<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-05433
PROSPECTUS SUPPLEMENT
(To Prospectus Dated October 22, 1996)
ADVANTA CREDIT CARD MASTER TRUST II
$432,500,000 CLASS A FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-E
$27,500,000 CLASS B FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1996-E
ADVANTA NATIONAL BANK USA
SELLER AND SERVICER
ADVANTA NATIONAL BANK
SELLER
------------------------
Each Class A Floating Rate Asset Backed Certificate, Series 1996-E
(collectively, the "Class A Certificates") and each Class B Floating Rate Asset
Backed Certificate, Series 1996-E (collectively, the "Class B Certificates" and,
together with the Class A Certificates, the "Certificates") will represent an
undivided interest in the ADVANTA Credit Card Master Trust II (the "Trust")
formed pursuant to a Pooling and Servicing Agreement among Advanta National Bank
(Continued on next page)
------------------------
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE IS
NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITERS EXPECT, BUT ARE NOT
OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE IS NO ASSURANCE THAT ANY
SUCH MARKET WILL DEVELOP OR CONTINUE. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" COMMENCING ON PAGE
S-18 HEREIN AND ON PAGE 14 IN THE PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF ADVANTA CORP., ADVANTA NATIONAL BANK USA, ADVANTA
NATIONAL BANK OR ANY AFFILIATE THEREOF, EXCEPT TO THE LIMITED EXTENT
DESCRIBED HEREIN. A CERTIFICATE IS NOT A DEPOSIT AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC"). THE RECEIVABLES ARE NOT INSURED OR GUARANTEED BY
THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<S> <C> <C> <C>
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- ----------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT BANKS(1)(2)
- ----------------------------------------------------------------------------------------------------------
Per Class A Certificate............................. 99.959% .275% 99.684%
- ----------------------------------------------------------------------------------------------------------
Per Class B Certificate............................. 100% .325% 99.675%
- ----------------------------------------------------------------------------------------------------------
Total............................................... $459,822,675 $1,278,750 $458,543,925
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the Class A Certificate Rate or the Class
B Certificate Rate, as applicable, from November 1, 1996.
(2) Before deduction of expenses payable by the Banks estimated at $600,000.
------------------------
The Certificates are offered by the Underwriters when, as and if issued by
the Trust and accepted by the Underwriters and subject to the Underwriters'
right to reject orders in whole or in part. It is expected that the Certificates
will be offered globally and delivered in book-entry form on or about November
1, 1996, through the facilities of The Depository Trust Company, Cedel Bank,
societe anonyme and the Euroclear System.
------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
MERRILL LYNCH & CO. SALOMON BROTHERS INC
J.P. MORGAN & CO. UBS SECURITIES
BEAR, STEARNS & CO. INC. LEHMAN BROTHERS
UNDERWRITER OF THE CLASS B CERTIFICATES
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus Supplement is October 22, 1996
<PAGE> 2
(Continued from previous page)
USA ("AUS"), Advanta National Bank ("ANB" and, together with AUS, the "Banks")
and Bankers Trust Company, as trustee. The property of the Trust includes a
portfolio of VISA(R) and MasterCard(R) credit card receivables (the
"Receivables") generated or to be generated from time to time in the ordinary
course of business in a portfolio of consumer revolving credit card accounts
(the "Accounts"), all monies due in payment of the Receivables and certain other
property, as described more fully herein, including the benefits of funds on
deposit in the Cash Collateral Account as described herein. In addition, the
Collateral Interest (as defined herein) will be issued in the initial amount of
$40,000,000 and will be subordinate to the Certificates. The Certificateholders
will be entitled to certain assets of the Trust, including the right to receive
a varying percentage of each month's collections with respect to the Receivables
at the times and in the manner described herein. The Banks own the remaining
undivided interest in the Trust not represented by the Certificates or the
certificates of any other Series and any uncertificated interests in the Trust
issued as Series Enhancement, and AUS will continue to service the Receivables.
The Banks have offered and from time to time may offer other Series of
certificates that represent undivided interests in certain assets of the Trust,
which may have terms significantly different from the Certificates.
Interest will accrue on the Class A Certificates from November 1, 1996 (the
"Closing Date") at the rate of .10% per annum above the London interbank offered
quotations United States dollar deposits ("LIBOR") for a period of one month,
prevailing on the related LIBOR Determination Date (as defined herein)
determined as described herein (the "Class A Certificate Rate"), provided that
the rate for the initial Interest Period will be determined by reference to a
straight-line interpolation (based on the actual number of days in the initial
Interest Period) between one-month LIBOR and two-month LIBOR. Interest will
accrue on the Class B Certificates from the Closing Date at the rate of .33% per
annum above one-month LIBOR prevailing on the related LIBOR Determination Date
determined as described herein (the "Class B Certificate Rate"), provided that
the rate for the initial Interest Period will be determined by reference to a
straight-line interpolation (based on the actual number of days in the initial
Interest Period) between one-month LIBOR and two-month LIBOR. Interest with
respect to the Certificates will be distributed on the 15th day of each month
or, if such 15th day is not a Business Day (as defined herein), the next
succeeding Business Day (each, a "Distribution Date") commencing December 16,
1996. Principal with respect to the Class A Certificates is scheduled to be
distributed to the Class A Certificateholders on the November 2001 Distribution
Date, or earlier in certain circumstances described herein. Principal with
respect to the Class B Certificates is expected to be distributed to the Class B
Certificateholders on the December 2001 Distribution Date, or earlier or later
in certain circumstances described herein. The Class B Certificates will be
subordinated to the Class A Certificates to the extent necessary to fund
payments on the Class A Certificates as described herein. In addition, the
Certificates will have the benefit of the Collateral Interest and funds on
deposit in the Cash Collateral Account as described herein.
The Certificates initially will be represented by certificates which will
be registered in the name of Cede & Co., the nominee of The Depository Trust
Company. The interests of holders of beneficial interests in the Certificates
("Certificate Owners") will be represented by book-entries on the records of The
Depository Trust Company and participating members thereof. Definitive
Certificates will be available to Certificate Owners only under the limited
circumstances described in the Prospectus. See "Description of the
Certificates -- Definitive Certificates" in the Prospectus.
Application will be made to list the Series 1996-E Certificates on the
Luxembourg Stock Exchange.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 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 Certificates offered hereby constitute a separate Series of
Certificates being offered by the Banks from time to time pursuant to their
Prospectus dated October 22, 1996. This Prospectus Supplement does not contain
complete information about the offering of the Certificates. Additional
information is contained in the Prospectus and investors are urged to read both
this Prospectus Supplement and the Prospectus in full. Sales of the Certificates
may not be consummated unless the purchaser has received both this Prospectus
Supplement and the Prospectus.
S-2
<PAGE> 3
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement and the accompanying Prospectus. A
listing of the pages on which some of such terms are defined is found in the
"Index of Principal Terms" in this Prospectus Supplement and the accompanying
Prospectus. Other Series which may be issued pursuant to other similar
prospectus supplements and prospectuses or disclosure documents may also use
such capitalized terms in such prospectuses or documents. However, in such
cases, reference to such terms will, unless the context otherwise requires, only
be made in the context of such other Series.
TRUST......................... The ADVANTA Credit Card Master Trust II (the
"Trust").
THE CERTIFICATES AND THE
COLLATERAL INTEREST........... Each of the Class A Floating Rate Asset Backed
Certificates, Series 1996-E (the "Class A
Certificates") and the Class B Floating Rate
Asset Backed Certificates, Series 1996-E (the
"Class B Certificates," together with the
Class A Certificates, the "Certificates")
offered hereby represents a specified
undivided interest in the assets of the Trust
allocated to the Certificates (the "Investor
Interest"). The term "Class A
Certificateholders" refers to holders of the
Class A Certificates, the term "Class B
Certificateholders" refers to holders of the
Class B Certificates, the term
"Certificateholders" refers to holders of the
Certificates, and the term "Series" refers to
any series of certificates issued by the
Trust, including the series ("Series 1996-E")
of which the Certificates form a part. The
Certificates will be issued pursuant to the
Amended and Restated Pooling and Servicing
Agreement dated as of December 1, 1993, as
amended and restated as of May 23, 1994, and
as amended by Amendment Number 1 dated as of
July 1, 1994, between Advanta National Bank
USA ("AUS"), as seller (in such capacity, a
"Seller") and servicer (in such capacity, the
"Servicer"), and Bankers Trust Company, as
trustee (the "Trustee"), as further amended
by Amendment Number 2 dated as of October 6,
1995 among AUS, as Seller and Servicer,
Advanta National Bank ("ANB" and, together
with AUS, the "Banks") as seller (in such
capacity, a "Seller" and together with AUS,
the "Sellers") and the Trustee (the "Master
Pooling and Servicing Agreement") and a
related supplement thereto (the "Supplement"
and, together with the Master Pooling and
Servicing Agreement, the "Pooling and
Servicing Agreement" (unless the context
otherwise requires)). See "Description of the
Certificates." In addition, an undivided
interest in the Trust (the "Collateral
Interest") will be issued concurrently with
the issuance of the Certificates as part of
Series 1996-E in an initial amount of
$40,000,000 (the "Collateral Initial Investor
Amount") and will, together with the amounts
on deposit in the Cash Collateral Account,
constitute the Series Enhancement for the
Certificates.
The Certificates will be available for purchase
in minimum denominations of $1,000 and in
integral multiples of $1,000 in excess
thereof. Except in certain limited
circumstances as described in the Prospectus
under "Description of the
Certificates -- Definitive Certificates," the
Certificates will only be available in book-
entry form.
S-3
<PAGE> 4
The Trust's assets will be allocated among the
Investor Interest, the Collateral Interest,
the interests of the holders of other Series
and the interest of the holders of the Seller
Certificates (the "Sellers' Interest"), as
described below. The aggregate amount of
Principal Receivables and amounts, if any, on
deposit in the Excess Funding Account
allocated to the Certificateholders and the
Collateral Interest (the "Invested Amount")
will be $450,000,000 on the Closing Date (the
"Initial Invested Amount"). The Invested
Amount will, except as otherwise provided
herein, increase up to a maximum amount of
$500,000,000 during the Funding Period,
remain fixed during the remainder of the
Revolving Period and decline thereafter
during the Accumulation Period or Rapid
Amortization Period as principal is deposited
into the Principal Funding Account or paid on
the Certificates. The Invested Amount is
subject to increase during the Funding Period
to the extent amounts are withdrawn from the
Pre-Funding Account and paid to the Sellers
in connection with an increase in the amount
of Principal Receivables in the Trust. The
aggregate amount of Principal Receivables and
amounts, if any, on deposit in the Excess
Funding Account, allocated to the Class A
Certificateholders (the "Class A Invested
Amount") will be $389,250,000 on the Closing
Date (the "Class A Initial Invested Amount").
The aggregate amount of Principal Receivables
and amounts, if any, on deposit in the Excess
Funding Account allocated to the Class B
Certificateholders (the "Class B Invested
Amount") will be $24,750,000 on the Closing
Date (the "Class B Initial Invested Amount").
The aggregate amount of Principal Receivables
and amounts, if any, on deposit in the Excess
Funding Account allocated to the Collateral
Interest (the "Collateral Invested Amount")
will be $36,000,000 on the Closing Date (the
"Collateral Initial Invested Amount"). During
the Funding Period, the Class A Invested
Amount, the Class B Invested Amount and the
Collateral Invested Amount may increase under
certain conditions as the Sellers' Interest
is increased until the Class A Invested
Amount is equal to $432,500,000, the Class B
Invested Amount is equal to $27,500,000 and
the Collateral Invested Amount is equal to
$40,000,000. Thereafter, the Class A Invested
Amount will remain, prior to the commencement
of the Accumulation or Rapid Amortization
Period, fixed at such Class A Invested
Amount, except if there are unreimbursed
Class A Investor Charge-Offs or if a Series
1996-E Pay Out Event or a Trust Pay Out Event
occurs. In addition, the Class B Invested
Amount will decline in certain circumstances
as a result of (a) the allocation to the
Class B Certificates of Defaulted Amounts,
including such amounts otherwise allocable to
the Class A Certificates, and (b) the
reallocation of collections of Principal
Receivables otherwise allocable to the Class
B Certificates to fund certain payments in
respect of the Class A Certificates. Any such
reductions in the Class B Invested Amount may
be reimbursed out of Excess Spread, if any,
Excess Finance Charges allocable to Series
1996-E, the reallocation of certain amounts
allocable to the Collateral Interest and
certain amounts, if any, on deposit in the
Cash Collateral Account as described herein.
The Seller Amount will fluctuate as the
S-4
<PAGE> 5
amount of Principal Receivables in the Trust,
the invested amount of each Series and the
amounts on deposit in the Excess Funding
Account and the Principal Funding Account
change from time to time. The Sellers'
Interest will represent the right to the
assets of the Trust not allocated to the
Investor Interest, the Collateral Interest or
the holders of investor certificates of other
Series (the Investor Interest, the Collateral
Interest and the interest in the assets of
the Trust held by the holders of investor
certificates of other Series is referred to
herein as the "Certificateholders'
Interest").
The Class A Certificates will represent the
right to receive from the assets of the Trust
allocated to the Investor Interest and the
Collateral Interest funds up to (but not in
excess of) the amounts required to make
payments of interest on the Class A
Certificates from the Closing Date at the
rate of .10% per annum above the London
interbank offered quotations for United
States dollar deposits ("LIBOR") for a period
of one month (provided that the rate for the
initial Interest Period will be determined by
a straight-line interpolation between
one-month LIBOR and two-month LIBOR)
determined as set forth under "Description of
the Certificates -- Interest Payments" (such
rate, the "Class A Certificate Rate"), and
payment of principal on the November 2001
Distribution Date or, in certain limited
circumstances, monthly payments of principal
during the Rapid Amortization Period, to the
extent of the Class A Invested Amount. See
"Description of the Certificates -- General,"
"-- Interest Payments" and "-- Principal
Payments."
The Class B Certificates will represent the
right to receive from the assets of the Trust
allocated to the Investor Interest and the
Collateral Interest funds up to (but not in
excess of) the amounts required to make
payments of interest on the Class B
Certificates from the Closing Date at the
rate of .33% per annum above one-month LIBOR
(provided that the rate for the initial
Interest Period will be determined by a
straight-line interpolation between one-month
LIBOR and two-month LIBOR) (such rate, the
"Class B Certificate Rate"), and monthly
payments of principal, following the payment
in full of the Class A Investor Amount,
during the Class B Accumulation Period or the
Rapid Amortization Period, to the extent of
the Class B Invested Amount. See "Description
of the Certificates -- General," "-- Interest
Payments" and "-- Principal Payments."
The Certificates represent beneficial interests
in the Trust only and do not represent
interests in or obligations of Advanta Corp.,
AUS, ANB or any affiliate thereof except to
the limited extent provided herein. None of
the Certificates, the Accounts or the
Receivables are insured or guaranteed by the
Federal Deposit Insurance Corporation (the
"FDIC") or any other governmental agency or
instrumentality.
RECEIVABLES................... The aggregate amount of Principal Receivables
and Finance Charge Receivables in the
Accounts as of September 30, 1996 equaled
$8,711,266,930 and $114,207,644,
respectively. The aggregate undivided
interest in the Principal Receivables and
amounts on deposit in the Excess Funding
Account, if any,
S-5
<PAGE> 6
evidenced by the Certificates will never
exceed the sum of the Class A Invested Amount
and the Class B Invested Amount, regardless
of the total amount of Principal Receivables
in the Trust and amounts on deposit in the
Excess Funding Account, if any, at any time.
See "The Receivables."
REGISTRATION OF
CERTIFICATES.................. The Certificates initially will be represented
by certificates registered in the name of
Cede & Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No person
acquiring a beneficial interest in the
Certificates (a "Certificate Owner") will be
entitled to receive a definitive certificate
representing such person's interest (a
"Definitive Certificate"), except in the
event that Definitive Certificates are issued
under the limited circumstances described
herein. Investor Certificateholders may elect
to hold their Investor Certificates through
DTC (in the United States) or Cedel or
Euroclear (in Europe). See "Description of
the Certificates -- Definitive Certificates"
in the Prospectus.
SELLERS....................... Advanta National Bank USA and Advanta National
Bank, each a national banking association and
an indirect wholly-owned subsidiary of
Advanta Corp., are the Sellers of the
Receivables and the originators of the assets
of the Trust. See "Summary of Terms --
Sellers" and "The Banks and Advanta Corp." in
the Prospectus. Advanta National Bank USA
changed its name from Colonial National Bank
USA on May 20, 1996.
SERVICER...................... Advanta National Bank USA. The principal
executive offices of AUS are located at
Brandywine Corporate Center, 650 Naamans
Road, Claymont, Delaware 19703. See "The
Banks and Advanta Corp." in the Prospectus.
COLLECTIONS................... All collections of Receivables will be
allocated by the Servicer between amounts
collected on Principal Receivables and
amounts collected on Finance Charge
Receivables. All such amounts will then be
allocated in accordance with the respective
interests of the Class A Certificateholders,
the Class B Certificateholders, the holder of
the Collateral Interest (the "Collateral
Interest Holder"), the holders of the Seller
Certificates and the holders of certificates
and uncertificated interests of other Series,
if any, in the Principal Receivables and in
the Finance Charge Receivables. Subject to
certain exceptions, the Servicer will deposit
all collections of Receivables distributable
to Certificateholders, the Collateral
Interest Holder and to holders of
certificates and uncertificated interests of
other Series, if any, in the Collection
Account no later than the day prior to the
applicable Distribution Date. See
"Description of the
Certificates -- Allocation Percentages."
INTEREST...................... Interest on the Certificates for each Interest
Period will be distributed 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
December 16, 1996 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
or Class B Certificate Rate, as applicable,
and (ii) the outstanding principal amount of
the Class A Certificates or the outstanding
principal amount of the Class B Certificates,
as applicable, as of the preceding Record
Date (or,
S-6
<PAGE> 7
in the case of the December 1996 Distribution
Date, as of the Closing Date). The "Interest
Period," with respect to any Distribution
Date, will be the period from the previous
Distribution Date through the day preceding
such Distribution Date, except the initial
Interest Period will be the period from the
Closing Date through December 15, 1996, the
day preceding the initial Distribution Date.
The term "Business Day" means any day other
than a Saturday, Sunday or a day on which
banking institutions in New York, New York,
Claymont, Delaware, or Philadelphia,
Pennsylvania (or, with respect to the
determination of LIBOR, London, England) or
any other state in which the principal
executive offices of AUS, ANB or any
Additional Seller are located, are authorized
or obligated by law, executive order or
governmental decree to be closed. The
"Monthly Period," with respect to any
Distribution Date will be the period from and
including the first day of the preceding
calendar month to and including the last day
of such calendar month (other than the
initial Monthly Period, which will commence
on the Closing Date and end on November 30,
1996). See "Description of the
Certificates -- Interest Payments."
ADDITIONAL AMOUNTS AVAILABLE
TO CERTIFICATEHOLDERS......... If Class A Available Funds are less than the
sum of (i) current and overdue Class A
Monthly Interest, (ii) current and overdue
Class A Additional Interest, (iii) current
and overdue Class A Servicing Fee and (iv)
the Class A Investor Default Amount, with
respect to the related Distribution Date,
Excess Spread and Excess Finance Charges
allocable to Series 1996-E will be applied to
fund the deficiency (the "Class A Required
Amount"). "Excess Spread" for any
Distribution Date will equal the sum of (a)
the excess of Class A Available Funds over
the sum of the amounts referred to in clauses
(i), (ii), (iii) and (iv) above, (b) the
excess of Class B Available Funds over the
sum of (i) current and overdue Class B
Monthly Interest, (ii) current and overdue
Class B Additional Interest and (iii) current
and overdue Class B Servicing Fee and (c) the
Collateral Available Funds not used, if AUS
or the Trustee is no longer the Servicer, to
pay current and overdue Collateral Servicing
Fee. If Excess Spread and Excess Finance
Charges allocable to Series 1996-E 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 withdrawn to fund the
remaining Class A Required Amount. If Excess
Spread and Excess Finance Charges allocable
to Series 1996-E with respect to such
Distribution Date and amounts, if any, on
deposit in the Cash Collateral Account are
less than the Class A Required Amount,
Reallocated Principal Collections allocable
first to the Collateral Invested Amount and
then the Class B Invested Amount with respect
to the related Monthly Period will then be
used to fund the remaining Class A Required
Amount. If Reallocated Principal Collections
with respect to such Monthly Period are
insufficient to fund the remaining Class A
Required Amount for the related Distribution
Date, then a portion of the Collateral
Invested Amount will be reduced by the amount
of such deficiency (but not by more than the
Class A Investor Default Amount for such
Monthly Period). If such
S-7
<PAGE> 8
reduction would cause the Collateral Invested
Amount to be reduced below zero, the Class B
Invested Amount will be reduced by the amount
by which the Collateral Invested Amount would
have been reduced below zero (but not by more
than the excess of the Class A Investor
Default Amount for such Monthly Period over
the amount of such reduction in the
Collateral Invested Amount) to avoid a
charge-off with respect to the Class A
Certificates. If the Class B Invested Amount
is reduced to zero, the Class A Invested
Amount will be reduced by the amount by which
the Class A Required Amount for any
Distribution Date exceeds the sum of (i)
Excess Spread and Excess Finance Charges
allocated to Series 1996-E, (ii) amounts, if
any, on deposit in the Cash Collateral
Account and (iii) Reallocated Principal
Collections for the related Monthly Period,
but not by more than the excess of the Class
A Investor Default Amount for such Monthly
Period over the aggregate reductions in the
Collateral Invested Amount and the Class B
Invested Amount with respect to such Monthly
Period, and the Class A Certificateholders
will bear directly the credit and other risks
associated with their undivided interest in
the Trust. See "Description of the
Certificates -- Reallocation of Cash Flows"
and "-- Allocation of Investor Default
Amount."
If Class B Available Funds are less than the
sum of (i) current and overdue Class B
Monthly Interest, (ii) current and overdue
Class B Additional Interest and (iii) current
and overdue Class B Servicing Fee and (iv)
the Class B Investor Default Amount, if any,
with respect to the related Distribution
Date, Excess Spread and Excess Finance
Charges allocable to Series 1996-E and not
required to pay the Class A Required Amount
will be applied to fund the deficiency (the
"Class B Required Amount"). If Excess Spread
and Excess Finance Charges allocable to
Series 1996-E with respect to such
Distribution Date not required to pay the
Class A Required Amount are less than the
Class B Required Amount, amounts, if any, on
deposit in the Cash Collateral Account not
required to fund the Class A Required Amount
will be withdrawn and applied to fund the
Class B Required Amount. If such amounts
available with respect to such Distribution
Date are insufficient to pay the Class B
Required Amount, Reallocated Principal
Collections allocable to the Collateral
Invested Amount for the related Monthly
Period not required to fund the Class A
Required Amount will then be used to fund the
remaining Class B Required Amount. If
Reallocated Principal Collections allocable
to the Collateral Invested Amount with
respect to such Monthly Period are
insufficient to fund the remaining Class B
Required Amount for the related Distribution
Date, then the Collateral Invested Amount
will be reduced by the amount of such
deficiency (but not by more than the Class B
Investor Default Amount for such Monthly
Period). If such reduction would cause the
Collateral Invested Amount to be reduced
below zero, the Class B Invested Amount will
be reduced by the amount by which the Class B
Required Amount for any Distribution Date
exceeds the sum of Excess Spread and Excess
Finance Charges allocated to Series 1996-E
not required to pay the Class A
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<PAGE> 9
Required Amount and amounts, if any, on
deposit in the Cash Collateral Account not
required to pay the Class A Required Amount
and Reallocated Principal Collections not
required to pay the Class A Required Amount
for the related Monthly Period, but not by
more than the excess of the Class B Investor
Default Amount for such Monthly Period over
the reduction in the Collateral Invested
Amount with respect thereto, for such Monthly
Period. In the event of a reduction of the
Class A Invested Amount, the Class B Invested
Amount or the Collateral Invested Amount, the
amount of principal and interest available to
fund payments with respect to the Class A
Certificates and the Class B Certificates
will be decreased. See "Description of the
Certificates -- Reallocation of Cash Flows"
and "-- Allocation of Investor Default
Amount."
EXCESS FINANCE CHARGES........ "Excess Finance Charges" means amounts
designated by another Series for allocation
to Series within Group One and which,
pursuant to the Master Pooling and Servicing
Agreement and any related supplement, are
allocable to Series 1996-E. Series 1996-E
will be the fourteenth Series issued by the
Trust which will be outstanding on the
Closing Date. Series 1996-E will be the
thirteenth Series included in a group of
Series ("Group One") expected to be issued by
the Trust from time to time. See "Annex 1."
Additional Series are expected to be issued
from time to time by the Trust.
THE CASH COLLATERAL ACCOUNT... A cash collateral account (the "Cash Collateral
Account") will be held in the name of the
Trustee for the benefit of the
Certificateholders and the Collateral
Interest Holder. The Cash Collateral Account
will have a beginning balance of $10,000,000
which 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 collections of Excess Spread and
Excess Finance Charges allocable to Series
1996-E are required to be deposited therein
as described below. See "Description of the
Certificates -- The Cash Collateral Account."
To the extent set forth herein, withdrawals
will be made from the Cash Collateral Account
to pay the Class A Required Amount first,
then to pay the Class B Required Amount and
then to pay any unpaid Collateral Servicing
Fee. See "Description of the
Certificates -- Reallocation of Cash Flows."
AMOUNTS AVAILABLE AS
ENHANCEMENT................... On each Distribution Date, the amount of
enhancement (the "Enhancement") available to
the Certificateholders will equal the lesser
of (i) the sum of the Collateral Investor
Amount and the amount, if any, on deposit in
the Cash Collateral Account (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 sum of (I) the sum of
the Class A Invested Amount and the Class A
Floating Percentage of the Pre-Funded Amount
and (II) the sum of the Class B Invested
Amount and the Class B Floating Percentage of
the Pre-Funded Amount, each as of such
Distribution Date after taking into account
S-9
<PAGE> 10
distributions made on such Distribution Date,
minus the amount of funds on deposit in the
Cash Collateral Account after taking into
account all deposits and withdrawals on such
Distribution Date, and (b) a fraction, the
numerator of which is 10% and the denominator
of which is the excess of 100% over 10% and
(ii) the sum of (A) the product of (I)
$500,000,000, (II) 1% and (III) a fraction
the numerator of which is equal to the
Available Cash Collateral Amount as of the
immediately preceding Distribution Date and
the denominator of which is the Total
Enhancement for such Distribution Date and
(B) the product of (I) $500,000,000, (II) 3%
and (III) a fraction the numerator of which
is equal to the Collateral Invested Amount as
of the immediately preceding Distribution
Date and the denominator of which is the
Total Enhancement for such Distribution Date,
subject to certain limitations. "Total
Enhancement" with respect to any Distribution
Date means the sum of the Available Cash
Collateral Amount and the Collateral Investor
Amount as of the immediately preceding
Distribution Date. With respect to any
Distribution Date, if the Available
Enhancement Amount is less than the Required
Enhancement Amount, certain Excess Spread and
Excess Finance Charges allocable to Series
1996-E will be used first to increase the
Collateral Invested Amount to the extent of
any prior unreimbursed reductions in the
Collateral Invested Amount and then deposited
into the Cash Collateral Account to the
extent of such shortfall. See "Description of
the Certificates -- Application of
Collections -- Excess Spread; Excess Finance
Charges." On any Distribution Date, to the
extent that the sum of the amount on deposit
in the Cash Collateral Account plus the
Collateral Investor Amount exceeds the
Required Enhancement Amount, such amount may
be paid to the Collateral Interest Holder and
will not be available to the
Certificateholders. See "Description of the
Certificates -- The Cash Collateral Account."
FUNDING PERIOD................ During the period from and including the
Closing Date to but excluding the earlier of
(i) the commencement of the Rapid
Amortization Period, (ii) the date on which
the Invested Amount first equals $500,000,000
and (iii) April 30, 1997 (the "Funding
Period"), the Pre-Funded Amount will be
maintained in a trust account to be
established with the Trustee (the "Pre-
Funding Account"). The "Pre-Funded Amount"
means the principal amount on deposit in the
Pre-Funding Account, which initially will
equal $50,000,000. Funds on deposit in the
Pre-Funding Account will be invested by the
Trustee in Eligible Investments.
During the Funding Period, funds on deposit in
the Pre-Funding Account will be withdrawn on
a monthly basis to the extent of any
increases in the Invested Amount as a result
of an increase in the amount of Principal
Receivables in the Trust to the extent that
the Seller Amount on the last day of a
Monthly Period during the Funding Period
exceeds the product of (A) the sum of 1.0%
and the Required Seller Percentage on such
date and (B) the sum of the aggregate amount
of Principal Receivables in the Trust and
amounts on deposit in the Excess Funding
Account on such day; provided, however, that
the Invested
S-10
<PAGE> 11
Amount will in no event exceed $500,000,000
or increase by an amount in excess of the
Pre-Funded Amount immediately prior to giving
effect to such increase. Certificateholders
will have no further right to or interest in
such funds upon their withdrawal from the
Pre-Funding Account in connection with such
increases in the Invested Amount. Should the
Pre-Funded Amount be greater than zero at the
end of the Funding Period, the amounts
remaining on deposit in the Pre-Funding
Account will be payable pro rata to the Class
A Certificateholders, the Class B
Certificateholders and the Collateral
Interest Holder on the next succeeding
Distribution Date and result in a reduction
of the Class A Investor Amount, the Class B
Investor Amount and the Collateral Investor
Amount. See "Description of the
Certificates -- Pre-Funding Account."
REVOLVING PERIOD.............. No principal will be payable to or for the
benefit of Certificateholders during the
period (the "Revolving Period") from and
including the Closing Date to but not
including the earlier of (i) the commencement
of the Accumulation Period and (ii) the
commencement of the Rapid Amortization
Period. The accumulation period with respect
to the Certificates (the "Accumulation
Period"), which includes separate
accumulation periods for the Class A
Certificates and the Class B Certificates, is
scheduled to begin at the close of business
on January 31, 2001. Subject to the
conditions set forth herein under
"Description of the
Certificates -- Postponement of Accumulation
Period," the day on which the Revolving
Period ends and the Accumulation Period
begins may be delayed to no later than the
end of the day on September 30, 2001. During
the Revolving Period, collections of
Principal Receivables allocated to the
Certificates and the Collateral Interest
(other than Reallocated Principal Collections
that are used to pay any deficiency in the
Class A Required Amount or the Class B
Required Amount) will generally be paid from
the Trust to the holders of the Seller
Certificates or to amortizing or accumulating
Series in Group One or deposited into the
Excess Funding Account. See "Description of
the Certificates -- Principal Payments."
ACCUMULATION PERIOD; PRINCIPAL
PAYMENTS.................... Unless a Series 1996-E Pay Out Event or a Trust
Pay Out Event shall have occurred, (a) the
Class A accumulation period (the "Class A
Accumulation Period") will begin at the end
of the day on the last day of the Revolving
Period and will end on the earliest of (i)
the commencement of the Rapid Amortization
Period, (ii) the payment in full to the Class
A Certificateholders of the Class A Investor
Amount, and (iii) the Series 1996-E
Termination Date, and (b) the Class B
accumulation period (the "Class B
Accumulation Period") will commence on the
first day of the Monthly Period immediately
preceding the Class B Principal Commencement
Date and end on the earliest of (i) the
commencement of the Rapid Amortization
Period, (ii) the payment in full to the Class
B Certificateholders of the Class B Invested
Amount and (iii) the Series 1996-E
Termination Date. During the Accumulation
Period, the Available Investor Principal
Collections will no longer be paid to the
holders of the Seller Certificates or to
amortizing or accumulating Series
S-11
<PAGE> 12
in Group One or deposited into the Excess
Funding Account as described above but
instead will be deposited monthly, along with
certain other amounts constituting Available
Investor Principal Collections, on each
Distribution Date beginning with the
Distribution Date in the month following the
commencement of the Accumulation Period in a
trust account established by the Servicer for
the benefit of Certificateholders (the
"Principal Funding Account") to be
accumulated for payment to the
Certificateholders as provided herein, first
to the Class A Certificateholders, which
payment is anticipated to be on the Class A
Expected Final Distribution Date, and then
(following payment in full of the Class A
Investor Amount) to the Class B
Certificateholders, which payment is
anticipated to be on the Class B Expected
Final Distribution Date. With respect to any
Distribution Date, during either the Rapid
Amortization Period or the Accumulation
Period, until the Class B Invested Amount is
paid in full and subject to certain other
exceptions, "Collateral Monthly Principal"
shall mean an amount equal to the lesser of
(A) the sum of (x) Collateral Principal
Collections and (y) Available Investor
Principal Collections not applied to Class A
Monthly Principal or Class B Monthly
Principal and (B) the excess, if any, of (i)
the amount on deposit in the Cash Collateral
Account plus the Collateral Investor Amount
over (ii) the Required Enhancement Amount
(the "Enhancement Surplus"). During the
Accumulation Period and the Rapid
Amortization Period, collections of Principal
Receivables generally will be allocated to
the Invested Amount in a ratio the numerator
of which is the Invested Amount as of the
last day of the Revolving Period and the
denominator of which is the greater of (x)
the sum of the aggregate amount of Principal
Receivables and the principal amount on
deposit in the Excess Funding Account as of
the last day of the prior Monthly Period and
(y) the sum of the numerators used to
calculate the Series Percentages applicable
to Principal Receivables for all Series
outstanding; provided, however, that such
ratio is subject to adjustment to give effect
to additions of Additional Accounts. See
"Description of the
Certificates -- Allocation Percentages,"
"-- Application of Collections" and
"-- Principal Payments."
With respect to any Distribution Date relating
to the Accumulation Period, if Available
Investor Principal Collections in the prior
Monthly Period are equal to or greater than
the sum of (i) the Controlled Accumulation
Amount on such Distribution Date and (ii) the
existing Deficit Controlled Accumulation
Amount (as defined below), if any, from the
immediately preceding Distribution Date (such
sum for such Distribution Date, the
"Controlled Deposit Amount," provided that
the Controlled Deposit Amount on any
Distribution Date after the payment in full
of the Class A Certificates shall not exceed
the Class B Invested Amount), then the
Controlled Deposit Amount will be deposited
into the Principal Funding Account, and the
excess of such Available Investor Principal
Collections over the Controlled Deposit
Amount and any amounts thereof applied as
Collateral Monthly Principal will be paid
from the Trust to the holders of the Seller
Certificates or to other amortizing or
S-12
<PAGE> 13
accumulating Series in Group One or deposited
into the Excess Funding Account. The existing
"Deficit Controlled Accumulation Amount"
means, on any Distribution Date, the excess,
if any, of the Controlled Deposit Amount from
the prior Distribution Date over the
Available Investor Principal Collections.
If the Available Investor Principal Collections
in the prior Monthly Period are less than the
Controlled Deposit Amount, such remaining
Available Investor Principal Collections will
be deposited into the Principal Funding
Account, and the excess of the Controlled
Deposit Amount over such Available Investor
Principal Collections will be the Deficit
Controlled Accumulation Amount for the
succeeding Monthly Period. See "Description
of the Certificates -- Application of
Collections."
All amounts in the Principal Funding Account
will be invested at the direction of the
Servicer by the Trustee in certain Eligible
Investments. Investment earnings (net of
investment losses and expenses) on funds on
deposit in the Principal Funding Account (the
"Principal Funding Investment Proceeds")
during the Accumulation Period will be
included in Class A Available Funds with
respect to each Distribution Date.
Funds on deposit in the Principal Funding
Account will be available to pay the Class A
Certificateholders in respect of the Class A
Investor Amount on the Class A Expected Final
Distribution Date. If the aggregate principal
amount of deposits made to the Principal
Funding Account are insufficient to pay in
full the Class A Investor Amount on the Class
A Expected Final Distribution Date, the Rapid
Amortization Period will commence as
described below and on each Distribution Date
thereafter until the Class A Investor Amount
is paid in full the Class A
Certificateholders will receive distributions
of Class A Monthly Principal. Although it is
anticipated that during the Class A
Accumulation Period, funds will be deposited
in the Principal Funding Account in an amount
equal to the applicable Controlled
Accumulation Amount with respect to each
Distribution Date and that scheduled
principal will be available for distribution
to the Class A Certificateholders on the
Class A Expected Final Distribution Date, no
assurance can be given in that regard. See
"Maturity Assumptions" herein.
On the Class B Expected Final Distribution
Date, provided that the Class A Investor
Amount is paid in full on the Class A
Expected Final Distribution Date and the
Rapid Amortization Period has not commenced,
Available Investor Principal Collections will
be used to pay the Class B Invested Amount as
described herein. If the Available Investor
Principal Collections are insufficient to pay
the Class B Invested Amount on the Class B
Expected Final Distribution Date, the Rapid
Amortization Period will commence as
described below and on each Distribution Date
thereafter following the payment in full of
the Class A Certificates until the Class B
Invested Amount is paid in full, the Class B
Certificateholders will receive distributions
of Class B Monthly Principal. Although it is
anticipated that scheduled principal will be
available for distribution to the Class B
Certificateholders on the Class B Expected
Final Distri-
S-13
<PAGE> 14
bution Date, no assurance can be given in
that regard. See "Maturity Assumptions"
herein.
If a Series 1996-E Pay Out Event or Trust Pay
Out Event occurs during the Accumulation
Period, the Rapid Amortization Period will
commence and any amount on deposit in the
Principal Funding Account will be paid to the
Class A Certificateholders on the
Distribution Date following the Monthly
Period in which the Rapid Amortization Period
commences.
CLASS A EXPECTED FINAL
DISTRIBUTION DATE........... The November 2001 Distribution Date.
CLASS B EXPECTED FINAL
DISTRIBUTION DATE........... The December 2001 Distribution Date.
RAPID AMORTIZATION PERIOD;
PRINCIPAL PAYMENTS.......... During the period beginning with the occurrence
of any Series 1996-E Pay Out Event or Trust
Pay Out Event and ending on the earlier of
(i) the payment in full to the
Certificateholders of the Class A Investor
Amount and the Class B Invested Amount and
payment in full to the Collateral Interest
Holder of the Collateral Invested Amount and
(ii) the Series 1996-E Termination Date (the
"Rapid Amortization Period"), Available
Investor Principal Collections will no longer
be paid from the Trust to the holders of the
Seller Certificates or to amortizing or
accumulating Series in Group One or deposited
into the Excess Funding Account as described
above but instead will be distributed on each
Distribution Date, first to the Class A
Certificateholders until the Class A Investor
Amount has been paid in full and then to the
Class B Certificateholders until the Class B
Invested Amount is paid in full, beginning
with the Distribution Date following the
Monthly Period in which the Rapid
Amortization Period commences. See
"Description of the Certificates -- Series
1996-E Pay Out Events and Trust Pay Out
Events" for a discussion of the events which
might lead to the commencement of the Rapid
Amortization Period. See "Description of the
Certificates -- Application of Collections."
SUBORDINATION OF THE CLASS B
CERTIFICATES AND THE
COLLATERAL INTEREST......... The Class B Certificates will be subordinated
as described herein to the extent necessary
to fund payments with respect to the Class A
Certificates as described herein. In
addition, the Collateral Interest will be
subordinated to the extent necessary to fund
certain payments with respect to the
Certificates. If the Collateral Invested
Amount and the amount on deposit in the Cash
Collateral Account are reduced to zero, the
Class B Certificateholders will bear directly
the credit and other risks associated with
their undivided interest in the Trust. To the
extent the Class B Invested Amount is
reduced, and is not reinstated, the amount of
principal distributable to the Class B
Certificateholders will be reduced. See
"Description of the Certificates --
Subordination."
S-14
<PAGE> 15
SHARED COLLECTIONS OF
PRINCIPAL RECEIVABLES......... To the extent that collections of Principal
Receivables allocated to the Certificates or
the Collateral Interest are not needed to
make payments to or for the benefit of
Certificateholders or the Collateral Interest
Holder, such collections may be applied to
cover principal payments due to or for the
benefit of other Series, if any, in Group
One. Any such application of collections will
not result in a reduction of the Class A
Invested Amount, the Class B Invested Amount
or the Collateral Invested Amount. In
addition, during the Accumulation Period,
certain collections of Principal Receivables
allocated to other Series in Group One, to
the extent such collections are not needed to
make payments in respect of such other
Series, may be applied to cover principal
amounts payable to or for the benefit of the
Certificateholders or the Collateral Interest
Holder. See "Description of the
Certificates -- Shared Collections of
Principal Receivables."
REQUIRED SELLER PERCENTAGE.... The Required Seller Percentage applicable to
Series 1996-E is currently 5%, provided that
the Required Seller Percentage may be reduced
to as low as 2% if each Seller delivers an
officer's certificate stating that such
reduction will not have an Adverse Effect and
the Rating Agency Condition is satisfied.
RECORD DATE................... With respect to any Distribution Date, the last
Business Day of the month preceding such
Distribution Date.
OPTIONAL REPURCHASE........... The Certificates will be subject to optional
purchase by the Sellers on any Distribution
Date after the Investor Amount is less than
or equal to 5% of the Initial Investor
Amount, unless certain events as specified in
the Pooling and Servicing Agreement have
occurred. The purchase price on the
Distribution Date on which such purchase
occurs will be equal to the Investor Amount
plus accrued and unpaid interest on the
Certificates and the Collateral Interest as
described herein. See "Description of the
Certificates -- Optional Repurchase."
FINAL PAYMENT OF PRINCIPAL AND
INTEREST; TERMINATION OF
TRUST......................... The interest of the Certificateholders in the
Trust will terminate following the earlier of
(i) the day after the Distribution Date on
which the Investor Amount is paid in full and
(ii) the earlier of the May 2004 Distribution
Date and the termination of the Trust (the
"Series 1996-E Termination Date"). All
principal and interest will be due and
payable no later than the Series 1996-E
Termination Date. See "Description of the
Certificates -- Final Payment of Principal
and Interest; Termination" in the Prospectus.
TRUSTEE....................... Bankers Trust Company.
TAX STATUS.................... Subject to the matters discussed under "Certain
Federal Income Tax Consequences" herein and
in the Prospectus, Special Tax Counsel to the
Banks will deliver its opinion to the effect
that, under existing law, the Class A
Certificates and the Class B Certificates
will properly be characterized as debt for
Federal income tax purposes on the date of
issuance. Under the Pooling and Servicing
Agreement, the Certificate Owners will agree
to treat the Certificates as indebtedness for
income tax purposes. See "Certain Federal
Income Tax Consequences" herein and in
S-15
<PAGE> 16
the Prospectus for additional information
concerning the application of Federal income
tax laws.
ERISA CONSIDERATIONS.......... 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,
such that the Class A Certificates would
constitute "publicly-offered securities,"
including that interests in the Class A
Certificates be held by at least 100 persons
independent of the Sellers and each other
upon completion of the public offering being
made hereby. The Class A Underwriters expect,
although no assurance can be given, that
interests in the Class A Certificates will be
held by at least 100 such persons, and it is
anticipated that the other conditions of the
"publicly-offered security" exception
contained in 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 the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), would apply to
all transactions involving the Trust's
assets. Accordingly, employee benefit plans
contemplating purchasing interests in the
Class A Certificates should consult their
counsel before making a purchase. See "ERISA
Considerations" in the Prospectus.
The Class B Underwriter currently does not
expect that the Class B Certificates will be
held by at least 100 such persons and,
therefore, does not expect that such Class B
Certificates will qualify as publicly-offered
securities under the regulation referred to
in the preceding paragraph. Accordingly, the
Class B Certificates may not be acquired by
(a) any employee benefit plan that is subject
to ERISA, (b) any plan or other arrangement
(including an individual retirement account
or Keogh plan) that is subject to Section
4975 of the Code, or (c) any entity whose
underlying assets include "plan assets" under
the regulation by reason of any such plan's
investment in the entity (including the
general account of an insurance company
unless otherwise permissible under Section
401(c) of ERISA and the regulations to be
issued thereunder). By its acceptance of a
Class B Certificate, each Class B
Certificateholder will be deemed to have
represented and warranted that it is not
subject to the foregoing limitation.
CERTIFICATE RATINGS........... It is a condition to the issuance of the Class
A Certificates that they be rated in the
highest rating category by at least one
nationally recognized rating agency.
It is a condition to the issuance of the Class
B Certificates that they be rated in one of
the three highest rating categories by at
least one nationally recognized rating
agency.
The rating agency or rating agencies rating the
Certificates, the Collateral Interest or any
other Series are collectively referred to
herein as the "Rating Agencies" or
individually as a "Rating Agency." The
Certificates offered hereby are investment
grade
S-16
<PAGE> 17
asset-backed securities within the meaning of
the Act and the rules promulgated thereunder.
LISTING....................... Application will be made to list the Series
1996-E Certificates on the Luxembourg Stock
Exchange.
S-17
<PAGE> 18
RISK FACTORS
Limited Liquidity. There is currently no market for the Certificates. The
Underwriters expect to make a secondary market in the Certificates, but are not
obligated to do so. There can be no assurance that a secondary market will
develop or, if it does develop, that such market will provide Certificateholders
with liquidity of investment or that it will continue for the life of the
Certificates.
Rating of the Certificates. It is a condition to the issuance of the Class
A Certificates that they be rated in the highest rating category by at least one
nationally recognized rating agency. It is a condition to the issuance of the
Class B Certificates that they be rated in one of the three highest rating
categories by at least one nationally recognized rating agency. The rating of
the Certificates is based primarily on the value of the Receivables, the
availability of funds on deposit in the Cash Collateral Account and the
Pre-Funding Account as support for the Certificates and, in the case of the
Class A Certificates, the subordination of the Class B Certificates and the
Collateral Interest and, in the case of the Class B Certificates, the
subordination of the Collateral Interest. The ratings of the Certificates are
not a recommendation to purchase, hold or sell Certificates, and such ratings do
not comment as to the marketability of the 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 any such rating agency, if in its judgment
circumstances so warrant.
Limited Amounts of Credit Enhancement. Although credit enhancement with
respect to the Certificates will be provided by the funds held in the Cash
Collateral Account and the subordination of the Collateral Interest, such
amounts are limited. If the Collateral Invested Amount and any amount on deposit
in the Cash Collateral Account are reduced to zero, the Class B
Certificateholders will bear directly the credit and other risks associated with
their undivided interest in the Trust and the Class B Invested Amount may be
reduced. If the Class B Invested Amount is reduced to zero, Class A
Certificateholders will bear directly the credit and other risks associated with
their undivided interest in the Trust. See "Description of the Certificates --
Allocation Percentages," "-- Allocation of Investor Default Amount" and "-- The
Cash Collateral Account."
Effect of Subordination of Class B Certificates; Principal Payments. The
Class B Certificates are subordinated in right of payment of principal to the
Class A Certificates. Payments of principal in respect of the Class B
Certificates will not commence until after the final principal payment with
respect to the Class A Investor Amount has been made as described herein.
Moreover, the Class B Invested Amount is subject to reduction if the Class A
Required Amount for any Monthly Period is greater than zero and is not funded
from Excess Spread and Excess Finance Charges allocated to Series 1996-E,
Reallocated Principal Collections with respect to the Collateral Invested
Amount, amounts, if any, on deposit in the Cash Collateral Account, and
reductions in the Collateral Invested Amount. To the extent the Class B Invested
Amount is reduced, the percentage of collections of Finance Charge Receivables
allocable to the Class B Certificateholders will be reduced. See "Description of
the Certificates -- Allocation Percentages" and "-- Reallocation of Cash Flows."
If the Class B Invested Amount is reduced to zero, the Class A
Certificateholders will bear directly the credit and other risks associated with
their undivided interest in the Trust. See "Description of the
Certificates -- Subordination."
Discount Option. Pursuant to the Pooling and Servicing Agreement, the
Sellers have the option to designate a fixed percentage or a variable percentage
of Receivables that otherwise would be treated as Principal Receivables to be
treated as Finance Charge Receivables. Any such designation would result in an
increase in the amount of Finance Charge Receivables and a slower rate of
payment of collections in respect of Principal Receivables than otherwise would
occur. Pursuant to the Pooling and Servicing Agreement, the Sellers can make
such a designation without notice to or the consent of Certificateholders. The
Sellers must provide 30 days' prior written notice to the Servicer, the Trustee
and each Rating Agency of any such designation, and such designation will become
effective only if (i) in the reasonable belief of the Sellers such designation
would not cause to occur a Pay Out Event with respect to any Series or an event
which with notice or the lapse of time or both would constitute a Pay Out Event
with respect to any Series and (ii) the Rating Agency Condition is satisfied.
See "Description of the Certificates -- Discount Option" in the Prospectus.
S-18
<PAGE> 19
Book-Entry Registration. The Certificates initially will be represented by
certificates registered in the name of Cede, the nominee for DTC, and will not
be registered in the names of the Certificate Owners or their nominees. As a
result, unless and until Definitive Certificates are issued, Certificate Owners
will not be recognized by the Trustee as Certificateholders, as that term is
used in the Pooling and Servicing Agreement. Until such time, Certificate Owners
will only be able to exercise the rights of Certificateholders indirectly
through DTC and its participating members (in the United States) or Cedel or
Euroclear (in Europe). See "Description of the Certificates -- Book-Entry
Registration" and "-- Definitive Certificates" in the Prospectus.
THE BANKS' CREDIT CARD ACTIVITIES
BILLING AND PAYMENT
Nearly all of the accounts in the Advanta Consumer Credit Card Portfolio
are subject to finance charges at prime indexed variable rates ranging from 5.9%
to 19.8% for purchases and cash advances, or London interbank offered rate
indexed variable rates ranging from 5.9% to 22.08% for purchases and cash
advances. For more information, see "The Banks' Credit Card
Activities -- Billing and Payments" in the Prospectus.
DELINQUENCIES AND LOSS EXPERIENCE
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Advanta Consumer Credit Card Portfolio. As of
September 30, 1996, the Advanta Consumer Credit Card Portfolio included
receivables from accounts the receivables of which were transferred to trusts
similar to the Trust in an aggregate amount equal to $2.14 billion ("Prior
Securitizations"). As of September 30, 1996, the Advanta Consumer Credit Card
Portfolio also included approximately $8,825 million of receivables from
accounts the receivables of which were transferred by the Banks to the Trust.
Additional Accounts have been designated for inclusion in the Trust from time to
time (the "Master Trust II Sales") as set forth in Annex II. The Accounts in the
Trust Portfolio have been selected from accounts in the Advanta Consumer Credit
Card Portfolio based on certain eligibility criteria specified in the Pooling
and Servicing Agreement. See "The Receivables." There can be no assurance that
the delinquency and loss experience for the Receivables will be similar to the
historical experience set forth below.
DELINQUENCY EXPERIENCE
ADVANTA CONSUMER CREDIT CARD PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ------------------------------------
1996 1995 1994 1993
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Receivables Outstanding(1)(2).................. $ 12,708,603 $9,984,291 $6,535,664 $3,922,086
Receivables Contractually Delinquent as a
Percentage of Receivables Outstanding:
30-59 days................................... 1.47% 1.12% 0.89% 0.96%
60-89 days................................... 0.88 0.57 0.44 0.54
90 or more days.............................. 1.55 0.95 0.71 0.89
---------- ---------- ---------- ----------
Total................................ 3.90% 2.64% 2.04% 2.39%
========== ========== ========== ==========
</TABLE>
- ---------------
(1) Includes the receivables transferred in connection with the Prior
Securitizations and Master Trust II Sales.
(2) Receivables Outstanding consists of all amounts due from cardholders as
posted to the accounts.
S-19
<PAGE> 20
LOSS EXPERIENCE
ADVANTA CONSUMER CREDIT CARD PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------
1996 1995 1994 1993
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables
Outstanding(1)(2)................... $ 11,968,353 $7,677,833 $4,675,005 $3,012,060
Gross Losses(3)....................... 317,555 205,715 126,557 115,835
Recoveries............................ 11,760 12,874 11,339 9,869
Net Losses............................ 305,795 192,841 115,218 105,966
Net Losses as a Percentage of Average
Receivables Outstanding............. 3.41%(4)(5) 2.51% 2.46% 3.52%
</TABLE>
- ---------------
(1) Includes the receivables transferred in connection with the Prior
Securitizations and Master Trust II Sales.
(2) Average Receivables Outstanding is the sum of receivables outstanding at the
beginning and end of each month during the period indicated, divided by
twice the number of months in the period indicated.
(3) Total Gross Losses are presented net of adjustments made pursuant to AUS's
normal servicing procedures, including removal of incorrect or disputed
finance charges and reversal of annual cardholder fees on cardholder
accounts which have been closed. Losses do not include accrued finance
charges that have been written off or fraud losses.
(4) Annualized.
(5) In August 1996, the Banks adopted a new charge-off methodology related to
bankrupt credit card accounts. See "The Banks' Credit Card
Activities -- Delinquencies" in the Prospectus.
INTERCHANGE
In respect of Interchange attributed to the cardholder charges for
merchandise and services in the Accounts, the Banks will be required, pursuant
to the terms of the Pooling and Servicing Agreement, to transfer to the Trust on
the Business Day immediately preceding the Distribution Date an amount equal to
one-twelfth of 1.25% of the outstanding balance of the Principal Receivables
allocable to the Series 1996-E at the end of the last day of the preceding
Monthly Period.
THE RECEIVABLES
The Receivables in the Initial Accounts were conveyed to the Trust on
December 9, 1993 (the "Initial Closing Date"). The Initial Accounts were
selected from the Advanta Consumer Credit Card Portfolio satisfying criteria set
forth in the Pooling and Servicing Agreement (the "Criteria") as applied on
October 31, 1993 (the "Initial Cut Off Date"). Receivables in Additional
Accounts have been conveyed to the Trust from time to time since the Initial
Closing Date as set forth in Annex II. Such Receivables arose in Additional
Accounts selected from the Advanta Consumer Credit Card Portfolio satisfying the
Criteria as applied on the relevant cut off date (the "Relevant Cut Off Date").
All such Accounts and any additional Receivables which have arisen from those
Accounts conveyed to the Trust are hereinafter referred to as the "Trust
Portfolio." In order to meet the Criteria, each Account must, on the Relevant
Cut Off Date, among other things, have been in existence and maintained by the
Bank that owns such Account, have a cardholder with a billing address in the
United States, its territories or possessions or a military address, and, except
under certain circumstances, not be an account the credit card or cards with
respect to which have been reported to the Bank that owns such Account as having
been lost or stolen. See "Description of the Certificates -- Representations,
Warranties and Covenants" in the Prospectus. Cardholders whose accounts are
included in the Advanta Consumer Credit Card Portfolio have billing addresses in
all 50 states, the District of Columbia, Puerto Rico, Guam, the Virgin Islands
and certain foreign countries. Pursuant to the Pooling and Servicing Agreement,
the Sellers may be obligated (subject to certain limitations and conditions) to
designate Additional Accounts to be included as Accounts and to convey to the
Trust all Receivables of such Additional Accounts, or may elect to automatically
designate Additional Accounts and convey the Receivables therein whether such
Receivables are then existing or thereafter created. See "Description of the
Certificates -- Addition of Accounts" in the
S-20
<PAGE> 21
Prospectus. These accounts must meet the criteria set forth above as of the
Relevant Cut Off Date that the Banks designate such accounts as Additional
Accounts. Throughout the term of the Trust, the Accounts from which the
Receivables arise will be the same MasterCard and VISA accounts designated by
the Sellers on the Relevant Cut Off Date (plus any Additional Accounts
subsequently designated as described above). In addition, as of the Relevant Cut
Off Date and on the date any new Receivables are created, each Seller will
represent and warrant to the Trust that the Receivables meet the eligibility
requirements specified in the Pooling and Servicing Agreement. See "Description
of the Certificates -- Representations, Warranties and Covenants" in the
Prospectus.
In connection with the conveyance of Receivables in Additional Accounts on
March 26, 1996, the Sellers caused $10,000,000 to be deposited by a party
selected by the Sellers into an Eligible Deposit Account (the "March Yield
Supplement Account") held by the Trustee for the benefit of the
certificateholders of all Series (including the Certificateholders). In
connection with the conveyance of Receivables in Additional Accounts on May 1,
1996 and May 13, 1996, the Sellers caused $15,000,000 to be deposited by a party
selected by the Sellers into an Eligible Deposit Account (the "May Yield
Supplement Account") held by the Trustee for the benefit of the
certificateholders of all Series (including the Certificateholders). In
connection with the conveyance of Receivables in Additional Accounts on June 18,
1996, the Sellers caused $6,000,000 to be deposited by a party selected by the
Sellers into an Eligible Deposit Account (the "June Yield Supplement Account")
held by the Trustee for the benefit of the certificateholders of all series
(including the "Certificateholders"). In connection with the conveyance of
Receivables in Additional Accounts to the Trust on September 1, 1996, the
Sellers caused $6,000,000 to be deposited by a party selected by the Sellers
into an Eligible Deposit Account (the "September Yield Supplement Account") held
by the Trustee for the benefit of the certificateholders of all series
(including the "Certificates"). Funds on deposit in the March Yield Supplement
Account, the May Yield Supplement Account, the June Yield Supplement Account and
the September Yield Supplement Account will be invested by the Trustee at the
direction of the Sellers in Eligible Investments. Amounts on deposit in the
March Yield Supplement Account (together with certain investment earnings
thereon) have been and will be released and deposited into the Collection
Account in nine monthly installments on the last Business Day of each month
commencing on April 30, 1996. Amounts on deposit in the May Yield Supplement
Account (together with certain investment earnings thereon) have been and will
be released and deposited into the Collection Account in eight monthly
installments on the last Business Day of each month commencing on June 28, 1996.
Amounts on deposit in the June Yield Supplement Account (together with certain
investment earnings thereon) have been and will be released and deposited into
the Collection Account in six monthly installments on the last Business Day of
each month commencing on July 31, 1996. Amounts on deposit in the September
Yield Supplement Account (together with certain investment earnings thereon)
have been and will be released and deposited into the Collection Account in four
monthly installments on the last Business Day of each month commencing September
30, 1996. Each deposit into the Collection Account from the March Yield
Supplement Account, the May Yield Supplement Account, the June Yield Supplement
Account and the September Yield Supplement Account will be treated as
collections of Finance Charge Receivables. Pursuant to the Supplement, the party
which made the deposits into the March Yield Supplement Account, the May Yield
Supplement Account, the June Yield Supplement Account and the September Yield
Supplement Account will be considered a separate Class of investor certificates
solely for purposes of voting after the occurrence of an Insolvency Event
regarding the liquidation of the Receivables and the continuance of the Trust.
See "Description of the Certificates -- Trust Pay Out Events" in the Prospectus
and "Description of the Certificates -- Series 1996-E Pay Out Events and Trust
Pay Out Events" herein.
The Receivables (including receivables in the Additional Accounts the
receivables of which are expected to be conveyed to the Trust during the period
from the date of this Prospectus Supplement through the Closing Date), as of
September 30, 1996, totalled $9,325,586,348 in 4,262,713 Accounts. The Accounts
had an average credit limit of $6,068. The percentage of the aggregate total
Receivable balance to the aggregate total credit limit was 36.1%. The average
age of the Accounts was approximately 19.2 months.
The following tables summarize the Trust Portfolio (including receivables
in the Additional Accounts the receivables of which are expected to be conveyed
to the Trust during the period from the date of this Prospectus Supplement
through the Closing Date) by various criteria as of the close of business on
September 30, 1996. Because the future composition of the Trust Portfolio may
change over time, these tables are not necessarily indicative of future results.
S-21
<PAGE> 22
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
ACCOUNT BALANCE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------------------ --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Credit balance............................ 74,447 1.7% $ (6,435,381) (0.1)%
$0.00..................................... 1,309,251 30.7 0 0.0
$0.01 to $1,000.00........................ 679,668 15.9 248,815,744 2.7
$1,000.01 to $2,500.00.................... 570,687 13.4 999,912,641 10.7
$2,500.01 to $5,000.00.................... 946,064 22.2 3,590,423,675 38.5
$5,000.01 to $7,500.00.................... 538,210 12.7 3,260,150,317 35.0
Over $7,500.00............................ 144,386 3.4 1,232,719,352 13.2
--------- -------- -------------- ---------
Total..................................... 4,262,713 100.0% $9,325,586,348 100.0%
========= ======== ============== =========
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
CREDIT LIMIT BALANCE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------------------ --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
$0.00 to $1,000.00........................ 121,466 2.8% $ 15,139,334 0.2%
$1,000.01 to $2,500.00.................... 310,682 7.3 298,717,937 3.2
$2,500.01 to $5,000.00.................... 1,156,437 27.1 2,276,798,854 24.4
$5,000.01 to $7,500.00.................... 1,684,712 39.6 3,895,254,066 41.8
Over $7,500.00............................ 989,416 23.2 2,839,676,157 30.4
--------- -------- -------------- ---------
Total..................................... 4,262,713 100.0% $9,325,586,348 100.0%
======== ======== ============== =========
</TABLE>
S-22
<PAGE> 23
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
PERIOD OF DELINQUENCY NUMBER OF NUMBER OF OF TOTAL
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------------------ --------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Not Delinquent............................ 4,018,495 94.3% $8,420,384,096 90.3%
1 to 29 days.............................. 157,136 3.6 562,828,520 6.0
30 to 59 days............................. 34,916 0.8 130,730,692 1.4
60 to 89 days............................. 19,486 0.5 76,663,635 0.8
90 to 119 days............................ 12,931 0.3 52,128,344 0.6
120 to 149 days........................... 9,409 0.2 38,457,590 0.4
150 to 179 days........................... 8,037 0.2 34,016,485 0.4
180 or more............................... 2,303 0.1 10,376,986 0.1
--------- -------- -------------- --------
Total..................................... 4,262,713 100.0% $9,325,586,348 100.0%
========= ======== ============== ========
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
AGE NUMBER OF NUMBER OF OF TOTAL
(IN MONTHS) ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------------------ --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
0 to 6 months............................. 432,117 10.1% $1,484,574,186 15.9%
Over 6 to 12 months....................... 1,143,143 26.8 2,868,551,215 30.8
Over 12 to 24 months...................... 1,598,608 37.6 3,062,848,572 32.8
Over 24 to 36 months...................... 692,071 16.2 1,352,776,238 14.5
Over 36 to 48 months...................... 38,207 0.9 61,934,351 0.7
Over 48 to 60 months...................... 14,651 0.3 18,261,146 0.2
Over 60 to 84 months...................... 206,788 4.9 277,072,348 3.0
Over 84 months............................ 137,128 3.2 199,568,292 2.1
--------- ------- -------------- --------
Total..................................... 4,262,713 100.0% $9,325,586,348 100.0%
========= ======= ============== ========
</TABLE>
S-23
<PAGE> 24
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS AND RECEIVABLES
TRUST PORTFOLIO*
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF TOTAL PERCENTAGE
OF NUMBER OF OF TOTAL
STATE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------------------ --------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Alabama................................... 50,888 1.2% $ 106,119,590 1.1%
Alaska.................................... 7,005 0.2 18,488,877 0.2
Arizona................................... 60,282 1.4 138,172,961 1.5
Arkansas.................................. 35,969 0.8 84,198,031 0.9
California................................ 618,967 14.5 1,451,439,634 15.6
Colorado.................................. 75,256 1.8 161,185,927 1.7
Connecticut............................... 58,075 1.4 126,560,172 1.4
Delaware.................................. 14,501 0.3 31,187,916 0.3
District of Columbia...................... 8,628 0.2 19,038,432 0.2
Florida................................... 258,185 6.1 555,142,182 6.0
Georgia................................... 92,086 2.2 201,617,426 2.2
Hawaii.................................... 15,018 0.4 34,319,635 0.4
Idaho..................................... 18,370 0.4 39,198,575 0.4
Illinois.................................. 178,983 4.2 365,295,049 3.9
Indiana................................... 91,836 2.2 192,556,499 2.1
Iowa...................................... 48,535 1.1 94,687,274 1.0
Kansas.................................... 41,910 1.0 98,365,908 1.1
Kentucky.................................. 41,949 1.0 84,786,742 0.9
Louisiana................................. 54,881 1.3 111,677,837 1.2
Maine..................................... 960 0.0 2,302,108 0.0
Maryland.................................. 93,716 2.2 207,363,629 2.2
Massachusetts............................. 115,256 2.7 243,898,067 2.6
Michigan.................................. 146,193 3.4 327,829,588 3.5
Minnesota................................. 93,033 2.2 187,058,789 2.0
Mississippi............................... 27,139 0.6 55,849,656 0.6
Missouri.................................. 82,963 1.9 182,300,561 2.0
Montana................................... 12,897 0.3 26,214,504 0.3
Nebraska.................................. 25,062 0.6 51,936,240 0.6
Nevada.................................... 31,441 0.7 76,808,723 0.8
New Hampshire............................. 19,531 0.5 43,359,302 0.5
New Jersey................................ 160,101 3.8 341,164,314 3.7
New Mexico................................ 22,438 0.5 49,439,163 0.5
New York.................................. 343,442 8.1 776,727,179 8.3
North Carolina............................ 86,403 2.0 177,170,932 1.9
North Dakota.............................. 9,451 0.2 18,888,705 0.2
Ohio...................................... 166,456 3.9 348,386,195 3.7
Oklahoma.................................. 47,012 1.1 109,747,317 1.2
Oregon.................................... 52,617 1.2 112,128,540 1.2
Pennsylvania.............................. 184,562 4.3 363,705,980 3.9
Rhode Island.............................. 18,199 0.4 39,399,461 0.4
South Carolina............................ 41,596 1.0 85,755,393 0.9
South Dakota.............................. 9,704 0.2 19,752,368 0.2
Tennessee................................. 75,922 1.8 155,991,581 1.7
Texas..................................... 273,439 6.4 656,886,526 7.0
Utah...................................... 26,456 0.6 52,587,803 0.6
Vermont................................... 8,927 0.2 18,816,010 0.2
Virginia.................................. 101,743 2.4 218,735,423 2.3
Washington................................ 91,414 2.1 210,508,967 2.2
West Virginia............................. 19,724 0.5 40,360,031 0.4
Wisconsin................................. 89,204 2.1 178,601,185 1.9
Wyoming................................... 7,524 0.2 16,688,238 0.2
All Others................................ 6,864 0.2 15,185,203 0.2
--------- ------- -------------- --------
Total..................................... 4,262,713 100.0% $9,325,586,348 100.0%
========= ======= ============== ========
</TABLE>
- ---------------
* All data as of September 30, 1996.
S-24
<PAGE> 25
MATURITY ASSUMPTIONS
The Pooling and Servicing Agreement provides that Class A
Certificateholders will not begin to receive payments of principal until the
Class A Expected Final Distribution Date or following the occurrence of a Series
1996-E Pay Out Event or a Trust Pay Out Event which results in the commencement
of the Rapid Amortization Period. Class B Certificateholders will not receive
payments of principal until the payment in full of the Class A Investor Amount.
Unless and until a Series 1996-E Pay Out Event or a Trust Pay Out Event occurs,
on each Distribution Date during the Accumulation Period, monthly deposits of
principal equal to the lesser of (a) Available Investor Principal Collections
and (b) the Controlled Deposit Amount will be made into the Principal Funding
Account.
Although it is anticipated that a single principal payment will be made to
Class A Certificateholders in an amount equal to the Class A Investor Amount on
the November 2001 Distribution Date (the "Class A Expected Final Distribution
Date") and that a single principal payment will be made to Class B
Certificateholders in an amount equal to the Class B Invested Amount on the
December 2001 Distribution Date (the "Class B Expected Final Distribution
Date"), no assurance can be given in that regard.
A "Series 1996-E Pay Out Event" occurs, with respect to Series 1996-E only,
either automatically or after specified notice, upon (a) failure of the Sellers
to make certain payments or transfers of funds for the benefit of the
Certificateholders within the time periods stated in the Pooling and Servicing
Agreement, (b) material breaches of certain representations, warranties or
covenants of the Sellers, provided, however, that such determination will be
made, for so long as the Collateral Invested Amount is greater than zero,
without reference to whether any funds are available pursuant to any Series
Enhancement, (c) (i) with respect to the end of any Monthly Period, as
determined on the third Business Day preceding the related Distribution Date
(the "Determination Date"), with respect to which the Seller Amount is less than
the Required Seller Amount as of the last day of such Monthly Period, the
failure of the Sellers to convey Receivables in Additional Accounts to the Trust
such that the Seller Amount is at least equal to the Required Seller Amount on
or prior to the tenth Business Day following such Determination Date or (ii)
with respect to the end of any Monthly Period with respect to which the
aggregate Principal Receivables in the Trust are not at least equal to the
Required Principal Balance as of the last day of such Monthly Period, the
failure of the Sellers to convey Receivables in Additional Accounts to the Trust
such that the aggregate Principal Receivables in the Trust are at least equal to
the Required Principal Balance on or prior to the tenth Business Day following
such Determination Date, (d) the average of the Net Portfolio Yield for three
consecutive Monthly Periods being a rate which is less than the average of the
Base Rate for such period, (e) the occurrence of a Servicer Default having a
material adverse effect on the Certificateholders, provided, however, that such
determination will be made, for so long as the Collateral Invested Amount is
greater than zero, without reference to whether any funds are available pursuant
to any Series Enhancement, or (f) failure to pay in full (i) the Class A
Investor Amount on the Class A Expected Final Distribution Date or (ii) the
Class B Invested Amount on the Class B Expected Final Distribution Date. The
term "Net Portfolio Yield" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction the numerator of which is the sum
of (a) the amount of collections of Finance Charge Receivables during such
Monthly Period allocable to the Certificates and to the Collateral Interest
including any other amounts that are to be treated as Collections of Finance
Charge Receivables under the Pooling and Servicing Agreement, after subtracting
therefrom the Defaulted Amount allocable to the Class A Certificates, the Class
B Certificates and the Collateral Interest for the Distribution Date with
respect to such Monthly Period, plus (b) the amount of any Principal Funding
Investment Proceeds for the related Distribution Date, plus (c) the amount of
any investment earnings (net of investment losses and expenses) on funds on
deposit in the Pre-Funding Account for the related Distribution Date, plus (d)
the amount of funds, if any, to be withdrawn from the Reserve Account that,
pursuant to the Supplement, are required to be included in Class A Available
Funds with respect to such Distribution Date, and the denominator of which is
the Investor Amount as of the last day of the prior Monthly Period. For any
Monthly Period, the "Base Rate" will be equal to the annualized percentage
equivalent of a fraction, the numerator of which is equal to the sum of (i) the
Class A Monthly Interest, (ii) the Class B Monthly Interest, (iii) the
Collateral Monthly Interest and (iv) the Monthly Servicing Fee, each with
respect to the related Distribution Date and the denominator of which is the
Investor Amount as of
S-25
<PAGE> 26
the last day of the preceding Monthly Period; provided, however, if the Rating
Agency Condition is satisfied with respect thereto, for purposes of determining
the Base Rate, the Monthly Servicing Fee shall be replaced with an amount equal
to one-twelfth the product of (a) the Net Servicing Fee Rate and (b) the
Servicing Base Amount. A "Trust Pay Out Event" occurs, with respect to the
Certificates and each other Series automatically upon (a) an Insolvency Event
relating to any Seller, (b) the Trust becoming an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), or (c) the inability of any Seller to transfer Receivables to the
Trust in accordance with the Pooling and Servicing Agreement. Although the Banks
believe that the likelihood of a Series 1996-E Pay Out Event or a Trust Pay Out
Event occurring is remote, there can be no assurance that a Series 1996-E Pay
Out Event or a Trust Pay Out Event will not occur. See "Description of the
Certificates -- Series 1996-E Pay Out Events and Trust Pay Out Events."
In the event of the occurrence of a Series 1996-E Pay Out Event or a Trust
Pay Out Event, the Rapid Amortization Period will begin. During the Rapid
Amortization Period, first the Class A Certificateholders and then, following
the payment in full of the Class A Investor Amount, the Class B
Certificateholders will be entitled to receive monthly payments of principal
equal to the Available Investor Principal Collections received by the Trust
during the related Monthly Period (plus the principal amount on deposit in the
Principal Funding Account) until the Class A Investor Amount or Class B Invested
Amount, as applicable, are paid in full. Allocations of Principal Receivables
will be based on the Principal Allocation Percentage. See "Description of the
Certificates -- Allocation Percentages."
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Advanta Consumer Credit Card Portfolio during any month in
the periods shown and the average of the cardholder monthly payment rates for
all months during the period 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.
MONTHLY PAYMENT RATES
ADVANTA CONSUMER CREDIT CARD PORTFOLIO
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------
1996 1995 1994 1993
------------- ----- ----- -----
<S> <C> <C> <C> <C>
Lowest................................................. 8.52% 9.29% 11.55% 13.22%
Highest................................................ 10.23% 12.42% 14.25% 15.57%
Monthly Average........................................ 9.36% 10.73% 12.98% 14.39%
</TABLE>
The amount of collections on Receivables may vary from month to month due
to seasonal variations, general economic conditions, changes in tax law and
payment habits of individual cardholders. There can be no assurance that
collections of Principal Receivables with respect to the Trust Portfolio, and
thus the rate at which Certificateholders could expect to accumulate or receive
payments of principal on their Certificates during the Accumulation Period or
the Rapid Amortization Period, will be similar to the historical experience set
forth above. In addition, the ability of the Certificateholders to be paid the
applicable Class A Investor Amount or the Class B Invested Amount on the Class A
Expected Final Distribution Date and the Class B Expected Final Distribution
Date, respectively, may be dependent upon the availability of Shared Principal
Collections. 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 terms of any additional Series might not have an impact on the
timing of payments received by Certificateholders. Further, if a Series 1996-E
Pay Out Event or a Trust Pay Out Event occurs, the average life and maturity of
the Certificates could be significantly reduced.
RECEIVABLE YIELD CONSIDERATIONS
The yield on the Advanta Consumer Credit Card Portfolio for the nine months
ended September 30, 1996 and for each of the three years in the period ended
December 31, 1995 is set forth in the following table.
S-26
<PAGE> 27
The historical yield figures in the table are calculated on an accrual basis.
Collections on the Receivables will be on a cash basis and may not reflect the
historical yield experience in the table. For example, during periods of
increasing delinquencies, accrual yields may exceed cash yields as amounts
collected on credit card receivables lag behind amounts accrued and billed to
cardholders. Conversely, as delinquencies decrease, cash yields may exceed
accrual yields as amounts collected in a current period may include amounts
accrued during prior periods. Yield on both an accrual and a cash basis will be
affected by numerous factors, including the finance charges on the Receivables,
the amount of the annual cardholder fee and other fees and charges, changes in
the delinquency rate on the Receivables and the percentage of cardholders who
pay their balances in full each month and do not incur finance charges. There
can be no assurance that the revenue from finance charges and fees for the
Receivables will be similar to the historical experience set forth below. See
"Risk Factors" in the Prospectus.
REVENUE FROM FINANCE CHARGES AND FEES
ADVANTA CONSUMER CREDIT CARD PORTFOLIO(1)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------
1996(2) 1995(2) 1994(2) 1993(2)
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Average Monthly Accrued Fees and
Charges(3)(4)..................................... $31.21 $27.03 $22.98 $21.62
Average Account Balance(5).......................... 2,928 2,435 2,044 1,761
Yield From Fees and Charges(3)(4)................... 12.79%(6) 13.32 % 13.49 % 14.73 %
</TABLE>
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(1) The figures shown do not include revenue attributable to Interchange.
(2) Includes the receivables transferred in connection with the Prior
Securitizations and Master Trust II Sales.
(3) Fees and Charges are comprised of finance charges, annual cardholder fees
and certain other service charges.
(4) Average Monthly Accrued Fees and Charges and Yield from Fees and Charges are
presented net of adjustments made pursuant to AUS's normal servicing
procedures, including removal of incorrect or disputed finance charges and
reversal of finance charges accrued on charged off accounts.
(5) Average Account Balance includes purchases, cash advances and billed and
unpaid finance and other charges, and is calculated based on the average of
the opening monthly account balances for accounts with balances during the
periods shown.
(6) Annualized.
The yield for the Advanta Consumer Credit Card Portfolio shown in the above
table is comprised of three components: finance charges, annual cardholder fees
and other service charges, such as late charges. The yield related to annual
cardholder fees (on those accounts which assess such fees) and other service
charges varies with the type and volume of activity in, and the balance of each
account. The Banks currently assess annual cardholder fees of $10 to $50 for
certain of its credit card accounts. Most accounts originated since March 1987
do not carry an annual cardholder fee. See "The Banks' Credit Card Activities"
herein and in the Prospectus. As account balances increase, an annual cardholder
fee, which remains constant, represents a smaller percentage of the aggregate
account balance.
The decline in portfolio yield demonstrated in the above table is the
result of the Banks' focus on the direct solicitation of low rate, prime rate
and London interbank offered rate based, no annual fee credit card accounts and
the fluctuations in the prime rate during the period shown. Certain of the most
recently originated credit card accounts have a lower introductory rate which
might have the effect of lowering finance charge income on such accounts below
the level indicated in the above table. The Trust Portfolio contains a greater
proportion of receivables arising under such accounts than does the Advanta
Consumer Credit Card Portfolio.
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<PAGE> 28
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement entered into among Advanta National Bank USA, as Seller and as
Servicer of the Accounts and the Receivables, Advanta National Bank, as Seller,
and Bankers Trust Company, as Trustee for the Certificateholders, substantially
in the form filed as an exhibit to the Registration Statement of which the
Prospectus is a part. Pursuant to the Master Pooling and Servicing Agreement,
the Sellers may execute further supplements thereto among each of the Sellers
and the Trustee in order to issue additional Series. See "Description of the
Certificates -- New Issuances" in the Prospectus. The Trustee will provide a
copy of the Master Pooling and Servicing Agreement (without exhibits or
schedules), including any Supplements, to Certificateholders without charge upon
written request. The following summary describes certain terms of the Pooling
and Servicing Agreement and is qualified in its entirety by reference to the
Pooling and Servicing Agreement.
GENERAL
The Certificates will represent undivided interests in the Trust, including
the right to a floating percentage (in the case of collections of Principal
Receivables during the Revolving Period, which collections will be allocated to
the Certificates and paid to the holders of the Seller Certificates, to
amortizing or accumulating Series in Group One or, in certain limited
circumstances described herein, to the holder of the Collateral Interest, or
deposited into the Excess Funding Account, and in the case of collections of
Finance Charge Receivables and Defaulted Receivables at all times) or a
resettable fixed/floating percentage (in the case of collections of Principal
Receivables during the Accumulation Period or the Rapid Amortization Period)
(each, the "Series Percentage") of all cardholder payments on the Receivables;
provided, however, that on any Distribution Date during the Accumulation Period,
the amount to be deposited in the Principal Funding Account in respect of
collections of Principal Receivables will be limited to the Controlled Deposit
Amount on such Distribution Date. See "-- Allocation Percentages." For any
Monthly Period, the portion of the Principal Receivables and any amounts on
deposit in the Excess Funding Account represented by the Certificates and the
Collateral Interest (the "Invested Amount") will be equal to the Initial
Invested Amount, plus the amount of any increases in the Invested Amount during
the Funding Period as a result of withdrawals from the Pre-Funding Account in
connection with any increases in the amount of Principal Receivables in the
Trust, minus the amount of principal deposits into the Principal Funding
Account, minus (without duplication of the amount of principal deposits into the
Principal Funding Account) the amount of principal payments paid to the
Certificateholders and the Collateral Interest Holder (other than any principal
payments made from any amounts on deposit in the Pre-Funding Account at the end
of the Funding Period) and minus any unreimbursed reductions in the Invested
Amount. See "Description of the Certificates -- Defaulted Receivables; Rebates
and Fraudulent Charges" in the Prospectus and "-- Allocation of Investor Default
Amount" herein. Each Certificate represents the right to receive monthly
payments of interest for the related Interest Periods at the applicable
Certificate Rate for such Interest Periods from collections of Finance Charge
Receivables and, in certain circumstances, from withdrawals from the Cash
Collateral Account and Reallocated Principal Collections, and deposits or
payments of principal during the Accumulation Period or the Rapid Amortization
Period funded from collections of Principal Receivables allocated to the Class A
Invested Amount and the Class B Invested Amount (plus certain other amounts
specified herein, including, during the Accumulation Period, certain collections
of Principal Receivables otherwise allocable to other Series, to the extent such
collections are not needed to make payments to or for the benefit of such other
Series).
The Sellers hold the interest in the Principal Receivables and the amounts
on deposit in the Excess Funding Account, if any (the "Seller Amount"), not
represented by the Certificates, the Collateral Interest and the certificates of
and uncertificated interests in other Series, if any. The Sellers hold an
undivided interest in the Trust (the "Sellers' Interest"), including the right
to a percentage (the "Seller Percentage") of all cardholder payments on the
Receivables.
During the Revolving Period, the Investor Amount will remain constant
except in certain limited circumstances (including the circumstance where there
are amounts remaining in the Pre-Funding Account at the end of the Funding
Period that are paid to Certificateholders). See "Description of the
Certificates --
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<PAGE> 29
Defaulted Receivables; Rebates and Fraudulent Charges" in the Prospectus and
"-- Pre-Funding Account" and "-- Allocation of Investor Default Amounts" herein.
The amount of Principal Receivables, however, will vary each day as new
Principal Receivables are created and others are paid. The Seller Amount will
fluctuate daily, therefore, to reflect the changes in the amount of the
Principal Receivables. During the Accumulation Period or the Rapid Amortization
Period, the Invested Amount will decline for each Monthly Period as cardholder
payments of Principal Receivables are collected and deposited in the Principal
Funding Account or paid to the Certificateholders.
INTEREST PAYMENTS
Interest will accrue on the Certificates at the applicable Class A
Certificate Rate or Class B Certificate Rate from the date of the initial
issuance of the Certificates (the "Closing Date"). Interest at such applicable
rate will be paid to the Certificateholders on each Distribution Date beginning
on December 16, 1996.
Interest payments on the Certificates on any Distribution Date will be
calculated on the outstanding principal amount of the Class A Certificates or
the Class B Certificates, as applicable, as of the preceding Record Date (or, in
the case of the first Distribution Date, as of the Closing Date) based upon the
applicable Certificate Rate for the related Interest Period. Interest due but
not paid on any Distribution Date will be payable on the next succeeding
Distribution Date together with additional interest on such amount at the
applicable Certificate Rate plus 2.00%.
Interest on the Class A Certificates and the Class B Certificates will be
calculated on the basis of the actual number of days in the related Interest
Period and a 360-day year. The Class A Certificates will bear interest from the
Closing Date at the rate of .10% per annum above the London interbank offered
quotations for United States dollar deposits ("LIBOR") for a period of one month
determined as set forth below, provided that the rate for the initial Interest
Period will be determined by reference to a straight-line interpolation (based
on the actual number of days in the initial Interest Period) between one-month
LIBOR and two-month LIBOR. The Class B Certificates will bear interest from the
Closing Date at the rate of .33% per annum above one-month LIBOR determined as
set forth below, provided that the rate for the initial Interest Period will be
determined by reference to a straight-line interpolation (based on the actual
number of days in the initial Interest Period) between one-month LIBOR and
two-month LIBOR.
The Trustee will determine LIBOR on October 30, 1996 for the period from
the Closing Date through December 15, 1996, and for each Interest Period
thereafter, on the second Business Day prior to every Distribution Date on which
such Interest Period begins, commencing with the December 1996 Distribution Date
(each a "LIBOR Determination Date").
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
United States dollars for a period of the Designated Maturity which appears on
Telerate Page 3750 as of 11:00 a.m., London time, on
such date. If such rate does not appear on Telerate Page 3750, the rate for that
LIBOR Determination Date will be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market for a period of the Designated Maturity. The Trustee 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 that LIBOR Determination Date will be the arithmetic mean of the quotations.
If fewer than two quotations are provided as requested, the rate for that LIBOR
Determination Date will be the arithmetic mean of the rates quoted by three
major banks in New York City, selected by the Servicer, at approximately 11:00
a.m., New York City time, on that day for loans in United States dollars to
leading European banks for a period of the Designated Maturity.
"Designated Maturity" means, for any LIBOR Determination Date, one month,
provided that LIBOR for the initial Interest Period will be determined by
reference to a straight-line interpolation (based on the actual number of days
in the initial Interest Period) between the rates determined as described above
for a Designated Maturity of one month and a Designated Maturity of two months.
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<PAGE> 30
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means three major banks in the London interbank market
selected by the Servicer.
The determination of LIBOR by the Trustee and the Trustee's subsequent
calculation of the applicable Certificate Rate for the relevant Interest Periods
shall (in the absence of manifest error) be final and binding on each
Certificateholder. The Class A Certificate Rate or Class B Certificate Rate
applicable to the then current Interest Period may be obtained by telephoning
the Trustee at its Corporate Trust Office at (800) 735-7777.
On each Distribution Date, Class A Monthly Interest and Class A Monthly
Interest previously due but not distributed to the Class A Certificateholders
will be paid to the Class A Certificateholders from Class A Available Funds for
the related Monthly Period. To the extent Class A Available Funds for such
Monthly Period are insufficient to pay such interest, Excess Spread and Excess
Finance Charges allocated to Series 1996-E, amounts, if any, on deposit in the
Cash Collateral Account and Reallocated Principal Collections allocable first to
the Collateral Invested Amount and then the Class B Invested Amount will be used
to make such payments. "Class A Available Funds" means, with respect to any
Monthly Period, an amount equal to the sum of (a) the Class A Floating
Percentage of collections of Finance Charge Receivables allocated to the Series
1996-E Certificates with respect to such Monthly Period (including any
investment earnings on amounts on deposit in the Pre-Funding Account and certain
other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Pooling and Servicing Agreement), (b) the
amount of Principal Funding Investment Proceeds, if any, with respect to such
Distribution Date and (c) the amount of funds, if any, to be withdrawn from the
Reserve Account that, pursuant to the Supplement, are required to be included in
Class A Available Funds with respect to such Distribution Date, less (d) the
Class A Floating Percentage of Servicer Interchange.
On each Distribution Date, Class B Monthly Interest and Class B Monthly
Interest previously due but not distributed to the Class B Certificateholders
will be paid to the Class B Certificateholders from Class B Available Funds for
the related Monthly Period. To the extent Class B Available Funds for such
Monthly Period are insufficient to pay such interest, Excess Spread and Excess
Finance Charges allocated to Series 1996-E, amounts, if any, on deposit in the
Cash Collateral Account and Reallocated Principal Collections allocable to the
Collateral Invested Amount will be used to make such payment. "Class B Available
Funds" means, with respect to any Monthly Period, an amount equal to the Class B
Floating Percentage of collections of Finance Charge Receivables allocated to
the Series 1996-E Certificates with respect to such Monthly Period (including
any investment earnings on amounts on deposit in the Pre-Funding Account and
certain other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Pooling and Servicing Agreement) less the
Class B Floating Percentage of Servicer Interchange.
"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 period from and including the preceding
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, times (B) the Class A Certificate Rate and (ii) the outstanding
principal amount of the Class A Certificates 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 outstanding principal
amount of the Class A Certificates at the applicable Class A Certificate Rate
for the period from the Closing Date through December 15, 1996.
"Class B Monthly Interest" means, with respect to any Distribution Date, an
amount equal to the product of (i) (A) a fraction, the numerator of which is the
actual number of days in the period from and including the preceding
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, times (B) the Class B Certificate Rate and (ii) the outstanding
principal amount of the Class B Certificates as of the preceding Record Date;
provided, however, with respect to the first Distribution Date, Class B Monthly
Interest shall be equal to the interest accrued on the outstanding principal
amount of the Class B
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<PAGE> 31
Certificates at the applicable Class B Certificate Rate for the period from the
Closing Date through December 15, 1996.
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the Collateral Floating Percentage of the collections of Finance
Charge Receivables allocated to Series 1996-E (including any investment earnings
on amounts on deposit in the Pre-Funding Account and any other amounts that are
to be treated as collections of Finance Charge Receivables in accordance with
the Pooling and Servicing Agreement), less the Collateral Floating Percentage of
Servicer Interchange.
"Collateral Monthly Interest" means, with respect to any Distribution Date,
an amount equal to the product of (i) (A) a fraction, the numerator of which is
the actual number of days in the period from and including the preceding
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, times (B) the Collateral Rate and (ii) the Collateral Investor
Amount as of the preceding Record Date; provided, however, with respect to the
first Distribution Date, Collateral Monthly Interest shall be equal to the
interest accrued on the Collateral Initial Investor Amount at the applicable
Collateral Rate for the period from the Closing Date through December 15, 1996.
"Collateral Rate" means a rate specified in the Loan Agreement not greater
than one-month LIBOR plus 1% per annum.
PRE-FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee, on
behalf of the Certificateholders and the Collateral Interest Holder, the
Pre-Funding Account with an Eligible Institution. Funds on deposit in the
Pre-Funding Account will be withdrawn on a monthly basis to the extent of any
increases in the Invested Amount during the Funding Period as a result of an
increase in the amount of Principal Receivables in the Trust to the extent that
the Seller Amount on the last day of any Monthly Period during the Funding
Period exceeds the product of (A) the sum of 1.0% and the Required Seller
Percentage on such date and (B) the sum of the aggregate amount of Principal
Receivables in the Trust and amounts on deposit in the Excess Funding Account on
such day; provided, however, that the Invested Amount will in no event exceed
$500,000,000 or increase by an amount in excess of the Pre-Funded Amount
immediately prior to giving effect to such increase. Should the Pre-Funded
Amount be greater than zero at the end of the Funding Period, any principal
amounts remaining on deposit in the Pre-Funding Account will be withdrawn for
pro rata distribution to Certificateholders and the Collateral Interest Holder
on the next succeeding Distribution Date.
All amounts on deposit in the Pre-Funding Account will be invested by the
Trustee in Eligible Investments. On each Distribution Date with respect to the
Funding Period, all net investment income earned on amounts in the Pre-Funding
Account during the preceding Monthly Period will be withdrawn from the
Pre-Funding Account and deposited into the Collection Account for distribution
as collections of Finance Charge Receivables allocable to the Certificateholders
and the Collateral Interest Holder. Such investment income will be deemed to be
collections of Finance Charge Receivables allocable to the Certificates and the
Collateral Interest for such Monthly Period.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on
the day before the commencement of the Accumulation Period or, if earlier, the
Rapid Amortization Period), no principal payments will be made to the
Certificateholders (other than any principal payment made from any amount on
deposit in the Pre-Funding Account at the end of the Funding Period). On each
Distribution Date during the Revolving Period, collections of Principal
Receivables allocable to the Certificateholders' Interest and the Collateral
Interest will, subject to certain limitations, including the allocation of any
Reallocated Principal Collections with respect to the related Monthly Period to
pay the Class A Required Amount and the Class B Required Amount and payments of
Collateral Monthly Principal, be treated as Shared Principal Collections.
Collateral Monthly Principal will be applied in accordance with the Loan
Agreement. The "Loan Agreement" means the Loan Agreement, dated as of the
Closing Date, among the Sellers, the Servicer, the Cash
S-31
<PAGE> 32
Collateral Depositor, the Trustee and the Collateral Interest Holder, as
amended, supplemented or otherwise modified from time to time.
The first principal payment (other than any principal payment made from any
amount on deposit in the Pre-Funding Account at the end of the Funding Period)
will be made to the Certificateholders on the earlier of the Class A Expected
Final Distribution Date or on the Distribution Date in the month following the
month in which the Rapid Amortization Period commences. On each Distribution
Date with respect to the Class A Accumulation Period, an amount equal to the
least of (a) Available Investor Principal Collections on deposit in the
Collection Account with respect to such Distribution Date, (b) the applicable
Controlled Deposit Amount for such Distribution Date and (c) the Class A
Invested Amount, will be deposited in the Principal Funding Account for payment
to the Class A Certificateholders on the Class A Expected Final Payment Date or
on the first Distribution Date with respect to the Rapid Amortization Period.
After the Class A Investor Amount has been paid in full, on each Distribution
Date with respect to the Class B Accumulation Period, amounts equal to the least
of (a) Available Investor Principal Collections on deposit in the Collection
Account with respect to such Distribution Date (minus the portion of such
Available Investor Principal Collections applied to Class A Monthly Principal on
such Distribution Date), (b) the applicable Controlled Deposit Amount for such
Distribution Date and (c) the Class B Invested Amount will be paid to the Class
B Certificateholders until the Class B Invested Amount has been paid in full.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) an amount equal to the
product of the Invested Principal Collections multiplied by the sum of the Class
A Principal Percentage and the Class B Principal Percentage, minus (ii) the
amount of Reallocated Principal Collections with respect to such Monthly Period
used to fund the Class A Required Amount (excluding certain Reallocated
Principal Collections that have resulted in a reduction of the Collateral
Invested Amount), plus (b) any Shared Principal Collections with respect to
other Series in Group One that are allocated to Series 1996-E, plus (c) any
other amounts which pursuant to the Supplement are to be treated as Available
Investor Principal Collections with respect to the related Distribution Date,
plus (d) an amount equal to the excess, if any, of Collateral Principal
Collections over Collateral Monthly Principal. "Invested Principal Collections"
means, with respect to any Monthly Period, the Principal Allocation Percentage
of all collections of Principal Receivables received during such Monthly Period.
"Collateral Principal Collections" means, with respect to any Monthly
Period, the Invested Principal Collections less an amount equal to the product
of (i) Invested Principal Collections with respect to such Monthly Period and
(ii) the sum of the Class A Principal Percentage and the Class B Principal
Percentage with respect to such Monthly Period, plus the amount, if any, of
Excess Spread and Excess Finance Charges to be distributed pursuant to clauses
(h) and (i) of "-- Application of Collections -- Excess Spread; Excess Finance
Charges" on the related Distribution Date, minus the amount of Reallocated
Principal Collections with respect to such Monthly Period which are required to
fund any deficiency in the amounts to be distributed pursuant to the Class A
Required Amount or the Class B Required Amount for the related Distribution Date
(excluding Reallocated Principal Collections which have been allocated to reduce
the Class B Invested Amount).
On each Distribution Date during the Rapid Amortization Period until the
Class A Investor Amount has been paid in full or the Series 1996-E Termination
Date occurs, the Class A Certificateholders will be entitled to receive
Available Investor Principal Collections in an amount up to the Class A Investor
Amount. After payment in full of the Class A Investor Amount, the Class B
Certificateholders will be entitled to receive, on each such Distribution Date,
Available Investor Principal Collections until the earlier of the date the Class
B Invested Amount is paid in full and the Series 1996-E Termination Date.
"Class A Monthly Principal" with respect to any Distribution Date relating
to the Class A Accumulation Period or the Rapid Amortization Period will equal
the least of (i) the Available Investor Principal Collections on deposit in the
Collection Account with respect to such Distribution Date, (ii) for each
Distribution Date with respect to the Class A Accumulation Period (and on or
prior to the Class A Expected Final Distribution Date), the Controlled Deposit
Amount for such Distribution Date and (iii) the Class A Invested Amount on such
Distribution Date.
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<PAGE> 33
"Class B Monthly Principal" with respect to any Distribution Date,
beginning with the Class B Principal Commencement Date, will equal the least of
(i) the Available Investor Principal Collections on deposit in the Collection
Account with respect to such Distribution Date (minus the portion of such
Available Principal Collections applied to Class A Monthly Principal on such
Distribution Date), (ii) for each Distribution Date with respect to the Class B
Accumulation Period, the Controlled Deposit Amount for such Distribution Date
and (iii) the Class B Invested Amount on such Distribution Date.
"Collateral Monthly Principal" means (i) on any Distribution Date prior to
the Distribution Date on which the Class B Invested Amount is paid in full, an
amount equal to the lesser of (A) Collateral Principal Collections with respect
to such Distribution Date plus Available Investor Principal Collections (not
including any amounts specified in clause (d) of the definition of "Available
Investor Principal Collections") not applied to Class A Monthly Principal or
Class B Monthly Principal on such Distribution Date and (B) the Enhancement
Surplus on such Distribution Date, if any (including any Enhancement Surplus
resulting from the transfer of funds to the Cash Collateral Account pursuant to
the Loan Agreement and the Supplement), (ii) beginning with the Distribution
Date on which the Class B Invested Amount is paid in full, an amount
equal to the sum of the Available Investor Principal Collections with respect to
such Distribution Date (minus the portion of such Available Investor Principal
Collections applied to Class A Monthly Principal and Class B Monthly Principal
on such Distribution Date) and the Collateral Principal Collections with respect
to such Distribution Date; and (iii) on any Distribution Date, in addition to
the amounts, if any, set forth in items (i) and (ii), at the option of the
Sellers, and after receipt by the Servicer and the Trustee of a written
determination by each Rating Agency that such action will not result in a
reduction or withdrawal of the then current ratings of the Class A Certificates
or the Class B Certificates, an amount established by the Sellers and consistent
with any restrictions set forth in the determination of the Rating Agency;
provided, however, with respect to any Distribution Date, Collateral Monthly
Principal will not exceed the Collateral Invested Amount.
"Controlled Accumulation Amount" means (a) for any Distribution Date with
respect to the Class A Accumulation Period, the maximum Class A Invested Amount
during the Revolving Period divided by nine, subject to upward adjustment in
connection with the postponement of the Class A Accumulation Period, and (b) for
any Distribution Date with respect to the Class B Accumulation Period, the
maximum Class B Invested Amount during the Revolving Period.
"Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, the excess, if any, of the Controlled Accumulation Amount
for such Distribution Date over the amount distributed from the Collection
Account as Class A Monthly Principal or Class B Monthly Principal, as the case
may be, for such Distribution Date and (b) on each subsequent Distribution Date
with respect to the Class A Accumulation Period or the Class B Accumulation
Period, the excess, if any, of the Controlled Deposit Amount for such subsequent
Distribution Date over the amount distributed from the Collection Account as
Class A Monthly Principal or Class B Monthly Principal, as the case may be, for
such subsequent Distribution Date.
POSTPONEMENT OF ACCUMULATION PERIOD
Upon written notice to the Trustee, the Servicer may elect to postpone the
commencement of the Class A Accumulation Period, and extend the length of the
Revolving Period, subject to certain conditions including those set forth below.
The Servicer may make such election only if the Accumulation Period Length
(determined as described below) is less than nine months. On each Determination
Date, until the Class A Accumulation Period begins, the Servicer will determine
the "Accumulation Period Length," which is the number of months expected to be
required to fully fund the Principal Funding Account no later than the Class A
Expected Final Distribution Date, based on (a) the expected monthly collections
of Principal Receivables expected to be distributable to the Certificateholders
of all Series, assuming a principal payment rate no greater than the lowest
monthly principal payment rate on the Receivables for the preceding twelve
months and (b) the amount of principal expected to be distributable to
certificateholders of Series which are not expected to be in their revolving
periods during the Class A Accumulation Period. If the Accumulation Period
Length is less than nine months, the Servicer may, at its option, postpone the
commencement of the
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<PAGE> 34
Class A Accumulation Period such that the number of months included in the Class
A Accumulation Period will be equal to or exceed the Accumulation Period Length.
The effect of the foregoing calculation is to permit the reduction of the length
of the Class A Accumulation Period based on the investor interest of certain
other Series which are scheduled to be in their revolving periods during the
Class A Accumulation Period and on increases in the principal payment rate
occurring after the Closing Date. The length of the Class A Accumulation Period
will not be less than one month.
SUBORDINATION
The Class B Certificateholders' Interest and the Collateral Interest will
be subordinated to the extent necessary to fund certain payments with respect to
the Class A Certificates. In addition, the Collateral Interest will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain principal payments otherwise allocable to the
Class B Certificateholders may be reallocated to the Class A Certificateholders
and the Class B Invested Amount may be reduced. Similarly, certain principal
payments allocable to the Collateral Interest may be reallocated to the Class A
Certificateholders and the Class B Certificateholders and the Collateral
Invested Amount may be reduced. To the extent the Class B Invested Amount is
reduced, the percentage of collections of Finance Charge Receivables allocated
to the Class B Certificateholders in subsequent Monthly Periods will be reduced.
Moreover, to the extent the amount of such reduction in the Class B Invested
Amount is not reimbursed, the amount of principal distributable to the Class B
Certificateholders will be reduced. See "-- Allocation Percentages,"
"-- Reallocation of Cash Flows," and "-- Application of Collections -- Excess
Spread; Excess Finance Charges."
ALLOCATION PERCENTAGES
Pursuant to the Pooling and Servicing Agreement, with respect to each
Monthly Period the Servicer will allocate among the Class A Certificates, the
Class B Certificates and the Collateral Interest, the certificateholders'
interest for all other Series issued and outstanding and the Sellers' Interest
all collections of Finance Charge Receivables and Principal Receivables and the
Defaulted Amount with respect to such Monthly Period.
Collections of Finance Charge Receivables and the Defaulted Amount with
respect to any Monthly Period will be allocated to Series 1996-E based on the
Floating Allocation Percentage. The "Floating Allocation Percentage" means, with
respect to any Monthly Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is the Invested Amount
as of the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, the Initial Invested Amount) and the denominator of which is the
greater of (1) the sum of (x) the total amount of the Principal Receivables in
the Trust as of such day (or with respect to the first Monthly Period, the total
amount of Principal Receivables in the Trust on the Closing Date) and (y) the
principal amount on deposit in the Excess Funding Account as of such day and (2)
the sum of the numerators used to calculate the Series Percentages with respect
to Finance Charge Receivables or Defaulted Receivables, as applicable, for all
Series of certificates then outstanding; provided, however, that such ratio is
subject to adjustment to give effect to additions of Additional Accounts. Such
amounts so allocated will be further allocated between the Class A
Certificateholders, the Class B Certificateholders and the Collateral Interest
Holder in accordance with the Class A Floating Percentage, the Class B Floating
Percentage and the Collateral Floating Percentage, respectively. The "Class A
Floating Percentage" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Invested Amount as of the close of
business on the last day of the preceding Monthly Period (or with respect to the
first Monthly Period, the Class A Initial Invested Amount) and the denominator
of which is equal to the Invested Amount as of the close of business on such day
(or with respect to the first Monthly Period, the Initial Invested Amount). The
"Class B Floating Percentage" means, with respect to any Monthly Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is equal to the Class B Invested Amount as of the close
of business on the last day of the preceding Monthly Period (or with respect to
the first Monthly Period, the Class B Initial Invested Amount) and the
denominator of which is equal to the Invested Amount at the close of business on
such day (or with respect to
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the first Monthly Period, the Initial Invested Amount). The "Collateral Floating
Percentage" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is the Collateral Invested Amount as of the close of business on the last day of
the preceding Monthly Period (or with respect to the first Monthly Period, the
Collateral Initial Invested Amount) and the denominator of which is equal to the
Invested Amount as of the close of business on such day (or with respect to the
first Monthly Period, the Initial Invested Amount).
Collections of Principal Receivables will be allocated to Series 1996-E
based on the Principal Allocation Percentage. The "Principal Allocation
Percentage" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is (a) during the Revolving Period, the Invested Amount as of the last day of
the immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Closing Date) and (b) during the Accumulation Period or the Rapid
Amortization Period, the Invested Amount as of the last day of the Revolving
Period, and the denominator of which is the greater of (i) the sum of the total
amount of Principal Receivables in the Trust as of the last day of the
immediately preceding Monthly Period and the principal amount on deposit in the
Excess Funding Account as of such last day (or, in the case of the first Monthly
Period, the Closing Date) and (ii) the sum of the numerators used to calculate
the Series Percentages applicable to Principal Receivables for all Series
outstanding as of the date as to which such determination is being made;
provided, however, that such ratio is subject to adjustment to give effect to
additions of Additional Accounts. Such amounts allocated to the
Certificateholders will be further allocated between the Class A
Certificateholders and the Class B Certificateholders based on the Class A
Principal Percentage and the Class B Principal Percentage, respectively. The
"Class A Principal Percentage" means, with respect to any Monthly Period (a)
during the Revolving Period, the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is equal to the Class A Invested
Amount as of the last day of the immediately preceding Monthly Period (or, in
the case of the first Monthly Period, the Closing Date), and the denominator of
which is equal to the Invested Amount as of such day (or, in the case of the
first Monthly Period, the Closing Date) and (b) during the Accumulation Period
or the Rapid Amortization Period, the percentage equivalent (which shall never
exceed 100%) of a fraction, the numerator of which is the Class A Invested
Amount as of the last day of the Revolving Period, and the denominator of which
is the Invested Amount as of such last day. The "Class B Principal Percentage"
means, with respect to any Monthly Period, (i) during the Revolving Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is the Class B Invested Amount as of the last day of the
immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Closing Date) and the denominator of which is the Invested Amount as
of such day (or, in the case of the first Monthly Period, the Closing Date) and
(ii) during the Accumulation Period or the Rapid Amortization Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is the Class B Invested Amount as of the last day of the
Revolving Period, and the denominator of which is the Invested Amount as of such
last day. Collections of Principal Receivables allocable to Series 1996-E and
not allocated to the Class A Certificateholders or the Class B
Certificateholders will be allocated, in an amount up to the Collateral Invested
Amount, to the Collateral Interest Holder.
As used herein, the following terms have the meanings indicated:
"Class A Invested Amount" for any date means an amount equal to (i) the
Class A Initial Invested Amount, plus (ii) the amount of any increases in the
Class A Invested Amount during the Funding Period on or prior to such date,
minus (iii) the amount of principal payments (other than principal payments made
from amounts on deposit in the Pre-Funding Account on the first Distribution
Date following the end of the Funding Period) made to the Class A
Certificateholders on or prior to such date, minus (iv) the excess, if any, of
the aggregate amount of Class A Investor Charge-Offs for all prior Distribution
Dates over the aggregate amount of any reimbursements of Class A Investor
Charge-Offs for all Distribution Dates prior to such date and minus (v) the
principal amount on deposit in the Principal Funding Account (the "Principal
Funding Account Balance").
"Class B Invested Amount" for any date means an amount equal to (i) the
Class B Initial Invested Amount, plus (ii) the amount of any increases in the
Class B Invested Amount during the Funding Period on
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or prior to such date, minus (iii) the amount of principal payments (other than
principal payments made from amounts on deposit in the Pre-Funding Account on
the first Distribution Date following the end of the Funding Period) made to
Class B Certificateholders on or prior to such date, minus (iv) the excess, if
any, of the aggregate amount of Class B Investor Charge-Offs for all prior
Distribution Dates over the aggregate amount of any reimbursement of Class B
Investor Charge-Offs for all Distribution Dates preceding such date, minus (v)
the aggregate amount of Reallocated Principal Collections for all prior
Distribution Dates which have been used to fund the Class A Required Amount with
respect to such Distribution Dates (excluding any Reallocated Principal
Collections that have resulted in a reduction of the Collateral Invested
Amount), minus (vi) an amount equal to the amount by which the Class B Invested
Amount has been reduced to fund the Class A Investor Default Amount on all prior
Distribution Dates as described under "-- Allocation of Investor Default
Amount," and plus (vii) the aggregate amount of Excess Spread and Excess Finance
Charges allocated to Series 1996-E and applied on all prior Distribution Dates
for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (iv), (v) and (vi) provided, however, that the Class B Invested Amount
may not be reduced below zero.
"Collateral Invested Amount" means an amount equal to (i) the Collateral
Initial Invested Amount, plus (ii) the amount of any increases in the Collateral
Invested Amount during the Funding Period on or prior to such date, minus (iii)
the aggregate amount of principal payments (other than principal payments made
from amounts on deposit in the Pre-Funding Account on the first Distribution
Date following the end of the Funding Period) made with respect to the
Collateral Interest prior to the date of determination, minus (iv) the aggregate
amount of Reallocated Principal Collections allocable to the Collateral Invested
Amount for all prior Distribution Dates which have been used to fund the Class A
Required Amount or the Class B Required Amount, minus (v) an amount equal to the
aggregate amount by which the Collateral Invested Amount has been reduced to
fund the Class A Investor Default Amount and the Class B Investor Default Amount
on all prior Distribution Dates as described under "-- Allocation of Investor
Default Amount," minus (vi) an amount equal to the product of the Collateral
Floating Percentage and the Investor Default Amount (the "Collateral Default
Amount") with respect to any Distribution Date that is not funded out of Excess
Spread and Excess Finance Charges allocated to Series 1996-E and available for
such purpose on such Distribution Date, and plus (vi) the aggregate amount of
Excess Spread and Excess Finance Charges allocated and available to reimburse
amounts deducted pursuant to the foregoing clauses (iv), (v) and (vi); provided,
however, that the Collateral Invested Amount may not be reduced below zero.
"Invested Amount," for any date means an amount equal to the sum of the
Class A Invested Amount, the Class B Invested Amount and the Collateral Invested
Amount.
"Class A Investor Amount" for any date means an amount equal to the sum of
the Class A Invested Amount, plus the Class A Floating Percentage of the
Pre-Funded Amount, plus the Principal Funding Account Balance.
"Class B Investor Amount" for any date means an amount equal to the sum of
the Class B Invested Amount plus the Class B Floating Percentage of the
Pre-Funded Amount.
"Collateral Investor Amount" for any date means an amount equal to the sum
of the Collateral Invested Amount plus the Collateral Floating Percentage of the
Pre-Funded Amount.
"Investor Amount," for any date means an amount equal to the sum of the
Class A Investor Amount, the Class B Investor Amount and Collateral Investor
Amount.
"Series Investor Amount" for any date means an amount equal to the
numerator of the Principal Allocation Percentage on such date.
REALLOCATION OF CASH FLOWS
With respect to each Distribution Date, on each Determination Date, the
Servicer will determine the amount (the "Class A Required Amount"), which will
be equal to the amount, if any, by which (a) the sum of (i) Class A Monthly
Interest for such Distribution Date, (ii) any Class A Monthly Interest
previously due but not paid to Class A Certificateholders on a prior
Distribution Date, (iii) any Class A Additional Interest
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and any Class A Additional Interest previously due but not paid to the Class A
Certificateholders on a prior Distribution Date, (iv) the Class A Servicing Fee
for such Distribution Date and any unpaid Class A Servicing Fee and (v) the
Class A Investor Default Amount, if any, for such Distribution Date exceeds (b)
the Class A Available Funds. If the Class A Required Amount is greater than
zero, Excess Spread and Excess Finance Charges allocated to Series 1996-E 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
Charges 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 Charges and amounts, if any, on deposit in the Cash
Collateral Account are insufficient to fund the Class A Required Amount,
collections of Principal Receivables allocable first to the Collateral Interest
and then to the Class B Certificates for the related Monthly Period
("Reallocated Principal Collections") will then be used to fund the remaining
Class A Required Amount. If Reallocated Principal Collections with respect to
the related Monthly Period, together with Excess Spread and Excess Finance
Charges allocated to Series 1996-E and amounts, if any, on deposit in the Cash
Collateral Account are insufficient to fund the Class A Required Amount for such
related Monthly Period, then the Collateral Invested Amount will be reduced by
the amount of such excess (but not by more than the Class A Investor Default
Amount for such Distribution Date). In the event that such reduction would cause
the Collateral Invested Amount to be a negative number, the Collateral Invested
Amount will be reduced to zero, and the Class B Invested Amount will be reduced
by the amount by which the Collateral Invested Amount would have been reduced
below zero (but not by more than the excess of the Class A Investor Default
Amount, if any, for such Distribution Date over the amount of such reduction, if
any, of the Collateral Invested Amount with respect to such Distribution Date).
In the event that such reduction would cause the Class B Invested Amount to be a
negative number, the Class B Invested Amount will be reduced to zero, and the
Class A Invested Amount will be reduced by the amount by which the Class B
Invested Amount would have been reduced below zero, but not by more than the
excess, if any, of the Class A Investor Default Amount for such Distribution
Date over the amount of the reductions, if any, of the Collateral Invested
Amount and the Class B Invested Amount with respect to such Distribution Date as
described above. Any such reduction in the Class A Invested Amount will have the
effect of slowing or reducing the return of principal and interest to the Class
A Certificateholders. In such case, the Class A Certificateholders will bear
directly the credit and other risks associated with their interest in the Trust.
See "-- Allocation of Investor Default Amount."
With respect to each Distribution Date, on each Determination Date, the
Servicer will determine the amount (the "Class B Required Amount"), which will
be equal to the amount, if any, by which the sum of (i) Class B Monthly Interest
for such Distribution Date, (ii) any Class B Monthly Interest previously due but
not paid to the Class B Certificateholders on a prior Distribution Date, (iii)
any Class B Additional Interest and any Class B Additional Interest previously
due but not paid to Class B Certificateholders on a prior Distribution Date,
(iv) the Class B Servicing Fee for such Distribution Date and any unpaid Class B
Servicing Fee and (v) the Class B Investor Default Amount, if any, for such
Distribution Date exceeds the Class B Available Funds. If the Class B Required
Amount is greater than zero, Excess Spread and Excess Finance Charges allocated
to Series 1996-E not required to pay the Class A Required Amount or reimburse
Class A Investor Charge-Offs will be used to fund the Class B Required Amount
with respect to such Distribution Date. If such Excess Spread and Excess Finance
Charges available to fund the remaining Class B Required Amount with respect to
such Distribution Date are less than the Class B Required Amount, amounts, if
any, on deposit in the Cash Collateral Account not required to fund the Class A
Required Amount will then be used to fund the remaining Class B Required Amount.
If such Excess Spread and Excess Finance Charges and amounts, if any, on deposit
in the Cash Collateral Account are insufficient to pay the Class B Required
Amount, Reallocated Principal Collections allocable to the Collateral Interest
not required to pay the Class A Required Amount for the related Monthly Period
will then be used to fund the remaining Class B Required Amount. If such
Reallocated Principal Collections allocable to the Collateral Interest with
respect to the related Monthly Period are insufficient to fund the remaining
Class B Required Amount, then the Collateral Invested Amount remaining after any
adjustments made thereto for the benefit of the Class A Certificateholders will
be reduced by the amount of such insufficiency (but not by more than the Class B
Investor
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Default Amount for such Distribution Date). In the event that such a reduction
would cause the Collateral Invested Amount to be a negative number, the
Collateral Invested Amount will be reduced to zero, and the Class B Invested
Amount will be reduced by the amount by which the Collateral Invested Amount
would have been reduced below zero (but not by more than the excess of the Class
B Investor Default Amount for such Distribution Date over the amount of such
reduction of the Collateral Invested Amount), and the Class B Certificateholders
will bear directly the credit and other risks associated with their interests in
the Trust. See "-- Allocation of Investor Default Amount."
Reductions of the Class A Invested Amount or Class B Invested Amount shall
thereafter be reimbursed and the Class A Invested Amount or Class B Invested
Amount increased to the extent of Excess Spread and Excess Finance Charges and
Reallocated Principal Collections available for such purposes on each
Distribution Date. See "-- Application of Collections -- Excess Spread; Excess
Finance Charges." When such reductions of the Class A Invested Amount and Class
B Invested Amount have been fully reimbursed, reductions of the Collateral
Invested Amount shall be reimbursed until reimbursed in full in a similar
manner.
APPLICATION OF COLLECTIONS
Application of Collections to the Collection Account. The Servicer will
apply, or will instruct the Trustee to apply, on or prior to the close of
business on the second Business Day following the date of processing of any
collections, all collections and other funds to be deposited into the Collection
Account that are allocated to the Certificates and the Collateral Interest as
follows:
(1) during the Revolving Period, an amount equal to the Floating
Allocation Percentage of the collections of Finance Charge Receivables
processed on such date will be allocated to the Certificates and the
Collateral Interest, and of that allocation, the following amounts will be
deposited and retained in the Collection Account: (A) prior to the LIBOR
Determination Date occurring in the current Monthly Period, the entire
amount of such allocation, and (B) on and after such LIBOR Determination
Date, the difference between (x) Monthly Interest for the related
Distribution Date (plus, if AUS is not the Servicer, the Monthly Servicing
Fee for such Monthly Period) and (y) the amounts previously deposited in
the Collection Account with respect to such Monthly Interest (plus, if AUS
is not the Servicer, the Monthly Servicing Fee for such Monthly Period)
pursuant to this clause (1);
(2) during the Accumulation Period or Rapid Amortization Period, an
amount equal to the Floating Allocation Percentage of the collections of
Finance Charge Receivables processed on such date will be allocated to the
Certificates and the Collateral Interest and deposited and retained in the
Collection Account;
(3) during the Revolving Period, an amount equal to the Principal
Allocation Percentage of collections of Principal Receivables processed on
such date will be allocated to the Certificates and the Collateral Interest
and paid to the holders of the Seller Certificates; provided that such
amount will be paid to the holders of the Seller Certificates only if the
Seller Amount is greater than the Required Seller Amount and otherwise will
be deposited in the Excess Funding Account until the Seller Amount is
greater than the Required Seller Amount and the remainder will be paid to
the holders of the Seller Certificates; provided further, that if the Total
Enhancement is less than the Required Enhancement Amount, an amount equal
to the sum of (x) the Collateral Floating Percentage of the product of the
Principal Allocation Percentage and the collections of Principal
Receivables and (y) the Class B Principal Percentage of the product of the
Principal Allocation Percentage and the collections of Principal
Receivables ("Subordinate Principal Collections") will be deposited and
retained in the Collection Account;
(4) during the Accumulation Period, an amount equal to the Principal
Allocation Percentage of collections of Principal Receivables processed on
such date (for any such date, a "Percentage Allocation") will be allocated
to the Certificates and the Collateral Interest and deposited and retained
in the Collection Account; provided, however, that if the sum of such
Percentage Allocations with respect to the same Monthly Period exceeds the
Controlled Deposit Amount for the related Distribution Date, then such
excess shall not be treated as a Percentage Allocation and shall be paid to
the holders of the Seller Certificates only if the Seller Amount on such
Date of Processing is greater than the Required Seller
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Amount and otherwise will be deposited in the Excess Funding Account until
the Seller Amount is greater than the Required Seller Amount and the
remainder will be paid to the holders of the Seller Certificates; provided
further, however, that if the Total Enhancement is less than the Required
Enhancement Amount, Subordinate Principal Collections will be retained in
the Collection Account; and
(5) during the Rapid Amortization Period, an amount equal to the
Principal Allocation Percentage of the collections of Principal Receivables
processed on such date will be allocated to the Certificates and the
Collateral Interest and deposited and retained in the Collection Account;
provided, however, that after the date on which an amount of such
Collections equal to the Investor Amount has been deposited into the
Collection Account and allocated to the Certificates and the Collateral
Interest, such amount in excess of the Investor Amount will be paid to the
holders of the Seller Certificates only if the Seller Amount is greater
than the Required Seller Amount and otherwise will be deposited in the
Excess Funding Account until the Seller Amount is greater than the Required
Seller Amount and the remainder will be paid to the holders of the Seller
Certificates.
Withdrawals from Series Accounts. On or before each Distribution Date, the
Servicer will direct the Trustee to make the following withdrawals from the
following Series Accounts:
(1) on the Business Day preceding each Transfer Date with respect to
the Funding Period, all net investment income earned on amounts in the
Pre-Funding Account during the preceding Monthly Period will be withdrawn
from the Pre-Funding Account and deposited into the Collection Account for
distribution as collections of Finance Charge Receivables allocable to the
Certificateholders and the Collateral Interest Holder;
(2) on each Distribution Date with respect to the Class A Accumulation
Period beginning on the second such Distribution Date and on the first
Distribution Date with respect to the Rapid Amortization Period, if
applicable, all Principal Funding Investment Proceeds then on deposit in
the Principal Funding Account will be withdrawn from the Principal Funding
Account and deposited into the Collection Account for distribution as a
portion of Class A Available Funds for such Distribution Date;
(3) on each Distribution Date after the Reserve Account Funding Date,
all net investment income accrued since the preceding Distribution Date on
funds on deposit in the Reserve Account will be retained in the Reserve
Account (to the extent that the amount on deposit in the Reserve Account is
less than the Required Reserve Account Amount) and the balance, if any,
will be deposited in the Collection Account for distribution as collections
of Finance Charge Receivables allocable to the Certificateholders and the
Collateral Interest Holder; and
(4) on or before each Distribution Date with respect to the Class A
Accumulation Period and on the first Distribution Date with respect to the
Rapid Amortization Period, if applicable, an amount equal to the lesser of
(a) the Available Reserve Account Amount with respect to such Distribution
Date and (b) the excess, if any, of a portion of the Class A Monthly
Interest determined in accordance with the Pooling and Servicing Agreement
over the Principal Funding Investment Proceeds with respect to such
Distribution Date (provided that the amount of such withdrawal will be
reduced to the extent that funds otherwise would be available to be
deposited in the Reserve Account on such Distribution Date) will be
withdrawn from the Reserve Account and deposited in the Collection Account
for distribution as a portion of Class A Available Funds for such
Distribution Date.
Payment of Interest, Fees and Other Items. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds (see "-- Interest Payments" above) and
Collateral Available Funds in the following priority:
(A) On each Distribution Date, an amount equal to the Class A Available
Funds with respect to such Distribution Date will be withdrawn from the
Collection Account and distributed in the following priority:
(1) 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
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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;
(2) an amount equal to the Class A Servicing Fee for such Distribution
Date, plus the amount of any Class A Servicing Fee previously due but not
distributed to the Servicer on a prior Distribution Date, will be
distributed to the Servicer (unless such amount has been netted against
deposits to the Collection Account);
(3) an amount equal to the Class A Investor Default Amount for such
Distribution Date will be treated as a portion of Available Investor
Principal Collections for such Distribution Date; and
(4) the balance, if any, shall constitute Excess Spread and shall be
allocated and distributed as described under "-- Excess Spread; Excess
Finance Charges" below.
(B) On each Distribution Date, an amount equal to the Class B Available
Funds with respect to such Distribution Date will be withdrawn from the
Collection Account and distributed in the following priority:
(1) an amount equal to Class B Monthly Interest for such Distribution
Date, plus the amount of any Class B Monthly Interest previously due but
not paid to the Class B Certificateholders on a prior Distribution Date,
plus any additional interest with respect to interest amounts that were due
but not paid to the Class B Certificateholders on a prior Distribution Date
at a rate equal to the Class B Certificate Rate plus 2% per annum ("Class B
Additional Interest"), will be distributed to the Class B
Certificateholders;
(2) an amount equal to the Class B Servicing Fee for such Distribution
Date, plus the amount of any Class B Servicing Fee previously due but not
distributed to the Servicer on a prior Distribution Date, will be
distributed to the Servicer (unless such amount has been netted against
deposits to the Collection Account); and
(3) the balance, if any, shall constitute Excess Spread and shall be
allocated and distributed as described under "-- Excess Spread; Excess
Finance Charges" below.
(C) On each Distribution Date, an amount equal to the Collateral Available
Funds with respect to such Distribution Date will be withdrawn from the
Collection Account and distributed in the following priority:
(1) if AUS or the Trustee is no longer the Servicer, an amount equal
to the Collateral Servicing Fee for such Distribution Date, plus the amount
of any Collateral Servicing Fee previously due but not distributed to the
Servicer on a prior Distribution Date, will be distributed to the Servicer
(unless such amount has been netted against deposits to the Collection
Account); and
(2) the balance, if any, shall constitute Excess Spread and shall be
allocated and distributed as described under "-- Excess Spread; Excess
Finance Charges" below.
"Excess Spread" means, with respect to any Distribution Date, an amount
equal to the sum of the amounts described in clause (A) (4) above, clause (B)
(3) above and clause (C) (2) above under "-- Payment of Interest, Fees and Other
Items."
Excess Spread; Excess Finance Charges. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 1996-E with respect to the
related Monthly Period to make the following distributions in the following
priority:
(1) an amount equal to any deficiency pursuant to clauses (A) (1), (2)
and (3) above under "-- Payment of Interest, Fees and Other Items" will be
used to fund such deficiency, provided that, in the event such deficiency
exceeds the amount of Excess Spread and Excess Finance Charges allocated to
Series 1996-E, such Excess Spread and Excess Finance Charges shall be
applied first to pay amounts due with respect to such Distribution Date
pursuant to clause (A)(1) above under "-- Payment of Interest, Fees and
Other Items", second to pay the Class A Servicing Fee pursuant to clause
(A)(2) above under "-- Payment of Interest, Fees and Other Items" and third
to pay the Class A Investor Default Amount for such Distribution Date
pursuant to clause (A)(3) above under "-- Payment of Interest, Fees and
Other Items;"
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(2) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed will be treated as a
portion of Available Investor Principal Collections for such Distribution
Date as described under "-- Payments of Principal" below;
(3) an amount equal to any deficiency pursuant to clauses (B)(1) and
(2) above under "-- Payment of Interest, Fees and Other Items" will be used
to fund such deficiency, provided that, in the event such deficiency for
such Distribution Date exceeds the remaining amount of Excess Spread and
Excess Finance Charges allocated to Series 1996-E, such Excess Spread and
Excess Finance Charges shall be applied first to pay amounts due with
respect to such Distribution Date pursuant to clause (B)(1) above under
"-- Payment of Interest, Fees and Other Items," and second to pay the Class
B Servicing Fee pursuant to clause (B)(2) above under "-- Payment of
Interest, Fees and Other Items;"
(4) an amount equal to the Class B Investor Default Amount for such
Distribution Date will be treated as a portion of Available Investor
Principal Collections for such Distribution Date as described under
"-- Payments of Principal" below;
(5) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (iv), (v) and (vi) of
the definition of "Class B Invested Amount" under "-- Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as a
portion of Available Investor Principal Collections for such Distribution
Date;
(6) 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 Loan Agreement;
(7) an amount equal to the Collateral Servicing Fee due but not paid
to the Servicer on such Distribution Date or a prior Distribution Date
shall be paid to the Servicer;
(8) 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;
(9) an amount equal to the aggregate amount by which the Collateral
Invested Amount has been reduced pursuant to clauses (iv), (v) and (vi) of
the definition of "Collateral Invested Amount" under "-- Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as a
portion of Collateral Principal Collections for such Distribution Date;
(10) 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;
(11) an amount equal to the aggregate of any other amounts then owed
to the Collateral Interest Holder or otherwise to be applied pursuant to
the Loan Agreement out of collections of Excess Spread and Excess Finance
Charges allocated to Series 1996-E shall be applied in accordance with the
Loan Agreement;
(12) an amount up to the excess, if any, of the Required Reserve
Account Amount over the principal amount on deposit in the Reserve Account
will be deposited in the Reserve Account; and
(13) the balance, if any, will constitute a portion of Excess Finance
Charges for such Distribution Date and will be available for allocation to
other Series in Group One or to the holders of the Seller Certificates as
described in "Description of the Certificates -- Sharing of Excess Finance
Charges" in the Prospectus.
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Cash Collateral Account; Reallocated Principal Collections. On or before
each Distribution Date after giving effect to the distributions above under
"-- Excess Spread; Excess Finance Charges," the Trustee, acting pursuant to the
Servicer's instructions, will apply the Available Cash Collateral Amount on such
Distribution Date and Reallocated Principal Collections for the related Monthly
Period to make the following distributions in the following priority:
(1) if the amount of Excess Spread and Excess Finance Charges
allocated to Series 1996-E for the related Monthly Period is less than the
amounts specified in clauses (1) through (5) and (7) above under "-- Excess
Spread; Excess Finance Charges," an amount equal to such deficiency, not to
exceed the Available Cash Collateral Amount, will be withdrawn from the
Cash Collateral Account and distributed to fund such deficiency in the
order of priority set forth in clauses (1) through (5) and (7) above under
"-- Excess Spread; Excess Finance Charges";
(2) if the sum of (x) the amount of Excess Spread and Excess Finance
Charges allocated to Series 1996-E for the related Monthly Period and (y)
the Available Cash Collateral Amount on such Distribution Date is less than
the Class A Required Amount, Reallocated Principal Collections, up to the
amount of such deficiency, will be withdrawn from the Collection Account
and distributed to fund such deficiency in the order of priority set forth
in clause (1) above under "-- Excess Spread; Excess Finance Charges"; and
(3) if the sum of (x) the amount of Excess Spread and Excess Finance
Charges allocated to Series 1996-E for the related Monthly Period not
required to fund the Class A Required Amount or reimburse Class A Investor
Charge-Offs and (y) the Available Cash Collateral Amount not required to
fund the Class A Required Amount is less than the Class B Required Amount,
Reallocated Principal Collections allocable to the Collateral Interest not
required to fund the Class A Required Amount, up to the amount of such
deficiency, will be withdrawn from the Collection Account and distributed
to fund such deficiency in the order of priority set forth in clauses (3)
and (4) above under "-- Excess Spread; Excess Finance Charges."
Payments of Principal. On each Distribution Date, the Trustee, acting
pursuant to the Servicer's instructions, will distribute Available Investor
Principal Collections (see "-- Principal Payments" above) in the following
priority:
(1) on each Distribution Date with respect to the Revolving Period,
all such Available Investor Principal Collections, which are not allocated
at the option of the Sellers as part of Collateral Monthly Principal to
make a payment with respect to the Collateral Interest, will be treated as
Shared Principal Collections and applied as described under "Description of
the Certificates -- Shared Principal Collections" in the Prospectus; and
(2) on each Distribution Date with respect to the Accumulation Period
or the Rapid Amortization Period, all such Available Investor Principal
Collections will be distributed or deposited in the following priority:
(i) an amount equal to Class A Monthly Principal will be deposited
in the Principal Funding Account for payment to the Class A
Certificateholders on the earlier to occur of the Class A Expected Final
Distribution Date or the first Distribution Date with respect to the
Rapid Amortization Period;
(ii) for each Distribution Date beginning on the Distribution Date
on which the Class A Investor Amount is paid in full (the "Class B
Principal Commencement Date"); provided, that if the Class A Investor
Amount is paid in full on the Class A Expected Final Distribution Date
and the Rapid Amortization Period has not commenced, the Class B
Principal Commencement Date will be the Class B Expected Final
Distribution Date, an amount equal to Class B Monthly Principal for such
Distribution Date will be paid to the Class B Certificateholders;
(iii) the balance, if any, may be treated as Collateral Monthly
Principal if so required by the definition thereof; and
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(iv) the balance, if any, will be treated as Shared Principal
Collections and applied as described under "Description of the
Certificates -- Shared Principal Collections" in the Prospectus.
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will distribute Collateral Principal Collections (see
"-- Principal Payments" above) on deposit in the Collection Account in the
following priority:
(3) on each Distribution Date with respect to the Revolving Period,
all such Collateral Principal Collections will be distributed or deposited
in the following priority:
(i) an amount equal to Collateral Monthly Principal for such
Distribution Date, up to the Collateral Invested Amount on such
Distribution Date, will be applied in accordance with the Loan
Agreement; and
(ii) the balance, if any, will be treated as Available Investor
Principal Collections and applied as described in clause (1) above;
(4) on each Distribution Date with respect to the Accumulation Period
or the Rapid Amortization Period, all such Collateral Principal Collections
will be distributed or deposited in the following priority:
(i) an amount equal to Collateral Monthly Principal for such
Distribution Date, up to the Collateral Invested Amount on such
Distribution Date, will be applied in accordance with the Loan
Agreement; and
(ii) the balance, if any, will be treated as Available Investor
Principal Collections and applied as described in clause (2) above.
PRINCIPAL FUNDING ACCOUNT
Pursuant to the Supplement, the Servicer will establish and maintain the
principal funding account as a segregated trust account held for the benefit of
the Certificateholders (the "Principal Funding Account"). During the Class A
Accumulation Period, the Trustee at the direction of the Servicer will transfer
Available Investor Principal Collections to the Principal Funding Account as
described under "-- Application of Collections -- Payments of Principal."
Funds on deposit in the Principal Funding Account will be invested by the
Trustee at the direction of the Servicer in Eligible Investments. Investment
earnings (net of investment losses and expenses) on funds on deposit in the
Principal Funding Account (the "Principal Funding Investment Proceeds") will be
included in Class A Available Funds with respect to each Distribution Date.
RESERVE ACCOUNT
Pursuant to the Supplement, the Servicer will establish and maintain the
reserve account as a segregated trust account held for the benefit of the
Certificateholders (the "Reserve Account"). The Reserve Account is established
to assist with the subsequent distribution of interest on the Certificates
during the Class A Accumulation Period. With respect to each Distribution Date
from and after the Reserve Account Funding Date, but prior to the termination of
the Reserve Account, the Trustee, acting pursuant to the Servicer's
instructions, will apply Excess Spread and Excess Finance Charges allocated to
the Certificates (to the extent described above under "-- Application of
Collections -- Excess Spread; Excess Finance Charges") to increase the amount on
deposit in the Reserve Account (to the extent such amount is less than the
Required Reserve Account Amount). The "Reserve Account Funding Date" will be the
Distribution Date with respect to the Monthly Period which commences no later
than three months prior to the Monthly Period in which, as of the related
Determination Date, the Class A Accumulation Period is scheduled to commence, or
such earlier date as the Servicer may determine. The "Required Reserve Account
Amount" with respect to any Distribution Date on or after the Reserve Account
Funding Date will be equal to (a) the product of (i) .5% of the Class A Investor
Amount as of the preceding Distribution Date (after giving effect to all changes
therein on such date) and (ii) a fraction, the numerator of which is the number
of Monthly Periods scheduled to be included in the Class A Accumulation Period
as of such date, and the denominator of which is nine, provided
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that if such numerator is one, the Required Reserve Account Amount will be zero,
or (b) any other amount designated by the Sellers, provided, that if such
designation is of a lesser amount, the Sellers shall have provided the Servicer
and the Trustee with evidence that the Rating Agency Condition has been
satisfied and each 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 such Seller, such designation
will not cause a Series 1996-E Pay Out Event or a Trust Pay Out Event or an
event that, after the giving of notice or the lapse of time, would cause a
Series 1996-E Pay Out Event or a Trust Pay Out Event to occur. On each
Distribution Date, after giving effect to any deposit to be made to, and any
withdrawal to be made from the Reserve Account, the Trustee will withdraw from
the Reserve Account an amount equal to the excess, if any, of the amount on
deposit in the Reserve Account over the Required Reserve Account Amount and will
apply such amount in accordance with the Loan Agreement.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account with respect to any Distribution
Date (after giving effect to any deposits to, or withdrawals from, the Reserve
Account to be made on such Distribution Date) will be invested by the Trustee at
the direction of the Servicer in Eligible Investments. The interest and other
investment income (net of investment expenses and losses) earned on such
investments will be retained in the Reserve Account (to the extent the amount on
deposit is less than the Required Reserve Account Amount) or deposited in the
Collection Account and treated as collections of Finance Charge Receivables
allocable to Series 1996-E.
On or before each Distribution Date with respect to the Class A
Accumulation Period and on the first Distribution Date with respect to the Rapid
Amortization Period, a withdrawal will be made from the Reserve Account, and the
amount of such withdrawal will be deposited in the Collection Account and
included in Class A Available Funds in an amount equal to the lesser of (a) the
Available Reserve Account Amount with respect to such Distribution Date and (b)
the excess, if any, of a portion of the Class A Monthly Interest determined in
accordance with the Pooling and Servicing Agreement over the Principal Funding
Investment Proceeds with respect to such Distribution Date; provided, that the
amount of such withdrawal shall be reduced to the extent that funds otherwise
would be available to be deposited in the Reserve Account on such Distribution
Date. On each Distribution Date, the amount available to be withdrawn from the
Reserve Account (the "Available Reserve Account Amount") will be equal to the
lesser of the amount on deposit in the Reserve Account (before giving effect to
any deposit to be made to the Reserve Account on such Distribution Date) and the
Required Reserve Account Amount for such Distribution Date.
The Reserve Account will be terminated following the earlier to occur of
(a) the termination of the Trust pursuant to the Pooling and Servicing
Agreement, (b) the date on which the Class A Investor Amount is paid in full and
(c) if the Class A Accumulation Period has not commenced, the occurrence of a
Series 1996-E Pay Out Event or a Trust Pay Out Event or, if the Class A
Accumulation Period has commenced, the earlier of the first Distribution Date
with respect to the Rapid Amortization Period and the Class A Expected Final
Distribution Date. Upon the termination of the Reserve Account, all amounts on
deposit therein (after giving effect to any withdrawal from the Reserve Account
on such date as described above) will be distributed to the Collateral Interest
Holder for application in accordance with the Loan Agreement. Any amounts
withdrawn from the Reserve Account and distributed to the Collateral Interest
Holder as described above will not be available for distribution to the
Certificateholders.
PAIRED SERIES
The Certificates are subject to being paired with one or more other Series
(each, a "Paired Series") on or after the commencement of the Accumulation
Period or the Rapid Amortization Period. Each Paired Series will be pre-funded
with an initial deposit to a funding account or will have a variable principal
amount. Any such funding account will be held for the benefit of such Paired
Series and not for the benefit of the Certificateholders. Upon payment in full
of the Certificates, assuming that there have been no unreimbursed charge-offs
with respect to any related Paired Series, the aggregate investor amount of such
Paired Series will have been increased by an amount up to an aggregate amount
equal to the Investor Amount. The issuance of a Paired Series will be subject to
the conditions described under "Description of the Certificates -- New
Issuances" in the Prospectus. There can be no assurance that the terms of any
Paired Series might not have an
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impact on the calculation of the Series Percentage or the timing or amount of
payments received by a Certificateholder.
SHARED COLLECTIONS OF PRINCIPAL RECEIVABLES
To the extent that collections of Principal Receivables allocated to the
Certificates or the Collateral Interest are not needed to make payments to or
for the benefit of the Certificateholders or the Collateral Interest Holder,
such collections may be applied to cover principal payments due to or for the
benefit of other Series in Group One. 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 in Group One, to the extent such collections are not needed to make
payments to or for the benefit of certificateholders of such other Series
("Shared Principal Collections"), will be applied, if necessary, to cover
payments of principal due to Certificateholders during the Accumulation Period.
There can be no assurance that such Shared Principal Collections will be
available to cover payments of principal or deposits due on any Distribution
Date during the Accumulation Period. If no such Shared Principal Collections
were available to the Certificates, the Class A Investor Amount may not be paid
in full by the Class A Expected Final Distribution Date and the Class B Invested
Amount may not be paid in full by the Class B Expected Final Distribution Date.
Such Shared Principal Collections may also be allocated to other Series either
currently outstanding or to be issued by the Trust in the future. To the extent
such Shared Principal Collections are allocated to other Series, the pro rata
share of such Shared Principal Collections allocated to Certificateholders will
be reduced.
THE CASH COLLATERAL ACCOUNT
The Cash Collateral Account will be held for the benefit of the
Certificateholders, the Collateral Interest Holder and the Cash Collateral
Depositor, as their interests appear in the Supplement, and in the case of the
Cash Collateral Depositor, in the Loan Agreement (which interest, in the case of
the Cash Collateral Depositor, will be subordinated to the interests of the
Certificateholders and the Collateral Interest Holder as provided in the
Supplement). Funds on deposit in the Cash Collateral Account will be invested in
certain Eligible Investments. On each Distribution Date, all interest and
earnings (net of losses and investment expenses) accrued since the preceding
Distribution Date on funds on deposit in the Cash Collateral Account will be
applied in accordance with the Loan Agreement.
The Cash Collateral Account will be funded on the Closing Date in the
initial amount of $10,000,000 which amount will include the proceeds of a loan
to be made by one or more financial institutions to be selected by the Sellers
(such financial institution or institutions, the "Cash Collateral Depositor").
Such loan will be repaid pursuant to the Loan Agreement.
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 least of (i) the amount on deposit in the Cash Collateral Account (before
giving effect to any deposit to be made to, or withdrawal from, the Cash
Collateral Account on such Distribution Date), (ii) the Required Enhancement
Amount and (iii) the Invested Amount as of such date. The "Required Enhancement
Amount" with respect to any Distribution Date means the greater of (i) the
product of (a) the sum of (I) the sum of the Class A Invested Amount and the
Class A Floating Percentage of the Pre-Funded Amount and (II) the sum of the
Class B Invested Amount and the Class B Floating Percentage of the Pre-Funded
Amount, each as of such Distribution Date after taking into account
distributions made on such Distribution Date minus the amount of funds on
deposit in the Cash Collateral Account after taking into account all deposits
and withdrawals on such Distribution Date, and (b) a fraction, the numerator of
which is 10% and the denominator of which is the excess of 100% over 10% and
(ii) the sum of (A) the product of (I) $500,000,000, (II) 1% and (III) a
fraction the numerator of which is equal to the Available Cash Collateral Amount
as of the immediately preceding Distribution Date and the denominator of which
is the Total Enhancement for such Distribution Date and (B) the product of (I)
$500,000,000, (II) 3% and (III) a fraction the numerator of which is equal to
the Collateral Invested Amount as of the immediately preceding Distribution Date
and the denominator of which is the Total
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Enhancement for such Distribution Date; provided, however, that (i) if certain
withdrawals are made from the Cash Collateral Account or if a Series 1996-E Pay
Out Event or a Trust Pay Out 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 drawing or such
Series 1996-E Pay Out Event or a Trust Pay Out Event or reduction in Collateral
Invested Amount, (ii) in no event shall the Required Enhancement Amount exceed
the sum of the Class A Invested Amount and the Class B Invested Amount on any
such date, and (iii) the Required Enhancement Amount may be reduced without the
consent of the Certificateholders, if the Sellers shall have received written
notice from each Rating Agency that such reduction will not result in the
reduction or withdrawal of the then current rating of the Certificates and each
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 such Seller, such reduction will not cause a
Trust Pay Out Event or an event that, after the giving of notice or the lapse of
time, would constitute a Series 1996-E Pay Out Event to occur.
On each Distribution Date, one or more withdrawals may be made from the
Cash Collateral Account in an amount up to the Available Cash Collateral Amount,
to fund the amounts specified in clauses (1) through (5) and (7) of
"-- Application of Collections -- Excess Spread; Excess Finance Charges" in the
order of priority specified therein.
Under certain circumstances specified in the Loan Agreement, the Sellers or
the Collateral Interest Holder 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.
On each Distribution Date, the Servicer or the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread and Excess Finance Charges
(to the extent described above under "-- Application of Collections -- Excess
Spread; Excess Finance Charges") to increase the amount on deposit in the Cash
Collateral Account to the extent such amount is less than the Required Cash
Collateral Amount. The "Required Cash Collateral Amount" means on any date of
determination the Required Enhancement Amount less the Collateral Investor
Amount. In addition, if on any Distribution Date the amount on deposit in the
Cash Collateral Account exceeds the Required Cash Collateral Amount, such excess
will be withdrawn and applied in accordance with the Loan Agreement.
ALLOCATION OF INVESTOR DEFAULT AMOUNT
On each Determination Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (i) the Floating
Allocation Percentage with respect to such Monthly Period and (ii) the Defaulted
Amount for such Monthly Period. 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 applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class B Certificateholders (the "Class B
Investor Default Amount") in an amount equal to the product of the Class B
Floating Percentage applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Collateral Interest Holder in an amount
equal to the Collateral Default Amount. An amount equal to the Class A Investor
Default Amount for each Monthly Period will be paid from Class A Available
Funds, Excess Spread and Excess Finance Charges allocated to Series 1996-E or
from amounts, if any, on deposit in the Cash Collateral Account and Reallocated
Principal Collections and applied as described above in "-- Application of
Collections -- Payment of Interest, Fees and Other Items," "-- Application of
Collections -- Excess Spread; Excess Finance Charges" and "-- Reallocation of
Cash Flows." An amount equal to the Class B Investor Default Amount for each
Monthly Period will be paid from Excess Spread and Excess Finance Charges
allocated to Series 1996-E or from amounts, if any, available under the Cash
Collateral Account and Reallocated Principal Collections allocable to the
Collateral Invested Amount and applied as described above
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in "-- Application of Collections -- Excess Spread; Excess Finance Charges" and
"-- Reallocation of Cash Flows."
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 1996-E, amounts, if any, on deposit in the Cash Collateral
Account and Reallocated Principal Collections, 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 B Invested
Amount will be reduced by the amount by which the Collateral Invested Amount
would have been reduced below zero, but not by more than the excess, if any, of
the Class A Investor Default Amount for such Distribution Date over the amount
of such reduction, if any, of the Collateral Invested Amount with respect to
such Distribution Date. In the event that such reduction would cause the Class B
Invested Amount to be a negative number, the Class B Invested Amount will be
reduced to zero, and the Class A Invested Amount will be reduced by the amount
by which the Class B Invested Amount would have been reduced below zero, but not
by more than the excess, if any, of the Class A Investor Default Amount for such
Distribution Date over the amount of the reductions, if any, of the Collateral
Invested Amount and the Class B Invested Amount with respect to such
Distribution Date as described above (a "Class A Investor Charge-Off"), which
will have the effect of slowing or reducing the return of principal to the 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 Class A
Investor Charge-Offs) by the amount of Excess Spread and Excess Finance Charges
allocated to Series 1996-E and available for such purpose as described under
"-- Application of Collections -- Excess Spread; Excess Finance Charges."
On each Distribution Date, if the Class B Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 1996-E and not required to pay the Class A Required Amount,
amounts, if any, on deposit in the Cash Collateral Account not required to pay
the Class A Required Amount and Reallocated Principal Collections allocable to
the Collateral Interest and not required to pay the Class A Required Amount,
then the Collateral Invested Amount will be reduced by the amount of such
excess. In the event that such reduction would cause the Collateral Invested
Amount to be a negative number, the Collateral Invested Amount will be reduced
to zero, and the Class B Invested Amount will be reduced by the amount by which
the Collateral Invested Amount would have been reduced below zero, but not by
more than the excess, if any, of the Class B Investor Default Amount for such
Distribution Date over the amount of such reduction, if any, of the Collateral
Invested Amount with respect to such Distribution Date (a "Class B Investor
Charge-Off"). If the Class B Invested Amount has been reduced by the amount of
any Class B Investor Charge-Offs, it will thereafter be increased on any
Distribution Date (but not by an amount in excess of the aggregate Class B
Investor Charge-Offs) by the amount of Excess Spread and Excess Finance Charges
allocated to Series 1996-E and available for such purpose as described under
"-- Application of Collections -- Excess Spread; Excess Finance Charges."
OPTIONAL REPURCHASE
On the Distribution Date occurring on or after the date that the Investor
Amount is reduced to 5% or less of the Initial Investor Amount, the Sellers will
have the option (to be exercised in their sole discretion) to repurchase the
Certificates. The purchase price of the Certificates and the Collateral Interest
will be equal to the Investor Amount as of the last day of the Monthly Period
preceding the Distribution Date on which such purchase occurs plus accrued and
unpaid interest on the unpaid principal amount of the Certificates plus accrued
and unpaid interest on the Collateral Interest. Following any such repurchase,
the Certificateholders will have no further rights with respect to the
Receivables.
SERIES 1996-E PAY OUT EVENTS AND TRUST PAY OUT EVENTS
The Revolving Period will continue through January 31, 2001 (or such later
date resulting from postponement of the Class A Accumulation Period), unless a
Series 1996-E Pay Out Event or a Trust Pay Out Event occurs prior to such date.
A Series 1996-E Pay Out Event refers to any of the following events,
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which are applicable only to Series 1996-E (although other Series may have
similar or identical pay out events):
(a) failure on the part of the Sellers (i) to make any payment or
deposit on the date required under the Pooling and Servicing Agreement on
or before the date occurring five Business Days after the date such payment
or deposit is required to be made; or (ii) duly to observe or perform in
any material respect any other covenants or agreements of the Sellers in
the Pooling and Servicing Agreement, which failure has a material adverse
effect on the Certificateholders (which determination will be made, for so
long as the Collateral Invested Amount is greater than zero, without
reference to whether any funds are available pursuant to any Series
Enhancement) and continues unremedied for a period of 60 days after written
notice of such failure shall have been given to the Sellers by the Trustee,
or to the Sellers and the Trustee by the holders of Certificates
aggregating not less than 50% of the outstanding principal balance of the
Certificates;
(b) any representation or warranty made by the Sellers in the Pooling
and Servicing Agreement or any information required to be given by the
Servicer on behalf of the Sellers to identify the Accounts proves to have
been incorrect in any material respect when made or delivered and continues
to be incorrect in any material respect for a period of 60 days after
written notice of such failure shall have been given to the Sellers by the
Trustee, or to the Sellers and the Trustee by the holders of Certificates
aggregating not less than 50% of the outstanding principal balance of the
Certificates and as a result the interests of the Certificateholders are
materially and adversely affected (which determination shall be made, for
so long as the Collateral Invested Amount is greater than zero, without
reference to whether any funds are available pursuant to any Series
Enhancement); provided, however, that a Series 1996-E Pay Out Event shall
not be deemed to have occurred with respect to this subparagraph (b) if the
Sellers have accepted reassignment 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 of the Pooling
and Servicing Agreement;
(c) with respect to the end of any Monthly Period (i) with respect to
which the Seller Amount is less than the Required Seller Amount, the
failure of the Sellers to convey on or prior to the tenth Business Day
following the related Determination Date Receivables in Additional Accounts
to the Trust such that the Seller Amount is at least equal to the Required
Seller Amount or (ii) with respect to which the aggregate Principal
Receivables are less than the Required Principal Balance, the failure of
the Sellers to convey on or prior to the tenth Business Day following the
related Determination Date Receivables in Additional Accounts to the Trust
such that the aggregate Principal Receivables are at least equal to the
Required Principal Balance;
(d) the Net Portfolio Yield averaged over three consecutive Monthly
Periods is less than the Base Rate averaged over such period;
(e) any Servicer Default occurs which would have a material adverse
effect on the Certificateholders (which determination shall be made, for so
long as the Collateral Invested Amount is greater than zero, without
reference to whether any funds are available pursuant to any Series
Enhancement); or
(f) the Class A Investor Amount shall not be paid in full on the Class
A Expected Final Distribution Date or the Class B Invested Amount shall not
be paid in full on the Class B Expected Final Distribution Date.
A Trust Pay Out Event refers to any of the following events, which are
applicable to the Certificates and other Series:
(g) an Insolvency Event relating to any Seller;
(h) the Trust becomes an "investment company" within the meaning of
the Investment Company Act; or
(i) the inability of any Seller for any reason to transfer Receivables
to the Trust in accordance with the provisions of the Pooling and Servicing
Agreement.
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In the case of any event described in subparagraphs (a), (b) or (e), a
Series 1996-E Pay Out Event or a Trust Pay Out Event will be deemed to have
occurred only if, after any applicable grace period described in such clauses,
the Trustee or Certificateholders and the Collateral Interest Holder evidencing
undivided interests aggregating not less than 50% of the aggregate unpaid
principal amount of the Certificates and the Collateral Interest, by written
notice to the Sellers and the Servicer (and to the Trustee if given by the
Certificateholders and the Collateral Interest Holder), declare that a Series
1996-E Pay Out Event has occurred with respect to the Certificates and the
Collateral Interest and is continuing as of the date of such notice, and in the
case of any event described in subparagraphs (c), (d), (f), (g), (h) or (i), a
Series 1996-E Pay Out Event or a Trust Pay Out Event will be deemed to have
occurred without any notice or other action on the part of the Trustee, or the
Certificateholders and the Collateral Interest Holder immediately upon the
occurrence of such event. Upon the occurrence of a Series 1996-E Pay Out Event
or a Trust Pay Out Event, the Rapid Amortization Period will commence. In such
event, distributions of principal to the Certificateholders in the priority
provided for above will begin on the first Distribution Date following the month
in which the Series 1996-E Pay Out Event or the Trust Pay Out Event occurred.
If an Insolvency Event occurs with respect to any Seller, the Collateral
Interest, any Cash Collateral Depositor (to the extent of any outstanding loan
amount by such Cash Collateral Depositor pursuant to the Loan Agreement) and the
party that made the deposits into the March Yield Supplement Account, the May
Yield Supplement Account, the June Yield Supplement Account and the September
Yield Supplement Account will each be deemed to be a Class for purposes of
voting on whether to liquidate the Receivables. See "Description of the
Certificates -- Trust Pay Out Events" in the Prospectus.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to the Certificates and the
Collateral Interest with respect to any Distribution Date (the "Monthly
Servicing Fee") will be equal to one-twelfth of the product of (a) 2.00% (the
"Servicing Fee Rate") and (b) the Invested Amount as of the last day of the
Monthly Period preceding such Distribution Date (the amount calculated pursuant
to this clause (b) is referred to as the "Servicing Base Amount"); provided,
however, with respect to the first Distribution Date, the Monthly Servicing Fee
will be $700,000. On the Business Day immediately preceding each Distribution
Date (the "Transfer Date") for which AUS or the Trustee is the Servicer, a
portion of Interchange equal to one-twelfth the product of (i) 1.0% and (ii) the
Servicing Base Amount with respect to the related Monthly Period that is on
deposit in the Collection Account shall be withdrawn from the Collection Account
and paid to the Servicer in payment of a portion of the Monthly Servicing Fee
with respect to such Monthly Period ("Servicer Interchange"). Should the
Servicer Interchange on deposit in the Collection Account on any Transfer Date
with respect to the related Monthly Period be less than one-twelfth of 1.0% of
the Servicing Base Amount as of the last day of such Monthly Period, the Monthly
Servicing Fee with respect to such Monthly Period will not be paid to the extent
of such insufficiency of Servicer Interchange on deposit in the Collection
Account. The Servicer Interchange with respect to the first Transfer Date shall
be equal to $350,000.
The share of the Monthly Servicing Fee allocable to the Class A
Certificateholders with respect to any Distribution Date (the "Class A Servicing
Fee") will be equal to one-twelfth of the product of (a) the Class A Floating
Percentage, (b) the Net Servicing Fee Rate and (c) the Servicing Base Amount;
provided, however, that with respect to the first Distribution Date, the Class A
Servicing Fee will be $151,375. The share of the Monthly Servicing Fee allocable
to the Class B Certificateholders with respect to any Distribution Date (the
"Class B Servicing Fee") will be equal to one-twelfth of the product of (a) the
Class B Floating Percentage, (b) the Net Servicing Fee Rate and (c) the
Servicing Base Amount; provided, however, that with respect to the first
Distribution Date, the Class B Servicing Fee will be equal to $9,625. "Net
Servicing Fee Rate" shall mean (a) so long as AUS is the Servicer, 0.5% per
annum, (b) so long as the Trustee is the Servicer, 1.0% per annum and (c) if AUS
or the Trustee is no longer the Servicer, 2.0% per annum. The Class A Servicing
Fee and the Class B Servicing Fee shall be payable to the Servicer solely to the
extent amounts are available for distribution in respect thereof as described
under "-- Application of Collections -- Payment of Interest, Fees and Other
Items" above.
S-49
<PAGE> 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in the
Pooling and Servicing Agreement and other relevant documents, Orrick, Herrington
& Sutcliffe LLP, special counsel to the Banks ("Special Tax Counsel"), will
deliver its opinion to the effect that the Certificates will properly be treated
as indebtedness for Federal income tax purposes. See "Certain Federal Income Tax
Consequences" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreements relating to the Class A Certificates and the Class B Certificates
(collectively, the "Underwriting Agreement"), the Banks have agreed to sell to
the underwriters named below (the "Class A Underwriters"), and each of the Class
A Underwriters has agreed to purchase from the Banks, the principal amount of
Class A Certificates set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CLASS A
UNDERWRITER CERTIFICATES
--------------------------------------------------------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................ $131,050,000
Salomon Brothers Inc................................................. 131,050,000
J.P. Morgan Securities Inc........................................... 65,500,000
UBS Securities LLC................................................... 65,500,000
Bear, Stearns & Co. Inc.............................................. 19,700,000
Lehman Brothers Inc.................................................. 19,700,000
-------------
Total...................................................... $432,500,000
=============
</TABLE>
The Banks have been advised by the Class A Underwriters that the Class A
Underwriters propose initially to offer the Class A Certificates to the public
at the prices set forth on the cover page of this Prospectus Supplement and to
certain dealers at such price less a concession not in excess of 0.175% of the
principal amount of the Class A Certificates. The Class A Underwriters may allow
and such dealers may reallow a concession not in excess of 0.105% of the
principal amount of the Class A Certificates to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed.
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Banks have agreed to sell to the underwriter named below (the
"Class B Underwriter" and together with the Class A Underwriters, the
"Underwriters") and the Class B Underwriter has agreed to purchase from the
Banks, the principal amount of Class B Certificates set forth opposite its name
below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF CLASS B
UNDERWRITER CERTIFICATES
--------------------------------------------------------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................ $ 27,500,000
</TABLE>
The Banks have been advised by the Class B Underwriter that the Class B
Underwriter proposes initially to offer the Class B Certificates to the public
at the 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 0.225% of the
principal amount of the Class B Certificates. The Class B Underwriter may allow
and such dealers may reallow a concession not in excess of 0.135% of the
principal amount of the Class B Certificates to certain other dealers. After the
initial public offering, the public offering price and such concessions may be
changed.
The Banks have agreed that they will indemnify the Underwriters against
certain liabilities, including liabilities under the Act, or contribute to
payments the Underwriters may be required to make in respect
S-50
<PAGE> 51
thereof. The Underwriters have agreed to reimburse the Banks for certain
expenses of the issuance and distribution of the Certificates.
Each Underwriter has represented and agreed that (a) it has complied and
will comply with all applicable provisions of the Financial Services Act of 1986
and the Public Offers of Securities Regulations 1995 (the "Regulations") with
respect to anything done by it in relation to the Certificates in, from or
otherwise involving the United Kingdom; (b) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it in
connection with the issue of the Certificates if that person is of a kind
described in Article 11(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom such document may
otherwise lawfully be issued or passed on; and (c) it has not offered or sold
and, during the period of six months from the date hereof, will not offer or
sell any Certificates to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing, or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Regulations.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for AUS and ANB by Gene S. Schneyer, Esq., General Counsel of AUS
and as General Counsel of Advanta Corp., the parent company of ANB and in that
capacity as counsel to ANB with respect to the matters described herein, and,
with respect to the Federal tax consequences of such issuance and certain other
legal matters, by special counsel to the Sellers, Orrick, Herrington & Sutcliffe
LLP. Mr. Schneyer owns or has the right to acquire a number of shares of common
stock of Advanta Corp. well below 1% of the outstanding common stock of Advanta
Corp. Certain legal matters relating to the issuance of the Certificates and
ERISA matters will be passed upon for the Underwriters by Orrick, Herrington &
Sutcliffe LLP.
S-51
<PAGE> 52
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Accounts.......................................................................... S-2
Accumulation Period............................................................... S-11
Accumulation Period Length........................................................ S-33
ANB............................................................................... S-2,3
AUS............................................................................... S-2,3
Available Cash Collateral Amount.................................................. S-45
Available Enhancement Amount...................................................... S-9
Available Investor Principal Collections.......................................... S-32
Available Reserve Account Amount.................................................. S-44
Banks............................................................................. S-2,3
Base Rate......................................................................... S-25
Business Day...................................................................... S-7
Cash Collateral Account........................................................... S-9
Cash Collateral Depositor......................................................... S-45
Cede.............................................................................. S-6
Certificate Owner................................................................. S-6
Certificate Owners................................................................ S-2
Certificateholders................................................................ S-3
Certificateholders' Interest...................................................... S-5
Certificates...................................................................... S-1,3
Class A Additional Interest....................................................... S-40
Class A Available Funds........................................................... S-30
Class A Certificateholders........................................................ S-3
Class A Certificates.............................................................. S-1,3
Class A Certificate Rate.......................................................... S-2,5
Class A Accumulation Period....................................................... S-11
Class A Expected Final Distribution Date.......................................... S-25
Class A Floating Percentage....................................................... S-34
Class A Initial Invested Amount................................................... S-4
Class A Invested Amount........................................................... S-4,35
Class A Investor Amount........................................................... S-36
Class A Investor Charge-Off....................................................... S-47
Class A Investor Default Amount................................................... S-46
Class A Monthly Interest.......................................................... S-30
Class A Monthly Principal......................................................... S-32
Class A Principal Percentage...................................................... S-35
Class A Required Amount........................................................... S-7,36
Class A Servicing Fee............................................................. S-49
Class A Underwriters.............................................................. S-50
Class B Additional Interest....................................................... S-40
Class B Available Funds........................................................... S-30
Class B Certificate Rate.......................................................... S-2,5
Class B Certificateholders........................................................ S-3
Class B Certificates.............................................................. S-1,3
Class B Accumulation Period....................................................... S-11
Class B Expected Final Distribution Date.......................................... S-25
Class B Floating Percentage....................................................... S-34
Class B Initial Invested Amount................................................... S-4
Class B Invested Amount........................................................... S-4,35
Class B Investor Amount........................................................... S-36
Class B Investor Charge-Off....................................................... S-47
Class B Investor Default Amount................................................... S-46
Class B Monthly Interest.......................................................... S-30
Class B Monthly Principal......................................................... S-33
Class B Principal Commencement Date............................................... S-42
Class B Principal Percentage...................................................... S-35
</TABLE>
S-52
<PAGE> 53
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Class B Required Amount........................................................... S-8,37
Class B Servicing Fee............................................................. S-49
Class B Underwriter............................................................... S-50
Closing Date...................................................................... S-2,29
Collateral Additional Interest.................................................... S-41
Collateral Available Funds........................................................ S-31
Collateral Default Amount......................................................... S-36
Collateral Floating Percentage.................................................... S-35
Collateral Initial Invested Amount................................................ S-4
Collateral Initial Investor Amount................................................ S-3
Collateral Interest............................................................... S-3
Collateral Interest Holder........................................................ S-6
Collateral Invested Amount........................................................ S-4,36
Collateral Investor Amount........................................................ S-36
Collateral Monthly Interest....................................................... S-31
Collateral Monthly Principal...................................................... S-12,33
Collateral Principal Collections.................................................. S-32
Collateral Rate................................................................... S-31
Controlled Accumulation Amount.................................................... S-33
Controlled Deposit Amount......................................................... S-12
Criteria.......................................................................... S-20
Deficit Controlled Accumulation Amount............................................ S-13,33
Definitive Certificate............................................................ S-6
Designated Maturity............................................................... S-29
Determination Date................................................................ S-25
Distribution Date................................................................. S-2,6
DTC............................................................................... S-6
Enhancement....................................................................... S-9
Enhancement Surplus............................................................... S-12
ERISA............................................................................. S-16
Excess Finance Charges............................................................ S-9
Excess Spread..................................................................... S-7,40
FDIC.............................................................................. S-1,5
Floating Allocation Percentage.................................................... S-34
Funding Period.................................................................... S-10
Group One......................................................................... S-9
Initial Closing Date.............................................................. S-20
Initial Cut Off Date.............................................................. S-20
Initial Invested Amount........................................................... S-4
Interest Period................................................................... S-7
Invested Amount................................................................... S-4,28,36
Invested Principal Collections.................................................... S-32
Investment Company Act............................................................ S-26
Investor Amount................................................................... S-36
Investor Default Amount........................................................... S-46
Investor Interest................................................................. S-3
June Yield Supplement Account..................................................... S-21
LIBOR............................................................................. S-2,5,29
LIBOR Determination Date.......................................................... S-29
Loan Agreement.................................................................... S-31
March Yield Supplement Account.................................................... S-21
Master Pooling and Servicing Agreement............................................ S-3
Master Trust II Sales............................................................. S-19
May Yield Supplement Account...................................................... S-21
Monthly Period.................................................................... S-7
Monthly Servicing Fee............................................................. S-49
Net Portfolio Yield............................................................... S-25
Net Servicing Fee Rate............................................................ S-49
Paired Series..................................................................... S-44
</TABLE>
S-53
<PAGE> 54
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Percentage Allocation............................................................. S-38
Pooling and Servicing Agreement................................................... S-3
Pre-Funded Amount................................................................. S-10
Pre-Funding Account............................................................... S-10
Principal Allocation Percentage................................................... S-35
Principal Funding Account......................................................... S-12,43
Principal Funding Account Balance................................................. S-35
Principal Funding Investment Proceeds............................................. S-13,43
Prior Securitizations............................................................. S-19
Rapid Amortization Period......................................................... S-14
Rating Agencies................................................................... S-16
Rating Agency..................................................................... S-16
Reallocated Principal Collections................................................. S-37
Receivables....................................................................... S-2
Reference Banks................................................................... S-30
Regulations....................................................................... S-51
Relevant Cut Off Date............................................................. S-20
Required Cash Collateral Amount................................................... S-46
Required Enhancement Amount....................................................... S-9,45
Required Reserve Account Amount................................................... S-43
Reserve Account................................................................... S-43
Reserve Account Funding Date...................................................... S-43
Revolving Period.................................................................. S-11
Seller............................................................................ S-3
Seller Amount..................................................................... S-28
Seller Percentage................................................................. S-28
Sellers........................................................................... S-3
Sellers' Interest................................................................. S-4,28
September Yield Supplement Account................................................ S-21
Series............................................................................ S-3
Series 1996-E..................................................................... S-3
Series 1996-E Pay Out Event....................................................... S-25
Series 1996-E Termination Date.................................................... S-15
Series Investor Amount............................................................ S-36
Series Percentage................................................................. S-28
Servicer.......................................................................... S-3
Servicer Interchange.............................................................. S-49
Servicing Base Amount............................................................. S-49
Servicing Fee Rate................................................................ S-49
Shared Principal Collections...................................................... S-45
Special Tax Counsel............................................................... S-50
Subordinate Principal Collections................................................. S-38
Supplement........................................................................ S-3
Telerate Page 3750................................................................ S-30
Total Enhancement................................................................. S-10
Transfer Date..................................................................... S-49
Trust............................................................................. S-1,3
Trust Pay Out Event............................................................... S-26
Trust Portfolio................................................................... S-20
Trustee........................................................................... S-3
Underwriters...................................................................... S-50
Underwriting Agreement............................................................ S-50
</TABLE>
S-54
<PAGE> 55
ANNEX I
OTHER SERIES ISSUED
The Certificates will be the seventeenth Series to be issued by the Trust.
The table below sets forth the principal characteristics of the thirteen other
Series heretofore issued by the Trust and currently outstanding. Such Series are
the Series 1994-B Certificates, the Series 1994-D Certificates, the Series
1995-A Certificates, the Series 1995-B Certificates, the Series 1995-C
Certificates, the Series 1995-D Certificates, the Euro Series 1995-E
Certificates, the Series 1995-F Certificates, the Series 1995-G Certificates,
the Series 1996-A Certificates, the Series 1996-B Certificates, the Series
1996-C Certificates and the Series 1996-D Certificates. Series 1995-B and Euro
Series 1995-E each were issued in an offering exempt from the registration
requirements of the Act. Solely for purposes of this Annex I, "LIBOR" shall mean
London interbank offered quotations for United States dollar deposits determined
as set forth in the related Series Supplements.
<TABLE>
<S> <C>
SERIES 1994-B
Initial Invested Amount................... $450,000,000
Initial Pre-Funded Amount................. $300,000,000
Invested Amount as of September 30, $750,000,000
1996....................................
Class A Certificate Rate.................. One Month LIBOR plus .28% per annum
(capped at 12% per annum)
Class B Certificate Rate.................. One Month LIBOR plus .53% per annum
(capped at 12% per annum)
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $75,000,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1994-B Termination Date..... October 1, 2001
Series Issuance Date...................... July 19, 1994
SERIES 1994-D
Initial Invested Amount................... $600,000,000
Initial Pre-Funded Amount................. $400,000,000
Invested Amount as of September 30, $1,000,000,000
1996....................................
Class A Certificate Rate.................. One Month LIBOR plus .16% per annum
Class B Certificate Rate.................. One Month LIBOR plus .36% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $105,000,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1994-D Termination Date..... September 1, 2000
Series Issuance Date...................... October 11, 1994
</TABLE>
A-1
<PAGE> 56
<TABLE>
<S> <C>
SERIES 1995-A
Initial Invested Amount................... $600,000,000
Initial Pre-Funded Amount................. $100,000,000
Invested Amount as of September 30, $700,000,000
1996....................................
Class A Certificate Rate.................. One Month LIBOR plus .180% per annum
Class B Certificate Rate.................. One Month LIBOR plus .375% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $73,500,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1995-A Termination Date..... January 1, 2003
Series Issuance Date...................... January 18, 1995
SERIES 1995-B
Maximum Certificate Investor Amount....... $400,000,000
Investor Amount as of September 30, $18,000,000
1996....................................
Certificate Rate.......................... Commercial Paper Index
Initial Enhancement Amount................ $41,000,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1995-B Termination Date..... November 1, 1999 (extendible)
Series Issuance Date...................... March 22, 1995
SERIES 1995-C
Initial Invested Amount................... $375,000,000
Initial Pre-Funded Amount................. $200,000,000
Investor Amount as of September 30, $575,000,000
1996....................................
Class A Certificate Rate.................. Three Month LIBOR plus .20% per annum
Class B Certificate Rate.................. Three Month LIBOR plus .34% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $60,375,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1995-C Termination Date..... January 1, 2005
Series Issuance Date...................... April 27, 1995
SERIES 1995-D
Initial Invested Amount................... $450,000,000
Initial Pre-Funded Amount................. $150,000,000
Investor Amount as of September 30, $600,000,000
1996....................................
Class A Certificate Rate.................. One Month LIBOR plus .19% per annum
Class B Certificate Rate.................. One Month LIBOR plus .32% per annum
Initial Enhancement Amount................ $63,000,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1995-D Termination Date..... February 1, 2004
Series Issuance Date...................... July 25, 1995
</TABLE>
A-2
<PAGE> 57
<TABLE>
<S> <C>
EURO SERIES 1995-E
Initial Invested Amount................... $275,000,000
Initial Pre-Funded Amount................. $25,000,000
Investor Amount as of September 30, $300,000,000
1996....................................
Class A Certificate Rate.................. Three Month LIBOR plus .09% per annum
Class B Certificate Rate.................. Three Month LIBOR plus .21% per annum
Initial Enhancement Amount................ $31,500,000
Series Servicing Fee Rate................. 2% per annum
Stated Series 1995-E Termination Date..... December 15, 2000
Series Issuance Date...................... September 6, 1995
SERIES 1995-F
Initial Invested Amount................... $750,000,000
Initial Pre-Funded Amount................. $100,000,000
Investor Amount as of September 30, $850,000,000
1996....................................
Class A-1 Certificate Rate................ 6.05% per annum
Class A-2 Certificate Rate................ One Month LIBOR plus .19% per annum
Class B Certificate Rate.................. One Month LIBOR plus .30% per annum
Initial Enhancement Amount................ $65,875,000
Series Servicing Fee Rate................. 2% per annum
Series 1995-F Termination Date............ August 1, 2003
Series Issuance Date...................... November 21, 1995
SERIES 1995-G
Initial Invested Amount................... $500,000,000
Investor Amount as of September 30, $500,000,000
1996....................................
Class A Certificate Rate.................. One Month LIBOR plus .14% per annum
Class B Certificate Rate.................. One Month LIBOR plus .29% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $50,000,000
Series Servicing Fee Rate................. 2% per annum
Series 1995-G Termination Date............ June 2002 Distribution Date
Series Issuance Date...................... December 15, 1995
SERIES 1996-A
Initial Invested Amount................... $400,000,000
Initial Pre-Funded Amount................. $100,000,000
Investor Amount as of September 30, $500,000,000
1996....................................
Class A-1 Certificate Rate................ 6.0% per annum
Class A-2 Certificate Rate................ One Month LIBOR plus .23% per annum
Class B Certificate Rate.................. One Month LIBOR plus .35% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $43,750,000
Series Servicing Fee Rate................. 2% per annum
Series 1996-A Termination Date............ November 2005 Distribution Date
Series Issuance Date...................... January 18, 1996
</TABLE>
A-3
<PAGE> 58
<TABLE>
<S> <C>
SERIES 1996-B
Initial Invested Amount................... $750,000,000
Investor Amount as of September 30, $750,000,000
1996....................................
Class A Certificate Rate.................. Three Month LIBOR plus .230% per annum
Class B Certificate Rate.................. Three Month LIBOR plus .375% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $75,000,000
Series Servicing Fee Rate................. 2% per annum
Series 1996-B Termination Date............ January 2007 Distribution Date
Series Issuance Date...................... March 26, 1996
SERIES 1996-C
Initial Invested Amount................... $700,000,000
Investor Amount as of September 30, $700,000,000
1996....................................
Class A Certificate Rate.................. Three Month LIBOR plus .120% per annum
Class B Certificate Rate.................. Three Month LIBOR plus .250% per annum
Collateral Rate........................... No higher than Three Month LIBOR plus
1.00% per annum
Initial Enhancement Amount................ $70,000,000
Series Servicing Fee Rate................. 2% per annum
Series 1996-C Termination Date............ November 2003 Distribution Date
Series Issuance Date...................... May 13, 1996
SERIES 1996-D
Initial Invested Amount................... $575,000,000
Initial Pre-Funded Amount................. $125,000,000
Investor Amount as of September 30, $700,000,000
1996....................................
Class A Certificate Rate.................. One Month LIBOR plus .15% per annum
Class B Certificate Rate.................. One Month LIBOR plus .30% per annum
Collateral Rate........................... No higher than One Month LIBOR plus 1.00%
per annum
Initial Enhancement Amount................ $70,000,000
Series Servicing Fee Rate................. 2% per annum
Series 1996-D Termination Date............ June 2005 Distribution Date
Series Issuance Date...................... June 18, 1996
</TABLE>
A-4
<PAGE> 59
ANNEX II
RECEIVABLES IN ADDITIONAL ACCOUNTS
CONVEYED TO THE TRUST BY THE BANKS
<TABLE>
<CAPTION>
NUMBER OF RECEIVABLES IN
ASSIGNMENT DATE RECEIVABLES RELEVANT ADDITIONAL ADDITIONAL
NUMBER TRANSFERRED TO TRUST CUT OFF DATE ACCOUNTS(1) ACCOUNTS(1)
- ---------- -------------------- -------------------- --------- --------------
<C> <S> <C> <C> <C>
1 May 16, 1994 March 31, 1994 276,371 $ 367,091,261
2 July 1, 1994 May 31, 1994 157,629 $ 202,859,562
3 August 17, 1994 July 31, 1994 226,342 $ 351,961,171
4 September 23, 1994 August 31, 1994 192,815 $ 299,924,106
5 November 18, 1994 October 31, 1994 332,866 $ 406,625,727
6 January 6, 1995 November 30, 1994 217,320 $ 316,458,944
7 March 15, 1995 February 28, 1995 291,057 $ 348,693,399
8 April 18, 1995 March 31, 1995 143,714 $ 168,739,171
9 May 23, 1995 April 30, 1995 98,330 $ 137,485,579
10 July 18, 1995 June 30, 1995 322,271 $ 432,984,240
11 August 15, 1995 July 31, 1995 126,338 $ 188,302,827
12 August 31, 1995 August 11, 1995 67,968 $ 94,548,321
13 November 21, 1995 October 25, 1995 285,122 $ 491,863,655
14 December 15, 1995 November 26, 1995 265,376 $ 369,389,253
15 January 18, 1996 December 26, 1995 182,985 $ 330,263,251
16 February 19, 1996 January 31, 1996 269,467 $ 560,543,656
17 March 26, 1996 February 29, 1996 150,460 $ 330,531,723
18 May 1, 1996 March 31, 1996 68,056 $ 251,797,517
19 May 13, 1996 March 31, 1996 219,150 $ 499,241,938
20 June 18, 1996 April 30, 1996 244,770 $ 636,632,670
21 June 30, 1996 May 31, 1996 73,771 $ 200,155,226
22 September 1, 1996 July 31, 1996 217,130 $ 640,152,919
23 Closing Date September 30, 1996 151,051 $ 500,113,079
</TABLE>
- ---------------
(1) The amounts shown are as of the Relevant Cut Off Date.
<PAGE> 60
PROSPECTUS
ADVANTA CREDIT CARD MASTER TRUST II
ASSET BACKED SECURITIES, ISSUABLE IN SERIES
ADVANTA NATIONAL BANK USA
SELLER AND SERVICER
ADVANTA NATIONAL BANK
SELLER
This Prospectus relates to certain Asset Backed Securities (the "Certificates")
which may be issued from time to time by ADVANTA Credit Card Master Trust II
(the "Trust") in one or more series (each a "Series"). The Trust was formed
pursuant to a pooling and servicing agreement between Advanta National Bank USA
(formerly known as Colonial National Bank USA) ("AUS") and Bankers Trust
Company, as Trustee. The property of the Trust includes and will include a
portfolio of VISA(R) and MasterCard(R) credit card receivables or other consumer
revolving credit card receivables (the "Receivables") generated from time to
time in the ordinary course of business in a portfolio of consumer revolving
credit card accounts (the "Accounts") owned by AUS and Advanta National Bank
("ANB" and, together with AUS, the "Banks"), certain participation interests in
other pooled assets and all monies due in payment of the Receivables and certain
other property, as more fully described herein and, with respect to any Series,
in the related Prospectus Supplement.
The Certificates will be offered from time to time under this Prospectus on
terms determined for each Series at the time of the sale and as described in the
related Prospectus Supplement. Each Series will consist of one or more Classes,
one or more of which may be fixed rate Certificates, floating rate Certificates
or other type of Certificates as specified in the related Prospectus Supplement.
Payments of interest on each Class will be made on each Distribution Date
specified in the related Prospectus Supplement. Principal payments on each Class
will be made as specified in the related Prospectus Supplement. Any Series may
include one or more Classes which are subordinated in right and priority to the
extent described in the related Prospectus Supplement to payment of principal or
interest to one or more other Classes of such Series.
Each Certificate will represent an undivided interest in the Trust and each
Certificateholder will be entitled to receive a varying percentage of each
month's collections with respect to the Receivables at the times and in the
manner described herein and, with respect to any Series, in the related
Prospectus Supplement. One or more Classes of a Series may be entitled to the
benefits of a cash collateral guaranty or account, letter of credit, surety
bond, insurance policy or other form of enhancement as specified in the
Prospectus Supplement relating to such Series.
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST AND WILL NOT REPRESENT
INTERESTS IN OR RECOURSE OBLIGATIONS OF ADVANTA CORP., ADVANTA NATIONAL BANK
USA, ADVANTA NATIONAL BANK OR ANY AFFILIATE THEREOF. A CERTIFICATE IS NOT A
DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC"). THE RECEIVABLES ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" COMMENCING ON PAGE 14 HEREIN.
The Certificates offered by this Prospectus and by the related Prospectus
Supplement are offered by the underwriters, if any, subject to prior sale, to
withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by the underwriters, if any, and certain further
conditions. Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of the securities offered hereby unless accompanied
by a Prospectus Supplement.
October 22, 1996
<PAGE> 61
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT................. 2
REPORTS TO CERTIFICATEHOLDERS......... 2
AVAILABLE INFORMATION................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE........................... 2
SUMMARY OF TERMS...................... 3
RISK FACTORS.......................... 14
FORMATION OF THE TRUST................ 18
THE BANKS' CREDIT CARD ACTIVITIES..... 18
General............................. 18
Acquisition and Use of Credit
Cards............................ 18
Billing and Payments................ 20
Description of FDR.................. 20
Delinquencies....................... 20
Interchange......................... 21
Competition......................... 21
USE OF PROCEEDS....................... 21
THE BANKS AND ADVANTA CORP. .......... 22
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES......................... 22
Transfer of Receivables............. 22
Certain Matters Relating to
Receivership..................... 23
Consumer Protection Laws............ 23
DESCRIPTION OF THE CERTIFICATES....... 24
General............................. 24
Book-Entry Registration............. 26
Definitive Certificates............. 28
The Bank Certificate; Additional
Sellers.......................... 29
Interest Payments................... 30
Principal Payments.................. 30
Shared Principal Collections........ 31
Sharing of Excess Finance Charge
Collections...................... 31
Companion Series.................... 31
Groups.............................. 31
New Issuances....................... 31
Transfer and Assignment of
Receivables...................... 32
Liquidation of Receivables.......... 33
Representations, Warranties and
Covenants........................ 33
Addition of Accounts................ 38
Automatic Account Additions......... 39
Removal of Accounts................. 40
Servicing Procedures................ 41
Discount Option..................... 41
Trust Accounts...................... 42
<CAPTION>
PAGE
----
<S> <C>
Series Percentage and Seller
Percentage....................... 43
Application of Collections.......... 43
Operation of Excess Funding
Account.......................... 43
Defaulted Receivables; Rebates and
Fraudulent Charges............... 43
Final Payment of Principal and
Interest; Termination............ 44
Trust Pay Out Events................ 44
Servicing Compensation and Payment
of Expenses...................... 46
Certain Matters Regarding the
Servicer......................... 46
Indemnification..................... 47
Servicer Default.................... 48
Reports to Certificateholders....... 49
Evidence as to Compliance........... 50
Amendments.......................... 50
Defeasance.......................... 51
List of Certificateholders.......... 51
The Trustee......................... 51
ENHANCEMENT........................... 52
General............................. 52
Subordination....................... 52
Letter of Credit.................... 52
Cash Collateral Guaranty or
Account.......................... 53
Collateral Interest................. 53
Surety Bond or Insurance Policy..... 53
Spread Account...................... 53
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ 53
General............................. 53
Treatment of the Certificates as
Debt............................. 54
Treatment of the Trust.............. 54
Taxation of Interest Income of U.S.
Certificate Owners............... 56
Sale or Exchange of Certificates.... 56
Non-U.S. Certificate Owners......... 57
Information Reporting and Backup
Withholding...................... 57
State and Local Taxation............ 58
ERISA CONSIDERATIONS.................. 58
PLAN OF DISTRIBUTION.................. 61
UNDERWRITING.......................... 61
LEGAL MATTERS......................... 61
INDEX OF PRINCIPAL TERMS.............. 62
ANNEX I: GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES.... A-1
</TABLE>
<PAGE> 62
PROSPECTUS SUPPLEMENT
Prospectus Supplement relating to a Series to be offered thereby and hereby
will, among other things, set forth with respect to such Series: (a) the initial
aggregate principal amount, the certificate interest rate (or method for
determining it) and authorized denominations of each Class of such Series; (b)
certain information concerning the Receivables and other property, if any,
allocated for such Series; (c) the expected date or dates on which the principal
amount of the Certificates will be paid to Certificateholders; (d) the extent to
which any Class within a Series is subordinated to any other Class of such
Series or any other Series; (e) the 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; (f) the Distribution Dates for the
respective Classes; (g) relevant financial information with respect to the
Receivables and other property, if any; (h) additional information with respect
to any Series Enhancement, guaranteed investment contract or other agreement
relating to such Series; (i) the plan of distribution of such Series; and (j)
whether the Certificates are to be issuable in registered or book-entry form.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Certificates, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates -- Book Entry Registration," "-- Reports to
Certificateholders" and "-- Evidence as to Compliance." Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Banks do not intend to send any of their financial
reports to Certificateholders. 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
The Banks, as originators of the assets of the Trust, have 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, Suite 1300, New York, New York 10048; and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement and amendments thereof and exhibits thereto may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer with respect to 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). Written requests for such copies
should be directed to the Servicer at Welsh and McKean Roads, P.O. Box 844,
Springhouse, Pennsylvania 19477-0844. Telephone requests for such copies should
be directed to the Servicer at (215) 444-5000.
2
<PAGE> 63
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the Prospectus
Supplement with respect to the Series offered thereby, and to the Pooling and
Servicing Agreement and the Series Supplement with respect to such Series (the
"Series Supplement") among AUS, as Seller and Servicer, ANB, as Seller, and
Bankers Trust Company (or another bank or trust company qualified under the
Pooling and Servicing Agreement and named in the Prospectus Supplement for the
related Series), as Trustee (collectively, the Pooling and Servicing Agreement
and any Series Supplement are sometimes referred to as the "Pooling and
Servicing Agreement"). Certain capitalized terms used herein are defined
elsewhere in this Prospectus. A listing of the pages on which some of such terms
are defined is found in the "Index of Principal Terms." Other Series which may
be 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 will, unless the context otherwise requires,
only be made in the context of such other Series.
TRUST......................... The ADVANTA Credit Card Master Trust II (the
"Trust") was formed pursuant to a pooling and
servicing agreement dated as of December 1,
1993, as amended and restated on May 23,
1994, and as amended by Amendment Number 1
dated as of July 1, 1995, between Advanta
National Bank USA (formerly known as Colonial
National Bank USA) ("AUS"), as transferor of
interests in certain receivables to the Trust
(in such capacity, a "Seller"), and as
servicer (in such capacity, the "Servicer"),
and Bankers Trust Company, as trustee (the
"Trustee"), as further amended by Amendment
Number 2 dated as of October 6, 1995 among
AUS, as Seller and Servicer, Advanta National
Bank ("ANB" and, together with AUS, the
"Banks"), as transferor of interests in
certain receivables to the Trust (in such
capacity, a "Seller" and, together with AUS,
the "Sellers") and the Trustee (the "Pooling
and Servicing Agreement"). The Trust assets
include and will include a portfolio of
receivables (the "Receivables") arising under
selected MasterCard and VISA* credit card
accounts or other consumer revolving credit
card accounts (the "Accounts") in portfolios
of consumer revolving credit card accounts
originated by either the Banks or affiliates
of the Banks (the "Advanta Consumer Credit
Card Portfolio"), all monies due or to become
due and all amounts received with respect
thereto, all proceeds of the Receivables, the
right to receive certain Interchange
attributed to cardholder charges for
merchandise and services in the Accounts,
certain amounts recovered from Accounts in
which the Receivables have been written off
as uncollectible, proceeds of credit
insurance policies relating to the
Receivables, all monies on deposit in certain
bank accounts of the Trust and the benefits
of any type of enhancement ("Series
Enhancement") issued with respect to any
Series (the drawing on or payment of such
Series Enhancement being available only to
Certificateholders of a specified Series or
Class unless otherwise indicated in the
related Prospectus Supplement). The Trust
assets may also include participations
(including 100% participations) representing
undivided interests in a
- ---------------
* MasterCard and VISA are registered trademarks of MasterCard International
Incorporated and VISA USA, Inc., respectively.
3
<PAGE> 64
pool of assets primarily consisting of
revolving credit card receivables or consumer
loan receivables (secured and unsecured), and
any interests in both such types of
receivables, including securities
representing or backed by both such types of
receivables, and other self-liquidating
financial assets owned by a Seller or any
affiliate of any Seller and collections
thereon (collectively, "Participation
Interests"). AUS as Seller conveyed to the
Trust all Receivables existing under certain
designated Accounts at the time of the
formation of the Trust and all Receivables
arising under such Accounts from time to time
thereafter. In addition, the Banks have
conveyed and the Banks may convey in the
future all Receivables existing under certain
designated Additional Accounts (including
Automatic Additional Accounts) and all
Receivables thereafter arising in such
Additional Accounts.
SECURITIES OFFERED............ The investor certificates issued by the Trust,
including any investor certificates offered
pursuant to this Prospectus and any
Prospectus Supplement (the "Certificates"),
represent undivided interests in the Trust,
which, with respect to each Series, shall
consist of the right to receive, to the
extent necessary to make the required
payments with respect to the Certificates of
such Series at the times and in the amounts
specified in the related Series Supplement,
the portion of collections allocable to
Certificateholders of such Series pursuant to
the Pooling and Servicing Agreement and the
related Series Supplement, funds on deposit
in the Collection Account and the Excess
Funding Account allocable to
Certificateholders of such Series pursuant to
the Pooling and Servicing Agreement and the
related Series Supplement, funds on deposit
in any deposit, trust, escrow or similar
account maintained for the benefit of such
Series or any Class of such Series (each, a
"Series Account") and funds available
pursuant to any related Series Enhancement
(collectively, with respect to all Series,
the "Certificateholders' Interest"), it being
understood that the Certificates of any
Series or Class shall not represent any
interest in any Series Account or Series
Enhancement for the benefit of any other
Series or Class. The Certificates may be
issued from time to time pursuant to the
Pooling and Servicing Agreement and a related
Series Supplement. Each Series will consist
of one or more classes (each a "Class"), one
or more of which may be Classes of fixed rate
Certificates or floating rate Certificates or
other types of Certificates. Each Class may
differ in, among other things, the priority
of principal payments, the maturity date,
distribution dates and rate of interest.
Additionally, the Certificates of one or more
Classes may be subordinated to the
Certificates of one or more other Classes
with respect to the right to receive payments
of principal, interest, or both under the
circumstances and in such amounts as
described herein and in the related
Prospectus Supplement. The term
"Certificateholders" refers to holders of the
Certificates, and the term "Series" refers to
any series of Certificates issued by the
Trust. See "Description of the Certificates."
4
<PAGE> 65
Unless otherwise specified in the related
Prospectus Supplement, the Certificates of a
Series will be available for purchase in
minimum denominations of $1,000 and in
integral multiples of $1,000 in excess
thereof and will be available only in book-
entry form, except in certain limited
circumstances. The Trust assets will be
allocated among the Certificateholders'
Interest of each Series, including certain
providers of Series Enhancement holding
uncertificated subordinated interests, and
the interest of the holders of the Seller
Certificates (the "Sellers' Interest"). The
Sellers' Interest represents the right to the
assets of the Trust not allocated to the
Certificateholders' Interest. The term
"Seller Amount" refers to, at any time of
determination, an amount equal to the sum of
(a) the aggregate amount of principal
Receivables in the Trust at such time and (b)
the principal amount on deposit in the Excess
Funding Account at such time, minus the sum
of the amount of Principal Receivables and
the amount on deposit in the Excess Funding
Account allocated to each Series then
outstanding (for each Series, its "Invested
Amount"). The Seller Amount will fluctuate as
the amount of Principal Receivables in the
Trust changes from time to time. The term
"Investor Amount" for a Series will be set
forth in the Series Supplement for such
Series and, for a Series offered hereby, the
related Prospectus Supplement, and generally
refers to the principal amount of the
Certificateholders' Interest in the assets of
the Trust.
The Certificates of a Class offered hereby and
pursuant to a Prospectus Supplement will
represent the right to receive from the
assets of the Trust allocated to the
applicable Series funds up to (but not in
excess of) the amounts required to make
payments of interest on the Certificates of
such Class at the rate specified in the
related Prospectus Supplement, and payments
of principal during any related Amortization
Period to the extent specified in the related
Prospectus Supplement.
Each Class of Certificates will include the
right to receive (but only to the extent
needed to make required payments under the
Pooling and Servicing Agreement) varying
percentages of collections of Finance Charge
Receivables and Principal Receivables for the
related Monthly Period. During the Revolving
Period relating to such Class, subject to
certain limitations, collections of Principal
Receivables allocable to the Certificates of
such Class will generally be allocated and
paid to the holders of the Seller
Certificates or to other Series. During any
Amortization Period relating to such Class,
collections of Principal Receivables will be
allocated to such Class as provided herein
and in the related Prospectus Supplement.
The Certificates of each Series represent the
right to receive payments from the Trust only
and do not represent interests in or recourse
obligations of Advanta Corp., the Banks or
any affiliate thereof. None of the
Certificates, the Accounts, the Receivables
or the Participations are insured or
guaranteed by the Federal Deposit Insurance
Corporation (the "FDIC") or any other
governmental agency or instrumentality.
5
<PAGE> 66
NEW ISSUANCES................. The Pooling and Servicing Agreement authorizes
the Trustee to issue three types of
certificates: (i) one or more Series of
Certificates which will be transferable and
have the characteristics described below,
(ii) a Bank Certificate, evidencing the
Banks' interest as Sellers (the "Bank
Certificate"), which will initially be held
by the Banks and which is transferable in
certain circumstances to members of the
affiliated group of which Advanta Corp. is
the common parent and (iii) Supplemental
Certificates delivered in exchange for a
portion of the Bank Certificate under certain
circumstances described in the Pooling and
Servicing Agreement (each, a "Supplemental
Certificate", and, together with the Bank
Certificate, the "Seller Certificates").
A new issuance of Certificates (a "New
Issuance") may occur only upon satisfaction
of the following conditions: (i) on or before
the fifth day immediately preceding the date
of such New Issuance, the Sellers shall have
given notice of such issuance and its date to
the Trustee and the Servicer; and on or
before the tenth day immediately preceding
the date of such New Issuance, the Sellers
shall have given each Rating Agency notice of
such issuance and (ii) the Sellers shall have
delivered to the Trustee (a) the related
Series Supplement specifying the Principal
Terms of the new Series, (b) any agreement
relating to the Series Enhancement, (c)
written confirmation from each Rating Agency
that the New Issuance will not result in the
Rating Agency reducing or withdrawing its
rating of any outstanding Series or Class
(the "Rating Agency Condition"), (d) an
officer's certificate from each Seller
stating that such Seller reasonably believes
that such New Issuance will not cause a Pay
Out Event to occur with respect to any
Series, and (e) if any Series of Certificates
are outstanding that were characterized as
debt at the time of their issuance, an
opinion of counsel to the effect that, for
Federal tax purposes, the New Issuance will
not adversely affect the tax characterization
of Certificates of any outstanding Series or
Class that were characterized as debt at the
time of their issuance, that the Trust will
not be deemed to be an association (or
publicly traded partnership) taxable as a
corporation and that such New Issuance will
not cause an event in which gain or loss
would be recognized by any Certificateholder
or the Trust (a "Tax Opinion"). The Sellers
may offer a Series to the public or other
investors under a prospectus or other
disclosure document (a "Disclosure Document")
in transactions either registered under the
Act or exempt from registration thereunder,
directly or through one or more underwriters
or placement agents, in fixed-price offerings
or in negotiated transactions or otherwise.
RECEIVABLES................... The Receivables arise in Accounts that have
been selected from the Advanta Consumer
Credit Card Portfolio, based on criteria
provided in the Pooling and Servicing
Agreement as applied on the close of business
on October 31, 1993 with respect to initial
Accounts the Receivables of which were
conveyed to the Trust on December 9, 1993
(the "Initial Accounts") or, with respect to
Additional Accounts or Participation
Interests
6
<PAGE> 67
to be included in the Trust, the date
specified in the related assignment of such
Additional Accounts or Participation
Interests to the Trust (each, a "Related Cut
Off Date"). The Receivables consist of
amounts charged by cardholders for
merchandise and services and cash advances
(collectively, the "Principal Receivables"),
plus the related periodic finance charges,
annual membership fees and annual service
charges, late fees, overlimit fees, cash
advance fees, all other fees and charges with
respect to Accounts designated by the Sellers
to be included as Finance Charge Receivables
and net recovery amounts ("Recoveries") with
respect to Defaulted Receivables
(collectively, the "Finance Charge
Receivables"); provided, however, that if the
Sellers exercise the discount option, an
amount equal to the product of the Discount
Percentage and the amount of all or any
specified portion of Principal Receivables
created after the effective date of such
option will be treated as Discount Option
Receivables and added to Finance Charge
Receivables. See "Description of the
Certificates -- Discount Option." In
addition, certain Interchange (as described
in the Series Supplements) attributed to
cardholder charges for merchandise and
services will be treated as collections of
Finance Charge Receivables for purposes of
the Pooling and Servicing Agreement. All new
Receivables arising in such Accounts will be
conveyed to the Trust, except as described
herein, but will not affect the amount of the
initial Investor Amount of a Series. The
total amount of Receivables will fluctuate
from day to day, because the amount of new
Receivables arising in the Accounts and the
amount of payments collected on existing
Receivables will usually differ each day.
Because the Sellers' Interest represents the
interest in the Principal Receivables not
represented by the Certificates of any
Series, the amount of the Sellers' Interest
in Principal Receivables will fluctuate daily
as Receivables are collected and new
Receivables are conveyed to the Trust. See
"The Receivables" in the Prospectus
Supplement.
REGISTRATION OF
CERTIFICATES................ 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 &
Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No person
acquiring a beneficial interest in the
Certificates of a Series (a "Certificate
Owner") will be entitled to receive a
definitive certificate representing such
person's interest (a "Definitive
Certificate"), except in the event that
Definitive Certificates of such Series are
issued under the limited circumstances
described herein and in the related
Prospectus Supplement. See "Description of
the Certificates -- Definitive Certificates."
CLEARANCE AND SETTLEMENT...... Unless otherwise provided in the related
Prospectus Supplement, Certificate Owners of
each Series offered hereby may elect to hold
their Certificates through any of (i) DTC (in
the United States) or (ii) Cedel or Euroclear
(in Europe). Transfers within DTC, Cedel or
Euroclear, as the case may be, will be made
in accordance with the usual rules and
operating
7
<PAGE> 68
procedures of the relevant system.
Cross-market transfers between persons
holding directly or indirectly through DTC,
on the one hand, and counterparties holding
directly or indirectly through Cedel or
Euroclear, on the other, will be effected in
DTC through the relevant Depositaries of
Cedel or Euroclear. See "Description of the
Certificates -- Book-Entry Registration."
SERVICER...................... Advanta National Bank USA. The principal
executive offices of the Bank are located at
Brandywine Corporate Center, 650 Naamans
Road, Claymont, Delaware 19703.
SELLERS....................... The Banks are the Sellers. Subject to certain
conditions described herein under
"Description of the Certificates -- The Bank
Certificate; Additional Sellers," AUS may
designate one or more affiliates to transfer
all right, title and interest in Receivables
or Participation Interests to the Trust from
time-to-time. Any such Additional Sellers
will generally have the same rights and
obligations as those of the Sellers described
herein.
COLLECTIONS................... All collections of Receivables and
Participation Interests, if any, will be
allocated by the Servicer between amounts
collected on Principal Receivables and
amounts collected on Finance Charge
Receivables. All such amounts will then be
allocated in accordance with the respective
interests of the Certificateholders of each
Class of each Series as described in the
related Prospectus Supplement. The Servicer
will deposit all collections of Receivables
and Participation Interests, if any,
distributable to Certificateholders in an
eligible account established for such purpose
(the "Collection Account") no later than the
day prior to the applicable Distribution
Date. The "Distribution Date" for a Series
will be the fifteenth day of each month (or,
if such day is not a business day, the next
business day) or such other date specified in
the Series Supplement for a Series. See
"Description of the Certificates -- Series
Percentage and Seller Percentage" herein and
"Description of the
Certificates -- Allocation Percentages" in
the Prospectus Supplement.
INTEREST...................... Interest on the Certificates for each Interest
Period with respect to a Series will be
distributed as set forth in the related
Prospectus Supplement. Interest payments in
respect of a Series will generally be funded
from the portion of Finance Charge
Receivables collected during the related
Monthly Period allocable to such Series and,
if necessary and if specified in the related
Prospectus Supplement, from any Series
Enhancement available for such Series. The
terms "Interest Period" and "Monthly Period"
have the meanings specified in the Prospectus
Supplement relating to each Series. See
"Description of the Certificates -- Interest
Payments" and "Risk Factors -- Payments and
Maturity."
REVOLVING PERIOD.............. During the period from the closing date with
respect to a Series (the "Relevant Closing
Date") and ending on the day immediately
preceding the commencement of an Amortization
Period with respect to such Series (the
"Revolving Period"), collections of Principal
Receivables allocated to the Certificates of
such Series will be paid from the Trust to
the holders
8
<PAGE> 69
of the Seller Certificates, to other Series
or deposited in the Excess Funding Account
(except in certain limited circumstances).
AMORTIZATION PERIODS;
PRINCIPAL PAYMENTS.......... Unless otherwise specified in the Prospectus
Supplement relating to any Class, at the end
of any Revolving Period for a Class,
collections of Principal Receivables that had
been allocated to Certificateholders of such
Class but had been paid to the holders of the
Seller Certificates, to other Series or
deposited in the Excess Funding Account shall
instead be either paid directly to such
Certificateholders or accumulated for payment
to such Certificateholders, in each case as
specified in the Prospectus Supplement
relating to such Class. The Revolving Period
for a Series shall end and an amortization
period shall commence either upon the
occurrence of a Pay Out Event with respect to
such Series (a "Rapid Amortization Period")
or at a scheduled date (a "Scheduled
Amortization Date") set forth in the
Prospectus Supplement applicable to such
Series (a "Controlled Amortization Period",
"Limited Amortization Period", "Principal
Amortization Period", "Optional Amortization
Period", "Accumulation Period" or other like
period, collectively referred to herein as an
"Amortization Period", in each case as
described in the related Prospectus
Supplement). In the event of a Rapid
Amortization Period, collections of Principal
Receivables allocated to Certificateholders
will generally be paid directly to such
Certificateholders, subject to any
subordination provisions specified in the
related Prospectus Supplement. See
"Description of the Certificates -- Trust Pay
Out Events" for a discussion of the events
which might lead to a Rapid Amortization
Period with respect to all Series
outstanding. In the event of another
Amortization Period with respect to a Class,
collections of Principal Receivables will
either be paid directly to Certificateholders
in specified amounts on a monthly or other
periodic basis or accumulated in a Series
Account for the benefit of Certificateholders
or otherwise applied, in each case as set
forth in the Prospectus Supplement relating
to such Class.
Funds on deposit in the Collection Account
shall at the direction of the Servicer be
invested by the Trustee in Eligible
Investments selected by the Servicer.
SHARED PRINCIPAL
COLLECTIONS................. On each Distribution Date, (a) the Servicer
shall allocate Shared Principal Collections
to each Series entitled thereto (each, a
"Principal Sharing Series"), pro rata, in
proportion to the Principal Shortfalls, if
any, with respect to each such Series and (b)
the Servicer shall withdraw from the
Collection Account and pay to the holders of
the Seller Certificates an amount equal to
the excess, if any, of (x) the aggregate
amount for all outstanding Series of
collections of Principal Receivables which
the related Series Supplements specify are to
be treated as "Shared Principal Collections"
for such Distribution Date over (y) the
aggregate amount for all outstanding
Principal Sharing Series which the related
Series Supplements specify are "Principal
Shortfalls" for such Distribution Date;
provided, however, that if on any
Distribution Date the Seller Amount is less
than or equal to the Required
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Seller Amount, the Servicer will not
distribute to the holders of the Seller
Certificates any Shared Principal Collections
that otherwise would be distributed to the
holders of the Seller Certificates, but shall
deposit such funds in the Excess Funding
Account.
SHARING OF EXCESS COLLECTIONS
OF FINANCE CHARGE
RECEIVABLES................. Collections of Finance Charge Receivables
allocable to any Class in excess of the
amounts necessary to make required payments
with respect to such Class may, if specified
in the related Series Supplement, be applied
to cover shortfalls, if any, with respect to
amounts payable from collections of Finance
Charge Receivables allocable to any other
Class or Series then outstanding, pro rata
based upon the amount of the shortfall as
provided in the related Series Supplement.
COMPANION SERIES.............. If specified in the Prospectus Supplement
relating to a Series, such Series may be
paired with another Series (each, a
"Companion Series"), such that a reduction in
the Invested Amount of one such Series
results in an increase in the Invested Amount
of the other such Series.
GROUPS........................ If specified in the Prospectus Supplements
relating to any group of Series (each, a
"Group"), such Series may be allocated all
collections with respect to certain portions
of the Receivables and any Participation
Interests, provided that the Rating Agency
Condition is satisfied and that such grouping
will not result in the occurrence of a Pay
Out Event with respect to any Series or
materially adversely affect the amount or
timing of distributions to be made to any
Series or Class (an "Adverse Effect").
ENHANCEMENT................... Enhancement with respect to one or more Classes
of a Series ("Series Enhancement") may be
provided in the form of subordination, a
letter of credit, a cash collateral guaranty,
a cash collateral account, a collateral
interest, a surety bond, insurance policy or
other form of support or any combination of
the above as specified in the related
Prospectus Supplement. Series Enhancement may
also be provided to a Class or Classes of
different Series by a cross-support feature
which requires that distributions of
principal or interest be made with respect to
Certificates of one or more Classes of a
particular Series before distributions are
made to one or more Classes of another
Series.
The type, characteristics and amount of the
Series Enhancement will be determined based
on several factors, including the
characteristics of the Receivables and
Accounts and other property underlying or
comprising the Trust assets as of the
Relevant Closing Date with respect to any
Series, and will be established on the basis
of requirements of each Rating Agency rating
the Certificates of such Series. The terms of
the Series Enhancement with respect to any
Series offered hereby will be described in
the related Prospectus Supplement. If so
specified in the Prospectus Supplement for a
Series, the level of Series Enhancement for
such Series may be reduced if such reduction
satisfies the Rating Agency Condition. If so
specified in the related Prospectus
Supplement, any such Series Enhancement may
apply only in the event of certain types of
losses and the protection against
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losses provided by such Series Enhancement
will be limited. See "Enhancement" and "Risk
Factors -- Limited Nature of Rating."
a. Subordination.............. A Series of Certificates may include one or
more Classes of Certificates which are
subordinate to one or more other Classes of
such Series. The rights of the holders of any
such subordinated Certificates to receive
distributions on any Distribution Date for
such Series will be subordinate in right and
priority to the rights of the holders of
Certificates which are senior to such
subordinated 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 Series
Enhancement. The related Prospectus
Supplement will also set forth information
concerning the amount of subordination of a
Class or Classes of subordinated Certificates
in a Series, the circumstances in which such
subordination will be applicable, the manner,
if any, in which the amount of subordination
will decrease over time, and the conditions
under which amounts available from payments
that would otherwise be made to holders of
such subordinated Certificates will be
distributed to holders of Certificates which
are senior to such subordinated Certificates.
If cash flows otherwise distributable to
holders of a subordinated Class of a Series
will be used as support for a Class of
another Series, the related Prospectus
Supplement will specify the manner and
conditions for applying such a cross-support
feature. See "Enhancement -- Subordination."
b. Letter of Credit........... If so specified in the related Prospectus
Supplement, support for a Series or one or
more Classes of a Series may 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
another Series Enhancement. The issuer of the
letter of credit (the "L/C Bank") 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 liability of the
L/C Bank under its letter of credit may be
reduced by the amount of unreimbursed
payments thereunder.
The maximum liability of an L/C Bank under its
letter of credit will generally be an amount
equal to a percentage specified in the
related Prospectus Supplement of the initial
Investor 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. See "Enhancement -- Letter of
Credit."
c. Cash Collateral Guaranty
or Account................. If so specified in the related Prospectus
Supplement, support for a Series or one or
more Classes of a Series may 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") re-
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<PAGE> 72
served 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.
d. Collateral Interest........ If so specified in the related Prospectus
Supplement, support for a Series of
Certificates or one or more Classes thereof
may be provided initially by an
uncertificated, subordinated interest in the
Trust (the "Collateral Interest") in an
amount initially equal to a percentage
specified in the related Prospectus
Supplement of the initial Investor Amount.
e. Surety Bond or Insurance
Policy..................... If so specified in the related Prospectus
Supplement, support for a Series or one or
more Classes of a Series may be provided by
the posting of a surety bond or the issuance
of insurance by an insurance company, in each
instance designed to assure the distribution
of interest or principal on the Certificates
of such Class or Series in the manner and
amount specified in the related Prospectus
Supplement.
f. Spread Account............. If so specified in the related Prospectus
Supplement, support for a Series or one or
more Classes of a Series may be provided by
the periodic deposit of certain available
excess cash flow from the Trust assets into
an account (the "Spread Account") intended to
assure the subsequent distribution of
interest or principal on the Certificates of
such Class or Series in the manner specified
in the related Prospectus Supplement.
RECORD DATE................... The last day of the month preceding any
Distribution Date, except as otherwise
specified with respect to a Series in the
related Prospectus Supplement.
OPTIONAL REPURCHASE........... If specified in a Prospectus Supplement, the
Investor Amount of a Series may be subject to
optional purchase by the Sellers on any
Distribution Date after such Investor Amount
is less than or equal to a certain specified
level, unless certain events as specified in
the Pooling and Servicing Agreement have
occurred. The purchase price on the
Distribution Date on which such purchase
occurs will be as specified in the related
Prospectus Supplement and will generally be
equal to the Investor Amount plus accrued and
unpaid interest on the applicable
Certificates. See "Description of the
Certificates -- Optional Repurchase" in the
Prospectus Supplement.
FINAL PAYMENT OF PRINCIPAL AND
INTEREST; TERMINATION OF
TRUST....................... The interest of the Certificateholders of a
Series in the Trust will terminate following
the earliest of (i) the day after the
Distribution Date on which the Investor
Amount of such Series is paid in full, (ii) a
date specified in the Series Supplement for
such Series (the "Stated Series Termination
Date") and (iii) the termination of the Trust
(the "Trust Termination Date"). All principal
and interest will be due and payable no later
than the Stated Series Termination Date.
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<PAGE> 73
TRUSTEE....................... Bankers Trust Company.
TAX STATUS.................... Except as set forth in the related Prospectus
Supplement, it is anticipated that Special
Tax Counsel to the Banks will render an
opinion, in connection with the issuance of
each Series, that the Certificates of a
Series (or certain Classes thereof) will be
properly characterized as indebtedness for
Federal income tax purposes. It is
anticipated that under the Pooling and
Servicing Agreement, the Certificate Owners
of each Class as to which such opinion is
rendered will be deemed to agree to treat the
Certificates as indebtedness for tax
purposes. See "Certain Federal Income Tax
Consequences" for additional information
concerning the application of Federal income
tax laws.
ERISA CONSIDERATIONS.......... 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 Certificates of
a Series if certain conditions are met. If
the Trust's assets were deemed to be "plan
assets" of an employee benefit plan, there is
uncertainty as to whether existing exemptions
from the "prohibited transaction" rules of
the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), would apply to
all transactions involving the Trust's
assets. No assurance can be made with respect
to any offering of the Certificates of any
Series that the conditions which would allow
the Trust's assets not to be "plan assets"
will be met, although the intention of the
Underwriters (but not their assurance) as to
whether the Certificates of a particular
Series will be "publicly-offered securities",
and therefore eligible for an ERISA
exemption, will be set forth in the related
Prospectus Supplement. Accordingly,
fiduciaries or other persons contemplating
purchasing interests in the Certificates of
any Series with "plan assets" of any employee
benefit plan should consult their counsel
before making a purchase. See "ERISA
Considerations."
CERTIFICATE RATING............ Unless otherwise specified in the related
Prospectus Supplement, it will be a condition
to the issuance of the Certificates offered
by this Prospectus and the related Prospectus
Supplement that they be rated in one of the
four highest applicable rating categories by
at least one nationally recognized
statistical rating organization selected by
the Sellers (each such rating organization
rating any Series, a "Rating Agency"). The
rating or ratings applicable to the
Certificates of each Class will be as set
forth in the related Prospectus Supplement.
The Certificates offered pursuant to this
Prospectus and the related Prospectus
Supplement must be investment grade
asset-backed securities within the meaning of
the Act and the rules promulgated thereunder.
A security rating should be evaluated
independently of similar ratings of different
types of securities. A rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning
rating organization. Each rating should be
evaluated independently of any other rating.
See "Risk Factors -- Limited Nature of
Rating."
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<PAGE> 74
RISK FACTORS
Limited Liquidity. There can be no assurance that a secondary market for
the Certificates of any Series will develop or, if it does develop, that such
market will provide Certificateholders with liquidity of investment or that it
will continue for the life of the Certificates of such Series. The underwriters
of any Series offered hereby presently expect to make a secondary market in the
Certificates offered hereby and pursuant to any Prospectus Supplement, but have
no obligation to do so.
Certain Legal Aspects. The Sellers have represented and warranted in the
Pooling and Servicing Agreement that the transfer of the Receivables to the
Trust is and will be either a sale of all right, title and interest in the
Receivables and all proceeds thereof to the Trust or the grant to the Trust of a
pledge of such property to the Trust. The Sellers have taken and will take
certain actions required to perfect the Trust's interest in the Receivables. The
Sellers have represented and warranted that if the transfer by them to the Trust
is deemed to be a grant to the Trust of a security interest in the Receivables,
upon the filing of financing statements required to be filed under the Pooling
and Servicing Agreement, the Trust will have a first priority perfected security
interest therein. Nevertheless, if the transfer of the Receivables and all
proceeds thereof to the Trust is deemed to create a security interest therein, a
tax, government lien or other nonconsensual lien on property of a Seller arising
before Receivables come into existence may have priority over the Trust's
interest in such Receivables, and if the FDIC were appointed conservator or
receiver of the Seller, the conservator's or receiver's administrative expenses
may also have priority over the Trust's interest in such Receivables. If a
conservatorship or receivership proceeding were to be commenced involving a
Seller and the conservator or receiver of the Seller were to take the position
that the transfer of the Receivables from the Seller to the Trust should be
characterized as a pledge of such Receivables, then delays in distributions on
the Certificates and reductions in such distributions could result. In addition,
while AUS is the Servicer, cash collections held by AUS may, subject to certain
conditions, be commingled and used for the benefit of AUS prior to the date on
which such collections are required to be deposited in the Collection Account as
described under "Description of Certificates -- Application of Collections". In
the event of the conservatorship or receivership of AUS or, in certain
circumstances, the lapse of certain time periods, the Trust may not have a
perfected interest in such collections and, in such event, the Trust may suffer
a loss of all or part of such collections which may result in a loss to
Certificateholders. See "Certain Legal Aspects of the Receivables -- Transfer of
Receivables."
To the extent that the Sellers have granted a security interest in the
Receivables to the Trust and that security interest was validly perfected before
the insolvency of a Seller and was not granted or taken in contemplation of
insolvency or with the intent to hinder, delay or defraud the relevant Seller or
its creditors, the Federal Deposit Insurance Act ("FDIA"), as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended
("FIRREA"), provided that such security interest should not be subject to
avoidance by the FDIC, as conservator or receiver for the relevant Seller.
Positions taken by the FDIC staff prior to the passage of FIRREA do not suggest
that the FDIC, as conservator or receiver for the relevant Seller, would
interfere with the timely transfer to a Trust of payments collected on the
Related Receivables. If, however, the FDIC were to assert a contrary position,
such as requiring the Trustee to establish its right to those payments by
submitting to and completing the administrative claims procedure under the FDIA,
or the conservator or receiver were to request a stay of proceedings with
respect to such Seller as provided under the FDIA, delays in payments on the
related Series of Certificates and possible reductions in the amount of those
payments could occur. In addition, the FDIC, if appointed as conservator or
receiver for a Seller, has the power under the FDIA to repudiate contracts,
including secured contracts of the Sellers. The FDIA provides that a claim for
damages arising from the repudiation of a contract is limited to "actual direct
compensatory damages". In the event the FDIC were to be appointed as conservator
or receiver of a Seller and were to repudiate the Pooling and Servicing
Agreement, then the amount payable out of available collateral to the
Certificateholders could be lower than the outstanding principal and accrued
interest on the Certificates. In the event of a Servicer Default, if a
conservator or receiver is appointed for the Servicer, and no Servicer Default
other than such conservatorship or receivership or insolvency of the Servicer
exists, the conservator or receiver may have the power to prevent either the
Trustee or Certificateholders from effecting a transfer of servicing to a
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<PAGE> 75
successor Servicer. If a conservator or receiver were appointed for a Seller
pursuant to the Pooling and Servicing Agreement, new Principal Receivables would
not be transferred to the Trust and the Trustee would sell the Receivables
(unless Certificateholders representing more than 50% of the Investor Amount of
each Series, or if any such Series has more than one Class, of each Class of
such Series, and each of the Sellers (other than the Seller that is the subject
of such Insolvency Event), including any Additional Seller, and any holder of a
Supplemental Certificate and certain other parties specified in the Series
Supplements instruct otherwise), thereby causing early termination of the Trust
and a pro rata loss to the Certificateholders if the net proceeds of such sale
were insufficient to pay Certificates in full. Upon the occurrence of a Pay Out
Event, if a conservator or receiver was appointed for a Seller and no Pay Out
Event other than such conservatorship, receivership or insolvency of the
relevant Seller existed, the conservator or receiver may have the power to
prevent the early sale, liquidation or disposition of the Receivables and the
commencement of the Rapid Amortization Period. In addition, a conservator or
receiver for the relevant Seller may have the power to cause early sale of the
Receivables and the early payment of the Certificates or to prohibit the
continued transfer of Receivables to the Trust. See "Certain Legal Aspects of
the Receivables -- Certain Matters Relating to Receivership."
The Accounts and the Receivables are subject to numerous Federal and state
consumer protection laws which impose requirements on the making and collection
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 previous levels of finance charges, annual cardholder
fees and other fees, and failure by the Servicer to comply with such
requirements also could adversely affect the Servicer's ability to collect on
the Receivables. Pursuant to the Pooling and Servicing Agreement, each Seller
covenants to accept the transfer of all Receivables in an Account, upon the
breach of certain representations and warranties relating to requirements of law
applicable to the Seller that is the owner of such Account, if any Receivable in
such Account becomes a Defaulted Receivable or the Trust's rights in, to or
under such Receivables are impaired or the proceeds thereof are not available to
the Trust free and clear of any lien (subject to certain cure periods). Each
Seller also makes certain other representations and warranties relating to the
validity and enforceability of the Accounts and the Receivables. However, the
Trustee will not make any examination of the Receivables or the records relating
thereto for the purpose of establishing the presence or absence of defects,
compliance with such representations and warranties, or for any other purpose.
The sole remedy if any such representation or warranty is breached and such
breach continues beyond the applicable cure period, if any, is that the Seller
that is the owner of such Account or the Servicer, as the case may be, will
generally be obligated to accept the transfer of all Receivables in the Account
affected thereby. In addition, in the event of a breach of certain
representations and warranties, each Seller may be obligated to accept the
reassignment and transfer of the Receivables transferred by it to the Trust,
which reassignment will constitute the sole remedy available to
Certificateholders with respect to any such breach. See "Description of the
Certificates -- Representations, Warranties and Covenants" and "Certain Legal
Aspects of the Receivables -- Consumer Protection Laws."
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders in the Receivables, if such laws
result in any Receivables being written off as uncollectible. See "Description
of the Certificates -- Receivables in Defaulted Accounts; Rebates and Fraudulent
Charges."
Competition in the Bank Credit Card Industry. The bank credit card
industry is highly competitive. There is increased competitive use of
advertising, target marketing and pricing competition in interest rates and
annual cardholder fees as both traditional and new credit card issuers seek to
expand or to enter the market. As a result of this competition, certain major
credit card issuers assess finance charges for selected portions of their
portfolios at rates lower than the rates currently being assessed on the
Accounts. AUS, since March 1987, and ANB, since September 1995, have attempted
to respond to this increased competition by marketing cards to customers
primarily without an annual fee and by attempting to offer customers a finance
charge rate below that generally available from its competitors. In addition,
AUS and ANB have been in the business of acquiring accounts through direct mail
solicitation
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<PAGE> 76
since 1983 and September 1995, respectively. The Banks' ability to compete in
the credit card industry will affect its ability to generate new Receivables.
See "The Banks' Credit Card Activities -- Competition."
Payments and Maturity. The Receivables in the Trust may be paid at any
time and there is no assurance that there will be additional Receivables created
in the Accounts the Receivables of which are designated for inclusion in the
Trust or that any particular pattern of cardholder repayments will occur. The
continuation of the Revolving Period of a Series will be dependent upon the
continued generation of new Receivables for the Trust. A significant decline in
the amount of Receivables generated in the Accounts could result in the
occurrence of a Series Pay Out Event for one or more Series and the commencement
of the Rapid Amortization Period for each such Series. In addition, increased
convenience use, where cardholders pay their Account balances in full on or
prior to the due date, which is generally the 25th day subsequent to the monthly
billing date (the "Due Date"), and thus avoid all finance charges on purchases,
would decrease the effective yield on the Accounts, and could cause the
commencement of the Rapid Amortization Period for one or more Series, as well as
decreased protection to holders of Certificates against defaults under the
Accounts. Convenience use is more common among cardholders who are not assessed
any annual cardholder fee than among those who pay such fees, and a substantial
majority of the cardholders on the Accounts are not charged an annual cardholder
fee. AUS, in the past, has temporarily waived authorized increases in finance
charges on certain accounts notwithstanding increases in the prime rate or the
London interbank offered rate, and although the Banks are not currently doing
so, the Banks may decide to do so in the future. A decrease in the rate of
payment by cardholders could delay the return of principal to the
Certificateholders during the Amortization Periods for each Series. See
"Receivable Yield Considerations" in the Prospectus Supplement. The Pooling and
Servicing Agreement provides that the Sellers will be required to designate
Additional Accounts the Receivables of which will be added to the Trust in the
event that the Seller Amount or the amount of the Principal Receivables is not
maintained at a certain minimum amount and may under certain circumstances elect
to add the Receivables in selected Accounts to the Trust. If Additional Accounts
are not designated by the Sellers when required, a Series Pay Out Event for one
or more Series may occur and result in the commencement of a Rapid Amortization
Period for such Series. See "Description of the Certificates -- Trust Pay Out
Events" herein and "Description of the Certificates -- Series Pay Out Events and
Trust Pay Out Events" in the Prospectus Supplement for a discussion of other
events which might lead to the commencement of the Rapid Amortization Period for
a Series.
Social, Geographic and Economic Factors. Changes in card use, payment
patterns and the rate of defaults by cardholders may result from a variety of
social, economic and geographic factors. Economic factors include the rate of
inflation, the unemployment rates and relative interest rates offered for
various types of loans. Adverse changes in economic conditions in any states
where cardholders are located could have a direct impact on the timing and
amount of payments on the Certificates of any Series. See "The Banks' Credit
Card Activities" herein and in the Prospectus Supplement. The Banks are unable
to determine and have no basis to predict whether, or to what extent, economic,
social or geographic factors will affect future card use or repayment patterns.
Banks' Ability to Change Terms of the Receivables. The Banks will
generally have the right to determine the finance charges and the other fees and
charges which will be applicable from time to time on the Accounts, to alter the
minimum monthly payment required under the Accounts and to change various other
terms of its agreement with cardholders with respect to the Accounts. A decrease
in the finance charges and the other fees and charges assessed on the Accounts
should decrease the effective yield on the Accounts and could result in the
occurrence of a Series Pay Out Event for one or more Series and commencement of
the Rapid Amortization Period for each such Series. Under the Pooling and
Servicing Agreement, each Seller agrees that, unless required by law or as is
otherwise necessary, in its sole discretion, to maintain its lending business on
a competitive basis based on a good faith assessment by such Seller of the
nature of its competition in the lending business, it will not reduce the annual
percentage rate at which finance charges are assessed on the Receivables or the
other fees and charges assessed on any of the Accounts owned by it, if, as a
result of such reduction, either (i) such Seller's
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<PAGE> 77
reasonable expectation is that such reduction will cause a Series Pay Out Event
to occur, or (ii) such reduction is not also applied to any comparable segments
of consumer revolving credit card accounts owned by such Seller which have
characteristics the same as, or substantially similar to, such Accounts. Each
Seller also covenants that it will change the terms relating to any of the
Accounts owned by it only if the change is made applicable to the comparable
segment of the consumer revolving credit card accounts owned by such Seller with
characteristics the same as or substantially similar to such Accounts, subject
to compliance with all requirements of law. In servicing the Accounts, the
Servicer will be required to exercise the same care and apply the same policies
that it exercises in handling similar matters for its own comparable accounts.
Except as set forth above, the Pooling and Servicing Agreement does not contain
any restrictions on the ability of a Seller to change the terms of the Accounts
or the Receivables. See "Description of the Certificates -- Representations,
Warranties and Covenants." There can be no assurance that changes in applicable
law, changes in the marketplace or prudent business practice might not result in
a determination by either Seller to decrease finance charges or other fees and
charges for existing accounts, or take actions which would otherwise change the
terms of the Accounts. In addition, there can be no assurance that a change made
in the terms of the Accounts would not result in the downgrade of the rating of
the Certificates.
Limited Nature of Rating. Any rating assigned to the Certificates of a
Series or a Class of a Series by a Rating Agency will reflect such Rating
Agency's assessment solely of the likelihood that Certificateholders will
receive the payments of interest and principal required to be made under the
Pooling and Servicing Agreement and will be based primarily on the value of the
Receivables in the Trust and the availability of any Series Enhancement with
respect to such Series or Class of such Series. The rating will not be a
recommendation to purchase, hold or sell Certificates of such Series or Class of
such Series, 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.
Master Trust Considerations. The Trust, as a master trust, has issued
Series prior to the date of this Prospectus and is expected to issue additional
Series from time to time. While the Principal Terms of any Series will be
specified in a Series Supplement, the provisions of a Series Supplement and,
therefore, the terms of any additional Series, will not be subject to the prior
review or consent of holders of the Certificates of any previously issued
Series. Such Principal Terms may include methods for allocating collections,
provisions creating different or additional security or other Series
Enhancement, provisions subordinating such Series to another Series or other
Series (if the Series Supplement relating to such Series so permits) to such
Series, and any other amendment or supplement to the Pooling and Servicing
Agreement which is made applicable only to such Series. Such Principal Terms,
including any subordination or other relationship of a Series to other
subsequently or previously issued Series, will be described in the Prospectus
Supplement relating to such Series. The issuance of any additional Series is
subject to the Rating Agency Condition and, if any Series outstanding was
characterized as debt at the time of its issuance, the delivery of a Tax
Opinion. There can be no assurance, however, that the Principal Terms of any
Series issued from time to time hereafter might not have an impact on the timing
and amount of payments received by a Certificateholder of any other Series. No
Series Supplement relating to a Series may change the terms of the Pooling and
Servicing Agreement applicable to the Certificates of any other Series, whether
such other Series have been issued before or after the Series to which such
Series Supplement relates. However, the Certificateholders of any Series issued
in addition to outstanding Series will have voting rights which, with respect to
certain votes, waivers or consents under the Pooling and Servicing Agreement,
will reduce the percentage interest represented by the Certificates of the
outstanding Series of the aggregate unpaid principal amount of the Certificates
of all Series that are entitled to vote. Such votes, waivers and consents
include directing the appointment of a successor Servicer following a Servicer
Default, amending the Pooling and Servicing Agreement and directing a
reassignment of the entire portfolio of Accounts. See "Description of the
Certificates -- New Issuances."
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FORMATION OF THE TRUST
The Trust was formed, in accordance with the laws of the State of New York,
pursuant to the Pooling and Servicing Agreement. The Sellers have transferred
and will transfer to the Trust, without recourse, all of their right, title and
ownership interest in and to all Receivables arising and created under the
Accounts the Receivables of which have been, and will be, designated for
inclusion in the Trust, in exchange for the certificates of Series already
outstanding and other Series to be issued plus the Seller Certificates
representing the Sellers' Interest. The Trust assets consist of the Receivables,
all monies due or to become due thereunder and all amounts received with respect
thereto, all proceeds of the Receivables, Recoveries, the right to receive
certain Interchange attributed to charges for merchandise and services, and
proceeds of credit insurance policies relating to the Receivables, all monies on
deposit in certain bank accounts of the Trust and the benefits of any Series
Enhancements issued with respect to any Series (the drawing on or payment of
such Series Enhancement being available only to Certificateholders of the Series
to which such Series Enhancement relates). The Trust assets may also include
Participation Interests.
The Trust will not engage in any activity other than acquiring and holding
the Receivables, issuing Certificates with respect to each Series issued by the
Trust, the Bank Certificate and Supplemental Certificates, making payments
thereon, obtaining Series Enhancement applicable to any Series and activities
related thereto. As a consequence, the Trust is not expected to have any need
for, or sources of, capital resources other than the assets of the Trust.
THE BANKS' CREDIT CARD ACTIVITIES
GENERAL
The Receivables which the Sellers have conveyed or will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been or will be, except as
otherwise described in the Prospectus Supplement, generated from transactions
made by holders of selected MasterCard and VISA credit card accounts, including
regular and premium accounts, from the Advanta Consumer Credit Card Portfolio.
Both premium and regular accounts undergo the same credit analysis, but premium
accounts have higher initial credit limits because of the higher incomes of the
cardholders. In addition, premium accounts generally offer a wider variety of
services to the cardholders and those that charge annual cardholder fees
generally have higher annual cardholder fees than regular accounts that have
annual cardholder fees. Servicing of the Advanta Consumer Credit Card Portfolio
is performed primarily by AUS; however, certain data processing and
administrative functions associated with the servicing of the Advanta Consumer
Credit Card Portfolio are currently performed on behalf of the Banks by First
Data Resources, Inc. ("FDR"). See "Description of FDR." If FDR were to fail or
become insolvent, delays in processing and recovery of information with respect
to charges incurred by cardholders could occur, and the replacement of the
services that FDR currently provides to the Banks could be time-consuming. As a
result, delays in payments to Certificateholders of any Series outstanding at
such time could occur.
Set forth below is certain information relating to the activities of the
Banks. The Prospectus Supplement may amend, modify or supplement such
information.
To the extent the Trust assets include any Participation Interests or
Receivables other than those of the type described herein, the Prospectus
Supplement will describe the nature and characteristics of such Participation
Interests or Receivables.
ACQUISITION AND USE OF CREDIT CARDS
Substantially all of the Banks' new accounts are generated through direct
mail and telemarketing solicitation of potential cardholders. Beginning in 1983
and continuing through 1987, AUS acquired lists of potential cardholders from
various sources. The lists were delivered to a third-party processor, which
after deleting existing cardholders, sorted the names based on addresses and
delivered the names to a credit bureau. Credit bureaus were selected based on
AUS's evaluation of their relative strength in a geographic area. The credit
bureau identified those individuals who met AUS's predetermined credit criteria.
Selected demographic criteria were then applied to determine the individuals to
be solicited.
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Beginning in 1987, AUS began employing a more direct method of identifying
potential cardholders. AUS engages the credit bureau to identify those
individuals in the credit bureau's own files who meet the AUS's credit and
demographic criteria. Prior to 1987, individuals solicited were offered AUS's
credit cards, subject to AUS's verification of information regarding employment
and income, which occurred only under certain circumstances. Since March 1987,
AUS has obtained a second credit bureau report on each individual who responds
positively to a solicitation and offered a credit card to that person only if
the second report confirms the individual's eligibility.
Since July 1985, the criteria applied by AUS to evaluate potential
cardholders have included credit scoring using a model developed by the Fair,
Isaacs Companies, an independent firm experienced in developing credit scoring
models. Credit scoring evaluates a potential cardholder's credit profile to
arrive at an estimate of the associated credit risk. Credit scoring models are
developed by statistically evaluating common characteristics and their
correlation with credit risk.
Potential cardholders must meet minimum credit and income level standards
established by the Banks to receive a specific credit limit. Cardholders not
meeting the minimum standards for the initial product offer are offered a
reduced credit limit for which they qualify. Generally, initial credit lines of
up to $6,000 and $3,500 are offered for premium and regular cards, respectively.
Beginning in May 1993 credit line offers of $7,500 and $10,000 have been tested
on a limited basis, with most credit line offers remaining at the $6,000 or less
level. Cardholders may request to have their credit line increased upon
completion of a full application. After a review of the full application and
credit bureau report, the Banks decide whether to extend additional credit.
Also, the Banks may initiate credit line increases for cardholders meeting
minimum standards for usage and payment history established by the Banks.
Accounts are opened with an initial term of one year. At the anniversary
date, accounts which meet certain criteria for usage and payment history are
reissued for one to three year terms.
Each cardholder is subject to an agreement governing the terms and
conditions of the related MasterCard or VISA account. Pursuant to each such
agreement, the Bank that owns the Account reserves the right, upon advance
notice to the cardholder, to change or terminate any terms, conditions, services
or features of its MasterCard and VISA accounts at any time, including
increasing or decreasing finance charges, other fees and charges or minimum
payment terms. The agreement with each cardholder provides that the relevant
Bank may apply such changes, when applicable, to current outstanding balances as
well as to future transactions. However, the laws of the state in which
particular cardholders reside may limit the ability of the relevant Bank to
apply changes. For example, under applicable state law, certain fees and charges
are prohibited altogether. See "Risk Factors -- Certain Legal Aspects" and
"Certain Legal Aspects of the Receivables -- Consumer Protection Laws."
A cardholder may use the credit card for either purchases or cash advances.
Cardholders make purchases when using the 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 or an automated teller machine or when the cardholder uses
special drafts issued by the relevant Bank to draw against the cardholder's
credit line. The Banks generally limit the amount of credit available for cash
advances on new accounts to 50% of the total credit line. The majority of the
accounts, the receivables of which are expected to be included in the Trust, are
subject to the 50% limitation.
When a cardholder uses the credit card issued by a bank under contract with
MasterCard International, Inc. or VISA USA, Inc. (a "member bank"), the seller
of goods or services or the provider of cash advances generally sells the
resulting receivable to a merchant bank, which in turn sells the receivable
(usually indirectly, through a clearing corporation and its agent bank) to the
member bank for its face amount less interchange and other fees. The member bank
is usually required by its contracts with MasterCard International, Inc. and
VISA USA, Inc. to purchase and pay for daily all receivables generated by use of
credit cards issued by the member bank. If the member bank were to fail to
perform such obligations, MasterCard International, Inc. or VISA USA, Inc. would
have the right to cancel the credit cards issued by the member bank.
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BILLING AND PAYMENTS
Each Bank, using FDR as its service bureau, generates and mails to
cardholders monthly statements summarizing account activity. For the majority of
accounts, cardholders receive a 25-day grace period on purchases. Prior to April
5, 1995, cardholders were required to make a minimum monthly payment equal to
finance and other charges, plus 1/60th of the principal balance for premium
cards and 1/48th of the principal balance for regular cards. If such amount was
less than a stated minimum monthly payment (generally $20), the stated minimum
monthly payment was due. For all monthly statements after April 5, 1995, all
cardholders must make a minimum monthly payment equal to finance and other
charges, plus 1/100th of their principal balance. In addition, the stated
minimum monthly payment was reduced from $20 to $10.
All fees, charges and credit insurance premiums assessed by the Banks are
automatically charged to an account and are included in the account balance at
the end of each billing cycle. The finance charges assessed by the Banks are
calculated by multiplying the average daily balances of cash advances and
previously billed unpaid purchases in an account by the applicable daily
periodic rate then multiplying the resulting product by the number of days in
the billing cycle. Finance charges are not assessed in most circumstances on
purchases if all balances shown in the billing statement are paid by the Due
Date. Under certain conditions related to customer performance, the Banks may
immediately convert the annual percentage rate applicable to existing and future
balances to a higher rate.
The Banks primarily offer cards to customers without an annual fee. The
Banks also assess miscellaneous transaction fees, including cash advance and
draft fees, late and overlimit charges, and returned check, returned draft, and
draft stop payment charges. Such miscellaneous fees are not expected to
constitute a material portion of Finance Charge Receivables.
DESCRIPTION OF FDR
Certain data processing and administrative functions associated with the
servicing of the Advanta Consumer Credit Card Portfolio are currently being
performed on behalf of the Banks by FDR. FDR was established in 1968 as the data
processing unit of Midamerica Bankcard Association and was acquired by American
Express Company in 1980. In April 1992, American Express sold a minority share
of FDR through an initial public offering of stock in FDR's parent company,
First Data Corporation. In March 1993, American Express sold a portion of its
remaining share, and now retains only 21.5% of First Data Corporation. FDR is
the leading third-party processor of MasterCard and VISA card transactions in
the United States and, following the purchase of Signet Limited, the United
Kingdom. During 1992, FDR processed approximately 2.3 billion credit card
transactions for more than 700 financial institution clients and over 61 million
accounts. FDR serves over 40% of all bank credit card accounts serviced by
third-party processors in the United States.
FDR's home office in the United States is located in Omaha, Nebraska, with
regional offices located in Atlanta, Georgia, Boston, Massachusetts and San
Mateo, California. FDR currently has approximately 5,000 full and part time
employees.
DELINQUENCIES
Each account is billed monthly on or about the same day of the month. An
account is "contractually delinquent" if the minimum payment indicated on the
cardholder's statement is not received by the Due Date. For purposes of
determining the delinquency of an account, the period from one monthly billing
statement to the next is considered a period of 30 days, regardless of the
actual number of days elapsed. Efforts to collect contractually delinquent
credit card receivables currently are made by the Banks' service center
personnel or the Banks' designees. Collection activities include statement
messages, formal collection letters and telephone calls. Collection personnel
initiate telephone contact with cardholders as early as one day contractually
delinquent. The intensity at which collection activity is pursued depends on the
risk the account presents to the Bank that owns such account which is determined
by behavioral scoring and adaptive control techniques. In the event that initial
telephone contact fails to resolve the delinquency, the Bank that owns such
account continues to contact the cardholder by telephone and by mail. Although
such arrangements are made infrequently, the Banks may
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also enter into arrangements with cardholders to extend or otherwise change
payment schedules. Delinquency levels are monitored by management of both the
Collections and Asset Quality departments of the Banks and information is
reported daily to senior management. Accounts are charged off when they become
186 days contractually delinquent, at which time non-bankrupt accounts are
generally referred to outside collection agencies. The Banks charge-off accounts
within 30 days after receipt of any notice that the customer has died, and
within 90 days after receipt of any notice of fraudulent charges within such
account. In August 1996, the Banks adopted a new charge-off methodology related
to bankrupt credit card accounts. Under the previous methodology, when the
appropriate Bank received notification that a cardholder has filed a bankruptcy
petition, the account was written off within 30 days of notification. Under the
new methodology, the Banks utilize an investigative period of up to 90 days from
the date of such notification. The receivable, if not paid during such
investigative period, will be charged off unless the investigation shows that
the cardholder's obligation should not be discharged as the result of the
bankruptcy proceeding. In no event, under the new methodology, will the
receivable be charged off later than 186 days after the receivable is
contractually delinquent. The credit evaluation, servicing and charge-off
policies and collection practices of the Banks may change from time to time in
accordance with each Bank's business judgment and applicable laws and
regulations.
Information with respect to the delinquency and loss experience of the
Advanta Consumer Credit Card Portfolio, including charts relating to such
information, is contained in the Prospectus Supplement.
INTERCHANGE
Creditors participating in the VISA and MasterCard International
associations receive certain fees ("Interchange") as partial compensation for
taking credit risk, absorbing fraud losses and funding receivables for a limited
period prior to initial billing. Under the VISA and MasterCard International
systems, a portion of the 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 approximates 1.3% of the
transaction amount. VISA and MasterCard International may from time to time
change the amount of Interchange reimbursed to banks issuing their credit cards.
In respect of Interchange attributed to the cardholder charges for merchandise
and services in the Accounts, collections of Finance Charge Receivables with
respect to any Monthly Period will be deemed to include Interchange as
calculated pursuant to the related Series Supplement for any Series.
COMPETITION
The bank credit card industry is highly competitive. There is increased
competitive use of advertising, target marketing and pricing competition in
interest rates and annual cardholder fees as both traditional and new credit
card issuers seek to expand or to enter the market. The Banks issue MasterCard
and VISA credit cards to customers nationwide competing with certain money
center banks and other large nationwide issuers, as well as with regional and
local banks, savings and loan associations, and other depository institutions,
many of whom have sizeable branch systems through which credit cards are
marketed to the institutions' customer bases. Many of these competitors have
greater capital resources and a larger depositor base than either Bank. Certain
major credit card issuers assess finance charges for selected portions of their
portfolios at rates significantly lower than the rates currently being assessed
on the Accounts. The Banks have primarily responded to the increased competition
by marketing cards to customers without an annual fee.
The Trust will be dependent upon the Banks' continued ability to generate
new Receivables. The Banks' ability to compete in the credit card industry will
directly affect its ability to generate new Receivables. If the rate at which
new Receivables are generated declines significantly, a Pay Out Event with
respect to a Series could occur and the Rapid Amortization Period with respect
to such Series could commence.
USE OF PROCEEDS
The net proceeds from the sale of each Series offered hereby and by the
related Prospectus Supplement will be paid to the Sellers. The Sellers will use
such proceeds to provide liquidity for anticipated future asset growth and will
use the balance for general corporate purposes.
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THE BANKS AND ADVANTA CORP.
Each of the Banks is an indirect wholly owned subsidiary of Advanta Corp.
("Advanta"). AUS was chartered as a national bank in December 1962. From 1926 to
1962, AUS was a Delaware trust company. AUS was acquired by Advanta in 1982.
Prior to the enactment of the Competitive Equality Bank Act of 1987 ("CEBA"),
AUS was a "non-bank" bank which did not, and currently does not, make commercial
loans. ANB was chartered as a national bank in February 1995.
Each Bank operates under the National Banking Act and is subject to
examination, supervision and regulation by the Office of the Comptroller of the
Currency. Each Bank's deposits are insured by the FDIC, and each Bank is a
member of the Federal Reserve Bank of Philadelphia and AUS is a member of the
Federal Home Loan Bank of Pittsburgh.
Under certain grandfathering provisions of CEBA, Advanta is not required to
register as a bank holding company under the Bank Holding Company Act of 1956,
as amended, because AUS was a "non-bank" bank prior to the enactment of CEBA and
complies with certain restrictions set forth in CEBA. Consequently, Advanta is
not subject to Federal Reserve Board examination.
The principal executive office of AUS is located at Brandywine Corporate
Center, 650 Naamans Road, Claymont, Delaware 19703 (telephone: (302) 791-4400).
The principal executive office of ANB is located at 501 Carr Road, Wilmington,
Delaware 19809 (telephone: (302) 791-6262).
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Each Seller represents and warrants in the Pooling and Servicing Agreement
that the transfer of the Receivables by it to the Trust constituted either a
sale to the Trust of all right, title and interest of such Seller in and to the
Receivables or a pledge of the Receivables which pledge in a first priority,
perfected security interest free and clear from liens arising from or through
such Seller, except for certain potential tax and governmental liens and other
nonconsensual liens, the interest of the holders of the Bank Certificate and any
Supplemental Certificates and the Sellers' right to receive interest and
investment earnings (net of losses and investment expenses) in respect of the
Collection Account or any Series Account. For a discussion of the Trust's rights
arising from a breach of these warranties, see "Description of the
Certificates -- Representations, Warranties and Covenants."
Each Seller represents and warrants that the Receivables are "accounts" or
"general intangibles" for purposes of the Uniform Commercial Code (the "UCC").
Both the sale of accounts and the transfer of accounts as security for an
obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and the filing of
appropriate financing statements is required to perfect the security interest of
the Trust. If a transfer of general intangibles is deemed to create a security
interest, the UCC applies and filing of an appropriate financing statement is
also required in order to perfect the Trust's security interest in the
Receivables. Financing statements covering the Receivables have been and will be
filed with the appropriate governmental authority to protect the interests of
the Trust in the Receivables. 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 a prior or
subsequent transferee of Receivables coming into existence after the date on
which such Receivables are transferred to the Trust could have an interest in
such Receivables with priority over the Trust's interest. Under the Pooling and
Servicing Agreement, however, each Seller warrants that it has transferred the
Receivables to the Trust free and clear of the lien of any third party, except
for certain tax and governmental liens and other nonconsensual liens. In
addition, each Seller covenants that, except as permitted by the Pooling and
Servicing Agreement, it will not sell, pledge, assign, transfer or grant any
lien on any Receivable (or any interest therein) other than to the Trust. A tax
or other government lien or other nonconsensal lien on property of a Seller
arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivable. In addition, if the
FDIC were appointed as receiver or
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convervator of a Seller, certain administrative expenses of the receiver or
conservator may also have priority over the interest of the Trust in the
Receivables arising from the Accounts owned by such Seller.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
Each Seller is chartered as a national banking association and is subject
to regulation and supervision by the Office of the Comptroller of the Currency,
which is authorized to appoint the FDIC as conservator or receiver of the Seller
upon the occurrence of certain events relating to the relevant Seller's
financial condition.
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC
could exercise if it were appointed as receiver or conservator of a Seller.
Positions taken by the FDIC staff prior to the passage of FIRREA do not suggest
that the FDIC, as conservator or receiver for the relevant Seller, would
interfere with the timely transfer to a Trust of payments collected on the
Related Receivables. If, however, the FDIC were to assert a contrary position,
such as requiring the Trustee to establish its right to those payments by
submitting to and completing the administrative claims procedure under the FDIA,
or the conservator or receiver were to request a stay of proceedings with
respect to such Seller as provided under the FDIA, delays in payments on the
related Series of Certificates and possible reductions in the amount of those
payments could occur. In addition, the FDIC, if appointed as conservator or
receiver for a Seller, has the power under the FDIA to repudiate contracts,
including secured contracts of the Sellers. The FDIA provides that a claim for
damages arising from the repudiation of a contract is limited to "actual direct
compensatory damages". In the event the FDIC were to be appointed as conservator
or receiver of a Seller and were to repudiate the Pooling and Servicing
Agreement, then the amount payable out of available collateral to the
Certificateholders could be lower than the outstanding principal and accrued
interest on the Certificates.
The Pooling and Servicing Agreement provides that, upon the commencement of
an Insolvency Event with respect to a Seller, the relevant Seller will promptly
give notice thereof to the Trustee, and a Trust Pay Out Event will occur. Under
the Pooling and Servicing Agreement, no new Principal Receivables will be
transferred to the Trust and, unless otherwise instructed within a specified
period by the holders of Certificates evidencing more than 50% of the Investor
Amount of each Series (or if any such Series has more than one Class, of each
Class of such Series) and each of the Sellers (other than the Seller that is the
subject of such Insolvency Event), including any Additional Seller, and any
holder of a Supplemental Certificate and certain other parties specified in the
Series Supplements, or unless otherwise prohibited by law, the Trustee will
proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale of the Receivables would then be treated by the Trustee
as collections on the Receivables. This procedure could be delayed as described
above. Upon the occurrence of a Pay Out Event, if a conservator or receiver is
appointed for either Seller and no Pay Out Event other than such conservatorship
or receivership or insolvency of the relevant Seller exists, the conservator or
receiver may have the power to prevent the early sale, liquidation or
disposition of Receivables and the commencement of a Rapid Amortization Period
with respect to any outstanding Series. In addition, a conservator or receiver
for the relevant Seller may have the power to cause early sale of the
Receivables and the early payment of the Certificates or to prohibit the
continued transfer of Principal Receivables to the Trust.
In the event of a Servicer Default, if a conservator or receiver is
appointed for the Servicer, and no Servicer Default other than such
conservatorship or receivership or insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or
Certificateholders from effecting a transfer of servicing to a successor
Servicer.
CONSUMER PROTECTION LAWS
The relationship of the cardholder and credit card issuer is extensively
regulated by Federal and state consumer protection laws. With respect to credit
cards issued by the Banks, the most significant of these laws include the
Federal Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit
Reporting Act, Fair Debt Collection Practice Act, Electronic Funds Transfer Act
and National Bank Act, as well as the Delaware Banking Code and comparable
statutes in the states in which cardholders reside. These
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statutes impose disclosure requirements when a credit card account is
advertised, when it is opened, at the end of monthly billing cycles, upon
account renewal for accounts on which annual fees are assessed, and at year end
and, in addition, limit cardholder liability for unauthorized use, prohibit
certain discriminatory practices in extending credit, and impose certain
limitations on the type of account-related charges that may be assessed. Federal
legislation requires credit card issuers to disclose to consumers the interest
rates, annual cardholder fees, grace periods, and balance calculation methods
associated with their credit card accounts. Cardholders are entitled under
current law to have payments and credits applied to the credit card account
promptly, to receive prescribed notices and to have billing errors resolved
promptly.
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables, either as assignee of the Sellers with respect to
obligations arising before transfer of the Receivables to the Trust or as a
party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert such violations by way of
set-off against his obligation to pay the amount of Receivables owing. Each
Seller covenants in the Pooling and Servicing Agreement to accept the transfer
of all Receivables in an Account that is owned by such Seller, under certain
circumstances, if any Receivable in such Account has not been created in
compliance with the requirements of such laws. Each Seller has also agreed in
the Pooling and Servicing Agreement to indemnify the Trust for, among other
things, any liability arising from such violations. See "Description of the
Certificates -- Representations, Warranties and Covenants."
Application of Federal and state bankruptcy and debtor relief laws would
adversely affect the interests of the Certificateholders if such laws result in
any Receivables being written off as uncollectible. See "Description of the
Certificates -- Defaulted Receivables; Rebates and Fraudulent Charges."
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series pursuant to the Pooling and
Servicing Agreement (as supplemented by a Series Supplement thereto with respect
to each Series) entered into among AUS and ANB, as Sellers of interests in the
Receivables and AUS, as Servicer of the Accounts and the Receivables, and
Bankers Trust Company, as Trustee for the Certificateholders of each Series.
Pursuant to the Pooling and Servicing Agreement, the Sellers may execute further
Series Supplements thereto among the Sellers, the Servicer and the Trustee in
order to issue additional Series. See "-- New Issuances." The Trustee will
provide a copy of the Pooling and Servicing Agreement (without exhibits or
schedules), including any Series Supplements, to Certificateholders of any
Series without charge upon written request. A copy of the form of Pooling and
Servicing Agreement has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus forms a part.
The following summaries describe certain provisions common to each Series.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the provisions of the Pooling and
Servicing Agreement and the Series Supplement relating to each Series. When
particular provisions or terms used in the Pooling and Servicing Agreement or
any Series Supplement are referred to herein, such provisions or terms shall be
as specified in the Pooling and Servicing Agreement or Series Supplement.
GENERAL
The Pooling and Servicing Agreement does not limit the amount of
Certificates that can be issued thereunder and provides that any Series may be
issued thereunder up to the aggregate principal amount specified in the related
Series Supplement that may be entered into among the Sellers, the Servicer and
the Trustee. Each Series will consist of one or more Classes, one or more of
which may be floating rate Certificates or fixed rate Certificates or other type
of Certificates as specified in the related Prospectus Supplement. A Series may
include a Class or Classes which are subordinated in right of payment of
principal and/or interest to another Class or other Classes of such Series or
any other Series. If so specified in a related Prospectus Supplement, such
subordinated Class or Classes may be offered hereby and by the related
Prospectus Supplement. Each Series will be issued in the minimum denominations
for each Class specified in the related Prospectus Supplement.
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The Certificates of any Series will generally represent the right to
receive, to the extent of amounts then payable on the applicable Series of
Certificates, from the assets of the Trust, a floating percentage (in the case
of Principal Receivables during the Revolving Period of a Series and Finance
Charge Receivables and Defaulted Receivables during the Revolving Period and the
Amortization Period of a Series) or a fixed percentage (in the case of Principal
Receivables during any Amortization Period for a Series) (each, the "Series
Percentage") of all cardholder payments on the Receivables.
The Sellers hold the interest in the Principal Receivables (the "Seller
Amount") not represented by the Certificates of all outstanding Series. The
Sellers hold an undivided interest in the Trust (the "Sellers' Interest"),
including the right to a percentage (the "Seller Percentage") of all cardholder
payments on the Receivables.
During the Revolving Period for any Series, the Invested Amount for such
Series will generally remain constant except in certain limited circumstances or
unless otherwise specified in the related Prospectus Supplement. See
"-- Defaulted Receivables; Rebates and Fraudulent Charges." The amount of
Principal Receivables, however, will vary each day as new Principal Receivables
are created and others are paid. The Seller Amount will fluctuate daily,
therefore, to reflect the changes in the amount of the Principal Receivables.
When a Series is amortizing, the Invested Amount for such Series will generally
decline for each Monthly Period as cardholder payments of Principal Receivables
allocated to such Series are collected and held for distribution to the
Certificateholders or deposited in a Series Account for the benefit of such
Series or a Class of such Series for payment to the applicable
Certificateholders when due. As a result, the Seller Amount will generally
increase each month to reflect the reductions in the Invested Amount of a Series
and will also change to reflect the variations in the amount of Principal
Receivables.
The Trust assets will include the Receivables, all monies due or to become
due thereunder and all amounts received with respect thereto, all proceeds of
the Receivables, the right to receive certain Interchange, Recoveries, proceeds
of credit insurance policies relating to the Receivables, all monies on deposit
in certain bank accounts of the Trust and the benefits of any Series Enhancement
issued with respect to any Series (the drawing on or payment of such Series
Enhancement being available only to Certificateholders of such Series or Class
of such Series). The Trust assets may also include Participation Interests.
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
of $1,000 in excess thereof in book-entry form only. The Sellers have 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. No Certificate Owner
acquiring an interest in the Certificates will be entitled to receive a
certificate representing such person's interest in the Certificates. Unless and
until Definitive Certificates are issued for any Series under the limited
circumstances described herein, all references herein to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
its Participants (as defined below), and all references herein to distributions,
notices, reports and statements to Certificateholders shall refer to
distributions, notices, reports and statements to DTC or Cede, as the registered
holder of the Certificates, as the case may be, for distribution to Certificate
Owners in accordance with DTC procedures. See "-- Book-Entry Registration" and
"-- Definitive Certificates."
If so specified in the Prospectus Supplement relating to a Series,
application will be made to list the Certificates of such Series, or all or a
portion of any Class thereof, on the Luxembourg Stock Exchange or any other
specified exchange.
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BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, Certificateholders may hold their
Certificates through DTC (in the United States) or Cedel or Euroclear (in
Europe) if they are participants of such systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Unless and until Definitive Certificates are issued, it is anticipated that
the only Certificateholder of the Certificates will be Cede & Co. ("Cede") as
nominee of DTC. No Certificate Owner acquiring an interest in Certificates of a
Series which have been issued in book-entry form will be entitled to receive a
certificate representing such person's interest in the Certificates of such
Series unless and until Definitive Certificates are issued under the limited
circumstances described herein. All references herein to actions by
Certificateholders of a Series shall refer (unless Definitive Certificates are
so issued with respect to such Series) to actions taken by DTC, Cedel or
Euroclear upon instructions from DTC Participants, Cedel Participants or
Euroclear Participants, respectively, 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 of such Series, as the case may be, for
distribution to Certificate Owners of such Series in accordance with DTC
procedures. See "-- Definitive Certificates." Distributions will be made to DTC
in immediately available funds.
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 "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities for its
participating organizations ("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 (including the Underwriters), banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others ("Indirect Participants") such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with, Participants, either directly or indirectly.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC (other than Cedel Participants and Euroclear Participants), on the
one hand, and directly or indirectly through Cedel Participants or Euroclear
Participants, on the other, will be effected in DTC in accordance with DTC rules
on behalf of the relevant European international clearing system by its
Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by
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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.
Certificate Owners of a Series that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Certificates of such Series may do so only through
Participants and Indirect Participants. In addition, Certificate Owners of a
Series will receive all distributions of principal of and interest on the
Certificates of such Series from the Paying Agent through the Participants who
in turn will receive them from DTC. Under a book-entry system, Certificate
Owners of a Series may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC
will forward such payments to its Participants, which thereafter will forward
the payments to Indirect Participants or Certificate Owners of such Series.
Certificate Owners of a Series will not be recognized by the Trustee as
Certificateholders of such Series, as such term is used in the Pooling and
Servicing Agreement, and Certificate Owners of a Series will only be permitted
to exercise the rights of Certificateholders of such Series indirectly through
DTC and its Participants, who in turn will exercise the rights of
Certificateholders of such Series 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 of a Series and is
required to receive and transmit distributions of principal of and interest on
the Certificates of such Series. Participants and Indirect Participants with
which Certificate Owners of a Series have accounts with respect to the
Certificates of such Series 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 of a Series will not possess
Certificates of such Series, such Certificate Owners will receive payments and
will be able to transfer their interests.
Because DTC may only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner of a Series 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 Servicer that it will take any action permitted to be
taken by a Certificateholder of a Series under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose account
with DTC the Certificates of such Series are credited. Additionally, DTC has
advised the Servicer that it will take such actions with respect to specified
percentages of the applicable Investor Amount only at the direction of and on
behalf of Participants whose holdings include undivided interests that
constitute 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 28 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series
of Certificates. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
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<PAGE> 88
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangement 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 of any Series of Certificates. 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, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences." Cedel or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder under a related agreement on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Book-entry Certificates of a Series will be re-issued in fully registered,
certificated form ("Definitive Certificates"), to Certificate Owners of such
Series or their respective nominees rather than to DTC or its nominee, only if
(i) the Sellers advise the Trustee in writing that DTC is no longer willing or
able properly to discharge its responsibilities as Depository with respect to
any Class of Certificates of such Series, and the Trustee or the Sellers are
unable to locate a qualified successor, (ii) the Sellers, at their option,
advise the Trustee that they elect to terminate the book-entry system with
respect to such Series or Class through DTC, or (iii) after the occurrence of a
Servicer Default, Certificate Owners of such Series or Class evidencing more
than 50% of the aggregate unpaid principal amount of such Series or Class advise
the Trustee and DTC through Participants in writing that the continuation of a
book-entry system with
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respect to the Certificates of such Series or Class through DTC (or a successor
thereto) is no longer in the best interest of the Certificate Owners of such
Certificates.
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 of such Series. Upon
surrender by DTC of the definitive certificates representing the Certificates of
such Series or Class and instructions for re-registration, the Sellers will
execute and the Trustee will authenticate and deliver such Certificates as
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as holders under the Pooling and Servicing
Agreement ("Holders").
Distribution of principal and interest on the Definitive Certificates of a
Series will be made by the Paying Agent for such Series directly to Holders of
such Series in accordance with the procedures set forth herein and in the
Pooling and Servicing Agreement. Interest payments and any principal payments on
each Distribution Date will be made to Holders in whose names the Definitive
Certificates were registered at the close of business on the related Record Date
for a Series. Distributions will be made by check mailed to the address of such
Holder as it appears on the register maintained by the Trustee. The final
payment on any Certificate (whether Definitive Certificates or the Certificates
registered in the name of Cede representing the Certificates), 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 respective
Certificateholders. The Trustee will provide such notice to registered
Certificateholders of such Series not later than the fifth day of the month of
such final distribution.
Definitive Certificates of a Series will be transferable and exchangeable
at the offices of the Transfer Agent and Registrar for such Series. No service
charge will be imposed for any registration of transfer or exchange, but the
Transfer Agent and Registrar of such Series may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
THE BANK CERTIFICATE; ADDITIONAL SELLERS
The Pooling and Servicing Agreement provides that the Sellers may surrender
the Bank Certificate to the Trustee in exchange for a newly issued Bank
Certificate and one or more additional certificates (each, a "Supplemental
Certificate") for transfer or assignment to a person designated by the Sellers
upon the execution and delivery of a supplement to the Pooling and Servicing
Agreement (which supplement will be subject to the amendment section of the
Pooling and Servicing Agreement to the extent that it amends any of the terms of
the Pooling and Servicing Agreement; see "-- Amendments"); provided, that (a)
the Sellers shall have given written notice to each Rating Agency of such
exchange, (b) the Seller Amount (excluding the interest represented by any
Supplemental Certificate) shall not be less than 2% of the total amount of
Principal Receivables as of the date of, and after giving effect to, such
exchange and (c) if any Series of Certificates are outstanding that were
characterized as debt at the time of their issuance, the Sellers shall have
delivered to the Trustee and each Rating Agency a Tax Opinion, dated the date of
such exchange (or transfer or exchange as provided below), with respect thereto.
Any transfer or exchange of a Supplemental Certificate is subject to the
condition set forth in clause (b) above.
The Bank Certificate (or any interest therein) may be transferred to an
entity that is a member of the "affiliated group" of which Advanta is the
"common parent" (as such terms are defined in Section 1504(a) of the Code);
provided, that (i) if any Series of Certificates are outstanding that were
characterized as debt at their time of issuance, the Sellers shall have
delivered to the Trustee and each Rating Agency a Tax Opinion, and (ii) any such
transferee will be deemed to be a "Seller" for purposes of the provisions of the
Pooling and Servicing Agreement regarding the Seller indemnification and
liquidation of the Receivables upon the occurrence of an Insolvency Event. See
"-- Liquidation of Receivables" and "-- Indemnification."
AUS may designate affiliates of AUS to be included as Sellers ("Additional
Sellers") under the Pooling and Servicing Agreement (by means of an amendment to
the Pooling and Servicing Agreement that will not require the consent of any
Certificateholder; see "-- Amendments") and, in connection with such
designation, the Sellers shall surrender the Bank Certificate to the Trustee in
exchange for a newly issued Bank Certificate modified to reflect such Additional
Seller's interest in the Sellers' Interest; provided, however, that (i) the
conditions set forth in the preceding two paragraphs with respect to the
issuance of a Supplemental Certificate or the transfer of the Bank Certificate,
as applicable, shall have
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been satisfied with respect thereto prior to such designation and exchange and
(ii) any applicable conditions described in "-- Addition of Accounts" shall have
been satisfied with respect to the transfer of Receivables or Participation
Interests by any Additional Seller to the Trust. Following the inclusion of an
Additional Seller, the Additional Seller will be treated in the same manner as a
Seller and each Additional Seller generally will have the same obligations and
rights as a Seller described herein.
INTEREST PAYMENTS
Each Class of a Series will accrue interest at the rate per annum specified
in, or in the manner determined in, the related Prospectus Supplement
(calculated on the basis specified in the related Prospectus Supplement).
Interest on all Certificates will be due and payable on the Distribution Dates
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, interest for a Class of a Series will be
calculated based on the Investor Amount of such Class at the end of the rate
determination period preceding the applicable Distribution Date.
To the extent provided in the related Prospectus Supplement, a Series may
include one or more Classes of floating rate Certificates. The interest rate on
floating rate Certificates will be a variable or adjustable rate. It is the
Banks' present intention, subject to changing market conditions, that the
floating interest rate formula or index be based on an established financial
index in the national or international financial markets. The Distribution Dates
for floating rate Certificates will be set forth in the related Prospectus
Supplement and need not be the same as the Distribution Dates for the other
Certificates of such Series, but may be either more or less frequent. For each
Class of floating rate Certificates, the related Prospectus Supplement will set
forth the initial floating rate certificate interest rate (or the method of
determining it), the dates or the method for determining the dates on which the
floating rate certificate interest rate is adjusted, and the formula, index or
other method by which such interest rate is determined on such dates.
PRINCIPAL PAYMENTS
Unless otherwise specified in the related Prospectus Supplement, the
Revolving Period for a Class of Certificates begins on the Relevant Closing Date
and ends on the day before an Amortization Period or, if applicable, an
Accumulation Period (as defined in the related Prospectus Supplement) begins for
such Class. On each Distribution Date with respect to the Revolving Period,
collections of Principal Receivables allocable to the Certificateholders'
Interest of a Series will, subject to certain limitations, be paid to the
holders of the Seller Certificates, to amortizing or accumulating Series or
deposited in the Excess Funding Account. After an Amortization Period begins
with respect to any Class of Certificates, collections of Principal Receivables
allocable to such Class will no longer be paid to the holders of the Seller
Certificates, to amortizing or accumulating Series or deposited in the Excess
Funding Account but will generally either be deposited in the Collection Account
or a Series Account to be distributed to Certificateholders on a date or dates
specified in the related Prospectus Supplement or paid to such
Certificateholders on the Distribution Dates specified in the related Prospectus
Supplement following the commencement of the Amortization Period. To the extent
that collections of Principal Receivables are available, subject to any
controlled distribution amount or controlled deposit amount or other limitation
set forth in the related Prospectus Supplement, payments of principal will be
paid to Certificateholders of a Class until the Investor Amount of such Class
has been paid in full; provided, that if one or more Classes is subordinated in
right of payment of principal to another Class or Classes, the
Certificateholders of such subordinated Class or Classes will, to the extent
provided in the related Prospectus Supplement, receive payment only after the
Investor Amount of the senior Class or Classes has been paid in part or in full.
The extent of subordination of a Class of subordinated Certificates may be
limited as described in the related Prospectus Supplement.
Funds on deposit in the Collection Account or Series Account may be subject
to a guaranteed rate agreement or guaranteed investment contract or other
mechanism specified in the related Prospectus Supplement intended to assure a
minimum rate of return on the investment of such funds. In order to enhance the
likelihood of the payment in full of the principal amount of a Class of
Certificates at the end of an Accumulation Period, such Class of Certificates
may be subject to a maturity guaranty or other similar mechanism specified in
the related Prospectus Supplement.
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SHARED PRINCIPAL COLLECTIONS
On each Distribution Date, (a) the Servicer will allocate Shared Principal
Collections to each Principal Sharing Series, pro rata, in proportion to the
Principal Shortfalls, if any, with respect to each such Series and (b) the
Servicer will withdraw from the Collection Account and pay to the holders of the
Seller Certificates an amount equal to the excess, if any, of (x) the aggregate
amount for all outstanding Series of collections of Principal Receivables which
the related Series Supplements specify are to be treated as "Shared Principal
Collections" for such Distribution Date over (y) the aggregate amount for all
outstanding Principal Sharing Series which the related Series Supplements
specify are "Principal Shortfalls" for such Distribution Date; provided,
however, that if on any Distribution Date the Seller Amount is less than or
equal to the Required Seller Amount, the Servicer will not distribute to the
holders of the Seller Certificates any Shared Principal Collections that
otherwise would be distributed to the holders of the Seller Certificates, but
will deposit such funds in the Excess Funding Account.
SHARING OF EXCESS FINANCE CHARGE COLLECTIONS
Collections of Finance Charge Receivables allocable to any Series in excess
of the amounts necessary to make required payments with respect to such Series
may, if specified in the related Series Supplement, be applied to cover
shortfalls, if any, with respect to amounts payable from collections of Finance
Charge Receivables allocable to any other Series then outstanding as provided in
the related Series Supplement.
COMPANION SERIES
If specified in the Prospectus Supplement relating to a Series, such Series
may be paired with another Series (each, a "Companion Series"), such that a
reduction in the Invested Amount of one such Series results in an increase in
the Invested Amount of the other such Series.
GROUPS
If specified in the Prospectus Supplements relating to any group of Series
(together, a "Group"), such Series may be allocated all collections with respect
to certain portions of the Receivables and any Participation Interests, provided
that the Rating Agency Condition is satisfied and that such grouping will not
result in an Adverse Effect.
NEW ISSUANCES
The Pooling and Servicing Agreement authorizes the Sellers to execute and
direct the Trustee to authenticate and deliver three types of certificates: (i)
one or more Series of Certificates which are transferable and have the
characteristics described below, (ii) a Bank Certificate, evidencing the Banks'
interest, which will initially be held by the Banks and which is transferable in
certain circumstances to members of the affiliated group of which Advanta is the
common parent and (iii) Supplemental Certificates delivered in exchange for a
portion of the Bank Certificate under certain circumstances described in the
Pooling and Servicing Agreement (each, a "Supplemental Certificate," and,
together with the Bank Certificate, the "Seller Certificates"). The Bank
Certificate and the Supplemental Certificates represent the ownership interest
in the remainder of the Trust assets not allocated pursuant to the Pooling and
Servicing Agreement to the Certificateholders' Interest, including certain
rights to receive collections with respect to the Receivables and other amounts
pursuant to the Pooling and Servicing Agreement (the "Sellers' Interest"). The
Series Supplement for a Series will specify the following principal terms with
respect to any new Series: (i) its name or designation, (ii) its initial
Investor Amount and Series Investor Amount (or method for calculating such
amounts), (iii) its certificate rate (or method for the determination thereof),
(iv) the payment date or dates and the date or dates from which interest shall
accrue, (v) the method for allocating collections to Certificateholders of such
Series, (vi) the designation of any Series Accounts to be used by such Series
and the terms governing the operation of any such Series Accounts, (vii) the
method of calculating the servicing fee with respect thereto, (viii) the terms
of any form of Series Enhancement with respect thereto, (ix) the terms on which
the Certificates of such Series may be exchanged for Certificates of another
Series, repurchased by the Sellers or remarketed to other investors, (x) the
Stated Series Termination Date of
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such Series, (xi) the number of Classes of such Series and, if such Series
consists of more than one Class, the rights and priorities of each such Class,
(xii) 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), (xiii) whether such Certificates may be issued
as bearer certificates and any limitations imposed thereon, (xiv) the priority
of such Series with respect to any other Series, (xv) the Group, if any, to
which such Series belongs, (xvi) whether or not such Series is a Principal
Sharing Series, and (xvii) any other terms of such Series (all such terms the
"Principal Terms" of such Series). None of the Sellers, the Servicer, the
Trustee or the Trust is required or intends to obtain the consent of any
Certificateholder of any outstanding Series to issue any additional Series.
However, as a condition of a New Issuance, the Rating Agency Condition must be
satisfied and if any outstanding Series was characterized as debt at the time of
its issuance, the Sellers must deliver a Tax Opinion. The Sellers may offer any
Series 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 Sellers.
The Pooling and Servicing Agreement permits New Issuances such that each
Series has a period during which amortization or accumulation of the principal
amount thereof is intended to occur which may have a different length and begin
on a different date than such periods 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,
while other Series are amortizing or accumulating. Moreover, one or more Series,
or Classes of a Series, may have the benefits of forms of Series Enhancement
different from the forms of Series Enhancement available with respect to another
Class or Classes of any other Series. Under the Pooling and Servicing Agreement,
the Trustee will hold any form of Series Enhancement only on behalf of the
Certificateholders of the Series (or Class) with respect to which it relates.
Collections allocated to Finance Charge Receivables not used to pay interest on
the Certificates will be allocated as provided in the related Series Supplement.
There is no limit to the number of New Issuances that the Sellers may perform
under the Pooling and Servicing Agreement. The Trust will terminate only as
provided in the Pooling and Servicing Agreement.
Under the Pooling and Servicing Agreement and pursuant to a Series
Supplement, a New Issuance may occur only upon satisfaction of the following
conditions: (i) on or before the fifth day immediately preceding the Relevant
Closing Date, the Sellers shall have given the Trustee and the Servicer notice
of such issuance and its date; and on or before the tenth day immediately
preceding the Relevant Closing Date, the Sellers shall have given each Rating
Agency notice of such issuance and its date and (ii) the Sellers shall have
delivered to the Trustee (a) a related Series Supplement specifying the
Principal Terms of the new Series, (b) any agreement relating to the Series
Enhancement, (c) written confirmation from each Rating Agency that the New
Issuance will not result in the Rating Agency reducing or withdrawing its rating
of any outstanding Series or Class (the "Rating Agency Condition"), (d) an
officer's certificate from each Seller stating that such Seller reasonably
believes that such issuance will not cause a Pay Out Event to occur with respect
to any Series, and (e) if any Series of Certificates are outstanding that were
characterized as debt at the time of their issuance, a Tax Opinion. Upon
satisfaction of such conditions, the Trustee will execute the related Series
Supplement and authenticate the Certificates of the new Series upon execution
thereof by AUS.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
Each Seller has transferred and assigned to the Trust all of its right,
title and interest in and to specifically identified Receivables existing in the
Accounts owned by such Seller on the day of the relevant transfer and assignment
and in and to all Receivables created in the Accounts thereafter and all
proceeds thereof.
In connection with a transfer of the Receivables to the Trust, each Seller
annotates and indicates in its computer files that the Receivables have been
conveyed to the Trust for the benefit of the
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Certificateholders. In addition, each Seller provides to the Trustee a computer
file or a microfiche list containing a true and complete list of all Accounts
owned by such Seller the Receivables of which have been designated for inclusion
in the Trust which specifies for each such Account, its account number, the
aggregate amount outstanding and the aggregate amount of Principal Receivables
outstanding as of the Related Cut Off Date. The Sellers will not deliver to the
Trustee any other records or agreements relating to such Accounts or the
Receivables. The records and agreements relating to such Accounts and the
Receivables maintained by the Sellers or the Servicer will not be segregated by
the Sellers or the Servicer from other documents and agreements relating to
other credit card accounts and receivables and will not be stamped or marked to
reflect the transfer of the Receivables to the Trust. The Sellers have and will
file UCC financing statements meeting the requirements of applicable state law
with respect to the Receivables. See "Risk Factors -- Certain Legal Aspects" and
"Certain Legal Aspects of the Receivables."
LIQUIDATION OF RECEIVABLES
If an Insolvency Event occurs with respect to any of the Sellers, the
Sellers will immediately cease to transfer Principal Receivables to the Trust
and promptly notify the Trustee thereof. Notwithstanding any cessation of the
transfer to the Trust of additional Principal Receivables, Principal Receivables
transferred to the Trust prior to the occurrence of such Insolvency Event and
collections in respect of such Principal Receivables and Finance Charge
Receivables whenever created, accrued in respect of such Principal Receivables,
shall continue to be a part of the Trust. Within 15 days after receipt of such
notice by the Trustee of the occurrence of such Insolvency Event, the Trustee
shall (i) publish a notice in an authorized newspaper that an Insolvency Event
has occurred and that the Trustee intends to sell, dispose of or otherwise
liquidate the Receivables on commercially reasonable terms and in a commercially
reasonable manner and (ii) give notice to the Certificateholders describing the
applicable provisions of the Pooling and Servicing Agreement and requesting
instructions from the Certificateholders. Unless the Trustee has received
instructions within 90 days from the date notice is first published from (x)
Certificateholders evidencing more than 50% of the Investor Amount of each
Series or, with respect to any Series with two or more Classes, of each Class,
to the effect that such Certificateholders disapprove of the liquidation of the
Receivables and wish to continue having Principal Receivables transferred to the
Trust as before such Insolvency Event, and (y) each Seller (other than the
Seller that is the subject of such Insolvency Event), including any Additional
Seller, and any holder of a Supplemental Certificate and certain other parties
specified in the Series Supplements, to such effect, the Trustee shall promptly
sell, dispose of or otherwise liquidate the Receivables in a commercially
reasonable manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids. The Trustee may obtain a prior determination
from any applicable conservator, receiver or liquidator that the terms and
manner of any proposed sale, disposition or liquidation are commercially
reasonable. If a conservator or receiver is appointed for either Seller and no
Pay Out Event other than such conservatorship or receivership or insolvency of
the relevant Seller exists, the conservator or receiver may have the power to
prevent the early sale, liquidation or disposition of Receivables.
The proceeds from the sale, disposition or liquidation of the Receivables
pursuant to the previous paragraph ("Insolvency Proceeds") shall be immediately
deposited in the Collection Account. The Trustee shall determine conclusively
the amount of the Insolvency Proceeds which are deemed to be Finance Charge
Receivables and Principal Receivables. The Insolvency Proceeds shall be
allocated and distributed to Certificateholders in accordance with the terms of
each Series Supplement and the Trust shall terminate immediately thereafter.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Seller makes representations and warranties relating to the
Receivables as of the Relevant Closing Date and, with respect to Receivables in
Additional Accounts, as of the related Addition Date, to the effect, among other
things, that (i) the Pooling and Servicing Agreement, each Series Supplement
and, in the case of Additional Accounts, the related assignment document, each
constitute legal, valid and binding obligations of such Seller enforceable
against such Seller in accordance with their terms,
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subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general applicability relating to or affecting the enforcement of creditors'
rights in general and the rights of creditors of national banks under United
States law and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity), (ii)
the schedule of Accounts referred to in the Pooling and Servicing Agreement is
an accurate and complete listing in all material respects of the Accounts owned
by such Seller as of the Related Cut Off Date and the information contained
therein with respect to the identity of such Accounts and the Receivables
existing thereunder is true and correct in all material respects as of the
Related Cut Off Date, (iii) each Receivable conveyed to the Trust by such Seller
has been conveyed to the Trust free and clear of any lien other than liens
permitted by the Pooling and Servicing Agreement, (iv) all authorizations,
consents, orders or approvals of or registrations or declarations with any
governmental authority required to be obtained, effected or given by such Seller
in connection with the conveyance by such Seller of Receivables to the Trust
have been duly obtained, effected or given and are in full force and effect, (v)
either the Pooling and Servicing Agreement and, in the case of Additional
Accounts, the related assignment document, each constitute a valid sale,
transfer and assignment to the Trust of all right, title and interest of such
Seller in the Receivables conveyed to the Trust by such Seller and the proceeds
thereof or, if the Pooling and Servicing Agreement or the related assignment
document does not constitute a sale of such property, it constitutes a grant of
a "security interest" (as defined in the UCC) in such property to the Trust,
which, in the case of Receivables then existing and the proceeds thereof, is
enforceable upon execution and delivery of the Pooling and Servicing Agreement
or the related assignment document as of the applicable date and which will be
enforceable with respect to such Receivables thereafter created and the proceeds
thereof upon such creation and that upon the filing of financing statements
required pursuant to the Pooling and Servicing Agreement, the Trust shall have a
first priority perfected security or ownership interest in such property and
proceeds except for (x) liens permitted under the Pooling and Servicing
Agreement, (y) the interest of the Sellers as holders of the Bank Certificate or
any Supplemental Certificate and (z) such Seller's right to receive interest
accruing on and investment earnings if any in respect of the Collection Account
or any Series Account, as provided in the Pooling and Servicing Agreement or the
related Series Supplement, (vi) except as otherwise expressly provided in the
Pooling and Servicing Agreement or the related Series Supplement, neither such
Seller nor any person claiming through or under such Seller has any claim to or
interest in the Collection Account, the Excess Funding Account, any Series
Account or any Series Enhancement, (vii) as of the Related Cut Off Date, each
Initial Account or Additional Account owned by such Seller is an Eligible
Account, (viii) as of the Related Cut Off Date, each Receivable contained in any
related Account owned by such Seller and being designated on such date is an
Eligible Receivable, (ix) as of the date of the creation of any new Receivable
in an Account owned by such Seller, such Receivable is an Eligible Receivable,
and (x) no selection procedure has been utilized by such Seller which it
reasonably believes would result in the selection of an Account that would be
materially adverse to the interests of Certificateholders of any Series.
In the event (i) any representation or warranty of a Seller contained in
clause (ii), (iii), (iv), (vii), (viii), (ix) or (x) above is not true and
correct in any material respect as of the date specified therein with respect to
any Receivable transferred to the Trust by such Seller or an Account owned by
such Seller and as a result of such breach any Receivables in the related
Account become Defaulted Receivables or the Trust's rights in, to or under such
Receivables or the proceeds of such Receivables are impaired or such proceeds
are not available for any reason to the Trust free and clear of any lien, unless
cured within 60 days (or such longer period, not in excess of 150 days, as may
be agreed to by the Trustee) after the earlier to occur of the discovery thereof
by such Seller or receipt by such Seller of notice thereof given by the Trustee,
or (ii) a Receivable is evidenced by an instrument or chattel paper to the
extent (and subject to the limitations) provided in the Pooling and Servicing
Agreement with respect to any Receivables transferred to the Trust by a Seller,
then such Seller shall accept reassignment of all Receivables in the related
Account ("Ineligible Receivables") on the terms and conditions set forth below;
provided, however, that such Receivables will not be deemed to be Ineligible
Receivables and will not be reassigned to such Seller if, on any day prior to
the end of such 60-day or longer period, (x) either (A) in the case of an event
described in clause (i) above the relevant representation and warranty shall
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be true and correct in all material respects as if made on such day or (B) in
the case of an event described in clause (ii) above the circumstances causing
such Receivable to become an Ineligible Receivable shall no longer exist and (y)
such Seller shall have delivered to the Trustee an officer's certificate
describing the nature of such breach and the manner in which the relevant
representation and warranty became true and correct. Such Ineligible Receivables
shall be automatically removed from the Trust by the Servicer deducting the
portion of the Ineligible Receivables reassigned to the relevant Seller which
are Principal Receivables from the aggregate amount of Principal Receivables
used to calculate the Seller Amount, the Series Percentages and any other
percentage used to allocate within or among Series that is applicable to any
Series. In the event that, following the exclusion of such Principal Receivables
from the calculation of the Seller Amount, the Seller Amount would be less than
the Required Seller Amount, not later than 12:00 noon, New York City time, on
the first Distribution Date following the Monthly Period in which such
reassignment obligation arises, the relevant Seller shall make a deposit into
the Excess Funding Account in immediately available funds in an amount equal to
the amount by which the Seller Amount would be reduced below the Required Seller
Amount (up to the amount of such Principal Receivables).
Upon the deposit, if any, required to be made to the Excess Funding Account
as provided in the Pooling and Servicing Agreement and the reassignment of
Ineligible Receivables, the Trustee, on behalf of the Trust, shall automatically
and without further action be deemed to sell, transfer, assign, set over and
otherwise convey to the relevant Seller or its designee, without recourse,
representation or warranty, all the right, title and interest of the Trust in
and to such Ineligible Receivables, all moneys due or to become due and all
amounts received with respect thereto and all proceeds thereof. The Trustee
shall execute such documents and instruments of transfer or assignment and take
such other actions as shall reasonably be requested by the relevant Seller to
effect the conveyance of Ineligible Receivables pursuant to this Section. The
obligation of the relevant Seller to accept reassignment of any Ineligible
Receivables, and to make the deposits, if any, required to be made to the Excess
Funding Account as provided in the Pooling and Servicing Agreement, shall
constitute the sole remedy respecting the event giving rise to such obligation
available to Certificateholders (or the Trustee on behalf of the
Certificateholders.) The obligations of each Seller (including any Additional
Seller) to accept reassignment of the Receivables will be several and not joint
with respect to the Receivables transferred by such Seller to the Trust.
Each Seller also makes representations and warranties to the Trust to the
effect, among other things, that as of the Relevant Closing Date with respect to
each Series (i) it is a national banking association or corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its organization or incorporation and has full corporate power,
authority and legal right to own its property and conduct its consumer revolving
lending business as such properties are presently owned and such business is
presently conducted, and to execute, deliver and perform its obligations under
the Pooling and Servicing Agreement and each Series Supplement and to execute
and deliver to the Trustee the Certificates pursuant thereto; (ii) it is duly
qualified to do business and is in good standing as a foreign corporation (or is
exempt from such requirements), and has obtained all necessary licenses and
approvals in each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would render any cardholder agreement relating to an
Account owned by it or any Receivable transferred to the Trust by it
unenforceable by such Seller, the Servicer or the Trustee or would have a
material adverse effect on the Certificateholders of any Series; provided,
however, that no representation or warranty will be made with respect to any
qualification, licenses or approvals which the Trustee has or may be required at
any time to obtain if any, in connection with the transactions contemplated by
the Pooling and Servicing Agreement; (iii) the execution and delivery of the
Pooling and Servicing Agreement and each Series Supplement by such Seller and,
in the case of AUS, the execution and delivery to the Trustee of the
Certificates, and the consummation by such Seller of the transactions provided
for in the Pooling and Servicing Agreement and each Series Supplement have been
duly authorized by such Seller by all necessary corporate action on the part of
such Seller and the Pooling and Servicing Agreement and each Series Supplement
will remain, from the time of its execution, an official record of such Seller;
(iv) the execution and delivery by such Seller of the Pooling and Servicing
Agreement, each Series Supplement
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and, in the case of AUS, the Certificates, the performance by such Seller of the
transactions contemplated by the Pooling and Servicing Agreement and each Series
Supplement and the fulfillment by such Seller of the terms thereof, will not
conflict with, result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or both) a material
default under, any indenture, contract, agreement, mortgage, deed of trust or
other instrument to which such Seller is a party or by which it or any of its
properties are bound; (v) the execution and delivery by it of the Pooling and
Servicing Agreement, each Series Supplement and, in the case of AUS, the
Certificates, the performance by such Seller of the transactions contemplated by
the Pooling and Servicing Agreement and each Series Supplement and the
fulfillment by such Seller of the terms thereof will not conflict with or
violate any requirements of law applicable to such Seller, (vi) there are no
proceedings or investigations, pending or, to the best knowledge of such Seller,
threatened against it, before any court, regulatory body, administrative agency,
or other tribunal or governmental instrumentality (a) asserting the invalidity
of the Pooling and Servicing Agreement, any Series Supplement or the
Certificates, (b) seeking to prevent the issuance of the Certificates or the
consummation of any of the transactions contemplated by the Pooling and
Servicing Agreement, any Series Supplement or the Certificates, (c) seeking any
determination or ruling that, in the reasonable judgment of such Seller, would
materially and adversely affect the performance by it of its obligations with
respect to any Series under the Pooling and Servicing Agreement or any Series
Supplement, (d) seeking any determination or ruling that would materially and
adversely affect the validity or enforceability of the Pooling and Servicing
Agreement, any Series Supplement or the Certificates, or (e) seeking to affect
adversely the income tax attributes of the Trust or the Certificates of any
Series under the United States federal or Delaware state income or franchise tax
systems; (vii) all approvals, authorizations, consents, orders or other actions
of any person or of any governmental body or official required in connection
with the execution and delivery by such Seller of the Pooling and Servicing
Agreement, each Series Supplement and, in the case of AUS, the Certificates, the
performance by such Seller of the transactions contemplated by the Pooling and
Servicing Agreement and each Series Supplement and the fulfillment by it of the
terms thereof, have been obtained, except such as may be required by state
securities or "blue sky" laws in connection with the distribution of the
Certificates; (viii) no Insolvency Event with respect to such Seller has
occurred and the transfer of the Receivables by such Seller to the Trust has not
been made in contemplation of the occurrence thereof; and (ix) such Seller is
either an insured institution for the purposes of the Federal Deposit Insurance
Act or is a bankruptcy-remote entity.
The Pooling and Servicing Agreement provides that the representations and
warranties set forth in the immediately preceding paragraph will survive the
transfer and assignment by the Sellers of the Receivables to the Trust. Upon
discovery by a Seller, the Servicer or the Trustee of a breach of any of the
representations and warranties by such Seller set forth in the preceding
paragraph, the party discovering such breach will give prompt written notice to
the others and such Seller will cooperate with the Servicer and the Trustee in
attempting to cure the breach.
An "Eligible Account" is defined in the Pooling and Servicing Agreement to
mean a revolving credit card account owned by AUS, in the case of the Initial
Accounts, or AUS or any Additional Seller, in the case of Additional Accounts,
which account is identified by the relevant Seller as of the Related Cut Off
Date as having the following characteristics (a) is in existence and maintained
by AUS, in the case of the Initial Accounts, or AUS or any Additional Seller, in
the case of Additional Accounts; (b) is payable in United States dollars; (c)
except as provided below, has not been identified as an account the credit card
or cards with respect to which have been reported to AUS or the applicable
Additional Seller as having been lost or stolen; (d) the obligor of which has
provided, as his or her billing address, an address located in the United States
(or its territories or possession or military address); (e) has an obligor who
has not been identified by AUS or the applicable Additional Seller as an
employee of AUS or such Additional Seller or any affiliate of either thereof;
(f) except as provided below, does not have any Receivables which are Defaulted
Receivables; and (g) except as provided below, does not have any Receivables
which have been identified by AUS or the applicable Additional Seller or the
relevant obligor as having been incurred as a result of fraudulent use of any
related credit card.
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The Pooling and Servicing Agreement provides that Eligible Accounts may
include Accounts, the Receivables of which have been written off, or with
respect to which the relevant Seller believes the related obligor is bankrupt,
or as to which certain Receivables have been identified by the obligor as having
been incurred as a result of fraudulent use of any credit cards, or as to which
any credit cards have been reported to such Seller as lost or stolen, in each
case as of the Related Cut Off Date; provided that (a) the balance of all
Receivables included in such Accounts is reflected on the books and records of
the relevant Seller (and is treated for purposes of the Pooling and Servicing
Agreement) as "zero", and (b) charging privileges with respect to all such
Accounts have been canceled in accordance with the relevant credit card
guidelines.
An "Eligible Receivable" is defined in the Pooling and Servicing Agreement
to mean each Receivable (a) which has arisen under an Eligible Account, (b)
which was created in compliance with all requirements of law applicable to the
Seller that transferred such Receivable to the Trust, the failure to comply with
which would have a material adverse effect upon Certificateholders and pursuant
to a credit card agreement which complies with all requirements of law
applicable to such Seller, the failure to comply with which would have a
material adverse effect upon Certificateholders, (c) with respect to which all
material consents, licenses, approvals or authorizations of, or registrations or
declarations with, any governmental authority required to be obtained or given
by the relevant Seller in connection with the creation of such Receivable or the
execution, delivery and performance by the relevant Seller of its obligations,
if any, under the related credit card agreement have been duly obtained or given
and are in full force and effect as of such date of creation of such Receivable,
(d) as to which, at the time of its transfer to the Trust, the relevant Seller
or the Trust will have good and marketable title, free and clear of all liens,
encumbrances, charges and security interests (except for certain tax liens
permitted by the Pooling and Servicing Agreement), (e) which has been the
subject of either (i) a valid transfer and assignment from the relevant Seller
to the Trust of all of such Seller's right, title and interest therein or (ii)
the grant of a first priority perfected security interest therein (and in the
proceeds thereof), effective until the termination of the Trust, (f) which at
and after the time of transfer to the Trust is the legal, valid and binding
payment obligation of the obligor thereon, legally enforceable against such
obligor in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting the enforcement of
creditors' rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in equity);
(g) which constitutes either an "account" or a "general intangible" under and as
defined in Article 9 of the UCC; (h) which, at the time of its transfer to the
Trust, has not been waived or modified except as permitted in accordance with
the credit card guidelines and which waiver or modification is reflected in the
Servicer's computer file of revolving credit card accounts; (i) which, at the
time of its transfer to the Trust, is not subject to any right of rescission,
setoff, counterclaim or any other defense of the obligor (including the defense
of usury), other than defenses arising out of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or equity) or
as to which the Servicer is required by the Pooling and Servicing Agreement to
make an adjustment; (j) as to which, at the time of its transfer to the Trust,
the relevant Seller has satisfied all obligations to be fulfilled by such Seller
at the time it is transferred to the Trust; and (k) as to which, at the time of
its transfer to the Trust, the relevant Seller has not taken any action which,
or failed to take any action the omission of which, would, at the time of its
transfer to the Trust, impair the rights of the Trust or the Certificateholders
therein.
The Trustee will not make any initial or periodic general examination of
the Receivables or any records relating to the Receivables for the purpose of
establishing the presence or absence of defects, compliance with the Sellers'
representations and warranties or for any other purpose. The Servicer, however,
has agreed 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 and certain other components of the Trust.
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Each Seller covenants in the Pooling and Servicing Agreement that, except
as otherwise required by any requirement of law, or as is deemed by the relevant
Seller in its sole discretion to be necessary in order for such Seller to
maintain its lending business on a competitive basis, based on a good faith
assessment by such Seller of the nature of the competition in the lending
business, it will not at any time reduce the annual percentage rate at which
periodic finance charges are assessed on any Receivable or the other fees and
charges assessed on the Accounts owned by it if, as a result of such reduction,
either (i) such Seller's reasonable expectation is that such reduction would
cause a Series Pay Out Event to occur or (ii) such reduction is not also applied
to any comparable segments of consumer revolving credit card accounts owned by
such Seller which have characteristics the same as, or substantially similar to,
such Accounts.
Each Seller also covenants that it may only change the terms relating to
any of the Accounts owned by it in any respect only if in the reasonable
judgment of such Seller the change is made applicable to the comparable segment
of the consumer revolving credit card accounts owned by such Seller with
characteristics the same as, or substantially similar to, the Accounts, subject
to compliance with all requirements of law.
ADDITION OF ACCOUNTS
Pursuant to the Pooling and Servicing Agreement, each Seller may (under
certain circumstances and subject to certain limitations and conditions) and,
under certain conditions, will be required to designate from time to time
additional Eligible Accounts to be included as Accounts ("Additional Accounts"),
and will convey to the Trust all Receivables of such Additional Accounts,
whether such Receivables are then existing or thereafter created. The date on
which Additional Accounts are transferred to the Trust is referred to herein as
the "Addition Date."
Each Additional Account must be an Eligible Account as of the Related Cut
Off Date. No selection procedures believed by a Seller to be adverse to the
interests of the Certificateholders will be utilized in selecting Additional
Accounts from the available Eligible Accounts in the Advanta Consumer Credit
Card Portfolio. However, since Additional Accounts may not have been part of the
Advanta Consumer Credit Card Portfolio at the time of the initial transfer of
Accounts to the Trust, Additional Accounts may not be of the same credit quality
as the Initial Accounts. Additional Accounts may have been originated by the
Banks at a later date using credit criteria different from those that were
applied to the initial Accounts or may have been acquired by the Banks from
another credit card issuer that had different credit criteria.
Required Additions. Generally, if either (x) the Seller Amount is less
than the Required Seller Amount or (y) the aggregate amount of Principal
Receivables is less than the Required Principal Balance, the Sellers will be
required to designate additional Eligible Accounts to be included as Accounts in
a sufficient amount such that, after giving effect to such addition, the Seller
Amount as of the close of business on the applicable Addition Date is at least
equal to the Required Seller Amount on such date and the aggregate amount of
Principal Receivables exceeds the Required Principal Balance. In lieu of, or in
addition to, so designating Additional Accounts, the Sellers may, subject to the
conditions specified below and in the Pooling and Servicing Agreement, convey to
the Trust participations (including 100% participations) representing undivided
interests in a pool of assets primarily consisting of revolving credit card
receivables, consumer loan receivables (secured and unsecured), and any
interests in both such types of receivables, including securities representing
or backed by both such types of receivables, and other self-liquidating
financial assets (including "eligible assets" as such term is defined in Rule
3a-7 under the Investment Company Act of 1940 (or any successor to such Rule))
owned by a Seller or any affiliate of a Seller and collections thereon
("Participation Interests").
"Required Seller Amount" means, with respect to any date, the product of
the Required Seller Percentage and the aggregate amount of Principal
Receivables.
"Required Seller Percentage" currently means 5%, provided the Required
Seller Percentage may be reduced to as low as 2% if each Seller delivers an
officer's certificate stating that such reduction will not have an Adverse
Effect and the Rating Agency Condition is satisfied.
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"Required Principal Balance" means, with respect to any date, the sum of
the Series Investor Amounts for each Series minus the amount on deposit in the
Excess Funding Account.
"Series Investor Amount" means, for any Series, the amount set forth in the
related Series Supplement and, for each Series offered hereby, in the Prospectus
Supplement for such Series, but will generally be an amount equal to the
numerator of the Series Percentage for allocating collections of Principal
Receivables for such Series.
Restricted Additions. Each Seller may from time to time, at its sole
discretion, subject to the conditions specified below, designate additional
Eligible Accounts to be included as Accounts or Participation Interests to be
included as Trust assets, in either case as of the applicable Addition Date.
Conditions to Required and Restricted Additions. On the Addition Date with
respect to any Additional Accounts or Participation Interests, the Trust shall
purchase the Receivables in such Additional Accounts or shall purchase such
Participation Interests, in each case as of the close of business on the
applicable Addition Date, subject to the satisfaction of the following
conditions: (i) on or before the tenth business day immediately preceding the
Addition Date, each Seller which owns any such Additional Account or is
transferring any such Participation Interest (a "Participating Seller") shall
have given the Trustee, the Servicer and each Rating Agency written notice that
the Additional Accounts or Participation Interests will be included and
specifying the applicable Addition Date, the Related Cut Off Date, and the
approximate number of accounts expected to be added and the approximate
aggregate balances expected to be outstanding in the accounts to be added (in
case of Additional Accounts); (ii) in the case of Additional Accounts, the
Participating Sellers shall have delivered to the Trustee copies of UCC-1
financing statements covering such Additional Accounts, if necessary to perfect
the Trust's interest in the Receivables arising therein; (iii) as of each of the
Related Cut Off Date and the Addition Date, no Insolvency Event with respect to
the Participating Sellers shall have occurred nor shall the transfer of the
Receivables arising in the Additional Accounts or of the Participation Interests
to the Trust have been made in contemplation of the occurrence thereof; (iv)
except in the case of certain required Additions, the Rating Agency Condition
shall have been satisfied; (v) each Participating Seller shall have delivered to
the Trustee an officer's certificate, dated the Addition Date, stating that (x)
in the case of Additional Accounts, as of the applicable Related Cut Off Date,
the Additional Accounts are all Eligible Accounts, (y) to the extent applicable,
the conditions set forth in clauses (ii) through (iv) above have been satisfied
and (z) such Participating Seller reasonably believes that (A) the addition by
such Participating Seller of the Receivables arising in the Additional Accounts
or of the Participation Interests to the Trust will not, based on the facts
known to such officer at the time of such addition, then or thereafter cause a
Pay Out Event to occur with respect to any Series and (B) in the case of
Additional Accounts, no selection procedure was utilized by such Participating
Seller which would result in a selection of Additional Accounts (from among the
available Eligible Accounts owned by such Participating Seller) that would be
materially adverse to the interests of the Certificateholders of any Series as
of the Addition Date; (vi) each Participating Seller shall have delivered to the
Trustee and each Rating Agency an opinion of counsel stating the validity and
perfection of the transfer of the Receivables created in such Additional
Accounts to the Trustee; (vii) in the case of designation of Additional
Accounts, the Participating Sellers shall have delivered to the Trustee (x) the
computer file or microfiche list containing a true and complete list of such
Additional Accounts and (y) a duly executed, written assignment; and (viii)
unless each Rating Agency otherwise consents, the number of Additional Accounts
so designated with respect to a required addition with respect to any of the
three consecutive Monthly Periods commencing in January, April, July and October
of each calendar year, commencing in January 1994, shall not exceed 15% of the
number of Accounts as of the first day of the calendar year during which such
Monthly Periods commence and the number of Additional Accounts so designated
during any calendar year shall not exceed 20% of the number of Accounts as of
the first day of such calendar year.
AUTOMATIC ACCOUNT ADDITIONS
(i) Each Seller may from time to time, at its sole discretion, subject to
and in compliance with the limitations specified in clause (ii) below and the
applicable conditions specified in clauses (iii) through
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(vii) below, designate Eligible Accounts ("Automatic Additional Accounts") to be
included as Accounts as of the applicable Addition Date. For purposes of this
paragraph, Eligible Accounts are deemed to include only consumer revolving
credit card accounts which are originated by a Seller or any affiliate of a
Seller.
(ii) Unless each Rating Agency otherwise consents, the number of Automatic
Additional Accounts designated with respect to any of the three consecutive
Monthly Periods commencing in January, April, July and October of each calendar
year, commencing in January 1994, shall not exceed 15% of the number of Accounts
as of the first day of the calendar year during which such Monthly Periods
commence and the number of Automatic Additional Accounts designated during any
such calendar year will not exceed 20% of the number of Accounts as of the first
day of such calendar year.
(iii) Within 30 days after the Addition Date with respect to any Automatic
Additional Accounts, the Sellers will deliver to the Trustee and each Rating
Agency an opinion of counsel with respect to the Automatic Additional Accounts
included as Accounts on such Addition Date, confirming the validity and
perfection of the transfer of such Automatic Additional Accounts. If such
opinion of counsel with respect to any Automatic Additional Accounts is not so
received, the ability of the Sellers to designate Automatic Additional Accounts
will be suspended until such time as each Rating Agency otherwise consents in
writing. If the Sellers are unable to deliver an opinion of counsel with respect
to any Automatic Additional Account, such inability shall be deemed to be a
breach of the representation with respect to the Receivables in such Automatic
Additional Account, provided that the cure period for such breach will not
exceed 30 days.
(iv) The Participating Sellers shall have delivered to the Trustee copies
of UCC-1 financing statements covering such Automatic Additional Accounts, if
necessary to perfect the Trust's interest in the Receivables arising therein.
(v) As of each of the Related Cut Off Date and the Addition Date, no
Insolvency Event with respect to any Participating Seller shall have occurred
nor shall the transfer of the Receivables arising in the Automatic Additional
Accounts to the Trust have been made in contemplation of the occurrence thereof.
(vi) Each Participating Seller shall have delivered to the Trustee an
officer's certificate, dated the Addition Date, stating that (x) as of the
applicable Related Cut Off Date, such Automatic Additional Accounts are all
Eligible Accounts, (y) to the extent applicable, the conditions set forth in
clauses (ii) through (v) above have been satisfied and (z) such Participating
Seller reasonably believes that (A) the addition by such Participating Seller of
the Receivables arising in such Automatic Additional Accounts will not, based on
the facts known to such officer at the time of such addition, then or thereafter
cause a Pay Out Event to occur with respect to any Series and (B) no selection
procedure was utilized by such Participating Seller which would result in a
selection of Automatic Additional Accounts (from among the available Eligible
Accounts owned by such Participating Seller) that would be materially adverse to
the interests of the Certificateholders of any Series as of the Addition Date.
(vii) The Participating Sellers shall have delivered to the Trustee (x) a
computer file or microfiche list containing a true and complete list of such
Automatic Additional Accounts and (y) a duly executed assignment of the
Receivables arising in such Automatic Additional Accounts.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth below, on any day of any Monthly Period
each Seller shall have the right to require the reassignment to it or its
designee of all the Trust's right, title and interest in, to and under the
Receivables then existing and thereafter created, all moneys due or to become
due and all amounts received with respect thereto and all proceeds thereof in or
with respect to the Accounts owned and designated by such Seller (the "Removed
Accounts") or Participation Interests designated by such Seller, upon
satisfaction of the following conditions:
(a) on or before the fifth business day immediately preceding the
Removal Date (the "Removal Notice Date"), such Seller shall have given the
Trustee, the Servicer, each Rating Agency
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and the provider of any Series Enhancement written notice of such removal,
specifying the date for removal of the Removed Accounts or Participation
Interests (the "Removal Date");
(b) with respect to Removed Accounts, on or prior to the date that is
ten business days after the Removal Date, such Seller will deliver to the
Trustee a computer file or microfiche list containing a true and complete
list of the Removed Accounts specifying for each such Account, as of the
last day of the Monthly Period preceding the Removal Notice Date (the
"Removal Cut Off Date"), its account number, the aggregate amount
outstanding in such Account and the aggregate amount of Principal
Receivables outstanding in such Account;
(c) with respect to Removed Accounts, such Seller shall have
represented and warranted as of the Removal Date that the list of Removed
Accounts delivered pursuant to paragraph (b) above, as of the Removal Cut
Off Date, is true and complete in all material respects;
(d) the Rating Agency Condition shall have been satisfied with respect
to such removal;
(e) such Seller shall have delivered to the Trustee an officer's
certificate, dated the Removal Date, to the effect that such Seller
reasonably believes that (i) such removal will not, based on the facts
known to such officer at the time of such certification, then or thereafter
cause a Pay Out Event to occur with respect to any Series and (ii) no
selection procedure was utilized by such Seller which would result in a
selection of Removed Accounts or Participation Interests that would be
materially adverse to the interests of the Certificateholders of any Series
as of the Removal Date; and
(f) as of the Removal Cut Off Date, no more than 10% of the
Receivables outstanding are more than thirty days contractually delinquent.
Upon satisfaction of the above conditions, the Trustee will execute and
deliver to the relevant Seller or its designee a written reassignment and will,
without further action, be deemed to sell, transfer, assign, set over and
otherwise convey to such Seller or its designee, effective as of the Removal
Date, without recourse, representation or warranty, all the right, title and
interest of the Trust in and to the Participation Interests or Receivables
arising in the Removed Accounts, all moneys due and to become due and all
amounts received with respect thereto and all proceeds thereof.
SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for servicing and administering the Receivables in accordance with
the Servicer's customary and usual servicing procedures for servicing credit
card receivables comparable to the Receivables and in accordance with its credit
card guidelines.
DISCOUNT OPTION
The Pooling and Servicing Agreement provides that the Sellers may at any
time and from time to time designate a percentage or percentages, which may be a
fixed percentage or a variable percentage based on a formula (the "Discount
Percentage"), of all or any specified portion of Principal Receivables created
after the effective date of such option (the "Discount Option Date") to be
treated as Finance Charge Receivables (the "Discount Option Receivables"). The
Sellers also have the option of reducing or withdrawing the Discount Percentage,
at any time and from time to time, on and after the Discount Option Date. The
Pooling and Servicing Agreement requires the Sellers to provide to the Servicer,
the Trustee and any Rating Agency 30 days' prior written notice of the Discount
Option Date and such designation will become effective on such Discount Option
Date (i) unless such designation in the reasonable belief of the Sellers would
cause a Pay Out Event with respect to any Series to occur, or an event which,
with notice or the lapse of time or both, would constitute a Pay Out Event with
respect to any Series and (ii) only if the Rating Agency Condition is satisfied.
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 "Discount Option Receivable Collections." An amount
equal to the product
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of (i) the Series Percentage with respect to Finance Charge Receivables for each
Series of Certificates issued and outstanding and (ii) the amount of such
Discount Option Receivables Collections will be deposited by the Servicer into
the Collection Account and an amount equal to the product of (iii) the Seller
Percentage and (iv) the amount of the Discount Option Receivable Collections
will be paid to the holders of the Seller Certificates. The former amount
deposited into the Collection Account will be applied as provided below
regarding collections of Finance Charge Receivables.
TRUST ACCOUNTS
The Servicer has caused to be established and maintained, in the name of
the Trustee, for the benefit of Certificateholders of all Series, a "Collection
Account", which at all times is required to be either (a) a segregated account
with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), and acting as a trustee for
funds deposited in such account, so long as any of the securities of such
depository institution shall have a credit rating from each Rating Agency in one
of its generic credit rating categories which signifies investment grade (an
"Eligible Deposit Account"). The Servicer has also caused to be established and
maintained, in the name of the Trustee, an "Excess Funding Account," which also
is required to be an Eligible Deposit Account. An "Eligible Institution" is
defined as (I) a depository institution, which may be the Trustee, organized
under the laws of the United States or any one of the states thereof, including
the District of Columbia (or any domestic branch of a foreign bank) which at all
times (a) has either (i) long-term unsecured debt rating of A1 or better by
Moody's Investors Service Inc. ("Moody's") or (ii) a certificate of deposit
rating of P-1 by Moody's, (b) has either (i) a long-term unsecured debt rating
of AAA by Standard & Poor's Ratings Group ("Standard & Poor's") or (ii) a
certificate of deposit rating of A-1+ by Standard & Poor's and (c) is a member
of the FDIC or (II) any other institution that is acceptable to each Rating
Agency. If so qualified, the Trustee or the Servicer may be considered an
Eligible Institution.
Funds in the Collection Account and the Excess Funding Account will be
invested, at the direction of the Servicer, in "Eligible Investments" consisting
of book-entry securities, negotiable instruments or securities represented by
instruments in bearer or registered form which evidence: (a) direct obligations
of, and obligations fully guaranteed as to timely payment of principal and
interest by, the United States of America; (b) demand deposits, time deposits or
certificates of deposit (having original maturities of no more than 365 days) of
depository institutions or trust companies incorporated under the laws of the
United States of America or any state thereof (or domestic branches of foreign
banks) and subject to supervision and examination by federal or state banking or
depository institution authorities; provided, that at the time of the Trust's
investment or contractual commitment to invest therein, the short-term debt
rating of such depository institution or trust company shall be in the highest
investment category of each Rating Agency; (c) commercial paper or other
short-term obligations having, at the time of the Trust's investment or
contractual commitment to invest therein, a rating from each Rating Agency in
its highest investment category; (d) notes or bankers' acceptances (having
original maturities of no more than 365 days) issued by any depository
institution or trust company referred to in (b) above; (e) investments in money
market funds rated in the highest investment category by each Rating Agency or
otherwise approved in writing by each Rating Agency; (f) time deposits, other
than as referred to in clause (e) above, with a person the commercial paper of
which has a credit rating from each Rating Agency in its highest investment
category; or (g) any other investments approved in writing by each Rating
Agency. The Trustee, acting as the initial paying agent (together with any
successor thereto in such capacity and any entity specified in a Series
Supplement to act in such capacity for the related Series, collectively, the
"Paying Agent"), shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions to the
Certificateholders of any Series pursuant to the related Series Supplement.
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SERIES PERCENTAGE AND SELLER PERCENTAGE
Pursuant to the Pooling and Servicing Agreement, the Servicer will allocate
between the Series, including each Class of each Series, and the Sellers'
Interest all amounts collected with respect to Finance Charge Receivables,
Principal Receivables and all Defaulted Receivables. The Servicer will make each
allocation by reference to the applicable Series Percentage for each Series and
the Seller Percentage in each case. The Series Percentages for each Series will
be as set forth in the related Series Supplement and, with respect to each
Series offered hereby, in each Prospectus Supplement.
The Seller Percentage in all cases means the excess of 100% over the
aggregate Series Percentages of all Series then outstanding for each category of
Receivables.
APPLICATION OF COLLECTIONS
Except as provided below or in a Series Supplement, the Servicer will
deposit into the Collection Account, no later than the second business day
following the date of processing, any payment collected by the Servicer on the
Receivables; provided, however, that the Servicer need not deposit amounts
allocated to the Seller Certificates and certain amounts allocated to
Certificateholders of a Series, as specified in the related Series Supplement,
into the Collection Account, and provided, further, that for so long as AUS
remains the Servicer and (x) maintains a certificate of deposit rating of A-1 or
better by Standard & Poor's and P-1 by Moody's (or such other rating below A-1
or P-1, as the case may be, that is satisfactory to each Rating Agency) or (y)
AUS has provided to the Trustee a letter of credit covering the collection risk
of the Servicer acceptable to each Rating Agency, the Servicer need not make
daily deposits of collections into the Collection Account, but may make a single
monthly deposit into the Collection Account in immediately available funds.
OPERATION OF EXCESS FUNDING ACCOUNT
On any Distribution Date on which the Seller Amount is less than the
Required Seller Amount, the Servicer will deposit any Shared Principal
Collections that would otherwise be distributed to the holders of the Seller
Certificates into the Excess Funding Account. The Servicer will determine, with
respect to each Distribution Date on which no Series is in an Amortization
Period, the amount by which the Seller Amount exceeds the Required Seller Amount
and will instruct the Trustee to withdraw such amount from the Excess Funding
Account, to the extent of the principal amount of funds on deposit therein, and
pay such amount to the holders of the Seller Certificates. The Servicer will
determine, with respect to each Distribution Date on which one or more Series is
in an Amortization Period, the aggregate amount of Principal Shortfalls, if any,
with respect to each Series that is a Principal Sharing Series and will instruct
the Trustee to withdraw such amount from the Excess Funding Account, to the
extent of the principal amount of funds on deposit therein, and allocate such
amount among each such Series as Shared Principal Collections.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
The term "Defaulted Receivables" means, for any Monthly Period, all
Principal Receivables which are charged off as uncollectible in such Monthly
Period in accordance with the Servicer's credit card guidelines and customary
and usual servicing procedures for servicing consumer revolving credit card and
other revolving credit account receivables comparable to the Receivables. A
Principal Receivable shall become a Defaulted Receivable on the day on which
such Principal Receivable is recorded as charged off on the Servicer's computer
master file of consumer revolving credit card accounts but, in any event, shall
be deemed a Defaulted Receivable no later than the day the related Account
becomes 186 days contractually delinquent unless the obligor cures such default
by making a partial payment which satisfies the criteria for curing
delinquencies set forth in the Servicer's applicable credit card guidelines. The
term "Defaulted Amount" means, with respect to any Monthly Period, an amount
(which shall not be less than zero) equal to (a) the amount of Principal
Receivables which became Defaulted Receivables in such Monthly Period, minus (b)
the amount of any Defaulted Receivables included in any Account the
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Receivables in which a Seller or the Servicer became obligated to accept
reassignment or assignment in accordance with the terms of the Pooling and
Servicing Agreement during such Monthly Period; provided, however, that, if an
Insolvency Event occurs with respect to any Seller, the amount of such Defaulted
Receivables which are subject to reassignment to such Seller in accordance with
the terms of the Pooling and Servicing Agreement shall not be added to the sum
so subtracted and, if certain events involving insolvency occur with respect to
the Servicer, the amount of such Defaulted Receivables which are subject to
reassignment or assignment to the Servicer in accordance with the terms of the
Pooling and Servicing Agreement shall not be added to the sum so subtracted.
On each day that the Servicer adjusts downward the amount of any Receivable
because of a rebate, refund, unauthorized charge or billing error to a
cardholder, or because such Receivable was created in respect of merchandise
which was refused or returned by a cardholder, or if the Servicer otherwise
adjusts downward the amount of any Receivable without receiving collections
therefor or charging off such amount as uncollectible, then, in any such case,
the amount of Principal Receivables used to calculate the Seller Amount, the
Series Percentages and any other percentages used to allocate within or among
Series will be reduced by the amount of the adjustment. Similarly, the amount of
Principal Receivables used to calculate the Seller Amount, the Series
Percentages and any other percentage used to allocate within or among Series
will be reduced by the amount of any Receivable discovered to have been created
through a fraudulent or counterfeit charge. Furthermore, in the event that the
exclusion of such Principal Receivables from the calculation of the Seller
Amount at such time would cause the Seller Amount to be less than the Required
Seller Amount, the Seller which transferred such Principal Receivables to the
Trust shall be required to pay an amount equal to such deficiency into the
Excess Funding Account (up to the amount of such Principal Receivables).
FINAL PAYMENT OF PRINCIPAL AND INTEREST; TERMINATION
Subject to prior termination as described herein and in the Prospectus
Supplement, the interest of the Certificateholders of a Series in the Trust will
terminate following the earliest of (i) the day after the Distribution Date on
which the final payment of principal and interest is made to the
Certificateholders of such Series, (ii) the date specified for termination in
the applicable Series Supplement ("Stated Series Termination Date" for such
Series) and (iii) the Trust Termination Date. In the event the Investor Amount
of any Series would be greater than zero on the Stated Series Termination Date
for such Series or such earlier date specified in the related Series Supplement,
the Trustee will sell or cause to be sold Principal Receivables and the related
Finance Charge Receivables (or interests therein), as specified in the Pooling
and Servicing Agreement and the related Series Supplement, in an amount equal to
100% of the Investor Amount of the Certificates of such Series and accrued and
unpaid interest thereon on such date (but not more than the applicable Series
Percentages of Receivables on such date for the Certificates of such Series).
The proceeds of such sale will be allocated and distributed in accordance with
the applicable Series Supplement.
The Trust will only terminate on the earliest to occur of (a) the day
following the payment date on which the aggregate Investor Amount and Series
Enhancement investor amounts, if any, of each Series is zero (provided that the
Sellers have delivered a written notice to the Trustee electing to terminate the
Trust), (b) December 31, 2044, or (c) if the Receivables are sold, disposed of
or liquidated following the occurrence of an Insolvency Event as described under
"--Trust Pay Out Events", immediately following such sale, disposition or
liquidation (the "Trust Termination Date"). Upon termination of the Trust, all
right, title and interest in the Receivables and other funds of the Trust (other
than amounts in accounts maintained by the Trust for the final payment of
principal and interest to Certificateholders) will be conveyed and transferred
to the Sellers.
TRUST PAY OUT EVENTS
The Revolving Period for all outstanding Series will continue through a
date specified in the related Series Supplement unless a Trust Pay Out Event or
a Series specific pay out event (a "Series Pay Out Event") specified in the
related Series Supplement with respect to such Series (and for a Series offered
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hereby, the related Prospectus Supplement) occurs prior to such date. A "Trust
Pay Out Event" occurs with respect to all Series upon the occurrence of any of
the following:
(a) an Insolvency Event relating to a Seller;
(b) the Trust shall become subject to regulation by the Commission as
an "investment company" within the meaning of the Investment Company Act of
1940, as amended; or
(c) a Seller is unable for any reason to transfer Receivables to the
Trust in accordance with the provisions of the Pooling and Servicing
Agreement.
In addition, a Series Pay Out Event may occur with respect to a specific
Series if a Series Pay Out Event affecting such Series, as specified in the
related Series Supplement and described in the related Prospectus Supplement,
occurs with respect to such Series. A "Pay Out Event" means, with respect to any
Series, a Trust Pay Out Event or a Series Pay Out Event. On the date on which a
Pay Out Event with respect to a Series is deemed to have occurred, the Rapid
Amortization Period with respect to such Series will commence. In such event,
distributions of principal will be made to the Certificateholders of such Series
in the priority provided for in the related Series Supplement and described in
the related Prospectus Supplement. If, because of the occurrence of a Pay Out
Event, the Rapid Amortization Period begins earlier than the Scheduled
Amortization Date or the expected final payment date of such Series,
Certificateholders of such Series will begin receiving distributions of
principal earlier than they otherwise would have, which may shorten the final
maturity of the Certificates of such Series.
An "Insolvency Event" shall occur if a Seller (including any Additional
Seller) shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to such Seller or of or
relating to all or substantially all of its property, or a decree or order of a
court or agency or supervisory authority having jurisdiction in the premises for
the appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against such Seller; or any of the Sellers shall admit in writing
its inability to pay its debts generally as they become due, file a petition to
take advantage of any applicable insolvency or reorganization statute, make any
assignment for the benefit of its creditors or voluntarily suspend payment of
its obligations.
If an Insolvency Event occurs with respect to a Seller, the Sellers will
immediately cease to transfer Principal Receivables to the Trust and promptly
notify the Trustee thereof. Notwithstanding any cessation of the transfer to the
Trust of additional Principal Receivables, Principal Receivables transferred to
the Trust prior to the occurrence of such Insolvency Event and collections in
respect of such Principal Receivables and Finance Charge Receivables whenever
created, accrued in respect of such Principal Receivables, shall continue to be
a part of the Trust. Within 15 days after receipt of such notice by the Trustee
of the occurrence of such Insolvency Event, the Trustee will (i) publish a
notice in an authorized newspaper that an Insolvency Event has occurred and that
the Trustee intends to sell, dispose of or otherwise liquidate the Receivables
on commercially reasonable terms and in a commercially reasonable manner and
(ii) give notice to the Certificateholders describing the applicable provisions
of the Pooling and Servicing Agreement and requesting instructions from the
Certificateholders. Unless the Trustee has received instructions within 90 days
from the date notice is first published from (x) Certificateholders evidencing
more than 50% of the Investor Amount of each Series or, with respect to any
Series with two or more Classes, of each Class, to the effect that such
Certificateholders disapprove of the liquidation of the Receivables and wish to
continue having Principal Receivables transferred to the Trust as before such
Insolvency Event, and (y) each of the Sellers (other than the Seller that is the
subject of such Insolvency Event), including any Additional Seller, and any
holder of a Supplemental Certificate and certain other parties specified in the
Series Supplements, to such effect, the Trustee shall promptly sell, dispose of
or otherwise liquidate the Receivables in a commercially reasonable manner and
on commercially reasonable terms, which shall include the solicitation of
competitive bids. The Trustee may obtain a prior determination from any such
conservator, receiver or liquidator that the terms and manner of any proposed
sale, disposition or liquidation are commercially reasonable.
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The proceeds from the sale, disposition or liquidation of the Receivables
pursuant to the previous paragraph ("Insolvency Proceeds") shall be immediately
deposited in the Collection Account. The Trustee shall determine conclusively
the amount of the Insolvency Proceeds which are deemed to be Finance Charge
Receivables and Principal Receivables. The Insolvency Proceeds shall be
allocated and distributed to Certificateholders in accordance with the terms of
each Series Supplement and the Trust shall terminate immediately thereafter.
If the portion of such proceeds allocated to the Certificateholders and the
proceeds of any collections on the Receivables in the Collection Account and the
amounts available under any Series Enhancement are not sufficient to pay in full
the remaining amount due on the Certificates, the Certificateholders will suffer
a corresponding loss. See "Certain Legal Aspects of the Receivables -- Certain
Matters Relating to Receivership" for a discussion of the impact of Federal
legislation on the Trustee's ability to liquidate the Receivables.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses for any Monthly Period will be a servicing fee (the "Servicing
Fee") payable monthly on the related Distribution Date in an amount equal to
one-twelfth of the product of (a) the weighted average of the applicable
servicing fee rates with respect to each Series outstanding (based upon the
applicable servicing fee rate for each Series and the Investor Amount of such
Series or other amount specified in the applicable Series Supplement) and (b)
the amount of Principal Receivables outstanding on the last day of the prior
Monthly Period. The Servicing Fee will be allocated among the Sellers' Interest
and the Certificateholders' Interests of all Series. The share of the Servicing
Fee allocable to the Certificateholders' Interest of a particular Series (the
"Monthly Servicing Fee") will be determined in accordance with the applicable
Series Supplement. The remainder of the Servicing Fee shall be paid by the
Certificateholders of other Series and by the holders of the Seller Certificates
and in no event shall the Trust, the Trustee or the Certificateholders of any
Series be liable for the share of the Servicing Fee to be paid by the holders of
the Seller Certificates. Unless otherwise provided in any Series Supplement, in
the case of the first Monthly Period with respect to any Series, the Monthly
Servicing Fee shall accrue from the Closing Date with respect to such Series.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, payment of the fees and disbursements of the Trustee, any Paying
Agent and transfer agent and registrar and independent accountants and other
fees which are not expressly stated in the Pooling and Servicing Agreement to be
payable by the Trust or the Certificateholders of a Series other than Federal,
state, local and foreign income, franchise or other taxes, if any, or any
interest or penalties with respect thereto, imposed upon the Trust.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement, except upon determination that (i) the
performance of its duties under the Pooling and Servicing Agreement is no longer
permissible under applicable law and (ii) there is no reasonable action which
the Servicer could take to make the performance of its duties thereunder
permissible under applicable law. Any such determination permitting the
resignation of the Servicer will be evidenced by an opinion of counsel to such
effect delivered to the Trustee. No such resignation will become effective until
the Trustee or a successor Servicer that is an Eligible Servicer shall have
assumed the responsibilities and obligations of the Servicer in accordance with
the Pooling and Servicing Agreement.
"Eligible Servicer" means the Trustee, or if the Trustee is not acting as
Servicer, an entity which, at the time of its appointment as Servicer, (i) is
servicing a portfolio of revolving credit card accounts, (ii) is legally
qualified and has the capacity to service the Accounts, (iii) has demonstrated
the ability to professionally and completely service a portfolio of similar
accounts in accordance with high standards of skill and care, (iv) is qualified
to use the software that is then being used to service the Accounts or
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obtains the right to use, or has its own software, which is adequate to perform
its duties under the Pooling and Servicing Agreement, and (v) has a net worth of
at least $50,000,000 as of the end of its most recent fiscal quarter.
Pursuant to the Pooling and Servicing Agreement, AUS, as Servicer has the
right to delegate any of its responsibilities and obligations as Servicer to any
entity that agrees to conduct such duties in accordance with the Pooling and
Servicing Agreement and the Sellers' credit card guidelines; provided, that in
the case of a significant delegation to an entity other than Advanta, a Seller,
any affiliate of a Seller, or FDR, (i) at least 30 days prior written notice
must be given to the Trustee and each Rating Agency of such delegation and (ii)
at or prior to the end of such 30-day period the Servicer must determine that
the Rating Agency Condition has been met. AUS currently contracts and intends to
continue to contract with Advanta Service Corp., an affiliate of AUS, and FDR to
perform certain of its servicing activities. Notwithstanding any such delegation
to any entity, the Servicer will continue to be liable for all of its
obligations under the Pooling and Servicing Agreement.
INDEMNIFICATION
The Pooling and Servicing Agreement provides that the Sellers will
indemnify and hold harmless the Trust and the Trustee, its officers, directors,
employees and agents from and against any loss, liability, expense, damage or
injury suffered or sustained by reason of any acts, omissions or alleged acts or
omissions or otherwise arising out of or based upon the arrangement created by
the Pooling and Servicing Agreement or any Series Supplement, as though the
Pooling and Servicing Agreement or such Series Supplement created a general
partnership under the Delaware Uniform Partnership Law in which the Sellers are
general partners; provided, however, that the Sellers will not indemnify the
Trustee if such acts, omissions or alleged acts or omissions constitute or are
caused by fraud, negligence, or willful misconduct by the Trustee; provided
further, without limiting the claims of third parties, that the Sellers will not
indemnify the Trust, the Certificateholders or the Certificate Owners for any
liabilities, costs or expenses of the Trust with respect to any action taken by
the Trustee at the request of the Certificateholders; provided further, that the
Sellers will not indemnify the Trust, the Certificateholders or the Certificate
Owners as to any losses, claims or damages incurred by any of them in their
capacities as investors, including, without limitation, losses incurred as a
result of Defaulted Receivables; and provided further, that the Sellers will not
indemnify Certificateholders or the Certificate Owners for any liabilities,
costs or expenses of the Certificateholders or the Certificate Owners arising
under any tax law relating to any Federal, state, local or foreign income or
franchise taxes or any other tax imposed on or measured by income (or any
interest or penalties with respect thereto or arising from a failure to comply
therewith) required to be paid by or for the account of the Certificateholders
or the Certificate Owners in connection herewith to any taxing authority. Any
such indemnification will not be payable from the Trust assets.
The Pooling and Servicing Agreement also provides that the Servicer will
indemnify and hold harmless the Trust and the Trustee from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any acts
or omissions of the Servicer with respect to the Trust pursuant to the Pooling
and Servicing Agreement, including any judgment, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any action, proceeding or claim; provided, however, that the Servicer
will not indemnify: (i) the Trustee if such acts or omissions constitute or are
caused by fraud, negligence, or willful misconduct by the Trustee; (ii) the
Trust, the Certificateholders or the Certificate Owners for any liabilities,
costs or expenses of the Trust with respect to any action taken by the Trustee
at the request of the Certificateholders; (iii) the Trust, the
Certificateholders or the Certificate Owners as to any losses, claims or damages
incurred by any of them in their capacities as investors, including without
limitation losses incurred as a result of Defaulted Receivables; or (iv) the
Trust, Certificateholders or Certificate Owners for any liabilities, costs or
expenses of the Trust, the Certificateholders or the Certificate Owners arising
under any tax law, including without limitation, any Federal, state, local or
foreign income or franchise taxes or any other tax imposed on or measured by
income (or any interest or penalties with respect thereto) required to be
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paid by the Trust, the Certificateholders or the Certificate Owners in
connection herewith to any taxing authority. Any such indemnifications will not
be payable from the Trust assets.
SERVICER DEFAULT
In the event of any Servicer Default, so long as the Servicer Default shall
not have been remedied, the Trustee, or Certificateholders evidencing more than
50% of the aggregate Investor Amount of the Certificates of all Series, by
notice to the Servicer (and to the Trustee if given by Certificateholders) (a
"Termination Notice"), may terminate all but not less than all of the rights and
obligations of the Servicer as Servicer under the Pooling and Servicing
Agreement and in and to the Receivables and the proceeds thereof. The rights and
interest of the Sellers under the Pooling and Servicing Agreement and in the
Seller Certificates will not be affected by such termination; provided, however,
if within 60 days of receipt of a Termination Notice, the Trustee does not
receive any bids from Eligible Servicers in accordance with the Pooling and
Servicing Agreement to act as a successor Servicer and receives an officer's
certificate of the Servicer to the effect that the Servicer cannot in good faith
cure the Servicer Default which gave rise to the Termination Notice, then the
Trustee will offer the Sellers the right at their option to purchase the
Certificateholders' Interest on the next succeeding Distribution Date. The
purchase price for the Certificateholders' Interest will be equal to the sum of
the amounts specified therefor in the related Series Supplements. The Sellers
will notify the Trustee in writing prior to the Record Date for the Distribution
Date of the purchase if they are exercising such option. If any of the Sellers
exercise such option, such Sellers will (i) if such Sellers' short-term deposits
or long-term unsecured debt obligations are not rated at the time at least P-3
or Baa3, respectively, by Moody's, deliver to the Trustee an opinion of counsel
(which must be an independent outside counsel), to the effect that the purchase
would not be considered a fraudulent conveyance and (ii) deposit the purchase
price into the Collection Account on such Distribution Date in immediately
available funds.
A "Servicer Default" refers to any of the following events:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to the
Pooling and Servicing Agreement or any Series Supplement on or before the
date occurring five business days after the date such payment, transfer,
deposit or such instruction or notice is required to be made or given, as
the case may be, under the terms of the Pooling and Servicing Agreement or
any Series Supplement;
(b) failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer set
forth in the Pooling and Servicing Agreement or any Series Supplement,
which has a material adverse effect on the Certificateholders of any Series
or Class and which failure continues unremedied for a period of 60 days
after the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Servicer by the Trustee, or to
the Servicer and the Trustee by Certificateholders evidencing more than 50%
of the aggregate Investor Amount of all Series then outstanding (or, with
respect to any failure that does not relate to all Series, the Series to
which such failure relates); or the Servicer shall delegate its duties
under the Pooling and Servicing Agreement except as permitted under the
terms thereof, a responsible officer of the Trustee has actual knowledge of
such delegation and such delegation continues unremedied for 15 days after
the date on which written notice thereof, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by Certificateholders evidencing more than 50% of
the aggregate Investor Amount of all Series;
(c) any representation, warranty or certification made by the Servicer
in the Pooling and Servicing Agreement or any Series Supplement or in any
certificate delivered pursuant to the Pooling and Servicing Agreement or
any Series Supplement shall prove to have been incorrect when made, which
has a material adverse effect on the Certificateholders of any Series or
Class and which continues to be incorrect in any material respect for a
period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the
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Servicer by the Trustee, or to the Servicer and the Trustee by
Certificateholders evidencing more than 50% of the aggregate Investor
Amount of all Series then outstanding (or, with respect to any such
representation, warranty or certification that does not relate to all
Series, the Series to which such representation, warranty or certification
relates); or
(d) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property, or
a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force undischarged or
unstayed for a period of 60 days; or the Servicer shall admit in writing
its inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or reorganization
statute, make any assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations.
Notwithstanding the foregoing, a delay in or failure of performance under
clauses (a), (b) or (c), will not, for certain limited periods, constitute a
Servicer Default if such delay or failure (i) could not be prevented by the
exercise of reasonable diligence by the Servicer and (ii) was caused by an act
of God or the public enemy, acts of declared or undeclared war, terrorism,
public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or similar causes. The preceding sentence will
not relieve the Servicer from using its best efforts to perform its respective
obligations in a timely manner in accordance with the terms of the Pooling and
Servicing Agreement and any Series Supplement and the Servicer will provide the
Trustee, each Rating Agency, the holders of the Seller Certificates and the
Certificateholders of all Series with an officer's certificate giving prompt
notice of such failure or delay by it, together with a description of its
efforts to so perform its obligations.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, on each
Distribution Date of a Series, the Paying Agent will forward to each
Certificateholder of record of such Series a statement prepared by the Servicer
setting forth, among other things, (a) the total amount distributed to
Certificateholders of each Class of such Series, (b) the amount of any
distribution allocable to principal on such Certificates, (c) the amount of such
distribution allocable to interest on such Certificates, (d) the aggregate
amount of collections processed during the prior Monthly Period and allocated in
respect of the Certificates, (e) the amount of collections of Principal
Receivables processed during the prior Monthly Period and allocated in respect
of the Certificates, (f) the amount of collections of Finance Charge Receivables
processed during the prior Monthly Period and allocated in respect of the
Certificates, (g) the Series Percentage with respect to each Class of
Certificates with respect to Principal Receivables and Finance Charge
Receivables, each as of the end of the last day of the prior Monthly Period, (h)
the aggregate outstanding balance of Accounts which are 30 or more days
contractually delinquent, by class of delinquency, as of the end of the last day
of the prior Monthly Period, (i) the Defaulted Amount for the prior Monthly
Period, (j) the amount of the Monthly Servicing Fee for each Class for the prior
Monthly Period, and (k) the amount of any Series Enhancement, if any, available
with respect to each Class as of the close of business on such Distribution
Date.
On or before a date of each calendar year specified in the related
Prospectus Supplement, ending in the year following the Stated Series
Termination Date, the Paying Agent will furnish to each person who at any time
during the preceding calendar year was a Certificateholder of record of a Series
a statement prepared by the Servicer containing the information required to be
contained in the regular monthly report to Certificateholders of such Series, as
set forth in clauses (a), (b) and (c) above, aggregated for such calendar year
or the applicable portion thereof during which such person was a
Certificateholder, together with such other customary information (consistent
with the treatment of the Certificates as
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debt) as the Trustee or the Servicer deems necessary or desirable to enable the
Certificateholders of such Series to prepare their tax returns.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that on or before November
30th of each calendar year, the Servicer will cause a firm of nationally
recognized independent public accountants (who may also render other services to
the Servicer or the Sellers) to furnish a report (addressed to the Trustee) 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 (including the allocations of
collections) was not conducted in compliance with certain applicable terms and
conditions set forth in the Pooling and Servicing Agreement and any Series
Supplements except for such exceptions 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 November 30 of each calendar year, such accountants will
compare the mathematical calculations of certain amounts contained in the
monthly Servicer's certificates delivered during the period covered by such
report with the computer reports of the Servicer which were the source of such
amounts and deliver a report 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 Pooling and Servicing Agreement provides for delivery to the Trustee on
or before November 30 of each calendar year of a statement signed by an
authorized 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
Pooling and Servicing Agreement and any Series Supplements throughout the
preceding year or, if there has been a default in the performance of any such
obligations, 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.
AMENDMENTS
The Pooling and Servicing Agreement or any Series Supplement may be amended
from time to time (including in connection with the provision of additional
Series Enhancement for the benefit of the Certificateholders of any Series (or
the reduction of such Series Enhancement), the addition of a Participation
Interest to the Trust or the designation of an Additional Seller) by the Sellers
(including, if applicable, any Additional Seller being designated), the Servicer
and the Trustee, without Certificateholder consent, provided that each Seller
has delivered to the Trustee an officer's certificate to the effect that such
Seller reasonably believes that such amendment will not have an Adverse Effect
and that the Rating Agency Condition has been satisfied.
The Pooling and Servicing Agreement or any Series Supplement may also be
amended by the Sellers, the Servicer and the Trustee with the consent of the
holders of Certificates evidencing not less than 66 2/3% of the aggregate
Investor Amount of all adversely affected Series of Certificates for the purpose
of adding any provisions to, changing in any manner or eliminating any of the
provisions of the Pooling and Servicing Agreement or any Series Supplement or of
modifying in any manner the rights of Certificateholders. No such amendment,
however, may (a) reduce in any manner the amount of or delay the timing of
distributions to be made to Certificateholders or deposits of amounts to be so
distributed or the amount available under any Series Enhancement without the
consent of each affected Certificateholder, (b) change the definition of or the
manner of calculating the interest of any Certificateholder without the consent
of each affected Certificateholder, (c) reduce the aforesaid percentage required
to consent to any such amendment without the consent of each Certificateholder
or (d) adversely affect the rating of any Series or Class by each Rating Agency
without the consent of Certificateholders of such Series or Class evidencing not
less than 66 2/3% of the aggregate Investor Amount of such Series or Class. Any
amendment shall be deemed not to adversely affect any outstanding Series with
respect to which
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the Sellers deliver an opinion of counsel that such amendment will not have an
Adverse Effect with respect to such Series. Promptly following the execution of
any such amendment, the Trustee will furnish written notice (provided to the
Trustee by the Servicer) of the substance of such amendment to each
Certificateholder.
DEFEASANCE
Pursuant to the Pooling and Servicing Agreement, the Sellers may terminate
their substantive obligations in respect of any Series or all outstanding Series
(the "Defeased Series") by depositing with the Trustee (such deposit to be made
from other than the Sellers' or any affiliate of the Sellers' funds), under the
terms of an irrevocable trust agreement satisfactory to the Trustee, monies or
Eligible Investments (or a combination thereof) sufficient to make all remaining
scheduled interest and principal payments on the Defeased Series on the dates
scheduled for such payments and to pay all amounts owing to any provider of
Series Enhancement with respect to such Defeased Series. To achieve that end,
the Sellers have the right to use collections on Receivables allocated to the
Defeased Series and available to purchase additional Receivables to be applied
to purchase Eligible Investments rather than additional Receivables. Prior to
their first exercise of their right to substitute monies or Eligible Investments
for Receivables, the Sellers shall deliver to the Trustee a Tax Opinion with
respect to such deposit and termination of obligations and to the Servicer and
the Trustee written notice from each Rating Agency that the Rating Agency
Condition shall have been satisfied. In addition, the Sellers must comply with
certain other requirements set forth in the Pooling and Servicing Agreement,
including requirements that the Sellers deliver to the Trustee an opinion of
counsel to the effect that the deposit and termination of obligations will not
require the Trust to register as an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and that each Seller deliver to
the Trustee and certain providers of Series Enhancement a certificate of an
authorized officer stating that, based on the facts known to such officer at the
time, in the reasonable opinion of such Seller, such deposit and termination of
obligations will not at the time of its occurrence cause a Pay Out Event or an
event that, after the giving of notice or the lapse of time, would constitute a
Pay Out Event, to occur with respect to any Series. If the Sellers discharge
their substantive obligations in respect of the Defeased Series, any Series
Enhancement for the affected Series might no longer be available to make
payments with respect thereto.
LIST OF CERTIFICATEHOLDERS
Upon application of Certificateholders of record representing undivided
interests in the Trust aggregating not less than 10% of the aggregate unpaid
principal amount of any Series or all Series, as applicable, the Trustee will,
having been adequately indemnified by such Certificateholders, within five
business days of such request, afford such Certificateholders access during
business hours to the current list of registered Certificateholders of such
Series or all Series, as applicable, for purposes of communicating with other
Certificateholders with respect to their rights under the Pooling and Servicing
Agreement or any Series Supplement or the Certificates.
THE TRUSTEE
Bankers Trust Company will be Trustee under the Pooling and Servicing
Agreement. The Sellers, 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 Sellers, the Servicer and any of
their respective affiliates may hold Certificates in their own names. In
addition, for purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee shall have the power to appoint a co-trustee or
separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Pooling and Servicing Agreement shall be conferred or
imposed upon the Trustee and such separate trustee or co-trustee jointly, or, in
any jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee.
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The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement, is legally unable to act or if the Trustee
becomes bankrupt or 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, Series Enhancement may be provided with respect to one or
more Classes thereof. Series Enhancement may be in the form of the subordination
of one or more Classes of the Certificates of such Series, a letter of credit,
the establishment of a cash collateral guaranty or account, a collateral
interest, a surety bond, insurance, the use of cross support features or another
method of Series Enhancement described in the related Prospectus Supplement, or
any combination of the foregoing. If so specified in the related Prospectus
Supplement, any form of Series 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 Series 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 Series Enhancement or which are not covered by the Series
Enhancement, Certificateholders will bear their allocable share of deficiencies.
If Series Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Series Enhancement, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions (if any) under which the amount payable
under such Series Enhancement may be reduced and under which such Series
Enhancement may be terminated or replaced and (d) any provisions of any
agreement relating to such Series Enhancement material to the Certificateholders
of such Series. Additionally, the related Prospectus Supplement may set forth
certain information with respect to the issuer of any third-party Series
Enhancement, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement.
SUBORDINATION
If so specified in the related Prospectus Supplement, one or more Classes
of a Series may be subordinated to one or more other Classes of a Series. If so
specified in the related Prospectus Supplement, the rights of the holders of the
subordinated Certificates to receive distributions of principal and/or interest
on any Distribution Date will be subordinated to such rights of the holders of
the Certificates which are senior to such subordinated Certificates to the
extent set forth in the related Prospectus Supplement. The amount of
subordination will decrease whenever certain amounts otherwise payable to the
holders of subordinated Certificates are paid to the holders of the Certificates
which are senior to such subordinated Certificates.
LETTER OF CREDIT
If so specified in the related Prospectus Supplement, a letter of credit
with respect to a Series or Class of Certificates may be issued by the bank or
financial institution specified in the related Prospectus Supplement (the "L/C
Bank"). Under the letter of credit, the L/C Bank will be obligated to honor
drawings thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder,
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equal to the amount described in the related Prospectus Supplement. The amount
available under the letter of credit will be reduced to the extent of the
unreimbursed payments thereunder.
CASH COLLATERAL GUARANTY OR ACCOUNT
If specified in the related Prospectus Supplement, the Certificates of any
Class or Series may have the benefit of a Cash Collateral Guaranty issued
pursuant to a trust agreement between a cash collateral depositor, a cash
collateral trustee and the Sellers and the Servicer or a Cash Collateral Account
directly. The Cash Collateral Guaranty will generally be an obligation of the
cash collateral trust and not of the cash collateral depositor, the cash
collateral trustee (except to the extent of amounts on deposit in the cash
collateral account), the Trustee, AUS as Seller and Servicer or ANB as Seller.
The Servicer will determine on each Determination Date with respect to the
Series enhanced by the Cash Collateral Guaranty or the Cash Collateral Account
whether a deficiency exists with respect to the payment of interest and/or
principal on the Certificates so enhanced. If the Servicer determines that a
deficiency exists, it shall instruct the Trustee to draw an amount equal to such
deficiency from the Cash Collateral Guaranty or the Cash Collateral Account, up
to the maximum amount available thereunder.
COLLATERAL INTEREST
If so specified in the Prospectus Supplement, support for a Series of
Certificates or one or more Classes thereof may be provided initially by an
uncertificated, subordinated interest in the Trust (the "Collateral Interest")
in an amount initially equal to a percentage of the Certificates of such Series
specified in the Prospectus Supplement.
SURETY BOND OR INSURANCE POLICY
If so specified in the related Prospectus Supplement, insurance with
respect to a Series or Class of Certificates may be provided by one or more
insurance companies. Such insurance will guarantee, with respect to one or more
Classes of the related Series, distributions of interest or principal in the
manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond may be
purchased for the benefit of the holders of any Series or Class of such Series
to assure distributions of interest or principal with respect to such Series or
Class of Certificates in the manner and amount specified in the related
Prospectus Supplement.
SPREAD ACCOUNT
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes of a Series may be provided by the periodic deposit of
certain available excess cash flow from the Trust assets into an account (the
"Spread Account") intended to assure the subsequent distribution of interest and
principal on the Certificates of such Class or Series in the manner specified in
the related Prospectus Supplement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of material federal income tax
consequences relating to the purchase, ownership and disposition of a
Certificate offered hereby. This discussion is based on current law, which is
subject to changes that could prospectively or retroactively modify or adversely
affect the tax consequences summarized below. The discussion does not address
all of the tax consequences relevant to a particular Certificate Owner in light
of that Certificate Owner's circumstances, and some Certificate Owners may be
subject to special tax rules and limitations not discussed below. Each
prospective Certificate Owner is urged to consult its own tax adviser in
determining the federal, state,
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local and foreign income and any other tax consequences of the purchase,
ownership and disposition of a Certificate.
For purposes of this discussion, "U.S. Person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or an estate or trust the income of
which is includible in gross income for U.S. federal income tax purposes
regardless of its source. The term "U.S. Certificate Owner" means any U.S.
Person and any other person to the extent that the income attributable to its
interest in a Certificate is effectively connected with that person's conduct of
a U.S. trade or business.
TREATMENT OF THE CERTIFICATES AS DEBT
The Sellers express in the Pooling and Servicing Agreement the intent that
for federal, state and local income and franchise tax purposes, the Certificates
will be debt secured by the Receivables. The Sellers, by entering into the
Pooling and Servicing Agreement, and each investor, by the acceptance of a
beneficial interest in a Certificate, will agree to treat the Certificates as
debt for federal, state and local income and franchise tax purposes. However,
the Pooling and Servicing Agreement generally refers to the transfer of
Receivables as a "sale," and because different criteria are used in determining
the non-tax accounting treatment of the transaction, the Sellers will treat the
Pooling and Servicing Agreement for certain non-tax accounting purposes as
causing a transfer of an ownership interest in the Receivables and not as
creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form and non-tax
characterization of a transaction, while relevant factors, are not conclusive
evidence of its economic substance. In appropriate circumstances, the courts
have allowed taxpayers as well as the Internal Revenue Service (the "IRS") to
treat a transaction in accordance with its economic substance as determined
under federal income tax law, even though the participants in the transaction
have characterized it differently for non-tax purposes.
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed to
determine whether the seller has relinquished (and the purchaser has obtained)
substantial incidents of ownership in the property. Among those factors, the
primary ones examined are whether the purchaser has the opportunity to gain if
the property increases in value, and has the risk of loss if the property
decreases in value. Except as otherwise specified in the related Prospectus
Supplement, Orrick, Herrington & Sutcliffe LLP, counsel to the Sellers ("Special
Tax Counsel"), will deliver its opinion generally to the effect that, under
current law as in effect on the Relevant Closing Date, although no transaction
closely comparable to that contemplated herein has been the subject of any
Treasury regulation, revenue ruling or judicial decision, for federal income tax
purposes the Certificates will not constitute an ownership interest in the
Receivables, but properly will be characterized as debt. Except where indicated
to the contrary, the following discussion assumes that the Certificates are debt
for federal income tax purposes.
TREATMENT OF THE TRUST
General. The Pooling and Servicing Agreement permits the issuance of
Certificates and certain other interests in the Trust (including Collateral
Interests), each of which may be treated for federal income tax purposes either
as debt or as equity interests in the Trust. If all of the Certificates and
other interests (other than the Bank Certificate) in the Trust were
characterized as debt, the Trust might be characterized as a security
arrangement for debt collateralized by the Receivables and issued directly by
the Sellers (or other holders of the Bank Certificate). Under such a view, the
Trust would be disregarded for federal income tax purposes. Alternatively, if
some of the Seller Certificates, the Certificates and other interests in the
Trust were characterized as equity therein, the Trust might be characterized as
a separate
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entity owning the Receivables, issuing its own debt, and jointly owned by the
Sellers (or other holders of the Bank Certificate) and any other holders of
equity interests in the Trust.
Possible Treatment of the Trust as a Partnership, a Publicly Traded
Partnership or an Association. Although, as described above, Special Tax Counsel
will deliver its opinion that the Certificates will properly be treated as debt
for federal income tax purposes, such opinion will not bind the IRS and thus no
assurance can be given that such treatment will prevail. If the IRS were to
contend successfully that some or all of the Seller Certificates, the
Certificates or any other interests in the Trust (including any Collateral
Interest) were equity in the Trust for federal income tax purposes, all or a
portion of the Trust could be classified as a partnership or an association
taxable as a corporation for such purposes. Because Special Tax Counsel will
deliver its opinion that the Certificates will be characterized as debt for
federal income tax purposes and because any holder of an interest in a
Collateral Interest will agree to treat that interest as debt for such purposes,
no attempt will be made to comply with any tax reporting requirements that would
apply as a result of such alternative characterizations.
If the Trust were treated in whole or in part as a partnership in which
some or all holders of interests in the publicly offered Certificates were
partners, that partnership could be classified as a publicly traded partnership
taxable as a corporation. Further, regulations published by the Treasury
Department on December 4, 1995 (the "Regulations") could cause the Trust to
constitute a publicly traded partnership even if all holders of interests in the
publicly offered Certificates are treated as holding debt. The Regulations
generally apply to taxable years beginning after December 31, 1995 and,
accordingly, could affect the classification of presently existing entities and
the ongoing tax treatment of already completed transactions. Although the
Regulations provide for a 10-year grandfather period for a partnership actively
engaged in an activity before December 4, 1995, it is not clear whether the
Trust would qualify for the grandfather period. If the Trust were classified as
a publicly traded partnership, whether by reason of the treatment of publicly
offered Certificates as equity or by reason of the Regulations, it would avoid
taxation as a corporation if its income was not derived in the conduct of a
"financial business;" however, whether the income of the Trust would be so
classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Sellers intend to take measures
designed to reduce the risk that the Trust could be classified as a publicly
traded partnership by reason of interests in the Trust other than the publicly
traded Certificates. Although the Sellers expect such measures will ultimately
be successful, certain of the actions that may be necessary for avoiding the
treatment of such interests as "readily tradable" on a "secondary market" or its
"substantial equivalent" are not fully within the control of the Sellers. As a
result, there can be no assurance that the measures the Sellers intend to take
will in all circumstances be sufficient to prevent the Trust from being
classified as a publicly traded partnership under the Regulations.
If the Trust were treated as a partnership other than a publicly traded
partnership taxable as a corporation, that partnership would not be subject to
federal income tax. Rather, each item of income, gain, loss and deduction of the
partnership generated through the ownership of the related Receivables would be
taken into account directly in computing taxable income of the Sellers (or the
holders of the Bank Certificate) and any Certificate Owners treated as partners
in accordance with their respective partnership interests therein. The amounts
and timing of income reportable by any Certificate Owners treated as partners
would likely differ from that reportable by such Certificate Owners had they
been treated as owning debt. In addition, if the Trust were treated in whole or
in part as a partnership other than a publicly traded partnership, income
derived from the partnership by any Certificate Owner that is a pension fund or
other tax-exempt entity may be treated as unrelated business taxable income.
Partnership characterization also may have adverse state and local income or
franchise tax consequences for a Certificate Owner. From time to time,
legislation has been introduced in Congress that would affect the treatment of
any "large partnership," defined as any partnership in which there are at least
250 partners in a taxable year. Under such legislative proposals, among other
things, the availability of certain deductions to partners may be limited, and
certain computations (such as those relating to the
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level of allowable miscellaneous itemized deductions and the netting of capital
gains and losses) would be made at the partnership rather than the partner
level. No prediction can be made regarding whether any such legislation will be
enacted or, if so, what its ultimate effective date will be.
If the arrangement created by the Pooling and Servicing Agreement were
treated in whole or in part as a publicly traded partnership or an association
taxable as a corporation, that entity would be subject to federal income tax at
corporate tax rates on its taxable income generated by ownership of the related
Receivables. That tax could result in reduced distributions to Certificate
Owners. No distributions from the Trust would be deductible in computing the
taxable income of the corporation, except to the extent that any Certificates
were treated as debt of the corporation and distributions to the related
Certificate Owners were treated as payments of interest thereon. In addition,
distributions to Certificate Owners not treated as holding debt would be
dividend income to the extent of the current and accumulated earnings and
profits of the corporation; Certificate Owners may not be entitled to any
dividends received deduction in respect of such income.
TAXATION OF INTEREST INCOME OF U.S. CERTIFICATE OWNERS
General. Stated interest on a beneficial interest in a Certificate will be
includible in gross income in accordance with a U.S. Certificate Owner's method
of accounting.
Original Issue Discount. If the Certificates are issued with original
issue discount ("OID"), the provisions of sections 1271 through 1273 and 1275 of
the Internal Revenue Code of 1986 (the "Code") will apply to the Certificates.
Under those provisions, a U.S. Certificate Owner (including a cash basis holder)
generally would be required to accrue the OID on its interest in a Certificate
in income for federal income tax purposes on a constant yield basis, resulting
in the inclusion of OID in income somewhat in advance of the receipt of cash
attributable to that income. In general, a Certificate will be treated as having
OID to the extent that its "stated redemption price" exceeds its "issue price,"
if such excess is more than 0.25 percent multiplied by the weighted average life
of the Certificate (determined by taking into account only the number of
complete years following issuance for any partial principal payments). Under
section 1272(a)(6) of the Code, special provisions apply to debt instruments on
which payments may be accelerated due to prepayments of other obligations
securing those debt instruments. However, no regulations have been issued
interpreting those provisions, and the manner in which those provisions would
apply to the Certificates is unclear. Additionally, the IRS could take the
position based on Treasury Regulations that none of the interest payable on a
Certificate is "unconditionally payable" and hence that all of the interest
payable on a Certificate should be included in its stated redemption price at
maturity. If sustained, such treatment should not significantly affect the tax
liability of most Certificate Owners, but prospective U.S. Certificate Owners
should consult their own tax advisors concerning the impact to them in their
particular circumstances.
Market Discount. A U.S. Certificate Owner who purchases an interest in a
Certificate at a discount that exceeds any unamortized OID may be subject to the
"market discount" rules of sections 1276 through 1278 of the Code. These rules
provide, in part, that gain on the sale or other disposition of a Certificate
and partial principal payments on a Certificate are treated as ordinary income
to the extent of accrued market discount. The market discount rules also provide
for deferral of interest deductions with respect to debt incurred to purchase or
carry a Certificate that has market discount.
Market Premium. A U.S. Certificate Owner who purchases an interest in a
Certificate at a premium may elect to offset the premium against interest income
over the remaining term of the Certificate in accordance with the provisions of
section 171 of the Code.
SALE OR EXCHANGE OF CERTIFICATES
Upon a sale or exchange of an interest in a Certificate, a U.S. Certificate
Owner generally will recognize gain or loss equal to the difference between the
amount realized on the sale or exchange and the U.S. Certificate Owner's
adjusted basis in its interest in the Certificate. The adjusted basis in the
interest in the Certificate will equal its cost, increased by any OID or market
discount includible in income
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with respect to the interest in the Certificate prior to its sale and reduced by
any principal payments previously received with respect to the interest in the
Certificate and any amortized premium. Subject to the market discount rules,
gain or loss will be capital gain or loss if the interest in the Certificate was
held as a capital asset. Capital losses generally may be used only to offset
capital gains.
NON-U.S. CERTIFICATE OWNERS
In general, a non-U.S. Certificate Owner will not be subject to U.S.
federal income tax on interest (including OID) on a beneficial interest in a
Certificate unless (i) the non-U.S. Certificate Owner is a direct or indirect 10
percent or greater shareholder of, or a controlled foreign corporation related
to, either Seller, (ii) if the Trust is treated as a partnership, the non-U.S.
Certificate Owner owns a direct or indirect 10 percent or greater capital or
profits interest therein, (iii) the Certificate Owner is a bank described in
Code Section 881(c)(3)(A), (iv) such interest is contingent interest described
in Code Section 871(h)(4), or (v) the non-U.S. Certificate Owner bears certain
relationships to holders of either the Seller Certificates other than the
Sellers or any other interest in the Trust not properly characterized as debt.
To qualify for the exemption from taxation, the last U.S. Person in the chain of
payment prior to payment to a non-U.S. Certificate Owner (the "Withholding
Agent") must have received (in the year in which a payment of interest or
principal occurs or in either of the two preceding years) a statement that (i)
is signed by the non-U.S. Certificate Owner under penalties of perjury, (ii)
certifies that the non-U.S. Certificate Owner is not a U.S. Person and (iii)
provides the name and address of the non-U.S. Certificate Owner. The statement
may be made on a Form W-8 or substantially similar substitute form, and the
non-U.S. Certificate Owner must inform the Withholding Agent of any change in
the information on the statement within 30 days of the change. If a Certificate
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in that case, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the non-U.S.
Certificate Owner to the organization or institution holding the Certificate on
behalf of the non-U.S. Certificate Owner. The U.S. Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to holders
thereof.
Generally, any gain or income realized by a non-U.S. Certificate Owner upon
retirement or disposition of an interest in a Certificate will not be subject to
U.S. federal income tax, provided that (i) 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 retirement or
disposition occurs and (ii) in the case of gain representing accrued interest,
the conditions described in the preceding paragraph for exemption from
withholding are satisfied. Certain exceptions may be applicable, and an
individual non-U.S. Certificate Owner should consult a tax adviser.
If the Certificates were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Certificate Owner to be treated as
engaged in a trade or business in the United States. In that event, the non-U.S.
Certificate Owner would be required to file a federal income tax return and, in
general, would be subject to U.S. federal income tax (including the branch
profits tax) on its net income from the partnership. Further, certain
withholding obligations apply with respect to income allocable or distributions
made to a foreign partner. That withholding may be at a rate as high as 39.6
percent. If some or all of the Certificates were treated as stock in a
corporation, any related dividend distributions to a non-U.S. Certificate Owner
generally would be subject to withholding of tax at the rate of 30 percent,
unless that rate were reduced by an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of a Certificate to a registered owner who is
not an "exempt recipient" and who fails to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the manner required. Generally, individuals are not exempt recipients whereas
corporations and certain other entities are exempt recipients. Payments made in
respect of a U.S. Certificate Owner must be reported to
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the IRS, unless the U.S. Certificate Owner is an exempt recipient or otherwise
establishes an exemption. Compliance with the identification procedures
(described in the preceding section) would establish an exemption from backup
withholding for a non-U.S. Certificate Owner who is not an exempt recipient.
In addition, upon the sale of a Certificate to (or through) a "broker," the
broker must withhold 31 percent of the entire purchase price, unless either (i)
the broker determines that the seller is a corporation or other exempt recipient
or (ii) the seller provides certain identifying information in the required
manner, and in the case of a non-U.S. Certificate Owner certifies that the
seller is a non-U.S. Certificate Owner (and certain other conditions are met).
Such a sale must also be reported by the broker to the IRS, unless either (i)
the broker determines that the seller is an exempt recipient or (ii) the seller
certifies its non-U.S. status (and certain other conditions are met).
Certification of the registered owner's non-U.S. status normally would be made
on Form W-8 under penalties of perjury, although in certain cases under proposed
Treasury regulations it may be possible to submit other documentary evidence. As
defined by Treasury regulations, the term "broker" includes all persons who
stand ready to effect sales made by others in the ordinary course of a trade or
business, as well as brokers and dealers registered as such under the laws of
the United States or a state. These requirements generally will apply to a U.S.
office of a broker, and the information reporting requirements generally will
apply to a foreign office of a U.S. broker as well as to a foreign office of a
foreign broker (i) that is a controlled foreign corporation within the meaning
of section 957(a) of the Code or (ii) 50 percent or more of whose gross income
from all sources for the three-year period ending with the close of its taxable
year preceding the payment (or for such part of the period that the foreign
broker has been in existence) was effectively connected with the conduct of a
trade or business within the United States.
Any amounts withheld under the backup withholding rules from a payment to a
Certificate Owner would be allowed as a refund or a credit against such
Certificate Owner's U.S. federal income tax, provided that the required
information is furnished to the IRS.
The backup withholding rules have not been issued in final form and
therefore are potentially subject to change.
STATE AND LOCAL TAXATION
The discussion above does not address the taxation of the Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Certificates under any state or local tax law. Each investor should consult its
own tax adviser regarding state and local tax consequences.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit certain pension,
profit sharing or other employee benefit plans, individual retirement accounts
or annuities, employee annuity plans and Keogh plans (each, a "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 or Section 4975 of the Code and prohibits
certain transactions between a Plan and parties in interest with respect to such
Plans. Under ERISA, any person who exercises any authority or control respecting
the management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan (subject to certain exceptions not here relevant). A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and Section 4975 of the Code for such persons,
unless a statutory regulatory or administrative exemption is available. Plans
that are governmental plans (as defined in section 3(32) of ERISA) and certain
church plans (as defined in section 3(33) of ERISA) are not subject to ERISA
requirements.
Plan fiduciaries must determine whether the acquisition and holding of the
Certificates of a Series and the operations of the Trust would result in direct
or indirect prohibited transactions under ERISA or Section 4975 of the Code. The
operations of the Trust could result in prohibited transactions if Plans that
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purchase the Certificates of a Series are deemed to own an interest in the
underlying assets of the Trust. There may also be an improper delegation of the
responsibility to manage Plan assets if Plans that purchase the Certificates are
deemed to own an interest in the underlying assets of the Trust.
Pursuant to a regulation (the "Regulation") issued by the Department of
Labor ("DOL") concerning the definition of what constitutes the "plan assets" of
a Plan, the assets and properties of certain entities (including certain
insurance company general accounts) in which a Plan makes an equity investment
could be deemed to be assets of the Plan in certain circumstances. Accordingly,
if Plans purchase Certificates of a Series, the Trust could be deemed to hold
Plan assets unless one of the exceptions under the Regulation is applicable to
the Trust.
The Regulation only applies to the purchase by a Plan of an "equity
interest" in an entity. Because the Certificates will represent beneficial
interests in a Trust, and despite the agreement of the Seller and the
Certificate Owners to treat each Series of Certificates as debt instruments, the
Certificates are likely to be considered equity interests in the Trust for
purposes of the Regulation, with the result that the assets of the Trust are
likely to be treated as "plan assets" of the investing Plans for purposes of
ERISA and Section 4975 of the Code, unless either of the following exceptions
applies. The Regulation contains an exception that provides that if a 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 Regulation
provides that, if at all times more than 75% of the value of all classes of
equity interests in Certificates of a Series are held by investors other than
benefit plan investors (which is defined as including Plans and other employee
benefit plans not subject to ERISA, such as governmental or foreign plans, as
well as entities holding assets deemed to be "plan assets"), the investing
plan's assets will not include any of the underlying assets of the Trust.
No assurance can be made with respect to any offering of the Certificates
of any Series that the conditions which would allow the Trust's assets not to be
"plan assets" will be met, although the intention of the Underwriters (but not
their assurance) as to whether interests in the Certificates of a particular
Series will be held by at least 100 independent investors at the conclusion of
the offering for such Series, and therefore qualify as publicly-offered
securities eligible for the exception under the Regulation, will be set forth in
the related Prospectus Supplement.
If interests in the Certificates of a Series fail to meet the criteria of
publicly-offered securities and the Trust's assets are deemed to include assets
of 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. In addition, any Seller or any Underwriter of such
Series may be considered to be a party in interest, disqualified person or
fiduciary with respect to an investing Plan. Accordingly, an investment of "plan
assets" of a Plan in Certificates of such Series may be a prohibited transaction
under ERISA and Section 4975 of the Code unless such investment is subject to a
statutory or administrative exemption. Thus, for example, if a participant in
any Plan is a cardholder of one of the Accounts, under DOL interpretations the
purchase of interests in Certificates of such Series by such Plan could
constitute a prohibited transaction. Five class exemptions issued by the DOL
that could apply in such event are DOL Prohibited Transaction Exemption 96-23
(Class Exemption for Plan Asset Transactions Determined by In-house Asset
Managers), DOL Prohibited Transaction Exemption 95-60 (Class Exemption for
Certain Transactions Involving Insurance Company General Accounts), Exemption
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) and 84-14 (Class Exemption for Plan
Asset Transactions Determined by Independent Qualified Professional Asset
Managers). There is no
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assurance that these exemptions, even if all of the conditions specified therein
are satisfied, or any other exemption will apply to all transactions involving
the Trust's assets.
In light of the foregoing, fiduciaries or other persons contemplating
purchasing the Certificates (or any interest therein) on behalf or with "plan
assets" of any Plan should consult their own counsel regarding whether the Trust
assets represented by the Certificates would be considered "plan assets," the
consequences that would apply if the Trust's assets were considered "plan
assets," and the possibility of exemptive relief from the prohibited transaction
rules.
The Small Business Job Protection Act of 1996 added new Section 401(c) of
ERISA relating to the status of the assets of insurance company general accounts
under ERISA and Section 4975 of the Code. Pursuant to Section 401(c), the DOL is
required to issue final regulations (the "General Account Regulations") not
later than December 31, 1997 with respect to insurance policies issued on or
before December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are to provide guidance on which assets held by the
insurer constitute "plan assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. The assets of a general
account that support insurance polices (other than "guaranteed benefit polices"
within the meaning of Section 401(b)(2) of ERISA) (i) issued to employee benefit
or other plans subject to ERISA or Section 4975 of the Code after December 31,
1998 or (ii) issued to such plans on or before December 31, 1998 for which the
insurance company does not comply with the General Account Regulations, may be
treated as plan assets. However, except in the case of avoidance of the General
Account Regulations and actions brought by the Secretary of Labor relating to
certain breaches of fiduciary duties that also constitute breaches of state or
federal criminal law, until the date that is 18 months after the General Account
Regulations become final, no liability under the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the plan assets of any such plan. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the plan assets of any such
plan invested in a separate account.
If the assets of a general account invested in the Certificates are treated
as plan assets of any such plan or the protections of Section 401(c) of ERISA
become unavailable, certain violations of the prohibited transaction rules may
be deemed to occur as a result of the operation of the Trust. Insurance
companies contemplating the investment of general account assets in the
Certificates should consult with their legal advisors concerning the impact of
Section 401(c) of ERISA, including the status of assets of the general account
as plan assets of investing plans after December 31, 1998, and accordingly, the
general account's ability to continue to hold the Certificates after the date
that is 18 months after the General Account Regulations become final. The deemed
representation and warranty regarding the acquisition and holding of
Certificates by any Plan, Plan investor or any entity whose underlying assets
constitute "plan assets" will not apply to the acquisition or holding of
Certificates with the assets of a general account of an insurance company to the
extent such acquisition or holding, respectively, is permitted by Section 401(c)
of ERISA and final regulations thereunder or other exemption under ERISA and
does not result in the contemplated operations of the Trust being treated as
violations of the prohibited transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
Plan's particular circumstances before authorizing an investment of a portion of
the Plan's assets in the Certificates. Accordingly, among other factors, Plan
fiduciaries and other Plan investors should consider whether the investment (i)
satisfies the diversification requirements of ERISA or other applicable law,
(ii) is in accordance with the Plan's governing instruments, and (iii) is
prudent in light of the "Risk Factors" and other factors discussed herein and in
the related Prospectus Supplement.
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PLAN OF DISTRIBUTION
The Certificates of any Series offered hereby and by the related Prospectus
Supplement may be offered by the underwriter or underwriters named in the
related Prospectus Supplement as agent or underwriter, or through underwriting
syndicates represented by such underwriter or underwriters (collectively, the
"Underwriters").
UNDERWRITING
The Prospectus Supplement relating to a Series will set forth the terms of
the offering of such Series and each Class within such Series, including the
name or names of the Underwriters, the proceeds to and their intended use by the
Seller, and either the initial public offering price, the discounts and
commissions to the Underwriters and any discounts or concessions allowed or
reallowed to certain dealers, or the method by which the price at which the
Underwriters will sell the Certificates of such Series will be determined.
The Underwriters will be obligated, subject to certain conditions, to
purchase all of the Certificates described in the Prospectus Supplement relating
to a Series if any such Certificates are purchased. The Certificates may be
acquired by the Underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Sellers may also sell the Certificates offered hereby and by means of
the related Prospectus Supplements from time to time in negotiated transactions
or otherwise, at prices determined at the time of sale. Such transactions may be
effected by selling Certificates to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Sellers and any purchasers of Certificates for whom they
may act as agents.
The place and time of delivery for the Series in respect of which this
Prospectus is delivered will be set forth in the related Prospectus Supplement.
LEGAL MATTERS
It is anticipated that certain legal matters relating to the issuance of
the Certificates of any Series will be passed upon for the Banks by Gene S.
Schneyer, Esq., General Counsel of AUS and as General Counsel of Advanta Corp.,
the parent company of ANB and in that capacity as counsel to ANB with respect to
the matters described herein and, with respect to the Federal tax consequences
of such issuance, by Special Tax Counsel. Mr. Schneyer owns or has the right to
acquire a number of shares of common stock of Advanta Corp. well below 1% of the
outstanding common stock of Advanta Corp. Certain legal matters relating to the
issuance of the Certificates of a Series and ERISA matters will be passed upon
for the Underwriters by the counsel named in the Prospectus Supplement.
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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- ---------
<S> <C>
Accounts.......................................................................... 1, 3
Act............................................................................... 2
Accumulation Period............................................................... 9
Addition Date..................................................................... 38
Additional Accounts............................................................... 38
Additional Sellers................................................................ 29
Advanta........................................................................... 22
Advanta Consumer Credit Card Portfolio............................................ 3
Adverse Effect.................................................................... 10
Amortization Period............................................................... 9
ANB............................................................................... 1, 3
AUS............................................................................... 1, 3
Automatic Additional Accounts..................................................... 40
Bank Certificate.................................................................. 6
Banks............................................................................. 1
Cash Collateral Account........................................................... 11
Cash Collateral Guaranty.......................................................... 11
CEBA.............................................................................. 22
Cede.............................................................................. 7, 26
Cedel............................................................................. 27
Cedel Participants................................................................ 27
Certificate Owner................................................................. 7
Certificateholders................................................................ 4
Certificateholders' Interest...................................................... 4
Certificates...................................................................... 1, 4
Class............................................................................. 4
Code.............................................................................. 56
Collateral Interest............................................................... 12, 53
Collection Account................................................................ 8, 42
Commission........................................................................ 2
Companion Series.................................................................. 10, 31
Controlled Amortization Period.................................................... 9
Cooperative....................................................................... 28
Defaulted Amount.................................................................. 43
Defaulted Receivables............................................................. 43
Defeased Series................................................................... 51
Definitive Certificate............................................................ 7
Definitive Certificates........................................................... 28
Depositaries...................................................................... 26
Depository........................................................................ 25
Disclosure Document............................................................... 6
Discount Option Date.............................................................. 41
Discount Option Receivable Collections............................................ 41
Discount Option Receivables....................................................... 41
Discount Percentage............................................................... 41
Distribution Date................................................................. 8
DOL............................................................................... 59
DTC............................................................................... 7
Due Date.......................................................................... 16
Eligible Account.................................................................. 36
Eligible Deposit Account.......................................................... 42
Eligible Institution.............................................................. 42
Eligible Investments.............................................................. 42
Eligible Receivable............................................................... 37
</TABLE>
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<PAGE> 123
<TABLE>
<CAPTION>
TERM PAGE NO.
- ---- ---------
<S> <C>
Eligible Servicer................................................................. 46
ERISA............................................................................. 13
Euroclear......................................................................... 28
Euroclear Operator................................................................ 28
Euroclear Participants............................................................ 28
Excess Funding Account............................................................ 42
Exchange Act...................................................................... 2
FDIA.............................................................................. 14
FDIC.............................................................................. 1, 5
FDR............................................................................... 18
Finance Charge Receivables........................................................ 7
FIRREA............................................................................ 14
General Account Regulations....................................................... 60
Group............................................................................. 10, 31
Holders........................................................................... 29
Indirect Participants............................................................. 26
Ineligible Receivables............................................................ 34
Initial Accounts.................................................................. 6
Insolvency Event.................................................................. 45
Insolvency Proceeds............................................................... 33, 46
Interchange....................................................................... 21
Interest Period................................................................... 8
Invested Amount................................................................... 5
Investor Amount................................................................... 5
IRS............................................................................... 54
L/C Bank.......................................................................... 11, 52
Limited Amortization Period....................................................... 9
Monthly Period.................................................................... 8
Monthly Servicing Fee............................................................. 46
Moody's........................................................................... 42
New Issuance...................................................................... 6
OID............................................................................... 56
Optional Amortization Period...................................................... 9
Participants...................................................................... 26
Participating Seller.............................................................. 39
Participation Interests........................................................... 4, 38
Paying Agent...................................................................... 42
Pay Out Event..................................................................... 45
Plan.............................................................................. 58
Pooling and Servicing Agreement................................................... 3
Principal Amortization Period..................................................... 9
Principal Receivables............................................................. 7
Principal Sharing Series.......................................................... 9
Principal Shortfalls.............................................................. 9, 31
Principal Terms................................................................... 32
Rapid Amortization Period......................................................... 9
Rating Agency..................................................................... 13
Rating Agency Condition........................................................... 6, 32
Receivables....................................................................... 1, 3
Recoveries........................................................................ 7
Regulation........................................................................ 59
Regulations....................................................................... 55
Related Cut Off Date.............................................................. 7
Relevant Closing Date............................................................. 8
Removal Cut Off Date.............................................................. 41
Removal Date...................................................................... 41
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
Removal Notice Date............................................................... 40
Removed Accounts.................................................................. 40
Required Principal Balance........................................................ 39
Required Seller Amount............................................................ 38
Required Seller Percentage........................................................ 38
Revolving Period.................................................................. 8
Scheduled Amortization Date....................................................... 9
Seller............................................................................ 3
Seller Amount..................................................................... 5, 25
Seller Certificates............................................................... 6, 31
Seller Percentage................................................................. 25
Sellers........................................................................... 3
Sellers' Interest................................................................. 5, 25, 31
Series............................................................................ 1, 4
Series Account.................................................................... 4
Series Enhancement................................................................ 3, 10
Series Investor Amount............................................................ 39
Series Pay Out Event.............................................................. 44
Series Percentage................................................................. 25
Series Supplement................................................................. 3
Servicer.......................................................................... 3
Servicer Default.................................................................. 48
Servicing Fee..................................................................... 46
Shared Principal Collections...................................................... 9, 31
Special Tax Counsel............................................................... 54
Spread Account.................................................................... 12, 53
Standard & Poor's................................................................. 42
Stated Series Termination Date.................................................... 12, 44
Supplemental Certificate.......................................................... 6, 29, 31
Tax Opinion....................................................................... 6
Termination Notice................................................................ 48
Terms and Conditions.............................................................. 28
Trust............................................................................. 1, 3
Trust Pay Out Event............................................................... 45
Trust Termination Date............................................................ 12, 44
Trustee........................................................................... 3
U.S. Certificate Owner............................................................ 54
U.S. Person....................................................................... 54
UCC............................................................................... 22
Underwriters...................................................................... 61
Withholding Agent................................................................. 57
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain circumstances, the globally offered ADVANTA Credit Card
Master Trust II Asset Backed Securities (the "Global Securities") to be issued
in Series from time to time (each, a "Series") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior ADVANTA Credit Card Master Trust II
issues. 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 prior ADVANTA
Credit Card Master Trust II issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the
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respective Depositary, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by the respective Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Global Securities credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Global Securities
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until Global Securities
are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades
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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:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status). If the information shown on Form W-8 changes, a new
Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of
a Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof, or any political subdivision of either
(including the District of Columbia) or (iii) an estate or trust the income of
which is includible in gross income for United States tax purposes regardless of
its source. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice
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concerning their holding and disposing of the Global Securities. Further, the
IRS has recently proposed new regulations that would revise some aspects of the
current system for withholding on amounts paid to foreign persons. Under these
proposed regulations, interest or OID paid to a nonresident alien would continue
to be exempt from U.S. withholding taxes (including backup withholding) provided
that the holder complies with the new certification procedures.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE BANKS OR
THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE 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. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, NOR ANY SALE HEREUNDER OR THEREUNDER,
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE DATES
OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BANKS OR THE TRUST SINCE
SUCH DATES.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms...................... S-3
Risk Factors.......................... S-18
The Banks' Credit Card Activities..... S-19
The Receivables....................... S-20
Maturity Assumptions.................. S-25
Receivable Yield Considerations....... S-26
Description of the Certificates....... S-28
Certain Federal Income Tax
Consequences........................ S-50
Underwriting.......................... S-50
Legal Matters......................... S-51
Index of Principal Terms.............. S-52
PROSPECTUS
Prospectus Supplement................. 2
Reports to Certificateholders......... 2
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Summary of Terms...................... 3
Risk Factors.......................... 14
Formation of the Trust................ 18
The Banks' Credit Card Activities..... 18
Use of Proceeds....................... 21
The Banks and Advanta Corp. .......... 22
Certain Legal Aspects of the
Receivables......................... 22
Description of the Certificates....... 24
Enhancement........................... 52
Certain Federal Income Tax
Consequences........................ 53
ERISA Considerations.................. 58
Plan of Distribution.................. 61
Underwriting.......................... 61
Legal Matters......................... 61
Index of Principal Terms.............. 62
- --------------------------------------------
- --------------------------------------------
</TABLE>
------------------------------------------------------
------------------------------------------------------
ADVANTA
CREDIT CARD
MASTER TRUST II
$432,500,000
CLASS A FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-E
$27,500,000
CLASS B FLOATING RATE
ASSET BACKED CERTIFICATES,
SERIES 1996-E
ADVANTA NATIONAL BANK USA
SELLER AND SERVICER
ADVANTA NATIONAL BANK
SELLER
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
J.P. MORGAN & CO.
UBS SECURITIES
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
UNDERWRITER OF THE CLASS B CERTIFICATES
MERRILL LYNCH & CO.
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(LOGO) This document is printed entirely on recycled paper.
