funds on deposit in the Cash Collateral
Account will be invested in Eligible Investments.
The Cash Collateral Account will have an initial Available Cash Collateral
Amount of $10,285,714. On each Distribution Date, the amount available to be
withdrawn from the Cash Collateral Account (the "Available Cash Collateral
Amount") will be equal to the lesser of (i) the amount on deposit in the Cash
Collateral Account (before giving effect to any deposit to, or withdrawal
from, the Cash Collateral Account on such Distribution Date) and (ii) the
Required Cash Collateral Amount. The "Required Cash Collateral Amount" means,
on any date of determination, the Required Enhancement Amount less the
Collateral Invested Amount. The "Required Enhancement Amount" with respect to
any Distribution Date means the greater of (i) the product of (a) the Invested
Amount related to such Distribution Date and (b) 13.5% and (ii) the sum of (a)
$10,285,714 and (b) the product of (I) two and (II) the excess, if any, of
$10,285,714 over the amount on deposit in the Cash Collateral Account with
respect to such Distribution Date; provided, however, that (i) if any
withdrawal is made from the Cash Collateral Account in respect of the Class A
Required Amount or if a Liquidation Event occurs or if there are certain
reductions in the Collateral Invested Amount, the Required Enhancement Amount
for such Distribution Date shall equal the Required Enhancement Amount for the
Distribution Date immediately preceding the occurrence of such withdrawal,
such Liquidation Event or such reduction, (ii) in no event shall the Required
Enhancement Amount exceed the Class A Invested Amount on any such date, and
(iii) the Required Enhancement Amount may be reduced without the consent of
the Certificateholders, if the Seller shall have
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received written notice from each Rating Agency that such reduction will not
result in the reduction or withdrawal of the then current rating of any of the
Certificates for which such Rating Agency furnishes a rating and the Seller
shall have delivered to the Trustee a certificate of an authorized officer to
the effect that, based on the facts known to such officer at such time, in the
reasonable belief of the Seller, such reduction will not cause a Liquidation
Event or an event that, after the giving of notice or the lapse of time, would
constitute a Liquidation Event to occur.
For each Distribution Date, a withdrawal may be made from the Cash
Collateral Account in an amount up to the lesser of (i) the sum of the Class A
Required Amount and any unreimbursed Class A Investor Charge-Offs (to the
extent such sum has not been paid from Excess Spread and Excess Finance Charge
Collections allocated to Series 1996-Q) and (ii) the Available Cash Collateral
Amount, to fund the unpaid portion of the Class A Required Amount and
unreimbursed Class A Investor Charge-Offs.
Under certain circumstances specified in the Loan Agreement, the Seller will
have the option to elect to deposit certain amounts held pursuant to the Loan
Agreement into the Cash Collateral Account, which will result in a reduction
of the Collateral Invested Amount. Any such election will have the effect of
converting all or a portion of the Enhancement in the form of the Collateral
Invested Amount into Enhancement in the form of amounts on deposit in the Cash
Collateral Account. The amount of such reduction of the Collateral Invested
Amount for any given Distribution Date will not exceed the Collateral Monthly
Principal.
In addition, under certain limited circumstances specified in the Series
1996-Q Supplement and prior to the occurrence of a Liquidation Event, the
Seller may elect to deposit Collateral Monthly Principal (as determined in
accordance with clauses (I) and (II) of the definition thereof appearing under
"--Allocation of Funds" above) into the Cash Collateral Account, which will
result in a reduction of the Collateral Invested Amount. Any such election
will have the effect of converting all or a portion of the Enhancement in the
form of the Collateral Invested Amount into Enhancement in the form of amounts
on deposit in the Cash Collateral Account.
On each Distribution Date, the Servicer or the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread and Excess Finance
Charge Collections to the extent described above under "--Allocation of
Funds--Excess Spread; Excess Finance Charge Collections" to increase the
amount on deposit in the Cash Collateral Account to the extent such amount is
less than the Required Cash Collateral Amount. In addition, if on any
Distribution Date, after taking into account all distributions, deposits and
withdrawals to be made for such date, the amount on deposit in the Cash
Collateral Account and the Collateral Invested Amount exceeds the Required
Enhancement Amount for the next succeeding Distribution Date, the Collateral
Invested Amount may be reduced. The amount of such reduction will not exceed
the Collateral Monthly Principal for such Distribution Date.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
The term "Investor Default Amount" means, for any Due Period, the product of
the Floating Allocation Percentage for such Distribution Date and the amount
of Defaulted Receivables.
A portion of the Investor Default Amount will be allocated to the Class A
Certificateholders (the "Class A Investor Default Amount") on each
Distribution Date in an amount equal to the product of the Class A Floating
Percentage for such Distribution Date and the Investor Default Amount. An
amount equal to the Class A Investor Default Amount will be paid from Class A
Available Funds, Excess Spread and Excess Finance Charge Collections allocated
to Series 1996-Q or from amounts, if any, on deposit in the Cash Collateral
Account and Reallocated Principal Collections and applied as described above
under "--Allocation of Funds--Payments of Interest, Fees and Other Items" and
"--Reallocation of Collections."
On each Distribution Date, if the Class A Investor Default Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charge
Collections allocable to Series 1996-Q, amounts, if any, on deposit in the
Cash Collateral Account and Reallocated Principal Collections, the Collateral
Invested Amount (to
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the extent not already reduced as a result of a Collateral Charge-Off with
respect to such Distribution Date) will be reduced by the amount of such
excess, but not by more than the Class A Investor Default Amount for such
Distribution Date. In the event that such reduction would cause the Collateral
Invested Amount to be a negative number, the Collateral Invested Amount will
be reduced to zero, and the Class A Invested Amount will be reduced by the
amount by which the Collateral Invested Amount would have been reduced below
zero (a "Class A Investor Charge-Off"), which will have the effect of slowing
or reducing the return of principal to the Class A Certificateholders. If the
Class A Invested Amount has been reduced by the amount of any Class A Investor
Charge-Offs, it will thereafter be increased on any Distribution Date (but not
by an amount in excess of the aggregate unreimbursed Class A Investor Charge-
Offs) by the amount of Excess Spread and Excess Finance Charge Collections
allocated to Series 1996-Q and available for such purpose as described under
"--Allocation of Funds--Excess Spread; Excess Finance Charge Collections."
A portion of the Investor Default Amount will be allocated to the Collateral
Interest Holder (the "Collateral Default Amount") on each Distribution Date in
an amount equal to the product of the Collateral Floating Percentage for such
Distribution Date and the Investor Default Amount. On each Distribution Date,
if the Collateral Default Amount exceeds the Excess Spread and Excess Finance
Charge Collections allocable to Series 1996-Q and available to cover such
amount as described above under "--Allocation of Funds--Excess Spread; Excess
Finance Charge Collections," the Collateral Invested Amount will be reduced by
the amount of such excess (a "Collateral Charge-Off"). If the Collateral
Invested Amount has been reduced by the amount of any Collateral Charge-Offs,
the Collateral Interest Holder will thereafter be reimbursed for such
Collateral Charge-Offs on any Distribution Date (but not by an amount in
excess of the aggregate unreimbursed Collateral Charge-Offs) by the amount of
Excess Spread and Excess Finance Charge Collections allocated to Series 1996-Q
and available for such purpose as described under "--Allocation of Funds--
Excess Spread; Excess Finance Charge Collections."
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF TRUST
The Class A Certificates will be subject to optional repurchase by the
Seller on any Distribution Date on or after which the Invested Amount is
reduced to an amount less than or equal to 5% of the Initial Invested Amount,
unless certain events of bankruptcy, insolvency or receivership have occurred
with respect to the Seller. The repurchase price of the Certificates will be
equal to the Invested Amount plus accrued and unpaid interest on the
Certificates through, and including, the day preceding the Distribution Date
with respect to which the repurchase occurs. In any event, the last payment of
principal and interest on the Certificates will be due and payable no later
than the April 2003 Distribution Date. In the event that the Invested Amount
is greater than zero on the April 2003 Distribution Date, the Trustee will
sell or cause to be sold interests in the Receivables or certain Receivables,
as specified in the Agreement and the Series 1996-Q Supplement, in an amount
up to 110% of the Invested Amount of the Certificates at the close of business
on such date (but not more than the total amount of Receivables allocable to
the Certificates). The net proceeds of such sale and any collections on the
Receivables will be paid, pro rata to the Class A Certificateholders, then to
the Collateral Interest Holder, on the Series Termination Date, as final
payment of the Certificates.
LIQUIDATION EVENTS
The Revolving Period for Series 1996-Q will continue through the end of the
January 2001 Due Period and the Controlled Amortization Period will begin at
such time, unless a Liquidation Event occurs. A Rapid Amortization Period will
commence at the beginning of the Due Period during which a Liquidation Event
occurs or is deemed to occur. A Liquidation Event with respect to the
Certificates refers to any of the following events:
(i) failure on the part of the Seller (a) to make any payment or deposit
on the date required under the Agreement or the Series 1996-Q Supplement
(or within the applicable grace period which will not exceed five business
days), (b) duly to observe or perform in any material respect the covenant
of the Seller not to sell, pledge, assign or transfer to any person, or
grant any unpermitted lien on, any Receivable, or (c) duly
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to observe or perform in any material respect any other covenants or
agreements of the Seller, which in the case of subclause (c) hereof,
continues unremedied for a period of 60 days after written notice;
(ii) any representation or warranty made by the Seller in the Agreement
or the Series 1996-Q Supplement or any information required to be given by
the Seller to the Trustee to identify the Accounts proves to have been
incorrect in any material respect when made and continues to be incorrect
in any material respect for a period of 60 days after written notice and as
a result of which the interests of the Certificateholders are materially
and adversely affected; provided, however, that a Liquidation Event
described in this clause (ii) shall not be deemed to occur if the Seller
has accepted the transfer of the related Receivable or all such
Receivables, if applicable, during such period (or such longer period as
the Trustee may specify) in accordance with the provisions thereof;
(iii) certain events of insolvency, conservatorship or receivership
relating to the Seller;
(iv) the average Portfolio Yield for any three consecutive Due Periods is
less than the average of the Base Rates for the related Interest Periods;
(v) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(vi) after any applicable grace period, a failure by the Seller to convey
Additional Accounts to the Trust when required by the Agreement;
(vii) the Class A Invested Amount is not paid in full on the Class A
Expected Final Distribution Date; or
(viii) any Servicer Default occurs which would have a material adverse
effect on the Certificateholders.
In the case of any event described in clause (i), (ii) or (viii), a
Liquidation Event will be deemed to have occurred with respect to any Series
only if, after any applicable grace period described in such clauses, either
the Trustee or Certificateholders of such Series evidencing undivided
interests aggregating not less than 50% of the Invested Amount of such Series,
by written notice to the Seller and the Servicer (and to the Trustee, if given
by such Certificateholders) declare that a Liquidation Event has occurred as
of the date of such notice. In the case of any event described in clause (iii)
or (v), a Liquidation Event with respect to all Series, and in the case of any
event described in clause (iv), (vi) or (vii), a Liquidation Event with
respect to only Series 1996-Q, will be deemed to have occurred without any
notice or other action on the part of the Trustee or the applicable
Certificateholders immediately upon the occurrence of such event. The Rapid
Amortization Period for Series 1996-Q will commence on the first day of the
Due Period in which a Liquidation Event occurs or is deemed to occur. Monthly
distributions of principal to the Class A Certificateholders will begin (if
they have not already begun) on the first Distribution Date following such Due
Period in the manner described herein. See "--Allocation of Funds." Thus,
Class A Certificateholders may begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the final maturity
of the Class A Certificates. If a Liquidation Event occurs and the FDIC is
appointed as the receiver for the Bank and no Liquidation Event other than
such receivership or insolvency exists, the FDIC may have the power to prevent
commencement of the Rapid Amortization Period.
In addition to the consequences of a Liquidation Event discussed above, if
pursuant to certain provisions of Federal law, the Seller voluntarily goes
into liquidation or the FDIC or any other person is appointed a receiver or
conservator of the Seller, on the day of such appointment the Seller will
immediately cease to transfer Principal Receivables to the Trust and promptly
give notice to the Trustee of such appointment. Within 15 days, the Trustee
will publish a notice of the liquidation or the appointment stating that the
Trustee intends to sell, dispose of or otherwise liquidate the Receivables in
a commercially reasonable manner and to the best of its ability. Unless
otherwise instructed within a specified period by certificateholders
representing undivided interests aggregating more than 50% of the invested
amount of any Preexisting Series, the Trustee will sell, dispose of or
otherwise liquidate the Receivables of all Series in a commercially reasonable
manner and on commercially reasonable terms. Furthermore, even if the
Receivables are not sold pursuant to the preceding
S-35
<PAGE>
sentence, with respect to Series 1995-M, Series 1995-N, Series 1995-O, Series
1995-P, Series 1996-Q and any subsequently or contemporaneously issued Series,
unless otherwise instructed within a specified period by holders representing
undivided interests aggregating more than 50% of the invested amount of each
Preexisting Series and each class of each such Series (including a majority in
interest in each collateral interest) (unless otherwise specified in the
related Supplement), each holder of an interest in the First Chicago Interest
and any other person specified in any Supplement, the Trustee will sell,
dispose of or otherwise liquidate the portion of the Receivables allocable to
all Series other than the Preexisting Series in a commercially reasonable
manner and on commercially reasonable terms in accordance with the Agreement.
The proceeds from the sale, disposition or liquidation of the Receivables will
be treated as collections on the Receivables and such proceeds will be
distributed to the applicable certificateholders. See "Certain Legal Aspects
of the Receivables--Certain Matters Relating to Receivership" in the
Prospectus for a discussion of how Federal legislation may affect the
Trustee's ability to liquidate the Receivables.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The portion of the Servicing Fee allocable to Series 1996-Q on each
Distribution Date (the "Monthly Servicing Fee") generally will be equal to
1/12 of the product of (a) 2.00% per annum and (b) the Invested Amount with
respect to the related Due Period. A portion of the Monthly Servicing Fee
equal to 1/12 of the product of 1.25% per annum and the Invested Amount with
respect to the related Due Period will be paid solely from Interchange
allocable to Series 1996-Q, before such Interchange is used for any other
purpose. A portion of the Monthly Servicing Fee equal to 1/12 of the product
of 0.75% per annum and the Invested Amount with respect to the related Due
Period will be paid from collections of Finance Charge Receivables allocable
to the Certificates. The remaining portion of the Servicing Fee will be
allocable to the First Chicago Interest or to other Series. The Monthly
Servicing Fee will be paid each month from the Collection Account; provided,
however, that in the event there are insufficient collections of Finance
Charge Receivables (excluding amounts payable from Excess Spread or the Cash
Collateral Account) available to make the distribution of the Class A Monthly
Interest, the Class A Investor Default Amount and the portion of the Monthly
Servicing Fee payable from such funds, such Class A Monthly Interest, Class A
Investor Default Amount and Monthly Servicing Fee will be paid on a pro rata
basis to the extent of such funds. If a successor Servicer has been appointed,
Excess Spread may be used, and withdrawals from the Cash Collateral Account
may be made, if there are insufficient collections of Finance Charge
Receivables available to the Certificates to pay the portion of the Monthly
Servicing Fee of such successor Servicer payable from such funds.
REPORTS TO CLASS A CERTIFICATEHOLDERS
On each Distribution Date, there will be forwarded to each Class A
Certificateholder of record a statement (the "Monthly Servicer Report")
prepared by the Servicer setting forth: (i) the total amount distributed with
respect to the Class A Certificates; (ii) the amount of the distribution on
such Distribution Date allocable to principal; (iii) the amount of such
distribution allocable to interest; (iv) the amount of collections processed
during the preceding Due Period and allocated in respect of the Certificates;
(v) the Invested Amount, the Class A Invested Amount, the Collateral Invested
Amount, the Class A Floating Percentage, the Class A Principal Percentage and
the Invested Percentages; (vi) the aggregate outstanding balance of Accounts
which are 30 days or more delinquent as of the close of business at the end of
the preceding Due Period; (vii) the Investor Default Amount and the Class A
Investor Default Amount for such Distribution Date; (viii) the amount of Class
A Investor Charge-Offs for such Distribution Date and the amount of
reimbursements of such Class A Investor Charge-Offs; (ix) the amount of the
Monthly Servicing Fee for such Distribution Date; (x) the Available Cash
Collateral Amount and the Collateral Invested Amount at the close of business
on such Distribution Date; (xi) the Class A Required Amount, if any, for such
Distribution Date; (xii) the amount of Excess Spread and Reallocated Principal
Collections, if any, available with respect to such Distribution Date; (xiii)
the amount, if any, by which the principal balance of the Class A Certificates
exceeds the Class A Invested Amount as of the end of the day on the Record
Date; (xiv) the "pool factor" as of the end of the related Record Date
(consisting
S-36
<PAGE>
of an eight-digit decimal expressing the ratio of the Class A Invested Amount
to the Class A Initial Invested Amount); and (xv) the existing Deficit
Controlled Amortization Amount.
On or before January 31 of each calendar year, beginning with 1997, there
will be furnished to each person who at any time during the preceding calendar
year was a Class A Certificateholder of record (or, if so provided in
applicable Treasury regulations, made available to Certificate Owners) a
statement prepared by the Servicer containing the information required to be
provided by an issuer of indebtedness under the Code for such calendar year or
the applicable portion thereof during which such person was a Class A
Certificateholder, together with such other customary information as the
Servicer deems necessary or desirable to enable the Class A Certificateholders
to prepare their tax returns. See "Tax Matters" in the Prospectus.
S-37
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated September 13, 1996 and a Terms Agreement dated September 13, 1996 (such
agreements, collectively, the "Underwriting Agreement") between the Seller and
the underwriters named below (collectively, the "Underwriters"), the Seller
has agreed to sell to each of the Underwriters named below, and each of the
Underwriters has severally agreed to purchase, the principal amount of Class A
Certificates as set forth opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A
UNDERWRITERS CERTIFICATES
------------ ------------
<S> <C>
Salomon Brothers Inc......................................... $150,000,000
First Chicago Capital Markets, Inc. ......................... $150,000,000
Chase Securities Inc. ....................................... $150,000,000
CS First Boston Corporation.................................. $150,000,000
Lehman Brothers Inc. ........................................ $150,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................ $150,000,000
------------
Total...................................................... $900,000,000
</TABLE> ============
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Class A
Certificates offered hereby if any Class A Certificates are purchased. In the
event of a default by any Underwriter, the Underwriting Agreement provides
that, in certain circumstances, purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Seller has been advised by the several Underwriters that the several
Underwriters propose initially to offer the Class A Certificates to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such price less a concession not in
excess of 0.200% of the principal amount of the Class A Certificates.
Underwriters may allow and such dealers may reallow a concession not in excess
of 0.150% of such principal amount.
The Underwriting Agreement provides that the Seller will indemnify the
several Underwriters against certain liabilities, including liabilities under
applicable securities laws, or contribute to payments the several Underwriters
may be required to make in respect thereof.
First Chicago Capital Markets, Inc. ("FCCM") is an affiliate of the Seller.
Any obligations of FCCM are the sole obligations of FCCM and do not create any
obligations on the part of any affiliate of FCCM.
FCCM may from time to time purchase or acquire a position in the Class A
Certificates and may, at its option, hold or resell such Class A Certificates.
FCCM expects to offer and sell previously issued Class A Certificates in the
course of its business as a broker-dealer. FCCM may act as a principal or
agent in such transactions. The accompanying Prospectus and this Prospectus
Supplement may be used by FCCM in connection with such transactions. Such
sales, if any, will be made at varying prices related to prevailing market
prices at the time of sale.
S-38
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Available Cash Collateral Amount................................. S-32
Available Enhancement Amount..................................... S-11
Bank............................................................. S-1, S-4
Bank's Portfolio................................................. S-14
Base Rate........................................................ S-22
Call Report...................................................... S-21
Cash Collateral Account.......................................... S-10
Cede............................................................. S-7
Cedel............................................................ S-7
Certificate Owners............................................... S-25
Certificateholders............................................... S-3
Certificates..................................................... S-1, S-3
Class A Additional Interest...................................... S-28
Class A Available Funds.......................................... S-29
Class A Available Principal Collections.......................... S-22, S-30
Class A Certificateholders....................................... S-1
Class A Certificate Rate......................................... S-3
Class A Certificates............................................. S-1, S-3
Class A Expected Final Distribution Date......................... S-3, S-22
Class A Floating Percentage...................................... S-5, S-26
Class A Initial Invested Amount.................................. S-3
Class A Invested Amount.......................................... S-26
Class A Investor Charge-Off...................................... S-11, S-34
Class A Investor Default Amount.................................. S-11, S-33
Class A Monthly Interest......................................... S-29
Class A Monthly Principal........................................ S-30
Class A Principal Percentage..................................... S-6, S-26
Class A Required Amount.......................................... S-27
Code............................................................. S-13
Collateral Additional Interest................................... S-29
Collateral Available Funds....................................... S-29
Collateral Charge-Off............................................ S-34
Collateral Default Amount........................................ S-34
Collateral Floating Percentage................................... S-26
Collateral Initial Invested Amount............................... S-3
Collateral Interest.............................................. S-1
Collateral Interest Holder....................................... S-4
Collateral Invested Amount....................................... S-5, S-26
Collateral Monthly Interest...................................... S-29
Collateral Monthly Principal..................................... S-31
Collateral Principal Collections................................. S-31
Collateral Principal Percentage.................................. S-26
Collateral Rate.................................................. S-29
Controlled Amortization Amount................................... S-3
Controlled Amortization Date..................................... S-9, S-25
Controlled Amortization Period................................... S-9
Controlled Amount................................................ S-31
Deficit Controlled Amortization Amount........................... S-31
Distribution Date................................................ S-2, S-3, S-24
DTC.............................................................. S-7, S-25
Enhancement Surplus.............................................. S-12
ERISA............................................................ S-13
Euroclear........................................................ S-7
Excess Finance Charge Collections................................ S-32
Excess Principal Collections..................................... S-32
</TABLE>
S-39
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Excess Spread........................................................ S-29
Expected Initial Principal Payment Date.............................. S-3
FCCM................................................................. S-1,S-38
FDIC................................................................. S-7
First Chicago Interest............................................... S-5
First Chicago NBD.................................................... S-4
First Chicago Percentage............................................. S-27
Fixed Allocation Percentage.......................................... S-6, S-26
Floating Allocation Percentage....................................... S-5, S-25
Initial Cash Collateral Amount....................................... S-10
Initial Invested Amount.............................................. S-3, S-5
Interest Period...................................................... S-7
Invested Amount...................................................... S-5, S-26
Invested Percentage.................................................. S-26
Investor Default Amount.............................................. S-11, S-33
LIBOR................................................................ S-2, S-24
LIBOR Determination Date............................................. S-24
Liquidation Event.................................................... S-9, S-22
Loan Agreement....................................................... S-29
Monthly Servicer Report.............................................. S-36
Monthly Servicing Fee................................................ S-36
Participants......................................................... S-25
Paying Agent......................................................... S-31
Portfolio Yield...................................................... S-22
Rapid Amortization Period............................................ S-9
Reallocated Principal Collections.................................... S-5, S-28
Receivables.......................................................... S-1
Record Date.......................................................... S-24
Reference Banks...................................................... S-24
Required Cash Collateral Amount...................................... S-32
Required Enhancement Amount.......................................... S-11, S-32
Revolving Period..................................................... S-8
Seller............................................................... S-4
Series............................................................... S-3
Series Q Closing Date................................................ S-3
Series 1996-Q ....................................................... S-3
Series 1996-Q Supplement............................................. S-23
Series Termination Date.............................................. S-3
Telerate Page 3750................................................... S-24
Trust................................................................ S-1, S-3
Trustee.............................................................. S-4
Underwriters......................................................... S-38
Underwriting Agreement............................................... S-38
</TABLE>
S-40
<PAGE>
ANNEX I
PRIOR ISSUANCES OF CERTIFICATES
The table below sets forth the principal characteristics of the 13 Series
heretofore issued by the Trust that are currently outstanding. For more
specific information with respect to any Series, any prospective investor
should contact First Chicago NBD. First Chicago NBD will provide, without
charge, to any prospective purchaser of the Certificates, a copy of the
Disclosure Document for any previous publicly-issued Series. Requests should
be addressed to First Chicago NBD Corporation, One First National Plaza,
Chicago, Illinois 60670, Attention: Investor Relations (312) 732-4812.
SERIES 1991-D
Initial Principal Amount.......... $1,000,000,000
Certificate Rate.................. 8.40%
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $250,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $83,333,333.33
Controlled Amortization Date...... First day of the Due Period
relating to the January 1996
Distribution Date
Monthly Servicing Fee............. 2.00%
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $40,000,000
Minimum First Chicago Interest 7%
Percentage........................
Series Termination Date........... June 1998 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $50,000,000
SERIES 1992-E
Initial Principal Amount.......... $1,000,000,000
Certificate Rate.................. 6.25%
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $1,000,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount....
$83,333,333.33
Controlled Amortization Date......
First day of the Due Period
relating to the March 1997
Distribution Date
A-1
<PAGE>
Monthly Servicing Fee............. 2.00%
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $120,000,000
Minimum First Chicago Interest 7%
Percentage........................
Series Termination Date........... August 1999 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $50,000,000
SERIES 1993-F
Initial Principal Amount.......... $700,000,000
Certificate Rate.................. LIBOR plus a spread of 0.30% per
annum, but in no event in excess
of 12% per annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $700,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $58,333,333.33
Controlled Amortization Date...... First day of the Due Period
relating to the January 1998
Distribution Date
Monthly Servicing Fee............. 2.10% (of which 1.60% is payable
solely from Interchange
allocable to Series 1993-F)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $91,000,000
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... February 2000 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $35,000,000
SERIES 1993-G
Initial Principal Amount.......... $300,000,000
Certificate Rate.................. LIBOR plus a spread of 0.18% per
annum, but in no event in excess
of 12% per annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $75,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
A-2
<PAGE>
Controlled Amortization Amount.... $25,000,000
Controlled Amortization Date...... First day of the Due Period
relating to the January 1996
Distribution Date
Monthly Servicing Fee............. 2.10% (of which 1.60% is payable
solely from Interchange
allocable to Series 1993-G)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $13,000,000
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... February 1998 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $15,000,000
SERIES 1993-H
Initial Principal Amount.......... $700,000,000
Certificate Rate.................. LIBOR plus a spread of 0.20% per
annum, but in no event in excess
of 12% per annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $700,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $58,333,333.33
Controlled Amortization Date...... First day of the Due Period
relating to the March 1998
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1993-H)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $91,000,000
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... April 2000 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $35,000,000
SERIES 1994-I
Initial Principal Amount.......... $500,000,000
Certificate Rate.................. LIBOR plus a spread of 0.17% per
annum, but in no event in excess
of 11% per annum
Scheduled Interest Payment Dates..
The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
A-3
<PAGE>
Current Principal Amount.......... $500,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $41,666,666.67
Controlled Amortization Date...... First day of the Due Period
relating to the December 1996
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1994-I)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $62,500,000
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... January 1999 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $25,000,000
SERIES 1994-J
Initial Principal Amount.......... $500,000,000
Certificate Rate.................. LIBOR plus a spread of 0.22% per
annum, but in no event in excess
of 12% per annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $500,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $41,666,666.67
Controlled Amortization Date...... First day of the Due Period
relating to the December 1998
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1994-J)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $65,000,000
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... January 2001 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $25,000,000
A-4
<PAGE>
SERIES 1994-K
Initial Principal Amount.......... $500,000,000
Certificate Rate.................. LIBOR plus a spread of 0.1875%
per annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $500,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $41,666,666.67
Controlled Amortization Date...... First day of the Due Period
relating to the March 1999
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1994-K)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $72,500,000
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... April 2001 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $25,000,000
SERIES 1994-L
Initial Principal Amount.......... $500,000,000
Certificate Rate.................. 7.15% per annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $500,000,000
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount.... $41,666,666.67
Controlled Amortization Date...... First day of the Due Period
relating to the March 1999
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1994-L)
Enhancement....................... Cash Collateral Account
Remaining Cash Collateral Amount.. $57,500,000
Minimum First Chicago Interest
Percentage........................ 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date...........
April 2001 Distribution Date
A-5
<PAGE>
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $25,000,000
SERIES 1995-M
Initial Principal Amount.......... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate.......... LIBOR plus a spread of 0.24% per
annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $571,428,572
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Class A Controlled Amortization $41,666,666.67
Amount............................
Class A Controlled Amortization First day of the Due Period
Date.............................. relating to the November 2001
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1995-M)
Enhancement....................... Collateral Interest and Cash
Collateral Account
Initial Collateral Invested $71,428,572
Amount............................
Initial Cash Collateral Amount.... $5,714,286
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... December 2003 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $28,571,428
SERIES 1995-N
Initial Principal Amount.......... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate.......... LIBOR plus a spread of 0.16% per
annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $571,428,572
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Class A Controlled Amortization $41,666,666.67
Amount............................
Class A Controlled Amortization First day of the Due Period
Date.............................. relating to the November 1998
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1995-N)
Enhancement.......................
Collateral Interest and Cash
Collateral Account
Initial Collateral Invested
Amount............................ $71,428,572
A-6
<PAGE>
Initial Cash Collateral Amount.... $5,714,286
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... December 2000 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $28,571,428
SERIES 1995-O
Initial Principal Amount.......... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate.......... LIBOR plus a spread of 0.23% per
annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $571,428,572
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Class A Controlled Amortization $41,666,666.67
Amount............................
Class A Controlled Amortization First day of the Due Period
Date.............................. relating to the January 2002
Distribution Date
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1995-O)
Enhancement....................... Collateral Interest and Cash
Collateral Account
Initial Collateral Invested $71,428,572
Amount............................
Initial Cash Collateral Amount.... $5,714,286
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... February 2004 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $28,571,428
SERIES 1995-P
Initial Principal Amount.......... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate.......... LIBOR plus a spread of 0.18% per
annum
Scheduled Interest Payment Dates.. The fifteenth day of each month
(or, if such day is not a
business day, the next
succeeding business day)
Current Principal Amount.......... $571,428,572
Invested Percentage of Principal Principal Amount at the end of
Receivables....................... the Revolving Period divided by
the greater of Aggregate
Principal Receivables or the sum
of all numerators specified for
all Series in respect of
Principal Receivables
Class A Controlled Amortization
Amount............................
$41,666,666.67
Class A Controlled Amortization
Date.............................. First day of the Due Period
relating to the January 2000
Distribution Date
A-7
<PAGE>
Monthly Servicing Fee............. 2.00% (of which 1.25% is payable
solely from Interchange
allocable to Series 1995-P)
Enhancement....................... Collateral Interest and Cash
Collateral Account
Initial Collateral Invested $71,428,572
Amount............................
Initial Cash Collateral Amount.... $5,714,286
Minimum First Chicago Interest 7% (or such lower percentage
Percentage........................ acceptable to the Rating
Agencies)
Series Termination Date........... February 2002 Distribution Date
Repurchase Terms.................. Optional repurchase by the Seller
on any Distribution Date on or
after the Invested Amount is
reduced to an amount less than
or equal to $28,571,428
A-8
<PAGE>
PROSPECTUS
FIRST CHICAGO MASTER TRUST II
ASSET BACKED CERTIFICATES
FCC NATIONAL BANK, SELLER AND SERVICER
The Asset Backed Certificates (collectively, the "Certificates") described
herein may be sold from time to time in one or more series (each, a "Series"),
in amounts, at prices and on terms to be determined at the time of sale and
which are set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each of the Certificates will evidence an undivided interest in
the First Chicago Master Trust II (the "Trust") created pursuant to a Pooling
and Servicing Agreement between FCC National Bank, as seller and servicer (the
"Bank"), and Norwest Bank Minnesota, National Association, as trustee. The
Trust assets include receivables (the "Receivables") generated from time to
time in the ordinary course of business in a portfolio of consumer revolving
credit card accounts and any Enhancements, as more fully described herein and,
with respect to any Series offered hereby, in the related Prospectus
Supplement. The Bank owns the remaining interest in the Trust not represented
by any Series. Certain capitalized terms used herein are defined elsewhere in
this Prospectus. A listing of the pages on which such terms are defined is
found in the "Index of Terms for Prospectus" beginning on page 63.
Each Series will consist of one or more classes of Certificates (each, a
"Class"), as specified in the related Prospectus Supplement. The interest of
the Certificateholders of each Class or Series will include the right to
receive a varying percentage of collections with respect to the Receivables at
the times, in the manner and to the extent described herein and, with respect
to any Series offered hereby, in the related Prospectus Supplement. Interest
and principal payments with respect to each Series offered hereby will be made
as specified in the related Prospectus Supplement. One or more Classes of a
Series offered hereby may be entitled to the benefits of a form of Enhancement
as specified in the related Prospectus Supplement. In addition, any Series
offered hereby may include one or more Classes which are subordinated in right
and priority to payment of principal of, and/or interest on, one or more other
Classes of such Series or another Series, in each case to the extent described
in the related Prospectus Supplement. Each Series of Certificates or Class
thereof offered hereby will be rated in one of the four highest rating
categories by at least one nationally recognized rating organization.
While the specific terms of any Series in respect of which this Prospectus is
being delivered are described in the related Prospectus Supplement, the terms
of such Series are not subject to prior review by, or consent of, the
Certificateholders of any previously issued Series.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE 15 HEREIN.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE BANK OR ANY AFFILIATE THEREOF EXCEPT TO THE
LIMITED EXTENT DESCRIBED HEREIN. NEITHER THE CERTIFICATES, THE UNDERLYING
ACCOUNTS, THE RECEIVABLES NOR ANY COLLECTIONS THEREON ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Certificates may be sold by the Bank directly to purchasers, through agents
designated from time to time, through underwriting syndicates led by one or
more managing underwriters or through one or more underwriters acting alone.
If underwriters or agents are involved in the offering of the Certificates of
any Series offered hereby, the name of the managing underwriter or
underwriters or agents is set forth in the related Prospectus Supplement. If
an underwriter, agent or dealer is involved in the offering of the
Certificates of any Series offered hereby, the underwriter's discount, agent's
commission or dealer's purchase price is set forth in, or may be calculated
from, the related Prospectus Supplement, and the net proceeds to the Bank from
such offering will be the public offering price of such Certificates less such
discount in the case of an underwriter, the purchase price of such
Certificates less such commission in the case of an agent or the purchase
price of such Certificates in the case of a dealer, and less, in each case,
the other expenses of the Bank associated with the issuance and distribution
of such Certificates. An affiliate of the Bank may, from time to time, act as
agent or underwriter in connection with the sale of Certificates. See "Plan of
Distribution."
This Prospectus and applicable Prospectus Supplement may be used by First
Chicago Capital Markets, Inc. ("FCCM"), an affiliate of the Bank, in
connection with offers and sales related to secondary market transactions in
the Certificates. FCCM may act as principal or agent in such transactions.
Such sales will be made at prices related to the prevailing market prices at
the time of sale.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF ANY SERIES OF
CERTIFICATES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
The date of this Prospectus is September 10, 1996.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series to be offered thereby and
hereby, among other things, sets forth with respect to such Series: (a) the
initial aggregate principal amount of each Class of such Series; (b) the
certificate interest rate (or method for determining it) of each Class of such
Series; (c) certain information concerning the Receivables; (d) the expected
date or dates on which the principal amount of the Certificates will be paid
to holders of each Class of Certificates (the "Certificateholders"); (e) the
extent to which any Class within a Series is subordinated to any other Class
of such Series or any other Series; (f) the identity of each Class of floating
rate Certificates and fixed rate Certificates included in such Series, if any,
or such other type of Class of Certificates; (g) the Distribution Dates for
the respective Classes; (h) relevant financial information with respect to the
Receivables; (i) additional information with respect to an Enhancement
relating to such Series; and (j) the plan of distribution of such Series.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly 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
registered holder of the Certificates, pursuant to the Pooling and Servicing
Agreement (the "Agreement"). See "Description of the Certificates and the
Agreement--Book-Entry Registration," "--Reports to Certificateholders" and "--
Evidence as to Compliance." Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting
principles. The Bank does not intend to send any of its financial reports to
Certificateholders or to owners of beneficial interests in the Certificates
("Certificate Owners"). The Servicer will file with the Securities and
Exchange Commission (the "Commission") such reports with respect to the Trust
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
AVAILABLE INFORMATION
FCC National Bank, as originator of the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Act"), with the
Commission on behalf of the Trust with respect to the Certificates offered
pursuant to this Prospectus. For further information, reference is made to the
Registration Statement and amendments thereof and exhibits thereto, which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, New York, New York 10048; and 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Servicer, on behalf
of the Trust, are incorporated in this Prospectus by reference: the Trust's
Annual Report on Form 10-K for the year ended December 31, 1995, and the
Trust's Current Reports on Form 8-K dated January 12, 1996, February 9, 1996,
March 12, 1996, April 11, 1996, May 10, 1996, June 13, 1996, July 11, 1996,
July 12, 1996, August 13, 1996 and September 9, 1996.
All reports and other documents filed by the Servicer, on behalf of the
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates shall be deemed to be incorporated by reference
into this Prospectus and to be part hereof. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Servicer will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference, except the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to First Chicago NBD Corporation, One First National
Plaza, Chicago, Illinois 60670, Attention: Investor Relations (312) 732-4812.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms which are used herein are defined elsewhere in this
Prospectus and in the accompanying Prospectus Supplement. Unless the context
otherwise requires, certain capitalized terms, when used herein and in the
accompanying Prospectus Supplement, relate only to the particular Series being
offered by such Prospectus Supplement. Other Series issued pursuant to other
similar prospectuses or disclosure documents may also use such capitalized
terms in such prospectuses or documents. However, in such cases, reference to
such terms, unless the context otherwise requires, is made only in the context
of the issuance of such other Series.
TYPE OF SECURITY...... Asset Backed Certificates (the "Certificates") to
be issued from time to time in one or more series
(each, a "Series") which will consist of one or
more classes (each, a "Class"). The accompanying
Prospectus Supplement identifies all previously
issued Series of the Trust that remain outstanding
(as well as any Series proposed to be issued by
the Trust) and certain principal terms and other
relevant characteristics thereof.
ISSUER................ The Certificates represent undivided interests in
First Chicago Master Trust II (the "Trust"). The
Trust's fiscal year ends December 31.
SELLER................ FCC National Bank (the "Bank"), a national bank and
a wholly-owned subsidiary of First Chicago NBD
Corporation ("First Chicago NBD"), is the
transferor of ownership interests in certain
receivables and the originator of the Trust. The
Bank is referred to herein as the "Seller."
TRUSTEE............... Norwest Bank Minnesota, National Association (the
"Trustee").
TRUST ASSETS.......... The Trust assets include all receivables existing
from time to time (the "Receivables") in certain
consumer revolving credit card accounts owned by
the Bank (the "Accounts"), any Receivables in
Additional Accounts added to the Trust from time
to time, funds collected or to be collected from
cardholders in respect of the Receivables (other
than recoveries on charged-off Receivables, unless
such recoveries are made available to one or more
Series as specified in the related Prospectus
Supplement, and insurance proceeds), moneys on
deposit in certain accounts of the Trust, the
right to receive certain Interchange fees
attributable to the Accounts (which right may not
be afforded to a particular Series) and any
Enhancement issued with respect to a particular
Series (the drawing on or payment of such
Enhancement not being available to the
Certificateholders of any other Series). The Trust
will not include the Receivables from any Removed
Accounts which are removed from the Trust from
time to time. The term "Enhancement" shall mean,
with respect to any Series, any letter of credit,
guaranteed rate agreement, maturity guaranty
facility, tax protection agreement, interest rate
swap, cash collateral account, collateral interest
or other contract, agreement or arrangement for
the benefit of Certificateholders of such Series
or any Class thereof. See "Enhancement."
3
<PAGE>
THE ACCOUNTS AND THE
RECEIVABLES..........
The Accounts currently consist of substantially all
of the VISA(R) and MasterCard(R)* consumer
revolving credit card accounts existing in all of
the Seller's ten billing cycles, excluding certain
accounts not originated by either the Seller or
its affiliate, The First National Bank of Chicago
("FNBC").
The Seller has previously transferred its interests
in all of the Receivables outstanding in the Ac-
counts to the Trust, so that the Trust holds all
such Receivables. Additional accounts added to
each of the billing cycles referred to above in
the normal operation of the Seller's credit card
business and satisfying the criteria provided in
the Agreement also are being added and currently
are expected to continue to be added on a daily
basis to the Accounts as a category of Additional
Accounts (the "Automatic Additional Accounts").
All new Receivables arising in such Automatic Ad-
ditional Accounts have been and will continue to
be automatically transferred to the Trust. The
Seller, at its option, may terminate or suspend
the inclusion of Automatic Additional Accounts at
any time.
The Receivables consist of amounts charged by card-
holders for goods and services and amounts ad-
vanced to cardholders as cash advances (the "Prin-
cipal Receivables") and all related periodic
charges, annual fees, late charges, over-limit
fees and all other fees billed to card- holders on
the Accounts for a Due Period (the "Finance Charge
Receivables") and unpaid Finance Charge Receiv-
ables for prior Due Periods. In addition, certain
Interchange attributable to cardholder charges for
merchandise and services in the Accounts may be
treated as Finance Charge Receivables for purposes
of a particular Series. See "The Bank's Credit
Card Business--Interchange." All new Receivables
arising in the Accounts (including in Additional
Accounts) have been and will continue to be auto-
matically transferred to the Trust. Accordingly,
the amount of Re- ceivables fluctuates from day to
day as new Receivables are generated and as exist-
ing Receivables are collected, written off as un-
collectible or otherwise adjusted. The term "Ag-
gregate Principal Receivables" means, for any Due
Period, the aggregate amount of Principal Receiv-
ables at the end of the prior Due Period.
A periodic charge (computed on either a monthly or
daily basis) is currently assessed, when
applicable, on all Principal Receivables. The
periodic charge may be a fixed rate or a variable
rate. See "The Accounts--Billing and Payments."
Pursuant to the Agreement, the Seller has the right
(subject to certain limitations and conditions),
and in some circumstances, such as the maintenance
of the First Chicago Interest at a specified mini-
mum level, is obligated, to designate additional
eligible consumer revolving credit card accounts
to be included as Accounts (the "Additional Ac-
counts") and to convey to the Trust all of the Re-
ceivables in the Additional Accounts, whether such
Receivables are then existing or thereafter creat-
ed.
- --------
* VISA(R) and MasterCard(R) are registered trademarks of VISA USA, Inc. and
MasterCard International, Inc., respectively.
4
<PAGE>
Further, pursuant to the Agreement, the Seller has
the right (subject to certain limitations and con-
ditions) to accept removal of certain Accounts
designated by the Seller from the Trust (the "Re-
moved Accounts") and accept the conveyance of all
of the Receivables in the Removed Accounts,
whether such Receivables are then existing or
thereafter created.
The Certificates represent undivided interests in
the Trust only and do not represent interests in
or obligations of the Seller or any affiliate
thereof except to the limited extent described
herein. Neither the Certificates, the Accounts,
the Receivables nor any collections thereon are
insured or guaranteed by the Federal Deposit In-
surance Corporation (the "FDIC") or any other gov-
ernmental agency.
EXCHANGES............. The Agreement authorizes the Trustee to issue two
types of certificates: (i) one or more Series of
Certificates which will be transferable and have
the characteristics described below, and (ii) a
certificate which evidences the principal amount
of the Seller interest in the Trust (the "First
Chicago Interest"), which initially is held by the
Seller and which generally is not transferable
(the "Exchangeable Seller's Certificate"). The
Agreement also provides that, pursuant to any one
or more supplements to the Agreement (each, a
"Supplement"), the Seller may tender the Exchange-
able Seller's Certificate or, if permitted by the
applicable Supplement, certificates representing
any Series of Certificates and the Exchangeable
Seller's Certificate, to the Trustee in exchange
for one or more new Series and a reissued Ex-
changeable Seller's Certificate (any such tender,
an "Exchange"). Under the Agreement, the Seller
may define, with respect to any Series, the Prin-
cipal Terms of the Series. See "Description of the
Certificates and the Agreement--Exchanges." Any
Exchange involving only the tender of the Ex-
changeable Seller's Certificate to the Trustee
will have the effect of decreasing the First Chi-
cago Interest. The Seller may offer any Series to
the public or other investors under a prospectus
or other disclosure document (a "Disclosure Docu-
ment") in transactions either registered under the
Act or exempt from registration thereunder, di-
rectly or through one or more underwriters or
placement agents, in fixed-price offerings or in
negotiated transactions or otherwise. The Seller
intends to continue to offer, from time to time,
additional Series issued by the Trust. Set forth
in the Prospectus Supplement is a chart which pro-
vides the Principal Terms and other relevant char-
acteristics of the other outstanding Series which
have been issued or are proposed to be issued by
the Trust.
Under the Agreement and pursuant to a Supplement,
an Exchange may occur only upon delivery to the
Trustee of the following: (i) a Supplement speci-
fying the Principal Terms of such Series, (ii) an
opinion of counsel to the effect that, unless oth-
erwise specified in the related Supplement, the
certificates of such Series under existing law
will be characterized as debt for Federal income
tax purposes and that the issuance of such Series
will not adversely affect the Federal income tax
characterization of any outstanding Series,
(iii) if required by the related Supplement, an
Enhancement, (iv) if an Enhancement is required by
the Supplement, any Enhancement agreement with re-
spect thereto, (v) written confirmation from each
Rating Agency that the
5
<PAGE>
Exchange will not result in the Rating Agency re-
ducing or withdrawing its rating on any then out-
standing Series rated by it, and (vi) the existing
Exchangeable Seller's Certificate and, if applica-
ble, the Certificates representing the Series to
be exchanged.
GENERAL TERMS OF THE
CERTIFICATES.........
Each Series of Certificates will represent an undi-
vided interest in the Trust. Each Certificate of a
Series will represent the right to receive pay-
ments of (i) interest at the specified rate or
rates per annum (each, a "Certificate Rate"),
which may be fixed, floating or other type of
variable rate and (ii) payments of principal dur-
ing the Controlled Amortization Period, the Prin-
cipal Amortization Period, or, under certain lim-
ited circumstances, the Rapid Amortization Period
(each, an "Amortization Period"), or on a Sched-
uled Payment Date, in which case such Series will
have a Controlled Accumulation Period and, under
certain limited circumstances if so specified in
the related Prospectus Supplement, a Rapid Accumu-
lation Period (each, an "Accumulation Period"), as
well as, under certain limited circumstances, a
Rapid Amortization Period, all as specified in the
related Prospectus Supplement.
Each Series of Certificates will consist of one or more
Classes, one or more of which may be senior to other
Classes of Certificates (such senior classes, "Senior
Certificates") and one or more of which may be subor-
dinated to other Classes of Certificates (such subor-
dinated classes, "Subordinated Certificates").
The assets of the Trust will be allocated among the
Certificateholders of each Series and the holder of
the Exchangeable Seller's Certificate (and, in certain
circumstances, the Enhancement Provider with respect
to a Series). The aggregate amount of the interest of
the Certificateholders of a Series in the Principal
Receivables of the Trust is referred to herein as the
"Invested Amount." If specified in any Prospectus Sup-
plement, the term "Invested Amount" with respect to
the related Series includes the Collateral Interest
with respect to such Series. The aggregate amount of
the interest represented by the Exchangeable Seller's
Certificate in the Principal Receivables of the Trust
is referred to herein as the "First Chicago Amount,"
and is based on the aggregate amount of Principal Re-
ceivables in the Trust not allocated to the
Certificateholders or any Enhancement Provider. See
"Description of the Certificates and Agreement--Gener-
al." As new Receivables are added to the Trust and as
payments are made on the First Chicago Interest, the
First Chicago Amount will fluctuate over time.
The Certificateholders of each Series will have the
right to receive (but only to the extent needed to
make required payments under the Agreement and subject
to any reallocation of such amounts if the related
Supplement so provides) varying percentages of the
collections of Finance Charge Receivables and Princi-
pal Receivables for each Due Period and will be allo-
cated a varying percentage of the amount of Defaulted
Receivables for such Due Period (each such percentage,
an "Invested Percentage"). The related Prospectus Sup-
plement specifies the Invested Percentages applicable
to a Se-
6
<PAGE>
ries with respect to the allocation of collections of
Principal Receivables, Finance Charge Receivables and
Defaulted Receivables during the Revolving Period, any
Amortization Period and any Accumulation Period, as
applicable, for such Series. If the Certificates of a
Series offered hereby include more than one Class of
Certificates, the assets of the Trust allocable to the
Certificates of such Series may be further allocated
among each Class in such Series as described in the
related Prospectus Supplement. See "Description of
Certificates and the Agreement--Allocation Percent-
ages."
REGISTRATION OF Unless otherwise specified in the related Prospec-
CERTIFICATES......... tus Supplements, the Certificates of each Series
offered hereby will initially be represented by
one or more certificates registered in the name of
Cede, as the nominee of The Depository Trust Com-
pany ("DTC"), and no person acquiring an interest
in the Certificates will be entitled to receive a
definitive certificate representing such person's
interest, except in the event that Definitive Cer-
tificates are issued under the limited circum-
stances described herein. Unless otherwise speci-
fied in the related Prospectus Supplement, Certif-
icate Owners may elect to hold their interests in
the Certificates through DTC in the United States
or, in Europe, through Cedel, societe anonyme
("Cedel") or the Euroclear System ("Euroclear").
Transfers will be made in accordance with the
rules and operating procedures described herein.
See "Description of the Certificates and the
Agreement--Definitive Certificates."
INTEREST PAYMENTS..... Interest on each Series of Certificates or Class
thereof for each accrual period (each, an "Inter-
est Period") specified in the related Prospectus
Supplement will be distributed in the amounts and
on the dates (which may be monthly, quarterly,
semiannually or otherwise as specified in the re-
lated Prospectus Supplement) (each, a "Distribu-
tion Date") specified in the related Prospectus
Supplement. Interest payments on each Distribution
Date will be funded from collections of Finance
Charge Receivables allocated to the applicable Se-
ries during the preceding Due Period (or applica-
ble Due Periods), as described in the related Pro-
spectus Supplement, and may be funded from certain
investment earnings on funds in certain accounts
of the Trust and from any applicable Enhancement,
if necessary, or certain other amounts as speci-
fied in the related Prospectus Supplement. If the
Distribution Dates for payment of interest for a
Series or Class occur less frequently than month-
ly, such collections or other amounts allocable to
such Series or Class will be deposited in one or
more trust accounts or held by the Servicer pend-
ing distribution to the Certificateholders of such
Series or Class, all as described in the related
Prospectus Supplement.
REVOLVING PERIOD...... Unless otherwise specified in the related Prospec-
tus Supplement, with respect to each Series and
any Class thereof, no principal will be payable to
Certificateholders until the Principal Commence-
ment Date or the Scheduled Payment Date with re-
spect to such Series or Class, as described below.
For the period beginning on the date of issuance
of a Series (the "Series Closing Date") and ending
with the commencement of an Amortization Period or
an Accumulation Period (the "Revolving Period")
with respect to such Series, collections of Prin-
cipal Receivables otherwise allo-
7
<PAGE>
cable to such Series will, subject to certain lim-
itations, be paid to the holder of the Ex-
changeable Seller's Certificate or, under certain
circumstances and if so specified in the related
Prospectus Supplement, paid to the holders of
other Series of Certificates, as described herein
and in the related Prospectus Supplement. See "De-
scription of the Certificates and the Agreement--
Liquidation Events" for a discussion of the events
which might lead to early termination of the Re-
volving Period.
PRINCIPAL PAYMENTS.... The principal of the Certificates of each Series
offered hereby will be scheduled to be paid either
in installments commencing on a date specified in
the related Prospectus Supplement (the "Principal
Commencement Date"), in which case such Series
will have either a Controlled Amortization Period
or a Principal Amortization Period, as described
below, or on an expected date specified in, or de-
termined in the manner specified in, the related
Prospectus Supplement (the "Scheduled Payment
Date"), in which case such Series will have a Con-
trolled Accumulation Period, as described below.
If a Series has more than one Class of Certifi-
cates, a different method of paying principal,
Principal Commencement Date or Scheduled Payment
Date may be assigned to each Class. The payment of
principal with respect to the Certificates of a
Series or Class may commence earlier than the ap-
plicable Principal Commencement Date or Scheduled
Payment Date, and the final principal payment with
respect to the Certificates of a Series or Class
may be made later than the applicable expected
payment date or Scheduled Payment Date, if a Liq-
uidation Event occurs and the Rapid Amortization
Period commences with respect to such Series or
Class or under certain other circumstances de-
scribed herein or in the related Prospectus Sup-
plement.
CONTROLLED
AMORTIZATION PERIOD..
If the Prospectus Supplement relating to a Series
so specifies, unless a Rapid Amortization Period
with respect to such Series commences, the Certif-
icates of such Series or any Class thereof will
have an amortization period (the "Controlled Amor-
tization Period") during which collections of
Principal Receivables allocable to such Series
(and certain other amounts if so specified in the
related Prospectus Supplement) will be used on
each Distribution Date to make principal distribu-
tions in scheduled amounts to the
Certificateholders of such Series or any Class of
such Series then scheduled to receive such distri-
butions. The amount to be distributed on any Dis-
tribution Date during the Controlled Amortization
Period will be limited to an amount (the "Con-
trolled Distribution Amount") equal to an amount
specified in the related Prospectus Supplement
(the "Controlled Amortization Amount") plus any
existing deficit controlled amortization amount
arising from prior Distribution Dates. If a Series
has more than one Class of Certificates, each
Class may have a separate Controlled Amortization
Amount. In addition, the related Prospectus Sup-
plement may describe certain priorities among such
Classes with respect to such distributions. The
Controlled Amortization Period will commence at
the close of business on a date specified in the
related Prospectus Supplement and continue until
the earliest of (a) the commencement of the Rapid
Amortization Period, (b) payment in full of the
Certificates of such Series or Class and (c) the
date by which the final
8
<PAGE>
distribution of principal and interest on the Cer-
tificates of such Series will be made (the "Series
Termination Date").
PRINCIPAL
AMORTIZATION PERIOD..
If the Prospectus Supplement relating to a Series
so specifies, unless a Rapid Amortization Period
with respect to such Series commences, the
Certificates of such Series or any Class thereof
will have an amortization period (the "Principal
Amortization Period") during which collections of
Principal Receivables allocable to such Series
(and certain other amounts if so specified in the
related Prospectus Supplement) will be used on
each Distribution Date to make principal distribu-
tions to the Certificateholders of such Series or
any Class of such Series then scheduled to receive
such distributions. If a Series has more than one
Class of Certificates, the related Prospectus Sup-
plement may describe certain priorities among such
Classes with respect to such distributions. The
Principal Amortization Period will commence at the
close of business on a date specified in the re-
lated Prospectus Supplement and continue until the
earlier of (a) the commencement of the Rapid Amor-
tization Period, (b) payment in full of the Cer-
tificates of such Series or Class and (c) the Se-
ries Termination Date with respect to such Series.
CONTROLLED
ACCUMULATION PERIOD..
If the Prospectus Supplement relating to a Series
so specifies, unless a Rapid Amortization Period
or, if so specified in the related Prospectus Sup-
plement, a Rapid Accumulation Period with respect
to such Series commences, the Certificates of such
Series or any Class thereof will have an accumula-
tion period (the "Controlled Accumulation Period")
during which collections of Principal Receivables
allocable to such Series (and certain other
amounts if so specified in the related Prospectus
Supplement) will be deposited on the business day
immediately prior to each Distribution Date (each,
a "Transfer Date") (or such other day specified in
the related Prospectus Supplement) in a trust ac-
count held in the name of the Trustee for the ben-
efit of the Certificateholders of such Series or
Class (a "Principal Funding Account") and used to
make distributions of principal to the
Certificateholders of such Series or Class on the
Scheduled Payment Date. The amount to be deposited
in the Principal Funding Account with respect to
any Distribution Date will be limited to an amount
(the "Controlled Deposit Amount") equal to an
amount specified in the related Prospectus Supple-
ment (the "Controlled Accumulation Amount") plus
any deficit Controlled Accumulation Amount arising
from prior Distribution Dates. If a Series has
more than one Class of Certificates, each Class
may have a separate Principal Funding Account and
Controlled Accumulation Amount. In addition, the
related Prospectus Supplement may describe certain
priorities among such Classes with respect to de-
posits of principal into such Principal Funding
Accounts. The Controlled Accumulation Period will
commence at the close of business on a date speci-
fied in or determined in the manner specified in
the related Prospectus Supplement (which may per-
mit the postponement of such commencement) and
continue until the earliest of (a) the commence-
ment of the Rapid Amortization Period or, if so
specified in the related Prospectus Supplement,
the Rapid Accumulation
9
<PAGE>
Period, (b) payment in full of the Certificates of
such Series or Class and (c) the Series Termina-
tion Date with respect to such Series.
Funds on deposit in any Principal Funding Account
may be invested in Eligible Investments or subject
to a guaranteed rate or investment contract or
other arrangement intended to assure a minimum re-
turn on the investment of such funds. Investment
earnings on such funds may be applied to pay in-
terest on the related Series of Certificates or
any Class thereof or make other payments as speci-
fied in the related Prospectus Supplement. In or-
der to enhance the likelihood of payment in full
of principal at the end of a Controlled Accumula-
tion Period with respect to a Series of Certifi-
cates, such Series or any Class thereof may be
subject to a principal payment guaranty or other
similar arrangement.
RAPID ACCUMULATION If so specified and under the conditions set forth
PERIOD............... in the Prospectus Supplement relating to a Series
having a Controlled Accumulation Period, during
the period from the day on which a Liquidation
Event has occurred until the earliest of (a) the
commencement of the Rapid Amortization Period, (b)
payment in full of the Certificates of such Series
and (c) the Series Termination Date with respect
to such Series (the "Rapid Accumulation Period"),
collections of Principal Receivables allocable to
such Series (and certain other amounts if so spec-
ified in the related Prospectus Supplement) will
be deposited in the Principal Funding Account on
each Transfer Date (or such other day specified in
the related Prospectus Supplement) and used to
make distributions of principal to the
Certificateholders of such Series or Class on the
Scheduled Payment Date. The amount to be deposited
in the Principal Funding Account during the Rapid
Accumulation Period will not be limited to any
Controlled Deposit Amount. The Rapid Accumulation
Period is intended to result in the fastest possi-
ble accumulation of funds available to make prin-
cipal distributions to Certificateholders of a Se-
ries following a Liquidation Event with respect to
such Series in order to better assure the repay-
ment of principal to such Certificateholders. See
"Description of the Certificates and the Agree-
ment--Liquidation Events" for a discussion of the
events that might lead to the commencement of a
Rapid Accumulation Period.
During the Rapid Accumulation Period, funds on de-
posit in any Principal Funding Account may be in-
vested in Eligible Investments or subject to a
guaranteed rate or investment contract or other
arrangement intended to assure a minimum return on
the investment of such funds. Investment earnings
on such funds may be applied to pay interest on
the related Series of Certificates or any Class
thereof or make other payments as specified in the
related Prospectus Supplement. In order to enhance
the likelihood of payment in full of principal at
the end of a Rapid Accumulation Period with re-
spect to a Series of Certificates, such Series or
any Class thereof may be subject to a principal
payment guaranty or other similar arrangement.
RAPID AMORTIZATION During the period from the day on which a Liquida-
PERIOD............... tion Event has occurred with respect to a Series
or, if so specified in the Prospectus Supplement
relating to a Series with a Controlled Accumula-
tion Period, from such time specified in the re-
lated Prospectus Supplement after a Liquidation
Event
10
<PAGE>
has occurred and the Rapid Accumulation Period has
commenced, to the earlier of (a) payment in full
of the Certificates of such Series and (b) the Se-
ries Termination Date with respect to such Series
(the "Rapid Amortization Period"), collections of
Principal Receivables allocable to such Series
(and certain other amounts if so specified in the
related Prospectus Supplement) will be distributed
as principal payments to the Certificateholders of
such Series, monthly on each Distribution Date
with respect to such Series in the manner and or-
der of priority set forth in the related Prospec-
tus Supplement. During the Rapid Amortization Pe-
riod with respect to a Series, distributions of
principal will not be limited by any Controlled
Deposit Amount or Controlled Distribution Amount.
In addition, upon the commencement of the Rapid
Amortization Period with respect to a Series, any
funds on deposit in a Principal Funding Account
with respect to such Series or any Class thereof
will be paid to the Certificateholders of such Se-
ries or Class on the first Distribution Date with
respect to the Rapid Amortization Period. The
Rapid Amortization Period is intended to result in
the fastest possible distribution of principal to
Certificateholders of a Series following a Liqui-
dation Event with respect to such Series in order
to better assure the repayment of principal to
such Certificateholders. See "Description of the
Certificates and the Agreement--Liquidation
Events" for a discussion of the events which might
lead to the commencement of a Rapid Amortization
Period.
EXCESS FINANCE CHARGE
COLLECTIONS..........
To the extent that collections of Finance Charge
Receivables allocated to the Certificates of a Se-
ries are not needed to make payments to
Certificateholders of such Series or other pay-
ments required in respect of such Series, such
collections may be applied to cover shortfalls in
amounts payable from collections of Finance Charge
Receivables allocable to one or more other Series
to the extent specified in the Prospectus Supple-
ment relating to such other Series.
SHARED COLLECTIONS OF
PRINCIPAL
RECEIVABLES.......... To the extent that collections of Principal Receiv-
ables allocated to the Certificates of a Series
are not needed to make payments to
Certificateholders of such Series or other pay-
ments required in respect of such Series, such
collections may be applied to cover principal pay-
ments due to or for the benefit of one or more
other Series to the extent specified in the Pro-
spectus Supplement relating to such other Series.
Any such application of collections will not re-
sult in a reduction of the Invested Amount of the
Certificates originally allocated such collections
of Principal Receivables.
FUNDING PERIOD........ The Prospectus Supplement relating to a Series of
Certificates may specify that for a period begin-
ning on the Series Closing Date of such Series and
ending on a specified date before the commencement
of an Amortization Period or Accumulation Period
with respect to such Series (the "Funding Peri-
od"), which period is expected to be less than a
year, the aggregate amount of Principal Receiv-
ables in the Trust allocable to such Series may be
less than the aggregate principal amount of the
Certificates of such
11
<PAGE>
Series. The amount of such deficiency (the "Pre-
Funding Amount") may be placed in a trust account
held in the name of the Trustee for the benefit of
Certificateholders of such Series (the "Pre-Fund-
ing 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 if so specified in the Pro-
spectus Supplement. The Pre-Funding Amount of a
Series may be up to 100% of the principal amount
of the Certificates of such Series. The related
Prospectus Supplement will specify the initial In-
vested Amount on the Series Closing Date with re-
spect to such a Series, the aggregate principal
amount of the Certificates of such Series (the
"Full Invested Amount") and the date by which the
Invested Amount is expected to equal the Full In-
vested Amount. The Invested Amount will increase
as Principal Receivables are added to the Trust or
as the Invested Amounts of other Series of the
Trust are reduced.
During the Funding Period, funds, if any, on de-
posit in the Pre-Funding Account for a Series of
Certificates will be withdrawn and paid to the
holder of the Exchangeable Seller's Certificate to
the extent of any increases in the Invested Amount
of such Series. In the event that the Invested
Amount of such Series 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 will be payable to the
Certificateholders of such Series in a manner and
at such time as set forth in the related Prospec-
tus Supplement. Such payment will reduce the ag-
gregate principal amount of such Certificates. In
addition, a prepayment premium or penalty or simi-
lar amount may be payable to Certificateholders of
such Series if specified in the related Prospectus
Supplement.
If so specified in the related Prospectus Supple-
ment, funds on deposit in the Pre-Funding Account
may be invested in Eligible Investments or subject
to a guaranteed rate or investment agreement or
other similar arrangement, and investment earnings
and any applicable payment under any such invest-
ment arrangement will be applied to pay interest
on the Certificates of such Series.
OPTIONAL REPURCHASE... Each Series of Certificates will be subject to op-
tional repurchase by the Seller on any Distribu-
tion Date after the Invested Amount of such Series
is reduced to an amount less than or equal to 5%
of the initial Invested Amount of such Series or
such other amount specified in the related Pro-
spectus Supplement, if certain conditions set
forth in the Agreement are met. Unless otherwise
specified in the related Prospectus Supplement,
the repurchase price will be equal to the Invested
Amount of such Series, plus accrued and unpaid in-
terest on the Certificates of such Series and any
other amounts payable as described in the Prospec-
tus Supplement, through the day preceding the Dis-
tribution Date on which the repurchase occurs. See
"Description of the Certificates and the Agree-
ment--Final Payment of Principal; Termination of
Trust."
SERVICING............. Under the Agreement, the Servicer (initially, the
Bank) is responsible for servicing, managing and
making collections on all Receivables in the
12
<PAGE>
Trust. Subject to certain conditions, the Servicer
may use for its own benefit and not segregate col-
lections of Receivables received in each Due Pe-
riod until the Transfer Date. On or about the 8th
day preceding each Distribution Date (each, a "De-
termination Date"), the Servicer will allocate as
described herein and in the accompanying Prospec-
tus Supplement all collections of Receivables re-
ceived with respect to the related Due Period to
each Series and the Seller and on the Transfer
Date preceding such Distribution Date will deposit
the portion allocable to the Certificateholders of
any Series into a segregated trust account held in
the name of the Trustee for the benefit of
Certificateholders (the "Collection Account"). See
"Description of the Certificates and the Agree-
ment--Application of Collections." In certain lim-
ited circumstances, the Bank may resign or be re-
moved as Servicer, in which event either the
Trustee or a third party servicer may be appointed
as successor Servicer (the Bank or any such suc-
cessor Servicer is referred to herein as the
"Servicer"). As servicing compensation from the
Trust, the Servicer receives a Servicing Fee pay-
able from Interchange, from allocations of Finance
Charge Receivables based upon the Invested
Amounts, from time to time, of Series issued by
the Trust, and from certain other amounts, as de-
scribed herein or in the accompanying Prospectus
Supplement.
TAX STATUS............ Except to the extent otherwise specified in the re-
lated Prospectus Supplement, it is anticipated
that Tax Counsel will render an opinion that the
Certificates offered hereby (the "Offered Certifi-
cates") will be characterized as indebtedness for
Federal income tax purposes. Except to the extent
otherwise specified in the related Prospectus Sup-
plement, the Certificate Owners will agree to
treat the Offered Certificates as debt for Feder-
al, state and local income tax purposes. See "Tax
Matters" for additional information concerning the
application of Federal income tax laws.
ERISA Under regulations issued by the Department of La-
CONSIDERATIONS........ bor, the Trust's assets would not be deemed "plan
assets" of any employee benefit plan holding in-
terests in the Certificates of a Series if certain
conditions are met. If the Trust's assets were
deemed to be "plan assets" of an employee benefit
plan, there is uncertainty as to whether existing
exemptions from the "prohibited transaction" rules
of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), would apply to all
transactions involving the Trust's assets. No as-
surance can be made with respect to any offering
of the Certificates of any Series that the condi-
tions which would allow the Trust's assets not to
be deemed "plan assets" will be met, although the
intention of the underwriters (but not their as-
surance) as to whether the Certificates of a par-
ticular Series offered hereby will be "publicly-
offered securities," and therefore eligible for an
ERISA exemption, is set forth in the related Pro-
spectus Supplement. Accordingly, employee benefit
plans contemplating purchasing interests in Cer-
tificates should consult their counsel before mak-
ing a purchase. See "ERISA Considerations."
CERTIFICATE RATING.... It will be a condition to the issuance of the Cer-
tificates of each Series or Class thereof offered
pursuant to this Prospectus and the accompanying
Prospectus Supplement that they be rated in one of
the four highest rating catego-
13
<PAGE>
ries by at least one nationally recognized rating
organization (each such rating organization se-
lected by the Seller to rate any Series, a "Rating
Agency"). The rating or ratings applicable to the
Certificates of each Series or Class thereof of-
fered hereby is set forth in the related Prospec-
tus Supplement.
A rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or
withdrawal at any time by the assigning Rating
Agency. Each rating should be evaluated indepen-
dently of any other rating. See "Risk Factors--
Rating of the Certificates."
LISTING............... If so specified in the Prospectus Supplement relat-
ing to a Series, application will be made to list
the Certificates of such Series, or all or a por-
tion of any Class thereof, on the Luxembourg Stock
Exchange or any other specified exchange.
14
<PAGE>
RISK FACTORS
Limited Liquidity. Certain financial institutions currently make a market in
types of asset-backed certificates similar to the Certificates. It is expected
that the underwriters of any Series of Certificates offered hereby will make a
market in such Certificates, but no such underwriter will be obligated to make
a market in such Certificates. There is no assurance that any such market will
develop or, if a market does develop, that it will provide Certificateholders
with liquidity of investment or that it will continue for the life of such
Certificates.
Certain Legal Aspects. While the Seller has transferred or will transfer
interests in the Receivables to the Trust, a court could treat such
transaction as an assignment of collateral as security for the benefit of the
Certificateholders. The Seller warrants in the Agreement that the transfer of
the Receivables to the Trust is either a valid transfer and assignment of the
Receivables to the Trust or the grant to the Trust of a security interest in
the Receivables. The Seller has taken or will take all actions as are required
under New York, Illinois and Delaware law to perfect the Trust's interest in
the Receivables and the Seller warrants that if the transfer by the Seller to
the Trust granted the Trust a security interest in the Receivables, the Trust
will at all times have a first priority perfected security interest therein
and, with certain exceptions, and for certain limited periods of time, in
proceeds thereof. Nevertheless, if the transfer of the Receivables to the
Trust is deemed to create a security interest therein under the New York,
Illinois or Delaware Uniform Commercial Code (collectively, the "UCC"), a tax
or government lien on property of the Seller arising before any Receivable
comes into existence may have priority over the Trust's interest in such
Receivable and in the event of an insolvency of the Seller, the receiver's
administrative expenses may also have priority over the Trust's interest in
the Receivables. In addition, while the Seller is the Servicer, cash
collections held by the Seller may, subject to certain conditions, be
commingled and used for the Seller's own benefit prior to each Distribution
Date and, in the event of the insolvency or receivership of the Seller or, in
certain circumstances, the lapse of certain time periods, the Trust may not
have a perfected interest in such collections. If the short term deposit
rating of the Seller is reduced below A-1 or P-1 by the applicable Rating
Agency, the Seller will, within five business days, commence the deposit of
collections directly into the Collection Account within one business day after
the date of processing, and the Collection Account will be moved to an
Eligible Institution other than the Seller, which Eligible Institution may be
an affiliate of the Seller. If a receiver or conservator were appointed for
the Seller, causing a Liquidation Event with respect to all Series then
outstanding, pursuant to the Agreement (x) with respect to outstanding Series
issued prior to April 19, 1995 (each, a "Preexisting Series"), unless holders
of more than 50% of the Invested Amount of any such Series instruct otherwise
or unless otherwise required by the FDIC as receiver or conservator for the
Seller, the Trustee would sell the Receivables of all Series, and (y) with
respect to Series issued on or after April 19, 1995 (except as otherwise may
be specified in the Supplement relating thereto), unless holders of more than
50% of the Invested Amount of each Class of each such Series (including a
majority in interest in each Collateral Interest), each holder of an interest
in the First Chicago Interest, the holders of more than 50% of the Invested
Amount of each Preexisting Series and any other person specified in any
Supplement instruct otherwise or unless otherwise required by the FDIC as
receiver or conservator for the Seller, the Trustee would sell the portion of
the Receivables allocable to all Series other than the Preexisting Series,
thereby causing a loss to Certificateholders of such Series if the net
proceeds allocable to such Series from such sale, if any, and the amount
available under any applicable Enhancement, if any, were insufficient to pay
Certificateholders of such Series in full. In addition, a conservator or
receiver for the Seller may have the power to cause early payment of the
Certificates. To the extent the Seller grants a security interest in the
Receivables to the Trust, and that interest is validly perfected before the
Seller's insolvency and was not taken in contemplation of insolvency or with
the intent to hinder, delay or defraud the Seller or its creditors, that
security interest should be enforceable (to the extent of the Trust's "actual
direct compensatory damages") notwithstanding the insolvency of, or the
appointment of a receiver or conservator for, the Seller, and payments to the
Trust with respect to the Receivables should not be subject to recovery by a
receiver or conservator of the Seller. If, however, the FDIC were to assert a
contrary position, possible delays and reductions in payments to the
Certificateholders of all outstanding Series could occur. In addition, Federal
law governing receiverships of Federally-insured depository institutions could
be interpreted to require compliance with certain claims procedures if a
receiver were appointed for the Seller before the Trustee could collect, sell,
dispose of or otherwise liquidate the Receivables, which could delay or
15
<PAGE>
possibly reduce payments on the Certificates. If the only Liquidation Event to
occur is either the insolvency of the Seller or the appointment of a receiver
or conservator for the Seller, the receiver or conservator for the Seller may
have the power to continue to require the Seller to transfer new Principal
Receivables to the Trust and to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of a Rapid Amortization
Period (or a Rapid Accumulation Period, if applicable). See "Certain Legal
Aspects of the Receivables--Transfer of Receivables" and "--Certain Matters
Relating to Receivership." "Actual direct compensatory damages" are generally
thought to comprise outstanding principal plus interest accrued to the date of
payment, but a United States Federal district court has held that such damages
should be measured by the fair market value of the repudiated bonds as of the
date of repudiation. If this court's view were applied to determine the
Trust's "actual direct compensatory damages" in the event a conservator or
receiver of the Seller repudiated its obligations under the Agreement, the
amount paid to Certificateholders could, depending upon circumstances existing
on the date of the repudiation, be less than the principal of the Certificates
and the interest accrued thereon to the date of payment. See "Certain Legal
Aspects of the Receivables--Certain Matters Relating to Receivership."
The Accounts and Receivables are subject to numerous Federal and state
consumer protection laws which impose requirements on the making and
enforcement of consumer loans. Such laws, as well as any new laws or rulings
which may be adopted, may adversely affect the Servicer's ability to collect
on the Receivables or maintain the level of periodic charges or fees, and
failure by the Servicer to comply with such requirements could adversely
affect the Servicer's ability to enforce the Receivables.
Members of Congress in the past have proposed legislation, which has not
been enacted into law, to limit the maximum annual percentage rate that may be
assessed on credit card accounts. The Seller cannot predict if Congress will
take any such action in the future. If Federal legislation were enacted which
contained an interest rate limit substantially lower than the annual
percentage rates currently assessed on the Accounts, it is possible that the
Portfolio Yield could be reduced to a rate less than the Base Rate. The terms
"Portfolio Yield" and "Base Rate" for each Series (or Class thereof) have the
meanings set forth in the Prospectus Supplement relating to such Series. If
the Portfolio Yield for a period specified in the applicable Prospectus
Supplement is less than the Base Rate for the related period specified in the
Prospectus Supplement, a Rapid Amortization Period or Rapid Accumulation
Period with respect to the applicable Series will commence. In addition, there
has been increased consumer awareness with respect to the level of finance
charges and fees and other practices of credit card issuers. As a result of
these developments and other factors, there can be no assurance as to whether
any Federal or state legislation will be promulgated which would impose
additional limitations on the periodic finance charges or fees relating to the
Accounts.
Certain jurisdictions may attempt, and private parties are attempting, to
require out-of-state credit card issuers to comply with such jurisdictions'
consumer protection laws. A successful attempt could have an adverse impact on
the credit card operations of out-of-state credit card issuers including the
Seller. Such a determination could also lead to similar actions in other
states by private parties or governmental agencies and could have an adverse
impact on Seller's credit card operations or the yield on the Receivables in
the Trust. One potential effect of any such determination involving the
Seller, if successful, would be to reduce the amount of Finance Charge
Receivables. If such a reduction occurs, a Liquidation Event may occur with
respect to one or more Series and a Rapid Amortization Period or Rapid
Accumulation Period may commence with respect to such affected Series.
Pursuant to the Agreement, the Seller or, in some circumstances, the
Servicer, covenants to accept the transfer of each Receivable that does not
comply with all applicable requirements of law the failure to comply with
which would have a material adverse effect on Certificateholders if such
Receivable is written off as uncollectible or if the proceeds of such
Receivable are not available to the Trust. Additionally, under certain
conditions, the Seller covenants in the Agreement to accept the transfer of
each Receivable which is subject to certain specified liens immediately upon
the discovery of such liens. In the Agreement, the Seller makes certain other
covenants and warranties relating to the validity and enforceability of the
Accounts and the Receivables. The sole remedy, if any such covenant or
warranty is not complied with and such noncompliance continues
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beyond the applicable cure period and such Receivables are written off as
uncollectible or the proceeds of such Receivables are not available to the
Trust (or, in the case of Receivables subject to certain types of liens,
immediately upon the discovery of such lien), is that (x) if such covenant or
warranty was a Seller covenant or warranty, the principal balance of such
Receivables will be deducted from the aggregate amount of Principal
Receivables used to calculate the First Chicago Interest, or (y) if such
covenant or warranty was a Servicer covenant or warranty or if such deduction
would reduce the First Chicago Interest below zero or would otherwise not be
permitted by law, the Servicer or the Seller, as appropriate, will be
obligated to make a deposit in the Collection Account equal to the principal
amount of such Receivable (plus periodic charges through the end of the
related Due Period to the extent not included in the amount of the Receivable)
(the "Transfer Deposit Amount"). In addition, in the event of the breach of
certain representations and warranties, the Seller may be obligated to
purchase all issued and outstanding Series. See "Description of the
Certificates and the Agreement--Covenants, Representations and Warranties" and
"--Servicer Covenants" and "Certain Legal Aspects of the Receivables--Consumer
Protection Laws."
Payments and Maturity. The Receivables may be paid at any time and there is
no assurance that there will be additional Receivables created in the Accounts
or that any particular pattern of cardholder repayments will occur. A
significant decline in the amount of Receivables generated in the Accounts
could result in commencement of a Rapid Amortization Period or Rapid
Accumulation Period. The Agreement provides that the Seller is required to
designate Additional Accounts the Receivables of which will be added to the
Trust in the event that the amount of Aggregate Principal Receivables is not
maintained at a certain minimum amount. Such minimum amount may be increased
by Supplements pursuant to which additional Series are issued. There can be no
assurance that the Seller will have Eligible Additional Accounts to so
designate. If Additional Accounts are not designated by the Seller when
required, a Liquidation Event may occur with respect to one or more Series and
a Rapid Amortization Period or Rapid Accumulation Period for such Series would
commence. In addition, increased convenience use (where cardholders pay their
Receivables early and thus avoid all finance charges on purchases, fees and
finance charges) would decrease the effective yield on Receivables and could
also cause a Rapid Amortization Period or Rapid Accumulation Period for one or
more Series as well as decreased protection to Certificateholders against
defaults with respect to the Accounts. Conversely, only a minimum monthly
payment is required with respect to the Accounts and a significant decrease in
the rate of repayment by cardholders of the outstanding balances or an
increase in defaults or delinquencies of such Accounts could delay the return
of principal during an Amortization Period or following an Accumulation Period
and could, if the applicable Enhancement is exhausted, cause a loss of
principal to Certificateholders. See "The Bank's Credit Card Business" and
"Maturity and Principal Payment Considerations."
Pre-Funding Account. With respect to any Series having a Pre-Funding
Account, in the event that there is an insufficient amount of Principal
Receivables in the Trust at the end of the applicable Funding Period, the
Certificateholders of such Series will be repaid principal from amounts on
deposit in the Pre-Funding Account (to the extent of such insufficiency)
following the end of such Funding Period, as described more fully in the
Prospectus Supplement relating to such Series. As a result of such repayment,
Certificateholders would receive a principal payment significantly earlier
than they expected. In addition, Certificateholders would not receive the
benefit of the applicable Certificate Rate for the period of time originally
expected on the amount of such early repayment. There can be no assurance that
a Certificateholder would be able to reinvest such early repayment amount at a
similar rate of return.
If so provided in the related Prospectus Supplement, a prepayment premium or
penalty may be payable to the Certificateholders of such Series upon such
early repayment. Any such premium or penalty payment would be an obligation of
the Seller only; no assets of the Trust would be available for such payment.
In the event of the insolvency or receivership of the Seller, such a premium
or penalty payment may be subject to avoidance or recovery by the FDIC as
receiver or conservator of the Seller.
Effect of Subordination. With respect to Certificates of a Series having a
Class or Classes of Subordinated Certificates, except in the circumstances
specified in the related Prospectus Supplement, payments of principal in
respect of the Subordinated Certificates of a Series will not commence until
after the final principal payment with respect to the Senior Certificates of
such Series. In addition, if so specified in the related Prospectus
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Supplement, if collections of Finance Charge Receivables allocable to the
Certificates of a Series are insufficient to cover required amounts due with
respect to the Senior Certificates of such Series, the Invested Amount with
respect to the Subordinated Certificates will be reduced, resulting in a
reduction of the portion of collections of Finance Charge Receivables
allocable to the Subordinated Certificates in future periods and a possible
delay or reduction in principal and interest payments on the Subordinated
Certificates. Moreover, if so specified in the related Prospectus Supplement,
in the event of a sale of Receivables in the Trust, including as a result of
certain events of insolvency of the Seller or the appointment of a conservator
or receiver for the Seller, the portion of the net proceeds of such sale
allocable to pay principal to the Certificates of a Series will be used first
to pay amounts due on the Senior Certificates and any remainder will then be
used to pay amounts due on the Subordinated Certificates.
Social, Legal, Economic and Other Factors. Changes in card use and payment
patterns by cardholders may result from a variety of social, legal and
economic factors. 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. New credit card issuers have been entering
the market while other issuers have been seeking to expand market share
through increased advertising, target marketing and pricing competition.
Additionally, the use of incentive or affinity programs (e.g., gift awards for
card usage) may affect card usage patterns. Moreover, certain credit card
issuers assess periodic charges at rates significantly lower than the rate
currently being assessed on a significant number of the Accounts. Certain of
the Accounts (generally those in affinity programs) provide benefits to
cardholders of such Accounts which may not be offered to other cardholders.
Benefits provided under certain Accounts, including benefits under cardholder
affinity programs, could be modified or terminated in the future by the Bank
(or in the case of benefits available under affinity programs, the other
parties to such programs) which could make the Bank's credit card product less
attractive to cardholders. If cardholders choose to use competing sources of
credit or alternative accounts of the Bank, the rate at which new Receivables
are generated in the Accounts may be reduced and payment patterns with respect
to Receivables may be affected.
In 1992, a jury in Federal court in Utah held that the VISA association
violated antitrust laws when it denied membership in VISA to a subsidiary of
Dean Witter, Discover & Co., on the basis that another such subsidiary is the
issuer of the Discover Card, a competitor of the VISA credit card. In
September 1994, the United States Court of Appeals reversed the trial court's
decision upholding the verdict, and held VISA's conduct did not violate the
antitrust laws. The United States Court of Appeals denied Dean Witter,
Discover & Co.'s motion for a rehearing en banc, and in June 1995, the United
States Supreme Court refused to review the decision of the Court of Appeals.
While the United States Supreme Court refused to review the Court of Appeals
decision with regard to Dean Witter, Discover & Co.'s antitrust claims, the
case is continuing on Dean Witter, Discover & Co.'s state law claims and
VISA's counterclaims.
Also, there are proposed in the Congress and certain state legislatures from
time to time new laws and amendments to existing laws to regulate further the
credit card industry or reduce finance charges applicable to credit card
accounts. However, the Seller is unable to determine and has no basis on which
to predict whether or to what extent legal, economic or social factors will
affect card use, repayment patterns or revenues. In order, in part, to avoid
the occurrence of a Rapid Amortization Period or Rapid Accumulation Period due
to changes in card use and payment patterns, the Seller has agreed to add
Additional Accounts, if they are available, to be included in the Accounts if
Aggregate Principal Receivables in the Trust falls below certain levels.
Economic factors including the rate of inflation, unemployment and relative
interest rates may also be reflected in changes of card use and payment
patterns, including increased risks of defaults by cardholders. Since the
largest number of the cardholders (based on billing addresses) whose Accounts
historically have been included in the Trust are in California, Illinois, New
York and Texas, adverse changes in economic conditions in these areas could
have a direct impact on the timing and amount of payments on the Certificates.
In addition, the Receivables include delinquent and reaged Receivables and in
all likelihood include obligations of cardholders who are or are about to
become bankrupt or insolvent. If there are not sufficient funds from the
allocable portions of collections of Finance Charge Receivables as described
herein or from the other sources of payment described
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in the related Prospectus Supplement, interest paid to Certificateholders of
the affected Series on future Distribution Dates and the aggregate amount of
principal returned to such Certificateholders will be reduced.
The Ability of the Seller to Change Terms of the Accounts. The Seller has
the right to determine the periodic charges (which may be computed on a
monthly or daily basis) and other fees which will be 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 periodic charges would decrease the effective yield on the
Accounts and could result in the occurrence of a Liquidation Event and the
commencement of a Rapid Amortization Period or a Rapid Accumulation Period
with respect to one or more Series. In servicing the Accounts, the Servicer is
required to exercise the same care and apply the same policies that it
exercises in servicing comparable accounts which it owns or services. Under
the Agreement, the Seller has agreed that, unless required by law or unless,
in its good faith judgment, necessary to maintain on a competitive basis its
credit card business, it will not reduce the annual percentage rate of the
periodic charge assessed on the Receivables or other fees on the Accounts if,
as a result of such reduction, its reasonable expectation of the Portfolio
Yield is a rate less than the Base Rate of any Series. The Servicer also has
covenanted that it will change other terms relating to the Accounts only if,
in the reasonable judgment of the Servicer, (x) if the Seller owns a
comparable segment of consumer revolving credit card accounts, such change is
made applicable to any such comparable segment owned by the Seller which has
characteristics the same or substantially similar to the Accounts, or (y) if
the Seller does not own such a comparable segment, such change is not made
with the intent to benefit materially the Seller over Certificateholders.
Except as specified above, there are no restrictions on the Servicer's ability
to change the terms of the Accounts. The Servicer has instituted programs to
waive annual fees on certain accounts, has from time to time changed the
minimum monthly payment on Accounts, has allowed cardholders to elect a
variable rate option (which, under certain circumstances, could allow for a
lower periodic charge than the fixed rate periodic charge assessed by the
Seller) and has lowered the spread applicable to certain variable rate
Accounts. There can be no assurances that changes in applicable law, changes
in the marketplace or prudent business practice might not result in a
determination by the Servicer to take other actions which would otherwise
change Account terms.
The Seller introduced a variable rate card in 1987. From 1989 through 1994,
the Seller emphasized the origination of such accounts and substantially all
new accounts originated during that time were variable rate accounts. The
Seller also offered all cardholders with fixed rate accounts the opportunity
to switch to a variable rate option. The total yield on such variable rate
Accounts is affected by fluctuations in the prime rate, and decreases in the
prime rate will diminish the yield on such Accounts. Depending on fluctuations
in interest rates, the variable rate monthly periodic charge may change from
month to month and could be less than the fixed charge applicable to most
standard fixed rate Accounts. Commencing in 1994, the Seller has offered
certain new non-affinity accounts a fixed rate periodic charge on purchases
for an initial period which, after such period, converts into a variable rate
periodic charge. The initial fixed rates on these new accounts is
substantially lower than that which the Seller generally assesses on its
standard fixed rate Accounts and is also generally lower than the variable
periodic charge assessed on most variable rate Accounts. Commencing in mid-
1996, the Seller introduced certain other pricing changes including increased
fees and performance-based pricing whereby certain delinquent accounts are
assessed a higher variable periodic rate. Also in 1996, the Seller reduced the
minimum monthly payment required of cardholders in those months when a fee is
charged to their accounts. The Seller cannot predict how fluctuations in the
prime rate and/or the continued use of the initial fixed/variable rate pricing
for certain new Accounts, or the reduction in the minimum monthly payment, may
affect the future revenue experience of the Accounts.
Master Trust Considerations. The Trust, as a master trust, has previously
issued a number of Series of Certificates, and is expected to issue other
additional Series from time to time in the future. The Prospectus Supplement
identifies all previously issued Series which remain outstanding. While the
Principal Terms of any Series will be specified in a Supplement, the
provisions of a Supplement and, therefore, the terms of any additional Series,
will not be subject to the prior review or consent of Certificateholders of
any previously issued Series. Such Principal Terms may include methods for
determining applicable Invested Percentages and allocating collections,
provisions creating different or additional security or other Enhancement,
provisions subordinating such Series to another Series or other Series (if the
Supplement relating to such Series so permits)
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to such Series, and any other amendment or supplement to the Agreement which
is made applicable only to such Series. It is a condition precedent to the
issuance of any additional Series that either (x) each Rating Agency which has
rated any outstanding Series deliver written confirmation to the Trustee that
the Exchange will not result in such Rating Agency reducing or withdrawing its
rating on any outstanding Series or (y) if at the time of the Exchange there
is no outstanding Series which is currently rated by a Rating Agency, a
nationally recognized investment banking firm or commercial bank deliver a
certificate to the Trustee to the effect that the Exchange will not have an
adverse effect on the timing or distribution of payments to such other Series.
There can be no assurance, however, that the Principal Terms of any other
Series, including any Series issued from time to time hereafter, might not
have an impact on the timing and amount of payments received by a
Certificateholder. See "Description of the Certificates and the Agreement--
Exchanges."
Addition of Accounts. The Seller may, and in some cases will be obligated
to, designate Additional Accounts, the Receivables in which will be conveyed
to the Trust. There can be no assurance that the Seller will have Eligible
Additional Accounts to so designate. Since substantially all of the
receivables in the accounts in the Bank's Portfolio have already been
transferred to the Trust, any new accounts which may be designated by the
Seller as Additional Accounts may have different terms and provisions than the
Accounts. Further, the Additional Accounts which the Seller may designate may
be subject to different eligibility criteria than the Accounts. Such
Additional Accounts may include accounts originated using criteria different
from those which were applied to the Accounts because such accounts were
originated at a later date or were part of a special portfolio of credit card
accounts originated by the Seller or an affiliate of the Seller or were
acquired from another credit card issuer. The Seller is required to give prior
written notice of any such addition to the Rating Agency, and, prior to the
date of such addition, the Seller must not have received notice from any
Rating Agency of its intention to reduce or withdraw the rating of any Series
of Certificates due to such addition. See "Description of the Certificates and
the Agreement--Addition of Accounts."
Control. Subject to certain exceptions, the Certificateholders of each
Series (and, if so provided in the related Supplement, the Enhancement
Provider with respect to such Series) may take certain actions, or direct
certain actions to be taken, under the Agreement or the related Supplement.
However, under certain circumstances, the consent or approval of a specified
percentage of the aggregate Invested Amount of all Series will be required to
direct certain actions, including requiring the appointment of a successor
Servicer following a Servicer Default, amending the Agreement and directing a
repurchase of all outstanding Series upon the breach of certain
representations and warranties by the Seller. In addition, if a receiver or
conservator were appointed for the Seller causing a Liquidation Event with
respect to all Series then outstanding, the Trustee would sell the portion of
the Receivables allocable to Certificates offered hereby as set forth in the
Agreement unless (i) holders of more than 50% of the Invested Amount of each
Preexisting Series, (ii) unless otherwise specified in the Supplement relating
thereto, a majority in Invested Amount of each Class of each Series issued
after the Preexisting Series (including a majority in interest in each
Collateral Interest), (iii) each holder of an interest in the First Chicago
Interest and (iv) any other person specified in any Supplement, instruct
otherwise or unless otherwise required by the FDIC. Therefore, even if a
majority in Invested Amount of each Class of each Series being offered
pursuant to the accompanying Prospectus Supplement were to instruct the
Trustee not to sell the Receivables upon the occurrence of the aforementioned
Liquidation Event, such instruction would not be effective unless agreed to by
(i) a majority in Invested Amount of each Preexisting Series, (ii) unless
otherwise specified in the Supplement relating thereto, a majority in Invested
Amount of each Class of each Series issued after the Preexisting Series
(including a majority in interest in each Collateral Interest), (iii) each
holder of an interest in the First Chicago Interest and (iv) any other person
specified in a Supplement.
Rating of the Certificates. It is a condition to the issuance of the
Certificates that they be rated in one of the four highest rating categories
by at least one Rating Agency. Any rating assigned to the Certificates of a
Series or a Class by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders of such Series or Class
will receive the payments of interest and principal required to be made under
the Agreement (including amounts payable from any Pre-Funding Account) and
will be based primarily on the value of the Receivables in the Trust and the
availability of any Enhancement with respect to such Series or Class. However,
any such rating will not, unless specified in the related Prospectus
Supplement with respect
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to any Class or Series offered hereby, address the likelihood that the
principal of, or interest on, any Certificates of such Class or Series will be
paid on a scheduled date. In addition, any such rating will not address the
possibility of the occurrence of a Liquidation Event with respect to such
Class or Series or the possibility of the imposition of United States
withholding tax with respect to non-U.S. Certificateholders. The rating will
not be a recommendation to purchase, hold or sell Certificates of such Series
or Class, and such rating will not comment as to the marketability of such
Certificates, any market price or suitability for a particular investor. There
is no assurance that any rating will remain for any given period of time or
that any rating will not be lowered or withdrawn entirely by a Rating Agency
if in such Rating Agency's judgment circumstances so warrant.
The Seller will request a rating of each Class of Certificates offered
hereby by at least one Rating Agency. There can be no assurance as to whether
any rating agency not requested to rate any Class of Certificates will
nonetheless issue a rating with respect to any such Class of Certificates,
and, if so, what such rating would be. A rating assigned to any Series of
Certificates or Class thereof by a rating agency that has not been requested
by the Seller to do so may be lower than the rating assigned by a Rating
Agency pursuant to the Seller's request.
Limited Credit Enhancement. Although Enhancement may be provided with
respect to a Series of Certificates or any Class thereof, the amount available
will be limited and will be subject to certain reductions. If the amount
available under any Enhancement is reduced to zero, or Enhancement is
otherwise not available to cover a loss, Certificateholders of the Series or
Class thereof covered by such Enhancement will bear directly the credit and
other risks associated with their undivided interest in the Trust and will be
more likely to suffer a loss. See "Enhancement."
Book-Entry Registration. Unless otherwise specified in the related
Prospectus Supplement, the Certificates of each Series initially will be
represented by certificates registered in the name of Cede and will not be
registered in the names of the Certificate Owners or their nominees. Because
of this, unless and until Definitive Certificates are issued, Certificate
Owners of such Series will not be recognized by the Trustee as
Certificateholders, as that term is used in the Agreement. Hence, until such
time, Certificate Owners will only be able to exercise the rights of
Certificateholders indirectly through DTC, Cedel or Euroclear and their
participating organizations, and will receive reports and other information
provided for under the Agreement only if, when and to the extent provided to
Certificate Owners by DTC, Cedel or Euroclear and their participating
organizations. See "Description of the Certificates and the Agreement--Book-
Entry Registration" and "--Definitive Certificates."
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THE BANK'S CREDIT CARD BUSINESS
GENERAL
The interests in Receivables which the Seller has conveyed or will convey to
the Trust pursuant to the Agreement are generated from transactions made by
holders of certain Classic VISA and VISA Gold credit card accounts and certain
Standard MasterCard and Gold MasterCard credit card accounts. These accounts
were generated under the VISA USA, Incorporated ("VISA") or MasterCard
International Incorporated ("MasterCard International") programs and were
either originated by the Bank or FNBC, or purchased by the Bank or FNBC from
other credit card issuers. Effective as of July 1, 1987, FNBC transferred its
credit card operation and all its credit card accounts to the Bank, although
FNBC retained ownership of all receivables comprising the existing balances in
such accounts. Subsequently, such receivables also were transferred to the
Bank. The Bank is a member of MasterCard International, and First Chicago NBD
and the Bank are members of VISA. The Bank currently offers other VISA and
MasterCard credit card accounts with various program features, charges and
rate structures. The Bank services these accounts at its headquarters located
in Wilmington, Delaware and its operations center located in Elgin, Illinois
and retains two affiliated credit card servicing companies, First Card
Services, Inc. ("FCSI"), located in Uniondale, New York, and NBD Service
Corp., located in Indianapolis, Indiana, to perform collection and customer
service activities.
The VISA and MasterCard credit cards are issued as part of the worldwide
VISA and MasterCard International systems and transactions creating the
receivables through the use of the credit cards are processed through the VISA
and MasterCard International systems. Should either system materially curtail
its activities, or should the Bank cease to be a member of MasterCard
International or First Chicago NBD and the Bank cease to be members of VISA,
for any reason, a Liquidation Event could occur, and delays in payments on the
Receivables and possible reductions in the amounts thereof could also occur.
The VISA and MasterCard credit cards of the type pursuant to which the
Accounts were established may be used for two types of transactions: purchases
and cash advances (including balance transfers). Cardholders make purchases
when using a credit card to buy goods or services. A cash advance is made when
a credit card is used to obtain cash from a financial institution, from an
automated teller machine or by writing a check on an account; a balance
transfer occurs when a cardholder transfers a credit card balance with another
credit card issuer to an account with the Seller. Amounts due with respect to
each type of transaction will be included in the Receivables.
The VISA and MasterCard credit card accounts owned by the Bank were
principally generated through: (i) direct mail solicitations for accounts on a
preapproved credit basis; (ii) applications made available to prospective
cardholders at FNBC, the Bank and their affiliates, at retail outlets, at
other financial institutions with which arrangements have been made, on
college campuses and in magazines; (iii) affinity marketing; and (iv)
purchases of accounts from other credit card issuers.
If an account is opened in response to a direct mail preapproved
solicitation, the prospective cardholder's name has previously been screened
through a credit bureau to ensure that the person meets certain standards of
creditworthiness and fiscal responsibility. In the case of preapproved
solicitations, the credit limit is based upon the prospective cardholder's
creditworthiness as measured by the Seller's risk evaluation process, length
and depth of credit experience and usage of credit. In the case of pre-
approved solicitations where an offer is made for a credit card with a credit
line "up to" a predetermined amount, credit line assignment is based on
similar criteria at the time of the response.
Before an account is opened in response to an application, the prospective
cardholder's application is reviewed for completeness and creditworthiness. A
credit report issued by an independent credit reporting agency is generally
obtained and information on such report regarding the applicant may be
verified. The ability of the applicant to repay credit card balances is
generally evaluated by applying a credit score card, which is intended to
provide a general indication, based on the information available, of the
applicant's willingness and ability to repay his obligations. If an
application is approved, an initial credit limit is established for the
account based on the applicant's credit score.
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Affinity marketing involves the solicitation of prospective cardholders from
identifiable groups with a common interest and/or common cause. Affinity
marketing is conducted through two approaches: the first relies on the
solicitation of organized membership groups with the written endorsement of
the group's leadership and the second utilizes solicitation of prospective
cardholders through the use of purchased lists. Solicitation activities used
in connection with affinity marketing also include: solicitation in
appropriate magazines, telemarketing and applications made available to
prospective cardholders in appropriate locations. In certain cases,
preapproved solicitations will be used in the same manner as described in the
preceding paragraph.
Credit card accounts that have been purchased by FNBC and the Bank were
originally opened using criteria established by the institution from which the
accounts were purchased or by the institution from which the selling
institution originally purchased the accounts. Purchased accounts are screened
against criteria which are set at the time of acquisition to determine whether
any of the purchased accounts should be closed immediately. Any accounts
failing the criteria are closed. All other such accounts remain open. The
credit limits on such accounts are based initially on the limits established
or maintained by the selling institution.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such cardholder agreement, the Bank
reserves the right to change or terminate any terms, conditions, services or
features of the accounts (including increasing or decreasing periodic charges,
other charges or minimum payments). Credit limits may be adjusted periodically
based upon the Bank's continuing evaluation of the cardholder's payment
behavior.
COLLECTION EFFORTS
Efforts to collect delinquent credit card receivables are made by the Bank
and FCSI personnel and collection agencies and attorneys retained by the Bank.
Under current practice, the Bank includes a request for payment of overdue
amounts on all billing statements subsequent to a delinquency. Collection
personnel generally initiate telephone contact with cardholders whose credit
card accounts have become 30 days or more delinquent. Certain cardholders whom
the Bank considers higher risk may be contacted when their accounts first
become delinquent. In the event that initial telephone contact fails to
resolve the delinquency, the Bank continues to contact the cardholder by
telephone and by mail. The Bank may also enter into arrangements with
cardholders to extend or otherwise change payment schedules. The current
policy of the Bank is to recognize losses no later than the 180th day of
delinquency (i.e., 210 days after the date of the billing statement), although
charge-offs may be made earlier in some circumstances. The credit evaluation,
servicing and charge-off policies and collection practices of the Bank may
change over time in accordance with the Bank's business judgment and
applicable law. Under the terms of the Agreement, any recoveries (including
insurance proceeds) received on charged-off Accounts are retained by the Bank
and are not included in the assets of the Trust.
LOSS AND DELINQUENCY EXPERIENCE
The Prospectus Supplement relating to each Series sets forth the loss and
delinquency experience with respect to payments by cardholders for
substantially all VISA and MasterCard consumer revolving credit card accounts
owned by the Bank (excluding certain accounts not originated by the Bank or
FNBC) (the "Bank's Portfolio") during the periods shown in the Prospectus
Supplement. There can be no assurance, however, that the loss and delinquency
experience for the Receivables in the future will be similar to the historical
experience set forth in the Prospectus Supplement for the Bank's Portfolio.
The Bank has policies to allow delinquent accounts whose cardholders are
making good faith efforts to repay overdue amounts to be deemed current
("reaged") provided certain conditions are satisfied. If an account is 90 days
delinquent or greater, it qualifies for reaging treatment if the sum of the
payments received during the preceding five months (or in certain
circumstances the lesser of (a) five months or (b) the number of months since
the account was last current) is generally equal to the sum of the three
oldest minimum payments. The reaging process permits only one reaging of an
account from 90 days delinquent or greater categories in a 12-month period.
With respect to accounts that are 30 to 90 days delinquent, reaging treatment
occurs pursuant to a
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process which uses criteria that are more liberal than the criteria described
above. An account 30 to 90 days delinquent can be reaged so long as these
criteria are met. The entire process is system controlled. In addition to
automatic reaging, account closure and usage restrictions are system
controlled. When an account is 30 days delinquent, charge privileges are
suspended. Account closure occurs automatically when an account is 60 days
delinquent. Reinstatement of closed accounts requires a full credit review;
only a minimal number of closed accounts qualify for reinstatement. The Bank
may terminate, alter or modify its reaging process at any time. Currently, the
Bank is evaluating various collection strategies which, if implemented, would
alter the reaging process for certain accounts. The delinquency information
set forth in the Prospectus Supplement reflects the application of the Bank's
current reaging process.
REVENUE EXPERIENCE
The gross revenues from periodic charges and fees billed to cardholders on
the Bank's Portfolio are set forth in the Prospectus Supplement for the
periods indicated in the Prospectus Supplement.
The revenues for the Bank's Portfolio shown in the Prospectus Supplement are
related to periodic charges (either computed on a monthly or daily basis) and
other fees billed to cardholders but do not include revenue attributable to
Interchange. The revenues related to periodic charges and fees depend in part
upon the collective preference of cardholders to use their credit cards as
revolving debt instruments for purchases and cash advances and paying off
account balances over several months as opposed to convenience use, where the
cardholders prefer instead to pay off their entire balance each month, thereby
avoiding periodic charges on purchases, fees and finance charges. Revenues
related to periodic charges and fees also depend on the types of charges and
fees assessed by the Bank on the accounts. The Bank introduced a variable rate
card in 1987. From 1989 through 1994, the Bank emphasized the origination of
variable rate accounts and substantially all new accounts originated during
that time were variable rate accounts. Depending upon fluctuations in interest
rates, the variable rate periodic charge (which is based on the prime rate)
assessed on variable rate accounts may change from month to month and could be
less than the fixed charge applicable to most standard fixed rate accounts.
Commencing in 1994, the Bank began offering certain new non-affinity accounts,
for purchase transactions, a fixed rate periodic charge for an initial period
which then converts into a variable rate. The initial fixed rate offered on
such accounts is substantially lower than that currently assessed on the
variable rate accounts or the standard fixed rate accounts. The total yield on
such accounts during the initial fixed rate period is therefore lower than
that of a variable rate account or standard fixed rate account. In mid-1996,
the Bank introduced certain changes to the terms of the Accounts, including
increased fees, a reduced minimum monthly payment in those months when a fee
is charged to an Account and performance-based pricing whereby certain
delinquent accounts are assessed a higher periodic charge. Fluctuations in the
prime interest rate, and/or the continued use of the initial fixed/variable
rate pricing for certain new accounts, may affect future revenue experience.
INTERCHANGE
Members participating in the VISA and MasterCard International associations
receive certain fees ("Interchange") as partial compensation for taking credit
risk, absorbing fraud losses, funding full payer receivables and servicing
cardholders for a limited period prior to initial billing. Under the VISA and
MasterCard International 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 International may from time to time change the
amount of Interchange reimbursed to banks issuing their credit cards.
Interchange will be allocated to the Trust on the basis of the percentage
equivalent of the ratio which the amount of cardholder sales charges in the
Accounts bears to the total amount of cardholder sales charges for all
accounts in the Seller's entire portfolio. This percentage is an estimate of
the actual Interchange and may be greater or less than the actual amount of
the Interchange relating to the Accounts from time to time. Unless otherwise
specified in the related Prospectus Supplement, Interchange will be included
in Finance Charge Receivables for purposes of calculating the Portfolio Yield
for a Series.
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THE ACCOUNTS
GENERAL
The Accounts currently consist of substantially all of the VISA(R) and
MasterCard(R) consumer revolving credit card accounts existing in all of the
Seller's ten billing cycles (billing cycles 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9),
excluding certain accounts not originated by either the Seller or FNBC.
Additional accounts added to each of the foregoing billing cycles in the
normal operation of the Seller's credit card business will generally be added
on a daily basis as a category of Additional Accounts. See "Description of the
Certificates and the Agreement--Addition of Accounts."
The Seller's VISA and MasterCard accounts are grouped into billing cycles
for the purpose of administrative convenience. Each billing cycle has a
separate monthly billing date at which time the activity in the related
accounts during the month ending on such billing date are processed and billed
to cardholders. The Accounts include VISA and MasterCard accounts in billing
cycles ending at the close of business on ten separate days in each month. The
Seller transferred to the Trust all Receivables existing in the Accounts on
the billing date for such Account in either May 1990, September 1990, May
1991, July 1991 May 1992 or June 1996 (each, a "Cut Off Date") and all
Receivables generated in each such Account after the applicable Cut Off Date.
All monthly calculations with respect to each Account are computed based on
the activity during the applicable billing cycle for that Account (the monthly
billing cycle periods for the Accounts ending in the same month during the
term of the Trust being collectively referred to herein as a "Due Period").
Thus, in the case of the October 1996 Distribution Date, for example, monthly
collections would be based on the September 1996 Due Period and would reflect
collection activity for billing cycles commencing at the opening of business
on the 2nd, 4th, 7th, 10th, 13th, 16th, 19th, 22nd, 25th and 28th days of
August 1996, and ending at the close of business of the 1st, 3rd, 6th, 9th,
12th, 15th, 18th, 21st, 24th and 27th days of September 1996, respectively,
with respect to the Accounts in each of such billing cycles.
Accounts were previously assigned to billing cycles based on the month in
which they were opened. More recently, new accounts have been assigned to
billing cycles in a manner which is intended, for purposes of administrative
convenience, to equalize the number of accounts in the billing cycles. Because
the Accounts include substantially all the accounts existing in the Seller's
ten billing cycles (except for certain accounts not originated by either the
Seller or FNBC), and because the Receivables include all amounts payable by
cardholders under the Accounts, the Receivables of some of the Accounts
include delinquent or reaged Receivables and may include obligations of
cardholders who are or are about to become bankrupt or insolvent.
Pursuant to the Agreement, the Seller has the right (subject to certain
limitations and conditions described below) to designate from time to time
additional qualifying VISA and MasterCard consumer revolving credit card
accounts of the Bank to be included as Accounts and to convey to the Trust all
Receivables in such Additional Accounts, whether such Receivables are then
existing or thereafter created. The Seller currently adds all new accounts
opened in the ordinary course of business in the ten billing cycles as
Automatic Additional Accounts on a daily basis and currently intends to
continue the addition of such new accounts. In addition, the Seller is
required to designate Additional Accounts (x) to maintain the First Chicago
Amount equal to Aggregate Principal Receivables minus the sum of the Invested
Amounts for all Series, so that the First Chicago Amount for the related Due
Period equals or exceeds 7% of the Aggregate Principal Receivables for the
same Due Period, or such lower percentage as is acceptable to the Rating
Agencies, subject to certain conditions (the "Minimum First Chicago Interest
Percentage") and (y) to maintain, for so long as the Certificates remain
outstanding, Aggregate Principal Receivables in an amount equal to or greater
than the sum of the initial Invested Amounts (or other amounts, if applicable)
of all outstanding Series and (the "Minimum Aggregate Principal Receivables").
The Seller will convey the Receivables then existing or thereafter created
under any such Additional Accounts to the Trust. Further, pursuant to the
Agreement, the Seller has the right (subject to certain limitations and
conditions discussed herein) to accept the removal of certain Accounts
designated by the Seller
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from the Trust and to require the Trustee to convey all Receivables in such
Removed Accounts to the Seller, whether such Receivables are then existing or
thereafter created. Throughout the term of the Trust, the Accounts from which
the Receivables arise will be the same Accounts designated by the Seller on
the applicable Cut Off Dates plus any Additional Accounts and minus any
Removed Accounts. See "Description of the Certificates and the Agreement--
Conveyance of Receivables."
The Prospectus Supplement includes tables summarizing the Accounts by
various criteria as well as certain other information relating to the
Accounts, including information supplementing the foregoing description of the
Accounts. Such information includes the amount of Principal Receivables and
Finance Charge Receivables in the Accounts, the average Receivables balance of
the Accounts, the average credit limit of the Accounts and the aggregate total
Receivables balance as a percentage of the aggregate total credit limit of the
Accounts.
BILLING AND PAYMENTS
The credit card accounts owned by the Bank include accounts originated or
purchased by the Bank or FNBC. These accounts have various billing and payment
structures, including varying annual fees and periodic charges. The Prospectus
Supplement contains information on the current billing and payment
characteristics of the Accounts.
The Bank has the right to determine the periodic charges applicable to the
Accounts, including the right to alter or defer minimum monthly payments
required under the Accounts or to change various other terms with respect to
the Accounts, subject to certain limitations contained in the Agreement. See
"Description of the Certificates and the Agreement--Collection and Other
Servicing Procedures."
Payments by cardholders to the Bank on the Accounts are processed and
applied first to any fees billed to the Accounts, next to billed and unpaid
periodic charges and then to billed and unpaid transactions in the order
determined by the Bank. Any excess is applied to unbilled periodic charges.
There can be no assurance that periodic rates, fees and other charges will
remain at current levels in the future. See "Description of the Certificates
and the Agreement--Collection and Other Servicing Procedures."
THE SELLER
The primary business of the Seller, a wholly-owned subsidiary of First
Chicago NBD, is the processing and issuance of VISA and MasterCard credit
cards. The Seller, which was acquired by First Chicago NBD as of July 1, 1987,
from Beneficial Corporation, was named Beneficial National Bank USA prior to
its acquisition by First Chicago NBD. The Prospectus Supplement contains
additional information relating to the Seller.
The principal executive offices of the Seller are located at One Gateway
Center, 300 King Street, Wilmington, Delaware 19801 (telephone 302-594-8606).
The principal executive offices of First Chicago NBD are located at One First
National Plaza, Chicago, Illinois 60670 (telephone 312-732-4000).
THE TRUST
The Trust was formed for this and like transactions pursuant to the
Agreement and prior to formation had no assets or obligations. Since its
formation, the Trust has not engaged in any business activity but rather
acquires and holds Receivables and the other assets of the Trust and proceeds
therefrom, issues additional Series and makes payments on the Certificates and
related activities. As a consequence, the Trust is not expected to have any
need for, or source of, capital resources other than the assets of the Trust.
The Trust has issued and outstanding the Series identified in the Prospectus
Supplement.
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USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be paid to the
Seller. The Seller intends to use such proceeds for general corporate
purposes.
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS
For each Series, following its Revolving Period, collections of Principal
Receivables are expected to be distributed to the Certificateholders of such
Series or any specified Class thereof on each specified Distribution Date
during the Controlled Amortization Period or the Principal Amortization
Period, or are expected to be accumulated for payment to Certificateholders of
such Series or any specified Class thereof during a Controlled Accumulation
Period and distributed on a Scheduled Payment Date; provided, however, that,
if a Rapid Amortization Period or a Rapid Accumulation Period commences,
collections of Principal Receivables will be paid to Certificateholders or
accumulated in the manner described herein and in the related Prospectus
Supplement. The related Prospectus Supplement specifies when the Controlled
Amortization Period, the Principal Amortization Period or Controlled
Accumulation Period, as applicable, will commence, the principal payments
expected or available to be received or accumulated during such Controlled
Amortization Period, Principal Amortization Period or Controlled Accumulation
Period, or a Rapid Accumulation Period, as applicable, the manner and priority
of principal payments and accumulations among the Classes of a Series of
Certificates, the payment rate assumptions on which such expected principal
accumulations and payments are based and the Liquidation Events which, if any
were to occur, would lead to the commencement of a Rapid Amortization Period
or, if so specified in the related Prospectus Supplement, a Rapid Accumulation
Period.
The Prospectus Supplement includes a table setting forth the highest and
lowest cardholder monthly payment rates for the Bank's Portfolio during any
month in each period shown in such table and the average cardholder monthly
payment rates for all months during such periods shown, in each case
calculated as a percentage of total opening monthly account balances during
the periods shown.
The amount of collections on Receivables may vary from month to month due to
seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of
Principal Receivables with respect to the Accounts will be similar to the
historical experience set forth in the Prospectus Supplement. Further, if a
Liquidation Event occurs with respect to a Series, the average life and
maturity of the Certificates of such Series could be significantly reduced.
Likewise, the sharing of collections of Principal Receivables allocated to
other Series with a Series during a Rapid Amortization Period or Rapid
Accumulation Period with respect to that Series could significantly reduce the
duration of such a period.
The amount of outstanding Receivables and the rates of payments,
delinquencies, charge-offs and new borrowings on the Accounts depend upon a
variety of factors, including seasonal variations, the availability of other
sources of credit, general economic conditions and consumer spending and
borrowing patterns. Accordingly, there can be no assurance that future
cardholder monthly payment rate experience will be similar to historical
experience.
DESCRIPTION OF THE CERTIFICATES AND THE AGREEMENT
The Certificates of each Series will be issued pursuant to the Agreement and
a Supplement entered into between the Bank, as transferor of interests in the
Receivables and as Servicer of the Accounts and the Receivables, and Norwest
Bank Minnesota, National Association, as Trustee for the Certificateholders.
Pursuant to the Agreement, the Seller may execute further Supplements thereto
between the Seller and the Trustee in order to issue additional Series. See
"--Exchanges." The Trustee will provide a copy of the Agreement (without
exhibits or schedules), including any Supplements, to Certificateholders
without charge upon written request. The following summary describes certain
terms of the Agreement common to each Series of Certificates and is qualified
in its entirety by reference to the Agreement and the related Supplement.
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GENERAL
The Certificates will represent an undivided interest in the Trust,
including the right to receive, in the aggregate, the applicable Invested
Percentage of all collections received with respect to the Receivables in the
Trust. The property of the Trust consists of the Receivables generated under
the Accounts and under any Additional Accounts hereinafter added to the Trust,
all funds to be collected from cardholders in respect of Receivables (other
than recoveries with respect to previously charged-off Receivables, unless
such recoveries are made available to one or more Series as specified in the
related Prospectus Supplement, and insurance proceeds), all moneys on deposit
in the Collection Account and any other account established for the benefit of
any Series (which account may not be for the benefit of any other Series), the
right to receive certain Interchange fees attributable to the Accounts (which
right may not be afforded to a Series) and any Enhancement issued with respect
to any particular Series (the drawing on or payment of which may not be
available to the Certificateholders of any other Series). The Trust will not
include the Receivables from any Removed Accounts which may be removed from
the Trust from time to time pursuant to the terms of the Agreement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates and one or more of which may be
Subordinated Certificates. Each Class of a Series will evidence the right to
receive a specified portion of each distribution of principal or interest or
both. The Invested Amount with respect to a Series with more than one Class
will be allocated among the Classes as described in the related Prospectus
Supplement. The Certificates of a Class may differ from Certificates of other
Classes of the same Series in, among other things, the amounts allocated to
principal payments, maturity date, Certificate Rate and the availability of
Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates of such Series were
registered on the record dates (each, a "Record Date") specified in the
related Prospectus Supplement. Interest will be distributed to
Certificateholders in the amounts, for the periods and on the dates specified
in the related Prospectus Supplement.
For each Series of Certificates, the Seller initially will own the
Exchangeable Seller's Certificate. The Exchangeable Seller's Certificate
represents the undivided interest in the Trust not represented by the
Certificates or the rights, if any, of any Enhancement Providers to receive
payments from the Trust. The holder of the Exchangeable Seller's Certificate
will have the right to a percentage (the "First Chicago Percentage") of all
cardholder payments from the Receivables in the Trust.
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for a Series, the Invested Amount of such Series will remain
constant except under certain limited circumstances. The amount of Principal
Receivables in the Trust, however, will vary each day as new Principal
Receivables are created and others are paid. The amount of the First Chicago
Amount will fluctuate each day, to reflect the changes in the amount of the
Principal Receivables in the Trust. When a Series is amortizing, or when
principal with respect thereto is accumulating in the Principal Funding
Account for such Series, the Invested Amount of such Series will decline as
customer payments of Principal Receivables are collected and distributed to or
accumulated for distribution to the Certificateholders. As a result, the First
Chicago Amount will generally increase to reflect reductions in the Invested
Amount for such Series and will also change to reflect the variations in the
amount of Principal Receivables in the Trust. The First Chicago Amount may
also be reduced as the result of an Exchange.
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each Series initially will be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"), except as set forth
below. Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, beneficial interests in the
Certificates will be available for purchase in minimum denominations of $1,000
and integral multiples thereof in book-entry form only. The Seller has been
informed by DTC that DTC's nominee will be Cede. Accordingly, Cede is expected
to be the holder of record of each Series of Certificates offered hereby. No
Certificate Owner acquiring an interest in the Certificates will be entitled
to receive a certificate representing such person's interest in the
Certificates.
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Unless and until Definitive Certificates are issued for any Series under the
limited circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its participating organizations ("Participants"), and all references herein to
distributions, notices, reports and statements to Certificateholders shall
refer to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the Certificates, as the case may be, for distribution to
Certificate Owners in accordance with DTC procedures. See "--Book-Entry
Registration" and "--Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg Stock Exchange or any other
specified exchange.
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, Certificate Owners may hold their
interests in the Certificates offered hereby 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 be the registered holder of the global
Certificates. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective Depositaries which in turn
will hold such positions in customers' securities accounts in the
Depositaries' names on the books of DTC. Citibank, N.A. ("Citibank"), will act
as depositary for Cedel and Morgan Guaranty Trust Company of New York
("Morgan") will act as depositary for Euroclear (in such capacities, the
"Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between Cedel Participants and Euroclear
Participants will occur in the ordinary way in accordance with their
applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Cedel Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time zone differences, credits of securities received in Cedel or
Euroclear as a result of a transaction with a DTC 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 Participant on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
or a Euroclear Participant to a DTC Participant will be received with value on
the DTC settlement date but will be available in the relevant Cedel or
Euroclear cash account only as of the business day following settlement in
DTC. For additional information regarding clearance and settlement procedures
for the Certificates, see Annex I hereto and for information with respect to
tax documentation procedures relating to the Certificates, see Annex I hereto
and "Tax Matters--Foreign Investors."
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York UCC, and a
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"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its Participants and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly (the "Indirect Participants").
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interest
in, Certificates may do so only through Participants and Indirect
Participants. In addition, Certificate Owners will receive all distributions
of principal of and interest on the Certificates from FNBC, as paying agent,
or its successor in such capacity (the "Paying Agent"), through the
Participants who in turn will receive them from DTC. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Paying Agent to Cede,
as nominee for DTC. DTC will forward such payments to its Participants which
thereafter will forward them to Indirect Participants or Certificate Owners.
Certificate Owners will not be recognized by the Trustee as
Certificateholders, as such term is used in the Agreement or any Supplement,
and Certificate Owners will only be permitted to exercise the rights of
Certificateholders indirectly through the Participants who in turn will
exercise the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Certificates similarly
are required to make book-entry transfers and receive and transmit such
payments on behalf of their respective Certificate Owners. Accordingly,
although Certificate Owners will not possess Certificates, Certificate Owners
will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificate Owner to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for
such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement or any Supplement only at the
direction of one or more Participants to whose account with DTC the
Certificates are credited. Additionally, DTC has advised the Seller that it
will take such actions with respect to specified percentages of the Invested
Amount of a Series only at the direction of and on behalf of Participants
whose holdings include undivided interests that satisfy such specified
percentages. DTC may take conflicting actions with respect to other undivided
interests to the extent that such actions are taken on behalf of Participants
whose holdings include such undivided interests.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel Participants
through electronic book-entry changes in accounts of Cedel Participants,
thereby eliminating the need for physical movement of certificates.
Transactions may be settled in Cedel in any of 36 currencies, including United
States dollars. Cedel provides to its 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 and may
include the Underwriters. Indirect access to Cedel is also available to
others, such as banks, brokers, dealers
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and trust companies that clear through or maintain a custodial relationship
with a Cedel Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 34 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian
Law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawals of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Tax Matters." Cedel or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a
Certificateholder under the Agreement or any Supplement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, Cedel
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in fully registered, certificated
form to Certificate Owners or their nominees (the "Definitive Certificates"),
rather than to DTC or its nominee, only if (i) the Seller advises the Trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Certificates of such
Series, and the Trustee or the Seller is unable to locate a qualified
successor, (ii) the Seller, at its option,
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elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of a Servicer Default, Certificate Owners representing in the
aggregate not less than 50% of the aggregate Invested Amount of all Series
then issued and outstanding advise DTC through Participants in writing that
the continuation of a book-entry system through any Depository is no longer in
the best interest of the Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the affected Certificates and
instructions for re-registration, the Trustee will issue the affected
Certificates as Definitive Certificates, and thereafter the Trustee will
recognize the holders of such Definitive Certificates as holders under the
Agreement (the "Holders").
Distribution of principal and interest on the Certificates will be made by
the Paying Agent directly to Holders of Definitive Certificates in accordance
with the procedures set forth herein, in the related Prospectus Supplement and
in the Agreement. Interest and principal payments on a Distribution Date will
be made to Holders in whose names the Definitive Certificates were registered
at the close of business on the related Record Date. Distributions will be
made by check mailed to the address of such Holder as it appears on the
certificate register. The final payment on any Certificate (whether a
Definitive Certificates or a certificate registered in the name of Cede
representing the Certificates of a Series), however, will be made only upon
presentation and surrender of such certificate at the office or agency
specified in the notice of final distribution to Certificateholders of such
Series. The Trustee will provide such notice to registered Certificateholders
not later than the fifth day of the month of such final distribution.
Unless otherwise specified in the related Prospectus Supplement, Definitive
Certificates will be transferable and exchangeable at the offices of the
Transfer Agent and Registrar, which shall initially be FNBC. No service charge
will be imposed for any registration of transfer or exchange, but the Transfer
Agent and Registrar may require payment of a sum sufficient to cover any tax
or other governmental charge imposed in connection therewith. The Transfer
Agent and Registrar, as the case may be, shall not be required to register the
transfer or exchange of Definitive Certificates for a period of 15 days
preceding the due date for any payment with respect to such Definitive
Certificates.
INTEREST PAYMENTS
For each Series of Certificates and Class thereof, interest will accrue from
the relevant Series Closing Date on the applicable Invested Amount at the
applicable Certificate Rate, which may be a fixed, floating or other type of
rate as specified in the related Prospectus Supplement. Interest will be
distributed to Certificateholders on the Distribution Dates specified in the
related Prospectus Supplement. Interest payments on any Distribution Date will
be funded from collections of Finance Charge Receivables allocated to the
Invested Amount during the preceding Due Period or Due Periods and may be
funded from certain investment earnings on funds held in accounts of the Trust
and from any applicable Enhancement, if necessary, or certain other amounts as
specified in the related Prospectus Supplement. If the Distribution Dates for
payment of interest for a Series or Class occur less frequently than monthly,
such collections or other amounts (or the portion thereof allocable to such
Class) may be deposited in one or more trust accounts (each, an "Interest
Funding Account") pending distribution to the Certificateholders of such
Series or Class, as described in the related Prospectus Supplement. If a
Series has more than one Class of Certificates, each such Class may have a
separate Interest Funding Account. The Prospectus Supplement relating to each
Series of Certificates and each Class thereof will describe the amounts and
sources of interest payments to be made, the Certificate Rate, and, for a
Series or Class thereof bearing interest at a floating Certificate Rate, the
dates and the manner for determining Certificate Rates, and the formula, index
or other method by which such Certificate Rates are determined.
PRINCIPAL PAYMENTS
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for each Series of Certificates (which begins on the related
Series Closing Date and ends on the day before an
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Amortization Period or Accumulation Period begins), no principal payments will
be made to the Certificateholders of such Series. During the Controlled
Amortization Period, Principal Amortization Period or Accumulation Period, as
applicable, which will be scheduled to begin on the date specified in, or
determined in the manner specified in, the related Prospectus Supplement, and
during the Rapid Amortization Period, which will begin upon the occurrence of
a Liquidation Event, principal will be paid to the Certificateholders in the
amounts and on Distribution Dates specified in the related Prospectus
Supplement or will be accumulated in a Principal Funding Account for later
distribution to Certificateholders on the Scheduled Payment Date in the
amounts specified in the related Prospectus Supplement. Principal payments for
any Series or Class thereof will be funded from collections of Principal
Receivables received during the related Due Period or Due Periods as specified
in the related Prospectus Supplement and allocated to such Series or Class and
from certain other sources specified in the related Prospectus Supplement. In
the case of a Series with more than one Class of Certificates, the
Certificateholders of one or more Classes may receive payments of principal at
different times. The related Prospectus Supplement will describe the manner,
timing and priority of payments of principal to Certificateholders of each
Class.
Funds on deposit in any Principal Funding Account applicable to a Series may
be subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified in the related Prospectus Supplement intended to
assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
Series of Certificates or Class thereof at the end of an Accumulation Period,
such Series of Certificates or Class thereof may be subject to a principal
guaranty or other similar arrangement specified in the related Prospectus
Supplement.
CONVEYANCE OF RECEIVABLES
As of each of June 28, 1990, October 25, 1990, June 12, 1991, August 1,
1991, June 1, 1992, and July 1, 1996, the Seller transferred and assigned to
the Trust the Receivables in the applicable portion of the Accounts
outstanding as of the relevant Cut Off Date, all of the Receivables thereafter
created under the Accounts and the proceeds of all of the foregoing (other
than recoveries with respect to previously charged-off Receivables and
insurance proceeds).
In connection with the transfer of the Receivables to the Trust, and the
sale of the previously issued Series of Certificates and the Certificates
offered hereby, the Seller has reflected and will reflect the transfer of a
portion of the Receivables in an amount equal to the sum of the initial
Invested Amounts of the previously issued Series of Certificates and the
initial Invested Amount of the Series of Certificates offered hereby to the
Trust on its books and records. In addition, the Seller has provided or will
provide to the Trustee a computer file or a microfiche list containing a true
and complete list showing for each Account, as of the applicable Cut Off Date,
(i) its account number and billing cycle, (ii) its collection status, (iii)
the aggregate amount outstanding in such Account and (iv) the aggregate amount
of Principal Receivables in such Account. The Bank, as initial Servicer, is
retaining and is not delivering to the Trustee any other records or agreements
relating to the Accounts or the Receivables. The records and agreements
relating to the Accounts and the Receivables are not segregated from those
relating to other credit card accounts and receivables and neither the
computer files nor the physical documentation relating to the Accounts or
Receivables are stamped or marked to reflect the transfer of Receivables to
the Trust. The Seller has filed or will file UCC financing statements with
respect to the Receivables meeting the requirements of New York, Illinois and
Delaware state law. See "Risk Factors" and "Certain Legal Aspects of the
Receivables."
EXCHANGES
The Agreement provides for the Trustee to issue two types of certificates:
(i) one or more Series of Certificates which are transferable and have the
characteristics described below and (ii) the Exchangeable Seller's
Certificate, a certificate which evidences the First Chicago Interest,
presently is held by the Seller and generally
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is not transferable. The Agreement also provides that, pursuant to any one or
more Supplements, the Seller may tender the Exchangeable Seller's Certificate,
or the Exchangeable Seller's Certificate and the certificates evidencing any
Series of Certificates, to the Trustee in exchange for one or more new Series
and a reissued Exchangeable Seller's Certificate. Under the Agreement, the
Seller may define, with respect to any newly issued Series: (i) its name or
designation; (ii) its initial principal amount (or method for calculating such
amount); (iii) its coupon rate (or formula for the determination thereof);
(iv) the interest payment date or dates and the date or dates from which
interest shall accrue; (v) the method for allocating to Certificateholders of
such Series collections; (vi) the names of any accounts to be used by such
Series and the terms governing the operation of any such accounts; (vii) the
percentage used to calculate monthly servicing fees; (viii) the Minimum First
Chicago Interest Percentage; (ix) the minimum amount of Aggregate Principal
Receivables required to be maintained through the designation by the Seller of
Additional Accounts; (x) the issuer and terms of a letter of credit or other
form of Enhancement with respect thereto; (xi) the Base Rate applicable to
such Series; (xii) the terms on which the Certificates of such Series may be
repurchased by the Seller or remarketed to other investors; (xiii) the Series
Termination Date; (xiv) any deposit into any account maintained for the
benefit of Certificateholders of such Series; (xv) the number of Classes of
such Series, and if more than one Class, the rights and priorities of each
such Class; (xvi) the extent to which the Certificates of such Series will be
issuable in temporary or permanent global form (and, in such case, the
Depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for definitive certificates, and the manner in which any
interest payable on a temporary or global certificate will be paid);
(xvii) whether the Certificates of such Series may be issued in bearer form
and any limitations imposed thereon; (xviii) whether Interchange will be
included in funds available to Certificateholders of such Series; (xix) the
priority of any Series with respect to any other Series; (xx) the rights of
the holders of the Exchangeable Seller's Certificate that have been
transferred to the holders of such Series; and (xxi) any other relevant terms
(all such terms, the "Principal Terms" of such Series). None of the Seller,
the Servicer, the Trustee or the Trust is required or intends to obtain the
consent of any Certificateholder to issue any additional Series. However, as a
condition of an Exchange, the Seller will deliver to the Trustee written
confirmation that the Exchange will not result in the applicable Rating Agency
reducing or withdrawing its rating of any outstanding Series. The Seller may
offer any Series to the public under a Disclosure Document in transactions
either registered under the Act or exempt from registration thereunder
directly, through one or more underwriters or placement agents, in fixed-price
offerings or in negotiated transactions or otherwise. Any such Series may be
issued in fully registered or book-entry form in minimum denominations
determined by the Seller. A chart set forth in the Prospectus Supplement
provides the Principal Terms and other relevant characteristics of the other
outstanding Series which have been issued or are proposed to be issued by the
Trust. The Seller intends to offer, from time to time, additional Series.
The Agreement provides that the Seller may perform Exchanges and define
Principal Terms such that each Series has a period during which amortization
or accumulation of the principal amount thereof is intended to occur which may
have a different length and begin on a different date than such period for any
other Series. Further, one or more Series may be in their Amortization Periods
or Accumulation Periods while other Series are not. Thus, certain Series may
not be amortizing, or accumulating principal for ultimate payment to
Certificateholders, while other Series are in such Amortization Period or
Accumulation Period. Moreover, each Series may have the benefits of a letter
of credit, Cash Collateral Account, Collateral Interest, interest rate swap or
other form of Enhancement provided by entities different from those providing
the letters of credit, Cash Collateral Accounts, Collateral Interests,
interest rate swaps or other form of Enhancement with respect to any other
Series. Under the Agreement, any such letter of credit, Cash Collateral
Account, Collateral Interests, interest rate swap or other form of Enhancement
shall only be available for the Series to which it relates. Likewise, with
respect to each such letter of credit, Cash Collateral Account, Collateral
Interest, interest rate swap or other form of Enhancement, the Seller may
deliver a different letter of credit, loan, collateral, swap or other form of
Enhancement agreement. The Agreement also provides that the Seller may specify
different coupon rates and monthly servicing fees with respect to each Series.
Collections allocated to Finance Charge Receivables not used to pay interest
on the Certificates, the Monthly Servicing Fee, the Investor Default Amount,
Investor Charge-Offs or other amounts payable with respect to any Series will
be allocated as provided in such letter of
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credit, loan, collateral, swap or other form of Enhancement agreement, if
applicable. The Seller also has the option under the Agreement to vary between
Series the terms upon which a Series may be repurchased by the Seller or
remarketed to other investors. Additionally, certain Series may be
subordinated to other Series, or Classes within a Series may have different
priorities. There is no limit to the number of Exchanges that the Seller may
perform under the Agreement. The Trust will terminate only as provided in the
Agreement.
Under the Agreement and pursuant to a Supplement, an Exchange may only occur
upon the satisfaction of certain conditions provided in the Agreement. Under
the Agreement, the Seller may perform an Exchange by notifying the Trustee at
least three days in advance of the date upon which the Exchange is to occur.
Under the Agreement, the notice will state the designation of any Series to be
issued on the date of the Exchange and, with respect to each such Series: (i)
its initial principal amount (or method for calculating such amount), (ii) its
Certificate Rate and (iii) the provider of a letter of credit, Cash Collateral
Account, Collateral Interest, interest rate swap or other form of Enhancement,
if any, with respect to such Series. On the date of the Exchange, the
Agreement provides that the Trustee will issue any such Series only upon
delivery to it of the following: (i) a Supplement in form satisfactory to the
Trustee signed by the Seller and specifying the Principal Terms of such
Series, (ii) an opinion of counsel to the effect that, unless otherwise
specified in the related Supplement, the Certificates of such Series will be
characterized as debt under existing law for Federal income tax purposes and
that the issuance of such Series will not materially adversely impact the
Federal income tax characterization of any outstanding Series, (iii) the
letter of credit, Cash Collateral Account, funds for the purchase of the
Collateral Interest, interest rate swap or other form of Enhancement, if any,
and a letter of credit, loan, collateral, swap or other form of Enhancement
agreement with respect thereto executed by the Seller and the provider of the
letter of credit, Cash Collateral Account, Collateral Interest, interest rate
swap or other form of Enhancement, (iv) written confirmation from the
applicable Rating Agency that the Exchange will not result in such Rating
Agency reducing or withdrawing its rating on any outstanding Series and (v)
the existing Exchangeable Seller's Certificate and the applicable Certificates
of the Series to be exchanged, if applicable. Upon satisfaction of such
conditions, the Trustee will cancel the existing Exchangeable Seller's
Certificate and the Certificates of the exchanged Series, if applicable, and
issue the new Series and a new Exchangeable Seller's Certificate.
COVENANTS, REPRESENTATIONS AND WARRANTIES
The Seller has covenanted to the Trustee for the benefit of all
Certificateholders of all Series which from time to time may have an interest
in the Trust that, as to the Receivables and the Accounts, unless cured within
60 days from receipt of notice from the Trustee, the Seller will accept the
transfer of any Receivable which is written off as uncollectible or any
Receivable the proceeds of which are unavailable to the Trust, if (i) such
Receivable is not an Eligible Receivable or (ii) the Agreement does not
constitute either (a) a valid transfer and assignment to the Trust of all
right, title and interest of the Seller in and to such Receivable, whether
then existing or thereafter created, and of all proceeds thereof (including
amounts in the Collection Account) or (b) a grant of a first priority
perfected security interest in such Receivable and, with certain exceptions
and for certain limited periods of time, the proceeds thereof (including
amounts in the Collection Account), which security interest is effective as to
each Receivable upon the creation thereof. Additionally, under certain
conditions, the Seller covenants in the Agreement to accept the transfer of
each Receivable which is subject to certain specified liens immediately upon
the discovery of such liens.
The Seller shall accept the transfer of any Receivable, as described above,
by deducting the principal balance of such Receivable from the aggregate
amount of Principal Receivables used to calculate the First Chicago Interest;
provided, however, that if such deduction would reduce the First Chicago
Interest below zero or would otherwise not be permitted by law, the Seller
will be obligated to make a deposit in the Collection Account in immediately
available funds equal to the Transfer Deposit Amount. Such deposit shall be
considered a payment in full of the ineligible Receivable. Any amounts so paid
by the Seller shall be allocated in respect of Finance Charge Receivables and
Principal Receivables as provided in the Agreement.
The Seller represented and warranted as of the issuance dates for all
previous Series, and will represent and warrant as of the issuance date of the
Certificates offered hereby, to the Trustee for the benefit of all
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Certificateholders of all Series which from time to time may have an interest
in the Trust, that (i) the Agreement constitutes a legal, valid, binding and
enforceable obligation of the Seller, (ii) all material information with
respect to the Accounts and the Receivables in the list provided to the
Trustee was true and correct in all material respects as of the applicable Cut
Off Dates and (iii) any Additional Accounts conformed as of the applicable
date to the computer file or list of Additional Accounts provided by the
Seller to the Trustee on or prior to the date the Receivables in such
Additional Accounts were added to the Trust (or in the case of Automatic
Additional Accounts, to the computer file or list of Additional Accounts
provided by the Seller to the Trustee on the applicable Determination Date as
described in "--Addition of Accounts" below). In the event that (x) any of the
representations and warranties described in clause (i), (ii) or (iii) above
are not true and correct or (y) a material amount of Receivables are not
Eligible Receivables, and such event has a material adverse effect on the
interests of holders of the Certificates, then either the Trustee or the
holders of Certificates evidencing undivided interests in the Trust
aggregating more than 50% of the aggregate Invested Amount of all Series, by
written notice to the Seller (and to the Trustee and the Servicer, if given by
the Certificateholders), may direct the Seller to purchase all Series
outstanding within 60 days of such notice. The Seller is obligated to purchase
all Series on a Distribution Date occurring within such applicable period,
unless the representations and warranties shall then be true and correct in
all material respects or there shall no longer be a material amount of
Receivables which are not Eligible Receivables, as the case may be. The
purchase price is equal to the aggregate Invested Amount of all Series on the
Record Date related to the applicable payment date on which the purchase is
scheduled to be made plus an amount equal to all interest accrued but unpaid
on all Series at the applicable Certificate Rates through the end of the
Interest Periods of such Series. The payment of such purchase price into the
Collection Account in immediately available funds will be considered a
prepayment in full of all Receivables and will be paid in full to the
Certificateholders upon presentation and surrender of their Certificates. The
obligations described above shall be the sole remedies respecting the
foregoing representations, warranties and events available to the Trustee or
the Certificateholders.
An "Eligible Receivable" is defined to mean each Receivable (i) which has
arisen under an Eligible Account or an Eligible Additional Account, (ii) which
was created in compliance with all requirements of law and pursuant to a
credit card agreement which complies with all requirements of law in either
case the failure to comply with which would have a material adverse effect
upon certificateholders, (iii) with respect to which all consents or
authorizations of, or registrations with, any governmental authority required
to be obtained or given by the Seller in connection with the creation of such
Receivable or the execution, delivery and performance by the Seller of the
related credit card agreement have been duly obtained or given and are in full
force and effect as of such date of creation, (iv) as to which the Trust will
at all times have good and marketable title, free and clear of all liens,
encumbrances, charges and security interests (except those permitted by the
Agreement), (v) which will at all times be the legal, valid and binding
payment obligation of the cardholder thereof enforceable against such
cardholder in accordance with its terms, subject to certain bankruptcy and
equity related exceptions, (vi) which constitutes either an "account" or a
"general intangible" under and as defined in Article 9 of the UCC as then in
effect in the States of Delaware, Illinois and New York, (vii) which, at the
time of its transfer to the Trust, has not been waived or modified except as
permitted by the Agreement, (viii) which is not subject to any right of
rescission, setoff, counterclaim or other defense (including the defense of
usury), other than certain bankruptcy and equity related defenses and
adjustments permitted by the Agreement to be made by the Servicer, (ix) as to
which the Seller has satisfied all obligations to be fulfilled at the time it
is transferred to the Trust and (x) as to which the Seller has done nothing,
at the time of its transfer to the Trust, to impair the rights of the Trust or
certificateholders therein. An "Eligible Account" is defined to mean an
account (i) which is a VISA or MasterCard consumer revolving credit card
account and was in existence and owned by the Bank at the close of business on
its Cut Off Date, (ii) which is payable in United States dollars, (iii) the
credit card or cards for which accounts have not been reported lost or stolen,
(iv) the receivables in which have not been written off, (v) which was not
originated or originally purchased by Beneficial National Bank USA, (vi) which
is not part of certain affinity programs and (vii) which was not originated by
The Society for Savings, Hartford, Connecticut.
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
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defects, compliance with the Seller's representations and warranties or for
any other purpose. The Servicer, however, is required to deliver to the
Trustee on or before March 31 of each year an opinion of counsel with respect
to the validity of the security interest of the Trust in and to the
Receivables.
ADDITION OF ACCOUNTS
As described above under "The Accounts," the Seller has the right and, in
some circumstances is obligated, to designate from time to time Additional
Accounts to be included as Accounts and to convey to the Trust all Receivables
in such Additional Accounts, whether such Receivables are then existing or
thereafter created. The Seller is required to add Additional Accounts if, on a
Determination Date, the First Chicago Amount for the related Due Period is
less than the Minimum First Chicago Interest Percentage of the Aggregate
Principal Receivables for the same Due Period or if, on any Determination
Date, Aggregate Principal Receivables are less than the Minimum Aggregate
Principal Receivables (or such higher amount established pursuant to a
Supplement). Each such Additional Account must be an "Eligible Additional
Account." An "Eligible Additional Account" is either: (i) an account (a) which
is a VISA or MasterCard consumer revolving credit card account which was in
existence and owned by the Bank on the date on which such account is to be
added to the Trust, (b) which is payable in United States dollars, (c) the
credit card or cards for which have not been reported lost or stolen and (d)
the receivables in which have not been charged off; (ii) any Automatic
Additional Account; or (iii) any other consumer revolving credit card account
which the applicable Rating Agency permits to be added to the Trust. The
Seller is required to give prior written notice of such additions to the
Rating Agency and prior to the date of such addition shall not have received
notice from any Rating Agency of its intention to reduce or withdraw the
rating of any Series of Certificates.
Accounts opened during the normal operation of the Seller's credit card
business in the billing cycles the Receivables of which are included in the
Trust (or any other billing cycle of the Seller of which a substantial portion
of the Receivables have been transferred to the Trust in the future) may also
be added to the Trust automatically on a daily basis ("Automatic Additional
Accounts"). Automatic Additional Accounts will not include those accounts
purchased by the Seller from another credit card issuer or accounts included
in any affinity program or other special program, the accounts of which are
not then currently included in the Trust. The Seller, at its option, may
terminate or suspend the inclusion of Automatic Additional Accounts at any
time. The Seller will provide to the Trustee on each Determination Date a
computer file or a microfiche list containing a true and complete list showing
each Automatic Additional Account included during the Due Period relating to
such Determination Date and indicating for each such Automatic Additional
Account as of its first billing date (i) its account number and billing cycle,
(ii) its collection status, (iii) the aggregate amount outstanding in such
Automatic Additional Account and (iv) the aggregate amount of Principal
Receivables in such Automatic Additional Account.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next succeeding sentence, on each
Determination Date on which the First Chicago Amount exceeds 15% of Aggregate
Principal Receivables with respect to such Determination Date, the Seller may,
but shall not be obligated to, accept all Receivables and proceeds thereof
from certain Accounts offered to it by the Trustee, without notice to the
Certificateholders. The Seller may, at its sole discretion, accept such offer
in an aggregate amount equal to an amount not greater than the excess of the
First Chicago Amount over the amount of Aggregate Principal Receivables
required to be maintained pursuant to the Agreement and any Supplement for
deletion and removal from the Trust. The Seller is permitted to designate and
require reassignment to it of the Receivables from Removed Accounts only upon
satisfaction of the following conditions: (i) the Seller shall have delivered
to the Trustee for execution a written reassignment and a computer file or
microfiche list containing a true and complete list of all Accounts in the
Trust after such removal, the Accounts to be identified by, among other
things, account number and their aggregate amount of Principal Receivables;
(ii) the Seller shall represent and warrant that no selection procedure used
by the Seller which is adverse to the interests of the Certificateholders was
utilized in selecting the Removed Accounts; (iii) the removal of any
Receivables of any Removed Accounts shall not, in the reasonable belief of the
Seller,
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cause a Liquidation Event to occur; (iv) the Seller shall have delivered prior
written notice of the removal to each Rating Agency which has rated any
outstanding Series and prior to the date on which such Receivables are to be
removed shall not have received notice from any Rating Agency of its intention
to reduce or withdraw the rating of any Series of Certificates; and (v) the
Seller shall have delivered to the Trustee an officer's certificate confirming
the items set forth in clauses (i) through (iv) above.
COLLECTION ACCOUNT
The Trustee has established and maintains in the name of the Trustee, on
behalf of the Trust, a segregated trust account for the benefit of the
Certificateholders. The Collection Account has been established and is
maintained with the trust department of The First National Bank of Chicago, an
Eligible Institution. An "Eligible Institution" is defined as a depository
institution organized under the laws of the United States or any one of the
States thereof, which is a member of the FDIC and which has a short-term
unsecured debt rating of at least A-1 and P-1 by the applicable Rating Agency;
provided, however, that no such rating shall be required of an institution
which maintains the Collection Account as a fully segregated trust account
with the trust department of such institution. The Trustee, the Seller or the
Servicer, or any affiliate of either of them, may qualify as an Eligible
Institution. Funds in the Collection Account may be invested, at the direction
of the Servicer, in: (i) obligations fully guaranteed by the United States of
America; (ii) demand deposits, time deposits, certificates of deposit or
bankers' acceptances of certain depository institutions or trust companies
having the highest rating from the applicable Rating Agency; (iii) commercial
paper having, at the time of the Trust's investment, a rating in the highest
rating category from the applicable Rating Agency; (iv) money market funds
which have the highest rating from the applicable Rating Agency; or (v) any
other investment if the applicable Rating Agency confirms in writing that such
investment will not adversely affect its rating on any Series (collectively,
the "Eligible Investments"). Any earnings (net of losses and investment
expenses) on funds in the Collection Account are paid monthly to the Seller.
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 the Servicer's or the
Trustee's duties under the Agreement.
OTHER TRUST ACCOUNTS
If so specified in the Prospectus Supplement relating to a Series, the
Trustee shall have the power to establish one or more accounts for such
Series, including an Interest Funding Account, a Principal Funding Account, a
Pre-Funding Account or such other account specified in the related Prospectus
Supplement, each of which series accounts shall be held for the benefit of
Certificateholders of the related Series and for the purposes set forth in the
related Prospectus Supplement. Such series account will be established at an
Eligible Institution (which may be the Trustee or an affiliate of the Seller,
Servicer or Trustee) unless otherwise specified in the related Prospectus
Supplement. Funds in any series account established by a Series Supplement may
be invested in Eligible Investments or otherwise as provided in the related
Prospectus Supplement. Any earnings (net of losses and investment expenses) on
funds in such series accounts will be paid to, or for the account of, the
Seller or as otherwise specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Servicer will
have revocable power to withdraw funds from the series accounts for the
purpose of carrying out the Servicer's duties under the Agreement and related
Supplement.
FUNDING PERIOD
For any Series of Certificates, the related Prospectus Supplement may
specify that during a Funding Period, all or a portion of the principal amount
of such Series (the "Pre-Funding Amount") will be held in a Pre-Funding
Account pending the transfer of additional Receivables to the Trust or pending
the reduction of the Invested Amounts of one or more 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 added to the Trust or as the
Invested Amounts of the other Series of the Trust are reduced. If the Invested
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Amount does not equal the Full Invested Amount by the end of the Funding
Period, Certificateholders of the affected Series will receive principal
repayments prior the expected date of receipt. See "Risk Factors--Pre-Funding
Account."
During the Funding Period, funds on deposit in the Pre-Funding Account for a
Series of Certificates will be withdrawn and paid to the holder of the
Exchangeable Seller's Certificate to the extent of any increases in the
Invested Amount of such Series. 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 will be payable to the
Certificateholders of such Series in the manner and at such time as set forth
in the related Prospectus Supplement. Such payment will reduce the aggregate
principal amount of such Certificates. In addition, if so specified in the
related Prospectus Supplement, a prepayment premium or penalty or similar
amount may be payable to the Certificateholders of such Series.
Monies in the Pre-Funding Account will be invested by the Trustee in
Eligible Investments and, if so specified in the related Prospectus
Supplement, will be subject to a guaranteed rate or investment agreement or
other similar arrangement, and, in connection with each Distribution Date
during the Funding Period, investment earnings on funds in the Pre-Funding
Account will be withdrawn from the Pre-Funding Account and deposited, together
with any applicable payment under a guaranteed rate or investment agreement or
other similar arrangement, into the Collection Account for distribution in
respect of interest on the Certificates of the related Series in the manner
specified in the related Prospectus Supplement.
PAIRED SERIES
If specified in the Prospectus Supplement relating to a Series, such Series
may be paired with another Series (each, a "Paired Series"), such that a
reduction in the Invested Amount of one such Series generally results in an
increase in the Invested Amount of the other such Series. The effects of this
feature will be described in the related Prospectus Supplements of the Paired
Series.
ALLOCATION PERCENTAGES
Pursuant to the Agreement, during each Due Period the Servicer will allocate
between the Series issued by the Trust and the First Chicago Interest all
amounts collected on Finance Charge Receivables and all amounts collected on
Principal Receivables and the amount of all Defaulted Receivables. Collections
of Finance Charge Receivables (including the applicable portion of
Interchange) and Defaulted Receivables will be allocated at all times to a
Series, and collections of Principal Receivables will be allocated during the
Revolving Period with respect to a Series and generally paid to the Seller or,
in certain circumstances, to the Enhancement Provider or to other Series,
based on the percentage equivalent of a fraction, the numerator of which is
the Invested Amount for such Distribution Date, and the denominator of which
is Aggregate Principal Receivables for the related Due Period (the "Floating
Allocation Percentage"). During an Amortization Period or Accumulation Period
with respect to a Series (or Class thereof), collections of Principal
Receivables will be allocated thereto based on the percentage equivalent of a
fraction, the numerator of which is the Invested Amount as of the end of the
day on the last Distribution Date relating to the Revolving Period (or such
other amount determined in the manner specified in the related Prospectus
Supplement) and the denominator of which is the greater of (a) Aggregate
Principal Receivables for the Due Period related to the current Distribution
Date and (b) the sum of the numerators used to calculate the Invested
Percentages with respect to Principal Receivables for all Series outstanding
for the current Distribution Date (the "Fixed Allocation Percentage").
"Invested Percentage" means, on any date of determination with respect to
any Distribution Date: (a) when used with respect to Principal Receivables
during an Amortization Period or Accumulation Period with respect to a Series
(or Class thereof), the Fixed Allocation Percentage; and (b) when used with
respect to Principal Receivables during the Revolving Period with respect to a
Series (or Class thereof) and Finance Charge Receivables and Defaulted
Receivables at any time, the Floating Allocation Percentage.
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"First Chicago Percentage" means when used with respect to allocations of
collections of Finance Charge Receivables and Principal Receivables and the
amount of Defaulted Receivables, 100% minus the sum of the applicable Invested
Percentages with respect to all Series then issued and outstanding.
APPLICATION OF COLLECTIONS
The Bank, as Servicer, uses for its own benefit all collections received
with respect to the Receivables in each Due Period until the related Transfer
Date at which time such collections are applied as described below. Under the
Agreement, collections on the Receivables for any Due Period are allocated
such that all collections up to the amount of Finance Charge Receivables
billed at the beginning of such Due Period are deemed collections of Finance
Charge Receivables and the remaining amount of such collections are deemed
collections of Principal Receivables. If the short-term deposit ratings of the
Seller are reduced below A-1 or P-1 by the applicable Rating Agency, then the
Seller will, within five business days, commence the deposit of collections
directly into the Collection Account within one business day of the date of
processing and will move the Collection Account, if then held by the Seller,
to an Eligible Institution other than the Seller, which Eligible Institution
may be an affiliate of the Seller. In addition, if at any time the Seller is
not the Servicer, the Servicer will, within five business days, commence the
deposit of all collections received with respect to the Receivables in each
Due Period into the Collection Account within one business day of the date of
processing, and, in such event, the Collection Account, if then held by the
Seller, will be moved to an Eligible Institution other than the Seller. Should
the Seller be required to make daily deposits into the Collection Account as
described above, the Seller, upon the approval of each Rating Agency, may make
an estimated allocation of collections between Finance Charge Receivables and
Principal Receivables.
Throughout the existence of the Trust, the Servicer allocates to the Seller,
as holder of the Exchangeable Seller's Certificate, an amount equal to the
First Chicago Percentage of the aggregate amount of collections allocable to
Principal Receivables and Finance Charge Receivables in respect of such Due
Period. On each Determination Date with respect to the Revolving Period for a
Series, the Servicer will allocate to the Seller or, in certain circumstances,
to the Enhancement Provider for such Series or to other Series, from
collections, an amount equal to the Floating Allocation Percentage of the
aggregate amount of collections in respect of Principal Receivables for the
related Distribution Date, except that the amount of such allocation with
respect to Principal Receivables shall not exceed the amount of the First
Chicago Interest in Principal Receivables (after giving effect to any new
Receivables transferred to the Trust for the Due Period relating to such
Determination Date).
On each Determination Date with respect to a Controlled Amortization Period
or a Controlled Accumulation Period for a Series, the Servicer will allocate
to the Seller or, in certain circumstances, to the Enhancement Provider for
such Series or to other Series, from collections, an amount equal to the
excess of the Fixed Allocation Percentage for the related Distribution Date of
the aggregate amount of collections in respect of Principal Receivables over
the amount required to be distributed or accumulated as principal with respect
to such Series, except that the amount of such allocation with respect to
Principal Receivables shall not exceed the amount of the First Chicago
Interest in Principal Receivables (after giving effect to any new Receivables
transferred to the Trust for the Due Period relating to such Determination
Date).
On each Distribution Date with respect to a Principal Amortization Period, a
Rapid Amortization Period or a Rapid Accumulation Period for a Series, the
Servicer will distribute, or accumulate, collections of Principal Receivables
allocable to the Certificateholders of such Series in payment of principal, or
as accumulation of principal, on the Certificates of such Series.
The Servicer need not deposit amounts allocable to the Seller as holder of
the Exchangeable Seller's Certificate into the Collection Account and instead
may pay, or be deemed to pay, to the Seller such amounts as collected.
Any amounts in respect of Principal Receivables not distributed to the
Seller because such Principal Receivables would exceed the First Chicago
Interest in Principal Receivables (after giving effect to any new
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Receivables transferred to the Trust for the Due Period relating to such
Determination Date) ("Unallocated Principal Collections") will be held in the
Collection Account until distributable to the Seller or to one or more Series.
Any Transfer Deposit Amounts, any Adjustment Payments, any proceeds from any
repurchase of the Certificates occurring in connection with a Service Transfer
and the proceeds of any sale, disposition or liquidation of Receivables
following the occurrence of a Liquidation Event caused by the appointment of a
receiver or conservator for the Seller or in connection with a Series
Termination Date will also be deposited into the Collection Account
immediately upon receipt and will be allocated as collections of Principal
Receivables or Finance Charge Receivables, as applicable.
Payments to Certificateholders will be made from the Collection Account. In
addition to the amounts deposited in the Collection Account, as described
above, from payments on the Receivables, amounts required for any optional
repurchase or other purchase of the Certificates by the Seller or the proceeds
of any sale of the Receivables will be deposited in the Collection Account.
In the case of a Series of Certificates having more than one Class, the
amounts in the Collection Account will be allocated and applied to each Class
in the manner and order of priority described in the related Prospectus
Supplement.
The Paying Agent will initially be FNBC. The Paying Agent shall have the
revocable power to withdraw funds from the Collection Account for the purposes
of making distributions to the Certificateholders.
DISCOUNT OPTION
If so specified in the Prospectus Supplement for a Series, the Seller may at
any time designate a specified fixed or variable percentage as specified in
such Prospectus Supplement (the "Discount Percentage") of the amount of
Receivables arising in the Accounts on and after the date such option is
exercised that otherwise would have been treated as Principal Receivables to
be treated as Finance Charge Receivables. Such designation may be applicable
to one or more Series. Such designation will become effective upon
satisfaction of the requirements set forth in the Agreement, including written
confirmation by each Rating Agency in writing of its then current rating on
each outstanding Series affected thereby. On the date of processing of any
collections, the product of the Discount Percentage and collections of
Receivables that arise in the Accounts on such day on or after the date such
option is exercised 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.
SHARED COLLECTIONS OF FINANCE CHARGE RECEIVABLES
To the extent that collections of Finance Charge Receivables allocated to a
Series are not needed to make payments to Certificateholders of such Series or
other payments required in respect of such Series, such collections ("Excess
Finance Charge Collections") may be applied to cover shortfalls in amounts
payable from collections of Finance Charge Receivables allocable to one or
more other Series. There can be no assurance, however, that such Excess
Finance Charge Collections will be available to cover such shortfalls.
SHARED COLLECTIONS OF PRINCIPAL RECEIVABLES
To the extent that collections of Principal Receivables allocated to a
Series are not needed to make payments to or for the benefit of the
Certificateholders of such Series, such collections ("Excess Principal
Collections") may be applied to cover principal payments due to or for the
benefit of one or more other Series. Any such application of collections will
not result in a reduction of the Invested Amount of the Series to which such
collections were initially allocated. There can be no assurance, however, that
such Excess Principal Collections will be available to cover any shortfall of
principal due on any Distribution Date for any Series.
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DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
The term "Investor Default Amount" means, with respect to any Series and for
any Due Period, the product of the Floating Allocation Percentage for such
Distribution Date times the amount of Defaulted Receivables; the term
"Defaulted Receivables" means, for any Due Period, Receivables which in such
Due Period were written off as uncollectible in accordance with the Servicer's
policies and procedures for servicing credit card receivables comparable to
the Receivables. Under existing policies of the Servicer, Receivables which
are unpaid will be written off by the last day of the Due Period in which they
become 180 days delinquent (210 days after the date of the billing statement)
unless the cardholder cures such default by making a partial payment which
qualifies under the standards customarily applied by the Servicer.
In the case of a Series of Certificates having more than one Class, the
Investor Default Amount will be allocated among the Classes in the manner
described in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, an amount equal to the Investor Default Amount for any
Due Period may be paid from other amounts, including from collections of
Finance Charge Receivables available therefor or from Enhancement, and applied
to pay principal to Certificateholders or the holder of the Exchangeable
Seller's Certificates, as appropriate. In the case of a Series of Certificates
having one or more Classes of Subordinated Certificates, the related
Prospectus Supplement may provide that all or a portion of amounts otherwise
allocable to such Subordinated Certificates may be paid to the Senior
Certificates to make up any Investor Default Amount allocable to such Senior
Certificates. Any portion of the Investor Default Amount allocable to a Class
of Certificates and not covered by collections of Finance Charge Receivables,
Enhancement or subordination (or any other source specified in the related
Prospectus Supplement) will result in a reduction in the Invested Amount of
such Class (such reduction, an "Investor Charge-Off"). An Investor Charge-Off
for a Class of Certificates will slow down or reduce the return of principal
to the Certificateholders of the affected Class. Investor Charge-Offs will be
reimbursed on any Distribution Date to the extent Finance Charge Receivables,
Enhancement, subordination (or any other source specified in the related
Prospectus Supplement) is allocable to such affected Class in excess of other
required payments to be made to or in respect of such affected Class on such
Distribution Date. Any such reimbursement will result in an increase in the
Invested Amount with respect to such Class. In the case of a Series of
Certificates having more than one Class, the related Prospectus Supplement
will describe the manner and priority of allocating Investor Charge-Offs and
reimbursements thereof among the Classes of such Series.
If the Servicer adjusts the amount of any Receivable because of a rebate,
refund or billing error to a cardholder, or because such Receivable was
created in respect of merchandise which was refused or returned by a
cardholder, the amount of the First Chicago Interest for any Due Period will
be reduced by the amount of the adjustment. In addition, the amount of the
First Chicago Interest in the Trust will be reduced by the principal amount of
any Receivable which was discovered as having been created through a
fraudulent or counterfeit charge. After the Due Period in which any such
reduction in the amount of the First Chicago Interest occurred, the principal
amount of such Receivable described above will not be included in the
calculation of any Invested Percentage. Furthermore, to the extent that the
reduction in the First Chicago Interest in Principal Receivables would reduce
such interest below zero, the Seller will deposit an offsetting amount of cash
into the Collection Account (an "Adjustment Payment") on the related
Distribution Date for such Due Period.
DEFEASANCE
If so specified in the Prospectus Supplement relating to a Series, the
Seller may terminate its substantive obligations in respect of such Series by
depositing with the Trustee, from amounts representing, or acquired with,
collections of Receivables, money or certain Eligible Investments as described
in the related Prospectus Supplement sufficient to make all remaining
scheduled interest and principal payments on such Series, on the dates
scheduled for such payments, and to pay all amounts owing to any Enhancement
Provider with respect to such Series, if such action would not result in a
Liquidation Event for any Series. Prior to its first exercise of its right to
substitute money or Eligible Investments for Receivables, the Seller will
deliver to the Trustee (i) an opinion of counsel to the effect that such
deposit and termination of obligations will not result in the Trust being
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required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and (ii) an opinion of counsel to
the effect that, unless otherwise specified in the related Supplement, the
defeasance will not materially adversely impact the Federal income tax
characterization of the Series or any other outstanding Series.
FINAL PAYMENT OF PRINCIPAL; TERMINATION OF TRUST
The Certificates of each Series will be subject to optional repurchase by
the Seller on any Distribution Date on or after which the Invested Amount of
such Series is reduced to an amount less than or equal to 5% of the initial
Invested Amount thereof (or such other amount specified in the related
Prospectus Supplement), unless certain events of bankruptcy, insolvency or
receivership have occurred with respect to the Seller. The repurchase price of
the Certificates of a Series will be equal to the Invested Amount plus accrued
and unpaid interest on the Certificates through, and including, the day
preceding the Distribution Date with respect to which the repurchase occurs
(or such other amount specified in the related Prospectus Supplement). In any
event, the last payment of principal and interest on the Certificates of a
Series will be due and payable no later than the Series Termination Date for
such Series. In the event that the Invested Amount of a Series is greater than
zero on the applicable Series Termination Date, the Trustee will sell or cause
to be sold interests in the Receivables or certain Receivables, as specified
in the Agreement and the related Supplement, in an amount up to 110% of the
Invested Amount of such Series at the close of business on such date (but not
more than the total amount of Receivables allocable to such Series). The net
proceeds of such sale and any collections on the Receivables will be paid to
the Certificateholders of such Series in the priority specified in the related
Prospectus Supplement on the Series Termination Date as final payment of the
Certificates of such Series.
Unless the Seller instructs the Trustee otherwise, the Trust will only
terminate on the earlier of: (a) the day following the day on which funds
shall have been deposited in the Collection Account sufficient to pay in full
the aggregate Invested Amounts of all Series outstanding plus accrued interest
thereon at the applicable Certificate Rates through the applicable Interest
Period or (b) June 1, 2100. Upon the termination of the Trust and the
surrender of the Exchangeable Seller's Certificate, the Trustee shall convey
to the Seller all right, title and interest of the Trust in and to the
Receivables and other funds of the Trust (other than funds on deposit in the
Collection Account).
LIQUIDATION EVENTS
Unless otherwise specified in the related Prospectus Supplement, the
Revolving Period for a Series will continue through the date specified in the
related Prospectus Supplement, unless a Liquidation Event with respect to such
Series occurs. A Rapid Amortization Period or Rapid Accumulation Period will
commence at the beginning of the Due Period during which a Liquidation Event
occurs or is deemed to occur. A "Liquidation Event" occurs with respect to all
Series issued by the Trust upon the occurrence of any of the following events:
(i) certain events of insolvency, conservatorship or receivership
relating to the Seller; or
(ii) the Trust becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In the case of any event described in clause (i) or (ii), a Liquidation
Event with respect to all Series will be deemed to have occurred without any
notice or other action on the part of the Trustee or the Certificateholders
immediately upon the occurrence of such event. In addition, a Liquidation
Event may occur with respect to any Series upon the occurrence of any other
event specified in the related Prospectus Supplement. If a Liquidation Event
occurs and the FDIC is appointed as the receiver for the Bank and no
Liquidation Event other than such receivership or insolvency exists, the FDIC
may have the power to prevent commencement of a Rapid Amortization Period or a
Rapid Accumulation Period.
In addition to the consequences of a Liquidation Event discussed above, if
pursuant to certain provisions of Federal law, the Seller voluntarily goes
into liquidation or the FDIC or any other person is appointed a receiver
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or conservator of the Seller, on the day of such appointment the Seller will
immediately cease to transfer Principal Receivables to the Trust and promptly
give notice to the Trustee of such appointment. Within 15 days, the Trustee
will publish a notice of the liquidation or the appointment stating that the
Trustee intends to sell, dispose of or otherwise liquidate the Receivables in
a commercially reasonable manner and to the best of its ability. Unless
otherwise instructed within a specified period by certificateholders
representing undivided interests aggregating more than 50% of the Invested
Amount of any Preexisting Series, the Trustee will sell, dispose of or
otherwise liquidate the Receivables of all Series in a commercially reasonable
manner and on commercially reasonable terms. Furthermore, even if the
Receivables are not sold pursuant to the preceding sentence, with respect to
Series issued on or after April 19, 1995 (except as otherwise may be specified
in the related Supplement), unless otherwise instructed within a specified
period by holders representing undivided interests aggregating more than 50%
of the Invested Amount of each Class of each such Series (including a majority
in interest in each Collateral Interest), each holder of an interest in the
First Chicago Interest, the holders of more than 50% of the Invested Amount of
each Preexisting Series and any other person specified in any Supplement, the
Trustee will sell, dispose of or otherwise liquidate the portion of the
Receivables allocable to all Series other than the Preexisting Series in a
commercially reasonable manner and on commercially reasonable terms in
accordance with the Agreement. The proceeds from the sale, disposition or
liquidation of the Receivables will be treated as collections on the
Receivables and such proceeds will be distributed to the applicable
Certificateholders. See "Certain Legal Aspects of the Receivables--Certain
Matters Relating to Receivership" for a discussion of how Federal legislation
may affect the Trustee's ability to liquidate the Receivables.
INDEMNIFICATION
The Agreement provides that the Servicer will indemnify the Trust, for the
benefit of Certificateholders and the Trustee, from and against any loss,
liability, expense, damage or injury suffered or sustained arising out of the
activities of the Trust or the Trustee pursuant to the Agreement, including
those arising from acts or omissions of the Servicer; provided, however, that
the Servicer will not indemnify (i) the Trust or the Certificateholders for
any liabilities, costs and expenses with respect to Federal, state or local
income or franchise taxes required to be paid by the Trust or the
Certificateholders or (ii) the Trust, the Certificateholders or the Trustee
for liabilities imposed by reason of any wrongful actions taken by or
omissions of the Trustee.
Under the Agreement, the Seller will indemnify an injured party for the
entire amount of any losses, claims, damages or liabilities (other than those
incurred by a Certificateholder in the capacity of an investor in the
Certificates) arising out of or based on the Agreement as though the Agreement
created a partnership under the Uniform Partnership Act. The Seller will also
indemnify each Certificateholder for any such losses, claims, damages or
liabilities except to the extent that they arise from any action by such
Certificateholder. In the event of a Service Transfer, the successor Servicer
will indemnify the Seller for any losses, claims, damages and liabilities of
the Seller as described in this paragraph arising from the actions or
omissions of such successor Servicer.
The Agreement provides that none of the Seller, the Servicer or any of their
directors, officers, employees or agents will be under any other liability to
the Trustee, the Certificateholders or any other person for any action taken,
or for refraining from taking any action, in good faith pursuant to the
Agreement. However, none of the Seller, the Servicer or any of their
directors, officers, employees or agents will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence of any such person in the performance of their
duties or by reason of reckless disregard of their obligations and duties
thereunder.
In addition, the Agreement provides that the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Agreement. The Servicer
may, in its sole discretion, undertake any such legal action which it may deem
necessary or desirable for the benefit of Certificateholders with respect to
the Agreement and the rights and duties of the parties thereto and the
interest of the Certificateholders thereunder.
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COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Agreement, the Servicer is responsible for servicing,
collecting, enforcing and administering the Receivables in accordance with the
policies and procedures for servicing credit card receivables and exercising a
degree of skill and care consistent with those of a reasonable and prudent
servicer of 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 its own credit card receivables. The Servicer is
required to maintain fidelity bond coverage insuring against losses through
wrongdoing of its officers and employees who are involved in the servicing of
credit card receivables covering such actions and in such amounts as the
Servicer believes to be reasonable from time to time.
In the Agreement, the Servicer covenants that, except as otherwise required
by any requirement of law or as is deemed by the Servicer to be necessary in
order for the Servicer to maintain its credit card business on a competitive
basis based on a good faith assessment by the Servicer of the nature of the
competition in the credit card business, it will not reduce the annual
percentage rate of the periodic charge assessed on the Receivables or other
fees on the Accounts, if as a result of such reduction, its reasonable
expectation of the Portfolio Yield is a rate less than the Base Rate for any
Series. The Servicer also covenants that it may change the terms relating to
the Accounts, only if in the reasonable judgment of the Servicer, if the
Seller owns a comparable segment of accounts, such change is made applicable
to any comparable segment of consumer revolving credit card accounts owned by
the Seller which have characteristics the same as or substantially similar to
the Accounts and if the Seller does not own such a comparable segment, such
change is not made with the intent to benefit materially the Seller over the
Certificateholders.
Servicing activities performed by the Servicer include collecting and
recording payments, communicating with cardholders, investigating payment
delinquencies, evaluations in relation to increasing credit limits and issuing
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 Agreement, maintaining
the agreements, documents and files relating to the Accounts and Receivables
as custodian for the Trust and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee.
SERVICER COVENANTS
In the Agreement, the Servicer covenants to the Certificateholders and the
Trustee as to each Receivable and related Account that: (i) it will duly
fulfill all obligations on its part to be fulfilled under or in connection
with the Receivable or Account, and will maintain in effect all qualifications
required in order to service the Receivable or Account and will comply with
all requirements of law in connection with servicing the Receivables and the
Accounts the failure to comply with which would have a material adverse effect
on Certificateholders; (ii) it will not permit any rescission or cancellation
of the Receivable, except as ordered by a court of competent jurisdiction; and
(iii) it will do nothing to impair the rights of the Certificateholders in the
Receivables and will not reschedule, revise or defer payments due on the
Receivables, except that, in the case of clauses (ii) and (iii) above, the
Servicer may make customer service, curing and delinquency adjustments in the
ordinary course of business in accordance with prudent servicing practices.
Under the terms of the Agreement, the Servicer is obligated to accept the
transfer of any Receivable if it discovers, or receives written notice from
the Trustee, that (i) any covenant of the Servicer set forth above has not
been complied with or (ii) the Servicer has not complied in all material
respects with all requirements of law applicable to the Receivables or
Accounts, and in either case such noncompliance has not been cured within 60
days thereafter and the Receivable has been written off as uncollectible or
the proceeds of the Receivables are not available to the Trust. Such transfer
will be effected by the Servicer depositing the Transfer Deposit Amount of
such Receivable in the Collection Account. This transfer obligation
constitutes the sole remedy available to the Certificateholders, if such
covenant or warranty of the Servicer is not satisfied. The Trust's interest in
any such repurchased Receivable shall be automatically assigned to the
Servicer.
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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") in an
amount, on any Distribution Date, equal to the sum of, with respect to all
Series, 1/12 of the product of (a) the applicable servicing fee percentages
with respect to each Series and (b) the sum of an allocable portion of the
amount of the First Chicago Interest and the aggregate Invested Amount of all
Series with respect to the related Due Period. The Servicing Fee will be
allocated among the First Chicago Interest and Certificateholders of all
Series. The portion of the Servicing Fee allocable to the Certificateholders
of a Series on each Distribution Date (the "Monthly Servicing Fee") generally
will be equal to 1/12 of the product of (a) the applicable servicing fee
percentage with respect to such Series and (b) the Invested Amount of such
Series with respect to the related Due Period. All or a portion of the Monthly
Servicing Fee for a Series will be paid from collections of Finance Charge
Receivables allocable or otherwise available to such Series. A portion of the
Monthly Servicing Fee for a Series may be payable from Interchange allocable
to such Series. Amounts available from Enhancement or other sources specified
in the related Prospectus Supplement may also be available to pay the Monthly
Servicing Fee for a Series. The remaining portion of the Servicing Fee will be
allocable to the First Chicago Interest. The Monthly Servicing Fee for each
Series will be paid from the Collection Account on each Distribution Date.
The Servicer pays from its servicing compensation certain expenses incurred
in connection with servicing the Accounts and the Receivables including,
without limitation, expenses related to enforcement of the Receivables,
payment of fees and disbursements of the Trustee and independent accountants
and all other fees and expenses which are not expressly stated in the
Agreement to be payable by the Trust or the Certificateholders other than
Federal, state and local income and franchise taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Agreement, except upon determination that such duties are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Agreement.
Any person into which, in accordance with the Agreement, the Seller or the
Servicer may be merged or consolidated or any person resulting from any merger
or consolidation to which the Seller or the Servicer is a party, or any person
succeeding to the business of the Seller or the Servicer, will be the
successor to the Seller or the Servicer, as the case may be, under the
Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, either the Trustee or
Certificateholders evidencing undivided interests aggregating more than 50% of
the aggregate Invested Amount of all Series, by written notice to the Servicer
(and to the Trustee, if given by the Certificateholders), may terminate all of
the rights and obligations of the Servicer, in its capacity as servicer under
the Agreement, to all of the Receivables held by the Trust with respect to all
Series, and the proceeds thereof, and appoint a new Servicer (a "Service
Transfer"), subject to the right of Enhancement Providers, if applicable, to
approve such new Servicer. The rights and interests of the Seller under the
Agreement in the First Chicago Interest will not be affected by any Service
Transfer. The Trustee shall as promptly as possible appoint a successor
Servicer and if no successor Servicer has been appointed by the Trustee and
has accepted such appointment by the time the Servicer ceases to act as
Servicer, all authority, power and obligations of the Servicer under the
Agreement will pass to, and be vested in, the Trustee. Prior to any Service
Transfer, the Trustee will seek to obtain bids from potential Servicers
meeting certain eligibility requirements set forth in the Agreement to serve
as a successor Servicer for servicing compensation not in excess of the
Servicing Fee. If the Trustee is unable to obtain any bids from eligible
Servicers and the Servicer delivers an officer's certificate to the effect
that it cannot in good faith cure the Servicer Default which gave rise to a
Service Transfer, then the Trustee will offer the Servicer the right to accept
the transfer of all of the Receivables. The deposit
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amount for such a transfer for each Series shall be equal to the greater of
(i) the principal amount of such Series, plus accrued interest thereon, at the
applicable Certificate Rate, through the end of the applicable Interest Period
for such Series and (ii) the average bid price quoted by at least two
recognized securities dealers for similar securities rated in the highest
rating category by each Rating Agency and having a remaining maturity
approximately equal to the remaining maturity of the Certificates of such
Series. However, if the FDIC is appointed as the receiver or conservator for
the Servicer, and no Servicer Default other than such receivership,
conservatorship or insolvency exists, the FDIC may have the power to prevent
either the Trustee or the majority of the Certificateholders from effecting a
Service Transfer.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer or, for so long as the Seller is the
Servicer, the Seller to make any payment, transfer or deposit, or to give
instructions to the Trustee, or to give notice to the Trustee to make such
payment, transfer or deposit, or to give notice of any required withdrawal,
drawing or payment required to be made under any form of Enhancement, on
the date the Servicer or the Seller, as the case may be, is required to do
so under the Agreement or any Supplement (or within a five-day grace
period);
(ii) failure on the part of the Servicer or, for so long as the Seller is
the Servicer, the Seller duly to observe or perform any other covenants or
agreements of the Servicer or the Seller in the Agreement or any Supplement
which has a material adverse effect on the Certificateholders, which
continues unremedied for a period of 60 days after written notice, or the
Servicer assigns its duties under the Agreement, except as specifically
permitted thereunder;
(iii) any representation, warranty or certification made by the Servicer
in the Agreement or any Supplement or in any certificate delivered pursuant
to the Agreement or any Supplement proves to have been incorrect when made,
which has a material adverse effect on the rights of the
Certificateholders, and which material adverse effect continues for the
Certificateholders for a period of 60 days after written notice; or
(iv) the occurrence of certain events of bankruptcy, insolvency,
receivership or conservatorship of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (i) above for a period of 10 business days or referred to
under clause (ii) or (iii) for a period of 60 business days shall 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 shall not be relieved from using
its best efforts to perform its obligations in a timely manner in accordance
with the terms of the Agreement or any Supplement and the Servicer shall
provide the Trustee, the Enhancement Providers, if any, applicable to any
Series, the Seller and the Certificateholders prompt notice of such failure or
delay by the Servicer, together with a description of its efforts to so
perform its obligations. The Servicer will immediately notify the Trustee in
writing of any Servicer Default.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, for each
Series, on each Distribution Date, there will be forwarded to each
Certificateholder of record a statement (the "Monthly Servicer Report")
prepared by the Servicer setting forth: (i) the total amount distributed with
respect to the Certificates of such Series; (ii) the amount of the
distribution on such Distribution Date allocable to principal; (iii) the
amount of such distribution allocable to interest; (iv) the amount of
collections processed during the preceding Due Period and allocated in respect
of the Certificates of such Series; (v) the Invested Amount of such Series and
the Invested Percentages with respect to such Series; (vi) the aggregate
outstanding balance of Accounts which are 30 days or more delinquent as of the
close of business at the end of the preceding Due Period; (vii) the Investor
Default Amount for such Distribution Date; (viii) the amount of Investor
Charge-Offs for such Distribution Date and the amount of reimbursements of
such Investor Charge-Offs; (ix) the amount of the Monthly Servicing Fee for
such
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Distribution Date; (x) the amount available under any Enhancement at the close
of business on such Distribution Date; (xi) the amount, if any, by which the
principal balance of the Certificates of such Series exceeds the Invested
Amount of such Series as of the end of the day on the Record Date; and (xii)
the "pool factor" as of the end of the related Record Date (consisting of an
eight-digit decimal expressing the ratio of the Invested Amount to the initial
Invested Amount). In the case of a Series having more than one Class, the
Monthly Servicer Report will provide information as to each Class of
Certificates.
On or before January 31 of each calendar year, there will be furnished to
each person who at any time during the preceding calendar year was a
Certificateholder of record (or, if so provided in applicable Treasury
regulations, made available to Certificate Owners) a statement prepared by the
Servicer containing the information required to be provided by an issuer of
indebtedness under the Code for such calendar year or the applicable portion
thereof during which such person was a Certificateholder, together with such
other customary information as the Servicer deems necessary or desirable to
enable the Certificateholders to prepare their tax returns. See "Tax Matters."
EVIDENCE AS TO COMPLIANCE
The Agreement provides that on or before March 31 of each calendar year, the
Servicer will cause a firm of independent public accountants to furnish a
report to the effect that such firm has applied certain agreed-upon procedures
to certain documents and records relating to the servicing of the Receivables
and that, based upon such agreed-upon procedures, no matters came to their
attention that caused them to believe that such servicing was not conducted in
compliance with certain applicable terms and conditions set forth in the
Agreement except for such exceptions or errors as such firm shall believe to
be immaterial and such other exceptions as shall be set forth in such
statement. In addition, on or before March 31 of each calendar year, such
accountants will compare the mathematical calculations of the amounts
contained in the Monthly Servicer Reports and other certificates delivered
during such year with the computer reports of the Servicer and statements of
any agents engaged by the Servicer to perform servicing activities which were
the source of such amounts and deliver a certificate to the Trustee confirming
that such amounts are in agreement except for such exceptions as they believe
to be immaterial and such other exceptions which shall be set forth in such
report.
The Agreement provides for delivery to the Trustee on or before March 31 of
each calendar year of a statement signed by an officer of the Servicer to the
effect that the Servicer has, or has caused to be, fully performed its
obligations in all material respects under the Agreement throughout the
preceding year or, if there has been a default in the performance of any such
obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee.
CONVEYANCE OF ACCOUNTS
Subject to the conditions set forth in the succeeding sentence, the Seller
may transfer or otherwise convey its interest in Accounts, including the
Receivables in such Accounts (subject to the interest of the Trustee), in
whole or in part, and, in conjunction with such transfer will execute (and the
Trustee will authenticate and deliver to the transferee) a certificate
substantially in the form of the Exchangeable Seller's Certificate which
represents the transferred interest in such Accounts. The Seller will be
permitted to convey Accounts only upon satisfaction of the following
conditions: (i) the acquiring person will (a) be organized and existing under
the laws of the United States of America or any state or the District of
Columbia, and be a bank or other entity that is not subject to the Bankruptcy
Code of 1978, and (b) expressly assume by an agreement supplemental to the
Agreement the performance of the Seller's obligations with respect to such
Accounts; (ii) the Seller will deliver to the Trustee and, as required, any
Enhancement Provider of a Series, opinions of counsel (a) stating that all
conditions precedent to the conveyance have been complied with and (b) to the
effect that the conveyance will not adversely affect the treatment of the
Certificates as debt for Federal and applicable state income tax purposes or
materially adversely
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impact the Federal income tax consequences that affect any Certificateholder;
(iii) the Seller will obtain from each Rating Agency a letter confirming that
the rating of the Certificates, after such conveyance, will not be lowered or
withdrawn; and (iv) the Seller will obtain the consent to the conveyance, as
required, of any Enhancement Provider of a Series and of more than 51% of the
principal amount of Certificateholders of each Series.
AMENDMENTS
The Agreement and any Supplement may be amended by the Seller, the Servicer
and the Trustee, without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein which may be inconsistent with any
other provision therein and to add any other provisions with respect to
matters or questions arising under the Agreement or any Supplement which are
not inconsistent with the provisions of the Agreement or any Supplement. In
addition, the Agreement and any Supplement may be amended from time to time by
the Seller, the Servicer and the Trustee, without Certificateholder consent,
to add to or change any of the provisions of the Agreement to provide that
bearer certificates issued with respect to any Series may be registrable as to
principal, to change or eliminate any restrictions on the payment of principal
of or any interest on such bearer certificates, to permit such bearer
certificates to be issued in exchange for registered certificates or bearer
certificates of other authorized denominations or to permit the issuance of
uncertificated certificates. Moreover, any Supplement and any amendments
regarding the addition or removal of Receivables from the Trust will not be
considered amendments requiring Certificateholder consent under the provisions
of the Agreement or any Supplement.
The Agreement and any Supplement may be amended by the Seller, the Servicer
and the Trustee with the consent of the holders of Certificates evidencing
undivided interests aggregating not less than 66 2/3% of the Invested Amount
of all Series adversely affected for the purpose of adding any provisions to,
changing in any manner or eliminating any of the provisions of the Agreement
or any Supplement or of modifying in any manner the rights of
Certificateholders of any Series then issued and outstanding. No such
amendment, however, may (i) reduce in any manner the amount of, or delay the
timing of, distributions required to be made on such Series, (ii) change the
definition or the manner of calculating the interest of any Certificateholder
of such Series, or (iii) reduce the aforesaid percentage of undivided
interests the holders of which are required to consent to any such amendment,
in each case without the consent of all Certificateholders of all Series
adversely affected. Promptly following the execution of any amendment to the
Agreement or any Supplement, the Trustee will furnish written notice of the
substance of such amendment to each Certificateholder of all Series (or with
respect to an amendment of a Supplement, to the applicable Series).
LIST OF CERTIFICATEHOLDERS
Upon written request of three or more Certificateholders of record of a
Series or any Certificateholder or group of Certificateholders of record
representing undivided interests in the Trust aggregating not less than 5% of
the Invested Amount of a Series, the Trustee will afford such
Certificateholders access during business hours to the current list of
Certificateholders of the Trust for purposes of communicating with other
certificateholders with respect to their rights under the Agreement.
The Agreement generally does not provide for any annual or other meetings of
Certificateholders.
THE TRUSTEE
Norwest Bank Minnesota, National Association, is Trustee under the
Agreement. The Seller, the Servicer and their respective affiliates may from
time to time enter into normal banking and trustee relationships with the
Trustee and its affiliates. The Trustee, the Seller, the Servicer and any of
their respective affiliates may hold Certificates in their own names; however,
any Certificates so held shall not be entitled to participate in any decisions
made or instructions given to the Trustee by the Certificateholders as a
group. The Trustee's address is Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479, Attention: Corporate Trust Department.
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For purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint a co-trustee or
separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee will be conferred or imposed upon and exercised or performed
by the Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee will be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Trustee.
The Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor Trustee. The Trustee has agreed that it will
not resign, however, without written confirmation from each Rating Agency that
such resignation will not result in the Rating Agency reducing or withdrawing
its rating on any then outstanding Series rated by it. The Servicer may also
remove the Trustee, if the Trustee ceases to be eligible to continue as such
under the Agreement or if the Trustee becomes insolvent. In such
circumstances, the Servicer will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee does not become effective until acceptance of the appointment by the
successor Trustee.
ENHANCEMENT
GENERAL
For any Series, Enhancement may be provided with respect to one or more
Classes thereof. If so specified in the related Prospectus Supplement, any
form of Enhancement may be structured so as to be drawn upon by more than one
Class to the extent described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, the related Prospectus
Supplement will include a description of (a) the amount payable under such
Enhancement, (b) any conditions to payment thereunder not otherwise described
herein, (c) the conditions (if any) under which the amount payable under such
Enhancement may be reduced and under which such Enhancement may be terminated
or replaced and (d) any material provision of any agreement relating to such
Enhancement. Additionally, the related Prospectus Supplement may set forth
certain information with respect to any provider of Enhancement (an
"Enhancement Provider"), including (i) brief description of its principal
business activities, (ii) its principal place of business, place of
incorporation and the jurisdiction under which it is chartered or licensed to
do business, (iii) if applicable, the identity of regulatory agencies which
exercise primary jurisdiction over the conduct of its business and (iv) its
total assets, and its stockholders' or policy holders' surplus, if applicable,
and other appropriate financial information as of the date specified in the
Prospectus Supplement. The Enhancement Provider may have an interest in
certain cash flows in respect of the Receivables to the extent described in
such Prospectus Supplement.
SUBORDINATION
If so specified in the related Prospectus Supplement, one or more Classes of
any Series will be subordinated as described in the related Prospectus
Supplement to the extent necessary to fund payments with respect to the Senior
Certificates. The rights of the holders of any Subordinated Certificates to
receive distributions of principal and/or interest on any Distribution Date
for such Series will be subordinate in right and priority to the rights of the
holders of Senior Certificates, but only to the extent set forth in the
related Prospectus Supplement. If so specified in the related Prospectus
Supplement, subordination may apply only in the event of certain types of
losses not covered by another Enhancement. The related Prospectus Supplement
will also set forth any applicable information concerning the amount of
subordination of a Class or Classes of Subordinated Certificates in a
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Series, the circumstances in which such subordination will be applicable, the
manner, if any, in which the amount of subordination will decrease over time,
and the conditions under which amounts available from payments that would
otherwise be made to holders of such Subordinated Certificates will be
distributed to holders of Senior Certificates. If collections of Receivables
otherwise distributable to holders of Subordinated Certificates of a Series
will be used as support for a Class of another Series, the related Prospectus
Supplement will specify the manner and conditions for applying such a cross-
support feature.
CASH COLLATERAL GUARANTY OR ACCOUNT
If 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 permitted
investments in an account (the "Cash Collateral Account") reserved for the
beneficiaries of the Cash Collateral Guaranty or by a Cash Collateral Account
alone. The amount available pursuant to the Cash Collateral Guaranty or the
Cash Collateral Account will be the lesser of amounts on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments are made to beneficiaries of the Cash Collateral Guaranty
from the Cash Collateral Account or from the Cash Collateral Account directly.
COLLATERAL INTEREST
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided initially by an undivided
interest in the Trust (the "Collateral Interest") in an amount initially equal
to a percentage of the Certificates of such Series as specified in the
Prospectus Supplement. Such Series may also have the benefit of a Cash
Collateral Guaranty or Cash Collateral Account with an initial amount on
deposit therein, if any, as specified in the Prospectus Supplement which may
be increased (i) to the extent the Seller elects, subject to certain
conditions specified in the related Prospectus Supplement, to apply
collections of Principal Receivables allocable to the Collateral Interest to
decrease the Collateral Interest, (ii) to the extent collections of Principal
Receivables allocable to the Collateral Interest are required to be deposited
into the Cash Collateral Account as specified in the related Prospectus
Supplement and (iii) to the extent excess collections of Finance Charge
Receivables are required to be deposited into the Cash Collateral Account as
specified in the related Prospectus Supplement. The total amount of the
Enhancement available pursuant to the Collateral Interest and, if applicable,
the Cash Collateral Guaranty or Cash Collateral Account, will be the lesser of
the sum of the Collateral Interest and the amount on deposit in the Cash
Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments which otherwise would be made to holders of the
Collateral Interest will be distributed to the holders of Certificates offered
thereby and, if applicable, the circumstances under which payment will be made
under the Cash Collateral Guaranty or under the Cash Collateral Account.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by one or more letters of
credit. A letter of credit may provide limited protection against certain
losses in addition to, or in lieu of, other Enhancement. The issuer of the
letter of credit will be obligated to honor demands with respect to such
letter of credit, to the extent of the amount available thereunder, to provide
funds under the circumstances and subject to such conditions as are specified
in the related Prospectus Supplement.
The maximum liability of the issuer of the letter of credit under such
letter of credit will generally be an amount equal to a percentage specified
in the related Prospectus Supplement of the initial Invested Amount of a
Series or a Class of such Series. The maximum amount available at any time to
be paid under a letter of credit will be determined in the manner specified
therein and in the related Prospectus Supplement.
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SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with respect
to a Series or one or more Classes thereof will be provided by one or more
insurance companies. Such insurance will guarantee, with respect to one or
more Classes of the related Series, distributions of interest or principal in
the manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond will be
purchased for the benefit of the holders of any Series or Class of such Series
to assure distributions of interest or principal with respect to such Series
or Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
INTEREST RATE SWAP
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof will be provided by an interest rate swap or
other similar hedging arrangement. Such interest rate swap or other
arrangement will provide for the swapping of certain payments on the
Receivables for payments from the provider of the interest rate swap or other
arrangement in the manner and amounts 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 thereof will be provided by the periodic deposit of
certain available excess cash flow from the Trust assets into an account (the
"Spread Account") intended to assist with subsequent distribution of interest
and principal on the Certificates of such Class or Series in the manner
specified in the related Prospectus Supplement.
RESERVE ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes thereof or any Enhancement related thereto 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 or both otherwise payable to
one or more Classes of Certificates, including the Subordinated Certificates,
or the provision of a letter of credit, guarantee, insurance policy or other
form of credit support or any combination thereof. The Reserve Account will be
established to assist with the subsequent distribution of principal or
interest on the Certificates of such Series or Class thereof or such other
amount owing on any Enhancement thereto in the manner provided in the related
Prospectus Supplement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Seller has transferred interests in the Receivables to the Trust. The
Seller covenants and warrants that such transfer constitutes either a valid
transfer and assignment to the Trust of all right, title and interest of the
Seller in and to the Receivables, except for the interest of the Seller as
holder of the Exchangeable Seller's Certificate, or a grant of a security
interest to the Trust in and to the Receivables. The Seller also covenants and
warrants to the Trust in the Agreement that, in the event the transfer of
Receivables by the Seller to the Trust is deemed to create a security interest
under the UCC and assuming that the Seller is not at the time of such transfer
the subject of any insolvency proceedings, there exists a valid, subsisting
and enforceable first priority perfected security interest in favor of the
Trust in the Receivables contained in the Accounts in existence since the time
of the addition of such Receivables to the Trust and a valid, subsisting and
enforceable first priority perfected security interest in favor of the Trust
in the Receivables created thereafter on and after their creation and, with
certain exceptions, and for certain limited time periods, the proceeds
thereof. For a discussion of the Trust's
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rights arising from these covenants and warranties not being satisfied, see
"Description of the Certificates and the Agreement--Covenants, Representations
and Warranties."
The Seller has represented that the Receivables are either "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 the
UCC as creating a security interest therein and are subject to its provisions,
and the filing of an appropriate financing statement is required to perfect
the interest of the Trust in the Receivables. If a transfer of general
intangibles is deemed to create a security interest, the UCC applies and
filing an appropriate financing statement is also required in order to perfect
the Trust's security interest in the Receivables. A financing statement
covering the Receivables has been filed under the UCC to protect the Trust in
case the transfer by the Seller is deemed subject to the UCC as either a sale
of accounts or a transfer of accounts or general intangibles as security for
an obligation. If a transfer of general intangibles is deemed not to create a
security interest, the filing of a financing statement is not required to
protect the Trust's interest from third parties.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the
applicable Cut Off Date could have an interest in such Receivables with
priority over the Trust's interest. A tax or other government lien on property
of the Seller arising prior to the time a Receivable comes into existence may
also have priority over the interest of the Trust in such Receivables.
Furthermore, if the FDIC were appointed as receiver of the Seller, the
receiver's administrative expenses may also have priority over the interest of
the Trust in such Receivables. Under the Agreement, however, the Seller has
warranted that it has transferred or will transfer the Receivables to the
Trust free and clear of the lien of any third party except for certain
permitted tax liens. In addition, the Seller covenants that it will not sell,
pledge, assign, transfer or grant any lien on any Receivable (or any interest
therein) other than to the Trust.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Federal Deposit Insurance Act ("FDIA"), as amended by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), which
became effective August 9, 1989, sets forth certain powers that the FDIC could
exercise if it were appointed as receiver or conservator of the Seller.
To the extent that the Seller has granted a security interest in the
Receivables to the Trust, and that interest is validly perfected before the
Seller's insolvency and is not taken in contemplation of insolvency or with
the intent to hinder, delay or defraud the Seller or its creditors, the
Agreement is continuously a record of the Seller, the Agreement represents a
bona fide and arm's length transaction undertaken for adequate consideration
in the ordinary course of business, and the Trustee is the secured party and
is not an insider or affiliate of the Seller, that security interest should be
enforceable (to the extent of the Trust's "actual direct compensatory
damages") notwithstanding the insolvency of, or the appointment of a receiver
or conservator for, the Seller, and payments to the Trust with respect to the
Receivables (up to the amount of such damages) should not be subject to
recovery by a receiver or conservator of the Seller. If, however, a receiver
were to assert a contrary position, or were to require the Trustee to
establish its right to those payments by submitting to and completing the
administrative claims procedure under the FDIA, as amended by FIRREA, delays
in payments on the Certificates and possible reductions in the amount of those
payments could occur. Generally, it is expected that in most cases "actual
direct compensatory damages" would include outstanding principal plus interest
accrued to the date of payment, but in one case a United States Federal
district court held that such damages should be measured by the fair market
value of the repudiated bonds as of the date of repudiation. If this court's
view were applied to determine the Trust's "actual direct compensatory
damages" in the event a conservator or receiver of the Seller repudiated its
obligations under the Agreement, the amount paid to Certificateholders could,
depending upon circumstances existing on the date of the repudiation, be less
than the principal of the Certificates and the interest accrued thereon to the
date of payment.
The Agreement provides that, upon the appointment of a receiver or
conservator for the Seller, the Seller will promptly give notice thereof to
the Trustee, and a Liquidation Event with respect to all Series will occur.
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Under the Agreement, (x) with respect to any Preexisting Series, unless
otherwise instructed within a specified period by the holders of Certificates
representing undivided interests aggregating more than 50% of the Invested
Amount of any Preexisting Series or unless otherwise required by the FDIC as
receiver or conservator for the Seller, the Trustee will proceed to sell,
dispose of or otherwise liquidate the Receivables of all Series and (y) with
respect to Series issued on or after April 19, 1995 (except as otherwise may
be specified in the related Supplement), unless otherwise instructed within a
specified period of time by the holders of undivided interests aggregating
more than 50% of the Invested Amount of each Class of each such Series
(including a majority in interest in each Collateral Interest), each holder of
an interest in the First Chicago Interest, holders of more than 50% of the
Invested Amount of each Preexisting Series and any other person specified in
any Supplement, the Trustee will proceed to sell, dispose of or otherwise
liquidate the portion of the Receivables allocable to all Series other than
the Preexisting Series. Such sales, dispositions or other liquidations will be
conducted in a commercially reasonable manner and on commercially reasonable
terms in accordance with the Agreement. The proceeds from the sale of the
Receivables would then be treated by the Trustee as collections on the
Receivables. If the only Liquidation Event to occur is either the insolvency
of the Seller or the appointment of a conservator or receiver for the Seller,
the receiver or conservator for the Seller may have the power to continue to
require the Seller to transfer new Principal Receivables to the Trust and to
prevent the early sale, liquidation or disposition of the Receivables and the
early commencement of a Rapid Amortization Period or a Rapid Accumulation
Period. See "Description of the Certificates and the Agreement--Liquidation
Events."
CONSUMER PROTECTION LAWS
The relationship between the cardholder and credit card issuer is
extensively regulated by Federal and state consumer protection statutes. With
respect to credit cards issued by the Seller the most significant Federal laws
include the Federal Truth-In-Lending and Equal Credit Opportunity Acts. These
statutes impose disclosure requirements before and when an Account is opened
and at the end of monthly billing cycles, and, in addition, limit cardholder
liability for unauthorized use, prohibit certain discriminatory practices in
extending credit, may impose certain limitations on the type of account-
related charges that may be issued and regulate collection practices. In
addition, cardholders are entitled under these laws to have payments and
credits applied to the credit card account promptly and to require billing
errors to be resolved promptly. The Trust may be liable for certain violations
of consumer protection laws that apply to the Receivables, either as assignee
from the Seller with respect to obligations arising before transfer of the
Receivables to the Trust or as the party directly responsible for obligations
arising after the transfer. In addition, a cardholder may be entitled to
assert such violations by way of set off against the obligation to pay the
amount of Receivables owing. The Seller has agreed to accept the transfer of
all Receivables that have been written off and that were not created in
compliance in all material respects with the requirements of such laws. The
Servicer has also agreed in the Agreement to indemnify the Trust, among other
things, for any liability arising from such violations. For a discussion of
the Trust's rights if the Receivables were not created in compliance in all
material respects with applicable laws, see "Description of the Certificates
and the Agreement--Covenants, Representations and Warranties."
The Soldiers' and Sailors' Civil Relief Act of 1940 allows individuals on
active duty in the military to cap the interest rate on debts incurred before
the call to active duty to 6% per annum. In addition, subject to judicial
discretion, any action or court proceeding in which an individual in military
service is involved may be stayed if the individual's rights would be
prejudiced by denial of such stay.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders, if such laws result in any
Receivables being written off as uncollectible when there are not funds
available pursuant to any applicable Enhancement. See "Description of the
Certificates and the Agreement--Defaulted Receivables; Rebates and Fraudulent
Charges."
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TAX MATTERS
GENERAL
The following discussion, summarizing certain anticipated Federal income tax
aspects of the purchase, ownership and disposition of the Certificates of a
Series, is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), proposed, temporary and final Treasury regulations
thereunder, and published rulings and court decisions in effect as of the date
hereof, all of which are subject to change, possibly retroactively. This
discussion does not address every aspect of the Federal income tax laws that
may be relevant to Certificate Owners of a Series in light of their personal
investment circumstances or to certain types of Certificate Owners of a Series
subject to special treatment under the Federal income tax laws (for example,
banks and life insurance companies). Accordingly investors should consult
their own tax advisors regarding Federal, state, local, foreign and any other
tax consequences to them of any investment in the Certificates of a Series.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR
DISPOSITION OF INTERESTS IN CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Unless otherwise specified in the related Prospectus Supplement, Skadden,
Arps, Slate, Meagher & Flom, special tax counsel to the Bank ("Tax Counsel"),
will, upon issuance of a Series of Certificates, advise the Bank, based on the
assumptions and qualifications set forth in its opinion, that the Certificates
of such Series offered pursuant to a Prospectus Supplement (the "Offered
Certificates") 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 Seller expresses in the Agreement its intent that for Federal, state and
local income or franchise tax purposes, the Offered Certificates of each
Series will be indebtedness secured by the Receivables. The Seller agrees and
each Certificateholder and Certificate Owner, by acquiring an interest in an
Offered Certificate, agrees or will be deemed to agree to treat the Offered
Certificates of such Series as indebtedness for Federal, state and local
income or franchise tax purposes. However, because different criteria are used
to determine the non-tax accounting characterization of the transactions
contemplated by the Agreement, the Seller 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, Tax Counsel will analyze and rely on several factors in
reaching its opinion that the weight of the benefits and burdens of ownership
of the Receivables has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a particular
form it has chosen for a transaction, even if the substance of the transaction
does not accord with its form. Unless otherwise specified in a Prospectus
Supplement, it is expected that Tax Counsel will advise that the rationale of
those cases will not apply to the transaction evidenced by a Series of
Certificates, because the form of the transaction, as reflected in the
operative provisions of the documents, either is not inconsistent with the
characterization of the Offered Certificates of such Series as debt for
Federal income tax purposes or otherwise makes the rationale of those cases
inapplicable to this situation.
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TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
As set forth above, it is expected that, unless otherwise specified in a
Prospectus Supplement, Tax Counsel will advise the Bank that the Offered
Certificates will constitute indebtedness for Federal income tax purposes, and
accordingly, interest thereon will be includible in income by Certificate
Owners as ordinary income when received (in the case of a cash basis taxpayer)
or accrued (in the case of an accrual basis taxpayer) in accordance with their
respective methods of tax accounting. Interest received on the Offered
Certificates may also constitute "investment income" for purposes of certain
limitations of the Code concerning the deductibility of investment interest
expense.
While it is not anticipated that the Offered Certificates will be issued at
a greater than de minimis discount, under applicable Treasury regulations (the
"Regulations") the Offered Certificates may nevertheless be deemed to have
been issued with original issue discount ("OID"). This could be the case, for
example, if interest payments for a Series are not treated as "qualified
stated interest" because the IRS determines that (i) no reasonable legal
remedies exist to compel timely payment and (ii) the Offered Certificates do
not have terms and conditions that make the likelihood of late payment (other
than a late payment that occurs within a reasonable grace period) or
nonpayment a remote contingency. Applicable regulations provide that, for
purposes of the foregoing test, the possibility of nonpayment due to default,
insolvency, or similar circumstances, is ignored. Although this provision does
not directly apply to the Offered Certificates (because they have no actual
default provisions) the Seller 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 interest will accrue on the Offered
Certificates at a "qualified floating rate," the Seller intends to take the
position that interest payments on the Offered Certificates constitute
qualified stated interest. If, however, interest payments for a Series were
not classified as "qualified stated interest," all of the taxable income to be
recognized with respect to the Offered Certificates would be includible in
income as OID but would not be includible again when the interest is actually
received.
If the Offered Certificates are in fact issued at a greater than de minimis
discount or are treated as having been issued with OID under the Regulations,
the following rules will apply. The excess of the "stated redemption price at
maturity" of an Offered Certificate over the original issue price (in this
case, the initial offering price at which a substantial amount of the Offered
Certificates are sold to the public) will constitute OID. A Certificate Owner
must include OID in income as interest over the term of the Offered
Certificate under a constant yield method. In general, OID must be included in
income in advance of the receipt of cash representing that income. In the case
of a debt instrument as to which the repayment of principal may be accelerated
as a result of the prepayment of other obligations securing the debt
instrument (a "Prepayable Instrument"), the periodic accrual of OID is
determined by taking into account both the prepayment assumptions used in
pricing the debt instrument and the prepayment experience. If this provision
applies to a Class of Certificates (which is not clear), the amount of OID
which will accrue in any given "accrual period" may either increase or
decrease depending upon the actual prepayment rate. Accordingly, each
Certificate Owner should consult its own tax advisor regarding the impact to
it of the OID rules if the Offered Certificates are issued with OID. Under the
Regulations, a holder of a Certificate issued with de minimis OID must include
such OID in income proportionately as principal payments are made on a Class
of Certificates.
A holder who purchases an Offered Certificate at a discount from its
adjusted issue price may be subject to the "market discount" rules of the
Code. These rules provide, in part, for the treatment of gain attributable to
accrued market discount as ordinary income upon the receipt of partial
principal payments or on the sale or other disposition of the Offered
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount Offered Certificate.
A subsequent holder who purchases an Offered Certificate at a premium may
elect to amortize and deduct this premium over the remaining term of the
Offered Certificate in accordance with rules set forth in Section 171 of the
Code.
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SALE OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of an Offered Certificate
measured by the difference between (i) the amount of cash and the fair market
value of any property received (other than amounts attributable to, and
taxable as, accrued interest) and (ii) the Certificate Owner's tax basis in
the Offered Certificate (as increased by any OID or market discount previously
included in income by the holder and decreased by any deductions previously
allowed for amortizable bond premium and by any payments reflecting principal
or OID received with respect to such Certificate). Subject to the market
discount rules discussed above and to the one-year holding requirement for
long-term capital gain treatment, any such gain or loss generally will be
long-term capital gain, provided that the Offered Certificate was held as a
capital asset; provided, however, 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 long-term 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 Agreement permits the issuance of Classes of Certificates that are
treated for Federal income tax purposes either as indebtedness or as an
interest in a partnership. Accordingly, the Trust could be characterized
either as (i) a security device to hold Receivables securing the repayment of
the Certificates of all Series or (ii) a partnership in which the Seller and
certain classes of Certificateholders are partners, and which has issued debt
represented by other Classes of Certificates (including, unless otherwise
specified in a Supplement, the Offered Certificates).
The opinion of Tax Counsel with respect to Offered Certificates will not be
binding on the courts or the IRS. It is possible that the IRS could assert
that, for purposes of the Code, the transaction contemplated by this
Prospectus and a related Prospectus Supplement constitutes a sale of the
Receivables (or an interest therein) to the Certificate Owners of one or more
Series or Classes and that the proper classification of the legal relationship
between the Bank and some or all of the Certificate Owners or
Certificateholders of one or more Series resulting from the transaction is
that of a partnership (including a publicly traded partnership), a publicly
traded partnership taxable as a corporation, or an association taxable as a
corporation. The Seller currently does not intend to comply with the Federal
income tax reporting requirements that would apply if any Classes of
Certificates were treated as interests in a partnership or corporation (unless
an interest in the Trust is issued or sold that is intended to be classified
as an interest in a partnership).
If the Trust were treated in whole or in part as a partnership in which some
or all Certificate Owners 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 Seller has
taken and intends to take measures designed to enable the Trust to be eligible
for such exceptions; however, there can be no 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 Seller. Furthermore, certain Series issued prior to May 2, 1995 may not be
able to be conformed to the measures taken by the Seller with respect to
Series issued on or after that date.
If a transaction were treated as creating a partnership between the Seller
and the Certificate Owners or Certificateholders of one or more Series, the
partnership itself would not be subject to Federal income tax (unless it were
to be characterized as a publicly traded partnership taxable as a
corporation); rather, the partners of such partnership, including the
Certificate Owners or Certificateholders of such Series, would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount and timing of items of
income and deductions of a Certificate Owner could differ if the Offered
Certificates were
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held to constitute partnership interests, rather than indebtedness. Moreover,
unless the partnership were treated as engaged in a trade or business, an
individual's share of expenses of the partnership would be miscellaneous
itemized deductions that, in the aggregate, are allowed as deductions only to
the extent they exceed two percent of the individual's adjusted gross income,
and would be subject to reduction under Section 68 of the Code if the
individual's adjusted gross income exceeded certain limits. As a result, the
individual might be taxed on a greater amount of income than the stated rate
on the Offered Certificates. Finally, assuming the partnership is a "publicly
traded partnership" (as defined in Section 469(k)(2) of the Code), even if it
qualifies for exemption from taxation as a corporation, all or a portion of
any taxable income allocated to a Certificate Owner that is a pension, profit-
sharing or employee benefit plan or other tax-exempt entity (including an
individual retirement account) may, under certain circumstances, constitute
"unrelated business taxable income" which generally would be taxable to the
holder under the Code. Partnership characterization also may have adverse
state and local income or franchise tax consequences for a Certificate Owner.
If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to Federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Certificate Owners, possibly including
Certificate Owners of a Class that is treated as indebtedness. Such
classification may also have adverse state and local tax consequences that
would reduce amounts available for distribution to Certificate Owners. Cash
distributions to the Certificate Owners (except any Class not recharacterized
as an equity interest in an association) generally would be treated as
dividends for tax purposes to the extent of such deemed corporation's earnings
and profits.
PROPOSED LEGISLATION
Recently enacted provisions of the Code (the "FASIT Provisions") provide for
the creation of a new type of entity for federal income tax purposes, the
"financial asset securitization investment trust" ("FASIT"). However, these
provisions are not effective until September 1, 1997, and many technical
issues concerning FASITs must be addressed by Treasury regulations that have
yet to be drafted. Although transition rules permit an entity in existence on
August 31, 1997, such as the Trust, to elect FASIT status, at the present time
it is not clear how outstanding interests of such an entity would be treated
subsequent to such an election. In particular, it is not clear whether
Certificates of any Series outstanding on August 31, 1997 would be treated as
"regular interests" in a FASIT if the Seller were to elect FASIT status for
the Trust after that date. To the extent otherwise permitted by the terms
thereof, the Agreement may be amended in accordance with the provisions
thereof to provide that the Seller may cause a FASIT election to be made for
the Trust if the Seller delivers to the Trustee an opinion of counsel to the
effect that, for Federal income tax purposes, (i) such issuance will not
adversely affect the tax characterization as debt of Certificates of any
outstanding Series or Class that were characterized as debt at the time of
their issuance, (ii) following such issuance the Trust will not be deemed to
be an association (or publicly traded partnership) taxable as a corporation
and (iii) such issuance will not cause or constitute an event in which gain or
loss would be recognized by any Certificateholder or the Trust. If a
Certificate were a regular interest in a FASIT, a Certificate Owner, including
a cash basis Certificate Owner, would be required to report income thereon on
the accrual method.
FOREIGN INVESTORS
As set forth above, it is expected that Tax Counsel will render an opinion,
upon issuance, that the Offered Certificates will be treated as debt for U.S.
Federal income tax purposes. The following information describes the U.S.
Federal income tax treatment of investors that are not U.S. persons ("Foreign
Investors") if the Offered Certificates are treated as debt. The term "Foreign
Investor" means any person other than (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof or (iii) an
estate or trust the income of which is includible in gross income for U.S.
Federal income tax purposes, regardless of its source.
Interest, including OID, paid to a Foreign Investor will be subject to U.S.
withholding taxes at a rate of 30% unless (x) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or
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business in the United States or (y) the Foreign Investor and each securities
clearing organization, bank, or other financial institution that holds the
Offered Certificates on behalf of the customer in the ordinary course of its
trade or business, in the chain between the Certificate Owner and the U.S.
person otherwise required to withhold the U.S. tax, complies with applicable
identification requirements and, in addition (i) the non-U.S. Certificate
Owner does not actually or constructively own 10 percent or more of the total
combined voting power of all classes of stock of the Seller entitled to vote
(or of a profits or capital interest of a trust characterized as a
partnership), (ii) the non-U.S. Certificate Owner is not a controlled foreign
corporation that is related to the Seller (or a trust treated as a
partnership) through stock ownership, (iii) the non-U.S. Certificate Owner is
not a bank receiving interest described in Code Section 881(c)(3)(A), (iv)
such interest is not contingent interest described in Code Section 871(h)(4),
and (v) the non-U.S. Certificate Owner does not bear certain relationships to
any holder of the Exchangeable Seller's Certificate other than the Seller or
any holder of the Certificates of any Series not properly characterized as
debt. Applicable identification requirements generally will be satisfied if
there is delivered to a securities clearing organization (i) IRS Form W-8
signed under penalties of perjury by the Certificate Owner, stating that the
Certificate Owner is not a U.S. person and providing such Certificate Owner's
name and address, (ii) IRS Form 1001, signed by the Certificate Owner or such
Certificate Owner's agent, claiming exemption from withholding under an
applicable tax treaty, or (iii) IRS Form 4224 signed by the Certificate Owner
or such owner's agent, claiming exemption from withholding of tax on income
effectively connected with the conduct of a trade or business in the United
States; provided that in any such case (x) the applicable form is delivered
pursuant to applicable procedures and is properly transmitted to the United
States entity otherwise required to withhold tax and (y) none of the entities
receiving the form has actual knowledge that the Certificate Owner is a U.S.
person.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. Federal income tax on gain realized upon the sale,
exchange, or redemption of an Offered Certificate, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States, (ii) in the case of a Certificate Owner that is an individual,
such Certificate Owner is not present in the United States for 183 days or
more during the taxable year in which such sale, exchange, or redemption
occurs, and (ii) in the case of gain representing accrued interest, the
conditions described in the immediately preceding paragraph are satisfied.
If the interests of the Certificate Owners of a Series were reclassified as
interests in a partnership (not taxable as a corporation), such
recharacterization could cause a Foreign Investor to be treated as engaged in
a trade or business in the United States. In such event the Certificate Owner
of such Series would be required to file a Federal income tax return and, in
general, would be subject to Federal income tax, including branch profits tax
in the case of a Certificate Owner that is a corporation, on its net income
from the partnership. Further, the partnership would be required, on a
quarterly basis, to pay withholding tax equal to the sum, for each foreign
partner, of such foreign partner's distributive share of "effectively
connected" income of the partnership multiplied by the highest rate of tax
applicable to that foreign partner. The tax withheld from each foreign partner
would be credited against such foreign partner's U.S. Federal income tax
liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
On April 22, 1996, the IRS proposed regulations (the "Proposed
Regulations"), which, if finalized in their current form, could affect the
procedures to be followed by a Foreign Investor in establishing such Foreign
Investor's status as a Foreign Investor for the purposes of the withholding
rules (including the back-up withholding rules). The Proposed Regulations, if
adopted in their present form, generally would be effective for payments made
after December 31, 1997. Prospective investors should consult their tax
advisors concerning the potential adoption of such Proposed Regulations and
the potential effect on the ownership of the Offered Certificates.
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STATE AND LOCAL TAXATION
As a consequence of the issuance of a Collateral Interest or other interests
that could be issued by the Trust in the future, it is possible, as noted
above, that the Trust could be viewed as a partnership. If the arrangement
were treated as creating a partnership for Illinois state tax purposes, the
Trust could be subject to the Illinois personal property replacement tax with
respect to the portion of the Trust's taxable income, if any, apportioned to
Illinois. The imposition of any such tax on the Trust could reduce the amount
available for distribution to the Certificate Owners.
Except as described above, the discussion herein does not address the tax
treatment of the Trust, the Certificates or the Certificate Owners under any
state, local or foreign tax laws. Prospective investors are urged to consult
their own tax advisers regarding the state and local tax treatment of the
Trust, and the tax consequences relating to the purchase, ownership and
disposition of the Certificates under any applicable state, local or foreign
tax law.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code with respect to the plan. ERISA
also imposes certain duties on persons who are fiduciaries of plans subject to
ERISA and prohibits certain transactions between a plan and parties in
interest with respect to such plans ("Prohibited Transactions"). 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.
Benefit Plan fiduciaries must also determine whether the acquisition and
holding of the Certificates and the operations of the Trust would result in
direct or indirect Prohibited Transactions. The operations of the Trust
could result in Prohibited Transactions if Benefit Plans that purchase
Certificates 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 Certificates are
deemed to own an interest in the underlying assets of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor ("DOL") concerning the definition of what constitutes the
"plan assets" of an employee benefit plan subject to ERISA or the Code, or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Certificates,
the Trust could be deemed to hold plan assets unless one of the exceptions
under the Final Regulation is applicable to the Trust.
The Final Regulation only applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in Certificates are
equity interests, 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 and (iii) either is (A) part of a class of securities registered under
section 12(b) or 12(g) of the Exchange Act or (B) sold to the plan as part of
an offering of securities to the public pursuant to an effective registration
statement under the Act and the class of securities of which such security is
a part is registered under the Exchange Act within 120 days (or such later
time as may be allowed by the Commission) after the end of the fiscal year of
the issuer during which the offering of such securities to the public
occurred. In addition, the Final Regulation provides that if 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, the Benefit
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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 a plan's investment in the entity.
Unless otherwise specified in the related Prospectus Supplement, it is
anticipated that interests in the Certificates will meet the criteria of
publicly-offered securities as set forth above: the underwriters of a Series
expect (although no assurances can be given) that interests in each Class of
Certificates offered hereby will be held by at least 100 independent investors
at the conclusion of the offering thereof; there are no restrictions imposed
on the transfer of interests in the Certificates; and interests in the
Certificates will be sold as part of an offering pursuant to an effective
registration statement under the Act and then will be timely registered under
the Exchange Act.
If interests in the Class A Certificates fail to meet the criteria of
publicly-offered securities and the Trust's assets are deemed to include
assets of Benefit Plans that are Certificateholders, transactions involving
the Trust and "parties in interest" or "disqualified persons" with respect to
such plans might be prohibited under Section 406 of ERISA and Section 4975 of
the Code unless an exemption is applicable. Thus, for example, if a
participant in any Benefit Plan is a cardholder of one of the Accounts, under
DOL interpretations the purchase of interests in Certificates by such plan
could constitute a prohibited transaction. In addition, the Seller or any
underwriter of a Series may be considered to be a party in interest,
disqualified person or fiduciary with respect to an investing Benefit Plan.
Accordingly, an investment by a Benefit Plan in Certificates may be a
prohibited transaction under ERISA and the Code unless such investment is
subject to a statutory or administrative exemption. There are five class
exemptions issued by the DOL that could apply in such event: DOL Prohibited
Transaction Exemption 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, will apply to all transactions involving the
Trust's assets.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of interests in Certificates should consult their own counsel as to
whether the assets of the Trust which are represented by such interests would
be considered plan assets, and whether, under the general fiduciary standards
of investment prudence and diversification, an investment in Certificates 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 Certificates
of any Series should consult their own benefits or other appropriate counsel
with respect to the United States Supreme Court's decision in John Hancock
Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 114 S. Ct. 517
(1993) ("John Hancock")
61
<PAGE>
and the applicability of DOL Prohibited Transaction Exemption 95-60 ("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 or all of the transactions
that could occur as the result of the acquisition and holding of the
Certificates of a Series by an insurance company general account from the
penalties normally associated with prohibited transactions. Accordingly,
investors should analyze whether John Hancock and PTE 95-60 or any other
exemption may have an impact with respect to their purchase of the
Certificates of any Series.
PLAN OF DISTRIBUTION
The Seller may sell Certificates (i) through underwriters or dealers; (ii)
directly to one or more purchasers; or (iii) through agents. The related
Prospectus Supplement in respect of a Series offered hereby sets forth the
terms of the offering of such Certificates, including the name or names of any
underwriters, the purchase price of such Certificates and the proceeds to the
Seller from such sale, any underwriting discounts and other items constituting
underwriters' compensation, any initial offering price and any discounts or
concessions allowed or reallowed or paid to dealers. Only underwriters so
named in such Prospectus Supplement shall be deemed to be underwriters in
connection with the Certificates offered thereby.
Subject to the terms and conditions set forth in an underwriting agreement
(an "Underwriting Agreement") to be entered into with respect to each Series
of Certificates, the Seller will agree to sell to each of the underwriters
named therein and in the related Prospectus Supplement, and each of such
underwriters will severally agree to purchase from the Seller, the principal
amount of Certificates set forth therein and in the related Prospectus
Supplement (subject to proportional adjustment on the terms and conditions set
forth in the related Underwriting Agreement in the event of an increase or
decrease in the aggregate amount of Certificates offered hereby and by the
related Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree, subject
to the terms and conditions set forth therein, to purchase all the
Certificates offered hereby and by the related Prospectus Supplement if any of
such Certificates are purchased. In the event of a default by any underwriter,
each Underwriting Agreement will provide that, in certain circumstances,
purchase commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Underwriting Agreement will provide that the Seller will indemnify the
related underwriters against certain liabilities, including liabilities under
applicable securities laws, or contribute to payments the several underwriters
may be required to make in respect thereof.
The place and time of delivery for any Series of Certificates in respect of
which this Prospectus is delivered are set forth in the accompanying
Prospectus Supplement.
First Chicago Capital Markets, Inc. ("FCCM"), an affiliate of the Seller,
may from time to time act as agent or underwriter in connection with the sale
of Certificates to the extent permitted by applicable law. Any obligations of
FCCM are the sole obligations of FCCM and do not create any obligations on the
part of any affiliate of FCCM.
This Prospectus and related Prospectus Supplements may be used by FCCM in
connection with offers and sales related to secondary market transactions in
the Certificates. FCCM, to the extent permitted by law, may act as principal
or agent in such transactions. Such sales will be made at prices related to
prevailing market prices at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Bank by Sherman I. Goldberg, Esq., Executive Vice President, General
Counsel and Secretary of First Chicago NBD, and by Skadden, Arps, Slate,
Meagher & Flom, New York, New York, Tax Counsel, and for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, New York, New York.
62
<PAGE>
INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Accounts................................................................. 3
Accumulation Period...................................................... 6
Act...................................................................... 2
Additional Accounts...................................................... 4
Adjustment Payment....................................................... 42
Aggregate Principal Receivables.......................................... 4
Agreement................................................................ 2
Amortization Period...................................................... 6
Automatic Additional Accounts............................................ 4, 37
Bank..................................................................... 1, 3
Bank's Portfolio......................................................... 23
Base Rate................................................................ 16
Benefit Plans............................................................ 60
Cash Collateral Account.................................................. 51
Cash Collateral Guaranty................................................. 51
Cede..................................................................... 2
Cedel.................................................................... 7, 30
Cedel Participants....................................................... 30
Certificate Owners....................................................... 2
Certificate Rate......................................................... 6
Certificateholders....................................................... 2
Certificates............................................................. 1, 3
Citibank................................................................. 29
Class.................................................................... 1, 3
Code..................................................................... 55
Collateral Interest...................................................... 51
Collection Account....................................................... 13
Commission............................................................... 2
Controlled Accumulation Amount........................................... 9
Controlled Accumulation Period........................................... 9
Controlled Amortization Amount........................................... 8
Controlled Amortization Period........................................... 8
Controlled Deposit Amount................................................ 9
Controlled Distribution Amount........................................... 8
Cooperative.............................................................. 31
Cut Off Date............................................................. 25
Defaulted Receivables.................................................... 42
Definitive Certificates.................................................. 31
Depositaries............................................................. 29
Depository............................................................... 28
Determination Date....................................................... 13
Disclosure Document...................................................... 5
Discount Percentage...................................................... 41
Distribution Date........................................................ 7
DOL...................................................................... 60
DTC...................................................................... 7
Due Period............................................................... 25
Eligible Account......................................................... 36
Eligible Additional Account.............................................. 37
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Eligible Institution.................................................... 38
Eligible Investments.................................................... 38
Eligible Receivable..................................................... 36
Enhancement............................................................. 3
Enhancement Provider.................................................... 50
ERISA................................................................... 13
Euroclear............................................................... 7, 31
Euroclear Operator...................................................... 31
Euroclear Participants.................................................. 31
Excess Finance Charge Collections....................................... 41
Excess Principal Collections............................................ 41
Exchange................................................................ 5
Exchange Act............................................................ 2
Exchangeable Seller's Certificate....................................... 5
FASIT................................................................... 58
FASIT Provisions........................................................ 58
FCSI.................................................................... 22
FCCM.................................................................... 1, 62
FDIA.................................................................... 53
FDIC.................................................................... 5
Final Regulation........................................................ 60
Finance Charge Receivables.............................................. 4
FIRREA.................................................................. 53
First Chicago NBD....................................................... 3
First Chicago Amount.................................................... 6
First Chicago Interest.................................................. 5
First Chicago Percentage................................................ 28, 40
Fixed Allocation Percentage............................................. 39
Floating Allocation Percentage.......................................... 39
FNBC.................................................................... 4
Foreign Investors....................................................... 58
Full Invested Amount.................................................... 12
Funding Period.......................................................... 11
Holders................................................................. 32
Indirect Participants................................................... 30
Interchange............................................................. 24
Interest Funding Account................................................ 32
Interest Period......................................................... 7
Invested Amount......................................................... 6
Invested Percentage..................................................... 6, 39
Investor Charge-Off..................................................... 42
Investor Default Amount................................................. 42
IRA..................................................................... 60
IRS..................................................................... 55
John Hancock............................................................ 61
Liquidation Event....................................................... 43
MasterCard International................................................ 22
Minimum Aggregate Principal Receivables................................. 25
Minimum First Chicago Interest Percentage............................... 25
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Monthly Servicer Report.................................................. 47
Monthly Servicing Fee.................................................... 46
Morgan................................................................... 29
Offered Certificates..................................................... 13, 55
OID...................................................................... 56
Paired Series............................................................ 39
Participants............................................................. 29
Paying Agent............................................................. 30
Portfolio Yield.......................................................... 16
Preexisting Series....................................................... 15
Pre-Funding Account...................................................... 12
Pre-Funding Amount....................................................... 12, 38
Prepayable Instrument.................................................... 56
Principal Amortization Period............................................ 9
Principal Commencement Date.............................................. 8
Principal Funding Account................................................ 9
Principal Receivables.................................................... 4
Principal Terms.......................................................... 34
Prohibited Transactions.................................................. 60
Proposed Regulations..................................................... 59
Prospectus Supplement.................................................... 1
PTE 95-60................................................................ 62
Rapid Accumulation Period................................................ 10
Rapid Amortization Period................................................ 11
Rating Agency............................................................ 14
Receivables.............................................................. 1, 3
Record Date.............................................................. 28
</TABLE>
<TABLE>
<CAPTION>
TERM PAGE
---- ----
<S> <C>
Regulations................................................................ 56
Removed Accounts........................................................... 5
Reserve Account............................................................ 52
Revolving Period........................................................... 7
Scheduled Payment Date..................................................... 8
Seller..................................................................... 3
Senior Certificates........................................................ 6
Series..................................................................... 1, 3
Series Closing Date........................................................ 7
Series Termination Date.................................................... 9
Servicer................................................................... 13
Servicer Default........................................................... 47
Service Transfer........................................................... 46
Servicing Fee.............................................................. 46
Spread Account............................................................. 52
Subordinated Certificates.................................................. 6
Supplement................................................................. 5
Tax Counsel................................................................ 55
Terms and Conditions....................................................... 31
Transfer Date.............................................................. 9
Transfer Deposit Amount.................................................... 17
Trust...................................................................... 1, 3
Trustee.................................................................... 3
UCC........................................................................ 15
Unallocated Principal Collections.......................................... 41
Underwriting Agreement..................................................... 62
VISA....................................................................... 22
</TABLE>
64
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Certificates
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of DTC,
Cedel or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice.
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding Global Securities will be effected on a delivery-against-
payment basis through Citibank and Morgan as the respective depositaries of
Cedel and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or
their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, Citibank and Morgan, which in turn will hold such positions in
accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional asset-backed securities.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
participants will be settled using the procedures applicable to conventional
asset-backed securities.
A-1
<PAGE>
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants and/or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. Cedel or Euroclear will instruct Citibank or
Morgan, respectively, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding
the settlement date. Payment will then be made by Citibank or Morgan to the
DTC participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, Cedel
Participants or Euroclear Participants purchasing Global Securities would
incur overdraft charges for one day, assuming they cleared the overdraft when
the Global Securities were credited to their accounts. However, interest on
the Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that one-
day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each participant's particular
cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities
to Citibank or Morgan for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel and Euroclear Participants may employ
their customary procedures for transactions in which Global Securities are to
be transferred by the respective clearing system, through Citibank or Morgan,
to a DTC participant. The seller will send instructions to Cedel or Euroclear
through a participant at least one business day prior to settlement. In these
cases, Cedel or Euroclear will instruct Citibank or Morgan, as appropriate, to
deliver the Global Securities to the DTC participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment date to and excluding the settlement
date. The payment will then be reflected in the account of the Cedel
Participant or Euroclear Participant the following day, and receipt of the
cash proceeds in the Cedel or Euroclear Participant's account would be back-
valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedel or Euroclear Participant have a line
of credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-
valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Cedel or Euroclear
Participant's account would instead be valued as of the actual settlement
date.
A-2
<PAGE>
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(1) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder of Global Securities holding securities through Cedel or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. persons,
unless such holder takes one of the following steps to obtain an exemption or
reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Non-U.S. persons that are
beneficial owners can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status).
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. persons that are beneficial owners residing in a country
that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless
the filer alternatively files Form W-8. Form 1001 may be filed by the
beneficial owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Request for Taxpayer
Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Global Securities holder,
or in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom he holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of foreign income tax
withholding that may be relevant to foreign holders of these Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of these Global
Securities.
A-3
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLER OR THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR THE SALE
HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FCC NATIONAL BANK OR IN THE
RECEIVABLES OR THE ACCOUNTS SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PROSPECTUS SUPPLEMENT ----
<S> <C>
Summary of Series Terms.................................................... S-3
Summary of Series Provisions............................................... S-3
The Bank's Credit Card Portfolio........................................... S-14
The Accounts............................................................... S-17
The Seller................................................................. S-21
Maturity and Principal Payment Considerations.............................. S-22
Description of the Class A Certificates and the
Agreement................................................................. S-23
Underwriting............................................................... S-38
Index of Terms for Prospectus Supplement................................... S-39
Annex I: Prior Issuances of Certificates................................... A-1
<CAPTION>
PROSPECTUS
<S> <C>
Prospectus Supplement...................................................... 2
Reports to Certificateholders.............................................. 2
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 15
The Bank's Credit Card Business............................................ 22
The Accounts............................................................... 25
The Seller................................................................. 26
The Trust.................................................................. 26
Use of Proceeds............................................................ 27
Maturity and Principal Payment Considerations.............................. 27
Description of the Certificates and the Agreement.......................... 27
Enhancement................................................................ 50
Certain Legal Aspects of the Receivables................................... 52
Tax Matters................................................................ 55
State and Local Taxation................................................... 60
ERISA Considerations....................................................... 60
Plan of Distribution....................................................... 62
Legal Matters.............................................................. 62
Index of Terms for Prospectus.............................................. 63
Annex I: Global Clearance, Settlement and Tax
Documentation Procedures.................................................. A-1
</TABLE>
UNTIL DECEMBER 12, 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$900,000,000
FIRST CHICAGO
MASTER TRUST II
FLOATING RATE ASSET
BACKED CERTIFICATES
SERIES 1996-Q
FCC NATIONAL BANK
SELLER AND SERVICER
SALOMON BROTHERS INC
FIRST CHICAGO CAPITAL MARKETS, INC.
CHASE SECURITIES INC.
CS FIRST BOSTON
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PROSPECTUS SUPPLEMENT
DATED SEPTEMBER 13, 1996
