<PAGE>
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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 31, 1996)
LEHMAN CARD ACCOUNT TRUST 1996-1
$2,082,115,000 CLASS A FLOATING RATE ASSET BACKED CERTIFICATES
CLASS S CERTIFICATES
The Lehman Card Account Trust 1996-1 (the 'Trust') will be formed pursuant
to a pooling agreement to be dated as of December 1, 1996 (the 'Pooling
Agreement') and entered into by Lehman ABS Corporation (the 'Depositor'), Lehman
Brothers Inc. ('Lehman Brothers'), as seller, and The Bank of New York, as
trustee (the 'Trustee'). The Trust will issue $2,082,115,000 aggregate principal
amount of Class A Floating Rate Asset Backed Certificates (the 'Class A
Certificates') and Class S Certificates (the 'Class S Certificates' and,
together with the Class A Certificates, the 'Certificates'). The Class S
Certificates will be notional amount Certificates, will have no principal
balance and will bear interest on their respective notional amounts. The
notional amount is equal to the aggregate outstanding principal balance of the
CABS. Terms used and not otherwise defined herein shall have the respective
meanings ascribed to such terms in the Prospectus dated December 31, 1996
attached hereto (the 'Prospectus').
The Trust will consist of certain asset backed securities (the 'CABS') each
issued pursuant to a pooling and servicing agreement, master pooling and
servicing agreement or indenture (collectively, the 'Agreements'). Each CABS
evidences an interest in a trust fund created by one of the Agreements, the
property of which includes either (i) credit card receivables (collectively, the
'Receivables') generated or to be generated from time to time in the ordinary
course of business in a portfolio of revolving credit card accounts
(collectively, the 'Accounts') or (ii) certificates backed by credit card
receivables (the 'Underlying Certificates'), all monies due in payment of the
Receivables or the Underlying Certificates and certain other properties, as more
fully described herein.
The Class A Certificates will represent fractional undivided interests in
the Trust. Distributions on the Certificates will be made on the 15th day of
each month or, if any such day is not a Business Day, on the next succeeding
Business Day (the 'Distribution Date') commencing February 18, 1997.
Interest at a rate equal to the LIBOR Rate (calculated as described herein)
plus 0.09% will be distributed to the Class A Certificateholders on each
Distribution Date. Such interest on the Class A Certificates is composed of all
interest on the CABS other than the portions of interest allocated to the Class
S Certificates (as described below). Principal, to the extent described herein,
will be distributed to the Class A Certificateholders on each Distribution Date,
commencing with the January 1998 Distribution Date (or earlier under certain
circumstances). Interest on the Class S Certificates will consist of portions of
interest on the CABS in an amount equal to the sum of the products of the
outstanding principal balance of each CABS multiplied by a fixed number of basis
points on each CABS. Such fixed number of basis points is equal to the excess,
if any, of the margins on each CABS over 9 basis points.
There is currently no market for the Certificates offered hereby and there
can be no assurance that such a market will develop or if it does develop that
it will continue. See 'RISK FACTORS' herein.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and Prospectus
to investors. This is in addition to the obligation of dealers acting as
underwriters to deliver a Prospectus Supplement and Prospectus with respect to
their unsold allotments or subscriptions.
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE CERTIFICATES, SEE 'RISK FACTORS' ON PAGE S-6 HEREIN.
------------------------
The Certificates offered hereby constitute part of a separate series of
Asset Backed Certificates being offered by Lehman ABS Corporation from time to
time pursuant to its Prospectus dated December 31, 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 as well as any prospectus relating to the CABS. Sales of the
Certificates may not be consummated unless the purchaser has received both this
Prospectus Supplement and the Prospectus.
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN THE DEPOSITOR, TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO
THE EXTENT PROVIDED HEREIN. NEITHER THE CERTIFICATES NOR THE CABS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
THESE CERTIFICATES 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.
------------------------
The Certificates offered hereby will be purchased by Lehman Brothers Inc.
(the 'Underwriter') from the Depositor and will, in each case, be offered by the
Underwriter from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The aggregate
proceeds to the Depositor from the sale of the Certificates are expected to be
$2,087,221,524 before deducting expenses payable by the Depositor of $900,000.
The Certificates are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Certificates will be delivered in book-entry form through the facilities of
The Depository Trust Company on or about January 15, 1997.
------------------------
LEHMAN BROTHERS
DECEMBER 31, 1996
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SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus and in the prospectus
and prospectus supplement for each CABS. Certain capitalized terms used herein
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Securities Offered................... Class A Floating Rate Asset Backed
Certificates and the Class S
Certificates (collectively, the
"Certificates"). The notional amount
of the Class S Certificates for any
Distribution Date will be equal to the
aggregate of the outstanding principal
balance of the CABS with respect to
such Distribution Date. The initial
notional amount of the Class S
Certificates will be equal to the
aggregate of the outstanding principal
balance of the CABS as of the Cut- off
Date.
Trust................................ Lehman Card Account Trust 1996-1 (the
"Trust" or the "Issuer"), a trust
established pursuant to the Pooling
Agreement (as defined herein).
Depositor............................ Lehman ABS Corporation.
Pooling Agreement.................... Pursuant to a pooling agreement dated as
of December 1, 1996 (the "Pooling
Agreement"), among the Depositor,
Lehman Brothers Inc. ("Lehman
Brothers") and The Bank of New York in
its capacity as trustee (the
"Trustee"), the Trust will issue the
Certificates in initial aggregate
amount of $2,082,115,000.
CABS .............................. The CABS are described under "Description
of the CABS" herein and certain CABS
are further described in Appendix A
and Appendix B attached to this
Prospectus Supplement. The CABS will
consist of certain asset backed
certificates, as more fully described
herein, each issued pursuant to a
pooling and servicing agreement,
master pooling and servicing agreement
or indenture (collectively, the
"Agreements").
Description of Certificates.......... Each Class A Certificate will represent a
fractional undivided interest in the
Trust as described herein.
A. Interest Distributions on
the Certificates............. Interest will accrue on the unpaid
principal amount of the Class A
Certificates at a rate per annum equal
to the LIBOR Rate (calculated as
described herein) plus 0.09%, payable
monthly on each Distribution Date.
Such interest on the Class A
Certificates is composed of all
interest on the CABS other than the
portions of interest allocated to the
Class S Certificates (as described
below).
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Interest on the Class S Certificates will
consist of the portions of interest on
the CABS in an amount equal to the sum
of the products of the outstanding
principal balance of each CABS
multiplied by a fixed number of basis
points on each CABS. Such fixed number
of basis points is equal to the
excess, if any, of the margins on each
CABS over 9 basis points.
Interest will be distributed to
Certificateholders on each
Distribution Date. Interest in respect
of a Distribution Date will accrue on
the Certificates from and including
the preceding Distribution Date (in
the case of the first Distribution
Date, from and including January 15,
1997 (the "Closing Date")) to but
excluding such current Distribution
Date (each, an "Interest Accrual
Period") and will be calculated on the
basis of the actual number of days in
such Interest Accrual Period divided
by 360.
B. Principal Distributions on the
Certificates................. No principal will be distributable to
Class A Certificateholders until the
January 1998 Distribution Date or,
upon the occurrence of a CABS
Amortization Event, the first
Distribution Date thereafter, as
described herein or, upon any
principal distribution on the LCAT
Notes, the related Distribution Date.
Principal distributable on the Class A
Certificates will equal the principal
received on the CABS.
C. Distribution Date............ The 15th day of each month or, if such
day is not a Business Day, the next
succeeding Business Day, commencing on
February 18, 1997. A "Business Day" is
any day other than a Saturday or
Sunday or another day on which banking
institutions in New York, New York are
authorized or obligated by law,
regulations or executive order to be
closed.
D. Record Date.................. Distributions on the Certificates will be
made to Certificate- holders in whose
name the Certificates were registered
at the close of business on the last
day of the month prior to the month in
which such distribution occurs.
E. Form and Registration........ TheCertificates will initially be
delivered in book-entry form
("Book-Entry Certificates").
Certificateholders will initially hold
their interests through The Depository
Trust Company ("DTC"). Transfers
within DTC will be in accordance with
the usual rules and operating
procedures of DTC. So long as the
Certificates are Book-Entry
Certificates, such Certificates will
be evidenced by one or more securities
registered in the name of Cede & Co.
("Cede"), as the nominee of DTC. No
Certificateholder
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will be entitled to receive a
definitive certificate representing
such person's interest, except in the
event that Definitive Certificates are
issued under the limited circumstances
described in "Description of the
Certificates--Definitive Certificates"
in the Prospectus. All references in
this Prospectus Supplement to
Certificates reflect the rights of
Certificateholders only as such rights
may be exercised through DTC and its
participating organizations for so
long as such Certificates are held by
DTC. See "Risk Factors--Book-Entry
Certificates" and "Description of the
Certificates--Book-Entry Registration"
in the Prospectus.
F. Denominations................ The Certificates will be issued in
minimum denominations of $100,000 and
integral multiples of $1,000 in excess
thereof.
Calculation of LIBOR................. The "LIBOR Rate" applicable to the
calculation of the interest rate on
the Class A Certificates in respect of
a Distribution Date shall be equal to
the weighted average of the LIBOR
interest rates (weighted on the basis
of the outstanding principal balances
of the CABS immediately prior to such
date) applicable to the distributions
of interest on the CABS distributable
on such date. The LIBOR applicable to
the CABS is described under
"Description of the CABS--Interest
Distributions" herein.
Tax Considerations................... Assuming that the CABS are properly
characterized as debt for federal
income tax purposes, the Trust will be
classified as a grantor trust under
Subpart E, Part I of Subchapter J of
the Internal Revenue Code of 1986, as
amended (the "Code").
Certificateholders will be treated for
federal income tax purposes as owners
of a pro rata undivided interest in
their allocable share assets of the
Trust represented by the Certificates
which will consist of "stripped bonds"
and "stripped coupons" within the
meaning of the Code. See "Tax
Considerations" herein.
Legal Investment..................... Institutions whose investment activities
are subject to legal investment laws
and regulations or to review by
certain regulatory authorities may be
subject to restrictions on investment
in the Certificates. See "Legal
Investment Considerations" herein.
ERISA................................ Except as otherwise described herein, the
Certificates may not be acquired by
any employee benefit plan subject to
the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), by an individual retirement
account or by certain other employee
benefit accounts subject to
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the requirements of ERISA and Section
4975 of the Code. See "ERISA
Considerations" herein and in the
Prospectus.
Rating............................... It is a condition to the issuance of the
Certificates that the Class A
Certificates be rated "Aaa" by Moody's
Investors Service, Inc. ("Moody's")
and "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw
Hill Companies, Inc. ("Standard &
Poor's", and together with Moody's the
"Rating Agencies") and that the Class
S Certificates be rated "Aaa" by
Moody's and "AAAr" by Standard &
Poor's. There is no assurance that
such rating will continue for any
period of time or that it will not be
revised or withdrawn entirely by such
rating agency if, in its judgment,
circumstances so warrant. A revision
or withdrawal of such rating may have
an adverse effect on the market price
of the Certificates. A security rating
is not a recommendation to buy, sell
or hold securities.
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RISK FACTORS
Limited Liquidity. There is currently no secondary market for the
Certificates. Lehman Brothers currently intends to make a market from time to
time in the Class A Certificates but is under no obligation to do so. There can
be no assurance that a secondary market will develop in the Class A Certificates
or, if a secondary market does develop, that it will provide holders of the
Class A Certificates with liquidity of investment or will continue for the life
of the Class A Certificates.
Trust's Relationship to the Depositor. The Depositor is not obligated to
make any payments in respect of the Certificates or the CABS.
Maturity Assumptions. The rate of payment of principal of the Class A
Certificates, the aggregate amount of each distribution on, and the yield to
maturity of, the Certificates will depend on the rate of payment of principal of
the CABS. Each series of CABS (other than the LCAT Notes) is subject to early
amortization upon the occurrence of any of the amortization events applicable to
such CABS as described herein and in the prospectus used in connection with the
offering of such CABS. The LCAT Notes are not themselves subject to early
amortization; however principal distributions on the LCAT Notes will be made
upon the occurrence of amortization events with respect to the Underlying
Certificates owned by the LCAT Trust.
The rate of payment of principal of the Class A Certificates may also be
affected by the repurchase by certain CABS Issuers of the CABS issued by such
CABS Issuers at a purchase price equal to a percentage of the principal balance
thereof plus accrued and unpaid interest, which right is exercisable only after
the aggregate principal balance of such CABS is less than a specified percentage
of their original principal balance. In such event the repurchase price paid by
the CABS Issuer would be passed through to the Class A Certificateholders as a
payment of principal. The CABS Issuers which may effect such a repurchase are
identified in the table under "Description of the CABS" herein.
Sensitivity of the Class S Certificates. The Class S Certificates will be
sensitive to the rate of principal payments (including prepayments) of the
assets underlying the CABS in general, and particularly those with high margins.
Rating of the Certificates. It is a condition to the issuance and sale of
the Certificates that the Class A Certificates be rated "Aaa" by Moody's and
"AAA" by Standard & Poor's and that the Class S Certificates be rated "Aaa" by
Moody's and "AAAr" by Standard & Poor's. A rating is not a recommendation to
purchase, hold or sell securities, inasmuch as such rating does not comment as
to market price or suitability for a particular investor. The ratings address
the likelihood of the receipt of distributions due on the Certificates pursuant
to their terms. However, the Rating Agencies do not evaluate, and the ratings of
the Certificates do not address, the possibility that investors may receive a
lower yield than anticipated. There can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant.
THE TRUST
General
The Issuer, Lehman Card Account Trust 1996-1, is a trust formed pursuant to
the Pooling Agreement for the transactions described in this Prospectus
Supplement. After its formation, the Issuer will not engage in any activity
other than (i) acquiring, holding and managing the CABS and the other assets of
the Trust and
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proceeds therefrom, (ii) issuing the Certificates, (iii) making distributions on
the Certificates and (iv) engaging in other activities that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Pooling Agreement dated as
of December 1, 1996, among the Depositor, Lehman Brothers, as seller, and The
Bank of New York, as Trustee. The Depositor will provide a copy of the Pooling
Agreement to prospective investors without charge upon request.
The following summaries describe certain terms of the Certificates and the
Pooling Agreement. The summaries do not purport to be complete and are subject
to, and qualified in their entirety by reference to, the provisions of the
Pooling Agreement. Wherever particular defined terms of the Pooling Agreement
are referred to, such defined terms are thereby incorporated herein by
reference. See "The Pooling Agreement" herein for a summary of additional terms
of the Pooling Agreement.
The Certificates will be issued in book-entry form only ("Book-Entry
Certificates") and will represent undivided interests in the Trust. The
Certificates will be issued in minimum denominations of $100,000 and integral
multiples of $1,000 in excess thereof.
Book-Entry Certificates
The Book-Entry Certificates will be issued in one or more certificates
which equal the aggregate initial principal balance of the Certificates and
which will be held by a nominee of The Depository Trust Company (together with
any successor depository selected by the Depositor, the "Depository").
Beneficial interests in the Book-Entry Certificates will be held indirectly by
investors through the book-entry facilities of the Depository, as described
herein. Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing an original principal amount
of $100,000 and integral multiples of $1,000 in excess thereof. The Depositor
has been informed by the Depository that its nominee will be Cede & Co.
("Cede"). Accordingly, Cede is expected to be the holder of record of the
Book-Entry Certificates. Except as described in the Prospectus under
"Description of the Certificates--Definitive Certificates," no person acquiring
a Book-Entry Certificate (each, a "beneficial owner") will be entitled to
receive a Definitive Certificate.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be Cede, as
nominee of the Depository. Beneficial owners of the Book-Entry Certificates will
not be Certificateholders, as that term is used in the Pooling Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through the Depository and its participating
organizations. Any reports on the Trust provided to Cede, as nominee of the
Depository, may be made available to beneficial owners upon request, in
accordance with the rules, regulations and procedures creating and affecting the
Depository, and to the Depository's participating organizations to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
For a description of the procedures generally applicable to the Book-Entry
Certificates, see "Description of the Certificates--Book-Entry Certificates" in
the Prospectus.
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Distributions on Certificates
Distributions on the Certificates, as described below, will be made by the
Trustee on the Distribution Date to persons in whose names the Certificates are
registered on the last day of the month preceding the month in which such
Distribution Date occurs (the "Record Date"). Distributions to each
Certificateholder will be made by the Trustee to an account specified in writing
by such holder as of the preceding Record Date or in such other manner as may be
agreed to by the Trustee and such holder. The final distribution in retirement
of a Certificate will be made only upon surrender of the Certificate to the
Trustee at the office thereof specified in the notice to Certificateholders of
such final distribution. Notice will be mailed prior to the Distribution Date on
which the final distribution of principal and interest on a Class A Certificate
or interest on a Class S Certificate is expected to be made to the holder
thereof.
Distributions of Interest
The Class A Certificates will bear interest on the aggregate principal
amount of the Certificates at an annual rate equal to the LIBOR Rate (calculated
as described below) plus 0.09%. Such interest on the Class A Certificates is
composed of all interest on the CABS other than the portions of interest
allocated to the Class S Certificates (as described below).
Interest on the Class S Certificates will consist of portions of interest
on the CABS in an amount equal to the sum of the products of the outstanding
principal balance of each CABS multiplied by a fixed number of basis points on
each CABS. Such fixed number of basis points is equal to the excess, if any, of
the margins on each CABS over 9 basis points.
Interest accrued on the Certificates will be distributable monthly on each
Distribution Date. Interest in respect of a Distribution Date will accrue on the
outstanding principal amount of the Certificates from and including the
preceding Distribution Date (in the case of the first Distribution Date, from
and including the Closing Date) to but excluding such current Distribution Date
(each, an "Interest Accrual Period"). Interest will be calculated on the basis
of the actual number of days in each Interest Accrual Period divided by 360.
Calculation of LIBOR: The LIBOR Rate applicable to the calculation of the
interest rates on the Class A Certificates in respect of a Distribution Date
will be calculated by the Trustee and will be equal to the weighted average of
the LIBOR interest rates (weighted on the basis of the outstanding principal
balances of the CABS immediately prior to such Distribution Date) applicable to
the distributions of interest on the CABS distributable on the CABS Distribution
Date (as defined herein) occurring on such Distribution Date. The LIBOR
applicable to the CABS is described under "Description of the CABS--Interest
Distributions" herein.
Distributions of Principal
No principal will be distributable to Class A Certificateholders until the
January 1998 Distribution Date or, upon the occurrence of a CABS Amortization
Event (as defined herein), the first Distribution Date after such CABS
Amortization Event or, upon any principal distribution on the LCAT Notes, the
related Distribution Date.
On each CABS Distribution Date in respect of which principal is distributed
on the CABS, principal distributions will be made on the Class A Certificates on
the Distribution Date occurring on such date in an amount equal to the principal
distributed on the CABS. Such principal will be distributed on a pro rata basis
in accordance with the outstanding principal balances of the Class A
Certificates. The aggregate principal
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balance of the Class A Certificates at any time will be equal to the outstanding
principal balance of the CABS at such time. As more fully described herein, the
outstanding principal balance of the CABS will be reduced as a result of
principal payments on the Receivables that are distributed in respect of the
CABS.
Distributions on the CABS; Collection Account
All distributions on the CABS will be remitted directly to an account (the
"Collection Account") to be established with the Trustee under the Pooling
Agreement on the Closing Date. The Trustee will hold such moneys uninvested and
without liability for interest thereon for the benefit of holders of the
Certificates. The "CABS Distribution Date" in each month is the Distribution
Date for such month.
Assignment of CABS
The Depositor will acquire the CABS for deposit into the Trust from Lehman
Brothers. At the time of issuance of the Certificates, the Depositor will cause
the beneficial interest in such CABS, which will be held in book-entry form
through the facilities of The Depository Trust Company, to be delivered to the
Trustee's participant account at The Depository Trust Company.
DESCRIPTION OF THE CABS
The table below sets forth certain of the characteristics of the CABS. The
table does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the prospectuses pursuant to which the CABS were
offered and sold.
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<TABLE>
<CAPTION>
DESCRIPTION OF THE CABS
- -------------------------------------------------------------------------------------------------------------------------------
ADVANTA
Credit Card American Express American Express
Issuer: Master Trust II Master Trust Master Trust
- ------- ------------------------ ----------------------- --------------------------
<S> <C> <C> <C>
Principal Amount Purchased by Depositor........ $187,925,000 $ 60,000,000 $25,000,000
Percentage of Total CABS Purchased by
the Depositor.................................. 9.03% 2.88% 1.20%
Servicer....................................... Colonial National American Express American Express
Bank (USA) Travel Related Travel Related
Services Company, Services Company,
Inc. Inc.
Trustee........................................ Bankers Trust The Bank of New The Bank of New
Company York York
Designation.................................... Class A Floating Class A Floating Class A Floating
Rate Asset Backed Rate Accounts Rate Accounts
Certificates, Series Receivable Trust Receivable Trust
1995-A Certificates, Series Certificates, Series
1996-1 1996-2
Initial Certificate Amount..................... $598,500,000 $950,000,000 $300,000,000
Series Termination Date(1)..................... January 1, 2003 August 16, 2004 August 15, 2002
Certificate Rate............................... LIBOR(2) + 0.18% LIBOR(3) + 0.15% LIBOR(3) + 0.12%
Uncapped Uncapped Uncapped
Payment Date(4)................................ 15th Business Day 15th Business Day 15th Business Day
(Monthly) (Monthly) (Monthly)
Commencement of Principal Payment January 15, 2000 September 15, 2003 September 17, 2001
Period(5)......................................
Guaranty Amount(6)............................. $7,000,000 N/A N/A
Subordinated Amount(7)......................... $101,500,000 $77,027,027 $24,324,324
Optional Repurchase Percentage................. 5% 10% 10%
Ratings (Moody's/S&P)(8)....................... Aaa/AAA Aaa/AAA Aaa/AAA
<CAPTION>
DESCRIPTION OF THE CABS
- -------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Chase Manhattan
Credit Card Credit Card Discover Card
Issuer: Master Trust Master Trust Master Trust
- ------- -------------- -------------- -------------
<S> <C> <C> <C>
Principal Amount Purchased by Depositor........ $122,000,000 $65,500,000 $50,510,000
Percentage of Total CABS Purchased by
the Depositor.................................. 5.86% 3.15% 2.43%
Servicer....................................... The Chase The Chase Greenwood
Manhattan Bank Manhattan Bank Trust Company
USA (USA)
Trustee........................................ Yasuda Bank and Yasuda Bank and First Bank
Trust Company Trust Company National
(U.S.A.) (U.S.A.) Association
Designation.................................... Class A Floating Class A Floating Floating Rate
Rate Rate Class A Credit
Asset Backed Asset Backed Card Pass-
Certificates, Certificates, Through
Series 1995-2 Series 1996-1 Certificates,
Series 1996-2
Initial Certificate Amount..................... $1,282,500,000 $1,282,500,000 $900,000,000
Series Termination Date(1)..................... August 15, 2001 April 15, 2002 July 18, 2005
Certificate Rate............................... LIBOR(3) + 0.13% LIBOR(3) + 0.11% LIBOR(3) +
Uncapped Uncapped 0.22%
Uncapped
Payment Date(4)................................ 15th Business Day 15th Business Day 15th Business
(Monthly) (Monthly) Day (Monthly)
Commencement of Principal Payment January 15, 1998 September 15, 1998 January 15,
Period(5)...................................... 2003
Guaranty Amount(6)............................. N/A N/A $56,842,140
Subordinated Amount(7)......................... $217,500,000 $217,500,000 $47,369,000
Optional Repurchase Percentage................. 5% 5% N/A
Ratings (Moody's/S&P)(8)....................... Aaa/AAA Aaa/AAA Aaa/AAA
<PAGE>
<CAPTION>
DESCRIPTION OF THE CABS
- -------------------------------------------------------------------------------------------------------------------------------
First Chicago First Chicago
Issuer: Master Trust II Master Trust II
- ------- ---------------- ------------------
<S> <C> <C>
Principal Amount Purchased by Depositor........ $120,400,000 $138,000,000
Percentage of Total CABS Purchased by
the Depositor.................................. 5.78% 6.63%
Servicer....................................... FCC National FCC National
Bank Bank
Trustee........................................ Norwest Bank Norwest Bank
Minnesota, Minnesota,
National National
Association Association
Designation.................................... Floating Rate Floating Rate
Credit Card Credit Card
Certificates Certificates
Series 1995-M Series 1995-O
Initial Certificate Amount..................... $500,000,000 $500,000,000
Series Termination Date(1)..................... December 15, February 15,
2003 2004
Certificate Rate............................... LIBOR(3) + LIBOR(3) +
0.24% 0.23% Uncapped
Uncapped
Payment Date(4)................................ 15th Business 15th Business
Day (Monthly) Day (Monthly)
Commencement of Principal Payment November 15, January 15, 2002
Period(5)...................................... 2001
Guaranty Amount(6)............................. $5,714,286 $5,714,286
Subordinated Amount(7)......................... $71,428,572 $71,428,572
Optional Repurchase Percentage................. 5% 5%
Ratings (Moody's/S&P)(8)....................... Aaa/AAA Aaa/AAA
</TABLE>
_________________________________
(1) Includes defined terms: Series Termination Date, Stated Series Termination
Date and Final Series Termination Date.
(2) Reuters LIBOR
(3) Telerate LIBOR
(4) Includes defined terms: Payment Date and Distribution Date.
(5) Includes defined terms: Controlled Amortization Date, Expected Final
Payment Date and Class A Expected Final Payment Date. Assumes absence
of any event triggering early amortization.
(6) Includes Cash Collateral Account as of respective date of issuance.
(7) Includes Class B Certificates, Class A3 Certificates (with respect to
Lehman Card Account Trust 1994-1), Collateral Invested Amounts, Collateral
Interest and Required Collateral Interest as of respective date of
issuance.
(8) As of December 31, 1996.
S-10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF THE CABS (continued)
- ----------------------------------------------------------------------------------------------------------------
Issuer: First USA
------- First Chicago First Deposit Credit Card
Master Trust Master Trust Master Trust
------------ -------------- ------------
<S> <C> <C> <C>
Principal Amount Purchased by
Depositor...................................... $124,300,000 $75,000,000 $162,000,000
Percentage of Total CABS Purchased
by the Depositor............................... 5.97% 3.60% 7.78%
Servicer......................................... FCC National First Deposit First USA Bank
Bank National Bank
Trustee.......................................... Norwest Bank Bankers Trust NationsBank of
Minnesota, Company Virginia, N.A.
National
Association
Designation...................................... Floating Rate Floating Rate Class A Floating
Credit Card Asset Backed Rate
Certificates Certificates Asset Backed
Series 1995-P Series 1996-1 Certificates, Series
1994-7
Initial Certificate Amount....................... $500,000,000 $750,500,000 $750,000,000
Series Termination Date(1)....................... February 15, August 15, June 15, 2002
2002 2007
Certificate Rate................................. LIBOR(3) + LIBOR(3) + LIBOR(3) +0.18%
0.18% 0.17% Uncapped
Uncapped Uncapped
Payment Date(5).................................. 15th Business 15th Business 15th Business Day
Day (Monthly) Day (Monthly) (Monthly)
Commencement of Principal Payment January 15, June 15, 2003 November 15,
Period(6)........................................ 2000 1999
Guaranty Amount(7)............................... $5,714,286 N/A N/A
Subordinated Amount(8)........................... $71,428,572 $199,500,000 $153,615,000
Optional Repurchase Percentage................... 5% 5% 5%
Ratings (Moody's/S&P)(9)......................... Aaa/AAA Aaa/AAA Aaa/AAA
<CAPTION>
DESCRIPTION OF THE CABS (continued)
- --------------------------------------------------------------------------------------------------------------------------
Issuer: First USA First USA First USA
------- Credit Card Credit Card Credit Card
Master Trust Master Trust Master Trust
------------ -------------- ------------
<S> <C> <C> <C>
Principal Amount Purchased by
Depositor...................................... $35,030,000 $174,000,000 $89,000,000
Percentage of Total CABS Purchased
by the Depositor............................... 1.68% 8.36% 4.27%
Servicer......................................... First USA Bank First USA Bank First USA Bank
Trustee.......................................... NationsBank of NationsBank, N.A. NationsBank, N.A.
Virginia, N.A.
Designation...................................... Class A Floating Class A Floating Class A Floating
Rate Asset Backed Rate Rate Asset Backed
Certificates, Series Asset Backed Certificates, Series
1995-2 Certificates, Series 1995-5
1995-4
Initial Certificate Amount....................... $660,000,000 $750,000,000 $500,000,000
Series Termination Date(1)....................... October 15, 2004 April 15, 2001 April 15, 2003
Certificate Rate................................. LIBOR(3) + 0.24% LIBOR(3) + 0.12% LIBOR(3) + 0.17%
Uncapped Uncapped Uncapped
Payment Date(5).................................. 15th Business Day 15th Business Day 15th Business Day
(Monthly) (Monthly) (Monthly)
Commencement of Principal Payment March 15, 2002 September 15, September 15,
Period(6)........................................ 1998 2000
Guaranty Amount(7)............................... N/A N/A N/A
Subordinated Amount(8)........................... $135,200,000 $153,615,000 $102,410,000
Optional Repurchase Percentage................... 5% 5% 5%
Ratings (Moody's/S&P)(9)......................... Aaa/AAA Aaa/AAA Aaa/AAA
<PAGE>
<CAPTION>
DESCRIPTION OF THE CABS (continued)
- -----------------------------------------------------------------------------------------------------------
Issuer: Lehman Card MBNA Master
------- Account Trust Credit Card
1994-1 Trust II
------------ --------------
<S> <C> <C>
Principal Amount Purchased by
Depositor...................................... $410,000,000 $243,450,000
Percentage of Total CABS Purchased
by the Depositor............................... 19.69% 11.69%
Servicer......................................... Colonial National MBNA America
Bank USA, First Bank, National
USA Bank, MBNA Association
America Bank,
National
Association
Trustee.......................................... The Bank of New The Bank of New
York York
Designation...................................... Floating Rate Asset Class A Floating
Backed Notes, Rate Asset Backed
Class A1 Certificates, Series
1994-C
Initial Certificate Amount....................... $650,000,000 $870,000,000
Series Termination Date(1)....................... December 31, 2000 March 15, 2004
Certificate Rate................................. LIBOR(4) +0.25% LIBOR(2) + 0.25%
Uncapped Uncapped
Payment Date(5).................................. 15th Business Day 15th Business Day
(Monthly) (Monthly)
Commencement of Principal Payment May 15, 1998 October 15, 2001
Period(6)........................................
Guaranty Amount(7)............................... N/A N/A
Subordinated Amount(8)........................... $32,485,000 $130,000,000
Optional Repurchase Percentage................... N/A 5%
Ratings (Moody's/S&P)(9)......................... Aaa/AAA Aaa/AAA
</TABLE>
__________________________________
(1) Includes defined terms: Series Termination Date, Stated Series Termination
Date, Final Legal Maturity.
(2) Reuters LIBOR
(3) Telerate LIBOR
(4) Weighted average of LIBOR interest on underlying CABS.
(5) Includes defined terms: Payment Date and Distribution Date.
(6) Includes defined terms: Controlled Amortization Date and Class A Scheduled
Payment Date, Assumes absence of any event triggering early amortization.
(7) Includes Cash Collateral Account as of respective date of issuance.
(8) Includes Class B Certificates, Class A3 Certificates (with respect to
Lehman Card Account Trust 1994-1), Collateral Invested Amounts, Collateral
Interest and Required Collateral Interest as of respective date of
issuance.
(9) As of December 31, 1996.
S-11
<PAGE>
<PAGE>
General
This Prospectus Supplement sets forth certain relevant terms with respect
to the CABS, but does not provide detailed information with respect to the CABS.
Appendix A to this Prospectus Supplement contains excerpts from a recent
prospectus relating to each CABS. Appendix A to this Prospectus Supplement
contains either excerpts from each Prospectus pursuant to which CABS were
offered and sold or excerpts from a recent prospectus relating to securities
issued by each CABS Issuer which has issued multiple series of CABS and
describing in general terms the receivables of such CABS Issuer, as well as the
originator of such receivables. This Prospectus Supplement relates only to the
Securities offered hereby and does not relate to the CABS.
Each CABS Issuer is subject to the information requirements of the Exchange
Act. Accordingly, each CABS Issuer is required to file reports, and other
information with respect to the CABS Issuer, including (except for the LCAT
Trust) monthly servicer reports ("CABS Servicer Reports") regarding the
Receivables, with the Commission. Copies of such reports and other information
may be inspected and copies are available at certain offices of the Commission
at the address listed under "Available Information" in the Prospectus.
Neither the Depositor nor the Underwriter participated in the preparation
of the CABS Servicer Reports. Such reports and information will have been
prepared by the respective CABS Issuer and will not be independently verified by
the Depositor or the Underwriter. There can be no assurance that events have not
occurred which would affect the accuracy or completeness of any statements
included in the CABS Servicer Reports or in the publicly available documents
filed by or on behalf of the CABS Issuers.
Although the Depositor has no reason to believe that the information
concerning the CABS, the CABS Issuers, or each prospectus or prospectus
supplement relating to the CABS or the Master Trust in which the CABS evidence
an interest is not reliable, the Depositor has not verified either its accuracy
or its completeness. Such information is as of the date of each related
prospectus and comparable information if given as of the date hereof may be
different.
Set forth below is certain information generally summarized from the
prospectuses relating to the CABS.
The CABS have been issued pursuant to Agreements entered into between
various sellers and various trustees. See the table under "Description of the
CABS" for the identities of the CABS Issuers and "Appendix A" for further
description of certain CABS Issuers. The following summary describes certain
general terms of such Agreements, but investors should refer to the Agreements
themselves for all the terms governing the CABS.
Each CABS represents an undivided interest in one of the CABS Issuers,
including the right to a percentage of cardholder payments on the Receivables
(or in the case of the LCAT Trust described below, the CABS) underlying such
issue of CABS. The assets of each CABS Issuer include either (a) a pool of
Receivables arising under Accounts, funds collected or to be collected from
cardholders in respect of the Receivables and services in the Accounts, monies
on deposit in certain accounts of the CABS Issuers, the right to draw upon
various enhancements and may also include the right to receive certain
interchange fees attributed to cardholder charges for merchandise, or (b) in the
case of the LCAT Notes, a pool of Underlying Certificates. Each CABS represents
the right to receive payments of interest for the related interest period at the
applicable CABS Certificate Rate (as defined herein) for such interest period
from collections of Receivables or on the Underlying Certificates, in the case
of the LCAT Notes and, in certain circumstances, from draws on applicable
enhancement, and payments of principal during the CABS Amortization Period (as
defined herein) funded from collections of Receivables. The LCAT Notes are
payable from amounts received on the Underlying Certificates owned by Lehman
Card Account Trust 1994-1 (the "LCAT Trust").
Except in the case of the LCAT Notes, each seller of receivables to a CABS
Issuer (each, a "Seller") holds the interest in the Receivables of a CABS Issuer
not represented by the CABS and any other series of securities issued by the
CABS Issuer. Such Seller holds an undivided interest in the CABS Issuer (the
"Seller's Interest"), including the right to a percentage (the "Seller's
Percentage") of all cardholder payments on the Receivables.
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<PAGE>
Because the structure of the LCAT Notes differs from that of the other
CABS, distinctions will be drawn between the LCAT Notes and the other CABS from
time to time.
The CABS
The CABS will consist of the CABS issued by the following CABS Issuers:
ADVANTA Credit Card Master Trust II ("ADVANTA"), American Express Master Trust
("American Express"), Chase Manhattan Credit Card Master Trust, Discover Card
Master Trust I, First Chicago Master Trust II, First Deposit Master Trust, First
USA Credit Card Master Trust, Lehman Card Account Trust 1994-1 and MBNA Master
Credit Card Trust II ("MBNA").
Additional Information Regarding Certain CABS
In contrast to many of the other underlying CABS, the American Express
receivables are not part of a revolving credit plan that enables customers to
finance purchases by making minimum payments and borrowing the outstanding
balance from the credit issuer. American Express receivables consist of, among
other things, account balances that are due in full each month. This results in
a high monthly payment rate and account balances that turnover rapidly relative
to the volume of charges. In order to provide yield to the trust on such
receivables, a portion of the collections are treated as yield collections and
the remainder is allocated to principal collections. In addition, membership and
administrative fees are also assigned to the Trust.
Interest Distributions
Interest accrues on the CABS at the certificate rate for each class and
series of CABS (a "CABS Certificate Rate"), from the date of the initial
issuance of the CABS. Interest at the applicable rate will be distributed to the
holders of the CABS monthly.
Interest on the CABS is calculated on the basis of the actual number of
days in the related interest period and a 360-day year.
The CABS all bear interest at a rate per annum above the arithmetic mean of
London interbank offered quotations for one-month United States dollar deposits
or one-month Eurodollar deposits ("LIBOR"). In the case of the CABS other than
the LCAT Notes and CABS issued by ADVANTA and MBNA, LIBOR is determined
according to the Telerate Page 3750 or Telerate Page 3875 of the Dow Jones
Telerate Service (or such other page as may replace Telerate Page 3750 or
Telerate Page 3875 on that service for the purpose of displaying London
interbank offered rates of major banks) ("Telerate LIBOR"). In the case of
ADVANTA and MBNA, LIBOR is determined according to the Reuters Screen LIBO Page
(as defined in the International Swap Dealers Association, Inc. Code of Standard
Wording, Assumption and Provisions for SWAPS, 1986 edition) ("Reuters LIBOR").
In the case of the LCAT Notes, LIBOR is calculated as the weighted average of
LIBOR on the Underlying Certificates; calculations of interest on the Underlying
Certificates are based on either Telerate LIBOR or Reuters LIBOR.
Principal Distributions
Generally, principal distributions due to the holders of the CABS are
scheduled to commence on the first CABS Distribution Date with respect to a
period of controlled amortization or scheduled payment of principal for a series
of CABS (a "CABS Controlled Amortization Period"), but may, except in the case
of the LCAT Notes, be distributed earlier or later than such date under certain
circumstances. However, if a Pay Out Event, Trust Pay Out Event, Series Pay Out
Event or Liquidation Event (as such terms are defined in the Agreements) (each
such event, a "CABS Amortization Event") occurs with respect to CABS other than
the LCAT Notes, monthly distributions of principal to the holders of the CABS
will begin on the first CABS Distribution Date following the occurrence of such
CABS Amortization Event. See "CABS Amortization Events" below. Principal
distributions on the LCAT Notes will be
S-13
<PAGE>
<PAGE>
made upon the occurrence of amortization events with respect to the Underlying
Certificates owned by the LCAT Trust in an amount equal to the principal
distributed on such Underlying Certificates.
If a CABS Amortization Event does not occur, principal will be distributed
to the holders of the CABS on the first CABS Distribution Date during the
applicable CABS Controlled Amortization Period. If, however, the amount of
principal distributed on the scheduled final CABS Distribution Date is not
sufficient to pay the holders of the CABS in full, then monthly distributions of
principal to the holders of CABS will occur on each CABS Distribution Date after
the scheduled final CABS Distribution Date until such holders of CABS have been
paid in full.
Investor Percentage and Seller's Percentage
Pursuant to the Agreements (other than those relating to the LCAT Notes),
all amounts collected on Receivables will be allocated between the investor
interest of the holders of the CABS, the investor interest of any other series,
and the Seller's Interest by reference to the investor percentage of the holders
of the CABS, the investor percentage of any other Series, and the Seller's
Percentage. Payments received on the assets underlying the LCAT Notes are
deposited into a collection account for payment to holders of the LCAT Notes.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
Allocation of Collections
With respect to CABS other than the LCAT Notes, the CABS Servicer will
deposit any payments collected by the CABS Servicer with respect to the
Receivables and will generally allocate such amounts as follows:
(a) an amount equal to the applicable Seller's Percentage of the aggregate
amount of deposits in respect of Principal Receivables and Finance
Charge Receivables, respectively, will be paid to the holder of the
Seller's Interest,
(b) an amount equal to the applicable investor percentage of the aggregate
amount of such deposits in respect of Finance Charge Receivables will be
deposited into an account for the benefit of the holders of the CABS,
(c) during the revolving period, an amount generally equal to the applicable
investor percentage of the aggregate amount of such collections in
respect of Principal Receivables will be paid to the holder of the
Seller's Certificate, provided, however, that such amount may not exceed
the amount equal to the Seller's Interest,
(d) during the CABS Controlled Amortization Period or after the occurrence
of a CABS Amortization Event, collections of Principal Receivables will
be allocated to the holders of CABS based on the investor percentage.
The term "Seller's Interest" also encompasses the terms Transferor Interest,
First Chicago Interest, Bank's Interest, Seller Interest and Banks' Interest.
"Principal Receivables" generally consist of amounts charged by cardholders for
merchandise and services, amounts advanced as cash advances and the interest
portion of any participation interests. "Finance Charge Receivables" generally
consist of monthly periodic charges, annual fees, cash advance fees, late
charges, over-limit fees and all other fees billed to cardholders, including
administrative fees.
Payments of principal and interest on the LCAT Notes will be paid to the
holders thereof as amounts are collected on the Underlying Certificates.
S-14
<PAGE>
<PAGE>
CABS Amortization Events
CABS other than the LCAT Notes. The following is a general summary of the
typical CABS Amortization Events for series of CABS other than the LCAT Notes.
(a) failure to make payments to holders of CABS within the time periods
given in the Agreements,
(b) material breaches of certain representations, warranties or covenants or
failure to observe or perform in a material respect any covenant or
agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CABS (a "CABS Servicer"),
(d) failure to maintain the Seller's Interest in an amount at least equal to
minimum Seller's Percentage of Principal Receivables in the CABS Issuer
as of such date,
(e) failure to maintain a certain minimum level of Receivables or Accounts,
or if the Seller is unable to make required payments or to transfer
Receivables or Accounts to a CABS Issuer,
(f) certain events of bankruptcy, conservatorship, insolvency or
receivership relating to the Seller,
(g) CABS Issuer becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged over any
three consecutive months) to a rate below a certain rate provided in the
Agreement for such period,
(i) the available amount of a particular credit enhancement is less than a
specified percentage of the amount of the investor interest for the
underlying series of CABS.
The LCAT Notes. The following is a summary of the events of default
relating to the LCAT Notes:
(a) a default for five days or more in the payment of any interest on any
LCAT Note,
(b) a default in the payment of the principal of or any installment of the
principal of any LCAT Note when the same becomes due and payable,
(c) a default in the observance or performance of any covenant or agreement
of the CABS Issuer made in the Agreement and the continuation of any
such default for a period of 30 days after notice thereof is given to
the CABS Issuer by the CABS Trustee or to the CABS Issuer and the CABS
Trustee by the holders of at least 25% in principal amount of the LCAT
Notes then outstanding,
(d) any representation or warranty made by the CABS Issuer in the Indenture
was materially incorrect in a material respect when made, and such
breach is not cured within 30 days after notice thereof is given to the
CABS Issuer by the CABS Trustee or to the Trust and the CABS Trustee by
the holders of at least 25% in principal amount of LCAT Notes then
outstanding,
(e) certain events of bankruptcy, insolvency, receivership or liquidation
of the CABS Issuer.
The amount of principal required to be paid to holders of LCAT Notes under the
related agreement will generally be limited to amounts available to be deposited
in the related collection account. Therefore, the failure to pay principal on
the LCAT Notes generally will not result in the occurrence of an event of
default until the final scheduled payment date for the LCAT Notes.
S-15
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<PAGE>
Servicing Compensation and Payment of Expenses
In general, with respect to the CABS other than the LCAT Notes, the CABS
Servicer's compensation for its servicing activities and reimbursement for its
expenses for any monthly period will be a servicing fee (a "CABS Servicing Fee")
payable monthly. The CABS Servicing Fee will be allocated among the Seller's
Interest and the investor interests of all series issued by the CABS Issuer.
Generally, the CABS 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 CABS Trustee
and independent accountants and other fees which are not expressly stated in the
related Agreement to be payable by the CABS Issuer or the holders of CABS.
The LCAT Notes have no CABS Servicer, and, accordingly no CABS Servicing Fee
is payable with respect to the LCAT Notes.
Tax Considerations Relating to the CABS
Each CABS evidences an interest in or an obligation of a trust fund created
by one of the Agreements. Prospective investors should be aware that each CABS
involves certain United States federal income tax consequences not described
herein and as to which Brown & Wood llp, special tax counsel to the Depositor
and the Underwriter ("Special Tax Counsel") has not provided any opinions. In
particular, with respect to each CABS, an opinion was rendered by the respective
tax counsel to the underlying transaction that the CABS would be treated as debt
instruments for federal income tax purposes and, in the discussion set forth
herein, and for purposes of its opinion described below Special Tax Counsel has
relied upon the descriptions of such opinions in the related prospectuses.
Prospective investors are urged to consider the discussion of United States
federal income tax consequences in each prospectus relating to the CABS for a
discussion of the United States federal income tax consequences of the purchase,
ownership and disposition of the CABS and of the trust funds in which the CABS
represent an undivided interest or of which the CABS represent an obligation.
THE DEPOSITOR
Lehman ABS Corporation (the "Depositor") was incorporated in the State of
Delaware on January 29, 1988. As of January 4, 1993, the Depositor is a wholly
owned, special purpose subsidiary of Lehman Commercial Paper Inc. ("LCPI"),
which is itself a wholly owned subsidiary of Lehman Brothers Inc. ("Lehman
Brothers"), which is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"). None of Lehman Brothers, LCPI, Holdings or the Depositor, nor any
affiliate of the foregoing, has guaranteed or is otherwise obligated with
respect to the Certificates.
The principal executive offices of the Depositor are located at 200 Vesey
Street, Three World Financial Center, New York, New York 10285 (Telephone: (212)
526-7000). See "The Depositor" in the Prospectus.
THE POOLING AGREEMENT
The following summary describes certain terms of the Pooling Agreement. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Pooling Agreement. Whenever
particular sections or defined terms of the Pooling Agreement are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
"Description of the Certificates" herein for a summary of certain additional
terms of the Pooling Agreement.
S-16
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<PAGE>
Collection of Distributions on CABS
The CABS will be assets of the Trust. All distributions on the CABS will be
made directly to the Trustee.
Reports to Certificateholders
The Trustee will mail to each Certificateholder, at such Certificateholder's
request, at its address listed on the Certificate Register maintained with the
Trustee a report stating (i) the amounts of principal and interest,
respectively, distributed on each $1,000 in face amount of Certificates and (ii)
the outstanding balances of the CABS.
The Trustee shall forward by mail to each Certificateholder the most current
CABS Distribution Date Statement (as defined in the Pooling Agreement) received
by the Trustee as of the date of such request. There is no regularly distributed
CABS Distribution Date Statement with respect to the LCAT Notes.
Amendment
The Pooling Agreement may be amended by the Depositor, Lehman Brothers and
the Trustee, without the consent of any Certificateholders, to cure any
ambiguity, to correct or supplement any provisions therein which may be
inconsistent with any other provisions of the Pooling Agreement, to add to the
duties of the Depositor, or to add or amend any provisions of the Pooling
Agreement in order to maintain or improve any rating of the Certificates (it
being understood that, after obtaining the ratings in effect on the Closing
Date, neither the Depositor, Lehman Brothers, nor the Trustee is obligated to
obtain, maintain, or improve any such rating) or to add any other provisions
with respect to matters or questions arising under the Pooling Agreement which
shall not be inconsistent with the provisions of the Pooling Agreement;
provided, however, that such action will not, as evidenced by an opinion of
counsel satisfactory to the Trustee, adversely affect in any material respect
the interests of any Certificateholders. The Pooling Agreement may also be
amended by the Depositor, Lehman Brothers and the Trustee with the consent of
Class A Certificateholders owning Voting Rights (as herein defined) aggregating
not less than 662/3% of the aggregate Voting Rights for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of the Pooling Agreement or modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or delay the timing of, collections of
distributions on the CABS or distributions that are required to be made for the
benefit of such Certificateholders or (ii) reduce the aforesaid percentage of
the Voting Rights of Class A Certificates which are required to consent to any
such amendment, without the consent of all the outstanding Class A Certificates.
Termination; Retirement of the Certificates
The Trust will terminate on the Distribution Date following the earliest of
(i) the Distribution Date on which the aggregate principal balance of the
Certificates has been reduced to zero, (ii) the final payment or other
liquidation of the last CABS in the Trust or (iii) the Distribution Date in
August 2007. In no event, however, will the Trust created by the Pooling
Agreement continue after the death of certain individuals named in the Pooling
Agreement. Written notice of termination of the Pooling Agreement will be given
to each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency appointed
by the Trustee which will be specified in the notice of termination.
Action in Respect of the CABS
If at any time the Trustee, as the holder of the CABS, is requested in such
capacity to take any action or to give any consent, approval or waiver,
including without limitation in connection with an amendment of an Agreement, or
if any Event of Default (as defined in the Agreements) occurs under the
Agreements, the Pooling Agreement provides that the Trustee, in its capacity as
certificateholder of the CABS, may take action in connection with the
S-17
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<PAGE>
enforcement of any rights and remedies available to it in such capacity with
respect thereto, will promptly notify all of the holders of the Certificates and
will act only in accordance with the written directions of holders of the Class
A Certificates evidencing at least 51% of the Voting Rights.
Voting Rights
At all times, the "Voting Rights" of Certificateholders under the Pooling
Agreement will be allocated among the Class A Certificates in proportion to
their respective Percentage Interests. The "Percentage Interest" represented by
a Class A Certificate will be equal to the percentage derived by dividing the
denomination of such Certificate by the original aggregate principal balance of
the Class A Certificates as of the Closing Date. Holders of the Class S
Certificates will have no Voting Rights except with respect to the termination
of the Trust.
Certain Matters Regarding the Trustee and the Depositor
Neither the Depositor, the Trustee nor any director, officer or employee of
the Depositor or the Trustee will be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Pooling Agreement or for errors in
judgment; provided, however, that none of the Trustee, the Depositor and any
director, officer or employee thereof will be protected against any liability
which would otherwise be imposed by reason of willful malfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties under the Pooling Agreement.
The Trustee may have normal banking relationships with the Depositor and/or
its affiliates.
The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. Upon becoming aware of
such circumstances, the Depositor will be obligated to appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
No holder of a Certificate will have any right under Pooling Agreement to
institute any proceeding with respect to the Pooling Agreement unless such
holder previously has given to the Trustee written notice of default and unless
Class A Certificateholders holding at least 51% of the Voting Rights have made
written requests upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity and
the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to exercise any of the
trusts or powers vested in it by the Pooling Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the cost,
expenses and liabilities which may be incurred therein or thereby.
The Trustee and the Certificateholders, by accepting the Certificates, will
covenant that they will not at any time institute against the Depositor or the
Trust any bankruptcy, reorganization or other proceeding under any federal or
state bankruptcy or similar law.
THE TRUSTEE
The Bank of New York is the Trustee under the Pooling Agreement. The mailing
address of the Trustee is The Bank of New York, 101 Barclay Street, New York,
New York 10286, Attention: Corporate Trust Department.
S-18
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be applied by the
Depositor on the Closing Date towards the purchase price of the CABS, the
payment of expenses related to such purchase and other corporate purposes.
TAX CONSIDERATIONS
The following is a general discussion of certain of the anticipated United
States federal income tax consequences of the purchase, ownership and
disposition of Certificates under the Internal Revenue Code of 1986, as amended
(the "Code"). The discussion is based on interpretations of law, regulations,
rulings and decisions, all of which are subject to change. Any such change may
be applied retroactively and may adversely affect the U.S. federal income tax
consequences described herein. This summary does not address Certificateholders
other than the original purchasers and does not discuss all of the tax
consequences that may be relevant to particular Certificateholders or to
Certificateholders subject to special treatment under the United States federal
income tax laws (such as life insurance companies, banks, dealers in securities,
retirement plans, regulated investment companies, and tax-exempt organizations).
Accordingly, prospective investors are urged to consult their own tax advisors
with respect to the United States federal, state and local tax consequences of
the purchase, ownership and disposition of the Certificates, as well as any
consequences arising under the laws of any other taxing jurisdiction to which
they may be subject.
As used in this section, the term "U.S. Certificateholder" means a beneficial
owner of a Certificate that is for U.S. federal income tax purposes (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or a
political subdivision thereof, (iii) an estate, the income of which is subject
to U.S. federal income taxation regardless of its source, (iv) a trust, if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust, or (v) any foreign
corporation, partnership or other entity which holds a Certificate in connection
with a U.S. trade or business.
Tax Considerations Relating to the CABS
The CABS are the primary assets of the Trust. Each CABS evidences an interest
in a trust fund created by one of the Agreements. Prospective investors should
be aware that each CABS involves certain United States federal income tax
consequences not described herein and as to which Brown & Wood llp, counsel to
the Depositor and the Underwriter, has not provided any opinions. In particular,
with respect to each CABS, an opinion was rendered by the respective tax counsel
that the CABS would be treated as debt instruments for federal income tax
purposes and, in the discussion set forth herein, and for purposes of its
opinion described below, Brown & Wood llp has relied upon the descriptions of
such opinions in the related prospectuses. Prospective investors are urged to
consider the United States federal income tax section in each prospectus
relating to the CABS for a discussion of the United States federal income tax
consequences of the purchase, ownership and disposition of the CABS.
Classification of the Trust
In the opinion of Brown & Wood llp, assuming the CABS are debt for federal
income tax purposes, the Trust will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. As such, owners of Certificates
will be treated for U.S. federal income tax purposes as owners of a pro rata
undivided interest in the Trust assets, except as described below, which include
the CABS.
General. For federal income tax purposes, the Trust will be deemed to have
acquired the following assets: (i) the principal portion of each CABS plus the
portion of the interest due on each such CABS equal to the interest rate payable
on the Class A Certificates (the "Trust Stripped Bonds"), (ii) the portions of
interest due on each CABS in excess of the interest rate payable on the Class A
Certificates (the "Trust Stripped Coupons").
S-19
<PAGE>
<PAGE>
The Class A Certificateholders in the aggregate will own their pro rata share
of all assets of the Trust other than the Trust Stripped Coupons. The Class S
Certificateholders own their pro rata share of the Trust Stripped Coupons. The
Trust Stripped Bond will be treated as a "stripped bond" within the meaning of
Section 1286 of the Code. The Trust Stripped Coupons will be treated as
"stripped coupons" within the meaning of Section 1286 of the Code.
Under Code Section 162 or 212, each U.S. Certificateholder will only be
entitled to deduct its pro rata allocable share of expenses incurred by the
Trust. A U.S. Certificateholder using the cash method of accounting must take
into account its pro rata share of deductions as and when paid by the Trust. The
Code imposes limitations on individuals with respect to the deductibility of
investment expenses by allowing a deduction for itemized expenses incurred for
the production of income only to the extent such expenses, combined with certain
other itemized deductions, in the aggregate exceed 2% of adjusted gross income.
Accordingly, certain Certificateholders may not be able to fully claim their pro
rata shares of the Trust's expenses as an itemized deduction on their individual
income tax returns.
Class A Certificateholders
Because Class A Certificates represent stripped bonds, they will be subject
to the original issue discount ("OID") rules of the Code. Accordingly, the tax
treatment of a Class A Certificateholder will depend upon whether the amount of
OID on a Class A Certificate is less than a statutorily defined de minimis
amount.
In general, under Treasury Regulations issued under Section 1286 of the Code
(the "Treasury Regulations"), the amount of OID on the Trust Stripped Bonds will
be de minimis if it is less than 1/4 of one percent for each full year remaining
after the purchase date until the maturity of the Trust Stripped Bonds, although
it is not clear whether the maturity date is the final maturity date or an
earlier pre-payment date. Under Treasury Regulations governing original issue
discount (the "OID Regulations"), the maturity date will be the date that the
CABS will, more likely than not, mature. Under the OID Regulations, it appears
that the portion of the interest on each Trust Stripped Bond payable to the
Class A Certificateholders may be treated as "qualified stated interest." As a
result, the amount of OID on a Trust Stripped Bond will equal the amount by
which the price at which a Certificateholder is deemed to have acquired an
interest in a Trust Stripped Bond (the "Purchase Price") is less than the
portion of the remaining principal balance of the Trust Stripped Bond allocable
to the interest acquired. In determining the Purchase Price, a portion of the
purchase price for a Certificate may be allocated to accrued interest. Any such
allocation would reduce the Purchase Price and thus increase the discount (or
decrease the premium) on the Trust Stripped Bond.
If the amount of OID is de minimis under the rule set forth above, the Class
A Certificates would not be treated as having OID. Each Class A
Certificateholder would be required to report on its federal income tax return
its share of the allocable gross income of the Trust, including interest accrued
on the Trust Stripped Bonds and any gain upon collection or disposition of the
Trust Stripped Bonds (but not including any portion of the Trust Stripped
Coupons). Such gross income attributable to interest on the Trust Stripped Bonds
could exceed the interest rate on the Class A Floating Certificates by an amount
equal to the Class A Certificateholder's share of the expenses of the Trust for
the period during which it owns a Class A Certificate. The Class A
Certificateholder would be entitled to deduct its share of expenses of the Trust
to the extent described above.
If the OID on a Trust Stripped Bonds is not treated as being de minimis, in
addition to the amounts described above, a Class A Certificateholder will be
required to include in income any OID as it accrues on a daily basis, regardless
of when cash payments are received, using a method reflecting a constant yield
in the Trust Stripped Bonds. It is possible that the IRS could require use of a
prepayment assumption in computing the yield of a Trust Stripped Bond. If a
Trust Stripped Bond is deemed to be acquired by a Class A Certificateholder at a
significant discount, such treatment could accelerate the accrual of income by
such Certificateholder.
In the event that a Trust Stripped Bond is treated as purchased at a premium
(i.e., its Purchase Price exceeds the portion of the remaining principal balance
of such Trust Stripped Bond), such premium will be amortizable by such
Certificateholder as an offset to interest income (with a corresponding
reduction in its basis) under a constant yield method over the term of the Trust
Stripped Bond if an election under Section 171 of the Code is made with respect
to the interests in the Trust Stripped Bonds represented by the Class A
Certificates or was previously in effect. Any
S-20
<PAGE>
<PAGE>
such election will also apply to all debt instruments held by the Class A
Certificateholder during the year in which the election is made and all debt
instruments acquired thereafter.
Class S Certificateholders
As stated above, for federal income tax purposes the Class S
Certificateholders are acquiring the Trust Stripped Coupons. Because the Trust
Stripped Coupons constitutes a "stripped coupons" within the meaning of Section
1286 of the Code, a Class S Certificateholder will be required to accrue income
on a Class S Certificate under the OID rules.
OID on a Class S Certificate must be included in income as it accrues on a
daily basis, regardless of when cash payments are received, using a method
reflecting a constant yield in the Trust Stripped Coupons. The amount of
original issued discount on a Class S Certificate will be equal to the excess of
such Certificate's stated redemption price at maturity over its issue price. The
issue price of a Class S Certificate generally is equal to the amount paid by a
Class S Certificateholder to acquire such Certificate. The stated redemption
price of a Class S Certificate is the sum of all payments expected to be made
under such Certificate. It is possible that the IRS could require use of a
prepayment assumption in computing the yield of a stripped coupon from CABS. The
use of prepayment assumption would cause an acceleration of taxable income to
Class S Certificateholders.
Sale or Exchange of a Certificate
A U.S. Certificateholder who sells a Certificate prior to maturity will be
treated as having sold a pro rata portion of the assets of the Trust. The
purchase price would be allocated among the U.S. Certificateholder's allocable
share of the Trust's assets (which will consist of the Trust Stripped Bonds for
the Class A Certificateholders and the Trust Stripped Coupons for the Class S
Certificateholders) and the U.S. Certificateholder would recognize gain or loss
equal to the difference, if any, between the amount received for each such asset
in the Trust and the U.S. Certificateholder's adjusted tax basis in each such
asset. A U.S. Certificateholder's adjusted tax basis in their allocable share of
each Trust Stripped Bond or Trust Stripped Coupon generally will be the portion
of the U.S. Certificateholder's purchase price allocated to each Trust Stripped
Bond or Trust Stripped Coupon increased by any accrued interest and OID included
in income and decreased by the amount of any payments received, other than
payments treated as interest, and premium amortized with respect to the
Certificate. The portion of the purchase price of each Certificate allocated to
a U.S. Certificateholder's allocable share of each Trust Stripped Bond or Trust
Stripped Coupon is equal to the particular Certificate's pro rata portion of the
fair market value of the Certificate's allocable share of each Trust Stripped
Bond or Trust Stripped Coupon.
Treatment of Non-U.S. Certificateholders
A non-U.S. Certificateholder will not be subject to United States federal
income or withholding tax on distributions of income or principal from the
Trust. To qualify for this exemption from taxation, the last United States payor
in the chain of payment prior to payment to a non-U.S. Certificateholder (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 calendar years,
a statement that (i) is signed by the beneficial owner of the Certificate under
penalties of perjury, (ii) certifies that such owner is not a U.S.
Certificateholder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such 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 such case, the signed statement
must be accompanied by a copy of the IRS Form W-8 or the substitute form
provided by the beneficial owner to the organization or institution.
S-21
<PAGE>
<PAGE>
Generally, a non-U.S. Certificateholder will not be subject to federal income
taxes on any amount which constitutes capital gain upon retirement or
disposition of a Certificate, assuming (i) that the gain is not effectively
connected with the conduct of a trade or business in the United States by the
non-U.S. Certificateholder, and (ii) in the case of a non-U.S. Certificateholder
that is an individual, that such Certificateholder is not present in the U.S.
for 183 days or more during the taxable years in which gain, if any, with
respect to the Certificate is recognized. Certain other exceptions may be
applicable, and a non-U.S. Certificateholder should consult its tax advisor in
this regard.
The Certificates will not be includible in the estate of a non-U.S.
Certificateholder unless at the time of such individual's death, payments in
respect of the Certificates would have been effectively connected with the
conduct by such individual of a trade or business in the United States.
Backup Withholding
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of the Certificates to registered owners who
are not "exempt recipients" and who fail to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the required manner. Generally, individuals are not exempt recipients, whereas
corporations and certain other entities generally are exempt recipients.
Payments made in respect of the Certificates to a U.S. Certificateholder must be
reported to the IRS, unless the U.S. Certificateholder is an exempt recipient or
establishes an exemption. Compliance with the identification procedures
described in the preceding section would establish an exemption from backup
withholding for those non-U.S. Certificateholders who are not exempt recipients.
In addition, upon the sale of a Certificate to (or through) a broker, the
broker must withhold 31% 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, in the required manner, certain identifying
information and, in the case of a non-U.S. Certificateholder, certifies that
such seller is a non-U.S. Certificateholder (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 would be made normally
on an IRS Form W-8 under penalties of perjury, although in certain cases it may
be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax provided the required
information is furnished to the IRS.
State and Local Taxes
In addition to the federal income tax consequences described above, potential
investors should consider the state and local income tax consequences of the
acquisition, ownership, and disposition of the Certificates. State and local
income tax law may differ substantially from the corresponding federal law, and
this discussion does not purport to describe any aspect of the income tax laws
of any state or locality. Therefore, potential investors should consult their
own tax advisors with respect to the various state and local tax consequences of
an investment in the Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and
S-22
<PAGE>
<PAGE>
church plans (if no election has been made under section 410(d) of the Code),
are not subject to the restrictions of ERISA, and assets of such plans may be
invested in the Certificates without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However, any
such governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code.
Investments by Plans are also subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
Prohibited Transactions
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory or administrative exemption applies to the transaction. Section 4975
of the Code imposes certain excise taxes (or, in some cases, a civil penalty may
be assessed pursuant to section 502(i) of ERISA) on parties in interest which
engage in non-exempt prohibited transactions.
The United States Department of Labor ("Labor") has issued final regulations
concerning the definition of what constitutes the assets of a Plan for purposes
of ERISA and the prohibited transaction provisions of the Code (the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under which
the assets of an entity in which a Plan invests will be considered to be "plan
assets" such that any person who exercises control over such assets would be
subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan acquires
an "equity interest" in an entity that is neither a publicly-offered security
nor a security issued by an investment company registered under the Investment
Company Act of 1940, the assets of the entity will be treated as assets of the
Plan investor unless certain exceptions apply. If the Trust were considered to
hold plan assets by reason of a Plan's investment in the Certificates, such plan
assets would include an undivided interest in any assets held by the Trust. In
such an event, the Trustee and other persons, in providing services with respect
to the Trust's assets, may be parties in interest with respect to such Plans,
subject to the fiduciary responsibility provisions of Title I of ERISA,
including the prohibited transaction provisions of Section 406 of ERISA, and
Section 4975 of the Code with respect to transactions involving the Trust's
assets.
Under current law the purchase and holding of the Certificates by or on
behalf of any Plan may result in a "prohibited transaction" within the meaning
of ERISA and the Code. Consequently, Certificates may not be transferred to a
proposed transferee that is a Plan subject to ERISA or that is described in
Section 4975(e)(1) of the Code, or a person acting on behalf of any such Plan or
using the assets of such plan unless the Trustee and the Depositor receive an
opinion of counsel reasonably satisfactory to the Trustee and the Depositor to
the effect that the purchase and holding of such Certificate will not result in
the assets of the Trust being deemed to be "plan assets" for ERISA purposes and
will not result in any non-exempt prohibited transaction under ERISA or Section
4975 of the Code and will not subject the Trustee or the Depositor to any
obligation in addition to those undertaken in the Pooling Agreement.
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine
whether, and to what extent, the Certificates will constitute legal investments
for them.
The Depositor makes no representation as to the proper characterization of
the Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Certificates
under
S-23
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<PAGE>
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Certificates) may adversely affect
the liquidity of the Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Depositor has agreed to sell to Lehman Brothers Inc. (the "Underwriter"),
and the Underwriter has agreed to purchase from the Depositor, the Certificates.
The Underwriter is obligated to purchase all the Certificates offered hereby
if any are purchased.
The Depositor has been advised by the Underwriter that it presently intends
to make a market from time to time in the Class A Certificates offered hereby;
however, it is not obligated to do so, any market-making may be discontinued at
any time, and there can be no assurance that an active public market for the
Class A Certificates will develop.
Distribution of the Certificates will be made by the Underwriter from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to the Depositor are expected to be $2,087,221,524
from the sale of the Certificates, before deducting expenses payable by the
Depositor of $900,000. In connection with the purchase and sale of the
Certificates, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts, concessions or commissions.
The Underwriting Agreement provides that the Depositor will indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute payments the Underwriter may be required
to make in respect thereof.
The Underwriter is an affiliate of the Depositor, and the participation by
the Underwriter in the offering of the Certificates complies with Schedule E of
the by-laws of the National Association of Securities Dealers, Inc. regarding
underwriting securities of an affiliate.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor by Brown & Wood llp, New York, New York and for the
Underwriter by Brown & Wood llp, New York, New York.
RATING
It is a condition to issuance of the Certificates that the Class A
Certificates be rated "Aaa" by Moody's and "AAA" by Standard & Poor's and that
the Class S Certificates be rated "Aaa" by Moody's and "AAAr" by Standard &
Poor's.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the CABS. The rating takes into
consideration the characteristics of the CABS and the structural, legal and tax
aspects associated with the Certificates. The ratings on the Certificates do
not, however, constitute statements regarding the possibility that
Certificateholders might realize a lower than anticipated yield.
A securities 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 securities rating should be evaluated independently of
similar ratings on different securities.
S-24
<PAGE>
<PAGE>
<TABLE>
INDEX OF DEFINED TERMS
<S> <C>
Accounts ................................................................... S-1
ADVANTA ................................................................... S-13
Agreements ............................................................ S-1, S-2
American Express .......................................................... S-13
beneficial owner .......................................................... S-7
Book-Entry Certificates .............................................. S-3, S-7
Business Day ............................................................... S-3
CABS ....................................................................... S-1
CABS Amortization Event ................................................... S-13
CABS Certificate Rate ..................................................... S-13
CABS Controlled Amortization Period ....................................... S-13
CABS Distribution Date .................................................... S-9
CABS Servicer ............................................................. S-15
CABS Servicer Reports ..................................................... S-12
CABS Servicing Fee ........................................................ S-16
Cede .................................................................. S-3, S-7
Certificateholder ......................................................... S-7
Certificates .......................................................... S-1, S-2
Class A Certificates ...................................................... S-1
Class S Certificates ...................................................... S-1
Closing Date .............................................................. S-3
Code ................................................................. S-4, S-19
Collection Account ........................................................ S-9
Depositor ............................................................ S-1, S-16
Depository ................................................................ S-7
Distribution Date ......................................................... S-1
DTC ....................................................................... S-3
equity interest .......................................................... S-23
ERISA ................................................................ S-4, S-22
exempt recipients ........................................................ S-22
Finance Charge Receivables ............................................... S-14
Holdings ................................................................. S-16
Interest Accrual Period ............................................... S-3, S-8
investment company ....................................................... S-15
Issuer ................................................................... S-2
Labor .................................................................... S-23
LCAT Trust ............................................................... S-12
LCPI ..................................................................... S-16
Lehman Brothers ................................................. S-1, S-2, S-16
LIBOR .................................................................... S-13
LIBOR Rate ............................................................... S-4
MBNA ..................................................................... S-13
Moody's .................................................................. S-5
OID ...................................................................... S-20
OID Regulations .......................................................... S-20
parties in interest ...................................................... S-22
Percentage Interest ...................................................... S-18
Plan Asset Regulation .................................................... S-23
plan assets .............................................................. S-23
Plans .................................................................... S-22
Pooling Agreement ..................................................... S-1, S-2
Principal Receivables .................................................... S-14
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
prohibited transaction .................................................... S-23
Prospectus ................................................................ S-1
Purchase Price ............................................................ S-20
qualified stated interest ................................................. S-20
Rating Agencies ........................................................... S-5
Receivables ............................................................... S-1
Record Date ............................................................... S-8
Reuters LIBOR ............................................................. S-13
Seller .................................................................... S-12
Seller's Interest ................................................... S-12, S-14
Seller's Percentage ...................................................... S-12
Special Tax Counsel ...................................................... S-16
Standard & Poor's ........................................................ S-5
stripped bonds ........................................................... S-4
stripped coupons .............................................. S-4, S-20, S-21
Telerate LIBOR ........................................................... S-13
Treasury Regulations ..................................................... S-20
Trust ................................................................. S-1, S-2
Trust Stripped Bond ...................................................... S-19
Trust Stripped Coupons ................................................... S-19
Trustee ............................................................... S-1, S-2
US Certificateholder ..................................................... S-19
Underlying Certificates .................................................. S-1
Underwriter .......................................................... S-1, S-24
Voting Rights ............................................................ S-18
Withholding Agent ........................................................ S-21
</TABLE>
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<PAGE>
APPENDIX A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Appendix A Page
- ---------- ----
<S> <C>
ADVANTA Credit Card Master Trust II, Class A Floating Rate Asset Backed Certificates,
Series 1996-E......................................................................... A-1
Chase Manhattan Credit Card Master Trust, Class A Asset Backed Certificates,
Series 1996-3 ........................................................................ A-18
First Chicago Master Trust II, Floating Rate Credit Card Certificates,
Series 1996-S........................................................................ A-36
First USA Credit Card Master Trust, Class A Floating Rate Asset Backed Certificates,
Series 1996-6......................................................................... A-80
Lehman Card Account Trust 1994-1......................................................... A-120
MBNA Master Credit Card Trust II, Class A Floating Rate Asset Backed Certificates,
Series 1996-M.......................................................................... A-145
</TABLE>
This Appendix A contains either excerpts from each prospectus pursuant
to which the CABS were offered and sold or if a number of the CABS are issued
by, and represent interests in, the same master trust, excerpts from a recent
prospectus relating to securities issued by such master trust.
Capitalized terms used in the excerpts included in this Appendix A have
the meanings defined either within the text of such excerpt or within the
related prospectus. Such terms are not applicable to any other section of this
Prospectus Supplement or Prospectus unless such terms are defined as such in the
Prospectus Supplement or the Prospectus. Complete copies of the prospectus
relating to a particular series of CABS may be obtained upon request from the
Depositor.
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<PAGE>
<PAGE>
ADVANTA Credit Card Master Trust II
The following excerpts are from the Prospectus Supplement dated October 22, 1996
and the Prospectus dated October 22, 1996 relating to the Floating Rate Asset
Backed Certificates, Series 1996-E. The CABS include Series 1995-A.
<PAGE>
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<PAGE>
<PAGE>
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. 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.
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<PAGE>
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.
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.
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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 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
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<PAGE>
<PAGE>
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.
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).
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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(l)(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.
A-5
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<PAGE>
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
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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.
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Composition by Account Balance
Trust Portfolio
Percentage
of Total Percentage
Number of Number of of Total
Account Balance Accounts Accounts Receivables Receivables
--------------- -------- -------- ----------- -----------
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 %
========= ===== ============== =====
Composition by Credit Limit
Trust Portfolio
Percentage
of Total Percentage
Number of Number of of Total
Credit Limit Balance Accounts Accounts Receivables Receivables
-------------------- -------- -------- ----------- -----------
$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%
========= ===== ============== =====
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Composition by Period of Delinquency
Trust Portfolio
Percentage
of Total
Period of Delinquency Number Percentage
(Days Contractually Number of of of Total
Delinquent) Accounts Accounts Receivables Receivables
- ------------------- --------- -------- ----------- -----------
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%
========= ===== ============== =====
Composition by Account Age
Trust Portfolio
Percentage
of Total Percentage
Age Number of Number of of Total
(in Months) Accounts Accounts Receivables Receivables
----------- -------- -------- ----------- -----------
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%
========= ===== ============== =====
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Geographic Distribution of Accounts and Receivables
Trust Portfolio*
Percentage
Number of Total Percentage
of Number of of Total
State Accounts Accounts Receivables Receivables
----- -------- -------- ----------- -----------
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%
========= ===== ============== =====
- ----------
* All data as of September 30, 1996.
A-10
<PAGE>
<PAGE>
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
A-11
<PAGE>
<PAGE>
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
Nine Months
Ended Year Ended December 31.
September 30, ---------------------------------
1996 1995 1994 1993
---- ---- ---- ----
Lowest ..................... 8.52% 9.29% 11.55% 13.22%
Highest .................... 10.23% 12.42% 14.25% l5.57%
Monthly Average ............ 9.36% 10.73% 12.98% 14.39%
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.
A-12
<PAGE>
<PAGE>
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)
Nine Months
Ended Year Ended December 31,
September 30, -----------------------------
1996(2) 1995(2) 1994(2) 1993(2)
------- ------- ------- -------
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%
- ----------
(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.
A-13
<PAGE>
<PAGE>
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 i995-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.
Series 1994-B
Initial Invested Amount ................ $450,000,000
Initial Pre-Funded Amount .............. $300,000,000
Invested Amount as of September 30, 1996 $750,000,000
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, 1996 $1,000,000,000
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
A-14
<PAGE>
<PAGE>
Series 1995-A
Initial Invested Amount ................ $600,000,000
Initial Pre-Funded Amount .............. $100,000,000
Invested Amount as of September 30, 1996 $700,000,000
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, 1996 $18,000,000
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, 1996 $575,000,000
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, 1996 $600,000,000
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
A-15
<PAGE>
<PAGE>
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
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, 1996 $850,000,000
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, 1996 $500,000,000
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, 1996 $500,000,000
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
A-16
<PAGE>
<PAGE>
Series 1996-B
Initial Invested Amount ................ $750,000,000
Investor Amount as of September 30, 1996 $750,000,000
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, 1996 $700,000,000
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, 1996 $700,000,000
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
A-17
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
Chase Manhattan Credit Card Master Trust
The following excerpts are from the Prospectus Supplement dated June 12, 1996
and the Prospectus dated June 12, 1996 relating to the Asset Backed
Certificates, Series 1996-3. The CABS include Series 1995-2 and Series 1996-1.
<PAGE>
<PAGE>
THE CREDIT CARD BUSINESS OF CHASE USA
General
The Receivables arising under Accounts currently in the Trust Portfolio
have been or will be generated from transactions made by holders of certain
Classic VISA and VISA Gold credit card accounts and certain standard MasterCard
and Gold MasterCard credit card accounts as well as fees billed to the Accounts.
Such Accounts were generated under the VISA USA Inc. ("VISA") or MasterCard
International, Inc. ("Mastercard") associations of which Chase USA is a member.
The Accounts and the Receivables are serviced by Chase USA and its affiliates.
The Bank Portfolio, of which the Trust Portfolio is a part, includes
premium accounts (i.e., VISA Gold and Gold MasterCard) and standard accounts
(i.e., Classic VISA and standard MasterCard). Premium accounts tend to have
higher credit limits because such accounts are generated pursuant to stricter
underwriting criteria, including higher minimum income requirements. Premium
accounts generally have lower finance charges on purchases and usually offer
additional services to the cardholders. Standard and premium accounts in the
Bank Portfolio may or may not have an annual membership fee. For accounts with
an annual membership fee, the annual membership fee for premium accounts is
generally higher than that for standard accounts. Recent standard and premium
account solicitations generally have offered no annual membership fee accounts
to prospective cardholders.
The VISA and MasterCard credit card accounts may be used for four types of
transactions: credit card purchases, cash advances, convenience checks and in
certain cases, for purposes of consolidating outstanding balances of other
credit card accounts. Purchases occur when cardholders use credit cards to buy
goods and/or services. A cash advance is made when a credit card is used to
obtain cash from a financial institution or an automated teller machine.
Cardholders may also use special "convenience checks" issued by Chase USA to
draw against their VISA and MasterCard credit card accounts at any time. These
convenience checks are treated as cash advances. Under a balance consolidation
offering, cardholders and potential cardholders meeting qualification criteria
may transfer the outstanding balance on their credit card accounts to their
Chase USA VISA or MasterCard credit card account. Amounts due with respect to
purchases, cash advances, convenience checks and balance consolidations will be
included in the Receivables.
Each cardholder is subject to an agreement with Chase USA governing the
terms and conditions of the related VISA or MasterCard credit card account.
Pursuant to each such agreement, except as described herein, Chase USA reserves
the right, subject to such notice to the cardholder as may be required by law,
to add to or change the terms of its VISA or MasterCard credit card accounts at
any time, including increasing or decreasing the periodic finance charges, other
charges or the minimum monthly payment requirements.
The credit evaluation, collection and charge-off policies and servicing
practices of Chase USA, as well as the terms and conditions governing cardholder
agreements in effect as of the date hereof, are under continuous review and may
change at any time in accordance with its business judgment, applicable law and
guidelines established by regulatory authorities.
During the fourth quarter of 1996, it is expected that Chase USA will
commence utilizing a credit card processor, First Data Resources, Inc. ("FDR"),
located in Omaha, Nebraska to perform certain data processing and administrative
functions associated with the servicing of the Bank Portfolio. Transactions
creating the Receivables through the use of the credit cards are also processed
through the VISA and MasterCard systems. If FDR were to fail to perform such
functions or become insolvent after commencing such functions for Chase USA or
should either of the VISA or MasterCard systems materially curtail its
activities, or should Chase USA cease to be a member of VISA or MasterCard, for
any reason, a Pay Out Event could occur, and delays in payments on the
Receivables and possible reductions in the amounts thereof could also occur.
A-18
<PAGE>
<PAGE>
Account Origination
The VISA and MasterCard credit card accounts owned by Chase USA were
principally generated through: (i) direct mail solicitations of individuals who
have been prescreened at credit bureaus on the basis of criteria furnished by
Chase USA; (ii) direct mail solicitations on a non-prescreened basis; (iii)
applications mailed to customers of Chase USA and its affiliates; (iv) purchases
of accounts from other credit card issuers and origination of accounts through
affinity marketing (including co-branded accounts that provide a special benefit
to accountholders with respect to the goods or services sold by the merchant
that allows its mark or logo to appear on the card, such as the British
Airways/Chase USA card launched in 1993 and the NYNEX MobilePerks/Chase USA card
launched in 1994) and agent bank programs; (v) applications made available to
prospective cardholders at the facilities of The Chase Manhattan Bank, N.A., an
affiliate of Chase USA, or at other locations, and (vi) individual-initiated
requests. During 1989, Chase USA purchased five credit card portfolios
comprising approximately 2.1 million accounts and approximately $1.9 billion of
outstanding receivables as of their respective acquisition dates (such accounts,
"Purchased Accounts"). In addition, in December 1991, Chase USA acquired
substantially all of the credit card assets of an affiliate, The Chase Lincoln
First Bank, N.A. Purchased Accounts, Affinity Program Accounts and Agent Bank
Accounts and accounts acquired from The Chase Lincoln First Bank, N.A. ("Chase
Lincoln Accounts") were not included in the Trust Portfolio as of the Initial
Closing Date. Additional Accounts may include Purchased Accounts, Chase Lincoln
Accounts, Affinity Program Accounts, Agent Bank Accounts and co-brand accounts.
See "Description of the Certificates--Addition of Accounts."
Underwriting Procedures
In the case of prescreened direct mail solicitations, underwriting
criteria established by Chase USA are used by credit bureaus to generate or
screen lists of qualifying individuals, and credit scores are obtained using
credit scoring models. The information requested in the response forms mailed to
prescreened prospects is less extensive than the information requested in the
applications mailed to individuals who have not been prescreened. Credit limits
are assigned to prescreened prospective cardholders based on a credit profile
that includes past payment patterns on other consumer loans and certain other
criteria. Individuals responding to prescreened direct mail solicitations are
subsequently mailed a credit card after their response forms have been
satisfactorily reviewed by Chase USA.
Non-prescreened applications for credit card accounts are reviewed for
accuracy and creditworthiness based on credit underwriting criteria established
by Chase USA. Chase USA uses credit reports obtained from credit bureaus to
review applications that have not been prescreened, and applies credit scoring
models to obtain credit scores on applicants. As credit card account
applications are approved, an initial credit limit is set. This limit is based
primarily upon applicants' credit scores and incomes.
Chase USA generally uses credit scoring models to evaluate the ability and
willingness of credit card applicants to repay credit obligations. The credit
scoring models currently in use have been developed by an internal credit policy
department of an affiliate of Chase USA that specializes in developing credit
scoring models, or by an independent firm, or developed jointly by such credit
policy department and an independent firm. Through credit scoring, Chase USA
evaluates credit profiles in order to statistically quantify credit risk. The
models use statistics to correlate common characteristics with credit risk. The
credit scoring models used by Chase USA are periodically reviewed, and if
necessary, are updated to reflect current statistical data.
A-19
<PAGE>
<PAGE>
Billing and Payments
For purposes of administrative convenience, the VISA and MasterCard credit
card accounts of Chase USA are currently grouped into ten billing cycles ending
on various days throughout each month (a "Billing Cycle"). Each Billing Cycle
has its own monthly billing date, at which time the activity in the related
accounts during the month ending on such billing date is processed and billed to
cardholders. See "The Receivables." The Accounts include VISA and MasterCard
credit card accounts in Billing Cycles ending at the close of business on
various days throughout each month. Additionally, all monthly calculations with
respect to each Account prior to the Conversion Date will be computed based on
the activity during the applicable Billing Cycle for that Account. On and after
the Conversion Date, monthly calculations with respect to each Account will
generally be computed based on the activity during the applicable Monthly
Period. See "The Receivables."
Monthly billing statements are sent by an affiliate of Chase USA to
accountholders with either a debit or credit balance of at least one dollar at
the end of the Billing Cycle or when a finance charge has been imposed.
Generally, each month, accountholders must make at least a minimum payment equal
to the sum of (i) a specified portion (as described below) of the purchases new
balance, (ii) a specified portion (as described below) of the cash advances new
balance, (iii) any past due amount, and (iv) at the option of Chase USA, the
excess of the unpaid balance for an account over the assigned credit limit.
Generally, the portion of the purchases new balance included in the minimum
monthly payment is equal to the greater of (i) 1/50 of the purchases new
balance; and (ii) $10, or, if less, the entire purchases new balance. Generally,
the portion of the cash advances new balance included in the minimum monthly
payment is equal to the greater of (i) 1/50 of the cash advances new balance and
(ii) $10, or, if less, the entire cash advances new balance. Outstanding
balances of less than $10 are due in full.
Certain accounts provide the accountholders the option to skip their
minimum monthly payment for one billing cycle, no more than two times in any
twelve month period, provided that two months of minimum payments have been made
by the accountholder between each accountholder's exercise of this option. In
addition, the Seller may, in unusual circumstances, at its option, allow
individual accountholders or groups of accountholders to skip their minimum
monthly payments for one or more months. Monthly periodic finance charges in
connection with such skipped payments continue to accrue, and the amount of the
next minimum monthly payment is determined as described above, based on the
account balance at the end of the next Billing Cycle. The effect of skipped
payments is to increase the amount of Finance Charge Receivables and to decrease
the rate of payments of Principal Receivables during the Billing Cycles for
which the offer applies.
The monthly periodic finance charges assessed on cash advances are
calculated by multiplying the average daily cash advance balance by the
applicable monthly periodic rate. Monthly periodic finance charges are
calculated on cash advances (including unpaid finance charges with respect to
cash advances) from the date of the transaction or the first day of the Billing
Cycle in which the transaction is posted to the account (whichever is later).
The monthly periodic finance charges assessed on purchases are calculated by
multiplying the average daily purchase balance by the applicable monthly
periodic rate. Monthly periodic finance charges are calculated on purchases
(including certain fees and unpaid finance charges with respect to purchases)
from the date of the purchase or the first day of the Billing Cycle in which the
purchase is posted to the account (whichever is later). Monthly periodic finance
charges are not assessed in most circumstances on purchases if the purchases new
balance shown in the billing statement is paid by the next statement closing
date, or if the purchases previous balance is zero. The next statement closing
date is on average 30 days after the billing date. The annual
A-20
<PAGE>
<PAGE>
percentage rates for purchases and cash advances can be either fixed or variable
rates. The annual percentage rate for purchases is generally a variable rate
calculated by adding (or subtracting for purchases) a certain number of
percentage points to (or from) the prime rate as published in The Wall Street
Journal.
Standard and premium accounts that have been established more recently by
Chase USA from more recent solicitations generally carry no annual membership
fee. However, for those accounts with an annual membership fee (from past
solicitations or otherwise), generally the annual membership fee is $20 for
standard accounts and either $45 or $50 for premium accounts. The annual
membership fee in most cases is non-refundable, except that such fee need not be
paid if the customer closes the account within 30 days of the mailing of the
billing statement on which such customer is billed for such fee. Chase USA may
waive the annual membership fee, or a portion thereof. Some of the accounts may
be subject to certain additional fees, including: (i) a late fee, generally in
the amount of $18, with respect to any monthly payment if the required minimum
monthly payment is not received by the payment due date shown on the monthly
billing statement; (ii) a cash advance fee of 2% of the amount of the advance
subject to a minimum fee of $2 per transaction and a maximum of $20 per
transaction; and (iii) a returned check charge, generally in the amount of $18.
Subject to the requirements of applicable laws, Chase USA may change certain of
these fees and rates at any time by written notice to cardholders. Chase USA may
also, subject to the requirements of applicable laws, change cardholders'
standard or premium accounts to accounts with enhanced benefits (including but
not limited to co-brand accounts). Such a change may result in different fees
and rates being assessed with respect to existing and new account balances. Any
change which would result in an increase in the rate of finance charges, or
other fees, or impose a fee not set forth in the cardholder agreement, generally
becomes effective upon obtaining the cardholder's consent or deemed consent.
Payments of less than the full debit balance on an Account will be applied
to the outstanding principal balance, periodic finance charges, fees, and any
other charges imposed by Chase USA on such account, in such order as Chase USA
determines from time to time in its sole discretion. There can be no assurance
that periodic finance charges, fees, and other charges imposed by Chase USA will
remain at current levels in the future.
Collection of Delinquent Accounts
An account is initially considered delinquent if the minimum monthly payment
indicated on the accountholder's statement is not received within 30 days after
the billing date relating to such minimum payment. Collection efforts begin when
an account is considered delinquent and include statement messages, collection
letters and telephoning, each requesting payment of the amount past due or
overlimit, and denial of authorization for new purchases and cash advances.
Collectors may use credit bureau reports and other methods to locate delinquent
accountholders in the event they move without notifying Chase USA. Throughout
the collection process, delinquent accountholders are sent automated computer
generated correspondence regarding the status of their accounts. Transmissions
occur at selected intervals advising of the age, the amount due, and the
collection phase of the account. In accordance with its current policies, Chase
USA may reclassify certain delinquent accounts as current if the accountholder
pays three consecutive minimum monthly payments (two consecutive minimum monthly
payments if the account is between sixty and eighty-nine days delinquent).
Accountholders who become subject to bankruptcy proceedings are not called
or sent letters. Such accountholders will, however, receive monthly statements
until Chase USA receives confirmation of the case number. In accordance with
current policies, accounts of bankrupt obligors are written-off within 90 days
of notice of bankruptcy or after having been delinquent for 180 days, whichever
comes first.
The current policy of Chase USA is to charge off, as a loan loss, the
principal portion of the receivables balance for both purchases and cash
advances after the 180th day of delinquency. Charge offs may occur earlier in
some circumstances, as in the case of bankrupt accountholders. Although some
recovery efforts are pursued on an in-house basis, most charged off accounts are
placed with, and in some cases, may be sold to, outside collection agencies.
A-21
<PAGE>
<PAGE>
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a limited period prior to
initial billing. Under the VISA and MasterCard systems, a portion of this
Interchange in connection with cardholder charges for merchandise and services
is passed from the banks which clear the transactions for merchants to credit
card issuing banks. Interchange percentages are set by the VISA and MasterCard
associations and may be changed by either of them respectively from time to
time. Chase USA will be required, pursuant to the terms of the Pooling and
Servicing Agreement, to transfer to the Trust, Interchange attributed to
cardholder charges for merchandise and services in the Accounts. Interchange
received by Chase USA will be allocated to the Trust on the basis of the
percentage equivalent of a fraction, the numerator of which is the amount of
cardholder charges for merchandise and services in the Accounts and the
denominator of which is the total amount of cardholder charges for merchandise
and services in all of the VISA and MasterCard credit card accounts owned by
Chase USA. Interchange allocated to the Trust will be treated as collections of
Finance Charge Receivables.
THE RECEIVABLES
The Receivables will arise in certain Accounts that have been selected
from the Initial Portfolio and from Additional Accounts designated in connection
with the Addition Date of May 1, 1995 (which Additional Accounts relate to
previous securitizations which have fully amortized) and June 1, 1995 (which
Additional Accounts included the balance of the Bank Portfolio other than
certain Purchased Accounts, certain accounts relating to student solicitation
and certain small balance accounts), in each case on the basis of criteria set
forth in the Pooling and Servicing Agreement (the "Trust Portfolio"). The
Initial Portfolio, from which the initial Accounts were selected, consisted of
the Bank Portfolio as of the initial Selection Date, excluding all Purchased
Accounts, the Chase Lincoln Accounts and all then-existing Affinity Program
Accounts and Agent Bank Accounts. An "Agent Bank Account" is an account that has
been originated by Chase USA pursuant to an agreement between Chase USA and a
bank for which Chase USA issued VISA and/or MasterCard credit cards and acted as
sponsor with VISA USA, Inc. and/or MasterCard International Incorporated. An
"Affinity Program Account" is an account that has been originated by Chase USA
through the solicitation of prospective cardholders from identifiable groups
with a common interest or a common cause, with the assistance of an organization
of the members of such group. The Additional Accounts with an Addition Date of
May 1, 1995, which relate to prior securitizations, were selected from the Bank
Portfolio in connection with such securitizations by similarly excluding all
then existing Purchased Accounts, Affinity Program Accounts and Agent Bank
Accounts. An Account in the Bank Portfolio must be an Eligible Account (as
described below) to be selected for inclusion in the Trust Portfolio.
The Seller will transfer to the Trust all Receivables existing in the
Accounts on the date specified for transfer to the Trust and all Receivables
generated in such Accounts after such date. All monthly calculations with
respect to such Accounts are computed based on activity occurring during a
calendar month (each, a "Monthly Period"). Pursuant to the Pooling and Servicing
Agreement, the Seller has the right (and, under certain circumstances, the
obligation), subject to certain limitations and conditions set forth therein, to
designate from time to time Additional Accounts and to transfer to the Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created. These Accounts must be Eligible Additional
Accounts as of the date the Seller designates such accounts as Additional
Accounts. The Pooling and Servicing Agreement provides that the Seller may, but
is not obligated to, add as Automatic Additional Accounts new accounts opened in
the ordinary course of its business. Automatic Additional Accounts may be added
if certain requirements are satisfied (the date of each such addition being an
"Automatic Addition Date"). In addition, the Seller is required to designate
Eligible Additional Accounts as Additional Accounts (x) to maintain the average
of the Seller Interest for any 30-day period such that the Seller Interest
equals or exceeds 7% or such higher percentage as may be specified in any
Prospectus Supplement (such percentage, the "Minimum Seller Interest"), of the
average Aggregate Principal Receivables for such 30 day period and (y) to
maintain, for so long as certificates
A-22
<PAGE>
<PAGE>
of any Series, including the Certificates, remain outstanding, Aggregate
Principal Receivables in an amount equal to or greater than the Minimum
Aggregate Principal Receivables. The term "Aggregate Principal Receivables"
means in the case of any date of determination which occurs before the
Conversion Date, the aggregate amount of Principal Receivables as of the end of
the Billing Cycles during the Monthly Period immediately preceding such date of
determination or, in the case of any date of determination which occurs on or
after the Conversion Date the aggregate amount of Principal Receivables as of
the end of the last day of the Monthly Period immediately preceding such date of
determination. The "Minimum Aggregate Principal Receivables" required to be
maintained through the designation by the Seller of Additional Accounts shall
generally be an amount equal to or greater than the initial Investor Interests
for all Series then outstanding, other than certain Series designated as
"Excluded Series" in the applicable Supplement, provided that the Rating Agency
has determined that such exclusion will not result in a reduction or withdrawal
of the ratings of the Rating Agency then in effect, which amount in either case
shall be reduced ratably to reflect the tender and cancellation of Certificates
pursuant to any Investor Exchange. Such amount may be increased by a Supplement
pursuant to which additional Series may be issued. The Seller will convey the
Receivables then existing or thereafter created under such Additional Accounts
to the Trust. See "Description of the Certificates--Addition of Accounts."
Further, pursuant to the Pooling and Servicing Agreement, the Seller has the
right (subject to certain limitations and conditions discussed herein) to remove
certain Accounts designated by the Seller whether such Receivables are then
existing or thereafter created. See "Description of the Certificates--Removal of
Accounts." Throughout the term of the Trust, the Accounts from which the
Receivables arise will be the same Accounts designated by the Seller and
conveyed to the Trust on the Initial Closing Date plus any Additional Accounts
and Automatic Additional Accounts and minus any Removed Accounts. As of the
Selection Date, on the date any new Receivables are created, or the end of the
related Billing Cycle immediately preceding the date that Additional Accounts or
Automatic Additional Accounts are added to the Trust, as applicable, the Seller
has represented and warranted, or 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 and
Warranties."
Additional Accounts have included Purchased Accounts, Chase Lincoln
Accounts, Affinity Program Accounts and Agent Bank Accounts, and Additional
Accounts added in the future may in other respects not be accounts of the same
type previously included in the Trust. Therefore there can be no assurance that
such Additional Accounts will be of the same credit quality as the Accounts
initially selected for the Trust Portfolio or the Additional Accounts the
Receivables of which have been conveyed previously to the Trust. Moreover,
Additional Accounts may contain Receivables that consist of fees, charges and
amounts that are different from the fees, charges and amounts described below.
Such Additional Accounts may also be subject to different credit limits,
balances and ages. Consequently, there can be no assurance that the Accounts
will continue to have the characteristics described herein as Additional
Accounts are added. In addition, the inclusion in the Trust of Additional
Accounts with lower periodic finance charges may have the effect of reducing the
Portfolio Yield for a Series. The Seller intends to file with the Commission, on
behalf of the Trust, a Current Report on Form 8-K with respect to any addition
of Accounts that would have a material effect on the composition of the Trust
Portfolio.
The Prospectus Supplement relating to a Series will provide certain
information about the Trust Portfolio as of the date specified. Such information
will include the amount of Principal Receivables, the amount of Finance Charge
Receivables, the range of principal balances of the Accounts and the average
thereof, the range of credit limits of the Accounts and the average thereof, the
range of ages of the Accounts and the average thereof, the geographic
distribution of the Accounts, the types of Accounts and delinquency statistics
relating to the Accounts,
A-23
<PAGE>
<PAGE>
MATURITY ASSUMPTIONS
The Pooling and Servicing Agreement provides that Class A
Certificateholders will not receive payments of principal until the Class A
Scheduled Payment Date, except in the event of a Pay Out Event, which will
result in the commencement of the Rapid Amortization Period. The Pooling and
Servicing Agreement also provides that the Class B Certificateholders will not
receive payments of principal until the Class B Scheduled Payment Date, or
earlier in the event of a Pay Out Event (in either case, only after the Class A
Investor Interest has been paid in full).
A Pay Out Event occurs, either automatically or after specified notice,
upon (a) the failure of the Seller to make certain payments or transfers of
funds for the benefit of the Certificateholders within the time periods stated
in the Pooling and Servicing Agreement, (b) material breaches of certain
representations, warranties or covenants of the Seller, (c) certain insolvency
events involving the Seller, (d) a reduction in the Portfolio Yield averaged for
any three consecutive Monthly Periods to a rate which is less than the Base Rate
averaged for the same Monthly Periods, (e) the Trust becoming subject to
regulation by the Securities and Exchange Commission as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, (f) the
failure of the Seller to convey Receivables arising under Additional Accounts
when required by the Pooling and Servicing Agreement or (g) the occurrence of a
Servicer Default which would have a material adverse effect on the
Certificateholders. See "Series Provisions--Pay Out Events" herein and
"Description of the Certificates--Pay Out Events" in the Prospectus.
On each Transfer Date during the Controlled Accumulation Period prior to
the payment of the Class A Investor Interest in full, an amount equal to, for
each Monthly Period, the least of (a) the Available Principal Collections, (b)
the "Controlled Deposit Amount" for such Monthly Period, which is equal to the
sum of the Controlled Accumulation Amount for such Monthly Period and the
Accumulation Shortfall, if any, for such Monthly Period and (c) the Class A
Adjusted Investor Interest prior to any deposits on such day, will be deposited
in the Principal Funding Account (the "Principal Funding Account") established
by the Servicer until the principal amount on deposit in the Principal Funding
Account (the "Principal Funding Account Balance") equals the Class A Investor
Interest. After the Class A Investor Interest has been paid in full, or
following the first Transfer Date upon which the Principal Funding Account
Balance has increased to the amount of the Class A Investor Interest, Available
Principal Collections, to the extent required, will be distributed to the Class
B Certificateholders on each Distribution Date beginning, during the Controlled
Accumulation Period, on the Class B Scheduled Payment Date, until the earlier of
the date the Class B Investor Interest has been paid in full and the Scheduled
Series 1996-3 Termination Date (or any permitted extension thereof). After the
Class A Investor Interest and the Class B Investor Interest have each been paid
in full, Available Principal Collections, to the extent required, will be
distributed to the Collateral Interest Holder on each Transfer Date until the
earlier of the date the Collateral Interest has been paid in full and the
Scheduled Series 1996-3 Termination Date (or any permitted extension thereof).
Amounts in the Principal Funding Account are expected to be available to pay the
Class A Investor Interest on the Class A Scheduled Payment Date. After the
payment of the Class A Investor Interest in full, Available Principal
Collections are expected to be available to pay the Class B Investor Interest on
the Class B Scheduled Payment Date. Although it is anticipated that collections
of Principal Receivables will be available on each Transfer Date during the
Controlled Accumulation Period to make a deposit of the applicable Controlled
Deposit Amount and that the Class A Investor Interest will be paid to the Class
A Certificateholders on the Class A Scheduled Payment Date and the Class B
Investor Interest will be paid to the Class B Certificateholders on the Class B
Scheduled Payment Date, respectively, no assurance can be given in this regard.
If the amount required to pay the Class A Investor Interest or the Class B
Investor Interest in full is not available on the Class A Scheduled Payment Date
or the Class B Scheduled Payment Date, respectively, a Pay Out Event will occur
and the Rapid Amortization Period will commence.
A-24
<PAGE>
<PAGE>
Loss and Delinquency Experience
The following tables set forth the delinquency and loss experience for
each of the periods shown for the Bank Portfolio. The delinquency and loss
experience shown in the tables below is comprised of segments which may, when
taken individually, have delinquency and loss characteristics different from
those of the overall Bank Portfolio. Because the Accounts were selected on a
basis which excluded certain accounts in the Bank Portfolio as described in the
Prospectus and because of changes in the Bank Portfolio since the Selection
Date, actual delinquency and loss experience with respect to the Accounts may be
different from that set forth below for the Bank Portfolio. The Servicer files
with the Commission monthly reports with respect to the Trust, including
information with respect to revenues, losses and Portfolio Yield with respect to
the Accounts. There can be no assurance that the delinquency and loss experience
for the Receivables in the future will be similar to the historical experience
of the Bank Portfolio included in the tables set forth below.
Should the Rapid Amortization Period commence, the Class B
Certificateholders will be entitled to receive monthly payments of principal on
each Distribution Date (beginning with the Distribution Date on which the Class
A Investor Interest has been paid in full) until the Class B Investor Interest
has been paid in full or the Scheduled Series 1996-3 Termination Date (or any
permitted extension thereof) has occurred equal to the Available Principal
Collections on deposit in the Principal Account with respect to the related
Transfer Date minus the portion of such Available Principal Collections applied
to Class A Monthly Principal on such Distribution Date. Allocations of Principal
Receivables based upon the Principal Allocation Percentage during either the
Controlled Accumulation Period or the Rapid Amortization Period may result in
allocations of principal to Certificateholders greater relative to the declining
balance of the Investor Interest than would be the case if a percentage based on
such declining balance were used to determine the percentage of collections to
be allocated in respect of the Investor Interest.
THE BANK PORTFOLIO
General
Set forth below is certain information with respect to the Bank Portfolio.
See "The Credit Card Business of Chase USA" in the Prospectus. There can be no
assurance that the yield, loss and delinquency experience with respect to the
Receivables will be comparable to that set forth below with respect to the
entire Bank Portfolio.
Effective June 1, 1996, Chase USA acquired the credit card business of
Chemical Bank. In anticipation of such acquisition, Chase USA eliminated, as of
April 1, 1996, certain exceptions to its charge-off policy and expects to
eliminate certain other exceptions in the fourth quarter of 1996. It is expected
that the combined credit card business may be operated and serviced differently
in certain respects from Chase USA's credit card business prior to such
acquisition. Chase USA does not expect any such variations or the foregoing
transactions to have any material adverse effect on the interests of the
Certificateholders. See "Risk Factors--Ability to Change Terms of the Accounts"
in the Prospectus and "Chase USA and The Chase Manhattan Corporation" herein.
If certain criteria set forth in the Pooling and Servicing Agreement are
satisfied, Additional Accounts may be selected from the Bank Portfolio or, in
the alternative, Accounts may be removed from the Trust Portfolio. It is
expected that, in connection with the combination of the credit card business of
Chase USA with that of Chemical Bank, Accounts will be removed from the Trust
Portfolio. Any such removal will be effected in compliance with the Pooling and
Servicing Agreement. See "Description of the Certificates--Removal of Accounts"
in the Prospectus. Any such removal is not expected to materially adversely
affect the interests of the Certificateholders. See "The Receivables."
A-25
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<PAGE>
Loss Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Five Months
Ended Year Ended December 31,
------------ -------------------------------------
May 31, 1996 1995 1994 1993
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1) .. $12,632,176 $11,223,195 $9,766,339 $9,590,435
Gross Charge Offs(2)(3) ............. $ 238,185 $ 469,306 $ 456,622 $ 501,301
Recoveries .......................... $ 25,023 $ 43,766 $ 41,060 $ 44,168
Net Charge Offs(3) .................. $ 213,162 $ 425,540 $ 415,562 $ 457,133
Net Charge Offs as Percent of Average
Receivables Outstanding(3) ....... 4.06%(4) 3.79% 4.26% 4.77%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Gross Charge Offs are calculated before recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud,
returned goods or customer disputes. Gross Charge Offs do not include
certain reserves established against future charge-offs of accounts affected
by changes in Chase USA's charge off policy.
(3) The charge off amounts shown include only the principal portion of charged
off receivables.
(4) Annualized.
Delinquency Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
May 31, 1996 1995 1994 1993
Number of Days ----------------------- ----------------------- ----------------------- -----------------------
Delinquent(1) Amount Percentage(2) Amount Percentage(2) Amount Percentage(2) Amount Percentage(2)
- ------------- ------ ------------- ------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days $197,121 l.53% $209,412 1.63% $176,616 1.70% $173,686 1.71%
60 to 89 Days 122,708 0.95 126,115 0.98 114,950 1.10 110,962 1.09
90 Days or
Greater ... 217,577 1.69 237,500 1.85 209,606 2.01 237,557 2.34
-------- ---- -------- ---- -------- ---- -------- ----
Total ..... $537,406 4.17% $573,027 4.46% $501,172 4.81% $522,205 5.14%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- ----------
(1) Number of days delinquent means the number of days after the first billing
date following the original billing date. For example, 30 days delinquent
means that no payment was received within 60 days after the original billing
date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as
of their respective cycle date rather than as a percentage of the average
monthly outstanding receivables. Delinquencies are calculated before the
reversal of finance charges and include bankruptcies that have not been
charged-off.
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<PAGE>
Revenue Experience
The gross revenues from finance charges and fees relating to accounts in
the Bank Portfolio for each of the three years contained in the period ended
December 31, 1995 and the five months ended May 31, 1996, are set forth in the
following table. The historical yield figures in the table are calculated on an
accrual basis. Collections of Receivables included in the Trust will be on a
cash basis. The yield on both an accrual and a cash basis will be affected by
numerous factors, including the monthly periodic finance charges on the
Receivables, the amount of the annual membership fees, cash advance fees and
other fees, Interchange, changes in the delinquency rate on the Receivables and
the percentage of cardholders who pay their balances in full each month and do
not incur monthly periodic finance charges. Due to such factors and the factors
discussed under "--Loss and Delinquency Experience" above, there can be no
assurance that the revenue experience for the Receivables in the future will be
similar to the historical experience of the Bank Portfolio included in the table
set forth below.
Revenue Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Five Months
Ended Year Ended December 31,
------------ -------------------------------------------
May 31, 1996 1995 1994 1993
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Finance Charges and Fees(1) ............. $ 814,492 $1,886,803 $1,798,895 $1,895,218
Average Receivables Outstanding(2) ...... $12,632,176 11,223,195 $9,766,339 $9,590,435
Yield From Finance Charges and Fees(3) .. 15.53%(4) 16.81% 18.42% 19.76%
</TABLE>
- ----------
(1) Finance Charges and Fees include periodic finance charges, annual membership
fees, cash advance transaction fees and Interchange, late fees, returned
check fees, insurance commissions, overlimit fees and other administration
fees and services charges. Annual membership fees are presented in
accordance with SFAS No.91.
(2) Average Receivables Outstanding is the average of the daily receivable
balance on each day during the period indicated.
(3) Yield from Finance Charges and Fees represents Finance Charges and Fees as
a percentage of Average Receivables Outstanding.
(4) Annualized.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a limited period prior to
initial billing. Under the VISA and MasterCard systems, a portion of this
Interchange in connection with cardholder charges for merchandise and services
is passed from the banks which clear the transactions for merchants to credit
card issuing banks. Interchange percentages are set by the VISA and MasterCard
associations and may be changed by either of them respectively from time to
time. Chase USA will be required, pursuant to the terms of the Pooling and
Servicing Agreement, to transfer to the Trust, Interchange attributed to
cardholder charges for merchandise and services in the Accounts. Interchange
received by Chase USA will be allocated to the Trust on the basis of the
percentage equivalent of a fraction, the numerator of which is the amount of
cardholder charges for merchandise and services in the Accounts and the
denominator of which is the total amount of cardholder charges for merchandise
and services in all of the VISA and MasterCard credit card accounts owned by
Chase USA. Interchange allocated to the Trust will be treated as collections of
Finance Charge Receivables.
A-27
<PAGE>
<PAGE>
Payment Rates
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Bank Portfolio during any month in the period shown and
the average cardholder monthly payment rates for the Bank Portfolio for all
months during the periods shown, in each case calculated as a percentage of the
prior month's ending outstanding receivables balance during the periods shown.
Payment rates shown in the table are based on amounts which would be deemed
payments of Principal Receivables and Finance Charge Receivables with respect to
the Accounts.
Cardholder Monthly Payment Rates
Bank Portfolio
Five Months
Ended Year Ended December 31,
------------ ------------------------------------
May 31, 1996 1995 1994 1993
------------ ------ ------ ------
Lowest(1) .......... 11.55% 10.20% 10.70% 10.53%
Highest(1) ......... 12.67% 12.82% 12.98% 12.40%
Average(2) ......... 12.08% 11.43% 11.71% 11.43%
- ----------
(1) Monthly Payment Rates represent total payments collected during a given
month expressed as a percentage of the prior month's ending outstanding
receivables.
(2) The Average Monthly Payment Rates shown are expressed as an arithmetic
average of the payment rate during each month of the period indicated.
The amount of collections of Receivables may vary from month to month due
to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that (i) collections of
Principal Receivables with respect to the Trust Portfolio (which differs from
the Bank Portfolio as discussed above in "--Loss and Delinquency Experience"),
and thus the rate at which Certificateholders could expect to receive payments
of principal on the Certificates during either the Controlled Accumulation
Period or the Rapid Amortization Period, will be similar to the historical
experience set forth above or (ii) the terms of any subsequently issued Series
will not adversely impact the amount or timing of any payments to the Series
1996-3 Certificateholders. In particular, the occurrence of a pay out event with
respect to an Excluded Series during a Rapid Amortization Period could cause the
Rapid Amortization Period to be longer than if such Excluded Series had not been
issued. In addition, if a Pay Out Event occurs, the average life and maturity of
the Certificates could be significantly reduced or lengthened.
Because there may be a slowdown in the payment rate below the payment rate
used to determine the Controlled Accumulation Amount, or because a Pay Out Event
may occur which would initiate the Rapid Amortization Period, there can be no
assurance that the Class A Certificates will be paid in full by the Class A
Scheduled Payment Date or that the Class B Certificates will be paid in full by
the Class B Scheduled Payment Date.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts which were
selected from the Initial Portfolio of VISA and MasterCard credit card accounts
and in Additional Accounts added to the Trust on May 1, 1995 and June 1, 1995,
in each case, on the basis of criteria set forth in the Pooling and Servicing
Agreement (the "Trust Portfolio").
The Servicer has delivered a notice to the Trustee and the Rating Agency
that it has changed the software that it uses to service the Accounts and that,
effective as of July 1, 1996, it will be able to calculate the aggregate amount
of Receivables, Principal Receivables and Finance Charge Receivables effective
as of any date of determination, and is not limited to calculating such amounts
by reference to the amount thereof as of the end of
A-28
<PAGE>
<PAGE>
the Billing Cycles which ended during a specified period. The "Conversion Date"
is expected to occur on July 1, 1996. On each Determination Date, assuming the
Conversion Date occurs on July 1, 1996, the Aggregate Principal Receivables will
equal the actual aggregate amount thereof as of the last day of the preceding
Monthly Period without regard to when the respective Billing Cycles ended.
Prior to the Conversion Date, balances with respect to the Receivables
will be determined by reference to the aggregate of such balances as of the end
of each Billing Cycle ending in the related Monthly Period, and monthly
calculations with respect to each Account will be computed based on the activity
during the applicable Billing Cycle for that Account. Thus, in the case of the
May 1996 Distribution Date, for example, monthly collections were based on the
April 1996 Monthly Period and reflected collection activity for all Billing
Cycles commencing at the opening of business on any day during March 1996, and
ending at the close of business on the day preceding the corresponding day of
April 1996, with respect to Accounts in each of the Billing Cycles.
Pursuant to the Pooling and Servicing Agreement, the Seller has the right
(subject to certain limitations and conditions) to designate from time to time
Additional Accounts to be added to the Trust Portfolio. See "Description of the
Certificates--Addition of Accounts" in the Prospectus. The Seller added Accounts
to the Trust Portfolio on May 1, 1995 and June 1, 1995, and has and will
transfer to the Trust all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created. The aggregate outstanding
amount of Principal Receivables arising under those Additional Accounts was
approximately $5.7 billion as of the respective addition dates. In addition, the
Seller is required to designate Eligible Additional Accounts as Additional
Accounts under the circumstances described under "Description of the
Certificates--Addition of Accounts" in the Prospectus.
The Pooling and Servicing Agreement also provides that the Seller has the
right (subject to certain limitations and conditions) to designate from time to
time Accounts to be removed from the Trust Portfolio. See "Description of the
Certificates--Removal of Accounts" in the Prospectus. It is expected that, in
connection with the combination of the credit card business of Chase USA with
that of Chemical Bank. Accounts will be removed from the Trust Portfolio. Any
such removal is not expected to materially adversely affect the interests of the
Certificateholders. See "Chase USA and the Chase Manhattan Corporation."
During the Monthly Period in which the Conversion Date occurs, and in each
Monthly Period thereafter, monthly calculations with respect to each Account
will generally be based on the activity during such Monthly Period for such
Account. As a result, references herein to collections received during the
Billing Cycles which end in a particular month shall, if such month begins on or
after the Conversion Date, instead be deemed to refer to collections received
during such month. Thus, in the case of the August 1996 Distribution Date, for
example, assuming the Conversion Date occurs on July 1, 1996, distributions
would be based on the collections received during the July 1996 Monthly Period.
The Receivables in the Trust Portfolio, as of June 3, 1996 (based on
billing cycles ending in the preceding month), included $9.7 billion of
Principal Receivables and $0.3 billion of Finance Charge Receivables. The
Accounts had, as of June 3, 1996, an average outstanding balance of $1,343 and
an average credit limit of $5,753. The percentage of the aggregate total
Receivable balance to the aggregate total credit limit was 23.34%, and the
weighted average age of the Accounts was approximately 92 months. As of June 3,
1996, all but a negligible number of cardholders whose Accounts are included in
the Trust Portfolio have billing addresses in one of the 50 States or the
District of Columbia. As of June 3, 1996, 29.38% of the Accounts were premium
accounts and 70.62% were standard accounts, and the aggregate Principal
Receivables balances of premium accounts and standard accounts, as a percentage
of the total Aggregate Principal Receivables, were 35.26% and 64.74%,
respectively.
A-29
<PAGE>
<PAGE>
The following tables summarize the Trust Portfolio's balance and account
characteristics as of June 3, 1996. Because the future composition of the Trust
Portfolio may change over time, these tables may not necessarily be indicative
of the composition of the Trust Portfolio after June 3, 1996.
Composition by Account Balance
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
or Total Percentage
Account Number of Number or of Total
Balance Range Accounts Accounts Receivables Receivables
------------- --------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
Credit Balance .......... 160,606 2.18% $ (8,990,989.33) (.09)%
No Balance .............. 2,943,901 39.88 0 0
$0.01-$500.00 ........... 1,247,991 16.91 212,734,284.66 2.15
$500.01-$l,000.00 ....... 538,368 7.29 402,985,674.92 4.07
$1,000.01-$3,000.00 ..... 1,222,127 16.56 2,302,803,782.75 23.23
$3,000.01-$5,000.00 ..... 661,261 8.96 2,626,047,644.34 26.49
$5,000.01-$10,000.00..... 561,293 7.60 3,837,029,492.01 38.70
Over $10,000.00 ......... 45,514 .62 539,787,808.78 5.45
--------- ------ ----------------- ------
TOTAL ............. 7,381,061 100.00% $9,912,397,698.13 100.00%
========= ====== ================= ======
</TABLE>
Composition by Credit Limit
Trust Portfolio
<TABLE>
<CAPTION>
Percentage
or Total Percentage
Number of Number or of Total
Credit Limit Range Accounts Accounts Receivables Receivables
------------- --------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
$0.0l-$l,000.00 ......... 646,538 8.76% $ 184,316,571.18 1.86%
$1,000.01-$2,000.00 ..... 824,174 11.17 516,398,223.87 5.21
$2,000.01-$3,000.00 ..... 710,522 9.63 691,664,495.49 6.98
$3,000.0l-$4,000.00 ..... 516,040 6.99 666,809,962.73 6.73
$4,000.0l-$5,000.00 ..... 1,228,095 16.64 1,629,966,852.95 16.44
$5,000.0l-$10,000.00 .... 2,647,553 35.86 4,861,534,848.74 49.04
Over $10,000.00 ......... 808,139 10.95 1,361,706,743.17 13.74
--------- ------ ----------------- ------
TOTAL ............. 7.381,061 100.00% $9,912,397,698.13 100.00%
========= ====== ================= ======
</TABLE>
Composition by Period of Delinquency
Trust Portfolio
<TABLE>
<CAPTION>
Period of Percentage
Delinquency or Total Percentage
(Days Contractually Number of Number or of Total
Delinquent) Accounts Accounts Receivables Receivables
- ------------------- --------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
Current(1) .............. 6,168,528 83.58% $8,079,579,732.13 81.51%
1 to 29 days ............ 472,682 6.40 1,260,776,367.96 12.72
30 to 59 Days ........... 89,489 1.21 244,871,616.30 2.47
60 or More Days ......... 650,362 8.81 327,169,981.74 3.30
--------- ------ ----------------- ------
TOTAL ............... 7,381,061 100.00% $9,912,397,698.13 100.00%
========= ====== ================= ======
</TABLE>
- ----------
(1) Includes Accounts on which the minimum payment has not been received
within 59 days following the original billing date.
A-30
<PAGE>
<PAGE>
Composition by Account Age
Trust Portfolio
Percentage
of Total Percentage
Number of Number of of Total
Account Age Accounts Accounts Receivables Receivables
----------- -------- -------- ----------- -----------
Up to 7 Months ............. 0 0.00% $ 0.00 0.00%
Over 7 Months to 12 Months . 5,220 0.07 9,707,186.20 0.10
Over 12 Months to 24 Months 912,000 12.36 1,376,278,986.64 13.88
Over 24 Months to 48 Months 1,292,384 17.51 1,469,223,462.70 14.82
Over 48 Months ............. 5,171,457 70.06 7,057,188,062.59 71.20
--------- ------ ----------------- ------
TOTAL ............. 7,381,061 100.00% $9,912,397,698.13 100.00%
========= ====== ================= ======
Geographic Distribution of Accounts
Trust Portfolio
Percentage
of Total Percentage
Number of Number of of Total
State Accounts Accounts Receivables Receivables
----------- -------- -------- ----------- -----------
New York ................. 1,100,746 14.91% $1,491,038,881.16 15.04%
California ............... 911,410 12.35 1,340,355,504.14 13.52
New Jersey ............... 485,266 6.57 658,931,079.05 6.65
Texas .................... 488,386 6.62 657,869,326.93 6.64
Florida .................. 450,093 6.10 577,026,074.38 5.82
Michigan ................. 377,196 5.11 535,051,315.35 5.40
Pennsylvania ............. 340,426 4.61 428,971,935.13 4.33
Illinois ................. 253,715 3.44 335,594,761.75 3.39
Massachusetts ............ 262,993 3.56 324,225,137.62 3.27
Ohio ..................... 208,721 2.83 259,902,352.97 2.62
All Others ............... 2,502,109 33.90 3,303,431,329.65 33.32
--------- ------ ------------------ ------
TOTAL ............... 7,381,061 100.00% $9,912,397,698.13 100.00%
========= ====== ================== ======
- ----------
(1) No other state contains Accounts representing more than 2% of total
Receivables outstanding.
CHASE USA AND THE CHASE MANHATTAN CORPORATION
Chase USA, a wholly-owned banking subsidiary of The Chase Manhattan
Corporation (the "Corporation"), was formed in 1982 and is headquartered in
Wilmington, Delaware. Chase USA is incorporated under the laws of Delaware and,
as a state chartered non-member bank, is regulated by the Office of the Delaware
State Bank Commissioner and by the Federal Deposit Insurance Corporation. Chase
USA intends to apply to the United States Comptroller of the Currency (the
"Comptroller") for conversion to a national bank charter. If such application is
approved, Chase USA would become a national bank and would be regulated
primarily by the Comptroller. Chase USA expects that such conversion would have
no material adverse effect on the Trust or the Certificateholders. In addition,
Chase USA acquired, effective June 1, 1996, the credit card business of Chemical
Bank, an affiliate of Chase USA. At December 31, 1995, Chase USA's total assets
were approximately $11.1 billion, total liabilities were approximately $9.6
billion, and total stockholder's equity was approximately $1.5 billion. Such
amounts do not reflect the acquisition of the Chemical Bank credit card business
by Chase USA on June 1, 1996. Such acquisition is expected to substantially
increase the total assets of Chase USA. Chase USA's activities are primarily
related to credit card lending and other forms of unsecured consumer lending.
Chase USA also takes deposits and offers associated financial services for
consumers.
The Corporation is a bank holding company the principal bank subsidiaries
of which are The Chase Manhattan Bank (National Association) (the "Bank") and
Chemical Bank, a New York state bank. At December 31, 1995, the Corporation's
consolidated assets were greater than $300 billion, and total stockholders'
equity was greater than $20 billion.
A-31
<PAGE>
<PAGE>
EXHIBIT A
PRIOR ISSUANCES OF CERTIFICATES
The table below sets forth the principal characteristics of the Series
1991-1 Certificates, the Series 1992-1 Certificates, the Series 1995-1
Certificates, the Series 1995-2 Certificates, the Series 1996-1 Certificates and
the Series 1996-2 Certificates, the six outstanding Series previously issued by
the Trust. For more specific information with respect to any Series, any
prospective investor should contact the Controller of Chase USA at (302)
575-5450. Chase USA will provide without charge, to any prospective purchaser of
the Certificates, a copy of the Disclosure Document for any previous
publicly-issued Series.
Series 1991-1
Initial Principal Amount ......... $1,000,000,000
Certificate Rate ................. 8.75%
Current Principal Amount ......... $583,333,333
Investor Percentage of Principal
Receivables .................. Investor interest of Series 1991-1 at
end of Revolving Period divided by the
greater of (a) Aggregate Principal
Receivables as of the end of the
Revolving Period or as of the effective
date of the most recent removal of
Accounts and (b) the sum of the
numerators used to calculate the
investor percentage with respect to
Principal Receivables for all Series of
certificates outstanding
Controlled Amortization Amount ... $83,333,334
Commencement of the Controlled
Amortization Period .......... December 1995 Monthly Period
Monthly Servicing Fee Percentage . 2.15%
Enhancement ...................... Cash Collateral Account
Minimum Seller Interest .......... 7%
Scheduled Series Termination Date August 1998 Distribution Date
Final Series Termination Date .... August 1999 Distribution Date
Repurchase Terms ................. Optional repurchase by the Seller on any
Distribution Date on or after the investor
interest of such Series is reduced to an
amount less than $50,000,000
Series 1992-1
Initial Principal Amount ......... $750,000,000
Certificate Rate ................. 7.40%
Current Principal Amount ......... $750,000,000
Investor Percentage of Principal
Receivables .................. Investor interest of Series 1992-1 at
end of Revolving Period divided by the
greater of (a) Aggregate Principal
Receivables as of the end of the
Revolving Period or as of the effective
date of the most recent removal of
Accounts and (b) the sum of the
numerators used to calculate the
investor percentage with respect to
Principal Receivables for all Series of
Certificates outstanding
Controlled Amortization Amount ... $62,500,000
Commencement of the Controlled
Amortization Period .......... October 1996 Distribution Date
Monthly Servicing Fee Percentage . 2.15%
Enhancement ...................... Cash Collateral Account
Minimum Seller Interest .......... 7%
A-32
<PAGE>
<PAGE>
Scheduled Series Termination Date May 1999 Distribution Date
Final Series Termination Date .... May 2000 Distribution Date
Repurchase Terms ................. Optional repurchase by the Seller on any
Distribution Date on or after the investor
interest of such Series is reduced to an
amount less than $37,500,000
Series 1995-1
Initial Principal Amount ......... $905,000,000
Initial Class A Principal
Amount ....................... $855,000,000
Initial Class B Principal
Amount ....................... $50,000,000
Class A Certificate Rate ......... LIBOR (one-month) plus 0.130% per annum
Class B Certificate Rate ......... LIBOR (one-month) plus 0.285% per annum
Current Principal Amount ......... $905,000,000
Current Class A Principal
Amount ....................... $855,000,000
Current Class B Principal
Amount ........................ $50,000,000
Investor Percentage of Principal
Receivables .................... Investor interest (which includes the
Collateral Interest) of Series 1995-1 at
the end of the Revolving Period divided
by the greater of (a) Aggregate
Principal Receivables as of the first
day of the applicable Monthly Period and
(b) the sum of the numerators used to
calculate the investor percentage with
respect to Principal Receivables for all
Series of Certificates outstanding
Controlled Amortization Amount ... One-twelfth of the Class A Investor
Interest as of the end of the Revolving
Period and, after the payment in full of
the Class A Investor Interest, an amount
equal to the Class B Investor Interest
as of the end of the Revolving Period
Commencement of the Controlled
Amortization Period ............ October 1997 Distribution Date
Monthly Servicing Fee Percentage . 2.15%
Enhancement ...................... Collateral Interest in an initial amount
of $95,000,000
Minimum Seller Interest .......... 7%
Scheduled Series Termination Date May 2000 Distribution Date
Final Series Termination Date .... May 2001 Distribution Date
Repurchase Terms ................. Optional repurchase by the Seller on any
Distribution Date on or after the investor
interest (which includes the Collateral
Interest) of such Series is reduced to an
amount less than $50,000,000
Series 1995-2
Initial Principal Amount ......... $1,365,000,000
Initial Class A Principal
Amount ........................ $1,282,500,000
Initial Class B Principal
Amount ....................... $82,500,000
Class A Certificate Rate ......... LIBOR (one-month) plus 0.130% per annum
Class B Certificate Rate ......... LIBOR (one-month) plus 0.250% per annum
Current Principal Amount ......... $1,365,000,000
A-33
<PAGE>
<PAGE>
Current Class A Principal
Amount ....................... $1,282,500,000
Current Class B Principal
Amount ....................... $82,500,000
Investor Percentage of Principal
Receivables .................... Investor interest (which includes the
Collateral Interest) of Series 1995-2 at
the end of the Revolving Period divided
by the greater of (a) Aggregate
Principal Receivables as of the first
day of the applicable Monthly Period and
(b) the sum of the numerators used to
calculate the investor percentage with
respect to Principal Receivables for all
Series of Certificates outstanding
Controlled Amortization Amount ... One-twelfth of the Class A Investor
Interest as of the end of the Revolving
Period and, after the payment in full of
the Class A Investor Interest, an amount
equal to the Class B Investor Interest
as of the end of the Revolving Period
Commencement of the Controlled
Amortization Period ............ January 1998 Distribution Date
Monthly Servicing Fee Percentage . 2.15%
Enhancement ...................... Collateral Interest in an initial amount
of $135,000,000
Minimum Seller Interest .......... 7%
Scheduled Series Termination Date August 2000 Distribution Date
Final Series Termination Date .... August 2001 Distribution Date
Repurchase Terms ................. Optional repurchase by the Seller on any
Distribution Date on or after the investor
interest (which includes the Collateral
Interest) of such Series is reduced to an
amount less than $75,000,000
Series 1996-1
Initial Principal Amount ......... $1,365,000,000
Initial Class A Principal
Amount ....................... $1,282,500,000
Initial Class B Principal
Amount ....................... $82,500,000
Class A Certificate Rate ......... LIBOR (one-month) plus 0.110% per annum
Class B Certificate Rate ......... LIBOR (one-month) plus 0.240% per annum
Current Principal Amount ......... $1,365,000,000
Current Class A Principal
Amount ....................... $1,282,500,000
Current Class B Principal
Amount ....................... $82,500,000
Investor Percentage of Principal
Receivables .................... Investor interest (which includes the
Collateral Interest) of Series 1996-1 at
the end of the Revolving Period divided
by the greater of (a) Aggregate
Principal Receivables as of the first
day of the applicable Monthly Period and
(b) the sum of the numerators used to
calculate the investor percentage with
respect to Principal Receivables for all
Series of Certificates outstanding
Controlled Amortization Amount ... One-twelfth of the Class A Investor
Interest as of the end of the Revolving
Period and, after the payment in full of
the Class A Investor Interest, an amount
equal to the Class B Investor Interest
as of the end of the Revolving Period
A-34
<PAGE>
<PAGE>
Commencement of the Controlled
Amortization Period ............ September 1998 Distribution Date
Monthly Servicing Fee Percentage 2.15%
Enhancement ...................... Collateral Interest in an initial amount
of $135,000,000
Minimum Seller Interest .......... 7%
Scheduled Series Termination Date April 2001 Distribution Date
Final Series Termination Date .... April 2002 Distribution Date
Repurchase Terms ................. Optional repurchase by the Seller on any
Distribution Date on or after the investor
interest (which includes the Collateral
Interest) of such Series is reduced to an
amount less than
$75,000,000
Series 1996-2
Initial Principal Amount ......... $269,999,000
Initial Class A Principal Amount $253,681,000
Initial Class B Principal Amount $16,318,000
Class A Certificate Rate ......... LIBOR (three-month) plus 0.08% per annum
Class B Certificate Rate ......... LIBOR (three-month) plus 0.16% per annum
Current Principal Amount ......... $269,999,000
Current Class A Principal
Amount ....................... $253,681,000
Current Class B Principal
Amount ....................... $16,318,000
Investor Percentage of Principal
Receivables .................... Investor interest (which includes the
Collateral Interest) of Series 1996-2 at
the end of the Revolving Period divided
by the greater of (a) Aggregate
Principal Receivables as of the first
day of the applicable Monthly Period and
(b) the sum of the numerators used to
calculate the investor percentage with
respect to Principal Receivables for all
Series of Certificates outstanding
Controlled Amortization Amount ... One-twelfth of the Class A Investor
Interest as of the end of the Revolving
Period and, after the payment in full of
the Class A Investor Interest, an amount
equal to the Class B Investor Interest
as of the end of the Revolving Period
Commencement of the Controlled
Amortization Period ............ November 1998 Distribution Date
Monthly Servicing Fee Percentage 2.15%
Enhancement ...................... Collateral Interest in an initial amount
of $26,704,297
Minimum Seller Interest .......... 7%
Scheduled Series Termination Date December 2001 Distribution Date
Final Series Termination Date .... December 2002 Distribution Date
Repurchase Terms ................. Optional repurchase by the Seller on any
Distribution Date on or after the investor
interest (which includes the Collateral
Interest) of such Series is reduced to an
amount less than $14,835,110
A-35
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
First Chicago Master Trust II
The following excerpts are from the Prospectus Supplement dated November 14,
1996 and the Prospectus dated September 10, 1996 relating to the Floating Rate
Asset Backed Certificates, Series 1996-S. The CABS include Series 1995-M, Series
1995-0 and Series 1995-P.
<PAGE>
<PAGE>
THE BANK'S CREDIT CARD BUSINESS
General
The interests in Receivables which the Seller has conveyed or will convey
to the Trust pursuant to the Agreement are generated from transactions made by
holders of certain Classic VISA and VISA Gold credit card accounts and certain
Standard MasterCard and Gold MasterCard credit card accounts. These accounts
were generated under the VISA USA, Incorporated ("VISA") or MasterCard
International Incorporated ("MasterCard International") programs and were either
originated by the Bank or FNBC, or purchased by the Bank or FNBC from other
credit card issuers. Effective as of July 1, 1987, FNBC transferred its credit
card operation and all its credit card accounts to the Bank, although FNBC
retained ownership of all receivables comprising the existing balances in such
accounts. Subsequently, such receivables also were transferred to the Bank. The
Bank is a member of MasterCard International, and First Chicago NBD and the Bank
are members of VISA. The Bank currently offers other VISA and MasterCard credit
card accounts with various program features, charges and rate structures. The
Bank services these accounts at its headquarters located in Wilmington, Delaware
and its operations center located in Elgin, Illinois and retains two affiliated
credit card servicing companies, First Card Services, Inc. ("FCSI"), located in
Uniondale, New York, and NBD Service Corp., located in Indianapolis, Indiana, to
perform collection and customer service activities.
The VISA and MasterCard credit cards are issued as part of the worldwide
VISA and MasterCard International systems and transactions creating the
receivables through the use of the credit cards are processed through the VISA
and MasterCard International systems. Should either system materially curtail
its activities, or should the Bank cease to be a member of MasterCard
International or First Chicago NBD and the Bank cease to be members of VISA, for
any reason, a Liquidation Event could occur, and delays in payments on the
Receivables and possible reductions in the amounts thereof could also occur.
The VISA and MasterCard credit cards of the type pursuant to which the
Accounts were established may be used for two types of transactions: purchases
and cash advances (including balance transfers). Cardholders make purchases when
using a credit card to buy goods or services. A cash advance is made when a
credit card is used to obtain cash from a financial institution, from an
automated teller machine or by writing a check on an account; a balance transfer
occurs when a cardholder transfers a credit card balance with another credit
card issuer to an account with the Seller. Amounts due with respect to each type
of transaction will be included in the Receivables.
The VISA and MasterCard credit card accounts owned by the Bank were
principally generated through: (i) direct mail solicitations for accounts on a
preapproved credit basis; (ii) applications made available to prospective
cardholders at FNBC, the Bank and their affiliates, at retail outlets, at other
financial institutions with which arrangements have been made, on college
campuses and in magazines; (iii) affinity marketing; and (iv) purchases of
accounts from other credit card issuers.
If an account is opened in response to a direct mail preapproved
solicitation, the prospective cardholder's name has previously been screened
through a credit bureau to ensure that the person meets certain standards of
creditworthiness and fiscal responsibility. In the case of preapproved
solicitations, the credit limit is based upon the prospective cardholder's
creditworthiness as measured by the Seller's risk evaluation process, length and
depth of credit experience and usage of credit. In the case of pre-approved
solicitations where an offer is made for a credit card with a credit line "up
to" a predetermined amount, credit line assignment is based on similar criteria
at the time of the response.
Before an account is opened in response to an application, the prospective
cardholder's application is reviewed for completeness and creditworthiness. A
credit report issued by an independent credit reporting agency is generally
obtained and information on such report regarding the applicant may be verified.
The ability of the applicant to repay credit card balances is generally
evaluated by applying a credit score card, which is intended to provide a
general indication, based on the information available, of the applicant's
willingness and ability to repay his obligations. If an application is approved,
an initial credit limit is established for the account based on the applicant's
credit score.
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<PAGE>
<PAGE>
Affinity marketing involves the solicitation of prospective cardholders
from identifiable groups with a common interest and/or common cause. Affinity
marketing is conducted through two approaches: the first relies on the
solicitation of organized membership groups with the written endorsement of the
group's leadership and the second utilizes solicitation of prospective
cardholders through the use of purchased lists. Solicitation activities used in
connection with affinity marketing also include: solicitation in appropriate
magazines, telemarketing and applications made available to prospective
cardholders in appropriate locations. In certain cases, preapproved
solicitations will be used in the same manner as described in the preceding
paragraph.
Credit card accounts that have been purchased by FNBC and the Bank were
originally opened using criteria established by the institution from which the
accounts were purchased or by the institution from which the selling institution
originally purchased the accounts. Purchased accounts are screened against
criteria which are set at the time of acquisition to determine whether any of
the purchased accounts should be closed immediately. Any accounts failing the
criteria are closed. All other such accounts remain open. The credit limits on
such accounts are based initially on the limits established or maintained by the
selling institution.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such cardholder agreement, the Bank
reserves the right to change or terminate any terms, conditions, services or
features of the accounts (including increasing or decreasing periodic charges,
other charges or minimum payments). Credit limits may be adjusted periodically
based upon the Bank's continuing evaluation of the cardholder's payment
behavior.
Collection Efforts
Efforts to collect delinquent credit card receivables are made by the Bank
and FCSI personnel and collection agencies and attorneys retained by the Bank.
Under current practice, the Bank includes a request for payment of overdue
amounts on all billing statements subsequent to a delinquency. Collection
personnel generally initiate telephone contact with cardholders whose credit
card accounts have become 30 days or more delinquent. Certain cardholders whom
the Bank considers higher risk may be contacted when their accounts first become
delinquent. In the event that initial telephone contact fails to resolve the
delinquency, the Bank continues to contact the cardholder by telephone and by
mail. The Bank may also enter into arrangements with cardholders to extend or
otherwise change payment schedules. The current policy of the Bank is to
recognize losses no later than the 180th day of delinquency (i.e., 210 days
after the date of the billing statement), although charge-offs may be made
earlier in some circumstances. The credit evaluation, servicing and charge-off
policies and collection practices of the Bank may change over time in accordance
with the Bank's business judgment and applicable law. Under the terms of the
Agreement, any recoveries (including insurance proceeds) received on charged-off
Accounts are retained by the Bank and are not included in the assets of the
Trust.
Loss and Delinquency Experience
The Prospectus Supplement relating to each Series sets forth the loss and
delinquency experience with respect to payments by cardholders for substantially
all VISA and MasterCard consumer revolving credit card accounts owned by the
Bank (excluding certain accounts not originated by the Bank or FNBC) (the
"Bank's Portfolio") during the periods shown in the Prospectus Supplement. There
can be no assurance, however, that the loss and delinquency experience for the
Receivables in the future will be similar to the historical experience set forth
in the Prospectus Supplement for the Bank's Portfolio.
The Bank has policies to allow delinquent accounts whose cardholders are
making good faith efforts to repay overdue amounts to be deemed current
("reaged") provided certain conditions are satisfied. If an account is 90 days
delinquent or greater, it qualifies for reaging treatment if the sum of the
payments received during the preceding five months (or in certain circumstances
the lesser of (a) five months or (b) the number of months since the account was
last current) is generally equal to the sum of the three oldest minimum
payments. The reaging process permits only one reaging of an account from 90
days delinquent or greater categories in a 12-month period. With respect to
accounts that are 30 to 90 days delinquent, reaging treatment occurs pursuant to
a
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<PAGE>
<PAGE>
process which uses criteria that are more liberal than the criteria described
above. An account 30 to 90 days delinquent can be reaged so long as these
criteria are met. The entire process is system controlled. In addition to
automatic reaging, account closure and usage restrictions are system controlled.
When an account is 30 days delinquent, charge privileges are suspended. Account
closure occurs automatically when an account is 60 days delinquent.
Reinstatement of closed accounts requires a full credit review; only a minimal
number of closed accounts qualify for reinstatement. The Bank may terminate,
alter or modify its reaging process at any time. Currently, the Bank is
evaluating various collection strategies which, if implemented, would alter the
reaging process for certain accounts. The delinquency information set forth in
the Prospectus Supplement reflects the application of the Bank's current reaging
process.
Revenue Experience
The gross revenues from periodic charges and fees billed to cardholders on
the Bank's Portfolio are set forth in the Prospectus Supplement for the periods
indicated in the Prospectus Supplement.
The revenues for the Bank's Portfolio shown in the Prospectus Supplement
are related to periodic charges (either computed on a monthly or daily basis)
and other fees billed to cardholders but do not include revenue attributable to
Interchange. The revenues related to periodic charges and fees depend in part
upon the collective preference of cardholders to use their credit cards as
revolving debt instruments for purchases and cash advances and paying off
account balances over several months as opposed to convenience use, where the
cardholders prefer instead to pay off their entire balance each month, thereby
avoiding periodic charges on purchases, fees and finance charges. Revenues
related to periodic charges and fees also depend on the types of charges and
fees assessed by the Bank on the accounts. The Bank introduced a variable rate
card in 1987. From 1989 through 1994, the Bank emphasized the origination of
variable rate accounts and substantially all new accounts originated during that
time were variable rate accounts. Depending upon fluctuations in interest rates,
the variable rate periodic charge (which is based on the prime rate) assessed on
variable rate accounts may change from month to month and could be less than the
fixed charge applicable to most standard fixed rate accounts. Commencing in
1994, the Bank began offering certain new non-affinity accounts, for purchase
transactions, a fixed rate periodic charge for an initial period which then
converts into a variable rate. The initial fixed rate offered on such accounts
is substantially lower than that currently assessed on the variable rate
accounts or the standard fixed rate accounts. The total yield on such accounts
during the initial fixed rate period is therefore lower than that of a variable
rate account or standard fixed rate account. In mid-1996, the Bank introduced
certain changes to the terms of the Accounts, including increased fees, a
reduced minimum monthly payment in those months when a fee is charged to an
Account and performance-based pricing whereby certain delinquent accounts are
assessed a higher periodic charge. Fluctuations in the prime interest rate,
and/or the continued use of the initial fixed/variable rate pricing for certain
new accounts, may affect future revenue experience.
Interchange
Members participating in the VISA and MasterCard International associations
receive certain fees ("Interchange") as partial compensation for taking credit
risk, absorbing fraud losses, funding full payer receivables and servicing
cardholders for a limited period prior to initial billing. Under the VISA and
MasterCard International systems, a portion of this Interchange in connection
with cardholder charges for merchandise and services is passed from banks which
clear the transactions for merchants to credit card-issuing banks. Interchange
ranges from approximately 1% to 2% of the transaction amount, although VISA and
MasterCard International may from time to time change the amount of Interchange
reimbursed to banks issuing their credit cards. Interchange will be allocated to
the Trust on the basis of the percentage equivalent of the ratio which the
amount of cardholder sales charges in the Accounts bears to the total amount of
cardholder sales charges for all accounts in the Seller's entire portfolio. This
percentage is an estimate of the actual Interchange and may be greater or less
than the actual amount of the Interchange relating to the Accounts from time to
time. Unless otherwise specified in the related Prospectus Supplement,
Interchange will be included in Finance Charge Receivables for purposes of
calculating the Portfolio Yield for a Series.
A-38
<PAGE>
<PAGE>
THE ACCOUNTS
General
The Accounts currently consist of substantially all of the VISA(R) and
MasterCard(R) consumer revolving credit card accounts existing in all of the
Seller's ten billing cycles (billing cycles 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9),
excluding certain accounts not originated by either the Seller or FNBC.
Additional accounts added to each of the foregoing billing cycles in the normal
operation of the Seller's credit card business will generally be added on a
daily basis as a category of Additional Accounts. See "Description of the
Certificates and the Agreement--Addition of Accounts."
The Seller's VISA and MasterCard accounts are grouped into billing cycles
for the purpose of administrative convenience. Each billing cycle has a separate
monthly billing date at which time the activity in the related accounts during
the month ending on such billing date are processed and billed to cardholders.
The Accounts include VISA and MasterCard accounts in billing cycles ending at
the close of business on ten separate days in each month. The Seller transferred
to the Trust all Receivables existing in the Accounts on the billing date for
such Account in either May 1990, September 1990, May 1991, July 1991, May 1992,
or June 1996 (each, a "Cut Off Date") and all Receivables generated in each such
Account after the applicable Cut Off Date. All monthly calculations with respect
to each Account are computed based on the activity during the applicable billing
cycle for that Account (the monthly billing cycle periods for the Accounts
ending in the same month during the term of the Trust being collectively
referred to herein as a "Due Period"). Thus, in the case of the October 1996
Distribution Date, for example, monthly collections would be based on the
September 1996 Due Period and would reflect collection activity for billing
cycles commencing at the opening of business on the 2nd, 4th, 7th, 10th, 13th,
16th, 19th, 22nd, 25th and 28th days of August 1996, and ending at the close of
business of the 1st, 3rd, 6th, 9th, 12th, 15th, 18th, 21st, 24th and 27th days
of September 1996, respectively, with respect to the Accounts in each of such
billing cycles.
Accounts were previously assigned to billing cycles based on the month in
which they were opened. More recently, new accounts have been assigned to
billing cycles in a manner which is intended, for purposes of administrative
convenience, to equalize the number of accounts in the billing cycles. Because
the Accounts include substantially all the accounts existing in the Seller's ten
billing cycles (except for certain accounts not originated by either the Seller
or FNBC), and because the Receivables include all amounts payable by cardholders
under the Accounts, the Receivables of some of the Accounts include delinquent
or reaged Receivables and may include obligations of cardholders who are or are
about to become bankrupt or insolvent.
Pursuant to the Agreement, the Seller has the right (subject to certain
limitations and conditions described below) to designate from time to time
additional qualifying VISA and MasterCard consumer revolving credit card
accounts of the Bank to be included as Accounts and to convey to the Trust all
Receivables in such Additional Accounts, whether such Receivables are then
existing or thereafter created. The Seller currently adds all new accounts
opened in the ordinary course of business in the ten billing cycles as Automatic
Additional Accounts on a daily basis and currently intends to continue the
addition of such new accounts. In addition, the Seller is required to designate
Additional Accounts (x) to maintain the First Chicago Amount equal to Aggregate
Principal Receivables minus the sum of the Invested Amounts for all Series, so
that the First Chicago Amount for the related Due Period equals or exceeds 7% of
the Aggregate Principal Receivables for the same Due Period, or such lower
percentage as is acceptable to the Rating Agencies, subject to certain
conditions (the "Minimum First Chicago Interest Percentage") and (y) to
maintain, for so long as the Certificates remain outstanding, Aggregate
Principal Receivables in an amount equal to or greater than the sum of the
initial Invested Amounts (or other amounts, if applicable) of all outstanding
Series and (the "Minimum Aggregate Principal Receivables"). The Seller will
convey the Receivables then existing or thereafter created under any such
Additional Accounts to the Trust. Further, pursuant to the Agreement, the Seller
has the right (subject to certain limitations and conditions discussed herein)
to accept the removal of certain Accounts designated by the Seller
A-39
<PAGE>
<PAGE>
from the Trust and to require the Trustee to convey all Receivables in such
Removed Accounts to the Seller, whether such Receivables are then existing or
thereafter created. Throughout the term of the Trust, the Accounts from which
the Receivables arise will be the same Accounts designated by the Seller on the
applicable Cut Off Dates plus any Additional Accounts and minus any Removed
Accounts. See "Description of the Certificates and the Agreement--Conveyance of
Receivables."
The Prospectus Supplement includes tables summarizing the Accounts by
various criteria as well as certain other information relating to the Accounts,
including information supplementing the foregoing description of the Accounts.
Such information includes the amount of Principal Receivables and Finance Charge
Receivables in the Accounts, the average Receivables balance of the Accounts,
the average credit limit of the Accounts and the aggregate total Receivables
balance as a percentage of the aggregate total credit limit of the Accounts.
Billing and Payments
The credit card accounts owned by the Bank include accounts originated or
purchased by the Bank or FNBC. These accounts have various billing and payment
structures, including varying annual fees and periodic charges. The Prospectus
Supplement contains information on the current billing and payment
characteristics of the Accounts.
The Bank has the right to determine the periodic charges applicable to the
Accounts, including the right to alter or defer minimum monthly payments
required under the Accounts or to change various other terms with respect to the
Accounts, subject to certain limitations contained in the Agreement. See
"Description of the Certificates and the Agreement--Collection and Other
Servicing Procedures."
Payments by cardholders to the Bank on the Accounts are processed and
applied first to any fees billed to the Accounts, next to billed and unpaid
periodic charges and then to billed and unpaid transactions in the order
determined by the Bank. Any excess is applied to unbilled periodic charges.
There can be no assurance that periodic rates, fees and other charges will
remain at current levels in the future. See "Description of the Certificates and
the Agreement--Collection and Other Servicing Procedures."
THE SELLER
The primary business of the Seller, a wholly-owned subsidiary of First
Chicago NBD, is the processing and issuance of VISA and MasterCard credit cards.
The Seller, which was acquired by First Chicago NBD as of July 1, 1987, from
Beneficial Corporation, was named Beneficial National Bank USA prior to its
acquisition by First Chicago NBD. The Prospectus Supplement contains additional
information relating to the Seller.
The principal executive offices of the Seller are located at One Gateway
Center, 300 King Street, Wilmington, Delaware 19801 (telephone 302-594-8606).
The principal executive offices of First Chicago NBD are located at One First
National Plaza, Chicago, Illinois 60670 (telephone 312-732-4000).
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<PAGE>
<PAGE>
THE BANK'S CREDIT CARD PORTFOLIO
General
The interests in Receivables which the Seller has conveyed or will convey
to the Trust pursuant to the Agreement are generated from transactions made by
holders of certain Classic VISA and VISA Gold credit card accounts and certain
Standard MasterCard and Gold MasterCard credit card accounts. These accounts
were generated under the VISA or MasterCard International programs and were
either originated by the Bank or FNBC, or purchased by the Bank or FNBC from
other credit card issuers. Effective as of July 1, 1987, FNBC transferred its
credit card operation and all its credit card accounts to the Bank, although
FNBC retained ownership of all receivables comprising the existing balances in
such accounts. Subsequently, such receivables also were transferred to the Bank.
For a further description of the Bank's credit card business, see "The Bank's
Credit Card Business" in the Prospectus.
Loss and Delinquency Experience
The following tables set forth the loss and delinquency experience with
respect to payments by cardholders for each of the periods shown for
substantially all VISA and MasterCard consumer revolving credit card accounts
owned at the dates indicated by the Bank (excluding certain accounts not
originated by the Bank or FNBC) (the "Bank's Portfolio") during the periods
shown. As of the end of the September 1996 Due Period, the Receivables in the
Accounts represented substantially all Receivables in the Bank's Portfolio.
There can be no assurance, however, that the loss and delinquency experience for
the Receivables in the future will be similar to the historical experience set
forth below for the Bank's Portfolio.
Loss Experience for the Bank's Portfolio
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------------- -----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ---------- ----------
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1) ............... $15,728,710 $12,019,934 $12,625,398 $9,763,242 $7,862,277
Gross Charge-offs(2) ............ 806,329 448,311 645,417 451,094 365,376
Gross Charge-offs as a Percentage
of Average Receivables
Outstanding .................. 6.84%(3) 4.97%(3) 5.11% 4.62% 4.65%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Gross Charge-offs are charge-offs before recoveries and do not include the
amount of any reductions in Average Receivables Outstanding due to fraud,
returned goods or customer disputes.
(3) On an annualized basis.
Charge-offs for the Bank's Portfolio measured as a percentage of average
receivables outstanding increased during 1995 and 1996 due, in part, to certain
strategies employed by the Bank to increase the cardholder base which the Bank
believes, in turn, will result in the increase of overall revenues for the
Bank's Portfolio in the future. In addition, during 1995 and 1996, consumer debt
service burden and defaults increased as a result of the growing consumer debt
levels coupled with stagnant real wage growth. The Bank believes that the
current level of unemployment and personal bankruptcy filings make reductions in
the loss rates unlikely in the immediate future and expects the trend in
charge-offs to continue in the near term. The timing of the peak level of
charge-offs is uncertain at this time. Losses are also affected by other factors
including competitive behavior and social conditions. The loss rates for the
Bank's Portfolio could increase in the future if economic conditions were to
worsen and could continue to increase for several months even after such
conditions begin to improve. The loss rates set forth above do not reflect the
reversal of unpaid fees and finance charges at the time a charge-off occurs.
The Bank has policies to allow delinquent accounts whose cardholders are
making good faith efforts to repay overdue amounts to be deemed current
("reaged") provided certain conditions are satisfied. If an account
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<PAGE>
<PAGE>
is 90 days delinquent or greater, it qualifies for reaging treatment if the sum
of the payments received during the preceding five months (or in certain
circumstances the lesser of (a) five months or (b) the number of months since
the account was last current) is generally equal to the sum of the three oldest
minimum payments. The reaging process permits only one reaging of an account
from 90 days delinquent or greater categories in a 12-month period. With respect
to accounts that are 30 to 90 days delinquent, reaging treatment occurs pursuant
to a process which uses criteria that are more liberal than the criteria
described above. An account 30 to 90 days delinquent can be reaged so long as
these criteria are met. The entire process is system controlled. In addition to
automatic reaging, account closure and usage restrictions are system controlled.
When an account is 30 days delinquent, charge privileges are suspended. Account
closure occurs automatically when an account is 60 days delinquent.
Reinstatement of closed accounts requires a full credit review; only a minimal
number of closed accounts qualify for reinstatement. The Bank may terminate,
alter or modify its reaging process at any time. Currently, the Bank is
evaluating various collection strategies which, if implemented, would alter the
reaging process for certain accounts. The delinquency information in the
following tables reflects the application of the Bank's current reaging process.
Average Delinquencies for the Bank's Portfolio
<TABLE>
<CAPTION>
Average of
Nine Months Ended Average of Twelve Months Ended December 31,
------------------------ ----------------------------------------------------------------------
September 30, 1996 1995 1994 1993
------------------------ ---------------------- ---------------------- ----------------------
Delinquent Delinquent Delinquent Delinquent
Payment Status Amount Percentage(1) Amount Percentage(1) Amount Percentage(1) Amount Percentage(1)
- -------------- ------ ------------- ------ ------------- ------ ------------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days delin-
quent ......................... $260,793 1.66% $189,476 1.50% $138,280 1.41% $112,934 1.44%
60-89 days delin-
quent ......................... 125.603 .80 83,191 .66 57,419 .59 46,686 .59
90 days delin-
quent or more ................. 235,305 1.49 148.808 1.18 102,171 1.05 80,700 1.03
-------- ---- -------- ---- -------- ---- -------- ----
Total .................... $621,701 3.95% $421,475 3.34% $297,870 3.05% $240,320 3.06%
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- ----------
(1) The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the applicable period.
Delinquencies as a percentage of average receivables outstanding reflect a
pattern similar to loss rates as a result of the same factors discussed with
respect to the table set forth above for Loss Experience for the Bank's
Portfolio.
Revenue Experience
The gross revenues from monthly periodic charges and fees billed to
cardholders on the Bank's Portfolio for each of the three years in the period
ended December 31, 1995, and the nine months ended September 30, 1996 and 1995,
respectively, are set forth in the following table.
The historic gross revenue figures in the table are calculated on an
as-billed basis and represent amounts billed to cardholders in each billing
cycle before deduction of charge-offs, reductions due to fraud, returned goods
and customer disputes or other expenses. Cash collections on receivables may not
reflect the historical experience in the table. During periods of increasing
delinquencies, billings of periodic charges and fees may exceed cash as amounts
collected on credit card receivables lag behind amounts billed to cardholders.
Conversely, as delinquencies decrease, cash may exceed billings of periodic
charges and fees as amounts collected in a current period may include amounts
billed during prior periods. However, the Bank believes that, during the periods
shown, revenues on a billed basis closely approximated revenues on a cash basis.
Revenues from periodic charges and fees on both a billed and a cash basis will
be affected by numerous factors, including the periodic charges on principal
receivables, the amount of the annual membership fees, the amount of other fees
paid by cardholders, the percentage of cardholders who pay off their balances in
full each month and do not
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<PAGE>
<PAGE>
incur periodic charges on purchases, fees and finance charges and changes in the
delinquency rate on the Receivables. See "Risk Factors" in the Prospectus.
Revenue Experience for the Bank's Portfolio
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------------- ----------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(i) ................. $15,728,710 $12,019,934 $12,625,398 $9,763,242 $7,862,277
Finance Charges and Fees Billed . 1,920,851 1,499,291 2,066,872 1,601,164 1,316,326
Average Finance Charges and Fees
Billed(2) .................... 16.28%(3) 16.63%(3) 16.37% 16.40% 16.74%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding during the period indicated.
(2) Average Finance Charges and Fees Billed is the result of dividing Finance
Charges and Fees Billed by Average Receivables Outstanding and does not
include revenue attributable to Interchange.
(3) On an annualized basis.
The revenues for the Bank's Portfolio shown in the Revenue Experience table
are related to periodic charges and other fees billed to cardholders but do not
include revenue attributable to Interchange. The revenues related to periodic
charges and fees depend in part upon the collective preference of cardholders to
use their credit cards as revolving debt instruments for purchases and cash
advances and paying off account balances over several months as opposed to
convenience use, where the cardholders prefer instead to pay off their entire
balance each month, thereby avoiding periodic charges on purchases, fees and
finance charges. Revenues related to periodic charges and fees also depend on
the types of charges and fees assessed by the Bank on the accounts. The Bank
introduced a variable rate card in 1987. From 1989 through 1994, the Bank
emphasized the origination of variable rate accounts and substantially all new
accounts originated during that time were variable rate accounts. Depending upon
fluctuations in interest rates, the variable rate periodic charge (which is
based on the prime rate) assessed on variable rate accounts may change from
month to month and could be less than the fixed charge applicable to most
standard fixed rate accounts. Commencing in 1994, the Bank began offering
certain new non-affinity accounts, for purchase transactions, a fixed rate
periodic charge for an initial period (ranging from 6 to 15 months) which then
converts into a variable rate. The initial fixed rate offered on such accounts
is generally either 6.9% or 9.9% per annum, a rate which is substantially lower
than that currently assessed on the variable rate accounts or the standard fixed
rate accounts. The total yield on such accounts during the initial fixed rate
period is therefore lower than that of a variable rate account or standard fixed
rate account. As of the end of the September 1996 Due Period, Receivables
assessed a variable periodic charge constituted approximately 93.89% of the
total Receivables balance of Accounts in the Trust. Fluctuations in the prime
interest rate and/or the continued use of the initial fixed/variable rate
pricing for certain new accounts, may affect future revenue experience.
Throughout the periods shown above, the Bank made certain changes in the charges
and fees assessed on the accounts. In 1993, the Bank waived fees (including
annual fees) and removed a minimum rate floor of 19.8% per annum or offered a
lower rate on some cash advances for certain cardholders. In 1994 and 1995, the
Bank continued to offer a lower rate and/or no cash advance fee on some cash
advances and/or purchases for certain cardholders for limited periods of time.
In addition, the Bank is currently waiving annual fees and offering a lower
variable interest rate on certain selected accounts. Commencing in mid-1996, the
Bank introduced certain other pricing changes including increased fees and
performance-based pricing whereby certain delinquent accounts are assessed a
higher variable periodic rate. Also in 1996, the Bank reduced the minimum
monthly payment required of cardholders in those months when a fee is charged to
their accounts. The Bank has no basis to predict how these changes and any
future changes in the terms of accounts may affect the revenue for the Bank's
Portfolio. See "The Accounts-Billing and Payments" herein.
Interchange
Pursuant to the terms of the Series 1996-S Supplement, the Seller will
transfer to the Trust the Floating Allocation Percentage of Interchange
attributable to cardholder charges for merchandise and services in the
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<PAGE>
<PAGE>
Accounts. Interchange allocable to Series 1996-S in an amount equal to 1/12 of
the product of 1.25% per annum and the Invested Amount with respect to each Due
Period will be used exclusively to pay the Servicer part of its Monthly
Servicing Fee. See "Description of the Class A Certificates and the
Agreement--Servicing Compensation and Payment of Expenses." Interchange in
excess of the portion thereof required to be used exclusively to pay the
Servicer part of such Monthly Servicing Fee will be included in Finance Charge
Receivables pursuant to the Series 1996-S Supplement for purposes of determining
the amount of Finance Charge Receivables and allocating collections and payments
to the Certificateholders. Interchange (including the portion used exclusively
to pay the Servicer) will be included in Finance Charge Receivables for purposes
of calculating the Portfolio Yield.
THE ACCOUNTS
The Receivables arising from the Accounts as of the end of the September
1996 Due Period totaled $16,166,078,620 and included $15,828,123,824 of
Principal Receivables. The Accounts had an average Principal Receivables balance
of $1,142 and an average credit limit of $7,292. The aggregate total Receivables
balance as a percentage of the aggregate total credit limit was 15.99%.
The Receivables arising from the Accounts as of the end of the October 1996
Due Period totaled $15,978,267,238 and included $15,636,362,503 of Principal
Receivables.
The following tables summarize the Accounts by various criteria as of the
end of the September 1996 Due Period. Approximately 201,973 cardholder accounts
included in the Accounts as of the end of the September 1996 Due Period are
Classic VISA accounts with respect to which the cardholder has been upgraded to
a VISA Gold account. The upgraded accounts generally have certain additional
features, including higher credit limits, which are not generally included in
the Classic VISA accounts. For some period of time (not exceeding three years),
both accounts are active for a particular cardholder although the Classic VISA
account is eventually closed. Upon any cardholder upgrade, the receivables
balance in the Classic VISA account is transferred to the VISA Gold account
(which account is considered to have the same account opening date as the
Classic VISA account) and any new receivables created on the Classic VISA
account are immediately transferred to the VISA Gold account. In addition,
pursuant to the ordinary operating procedures of the Bank, accounts which expire
and have no outstanding balance are not removed immediately from the Bank's
Portfolio, but rather are removed periodically from the Bank's Portfolio and
therefore may still be included as an Account for some period of time after
expiration. As of the end of the September 1996 Due Period, approximately
989,458 expired accounts with a credit balance or no balance were included in
the Accounts. Because the composition of the Accounts may change in the future,
these tables are not necessarily indicative of the characteristics of the Trust
at any time after the end of the September 1996 Due Period.
Composition of the Accounts by Account Balances
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Accounts Accounts Outstanding Outstanding
--------------- -------- -------- ----------- -----------
Credit Balance(1) .... 153,010 1.10% $(24,714,030) (.15)%
No Balance(2) 6,235,010 44.98 0 .00
$0.01 to $1,499.99 ... 4,020,627 29.00 1,783,034,350 11.03
$1,500.00 to $2,999.99 1,253,893 9.05 2,785,420,603 17.23
$3,000.00 to $4,499.99 878,552 6.34 3,283,081,518 20.31
$4,500.00 to $9,999.99 1,271,190 9.17 7,751,732,286 47.95
$10,000 or more ...... 49,304 .36 587,523,893 3.63
---------- ------ --------------- ------
Total .......... 13,861,586 100.00% $16,166,078,620 100.00%
========== ====== =============== ======
- ----------
(1) Credit Balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently with a
credit balance are included. as Receivables may be generated with respect
thereto in the future.
(2) Accounts currently with no balance are included, as Receivables may be
generated with respect thereto in the future.
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<PAGE>
Composition of Accounts by Credit Limit
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Credit Limit Accounts Accounts Outstanding Outstanding
------------ -------- -------- ----------- -----------
$0.01 to $1,499.99 ...... 355,095 2.56% $ 90,597,535 .56%
$1,500.00 to $2,999.99 .. 432,709 3.12 488,538,960 3.02
$3,000.00 to $4,499.99 .. 784,513 5.66 967,600,879 5.99
$4,500.00 to $9,999.99 .. 8,897,960 64.19 10,094,311,489 62.44
$10,000 or more(1) 3,391,309 24.47 4,525,029,757 27.99
---------- ------ --------------- ------
Total ............ 13,861,586 100.00% $16,166,078,620 100.00%
========== ====== =============== ======
- ----------
(1) Maximum current credit limit on an Account is $65,000.
Composition of Accounts by Payment Status
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Payment Status Accounts Accounts Outstanding Outstanding
--------------- -------- -------- ----------- -----------
Current(1) .............. 13,612,187 98.20% $15,260,501,939 94.40%
30-59 days delinquent ... 134,468 .97 451,462,277 2.79
60-89 days delinquent ... 46,066 .33 172,840,725 1.07
90 days delinquent or
more ................ 68,865 .50 281,273,679 1.74
---------- ------ --------------- ------
Total 13,861,586 100.00% $16,166,078,620 100.00%
========== ====== =============== ======
- ----------
(1) Includes Accounts on which the minimum payment has not yet been received
prior to the second billing date following the issuance of the related
bill.
Composition of Accounts by Age
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Age Accounts Accounts Outstanding Outstanding
--- -------- -------- ----------- -----------
Not more than 6 months ...... 596,999 4.31% $ 551,274,920 3.41%
Over 6 months to 12 months .. 1,282,661 9.25 1,587,262,530 9.82
Over 12 months to 24 months . 3,053,809 22.03 4,137,865,821 25.59
Over 24 months to 48 months . 4,002,534 28.88 4,233,546,202 26.19
Over 48 months 4,925,583 35.53 5,656,129,147 34.99
--------- ----- ------------- -----
Total ................. 13,861,586 100.00% $16,166,078,620 100.00%
========== ====== =============== ======
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<PAGE>
Geographic Composition of the Accounts
Percentage Percentage
of Total of Total
Number of Receivables
State Accounts Outstanding
- ----- -------- -----------
California ............................... 13.70% 16.66%
Illinois ................................. 7.20 7.91
New York ................................. 7.65 7.21
Texas .................................... 5.78 6.00
Florida .................................. 6.17 5.60
New Jersey ............................... 3.91 3.52
Pennsylvania ............................. 4.28 3.29
Colorado ................................. 2.49 3.17
Ohio ..................................... 3.55 3.14
Michigan ................................. 3.29 2.95
Washington ............................... 1.98 2.22
Virginia ................................. 2.09 2.16
Massachusetts ............................ 2.45 2.11
Indiana .................................. 2.20 2.02
Maryland ................................. 1.92 1.86
Georgia .................................. 1.80 1.84
Minnesota ................................ 2.45 1.83
Missouri ................................. 2.04 1.81
Tennessee ................................ 1.81 1.78
North Carolina ........................... 1.82 1.74
Arizona .................................. 1.57 1.70
Oregon ................................... 1.45 1.64
Connecticut .............................. 1.28 1.19
Louisiana ................................ 1.15 1.12
Hawaii ................................... 0.72 1.10
Alabama .................................. 1.07 1.09
Iowa ..................................... 1.32 1.06
Oklahoma ................................. 1.10 1.01
All Other(1) ............................. 11.76 11.27
------ ------
Total ............................ 100.00% 100.00%
====== ======
- ----------
(1) States and foreign countries with less than 1.00% of Total Receivables
Outstanding.
Billing and Payments
The credit card accounts owned by the Bank include accounts originated or
purchased by the Bank or FNBC. These accounts have various billing and payment
structures, including varying annual fees and periodic charges. The following is
information on the current billing and payment characteristics of the Accounts.
Monthly billing statements are sent by the Bank to cardholders. Prior to
September 1996, each month, a cardholder generally had to make a minimum payment
equal to the sum of: (i) 1/48 of the new balance (excluding any amount that was
past due and any fees charged on the Account by the Bank), but not less than the
greater of $10 or the amount of the finance charge (due to periodic rates)
billed to the Account for the billing period, plus (ii) any amount that was past
due (unless its inclusion in the minimum payment was waived in accordance with
the Servicer's guidelines), plus (iii) the amount of any fees charged to the
Account. Commencing with a cardholder's billing date in September 1996, a
cardholder generally is required to make a minimum payment equal to the sum of:
(i) 1/48 of the new balance (excluding any amount that is past due), but not
less than the greater of $10 or the amount of the finance charge (due to
periodic rates) billed to the Account
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<PAGE>
for the billing period, plus (ii) any amount that is past due (unless its
inclusion in the minimum payment is waived in accordance with the Servicer's
guidelines).
In either instance, balances under $10 must be paid in full. In addition,
if the new balance in the Account less the minimum payment amount computed as
described above exceeds the assigned credit limit, the difference between such
amounts may be added to the required minimum payment shown on the monthly
billing statement.
Prior to September 1996, a monthly periodic charge was assessed on the
Accounts. The monthly periodic charge was calculated by multiplying the finance
charge balance in an Account by the applicable monthly periodic rate. The
finance charge balance is the average daily balance owing on the Account during
the billing period including in its calculation any fees charged to the Account
by the Bank and any billed but unpaid finance charge. Monthly periodic charges
were not assessed on purchases, fees or finance charges if all balances shown on
the billing statement were paid in full by the cardholder's payment due date
shown on the cardholder's billing statement each month. Commencing with a
cardholder's billing date in September 1996, a daily periodic charge is assessed
on the Accounts. Finance charges due to periodic rates for a billing cycle are
computed by applying the applicable daily periodic rates to the related daily
balances and then adding the resulting sums for each day in the billing cycle.
The daily periodic rates are determined by dividing the applicable annual
percentage rates for such billing cycle by 365. The daily balances of purchases,
advances, and fees and finance charges (on which finance charges at the
applicable daily periodic rates are computed) are determined separately by
taking the beginning balance of purchases, advances, or fees and finance
charges, adding any new purchases, advances, or fees and finance charges that
accrued or were posted that day, and subtracting any payments or credits applied
that day to such purchases, advances, or fees and finance charges. Daily
periodic charges are not assessed on purchases, finance charges and fees if all
balances shown on the billing statement are paid in full by the cardholder's
payment due date shown on the cardholder's billing statement each month.
As of the end of the September 1996 Due Period, the Receivables assessed a
fixed periodic rate and a variable periodic rate as a percentage of the total
Receivables balance of the Accounts was approximately 6.11% and 93.89%,
respectively. The current periodic rate assessed on Receivables arising in most
standard fixed rate Accounts is 19.8% per annum, although certain fixed rate
Accounts are assessed at lower rates. With respect to Receivables arising in the
variable rate Accounts, the periodic rate assessed is equal on a per annum basis
to the interest rate index plus a spread. With respect to the monthly periodic
charge, the interest rate index was determined on each billing date based on the
prime rate listed in the money rate section of The Wall Street Journal on the
15th day of the month (or if the 15th is a Saturday, Sunday or holiday, the next
business day) immediately preceding the month in which the billing date
occurred. With respect to daily periodic charges, the interest rate index is
determined on each billing date based on the prime rate listed in the money rate
section of The Wall Street Journal on the first day of the month in which the
beginning date of the billing period occurs (or if that day is a Saturday,
Sunday or holiday, the prior business day).
The spread on variable rate Accounts ranges generally from 6.9% to 12.9%
per annum. Commencing in 1994, the Bank began offering certain new non-affinity
Accounts a fixed rate monthly periodic charge on purchases for an initial period
(ranging from 6 to 15 months) which then converts into a variable rate. The
initial fixed rate offered on such Accounts is generally either 6.9% or 9.9% per
annum. Upon conversion to a variable rate, the periodic charge is computed as
described above for variable rate Accounts.
Commencing in 1996, the Bank began assessing certain delinquent Accounts a
higher variable periodic rate equal to the greater of (i) the prime rate (as
determined as described above) plus a spread of 12.9% or (ii) 19.8% per annum.
If such an Account subsequently makes all required minimum payments for six
consecutive billing periods, the variable periodic rate decreases to the prime
rate plus a spread of 9.9% except that the periodic rate for cash advances will
not be less than 19.8% per annum.
By the terms of the most recent cardholder agreements governing the
Accounts, the Bank may change the periodic rate at any time upon written notice
to the cardholders. In addition, the cardholder agreements governing
A-47
<PAGE>
<PAGE>
most standard fixed rate Accounts give cardholders the option of electing a
variable periodic rate to be effective for transactions on or after the election
is processed, equal on a per annum basis to the interest rate index plus 9,9%
(with a minimum per annum rate of 19.8% for cash advances). Finally, the Bank,
under limited circumstances, has offered to existing cardholders a variable
periodic rate equal on a per annum basis to the interest rate index plus 4.9%.
Since 1988, substantially all preapproved Accounts, which are not part of
an affinity program, have not been assessed an annual membership fee; in
addition, over the last few years, the Bank generally with respect to
non-affinity Accounts has not assessed or has waived the annual fee for most
other new Accounts and also has waived the annual fee for certain other selected
Accounts. The annual membership fee when assessed on Accounts ranges generally
from $12 to $100, in the case of certain affinity Accounts. Annual fees, to the
extent assessed on the Accounts, will be included in the Receivables transferred
to the Trust. The Bank may expand or discontinue the fee waiver program or
institute other similar programs in the future.
The Bank generally charges Accounts miscellaneous additional fees,
including, effective with a cardholder's billing period commencing in September
1996: (i) a late fee not to exceed $20, if the Bank does not receive the
required minimum monthly payment by the billing date immediately following the
payment due date shown on the monthly billing statement; (ii) a returned payment
check fee not to exceed $20, for each cardholder check received by the Bank and
not paid by the cardholder's bank; (iii) an over-limit fee not to exceed $20, if
the new balance of an Account (less new periodic charges and fees imposed on the
current billing statement) exceeds the cardholder's stated credit limit on the
billing date; (iv) a returned convenience check fee equal to $20, if a
convenience check is returned unpaid because it exceeds a cardholder's available
credit at the time it is presented to the Bank for payment or if the
cardholder's account is delinquent at the time the convenience check is
presented to the Bank for payment; and (v) a cash advance fee equal to 2.5% of
the cash advance transaction amount (with a minimum fee of $2.50) for cash
advances obtained from a financial institution or an automatic teller machine or
for cash advances obtained by writing a check on an Account. Previously, the
fees described in clauses (i), (ii), (iii) and (iv) of the prior sentence were
limited to no more than $15; cash advance fees, prior to September 1996, were
equal to 2% of the cash advance transaction amount. From time to time, the Bank
has waived, and may continue to waive, the cash advance fee for certain cash
advance transactions including certain balance transfers. Any of the fees
described herein may be waived or modified at any time. Currently, the
above-described fees may not be charged on certain Accounts or may be charged at
lower rates under certain circumstances. Certain of these fees assessed by
various credit card issuers have been challenged in lawsuits. See "Risk
Factors--Certain Legal Aspects" in the Prospectus.
Commencing in 1993, the Bank waived fees and removed the minimum rate floor
of 19.8% or offered a lower rate on some cash advances for certain cardholders.
The Bank has offered and, in the future, may continue to offer a reduced rate
for purchases and cash advances to certain accounts for a limited period of
time. Commencing in 1994, the Bank also introduced an initial fixed
rate/variable rate Account described above. The Bank may expand or discontinue
any of these programs or institute other similar programs in the future.
THE SELLER
As of September 30, 1996, and based on the Consolidated Reports of
Condition and Income (the "Call Report") of the Seller at such date, the Seller
had total deposits of approximately $1.32 billion, total assets of approximately
$9.96 billion, net income (for the first three quarters of 1996) of
approximately $112 million and total equity capital of approximately $894
million. The Call Report is required to be prepared in accordance with
regulatory accounting principles, which differ in some respects from generally
accepted accounting principles.
A-48
<PAGE>
<PAGE>
MATURITY AND PRINCIPAL PAYMENT CONSIDERATIONS
The Series 1996-S Supplement provides that the Controlled Amortization
Period will commence on the Controlled Amortization Date and that the Rapid
Amortization Period will commence on the first day of the Due Period during
which a Liquidation Event occurs or is deemed to occur. Although it is
anticipated that principal payments will be made to the Class A
Certificateholders in an amount equal to the Controlled Amortization Amount
beginning on the July 2002 Distribution Date, no assurance can be given in that
regard. Payments of Class A Monthly Principal are scheduled to be made to Class
A Certificateholders on each Distribution Date during the Controlled
Amortization Period, in an amount equal to the lesser of (a) the Controlled
Amount and (b) an amount ("Class A Available Principal Collections") equal to
the sum of (i) the Class A Principal Percentage of the Fixed Allocation
Percentage of all collections of Principal Receivables in respect of the
applicable Due Period, (ii) the amount of any Unallocated Principal Collections
allocable to the Certificates on deposit in the Collection Account on such
Distribution Date, (iii) the amount of certain collections of Principal
Receivables otherwise allocable to other Series, to the extent such collections
are not needed to make payments in respect of such other Series, and (iv)
certain other amounts that are treated as Class A Available Principal
Collections in accordance with the Series 1996-S Supplement. Although the Seller
expects that there will be sufficient funds on each Distribution Date of the
Controlled Amortization Period to pay the Controlled Amount on such date, no
assurance can be given in this regard. The actual rate of payment of principal
will depend, among other factors, on the rate of repayment and the rate of
default by cardholders.
In the event of the occurrence of a Liquidation Event, the Rapid
Amortization Period will begin on the first day of the Due Period in which such
Liquidation Event occurs. During the Rapid Amortization Period, distributions of
principal to Class A Certificateholders will not be subject to the Controlled
Amount. In addition, principal payable to Class A Certificateholders on the
Distribution Date following a sale, disposition or other liquidation of the
Receivables (or interests therein) in the event of an insolvency event as
described herein under "Description of the Class A Certificates and the
Agreement--Liquidation Events" or in connection with the Series Termination Date
as described herein under "Description of the Class A Certificates and the
Agreement--Final Payment of Principal; Termination of Trust," will be equal to
the Class A Invested Amount. A "Liquidation Event" occurs, with respect to the
Certificates, either automatically or after a specified period after notice,
upon (i) failure of the Seller to make certain payments or transfers of funds
for the benefit of the Certificateholders within the time periods stated in the
Agreement, (ii) material breaches of certain representations, warranties or
covenants of the Seller, (iii) certain insolvency events involving the Seller,
(iv) the average Portfolio Yield for any three consecutive Due Periods being
less than the average of the Base Rates for the related Interest Periods, (v)
the Trust becoming an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, (vi) a failure by the Seller to convey the
Receivables in Additional Accounts to the Trust when required by the Agreement,
(vii) failure to pay the Class A Invested Amount on the December 2002
Distribution Date (the "Class A Expected Final Distribution Date") or (viii) the
occurrence of a Servicer Default which would have a material adverse effect on
the Certificateholders. The term "Portfolio Yield" means, with respect to any
Due Period, the annualized percentage equivalent of a fraction the numerator of
which is the amount of the Finance Charge Receivables (including Interchange)
collected during such Due Period, calculated on a cash basis after subtracting
certain Defaulted Receivables during such period, and the denominator of which
is Aggregate Principal Receivables. The Term "Base Rate" means, with respect to
any Interest Period, the annualized percentage equivalent of a fraction, the
numerator of which is equal to the sum of (i) Class A Monthly Interest, (ii)
Collateral Monthly Interest and (iii) the Monthly Servicing Fee, and the
denominator of which is the Invested Amount as of the end of the day on the
first day of such Interest Period. Although the Seller believes that the
likelihood of a Liquidation Event occurring is remote, there can be no assurance
that a Liquidation Event will not occur. See "Description of the Class A
Certificates and the Agreement--Liquidation Events" herein.
A-49
<PAGE>
<PAGE>
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Bank's Portfolio during any month in the period shown and
the average cardholder monthly payment rates for all months during the periods
shown, in each case calculated as a percentage of total opening monthly account
balances during the periods shown. Payments shown in the table include amounts
which would be deemed payments of Principal Receivables and Finance Charge
Receivables with respect to the Accounts but do not include Interchange.
Cardholder Monthly Payment Rates for the Bank's Portfolio
Nine
Months
Ended
September 30, Year Ended December 31,
------------- ------------------------
1996 1995 1994 1993
---- ---- ---- ----
Lowest ...................... 20.30% 21.08% 19.81% 19.51%
Highest ..................... 21.86 25.01 25.02 24.21
Monthly Average ............. 21.09 22.58 23.27 22.45
The amount of collections on Receivables may vary from month to month due
to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of Principal
Receivables with respect to the Accounts, and thus the rate at which Class A
Certificateholders can expect principal allocated on the basis of the Class A
Principal Percentage of the Fixed Allocation Percentage to be paid during the
Controlled Amortization Period or the Rapid Amortization Period, will be similar
to the historical experience set forth above. In addition, since the Trust, as a
master trust, may issue additional Series from time to time, there can be no
assurance that the issuance of additional Series or the Principal Terms of any
additional Series might not have an impact on the timing of payments received by
Class A Certificateholders. Further, if a Liquidation Event occurs, the average
life and maturity of the Class A Certificates could be significantly reduced.
Likewise, the sharing of collections of Principal Receivables allocated to other
Series with this Series during a Rapid Amortization Period could significantly
reduce the duration of such period for the Class A Certificates. See
"Description of the Class A Certificates and the Agreement--Shared Collections
of Principal Receivables" herein.
Because there may be a slow-down in the payment rate with respect to the
Accounts or a Liquidation Event may occur which would initiate a Rapid
Amortization Period, there can be no assurance that the actual number of months
elapsed from the date of issuance of the Class A Certificates to the final
payment of the Class A Invested Amount will equal the expected number of months.
The amount of outstanding Receivables and the rates of payments, delinquencies,
charge-offs and new borrowings on the Accounts depend upon a variety of factors,
including seasonal variations, the availability of other sources of credit,
general economic conditions and consumer spending and borrowing patterns.
Accordingly, there can be no assurance that future cardholder monthly payment
rate experience will be similar to historical experience.
DESCRIPTION OF THE CERTIFICATES AND THE AGREEMENT
The Certificates of each Series will be issued pursuant to the Agreement
and a Supplement entered into between the Bank, as transferor of interests in
the Receivables and as Servicer of the Accounts and the Receivables, and Norwest
Bank Minnesota, National Association, as Trustee for the Certificateholders.
Pursuant to the Agreement, the Seller may execute further Supplements thereto
between the Seller and the Trustee in order to issue additional Series. See
"--Exchanges." The Trustee will provide a copy of the Agreement (without
exhibits or schedules), including any Supplements, to Certificateholders without
charge upon written request. The following summary describes certain terms of
the Agreement common to each Series of Certificates and is qualified in its
entirety by reference to the Agreement and the related Supplement.
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<PAGE>
General
The Certificates will represent an undivided interest in the Trust,
including the right to receive, in the aggregate, the applicable Invested
Percentage of all collections received with respect to the Receivables in the
Trust. The property of the Trust consists of the Receivables generated under the
Accounts and under any Additional Accounts hereinafter added to the Trust, all
funds to be collected from cardholders in respect of Receivables (other than
recoveries with respect to previously charged-off Receivables, unless such
recoveries are made available to one or more Series as specified in the related
Prospectus Supplement, and insurance proceeds), all moneys on deposit in the
Collection Account and any other account established for the benefit of any
Series (which account may not be for the benefit of any other Series), the right
to receive certain Interchange fees attributable to the Accounts (which right
may not be afforded to a Series) and any Enhancement issued with respect to any
particular Series (the drawing on or payment of which may not be available to
the Certificateholders of any other Series). The Trust will not include the
Receivables from any Removed Accounts which may be removed from the Trust from
time to time pursuant to the terms of the Agreement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates and one or more of which may be Subordinated
Certificates. Each Class of a Series will evidence the right to receive a
specified portion of each distribution of principal or interest or both. The
Invested Amount with respect to a Series with more than one Class will be
allocated among the Classes as described in the related Prospectus Supplement.
The Certificates of a Class may differ from Certificates of other Classes of the
same Series in, among other things, the amounts allocated to principal payments,
maturity date, Certificate Rate and the availability of Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates specified in the related Prospectus Supplement to
Certificateholders in whose names the Certificates of such Series were
registered on the record dates (each, a "Record Date") specified in the related
Prospectus Supplement. Interest will be distributed to Certificateholders in the
amounts, for the periods and on the dates specified in the related Prospectus
Supplement.
For each Series of Certificates, the Seller initially will own the
Exchangeable Seller's Certificate. The Exchangeable Seller's Certificate
represents the undivided interest in the Trust not represented by the
Certificates or the rights, if any, of any Enhancement Providers to receive
payments from the Trust. The holder of the Exchangeable Seller's Certificate
will have the right to a percentage (the "First Chicago Percentage") of all
cardholder payments from the Receivables in the Trust.
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for a Series, the Invested Amount of such Series will remain
constant except under certain limited circumstances. The amount of Principal
Receivables in the Trust, however, will vary each day as new Principal
Receivables are created and others are paid. The amount of the First Chicago
Amount will fluctuate each day, to reflect the changes in the amount of the
Principal Receivables in the Trust. When a Series is amortizing, or when
principal with respect thereto is accumulating in the Principal Funding Account
for such Series, the Invested Amount of such Series will decline as customer
payments of Principal Receivables are collected and distributed to or
accumulated for distribution to the Certificateholders. As a result, the First
Chicago Amount will generally increase to reflect reductions in the Invested
Amount for such Series and will also change to reflect the variations in the
amount of Principal Receivables in the Trust. The First Chicago Amount may also
be reduced as the result of an Exchange.
Unless otherwise specified in the related Prospectus Supplement,
Certificates of each Series initially will be represented by certificates
registered in the name of the nominee of DTC (together with any successor
depository selected by the Seller, the "Depository"), except as set forth below.
Unless otherwise specified in the related Prospectus Supplement, with respect to
each Series of Certificates, beneficial interests in the Certificates will be
available for purchase in minimum denominations of $1,000 and integral multiples
thereof in book-entry form only. The Seller has been informed by DTC that DTC's
nominee will be Cede. Accordingly, Cede is expected to be the holder of record
of each Series of Certificates offered hereby. No Certificate Owner acquiring an
interest in the Certificates will be entitled to receive a certificate
representing such person's interest in the Certificates.
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Interest Payments
For each Series of Certificates and Class thereof, interest will accrue
from the relevant Series Closing Date on the applicable Invested Amount at the
applicable Certificate Rate, which may be a fixed, floating or other type of
rate as specified in the related Prospectus Supplement. Interest will be
distributed to Certificateholders on the Distribution Dates specified in the
related Prospectus Supplement. Interest payments on any Distribution Date will
be funded from collections of Finance Charge Receivables allocated to the
Invested Amount during the preceding Due Period or Due Periods and may be funded
from certain investment earnings on funds held in accounts of the Trust and from
any applicable Enhancement, if necessary, or certain other amounts as specified
in the related Prospectus Supplement. If the Distribution Dates for payment of
interest for a Series or Class occur less frequently than monthly, such
collections or other amounts (or the portion thereof allocable to such Class)
may be deposited in one or more trust accounts (each, an "Interest Funding
Account") pending distribution to the Certificateholders of such Series or
Class, as described in the related Prospectus Supplement. If a Series has more
than one Class of Certificates, each such Class may have a separate Interest
Funding Account. The Prospectus Supplement relating to each Series of
Certificates and each Class thereof will describe the amounts and sources of
interest payments to be made, the Certificate Rate, and, for a Series or Class
thereof bearing interest at a floating Certificate Rate, the dates and the
manner for determining Certificate Rates, and the formula, index or other method
by which such Certificate Rates are determined.
Principal Payments
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for each Series of Certificates (which begins on the related
Series Closing Date and ends on the day before an Amortization Period or
Accumulation Period begins), no principal payments will be made to the
Certificateholders of such Series. During the Controlled Amortization Period,
Principal Amortization Period or Accumulation Period, as applicable, which will
be scheduled to begin on the date specified in, or determined in the manner
specified in, the related Prospectus Supplement, and during the Rapid
Amortization Period, which will begin upon the occurrence of a Liquidation
Event, principal will be paid to the Certificateholders in the amounts and on
Distribution Dates specified in the related Prospectus Supplement or will be
accumulated in a Principal Funding Account for later distribution to
Certificateholders on the Scheduled Payment Date in the amounts specified in the
related Prospectus Supplement. Principal payments for any Series or Class
thereof will be funded from collections of Principal Receivables received during
the related Due Period or Due Periods as specified in the related Prospectus
Supplement and allocated to such Series or Class and from certain other sources
specified in the related Prospectus Supplement. In the case of a Series with
more than one Class of Certificates, the Certificateholders of one or more
Classes may receive payments of principal at different times. The related
Prospectus Supplement will describe the manner, timing and priority of payments
of principal to Certificateholders of each Class.
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Funds on deposit in any Principal Funding Account applicable to a Series
may be subject to a guaranteed rate agreement or guaranteed investment contract
or other arrangement specified in the related Prospectus Supplement intended to
assure a minimum rate of return on the investment of such funds. In order to
enhance the likelihood of the payment in full of the principal amount of a
Series of Certificates or Class thereof at the end of an Accumulation Period,
such Series of Certificates or Class thereof may be subject to a principal
guaranty or other similar arrangement specified in the related Prospectus
Supplement.
Conveyance of Receivables
As of each of June 28, 1990, October 25, 1990, June 12, 1991, August 1,
1991, June 1, 1992, and July 1, 1996, the Seller transferred and assigned to the
Trust the Receivables in the applicable portion of the Accounts outstanding as
of the relevant Cut Off Date, all of the Receivables thereafter created under
the Accounts and the proceeds of all of the foregoing (other than recoveries
with respect to previously charged-off Receivables and insurance proceeds).
In connection with the transfer of the Receivables to the Trust, and the
sale of the previously issued Series of Certificates and the Certificates
offered hereby, the Seller has reflected and will reflect the transfer of a
portion of the Receivables in an amount equal to the sum of the initial Invested
Amounts of the previously issued Series of Certificates and the initial Invested
Amount of the Series of Certificates offered hereby to the Trust on its books
and records. In addition, the Seller has provided or will provide to the Trustee
a computer file or a microfiche list containing a true and complete list showing
for each Account, as of the applicable Cut Off Date, (i) its account number and
billing cycle, (ii) its collection status, (iii) the aggregate amount
outstanding in such Account and (iv) the aggregate amount of Principal
Receivables in such Account. The Bank, as initial Servicer, is retaining and is
not delivering to the Trustee any other records or agreements relating to the
Accounts or the Receivables. The records and agreements relating to the Accounts
and the Receivables are not segregated from those relating to other credit card
accounts and receivables and neither the computer files nor the physical
documentation relating to the Accounts or Receivables are stamped or marked to
reflect the transfer of Receivables to the Trust. The Seller has filed or will
file UCC financing statements with respect to the Receivables meeting the
requirements of New York, Illinois and Delaware state law. See "Risk Factors"
and "Certain Legal Aspects of the Receivables."
Exchanges
The Agreement provides for the Trustee to issue two types of certificates:
(i) one or more Series of Certificates which are transferable and have the
characteristics described below and (ii) the Exchangeable Seller's Certificate,
a certificate which evidences the First Chicago Interest, presently is held by
the Seller and generally is not transferable. The Agreement also provides that,
pursuant to any one or more Supplements, the Seller may tender the Exchangeable
Seller's Certificate, or the Exchangeable Seller's Certificate and the
certificates evidencing any Series of Certificates, to the Trustee in exchange
for one or more new Series and a reissued Exchangeable Seller's Certificate.
Under the Agreement, the Seller may define, with respect to any newly issued
Series: (i) its name or designation; (ii) its initial principal amount (or
method for calculating such amount); (iii) its coupon rate (or formula for the
determination thereof); (iv) the interest payment date or dates and the date or
dates from which interest shall accrue; (v) the method for allocating to
Certificateholders of such Series collections; (vi) the names of any accounts to
be used by such Series and the terms governing the operation of any such
accounts; (vii) the percentage used to calculate monthly servicing fees; (viii)
the Minimum First Chicago Interest Percentage; (ix) the minimum amount of
Aggregate Principal Receivables required to be maintained through the
designation by the Seller of Additional Accounts; (x) the issuer and terms of a
letter of credit or other form of Enhancement with respect thereto; (xi) the
Base Rate applicable to such Series; (xii) the terms on which the Certificates
of such Series may be repurchased by the Seller or remarketed to other
investors;
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(xiii) the Series Termination Date; (xiv) any deposit into any account
maintained for the benefit of Certificateholders of such Series; (xv) the number
of Classes of such Series, and if more than one Class, the rights and priorities
of each such Class; (xvi) the extent to which the Certificates of such Series
will be issuable in temporary or permanent global form (and, in such case, the
Depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for definitive certificates, and the manner in which any
interest payable on a temporary or global certificate will be paid); (xvii)
whether the Certificates of such Series may be issued in bearer form and any
limitations imposed thereon; (xviii) whether Interchange will be included in
funds available to Certificateholders of such Series; (xix) the priority of any
Series with respect to any other Series; (xx) the rights of the holders of the
Exchangeable Seller's Certificate that have been transferred to the holders of
such Series; and (xxi) any other relevant terms (all such terms, the "Principal
Terms" of such Series). None of the Seller, the Servicer, the Trustee or the
Trust is required or intends to obtain the consent of any Certificateholder to
issue any additional Series. However, as a condition of an Exchange, the Seller
will deliver to the Trustee written confirmation that the Exchange will not
result in the applicable Rating Agency reducing or withdrawing its rating of any
outstanding Series. The Seller may offer any Series to the public under a
Disclosure Document in transactions either registered under the Act or exempt
from registration thereunder directly, through one or more underwriters or
placement agents, in fixed-price offerings or in negotiated transactions or
otherwise. Any such Series may be issued in fully registered or book-entry form
in minimum denominations determined by the Seller. A chart set forth in the
Prospectus Supplement provides the Principal Terms and other relevant
characteristics of the other outstanding Series which have been issued or are
proposed to be issued by the Trust. The Seller intends to offer, from time to
time, additional Series.
The Agreement provides that the Seller may perform Exchanges and define
Principal Terms such that each Series has a period during which amortization or
accumulation of the principal amount thereof is intended to occur which may have
a different length and begin on a different date than such period for any other
Series. Further, one or more Series may be in their Amortization Periods or
Accumulation Periods while other Series are not. Thus, certain Series may not be
amortizing, or accumulating principal for ultimate payment to
Certificateholders, while other Series are in such Amortization Period or
Accumulation Period. Moreover, each Series may have the benefits of a letter of
credit, Cash Collateral Account, Collateral Interest, interest rate swap or
other form of Enhancement provided by entities different from those providing
the letters of credit, Cash Collateral Accounts, Collateral Interests, interest
rate swaps or other form of Enhancement with respect to any other Series. Under
the Agreement, any such letter of credit, Cash Collateral Account, Collateral
Interests, interest rate swap or other form of Enhancement shall only be
available for the Series to which it relates. Likewise, with respect to each
such letter of credit, Cash Collateral Account, Collateral Interest, interest
rate swap or other form of Enhancement, the Seller may deliver a different
letter of credit, loan, collateral, swap or other form of Enhancement agreement.
The Agreement also provides that the Seller may specify different coupon rates
and monthly servicing fees with respect to each Series. Collections allocated to
Finance Charge Receivables not used to pay interest on the Certificates, the
Monthly Servicing Fee, the Investor Default Amount, Investor Charge-Offs or
other amounts payable with respect to any Series will be allocated as provided
in such letter of credit, loan, collateral, swap or other form of Enhancement
agreement, if applicable. The Seller also has the option under the Agreement to
vary between Series the terms upon which a Series may be repurchased by the
Seller or remarketed to other investors. Additionally, certain Series may be
subordinated to other Series, or Classes within a Series may have different
priorities. There is no limit to the number of Exchanges that the Seller may
perform under the Agreement. The Trust will terminate only as provided in the
Agreement.
Under the Agreement and pursuant to a Supplement, an Exchange may only
occur upon the satisfaction of certain conditions provided in the Agreement.
Under the Agreement, the Seller may perform an Exchange by notifying the Trustee
at least three days in advance of the date upon which the Exchange is to occur.
Under the Agreement, the notice will state the designation of any Series to be
issued on the date of the Exchange and, with respect to each such Series: (i)
its initial principal amount (or method for calculating such amount), (ii) its
Certificate Rate and (iii) the provider of a letter of credit, Cash Collateral
Account, Collateral Interest, interest
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rate swap or other form of Enhancement, if any, with respect to such Series. On
the date of the Exchange, the Agreement provides that the Trustee will issue any
such Series only upon delivery to it of the following: (i) a Supplement in form
satisfactory to the Trustee signed by the Seller and specifying the Principal
Terms of such Series, (ii) an opinion of counsel to the effect that, unless
otherwise specified in the related Supplement, the Certificates of such Series
will be characterized as debt under existing law for Federal income tax purposes
and that the issuance of such Series will not materially adversely impact the
Federal income tax characterization of any outstanding Series, (iii) the letter
of credit, Cash Collateral Account, funds for the purchase of the Collateral
Interest, interest rate swap or other form of Enhancement, if any, and a letter
of credit, loan, collateral, swap or other form of Enhancement agreement with
respect thereto executed by the Seller and the provider of the letter of credit,
Cash Collateral Account, Collateral Interest, interest rate swap or other form
of Enhancement, (iv) written confirmation from the applicable Rating Agency that
the Exchange will not result in such Rating Agency reducing or withdrawing its
rating on any outstanding Series and (v) the existing Exchangeable Seller's
Certificate and the applicable Certificates of the Series to be exchanged, if
applicable. Upon satisfaction of such conditions, the Trustee will cancel the
existing Exchangeable Seller's Certificate and the Certificates of the exchanged
Series, if applicable, and issue the new Series and a new Exchangeable Seller's
Certificate.
Covenants, Representations and Warranties
The Seller has covenanted to the Trustee for the benefit of all
Certificateholders of all Series which from time to time may have an interest in
the Trust that, as to the Receivables and the Accounts, unless cured within 60
days from receipt of notice from the Trustee, the Seller will accept the
transfer of any Receivable which is written off as uncollectible or any
Receivable the proceeds of which are unavailable to the Trust, if (i) such
Receivable is not an Eligible Receivable or (ii) the Agreement does not
constitute either (a) a valid transfer and assignment to the Trust of all right,
title and interest of the Seller in and to such Receivable, whether then
existing or thereafter created, and of all proceeds thereof (including amounts
in the Collection Account) or (b) a grant of a first priority perfected security
interest in such Receivable and, with certain exceptions and for certain limited
periods of time, the proceeds thereof (including amounts in the Collection
Account), which security interest is effective as to each Receivable upon the
creation thereof. Additionally, under certain conditions, the Seller covenants
in the Agreement to accept the transfer of each Receivable which is subject to
certain specified liens immediately upon the discovery of such liens.
The Seller shall accept the transfer of any Receivable, as described above,
by deducting the principal balance of such Receivable from the aggregate amount
of Principal Receivables used to calculate the First Chicago Interest; provided,
however, that if such deduction would reduce the First Chicago Interest below
zero or would otherwise not be permitted by law, the Seller will be obligated to
make a deposit in the Collection Account in immediately available funds equal to
the Transfer Deposit Amount. Such deposit shall be considered a payment in full
of the ineligible Receivable. Any amounts so paid by the Seller shall be
allocated in respect of Finance Charge Receivables and Principal Receivables as
provided in the Agreement.
The Seller represented and warranted as of the issuance dates for all
previous Series, and will represent and warrant as of the issuance date of the
Certificates offered hereby, to the Trustee for the benefit of all
Certificateholders of all Series which from time to time may have an interest in
the Trust, that (i) the Agreement constitutes a legal, valid, binding and
enforceable obligation of the Seller, (ii) all material information with respect
to the Accounts and the Receivables in the list provided to the Trustee was true
and correct in all material respects as of the applicable Cut Off Dates and
(iii) any Additional Accounts conformed as of the applicable date to the
computer file or list of Additional Accounts provided by the Seller to the
Trustee on or prior to the date the Receivables in such Additional Accounts were
added to the Trust (or in the case of Automatic Additional Accounts, to the
computer file or list of Additional Accounts provided by the Seller to the
Trustee on the applicable Determination Date as described in "--Addition of
Accounts" below). In the event that (x) any of the representations and
warranties described in clause (i), (ii) or (iii) above are not true and correct
or (y) a material amount of Receivables are not Eligible Receivables, and such
event has a material adverse effect on the interests of holders of the
Certificates, then either the Trustee or the holders of Certificates evidencing
undivided interests in the Trust aggregating more than 50% of the aggregate
Invested Amount of all Series, by written
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notice to the Seller (and to the Trustee and the Servicer, if given by the
Certificateholders), may direct the Seller to purchase all Series outstanding
within 60 days of such notice. The Seller is obligated to purchase all Series on
a Distribution Date occurring within such applicable period, unless the
representations and warranties shall then be true and correct in all material
respects or there shall no longer be a material amount of Receivables which are
not Eligible Receivables, as the case may be. The purchase price is equal to the
aggregate Invested Amount of all Series on the Record Date related to the
applicable payment date on which the purchase is scheduled to be made plus an
amount equal to all interest accrued but unpaid on all Series at the applicable
Certificate Rates through the end of the Interest Periods of such Series. The
payment of such purchase price into the Collection Account in immediately
available funds will be considered a prepayment in full of all Receivables and
will be paid in full to the Certificateholders upon presentation and surrender
of their Certificates. The obligations described above shall be the sole
remedies respecting the foregoing representations, warranties and events
available to the Trustee or the Certificateholders.
An "Eligible Receivable" is defined to mean each Receivable (i) which has
arisen under an Eligible Account or an Eligible Additional Account, (ii) which
was created in compliance with all requirements of law and pursuant to a credit
card agreement which complies with all requirements of law in either case the
failure to comply with which would have a material adverse effect upon
certificateholders, (iii) with respect to which all consents or authorizations
of, or registrations with, any governmental authority required to be obtained or
given by the Seller in connection with the creation of such Receivable or the
execution, delivery and performance by the Seller of the related credit card
agreement have been duly obtained or given and are in full force and effect as
of such date of creation, (iv) as to which the Trust will at all times have good
and marketable title, free and clear of all liens, encumbrances, charges and
security interests (except those permitted by the Agreement), (v) which will at
all times be the legal, valid and binding payment obligation of the cardholder
thereof enforceable against such cardholder in accordance with its terms,
subject to certain bankruptcy and equity related exceptions, (vi) which
constitutes either an "account" or a "general intangible" under and as defined
in Article 9 of the UCC as then in effect in the States of Delaware, Illinois
and New York, (vii) which, at the time of its transfer to the Trust, has not
been waived or modified except as permitted by the Agreement, (viii) which is
not subject to any right of rescission, setoff, counterclaim or other defense
(including the defense of usury), other than certain bankruptcy and equity
related defenses and adjustments permitted by the Agreement to be made by the
Servicer, (ix) as to which the Seller has satisfied all obligations to be
fulfilled at the time it is transferred to the Trust and (x) as to which the
Seller has done nothing, at the time of its transfer to the Trust, to impair the
rights of the Trust or certificateholders therein. An "Eligible Account" is
defined to mean an account (i) which is a VISA or MasterCard consumer revolving
credit card account and was in existence and owned by the Bank at the close of
business on its Cut Off Date, (ii) which is payable in United States dollars,
(iii) the credit card or cards for which accounts have not been reported lost or
stolen, (iv) the receivables in which have not been written off, (v) which was
not originated or originally purchased by Beneficial National Bank USA, (vi)
which is not part of certain affinity programs and (vii) which was not
originated by The Society for Savings, Hartford, Connecticut.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects,
compliance with the Seller's representations and warranties or for any other
purpose. The Servicer, however, is required to deliver to the Trustee on or
before March 31 of each year an opinion of counsel with respect to the validity
of the security interest of the Trust in and to the Receivables.
Addition of Accounts
As described above under "The Accounts," the Seller has the right and, in
some circumstances is obligated, to designate from time to time Additional
Accounts to be included as Accounts and to convey to the Trust all Receivables
in such Additional Accounts, whether such Receivables are then existing or
thereafter created. The
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Seller is required to add Additional Accounts if, on a Determination Date, the
First Chicago Amount for the related Due Period is less than the Minimum First
Chicago Interest Percentage of the Aggregate Principal Receivables for the same
Due Period or if, on any Determination Date, Aggregate Principal Receivables are
less than the Minimum Aggregate Principal Receivables (or such higher amount
established pursuant to a Supplement). Each such Additional Account must be an
"Eligible Additional Account." An "Eligible Additional Account" is either: (i)
an account (a) which is a VISA or MasterCard consumer revolving credit card
account which was in existence and owned by the Bank on the date on which such
account is to be added to the Trust, (b) which is payable in United States
dollars, (c) the credit card or cards for which have not been reported lost or
stolen and (d) the receivables in which have not been charged off; (ii) any
Automatic Additional Account; or (iii) any other consumer revolving credit card
account which the applicable Rating Agency permits to be added to the Trust. The
Seller is required to give prior written notice of such additions to the Rating
Agency and prior to the date of such addition shall not have received notice
from any Rating Agency of its intention to reduce or withdraw the rating of any
Series of Certificates.
Accounts opened during the normal operation of the Seller's credit card
business in the billing cycles the Receivables of which are included in the
Trust (or any other billing cycle of the Seller of which a substantial portion
of the Receivables have been transferred to the Trust in the future) may also be
added to the Trust automatically on a daily basis ("Automatic Additional
Accounts"). Automatic Additional Accounts will not include those accounts
purchased by the Seller from another credit card issuer or accounts included in
any affinity program or other special program, the accounts of which are not
then currently included in the Trust. The Seller, at its option, may terminate
or suspend the inclusion of Automatic Additional Accounts at any time. The
Seller will provide to the Trustee on each Determination Date a computer file or
a microfiche list containing a true and complete list showing each Automatic
Additional Account included during the Due Period relating to such Determination
Date and indicating for each such Automatic Additional Account as of its first
billing date (i) its account number and billing cycle, (ii) its collection
status, (iii) the aggregate amount outstanding in such Automatic Additional
Account and (iv) the aggregate amount of Principal Receivables in such Automatic
Additional Account.
Removal of Accounts
Subject to the conditions set forth in the next succeeding sentence, on
each Determination Date on which the First Chicago Amount exceeds 15% of
Aggregate Principal Receivables with respect to such Determination Date, the
Seller may, but shall not be obligated to, accept all Receivables and proceeds
thereof from certain Accounts offered to it by the Trustee, without notice to
the Certificateholders. The Seller may, at its sole discretion, accept such
offer in an aggregate amount equal to an amount not greater than the excess of
the First Chicago Amount over the amount of Aggregate Principal Receivables
required to be maintained pursuant to the Agreement and any Supplement for
deletion and removal from the Trust. The Seller is permitted to designate and
require reassignment to it of the Receivables from Removed Accounts only upon
satisfaction of the following conditions: (i) the Seller shall have delivered to
the Trustee for execution a written reassignment and a computer file or
microfiche list containing a true and complete list of all Accounts in the Trust
after such removal, the Accounts to be identified by, among other things,
account number and their aggregate amount of Principal Receivables; (ii) the
Seller shall represent and warrant that no selection procedure used by the
Seller which is adverse to the interests of the Certificateholders was utilized
in selecting the Removed Accounts; (iii) the removal of any Receivables of any
Removed Accounts shall not, in the reasonable belief of the Seller,
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cause a Liquidation Event to occur; (iv) the Seller shall have delivered prior
written notice of the removal to each Rating Agency which has rated any
outstanding Series and prior to the date on which such Receivables are to be
removed shall not have received notice from any Rating Agency of its intention
to reduce or withdraw the rating of any Series of Certificates; and (v) the
Seller shall have delivered to the Trustee an officer's certificate confirming
the items set forth in clauses (i) through (iv) above.
Collection Account
The Trustee has established and maintains in the name of the Trustee, on
behalf of the Trust, a segregated trust account for the benefit of the
Certificateholders. The Collection Account has been established and is
maintained with the trust department of The First National Bank of Chicago, an
Eligible Institution. An "Eligible Institution" is defined as a depository
institution organized under the laws of the United States or any one of the
States thereof, which is a member of the FDIC and which has a short-term
unsecured debt rating of at least A-1 and P-1 by the applicable Rating Agency;
provided, however, that no such rating shall be required of an institution which
maintains the Collection Account as a fully segregated trust account with the
trust department of such institution. The Trustee, the Seller or the Servicer,
or any affiliate of either of them, may qualify as an Eligible Institution.
Funds in the Collection Account may be invested, at the direction of the
Servicer, in: (i) obligations fully guaranteed by the United States of America;
(ii) demand deposits, time deposits, certificates of deposit or bankers'
acceptances of certain depository institutions or trust companies having the
highest rating from the applicable Rating Agency; (iii) commercial paper having,
at the time of the Trust's investment, a rating in the highest rating category
from the applicable Rating Agency; (iv) money market funds which have the
highest rating from the applicable Rating Agency; or (v) any other investment if
the applicable Rating Agency confirms in writing that such investment will not
adversely affect its rating on any Series (collectively, the "Eligible
Investments"). Any earnings (net of losses and investment expenses) on funds in
the Collection Account are paid monthly to the Seller. The Servicer has the
revocable power to withdraw funds from the Collection Account and to instruct
the Trustee to make withdrawals and payments from the Collection Account for the
purpose of carrying out the Servicer's or the Trustee's duties under the
Agreement.
Other Trust Accounts
If so specified in the Prospectus Supplement relating to a Series, the
Trustee shall have the power to establish one or more accounts for such Series,
including an Interest Funding Account, a Principal Funding Account, a
Pre-Funding Account or such other account specified in the related Prospectus
Supplement, each of which series accounts shall be held for the benefit of
Certificateholders of the related Series and for the purposes set forth in the
related Prospectus Supplement. Such series account will be established at an
Eligible Institution (which may be the Trustee or an affiliate of the Seller,
Servicer or Trustee) unless otherwise specified in the related Prospectus
Supplement. Funds in any series account established by a Series Supplement may
be invested in Eligible Investments or otherwise as provided in the related
Prospectus Supplement. Any earnings (net of losses and investment expenses) on
funds in such series accounts will be paid to, or for the account of, the Seller
or as otherwise specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, the Servicer will have revocable
power to withdraw funds from the series accounts for the purpose of carrying out
the Servicer's duties under the Agreement and related Supplement.
Funding Period
For any Series of Certificates, the related Prospectus Supplement may
specify that during a Funding Period, all or a portion of the principal amount
of such Series (the "Pre-Funding Amount") will be held in a Pre-Funding Account
pending the transfer of additional Receivables to the Trust or pending the
reduction of the Invested Amounts of one or more other Series issued by the
Trust. The related Prospectus Supplement will specify the initial Invested
Amount with respect to such Series, the Full Invested Amount and the date by
which the Invested Amount is expected to equal the Full Invested Amount. The
Invested Amount will increase as Receivables are added to the Trust or as the
Invested Amounts of the other Series of the Trust are reduced. If the Invested
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Amount does not equal the Full Invested Amount by the end of the Funding Period,
Certificateholders of the affected Series will receive principal repayments
prior the expected date of receipt. See "Risk Factors--Pre-Funding Account."
During the Funding Period, funds on deposit in the Pre-Funding Account for
a Series of Certificates will be withdrawn and paid to the holder of the
Exchangeable Seller's Certificate to the extent of any increases in the Invested
Amount of such Series. In the event that the Invested Amount does not for any
reason equal the Full Invested Amount by the end of the Funding Period, any
amount remaining in the Pre-Funding Account will be payable to the
Certificateholders of such Series in the manner and at such time as set forth in
the related Prospectus Supplement. Such payment will reduce the aggregate
principal amount of such Certificates. In addition, if so specified in the
related Prospectus Supplement, a prepayment premium or penalty or similar amount
may be payable to the Certificateholders of such Series.
Monies in the Pre-Funding Account will be invested by the Trustee in
Eligible Investments and, if so specified in the related Prospectus Supplement,
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Pre-Funding Account will be
withdrawn from the Pre-Funding Account and deposited, together with any
applicable payment under a guaranteed rate or investment agreement or other
similar arrangement, into the Collection Account for distribution in respect of
interest on the Certificates of the related Series in the manner specified in
the related Prospectus Supplement.
Paired Series
If specified in the Prospectus Supplement relating to a Series, such Series
may be paired with another Series (each, a "Paired Series"), such that a
reduction in the Invested Amount of one such Series generally results in an
increase in the Invested Amount of the other such Series. The effects of this
feature will be described in the related Prospectus Supplements of the Paired
Series.
Allocation Percentages
Pursuant to the Agreement, during each Due Period the Servicer will
allocate between the Series issued by the Trust and the First Chicago Interest
all amounts collected on Finance Charge Receivables and all amounts collected on
Principal Receivables and the amount of all Defaulted Receivables. Collections
of Finance Charge Receivables (including the applicable portion of Interchange)
and Defaulted Receivables will be allocated at all times to a Series, and
collections of Principal Receivables will be allocated during the Revolving
Period with respect to a Series and generally paid to the Seller or, in certain
circumstances, to the Enhancement Provider or to other Series, based on the
percentage equivalent of a fraction, the numerator of which is the Invested
Amount for such Distribution Date, and the denominator of which is Aggregate
Principal Receivables for the related Due Period (the "Floating Allocation
Percentage"). During an Amortization Period or Accumulation Period with respect
to a Series (or Class thereof), collections of Principal Receivables will be
allocated thereto based on the percentage equivalent of a fraction, the
numerator of which is the Invested Amount as of the end of the day on the last
Distribution Date relating to the Revolving Period (or such other amount
determined in the manner specified in the related Prospectus Supplement) and the
denominator of which is the greater of (a) Aggregate Principal Receivables for
the Due Period related to the current Distribution Date and (b) the sum of the
numerators used to calculate the Invested Percentages with respect to Principal
Receivables for all Series outstanding for the current Distribution Date (the
"Fixed Allocation Percentage").
"Invested Percentage" means, on any date of determination with respect to
any Distribution Date: (a) when used with respect to Principal Receivables
during an Amortization Period or Accumulation Period with respect to a Series
(or Class thereof), the Fixed Allocation Percentage; and (1)) when used with
respect to Principal Receivables during the Revolving Period with respect to a
Series (or Class thereof) and Finance Charge Receivables and Defaulted
Receivables at any time, the Floating Allocation Percentage.
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"First Chicago Percentage" means when used with respect to allocations of
collections of Finance Charge Receivables and Principal Receivables and the
amount of Defaulted Receivables, 100% minus the sum of the applicable Invested
Percentages with respect to all Series then issued and outstanding.
Application of Collections
The Bank, as Servicer, uses for its own benefit all collections received
with respect to the Receivables in each Due Period until the related Transfer
Date at which time such collections are applied as described below. Under the
Agreement, collections on the Receivables for any Due Period are allocated such
that all collections up to the amount of Finance Charge Receivables billed at
the beginning of such Due Period are deemed collections of Finance Charge
Receivables and the remaining amount of such collections are deemed collections
of Principal Receivables. If the short-term deposit ratings of the Seller are
reduced below A-1 or P-1 by the applicable Rating Agency, then the Seller will,
within five business days, commence the deposit of collections directly into the
Collection Account within one business day of the date of processing and will
move the Collection Account, if then held by the Seller, to an Eligible
Institution other than the Seller, which Eligible Institution may be an
affiliate of the Seller. In addition, if at any time the Seller is not the
Servicer, the Servicer will, within five business days, commence the deposit of
all collections received with respect to the Receivables in each Due Period into
the Collection Account within one business day of the date of processing, and,
in such event, the Collection Account, if then held by the Seller, will be moved
to an Eligible Institution other than the Seller. Should the Seller be required
to make daily deposits into the Collection Account as described above, the
Seller, upon the approval of each Rating Agency, may make an estimated
allocation of collections between Finance Charge Receivables and Principal
Receivables.
Throughout the existence of the Trust, the Servicer allocates to the
Seller, as holder of the Exchangeable Seller's Certificate, an amount equal to
the First Chicago Percentage of the aggregate amount of collections allocable to
Principal Receivables and Finance Charge Receivables in respect of such Due
Period. On each Determination Date with respect to the Revolving Period for a
Series, the Servicer will allocate to the Seller or, in certain circumstances,
to the Enhancement Provider for such Series or to other Series, from
collections, an amount equal to the Floating Allocation Percentage of the
aggregate amount of collections in respect of Principal Receivables for the
related Distribution Date, except that the amount of such allocation with
respect to Principal Receivables shall not exceed the amount of the First
Chicago Interest in Principal Receivables (after giving effect to any new
Receivables transferred to the Trust for the Due Period relating to such
Determination Date).
On each Determination Date with respect to a Controlled Amortization Period
or a Controlled Accumulation Period for a Series, the Servicer will allocate to
the Seller or, in certain circumstances, to the Enhancement Provider for such
Series or to other Series, from collections, an amount equal to the excess of
the Fixed Allocation Percentage for the related Distribution Date of the
aggregate amount of collections in respect of Principal Receivables over the
amount required to be distributed or accumulated as principal with respect to
such Series, except that the amount of such allocation with respect to Principal
Receivables shall not exceed the amount of the First Chicago Interest in
Principal Receivables (after giving effect to any new Receivables transferred to
the Trust for the Due Period relating to such Determination Date).
On each Distribution Date with respect to a Principal Amortization Period,
a Rapid Amortization Period or a Rapid Accumulation Period for a Series, the
Servicer will distribute, or accumulate, collections of Principal Receivables
allocable to the Certificateholders of such Series in payment of principal, or
as accumulation of principal, on the Certificates of such Series.
The Servicer need not deposit amounts allocable to the Seller as holder of
the Exchangeable Seller's Certificate into the Collection Account and instead
may pay, or be deemed to pay, to the Seller such amounts as collected.
Any amounts in respect of Principal Receivables not distributed to the
Seller because such Principal Receivables would exceed the First Chicago
Interest in Principal Receivables (after giving effect to any new
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Receivables transferred to the Trust for the Due Period relating to such
Determination Date) ("Unallocated Principal Collections") will be held in the
Collection Account until distributable to the Seller or to one or more Series.
Any Transfer Deposit Amounts, any Adjustment Payments, any proceeds from any
repurchase of the Certificates occurring in connection with a Service Transfer
and the proceeds of any sale, disposition or liquidation of Receivables
following the occurrence of a Liquidation Event caused by the appointment of a
receiver or conservator for the Seller or in connection with a Series
Termination Date will also be deposited into the Collection Account immediately
upon receipt and will be allocated as collections of Principal Receivables or
Finance Charge Receivables, as applicable.
Payments to Certificateholders will be made from the Collection Account. In
addition to the amounts deposited in the Collection Account, as described above,
from payments on the Receivables, amounts required for any optional repurchase
or other purchase of the Certificates by the Seller or the proceeds of any sale
of the Receivables will be deposited in the Collection Account.
In the case of a Series of Certificates having more than one Class, the
amounts in the Collection Account will be allocated and applied to each Class in
the manner and order of priority described in the related Prospectus Supplement.
The Paying Agent will initially be FNBC. The Paying Agent shall have the
revocable power to withdraw funds from the Collection Account for the purposes
of making distributions to the Certificateholders.
Discount Option
If so specified in the Prospectus Supplement for a Series, the Seller may
at any time designate a specified fixed or variable percentage as specified in
such Prospectus Supplement (the "Discount Percentage") of the amount of
Receivables arising in the Accounts on and after the date such option is
exercised that otherwise would have been treated as Principal Receivables to be
treated as Finance Charge Receivables. Such designation may be applicable to one
or more Series. Such designation will become effective upon satisfaction of the
requirements set forth in the Agreement, including written confirmation by each
Rating Agency in writing of its then current rating on each outstanding Series
affected thereby. On the date of processing of any collections, the product of
the Discount Percentage and collections of Receivables that arise in the
Accounts on such day on or after the date such option is exercised that
otherwise would be Principal Receivables will be deemed collections of Finance
Charge Receivables and will be applied accordingly, unless otherwise provided in
the related Prospectus Supplement.
Shared Collections of Finance Charge Receivables
To the extent that collections of Finance Charge Receivables allocated to a
Series are not needed to make payments to Certificateholders of such Series or
other payments required in respect of such Series, such collections ("Excess
Finance Charge Collections") may be applied to cover shortfalls in amounts
payable from collections of Finance Charge Receivables allocable to one or more
other Series. There can be no assurance, however, that such Excess Finance
Charge Collections will be available to cover such shortfalls.
Shared Collections of Principal Receivables
To the extent that collections of Principal Receivables allocated to a
Series are not needed to make payments to or for the benefit of the
Certificateholders of such Series, such collections ("Excess Principal
Collections") may be applied to cover principal payments due to or for the
benefit of one or more other Series. Any such application of collections will
not result in a reduction of the Invested Amount of the Series to which such
collections were initially allocated. There can be no assurance, however, that
such Excess Principal Collections will be available to cover any shortfall of
principal due on any Distribution Date for any Series.
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Defaulted Receivables; Rebates and Fraudulent Charges
The term "Investor Default Amount" means, with respect to any Series and
for any Due Period, the product of the Floating Allocation Percentage for such
Distribution Date times the amount of Defaulted Receivables; the term "Defaulted
Receivables" means, for any Due Period, Receivables which in such Due Period
were written off as uncollectible in accordance with the Servicer's policies and
procedures for servicing credit card receivables comparable to the Receivables.
Under existing policies of the Servicer, Receivables which are unpaid will be
written off by the last day of the Due Period in which they become 180 days
delinquent (210 days after the date of the billing statement) unless the
cardholder cures such default by making a partial payment which qualifies under
the standards customarily applied by the Servicer.
In the case of a Series of Certificates having more than one Class, the
Investor Default Amount will be allocated among the Classes in the manner
described in the related Prospectus Supplement. If so provided in the related
Prospectus Supplement, an amount equal to the Investor Default Amount for any
Due Period may be paid from other amounts, including from collections of Finance
Charge Receivables available therefor or from Enhancement, and applied to pay
principal to Certificateholders or the holder of the Exchangeable Seller's
Certificates, as appropriate. In the case of a Series of Certificates having one
or more Classes of Subordinated Certificates, the related Prospectus Supplement
may provide that all or a portion of amounts otherwise allocable to such
Subordinated Certificates may be paid to the Senior Certificates to make up any
Investor Default Amount allocable to such Senior Certificates. Any portion of
the Investor Default Amount allocable to a Class of Certificates and not covered
by collections of Finance Charge Receivables, Enhancement or subordination (or
any other source specified in the related Prospectus Supplement) will result in
a reduction in the Invested Amount of such Class (such reduction, an "Investor
Charge-Off"). An Investor Charge-Off for a Class of Certificates will slow down
or reduce the return of principal to the Certificateholders of the affected
Class. Investor Charge-Offs will be reimbursed on any Distribution Date to the
extent Finance Charge Receivables, Enhancement, subordination (or any other
source specified in the related Prospectus Supplement) is allocable to such
affected Class in excess of other required payments to be made to or in respect
of such affected Class on such Distribution Date. Any such reimbursement will
result in an increase in the Invested Amount with respect to such Class. In the
case of a Series of Certificates having more than one Class, the related
Prospectus Supplement will describe the manner and priority of allocating
Investor Charge-Offs and reimbursements thereof among the Classes of such
Series.
If the Servicer adjusts the amount of any Receivable because of a rebate,
refund or billing error to a cardholder, or because such Receivable was created
in respect of merchandise which was refused or returned by a cardholder, the
amount of the First Chicago Interest for any Due Period will be reduced by the
amount of the adjustment. In addition, the amount of the First Chicago Interest
in the Trust will be reduced by the principal amount of any Receivable which was
discovered as having been created through a fraudulent or counterfeit charge.
After the Due Period in which any such reduction in the amount of the First
Chicago Interest occurred, the principal amount of such Receivable described
above will not be included in the calculation of any Invested Percentage.
Furthermore, to the extent that the reduction in the First Chicago Interest in
Principal Receivables would reduce such interest below zero, the Seller will
deposit an offsetting amount of cash into the Collection Account (an "Adjustment
Payment") on the related Distribution Date for such Due Period.
Defeasance
If so specified in the Prospectus Supplement relating to a Series, the
Seller may terminate its substantive obligations in respect of such Series by
depositing with the Trustee, from amounts representing, or acquired with,
collections of Receivables, money or certain Eligible Investments as described
in the related Prospectus Supplement sufficient to make all remaining scheduled
interest and principal payments on such Series, on the dates scheduled for such
payments, and to pay all amounts owing to any Enhancement Provider with respect
to such Series, if such action would not result in a Liquidation Event for any
Series. Prior to its first exercise of its right to substitute money or Eligible
Investments for Receivables, the Seller will deliver to the Trustee (i) an
opinion of counsel to the effect that such deposit and termination of
obligations will not result in the Trust being
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required to register as an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and (ii) an opinion of counsel to
the effect that unless otherwise specified in the related Supplement, the
defeasance will not materially adversely impact the Federal income tax
characterization of the Series or any other outstanding Series.
Final Payment of Principal; Termination of Trust
The Certificates of each Series will be subject to optional repurchase by
the Seller on any Distribution Date on or after which the Invested Amount of
such Series is reduced to an amount less than or equal to 5% of the initial
Invested Amount thereof (or such other amount specified in the related
Prospectus Supplement), unless certain events of bankruptcy, insolvency or
receivership have occurred with respect to the Seller. The repurchase price of
the Certificates of a Series will be equal to the Invested Amount plus accrued
and unpaid interest on the Certificates through, and including, the day
preceding the Distribution Date with respect to which the repurchase occurs (or
such other amount specified in the related Prospectus Supplement). In any event,
the last payment of principal and interest on the Certificates of a Series will
be due and payable no later than the Series Termination Date for such Series. In
the event that the Invested Amount of a Series is greater than zero on the
applicable Series Termination Date, the Trustee will sell or cause to be sold
interests in the Receivables or certain Receivables, as specified in the
Agreement and the related Supplement, in an amount up to 110% of the Invested
Amount of such Series at the close of business on such date (but not more than
the total amount of Receivables allocable to such Series). The net proceeds of
such sale and any collections on the Receivables will be paid to the
Certificateholders of such Series in the priority specified in the related
Prospectus Supplement on the Series Termination Date as final payment of the
Certificates of such Series.
Unless the Seller instructs the Trustee otherwise, the Trust will only
terminate on the earlier of: (a) the day following the day on which funds shall
have been deposited in the Collection Account sufficient to pay in full the
aggregate Invested Amounts of all Series outstanding plus accrued interest
thereon at the applicable Certificate Rates through the applicable Interest
Period or (b) June 1, 2100. Upon the termination of the Trust and the surrender
of the Exchangeable Seller's Certificate, the Trustee shall convey to the Seller
all right, title and interest of the Trust in and to the Receivables and other
funds of the Trust (other than funds on deposit in the Collection Account).
Liquidation Events
Unless otherwise specified in the related Prospectus Supplement, the
Revolving Period for a Series will continue through the date specified in the
related Prospectus Supplement, unless a Liquidation Event with respect to such
Series occurs. A Rapid Amortization Period or Rapid Accumulation Period will
commence at the beginning of the Due Period during which a Liquidation Event
occurs or is deemed to occur. A "Liquidation Event" occurs with respect to all
Series issued by the Trust upon the occurrence of any of the following events:
(i) certain events of insolvency, conservatorship or receivership
relating to the Seller; or
(ii) the Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In the case of any event described in clause (i) or (ii), a Liquidation
Event with respect to all Series will be deemed to have occurred without any
notice or other action on the part of the Trustee or the Certificateholders
immediately upon the occurrence of such event. In addition, a Liquidation Event
may occur with respect to any Series upon the occurrence of any other event
specified in the related Prospectus Supplement. If a Liquidation Event occurs
and the FDIC is appointed as the receiver for the Bank and no Liquidation Event
other than such receivership or insolvency exists, the FDIC may have the power
to prevent commencement of a Rapid Amortization Period or a Rapid Accumulation
Period.
In addition to the consequences of a Liquidation Event discussed above, if
pursuant to certain provisions of Federal law, the Seller voluntarily goes into
liquidation or the FDIC or any other person is appointed a receiver
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or conservator of the Seller, on the day of such appointment the Seller will
immediately cease to transfer Principal Receivables to the Trust and promptly
give notice to the Trustee of such appointment. Within 15 days, the Trustee will
publish a notice of the liquidation or the appointment stating that the Trustee
intends to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and to the best of its ability. Unless otherwise
instructed within a specified period by certificateholders representing
undivided interests aggregating more than 50% of the Invested Amount of any
Preexisting Series, the Trustee will sell, dispose of or otherwise liquidate the
Receivables of all Series in a commercially reasonable manner and on
commercially reasonable terms. Furthermore, even if the Receivables are not sold
pursuant to the preceding sentence, with respect to Series issued on or after
April 19, 1995 (except as otherwise may be specified in the related Supplement),
unless otherwise instructed within a specified period by holders representing
undivided interests aggregating more than 50% of the Invested Amount of each
Class of each such Series (including a majority in interest in each Collateral
Interest), each holder of an interest in the First Chicago Interest, the holders
of more than 50% of the Invested Amount of each Preexisting Series and any other
person specified in any Supplement, the Trustee will sell, dispose of or
otherwise liquidate the portion of the Receivables allocable to all Series other
than the Preexisting Series in a commercially reasonable manner and on
commercially reasonable terms in accordance with the Agreement. The proceeds
from the sale, disposition or liquidation of the Receivables will be treated as
collections on the Receivables and such proceeds will be distributed to the
applicable Certificateholders. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Receivership" for a discussion of how
Federal legislation may affect the Trustee's ability to liquidate the
Receivables.
Indemnification
The Agreement provides that the Servicer will indemnify the Trust, for the
benefit of Certificateholders and the Trustee, from and against any loss,
liability, expense, damage or injury suffered or sustained arising out of the
activities of the Trust or the Trustee pursuant to the Agreement, including
those arising from acts or omissions of the Servicer; provided, however, that
the Servicer will not indemnify (i) the Trust or the Certificateholders for any
liabilities, costs and expenses with respect to Federal, state or local income
or franchise taxes required to be paid by the Trust or the Certificateholders or
(ii) the Trust, the Certificateholders or the Trustee for liabilities imposed by
reason of any wrongful actions taken by or omissions of the Trustee.
Under the Agreement, the Seller will indemnify an injured party for the
entire amount of any losses, claims, damages or liabilities (other than those
incurred by a Certificateholder in the capacity of an investor in the
Certificates) arising out of or based on the Agreement as though the Agreement
created a partnership under the Uniform Partnership Act. The Seller will also
indemnify each Certificateholder for any such losses, claims, damages or
liabilities except to the extent that they arise from any action by such
Certificateholder. In the event of a Service Transfer, the successor Servicer
will indemnify the Seller for any losses, claims, damages and liabilities of the
Seller as described in this paragraph arising from the actions or omissions of
such successor Servicer.
The Agreement provides that none of the Seller, the Servicer or any of
their directors, officers, employees or agents will be under any other liability
to the Trustee, the Certificateholders or any other person for any action taken,
or for refraining from taking any action, in good faith pursuant to the
Agreement. However, none of the Seller, the Servicer or any of their directors,
officers, employees or agents will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of any such person in the performance of their duties or by reason of
reckless disregard of their obligations and duties thereunder.
In addition, the Agreement provides that the Servicer is not under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Agreement. The Servicer
may, in its sole discretion, undertake any such legal action which it may deem
necessary or desirable for the benefit of Certificateholders with respect to the
Agreement and the rights and duties of the parties thereto and the interest of
the Certificateholders thereunder.
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Collection and Other Servicing Procedures
Pursuant to the Agreement, the Servicer is responsible for servicing,
collecting, enforcing and administering the Receivables in accordance with the
policies and procedures for servicing credit card receivables and exercising a
degree of skill and care consistent with those of a reasonable and prudent
servicer of credit card receivables, but in any event at least comparable with
the policies and procedures and the degree of skill and care applied or
exercised with respect to its own credit card receivables. The Servicer is
required to maintain fidelity bond coverage insuring against losses through
wrongdoing of its officers and employees who are involved in the servicing of
credit card receivables covering such actions and in such amounts as the
Servicer believes to be reasonable from time to time.
In the Agreement, the Servicer covenants that, except as otherwise required
by any requirement of law or as is deemed by the Servicer to be necessary in
order for the Servicer to maintain its credit card business on a competitive
basis based on a good faith assessment by the Servicer of the nature of the
competition in the credit card business, it will not reduce the annual
percentage rate of the periodic charge assessed on the Receivables or other fees
on the Accounts, if as a result of such reduction, its reasonable expectation of
the Portfolio Yield is a rate less than the Base Rate for any Series. The
Servicer also covenants that it may change the terms relating to the Accounts,
only if in the reasonable judgment of the Servicer, if the Seller owns a
comparable segment of accounts, such change is made applicable to any comparable
segment of consumer revolving credit card accounts owned by the Seller which
have characteristics the same as or substantially similar to the Accounts and if
the Seller does not own such a comparable segment, such change is not made with
the intent to benefit materially the Seller over the Certificateholders.
Servicing activities performed by the Servicer include collecting and
recording payments, communicating with cardholders, investigating payment
delinquencies, evaluations in relation to increasing credit limits and issuing
credit cards, providing billing and tax records to cardholders and maintaining
internal records with respect to each Account. Managerial and custodial services
performed by the Servicer on behalf of the Trust include providing assistance in
any inspections of the documents and records relating to the Accounts and
Receivables by the Trustee pursuant to the Agreement, maintaining the
agreements, documents and files relating to the Accounts and Receivables as
custodian for the Trust and providing related data processing and reporting
services for Certificateholders and on behalf of the Trustee.
Servicer Covenants
In the Agreement, the Servicer covenants to the Certificateholders and the
Trustee as to each Receivable and related Account that: (i) it will duly fulfill
all obligations on its part to be fulfilled under or in connection with the
Receivable or Account, and will maintain in effect all qualifications required
in order to service the Receivable or Account and will comply with all
requirements of law in connection with servicing the Receivables and the
Accounts the failure to comply with which would have a material adverse effect
on Certificateholders; (ii) it will not permit any rescission or cancellation of
the Receivable, except as ordered by a court of competent jurisdiction; and
(iii) it will do nothing to impair the rights of the Certificateholders in the
Receivables and will not reschedule, revise or defer payments due on the
Receivables, except that, in the case of clauses (ii) and (iii) above, the
Servicer may make customer service, curing and delinquency adjustments in the
ordinary course of business in accordance with prudent servicing practices.
Under the terms of the Agreement, the Servicer is obligated to accept the
transfer of any Receivable if it discovers, or receives written notice from the
Trustee, that (i) any covenant of the Servicer set forth above has not been
complied with or (ii) the Servicer has not complied in all material respects
with all requirements of law applicable to the Receivables or Accounts, and in
either case such noncompliance has not been cured within 60 days thereafter and
the Receivable has been written off as uncollectible or the proceeds of the
Receivables are not available to the Trust. Such transfer will be effected by
the Servicer depositing the Transfer Deposit Amount of such Receivable in the
Collection Account. This transfer obligation constitutes the sole remedy
available to the Certificateholders, if such covenant or warranty of the
Servicer is not satisfied. The Trust's interest in any such repurchased
Receivable shall be automatically assigned to the Servicer.
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Servicing Compensation and Payment of Expenses
The Servicer's compensation for its servicing activities and reimbursement
for its expenses is a monthly servicing fee (the "Servicing Fee") in an amount,
on any Distribution Date, equal to the sum of, with respect to all Series, 1/12
of the product of (a) the applicable servicing fee percentages with respect to
each Series and (b) the sum of an allocable portion of the amount of the First
Chicago Interest and the aggregate Invested Amount of all Series with respect to
the related Due Period. The Servicing Fee will be allocated among the First
Chicago Interest and Certificateholders of all Series. The portion of the
Servicing Fee allocable to the Certificateholders of a Series on each
Distribution Date (the "Monthly Servicing Fee") generally will be equal to 1/12
of the product of (a) the applicable servicing fee percentage with respect to
such Series and (b) the Invested Amount of such Series with respect to the
related Due Period. All or a portion of the Monthly Servicing Fee for a Series
will be paid from collections of Finance Charge Receivables allocable or
otherwise available to such Series. A portion of the Monthly Servicing Fee for a
Series may be payable from Interchange allocable to such Series. Amounts
available from Enhancement or other sources specified in the related Prospectus
Supplement may also be available to pay the Monthly Servicing Fee for a Series.
The remaining portion of the Servicing Fee will be allocable to the First
Chicago Interest. The Monthly Servicing Fee for each Series will be paid from
the Collection Account on each Distribution Date.
The Servicer pays from its servicing compensation certain expenses incurred
in connection with servicing the Accounts and the Receivables including, without
limitation, expenses related to enforcement of the Receivables, payment of fees
and disbursements of the Trustee and independent accountants and all other fees
and expenses which are not expressly stated in the Agreement to be payable by
the Trust or the Certificateholders other than Federal, state and local income
and franchise taxes, if any, of the Trust.
Certain Matters Regarding the Servicer
The Servicer may not resign from its obligations and duties under the
Agreement, except upon determination that such duties are no longer permissible
under applicable law. No such resignation will become effective until the
Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Agreement.
Any person into which, in accordance with the Agreement, the Seller or the
Servicer may be merged or consolidated or any person resulting from any merger
or consolidation to which the Seller or the Servicer is a party, or any person
succeeding to the business of the Seller or the Servicer, will be the successor
to the Seller or the Servicer, as the case may be, under the Agreement.
Servicer Default
In the event of any Servicer Default, either the Trustee or
Certificateholders evidencing undivided interests aggregating more than 50% of
the aggregate Invested Amount of all Series, by written notice to the Servicer
(and to the Trustee, if given by the Certificateholders), may terminate all of
the rights and obligations of the Servicer, in its capacity as servicer under
the Agreement, to all of the Receivables held by the Trust with respect to all
Series, and the proceeds thereof, and appoint a new Servicer (a "Service
Transfer"), subject to the right of Enhancement Providers, if applicable, to
approve such new Servicer. The rights and interests of the Seller under the
Agreement in the First Chicago Interest will not be affected by any Service
Transfer. The Trustee shall as promptly as possible appoint a successor Servicer
and if no successor Servicer has been appointed by the Trustee and has accepted
such appointment by the time the Servicer ceases to act as Servicer, all
authority, power and obligations of the Servicer under the Agreement will pass
to, and be vested in, the Trustee. Prior to any Service Transfer, the Trustee
will seek to obtain bids from potential Servicers meeting certain eligibility
requirements set forth in the Agreement to serve as a successor Servicer for
servicing compensation not in excess of the Servicing Fee. If the Trustee is
unable to obtain any bids from eligible Servicers and the Servicer delivers an
officer's certificate to the effect that it cannot in good faith cure the
Servicer Default which gave rise to a Service Transfer, then the Trustee will
offer the Servicer the right to accept the transfer of all of the Receivables.
The deposit
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amount for such a transfer for each Series shall be equal to the greater of (i)
the principal amount of such Series, plus accrued interest thereon, at the
applicable Certificate Rate, through the end of the applicable Interest Period
for such Series and (ii) the average bid price quoted by at least two recognized
securities dealers for similar securities rated in the highest rating category
by each Rating Agency and having a remaining maturity approximately equal to the
remaining maturity of the Certificates of such Series. However, if the FDIC is
appointed as the receiver or conservator for the Servicer, and no Servicer
Default other than such receivership, conservatorship or insolvency exists, the
FDIC may have the power to prevent either the Trustee or the majority of the
Certificateholders from effecting a Service Transfer.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer or, for so long as the Seller is the
Servicer, the Seller to make any payment, transfer or deposit, or to give
instructions to the Trustee, or to give notice to the Trustee to make such
payment, transfer or deposit, or to give notice of any required withdrawal,
drawing or payment required to be made under any form of Enhancement, on
the date the Servicer or the Seller, as the case may be, is required to do
so under the Agreement or any Supplement (or within a five-day grace
period);
(ii) failure on the part of the Servicer or, for so long as the Seller
is the Servicer, the Seller duly to observe or perform any other covenants
or agreements of the Servicer or the Seller in the Agreement or any
Supplement which has a material adverse effect on the Certificateholders,
which continues unremedied for a period of 60 days after written notice, or
the Servicer assigns its duties under the Agreement, except as specifically
permitted thereunder;
(iii) any representation, warranty or certification made by the
Servicer in the Agreement or any Supplement or in any certificate delivered
pursuant to the Agreement or any Supplement proves to have been incorrect
when made, which has a material adverse effect on the rights of the
Certificateholders, and which material adverse effect continues for the
Certificateholders for a period of 60 days after written notice; or
(iv) the occurrence of certain events of bankruptcy, insolvency,
receivership or conservatorship of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of 10 business days or referred
to under clause (ii) or (iii) for a period of 60 business days shall not
constitute a Servicer Default, if such delay or failure could not be prevented
by the exercise of reasonable diligence by the Servicer and such delay or
failure was caused by an act of God or other similar occurrence. Upon the
occurrence of any such event, the Servicer shall not be relieved from using its
best efforts to perform its obligations in a timely manner in accordance with
the terms of the Agreement or any Supplement and the Servicer shall provide the
Trustee, the Enhancement Providers, if any, applicable to any Series, the Seller
and the Certificateholders prompt notice of such failure or delay by the
Servicer, together with a description of its efforts to so perform its
obligations. The Servicer will immediately notify the Trustee in writing of any
Servicer Default.
Reports to Certificateholders
Unless otherwise specified in the related Prospectus Supplement, for each
Series, on each Distribution Date, there will be forwarded to each
Certificateholder of record a statement (the "Monthly Servicer Report") prepared
by the Servicer setting forth: (i) the total amount distributed with respect to
the Certificates of such Series; (ii) the amount of the distribution on such
Distribution Date allocable to principal; (iii) the amount of such distribution
allocable to interest; (iv) the amount of collections processed during the
preceding Due Period and allocated in respect of the Certificates of such
Series; (v) the Invested Amount of such Series and the Invested Percentages with
respect to such Series; (vi) the aggregate outstanding balance of Accounts which
are 30 days or more delinquent as of the close of business at the end of the
preceding Due Period; (vii) the Investor Default Amount for such Distribution
Date; (viii) the amount of Investor Charge-Offs for such Distribution Date and
the amount of reimbursements of such Investor Charge-Offs; (ix) the amount of
the Monthly Servicing Fee for such
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Distribution Date; (x) the amount available under any Enhancement at the close
of business on such Distribution Date; (xi) the amount, if any, by which the
principal balance of the Certificates of such Series exceeds the Invested Amount
of such Series as of the end of the day on the Record Date; and (xii) the "pool
factor" as of the end of the related Record Date (consisting of an eight-digit
decimal expressing the ratio of the Invested Amount to the initial Invested
Amount). In the case of a Series having more than one Class, the Monthly
Servicer Report will provide information as to each Class of Certificates.
On or before January 31 of each calendar year, there will be furnished to
each person who at any time during the preceding calendar year was a
Certificateholder of record (or, if so provided in applicable Treasury
regulations, made available to Certificate Owners) a statement prepared by the
Servicer containing the information required to be provided by an issuer of
indebtedness under the Code for such calendar year or the applicable portion
thereof during which such person was a Certificateholder, together with such
other customary information as the Servicer deems necessary or desirable to
enable the Certificateholders to prepare their tax returns. See "Tax Matters."
Evidence as to Compliance
The Agreement provides that on or before March 31 of each calendar year,
the Servicer will cause a firm of independent public accountants to furnish a
report to the effect that such firm has applied certain agreed-upon procedures
to certain documents and records relating to the servicing of the Receivables
and that, based upon such agreed-upon procedures, no matters came to their
attention that caused them to believe that such servicing was not conducted in
compliance with certain applicable terms and conditions set forth in the
Agreement except for such exceptions or errors as such firm shall believe to be
immaterial and such other exceptions as shall be set forth in such statement. In
addition, on or before March 31 of each calendar year, such accountants will
compare the mathematical calculations of the amounts contained in the Monthly
Servicer Reports and other certificates delivered during such year with the
computer reports of the Servicer and statements of any agents engaged by the
Servicer to perform servicing activities which were the source of such amounts
and deliver a certificate to the Trustee confirming that such amounts are in
agreement except for such exceptions as they believe to be immaterial and such
other exceptions which shall be set forth in such report.
The Agreement provides for delivery to the Trustee on or before March 31 of
each calendar year of a statement signed by an officer of the Servicer to the
effect that the Servicer has, or has caused to be, fully performed its
obligations in all material respects under the Agreement throughout the
preceding year or, if there has been a default in the performance of any such
obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee.
Conveyance of Accounts
Subject to the conditions set forth in the succeeding sentence, the Seller
may transfer or otherwise convey its interest in Accounts, including the
Receivables in such Accounts (subject to the interest of the Trustee), in whole
or in part, and, in conjunction with such transfer will execute (and the Trustee
will authenticate and deliver to the transferee) a certificate substantially in
the form of the Exchangeable Seller's Certificate which represents the
transferred interest in such Accounts. The Seller will be permitted to convey
Accounts only upon satisfaction of the following conditions: (i) the acquiring
person will (a) be organized and existing under the laws of the United States of
America or any state or the District of Columbia, and be a bank or other entity
that is not subject to the Bankruptcy Code of 1978, and (b) expressly assume by
an agreement supplemental to the Agreement the performance of the Seller's
obligations with respect to such Accounts; (ii) the Seller will deliver to the
Trustee and, as required, any Enhancement Provider of a Series, opinions of
counsel (a) stating that all conditions precedent to the conveyance have been
complied with and (b) to the effect that the conveyance will not adversely
affect the treatment of the Certificates as debt for Federal and applicable
state income tax purposes or materially adversely
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impact the Federal income tax consequences that affect any Certificateholder;
(iii) the Seller will obtain from each Rating Agency a letter confirming that
the rating of the Certificates, after such conveyance, will not be lowered or
withdrawn; and (iv) the Seller will obtain the consent to the conveyance, as
required, of any Enhancement Provider of a Series and of more than 51% of the
principal amount of Certificateholders of each Series.
Amendments
The Agreement and any Supplement may be amended by the Seller, the Servicer
and the Trustee, without Certificateholder consent, to cure any ambiguity, to
correct or supplement any provision therein which may be inconsistent with any
other provision therein and to add any other provisions with respect to matters
or questions arising under the Agreement or any Supplement which are not
inconsistent with the provisions of the Agreement or any Supplement. In
addition, the Agreement and any Supplement may be amended from time to time by
the Seller, the Servicer and the Trustee, without Certificateholder consent, to
add to or change any of the provisions of the Agreement to provide that bearer
certificates issued with respect to any Series may be registrable as to
principal, to change or eliminate any restrictions on the payment of principal
of or any interest on such bearer certificates, to permit such bearer
certificates to be issued in exchange for registered certificates or bearer
certificates of other authorized denominations or to permit the issuance of
uncertificated certificates. Moreover, any Supplement and any amendments
regarding the addition or removal of Receivables from the Trust will not be
considered amendments requiring Certificateholder consent under the provisions
of the Agreement or any Supplement.
The Agreement and any Supplement may be amended by the Seller, the Servicer
and the Trustee with the consent of the holders of Certificates evidencing
undivided interests aggregating not less than 66 2/3% of the Invested Amount of
all Series adversely affected for the purpose of adding any provisions to,
changing in any manner or eliminating any of the provisions of the Agreement or
any Supplement or of modifying in any manner the rights of Certificateholders of
any Series then issued and outstanding. No such amendment, however, may (i)
reduce in any manner the amount of, or delay the timing of, distributions
required to be made on such Series, (ii) change the definition or the manner of
calculating the interest of any Certificateholder of such Series, or (iii)
reduce the aforesaid percentage of undivided interests the holders of which are
required to consent to any such amendment, in each case without the consent of
all Certificateholders of all Series adversely affected. Promptly following the
execution of any amendment to the Agreement or any Supplement, the Trustee will
furnish written notice of the substance of such amendment to each
Certificateholder of all Series (or with respect to an amendment of a
Supplement, to the applicable Series).
List of Certificateholders
Upon written request of three or more Certificateholders of record of a
Series or any Certificateholder or group of Certificateholders of record
representing undivided interests in the Trust aggregating not less than 5% of
the Invested Amount of a Series, the Trustee will afford such Certificateholders
access during business hours to the current list of Certificateholders of the
Trust for purposes of communicating with other certificateholders with respect
to their rights under the Agreement.
The Agreement generally does not provide for any annual or other meetings
of Certificateholders.
The Trustee
Norwest Bank Minnesota, National Association, is Trustee under the
Agreement. The Seller, the Servicer and their respective affiliates may from
time to time enter into normal banking and trustee relationships with the
Trustee and its affiliates. The Trustee, the Seller, the Servicer and any of
their respective affiliates may hold Certificates in their own names; however,
any Certificates so held shall not be entitled to participate in any decisions
made or instructions given to the Trustee by the Certificateholders as a group.
The Trustee's address is Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, Attention: Corporate Trust Department.
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For purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint a co-trustee or
separate trustees of all or any part of the Trust. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee will be conferred or imposed upon and exercised or performed by
the Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee will be incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall exercise
and perform such rights, powers, duties and obligations solely at the direction
of the Trustee.
The Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor Trustee. The Trustee has agreed that it will
not resign, however, without written confirmation from each Rating Agency that
such resignation will not result in the Rating Agency reducing or withdrawing
its rating on any then outstanding Series rated by it. The Servicer may also
remove the Trustee, if the Trustee ceases to be eligible to continue as such
under the Agreement or if the Trustee becomes insolvent. In such circumstances,
the Servicer will be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
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ANNEX I
PRIOR ISSUANCES OF CERTIFICATES
The table below sets forth the principal characteristics of the 14 Series
heretofore issued by the Trust that are currently outstanding. The table also
sets forth the proposed terms of the Series 1996-R Certificates which are
expected to be issued concurrently with the issuance of the Certificates. For
more specific information with respect to any Series, any prospective investor
should contact First Chicago NBD. First Chicago NBD will provide, without
charge, to any prospective purchaser of the Certificates, a copy of the
Disclosure Document for any previous publicly-issued Series. Requests should be
addressed to First Chicago NBD Corporation, One First National Plaza, Chicago,
Illinois 60670. Attention: Investor Relations (312) 732-4812.
Series 1991-D
Initial Principal Amount .................... $1,000,000,000
Certificate Rate ............................ 8.40%
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $83,333,333.26
Invested Percentage of Principal Receivables. Principal Amount at the
end of the Revolving
Period divided by the
greater of Aggregate
Principal Receivables or
the sum of all numerators
specified for all Series
in respect of Principal
Receivables
Controlled Amortization Amount .............. $83,333,333.33
Controlled Amortization Date ................ First day of the Due
Period relating to the
January 1996 Distribution
Date
Monthly Servicing Fee ....................... 2.00%
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $30,000,000
Minimum First Chicago Interest Percentage ... 7%
Series Termination Date ..................... June 1998 Distribution Date
Repurchase Terms ............................ Optional repurchase by
the Seller on any
Distribution Date on or
after the Invested Amount
is reduced to an amount
less than or equal to
$50,000,000
Series 1992-E
Initial Principal Amount .................... $1,000,000,000
Certificate Rate ............................ 6.25%
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day
is not a business day,
the next succeeding
business day)
Current Principal Amount .................... $1,000,000,000
Invested Percentage of Principal Receivables. Principal Amount at the
end of the Revolving
Period divided by the
greater of Aggregate
Principal Receivables or
the sum of all
numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount .............. $83,333,333.33
Controlled Amortization Date ................ First day of the Due
Period relating to the
March 1997 Distribution
Date
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Monthly Servicing Fee ....................... 2.00%
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $120,000,000
Minimum First Chicago Interest Percentage ... 7%
Series Termination Date ..................... August 1999 Distribution
Date
Repurchase Terms ............................ Optional repurchase by
the Seller on any
Distribution Date on or
after the Invested
Amount is reduced to an
amount less than or
equal to $50,000,000
Series 1993-F
Initial Principal Amount .................... $700,000,000
Certificate Rate ............................ LIBOR plus a spread of
0.30% per annum, but in
no event in excess of
12% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day
is not a business day,
the next succeeding
business day)
Current Principal Amount .................... $700,000,000
Invested Percentage of Principal Receivables. Principal Amount at the
end of the Revolving
Period divided by the
greater of Aggregate
Principal Receivables or
the sum of all
numerators specified for
all Series in respect of
Principal Receivables
Controlled Amortization Amount .............. $58,333,333.33
Controlled Amortization Date ................ First day of the Due
Period relating to the
January 1998
Distribution Date
Monthly Servicing Fee ....................... 2.10% (of which 1.60% is
payable solely from
Interchange allocable to
Series 1993-F)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $91,000,000
Minimum First Chicago Interest Percentage ... 7% (or such lower
percentage acceptable to
the Rating Agencies)
Series Termination Date ..................... February 2000
Distribution Date
Repurchase Terms ............................ Optional repurchase by
the Seller on any
Distribution Date on or
after the Invested
Amount is reduced to an
amount less than or
equal to $35,000,000
Series 1993-G
Initial Principal Amount .................... $300,000,000
Certificate Rate ............................ LIBOR plus a spread of
0.18% per annum, but in
no event in excess of
12% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day
is not a business day,
the next succeeding
business day)
Current Principal Amount .................... $25,000,000
Invested Percentage of Principal Receivables. Principal Amount at the
end of the Revolving
Period divided by the
greater of Aggregate
Principal Receivables or
the sum of all
numerators specified for
all Series in respect of
Principal Receivables
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Controlled Amortization Amount .............. $25,000,000
Controlled Amortization Date ................ First day of the Due Period
relating to the January
1996 Distribution Date
Monthly Servicing Fee ....................... 2.10% (of which 1.60% is
payable solely from
Interchange allocable to
Series 1993-G)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $9,000,000
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... February 1998 Distribution
Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $15,000,000
Series 1993-H
Initial Principal Amount .................... $700,000,000
Certificate Rate ............................ LIBOR plus a spread of 0.20%
per annum, but in no event
in excess of 12% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $700,000,000
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Controlled Amortization Amount .............. $58,333,333.33
Controlled Amortization Date ................ First day of the Due Period
relating to the March 1998
Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1993-H)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $91,000,000
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... April 2000 Distribution Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $35,000,000
Series 1994-I
Initial Principal Amount .................... $500,000,000
Certificate Rate ............................ LIBOR plus a spread of 0.17%
per annum, but in no event
in excess of 11% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
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Current Principal Amount .................... $500,000,000
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Controlled Amortization Amount .............. $41,666,666.67
Controlled Amortization Date ................ First day of the Due Period
relating to the December
1996 Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1994-I)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $62,500,000
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... January 1999 Distribution
Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $25,000,000
Series 1994-J
Initial Principal Amount .................... $500,000,000
Certificate Rate ............................ LIBOR plus a spread of 0.22%
per annum, but in no event
in excess of 12% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $500,000,000
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Controlled Amortization Amount .............. $41,666,666.67
Controlled Amortization Date ................ First day of the Due Period
relating to the December
1998 Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1994-J)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $65,000,000
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... January 2001 Distribution
Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $25,000,000
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Series 1994-K
Initial Principal Amount .................... $500,000,000
Certificate Rate ............................ LIBOR plus a spread of
0.1875% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $500,000,000
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Controlled Amortization Amount .............. $41,666,666.67
Controlled Amortization Date ................ First day of the Due Period
relating to the March 1999
Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1994-K)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $72,500,000
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... April 2001 Distribution Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $25,000,000
Series 1994-L
Initial Principal Amount .................... $500,000,000
Certificate Rate ............................ 7.15% per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $500,000,000
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Controlled Amortization Amount .............. $41,666,666.67
Controlled Amortization Date ................ First day of the Due Period
relating to the March 1999
Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1 994-L)
Enhancement ................................. Cash Collateral Account
Remaining Cash Collateral Amount ............ $57,500,000
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... April 2001 Distribution Date
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Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $25,000,000
Series 1995-M
Initial Principal Amount .................... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate .................... LIBOR plus a spread of 0.24%
per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $571,428,572
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Class A Controlled Amortization Amount ...... $41,666,666.67
Class A Controlled Amortization Date ........ First day of the Due Period
relating to the November
2001 Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series I 995-M)
Enhancement ................................. Collateral Interest and Cash
Collateral Account
Initial Collateral Invested Amount .......... $71,428,572
Initial Cash Collateral Amount .............. $5,714,286
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... December 2003 Distribution
Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $28,571,428
Series 1995-N
Initial Principal Amount .................... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate .................... LIBOR plus a spread of 0.16%
per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $571,428,572
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Class A Controlled Amortization Amount ...... $41,666,666.67
Class A Controlled Amortization Date ........ First day of the Due Period
relating to the November
1998 Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1995-N)
Enhancement ................................. Collateral Interest and Cash
Collateral Account
Initial Collateral Invested Amount .......... $71,428,572
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Initial Cash Collateral Amount .............. $5,714,286
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... December 2000 Distribution
Date
Repurchase Terms ............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $28,571,428
Series 1995-0
Initial Principal Amount .................... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate .................... LIBOR plus a spread of 0.23%
per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $571,428,572
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Class A Controlled Amortization Amount ...... $41,666,666.67
Class A Controlled Amortization Date ........ First day of the Due Period
relating to the January
2002 Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1995-0)
Enhancement ................................. Collateral Interest and Cash
Collateral Account
Initial Collateral Invested Amount .......... $71,428,572
Initial Cash Collateral Amount .............. $5,714,286
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... February 2004 Distribution
Date
Repurchase Terms ............................ Optional repurchase by
the Seller on any
Distribution Date on or
after the Invested Amount
is reduced to an amount
less than or equal to
$28,571,428
Series 1995-P
Initial Principal Amount .................... $571,428,572 (including
Collateral Interest)
Class A Certificate Rate .................... LIBOR plus a spread of 0.18%
per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $571,428,572
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Class A Controlled Amortization Amount ...... $41,666,666.67
Class A Controlled Amortization Date ........ First day of the Due Period
relating to the January
2000 Distribution Date
A-77
<PAGE>
<PAGE>
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1995-P)
Enhancement ................................. Collateral Interest and Cash
Collateral Account
Initial Collateral Invested Amount .......... $71,428,572
Initial Cash Collateral Amount .............. $5,714,286
Minimum First Chicago Interest Percentage ... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date ..................... February 2002 Distribution
Date
Repurchase Terms ............................ Optional repurchase by
the Seller on any
Distribution Date on or
after the Invested
Amount is reduced to an
amount less than or equal
to $28,571,428
Series 1996-Q
Initial Principal Amount .................... $1,028,571,429 (including
Collateral Interest)
Class A Certificate Rate .................... LIBOR plus a spread of 0.13%
per annum
Scheduled Interest Payment Dates ............ The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Current Principal Amount .................... $1,028,571,429
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
Class A Controlled Amortization Amount ...... $75,000,000
Class A Controlled Amortization Date ........ First day of the Due Period
relating to the March 2001
Distribution Date
Monthly Servicing Fee ....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1996-Q)
Enhancement ................................. Collateral Interest and Cash
Collateral Account
Initial Collateral Invested Amount .......... $128,571,429
Initial Cash Collateral Amount .............. $10,285,714
Minimum First Chicago Interest Percentage.... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date...................... April 2003 Distribution Date
Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested
Repurchase Terms............................. Amount is reduced to an
amount less than or equal
to $51,428,571
Series 1996-R*
Initial Principal Amount..................... $457,142,858 (including
Collateral Interest)
Class A Certificate Rate..................... LIBOR plus a spread of 0.07%
per annum
Scheduled Interest Payment Dates............. The fifteenth day of each
month (or, if such day is
not a business day, the
next succeeding business
day)
Invested Percentage of Principal Receivables. Principal Amount at the end
of the Revolving Period
divided by the greater of
Aggregate Principal
Receivables or the sum of
all numerators specified
for all Series in respect
of Principal Receivables
A-78
<PAGE>
<PAGE>
Class A Controlled Amortization Amount...... $33,333,333.33
Class A Controlled Amortization Date........ First day of the Due Period
relating to the June 1999
Distribution Date
Monthly Servicing Fee....................... 2.00% (of which 1.25% is
payable solely from
Interchange allocable to
Series 1996-R)
Enhancement................................. Collateral Interest and Cash
Collateral Account
Initial Collateral Invested Amount.......... $57,142,858
Initial Cash Collateral Amount.............. $4,571,429
Minimum First Chicago Interest Percentage... 7% (or such lower percentage
acceptable to the Rating
Agencies)
Series Termination Date .................... July 2001 Distribution Date
Repurchase Terms............................ Optional repurchase by the
Seller on any Distribution
Date on or after the
Invested Amount is reduced
to an amount less than or
equal to $22,857,142
- ----------
* All terms subject to change.
A-79
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
First USA Credit Card Master Trust
The following excerpts are from the Prospectus Supplement dated October 17, 1996
and the Prospectus dated October 17, 1996 relating to the Floating Rate Asset
Backed Certificates, Series 1996-6. The CABS include Series 1994-7, Series
1995-2, Series 1995-4 and Series 1995-5.
<PAGE>
<PAGE>
THE BANK'S CREDIT CARD ACTIVITIES
General
The Receivables which the Bank has conveyed and will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been and will be generated
from transactions made by holders of selected VISA and MasterCard credit card
accounts. The Bank currently services the credit card accounts. Certain data
processing and administrative functions associated with such servicing are
performed on behalf of the Bank by First Data Resources, Inc. ("FDR"). See
"--Description of FDR."
The following discussion describes certain terms and characteristics of the
accounts in the Bank Portfolio from which the Accounts were selected. The
Eligible Accounts from which the Accounts were selected represent only a portion
of the Bank Portfolio. In addition, Additional Accounts may consist of Eligible
Accounts which are not currently in existence and which are selected using
different criteria from those used in selecting the Accounts already included in
the Trust. See "Description of the Certificates--Addition of Accounts."
Consequently, actual loss and delinquency, revenue and monthly payment rate
experience with respect to the Eligible Accounts and the Additional Accounts may
be different from such experience for the Bank Portfolio described in the
Prospectus Supplement.
Competition
The bank credit card industry is highly competitive, and is characterized
by increased use of advertising, target marketing and pricing competition as
both traditional and new credit card issuers seek to expand or enter the market.
The Trust will be dependent upon the Bank's continued ability to generate new
Receivables. The Bank's ability to compete in the credit card industry will
directly affect its ability to generate such Receivables. If the rate at which
new Receivables are generated declines significantly, a Pay Out Event could
occur with respect to each Series in which case the Rapid Amortization Period
with respect to such Series would commence.
Origination and Acquisition of Credit Card Accounts
Origination. The Bank originates credit card accounts in three ways: (i)
direct solicitation of First USA brand products, (ii) affinity group, agent bank
and co-branding programs, and (iii) the acquisition of credit card portfolios
from other financial institutions. These programs (excluding portfolio
acquisitions) principally consist of direct mail, telemarketing, events,
application displays and other programs. Affinity marketing is conducted through
solicitation of organized membership groups with a common interest and/or a
common cause with the written endorsement of the group's leadership. See "The
Receivables."
Generally, the credit risk of each applicant is evaluated by application of
a credit scoring system, which is intended to provide a general indication,
based on the information available, of the applicant's willingness and ability
to repay his or her obligations. Most applications are scored based on the
information received on the application as well as data obtained from an
independent credit reporting agency. In select cases, based on certain criteria,
including likelihood of fraud, and in accordance with criteria established by
Bank management, employment and earnings are verified by telephone. Credit
limits are determined based on income and score or, in the case of applications
that have not been scored, based on income and certain information obtained from
the application and the independent credit reporting agency. Cardholder requests
for increased credit limits are evaluated based on a current credit bureau
report, updated application data, and prior account performance. In addition,
credit limit increases are effected periodically by the Bank for all cardholders
meeting specific criteria.
For preapproved solicitations, the Bank generally purchases prospect names
that meet established credit criteria from credit bureaus. These lists are
further edited and matched against internal and external sources to insure
optimal quality and accuracy. The Bank then mails preapproved solicitation
packages requiring only the signature and a brief amount of information from the
prospect. Preapproved solicitations are targeted to high quality prospects and
exhibit similar credit quality results as compared to non-preapproved
solicitations.
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<PAGE>
<PAGE>
For non-preapproved solicitations, the Bank purchases prospect names from a
variety of sources and then edits the list utilizing internal and external
sources to insure quality and accuracy. The prospective customers on the final
list are mailed solicitations which include full applications. Respondents are
approved or declined based on both the demographic characteristics drawn from
the application and a credit bureau check.
Portfolio Acquisitions. Portfolio acquisitions have represented an
important source of growth in the past; however, the Bank does not rely on such
portfolio acquisitions to achieve its growth. See "The Bank and First USA, Inc."
Prior to acquiring a portfolio, the Bank reviews the historical performance and
seasoning of the portfolio and the policies and practices of the selling
institution, but individual accounts are not requalified by the Bank. There can
be no assurance that Accounts so acquired were originated in a manner consistent
with the Bank's policies as described under "--Origination" above or that the
underwriting and qualification of such Accounts conformed to any given
standards. The Accounts include accounts previously acquired by the Bank. Such
accounts and any accounts acquired in the future may become Additional Accounts
provided that, at such time, they constitute Eligible Accounts. See "The
Receivables," "Description of the Certificates--Transfer and Assignment of
Receivables" and "--Representations and Warranties."
Description of FDR
With respect to the Accounts, certain data processing and administrative
functions associated with servicing the Receivables will initially be performed
by FDR. If FDR were to fail or become insolvent, delays in processing and
recovery of information with respect to charges incurred by the respective
cardholders could occur, and the replacement of the services FDR currently
provides to the Bank could be time-consuming. As a result, delays in payments to
Certificateholders could occur.
FDR is located in Omaha, Nebraska and provides computer data processing
services primarily to the bankcard industry. FDR is a subsidiary of First Data
Corp.
The Bank utilizes a variety of the services provided by FDR in originating
and servicing the Bank's VISA and MasterCard accounts, including provision of
network interface to other card processors through Visa USA Incorporated and
MasterCard International Incorporated. This network provides cardholder
authorizations in addition to a conduit for funds transfer and settlement.
Billing and Payments
Cardholder Agreement. Each cardholder is subject to an agreement with the
Bank governing the terms and conditions of the related VISA or MasterCard
account. Pursuant to each such agreement, the Bank reserves the right, upon
advance notice to the cardholder, to add or to change any terms, conditions,
services or features of its VISA or MasterCard accounts at any time, including
increasing or decreasing periodic finance charges, other charges or minimum
payment terms. The agreement with each cardholder provides that, subject to the
requirements of applicable law, after notice to a cardholder of any such new or
changed terms, such new or changed terms will become effective at the time
stated in such notice and will apply to all outstanding unpaid indebtedness as
well as new transactions.
A cardholder may use the credit card to purchase or lease goods or services
wherever the card is honored ("Purchases") or to obtain cash loans ("Cash
Advances") from any financial institution that accepts the card. Cash Advances
may also be obtained through the use of "Credit Line Checks" issued by the Bank
which may be completed and signed by the cardholder in the same way as a regular
personal check.
A-81
<PAGE>
<PAGE>
Billing, Payments and Fees. A billing statement is sent to each cardholder
at the end of each monthly billing cycle in which the account has a debit or
credit balance of more than one dollar or if a finance charge has been imposed.
The Bank may assess a late payment fee if it does not receive the minimum
payment by the payment due date shown on the monthly billing statement, but
generally does not assess such fee if the minimum payment is received by the
next billing date. The Bank may assess a return check fee for each payment check
that is dishonored or that is unsigned or otherwise irregular, an overlimit fee
for Purchases or Cash Advances that cause the credit line to be exceeded and
administrative fees for certain functions performed at the request of the
cardholder. Unless otherwise arranged between the Bank and the cardholder, any
late payment fee, return check fee or administrative fee is added to the account
and treated as a Purchase. In some cases, the Bank charges a nonrefundable
Annual Membership Fee.
Monthly Periodic Finance Charges are not assessed in most circumstances on
purchases if all balances shown in the billing statement are paid by the payment
due date. Periodic Finance Charges accrue on new Purchases from the day that
they are posted to the account. Finance charges accrue on Cash Advances from the
later of the day that they are made and the first day of the billing cycle
during which they were posted to the account; or, if a Credit Line Check is
used, the day that the check is presented for payment to the Bank. Aggregate
monthly finance charges for each account consist of the sum of the Cash Advance
finance charge (not applicable for certain accounts), for each new Cash Advance
posted to the account other than Cash Advances obtained through Credit Line
Checks plus the Periodic Finance Charge equal to the product of the monthly
periodic rate (the "Monthly Periodic Rate") multiplied by the average daily
balance. The Bank issues accounts with fixed Monthly Periodic Rates and accounts
with floating Monthly Periodic Rates that adjust periodically according to an
index.
The foregoing provisions apply with respect to cardholders that have
entered into one of the Bank's standard agreements by, in the case of a new
account, signing an application or, in the case of an account acquired by the
Bank from another institution, accepting the terms of the Bank's agreement in
writing or by using the credit card after disclosure that the account will be
governed by such terms. If the cardholder of an account acquired by the Bank
from another institution has not entered into one of the Bank's standard
agreements, the terms of the account may continue to be governed by the
agreement between the cardholder and the seller of the account, which may differ
in material respects from the provisions described above.
Delinquencies and Charge Offs
An account is contractually delinquent if the minimum payment is not
received by the payment due date. An account is not treated as delinquent by the
Bank if the minimum payment is received by the next billing date. Efforts to
collect delinquent credit card receivables currently are made by the Bank's
collection department personnel with regional collection units located in
Wilmington, Delaware, Baton Rouge, Louisiana and Dallas, Texas. Collection
activities include statement messages, telephone calls and formal collection
letters. Collectors generally initiate telephone contact with cardholders whose
accounts have become 5 days or more delinquent. In the event that initial
telephone contact fails to resolve the delinquency, the Bank continues to
contact the cardholder by telephone and by mail. The Bank may also enter into
arrangements with cardholders to extend or otherwise change payment schedules as
approved by one of the Bank's collection managers. Delinquency levels are
monitored daily by the respective collectors and aggregate delinquency
information is reported daily to senior management.
Accounts are generally charged off immediately prior to the end of the
seventh billing cycle after having become contractually past due unless a
payment has been received in an amount sufficient to bring the account into a
different delinquency category or to bring the account current. Charge offs may
occur earlier in some circumstances, as in the case of bankrupt cardholders. At
the time of charge off an evaluation is made on a case by case basis whether to
pursue further remedies. In most cases outside collection agencies and, in some
cases, outside attorneys, are engaged. In some cases charged off accounts are
sold to outside collection agencies. The credit evaluation, servicing and charge
off policies and collection practices of the Bank may change from time to time
in accordance with the Bank's business judgment and applicable law.
A-82
<PAGE>
<PAGE>
The Bank has a policy of restoring or "reaging" a delinquent account to
current status when the cardholder has made three consecutive payments and, in
the collector's judgment, has the ability to keep the account current. A
collector may recommend that an account be reaged in other circumstances. All
reaging must be approved by a supervisor and an account may be reaged no more
than once per year.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a limited period prior to
initial billing. Under the VISA and MasterCard systems a portion of this
Interchange in connection with cardholder Purchases is collected by banks that
issue credit cards by applying a discount to the amount paid by such banks to
the banks that clear the related transactions for merchants. Interchange will be
allocated to the Trust by treating 1.3% (subject to adjustment at the option of
the Transferor upon the satisfaction of certain conditions as described herein
in "Description of the Certificates--Discount Receivables," which adjusted
percentage, if applicable, will be specified in the applicable Prospectus
Supplement) of collections on the Receivables (whether arising from Purchases or
Cash Advances), other than collections with respect to Periodic Finance Charges,
Annual Membership Fees and Other Charges, as collections of Discount
Receivables.
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts selected from the
Bank Portfolio on the basis of criteria set forth in the Pooling and Servicing
Agreement (the "Trust Portfolio"). Pursuant to the Pooling and Servicing
Agreement, the Transferor has the right, subject to certain limitations and
conditions set forth therein, to designate from time to time Additional Accounts
and to transfer to the Trust all Receivables of such Additional Accounts,
whether such Receivables are then existing or thereafter created. Any Additional
Accounts designated pursuant to the Pooling and Servicing Agreement must be
Eligible Accounts as of the date the Transferor designates such accounts as
Additional Accounts. In addition, the Transferor is required to designate
Additional Accounts (x) to maintain the Transferor Interest so that, during any
period of 30 consecutive days, the Transferor Interest averaged over that period
equals or exceeds such percentage as may be specified in any Supplement (such
percentage, the "Minimum Transferor Interest") of the average of the aggregate
amount of Principal Receivables for the same period, or (y) to maintain, for so
long as certificates of any Series (including the Certificates) remain
outstanding, an aggregate amount of Principal Receivables in amount equal to or
greater than the Minimum Aggregate Principal Receivables. "Minimum Aggregate
Principal Receivables" shall mean (i) an amount equal to the sum of the initial
invested amounts for all Series then outstanding other than any Series of
variable funding certificates, (ii) with respect to any series of variable
funding certificates in its revolving period, the then current invested amount
of such Series and (iii) with respect to any Series of variable funding
certificates in its amortization period, the invested amount of such Series at
the end of the last day of the Revolving Period for such Series. The Transferor
will convey the Receivables then existing or thereafter created under such
Additional Accounts to the Trust. Furthermore, pursuant to the Pooling and
Servicing Agreement, the Transferor has the right (subject to certain
limitations and conditions) to designate certain Accounts and to require the
Trustee to reconvey all receivables in such Removed Accounts to the Transferor,
whether such Receivables are then existing or thereafter created. Throughout the
term of the Trust, the Accounts from which the Receivables arise will be the
Accounts designated by the Transferor on the Original Cut Off Date plus any
Additional Accounts minus any Removed Accounts.
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the Trust Portfolio as of the date specified.
Such information will include, but not be limited to, the amount of Principal
Receivables, the amount of Finance Charge Receivables, the range of principal
balances of the Accounts and the average thereof, the range of credit limits of
the Accounts and the average thereof, the range of ages of the Accounts and the
average thereof, the geographic distribution of the Accounts, the types of
Accounts and delinquency and loss statistics relating to the Accounts.
A-83
<PAGE>
<PAGE>
THE BANK'S CREDIT CARD PORTFOLIO
General
The Receivables which the Bank has conveyed and will convey to the Trust
pursuant to the Pooling and Servicing Agreement have been and will be generated
from transactions made by holders of selected VISA and MasterCard credit card
accounts, including premium accounts and standard accounts. As of September 30,
1996, approximately 65% of the accounts in the Bank Portfolio were premium
accounts and approximately 35% were standard accounts. See "The Bank's Credit
Card Activities" in the Prospectus.
Assessment of Fees and Finance and Other Charges
A billing statement is sent to each cardholder at the end of each monthly
billing cycle in which the account has a debit or credit balance of more than
one dollar or if a finance charge has been imposed. With minor exceptions, the
minimum payment due each month on each account is equal to the greater of $10 or
2% of the new balance shown on the statement, plus any amount past due and any
amount over the cardholder's credit line. The Bank may assess a late payment
fee, generally ranging from $10 to $20 for most accounts, if it does not receive
the minimum payment by the payment due date shown on the monthly billing
statement, but generally does not assess such fee if the minimum payment is
received by the next billing date. The Bank may assess a return check fee,
generally ranging from $10 to $20, for each payment check that is dishonored or
that is unsigned or otherwise irregular, an overlimit fee, generally ranging
from $10 to $20, for Purchases or Cash Advances that cause the credit line to be
exceeded and administrative fees for certain functions performed at the request
of the cardholder. Unless otherwise arranged between the Bank and the
cardholder, any late payment fee, return check fee or administrative fee is
added to the account and treated as a Purchase. In some cases, the Bank charges
a non-refundable Annual Membership Fee.
Monthly Periodic Finance Charges are not assessed in most circumstances on
Purchases and credit line checks if all balances shown in the billing statement
are paid by the payment due date, which is approximately 23-25 days from the
previous cycle billing date. Monthly Periodic Finance Charges are assessed on
new Purchases and credit line checks from the day that they are posted to the
account if all balances shown in the prior billing statement were not paid in
full by the payment due date. Monthly Periodic Finance Charges are assessed on
Cash Advances from the later of the day that they are made or the first day of
the billing cycle during which they were posted to the account. Aggregate
monthly finance charges for each account consist of Periodic Finance Charges
equal to either (i) the product of the monthly periodic rate (the "Monthly
Periodic Rate") multiplied by the average daily balance or (ii) the product of
the daily balance and the daily periodic rate totaled for each day during the
monthly billing cycle; plus an additional Cash Advance finance charge (not
applicable for certain accounts), generally equal to a one-time charge of 2% of
the Cash Advance (with a minimum ranging from $2 to $10 and a maximum ranging
from $10 to unlimited), for each new Cash Advance posted to the account other
than Cash Advances obtained through credit line checks. The Monthly Periodic
Rates, exclusive of introductory rates, of the accounts in the Bank Portfolio
generally range between .825% and 1.83% corresponding to annual percentage rates
of between 9.9% and 22%. The introductory rates on the accounts in the Bank
Portfolio are primarily fixed annual percentage rates. The annual percentage
rates, after the introductory rate period, are usually fixed or floating Monthly
Periodic Rates that adjust periodically according to an index.
Delinquency and Loss Experience
The following tables set forth the delinquency and loss experience for each
of the periods shown for the portfolio of VISA and MasterCard credit card
accounts serviced by the Bank (the "Bank Portfolio"). As of the close of
business on September 30, 1996, the Receivables in the Trust Portfolio
(including the Receivables in the Additional Accounts added to the Trust on
October 3, 1996 and in the Additional Accounts to be added to the Trust on the
Closing Date) represented approximately 93.4% of the Bank Portfolio. The
accounts in the Bank Portfolio that are not included in the Trust Portfolio are
primarily newly originated accounts with lower delinquency and loss rates than
the average accounts in the Trust Portfolio which are generally more seasoned.
Therefore, the actual delinquency and loss experience with respect to the
Receivables in the Trust Portfolio may
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<PAGE>
<PAGE>
be different from that set forth below. There can be no assurance that the
delinquency and loss experience for the Trust Portfolio will be similar to the
historical experience set forth below because, among other things, economic and
financial conditions affecting the ability of cardholders to make payments may
be different from those that have prevailed during the periods reflected below.
Delinquency Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
As of June 30,
As of ----------------------------------------------------------------------------
September 30, 1996 1996 1995 1994
------------------------ ------------------------ ------------------------ ------------------------
Percentage Percentage Percentage Percentage
of Total of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1) $19,782,723 100.00% $18,721,130 100.00% $13,287,452 100.00% $7,520,458 100.00%
=========== ====== =========== ====== =========== ====== ========== ======
Receivables
Delinquent:
35-64 days ... $ 343,878 1.74% $ 272,380 1.45% $ 141,181 1.06% $ 60,024 0.80%
65-94 days ... 202,392 1.02 159,791 0.85 76,416 0.57 32,255 0.43
95 or more
days ....... 456,370 2.31 378,179 2.03 176,250 1.33 74,458 0.99
----------- ------ ----------- ------ ----------- ------ ---------- ------
Total ...... $ 1,002,640 5.07% $ 810,350 4.33% $ 393,847 2.96% $ 166,737 2.22%
=========== ====== =========== ====== =========== ====== ========== ======
</TABLE>
- ----------
(1) The Receivables Outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts.
Loss Experience
Bank Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended Fiscal Year Ended June 30,
September 30, --------------------------------------
1996 1996 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(l) . $19,083,015 $16,667,917 $10,446,438 $5,339,689
Gross Charge-Offs(2) ............... 231,642 603,249 245,572 132,279
Gross Charge-Offs as a percentage of
Average Receivables Outstanding(4) 4.86% 3.62% 2.35% 2.48%
Recoveries(3) ...................... 16,804 40,098 15,099 13,889
Net Losses(3) ...................... 214,838 563,151 230,473 118,390
Net Losses as a percentage of
Average Receivables Outstanding(4) 4.50% 3.38% 2.21% 2.22%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the average daily receivables during the
periods indicated.
(2) Gross Charge-Offs are principal charge-offs before recoveries and do not
include the amount of any reductions in average receivables outstanding due
to fraud, returned goods or customer disputes.
(3) Recoveries are included in the Trust as of July 1, 1996.
(4) Annualized.
The Bank's delinquency and net credit loss rates at any time reflect, among
other factors, the quality of the credit card loans, the average seasoning of
the Bank's accounts, the success of the Bank's collection efforts and general
economic conditions. Receivables delinquent as a percentage of total receivables
outstanding increased
A-85
<PAGE>
<PAGE>
from 2.22% at June 30, 1994, 2.96% at June 30, 1995 and 4.33% at June 30, 1996
to 5.07% at September 30, 1996. Gross charge-offs as a percentage of average
receivables outstanding decreased from 2.48% for fiscal 1994 to 2.35% for fiscal
1995 and have increased to 3.62% for fiscal 1996 and 4.86% for the three months
ended September 30, 1996. Newly booked accounts historically have exhibited
rising delinquencies and losses which reach a steady state within approximately
two to three years after origination. As new loan originations continue to
become a smaller percentage of the Bank Portfolio, delinquency, gross charge-off
and net credit loss rates for the Bank Portfolio have increased. In addition,
industry losses and delinquencies have increased over recent periods. The
industry also continues to experience intense competition, which results in
increased account turnover and higher costs per account. The Bank's focus
continues to be to optimize the profitability of each account within the context
of acceptable risk characteristics. As the Bank increases market penetration, it
will continue to focus on segments of the credit market which have been highly
profitable, and the Bank believes its delinquency and loss rates will move to
more closely reflect the overall industry. In response to market conditions, the
Bank continues to tighten credit standards and believes future loan growth will
slow, but remain strong.
Interchange
Creditors participating in the VISA and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a limited period prior to
initial billing. Under the VISA and MasterCard systems a portion of this
Interchange in connection with cardholder Purchases is collected by banks that
issue credit cards by applying a discount to the amount paid by such banks to
the banks that clear the related transactions for merchants. Interchange
currently ranges from approximately 1.0% to 2.0% of the transaction amount.
Interchange will be allocated to the Trust by treating 1.3% (subject to
adjustment at the option of the Transferor upon the satisfaction of certain
conditions as described in the Prospectus under "Description of the
Certificates--Discount Receivables") of collections on the Receivables (whether
arising from Purchases or Cash Advances), other than collections with respect to
Periodic Finance Charges, Annual Membership Fees and Other Charges, as
collections of Discount Receivables.
THE RECEIVABLES
The Receivables in the Trust Portfolio (including the Additional Accounts
added to the Trust on October 3, 1996 and certain Additional Accounts designated
to be added to the Trust on the Closing Date), as of the close of business on
September 30, 1996, consisted of $17,953,842,869 of Principal Receivables and
$529,752,796 of Finance Charge Receivables. On August 22, 1996 and September 24,
1996 (the "Relevant Cut Off Dates"), the Transferor designated Additional
Accounts, which included approximately $635,767,475 of Principal Receivables as
of the close of business on September 30, 1996, and will transfer the
Receivables arising therein to the Trust on the Closing Date. The Transferor may
determine to add to the Trust on or about the Closing Date, in compliance with
the provisions of the Pooling and Servicing Agreement, Receivables in Additional
Accounts in addition to those reflected in the two preceding sentences. The
Additional Accounts to be added to the Trust on the Closing Date were, as of the
Relevant Cut Off Date, Eligible Accounts. The Accounts had an average Principal
Receivable balance of $1,876 (including accounts with a zero balance) and an
average credit limit of $7,084. The percentage of the aggregate total Receivable
balance to the aggregate total credit limit was 27.3%.
As of September 30, 1996, cardholders whose Accounts are included in the
Trust Portfolio, including such Additional Accounts, had billing addresses in 50
states, the District of Columbia and other United States territories and
possessions. As of September 30, 1996, 66% of the Accounts, including such
Additional Accounts, were premium accounts and 34% were standard accounts, and
the aggregate Principal Receivable balances of premium accounts and standard
accounts, as a percentage of the aggregate total Principal Receivables, were 76%
and 24%, respectively.
The percentage used to determine the Minimum Transferor Interest applicable
to the Certificates is 7%. The Minimum Aggregate Principal Receivables
applicable to the Certificates is an amount equal to (i) the sum of the initial
invested amounts of all Series then outstanding other than any Series of
variable funding certificates, (ii) with respect to any Series of variable
funding certificates in its revolving period, the then current invested amount
of such Series and (iii) with respect to any Series of variable funding
certificates in its amortization period, the invested amount of such Series at
the end of the last day of the revolving period for such Series.
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<PAGE>
The following tables summarize the Trust Portfolio (including the
Additional Accounts added to the Trust on October 3, 1996 and certain Additional
Accounts designated to be added to the Trust on 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 the composition of the Trust Portfolio at any
subsequent time. The Transferor may determine to add to the Trust on or about
the Closing Date, in compliance with the provisions of the Pooling and Servicing
Agreement, Receivables in Additional Accounts in addition to those reflected in
the tables below.
Composition by Account Balance
Trust Portfolio
Percentage
of Total Percentage of
Credit Number of Number of Amount of Total Amount of
Limit Range Accounts Accounts Receivables Receivables
----------- -------- -------- ----------- ---------------
Credit Balance ........... 140,535 1.5% $ (21,889,202) (0.l)%
No Balance ............... 3,080,433 32.2 -- --
$0.01 to $2,000.00 ....... 3,136,842 32.8 2,157,478,639 11.7
$2,000.01 to $5,000.00 ... 1,927,445 20.1 6,925,488,492 37.5
$5,000.01 to $10,000.00 .. 1,166,162 12.2 7,936,222,870 42.9
$10,000.01 or More ....... 118,139 1.2 1,486,294,866 8.0
--------- ----- ---------------- -----
TOTAL ............... 9,569,556 100.0% $ 18,483,595,665 100.0%
========= ===== ================ =====
Composition by Credit Limit
Trust Portfolio
Percentage
of Total Percentage of
Credit Number of Number of Amount of Total Amount of
Limit Range Accounts Accounts Receivables Receivables
----------- -------- -------- ----------- ---------------
$0.00 to $2,000.00 ....... 863,543 9.0% $ 555,670,792 3.0%
$2,000.01 to $5,000.00 ... 3,166,364 33.1 5,276,518,351 28.5
$5,000.01 to $10,000.00 .. 4,049,086 42.3 9,104,516,827 49.3
$10,000.01 or More ....... 1,490,563 15.6 3,546,889,695 19.2
--------- ----- ---------------- -----
TOTAL .............. 9,569,556 100.0% $ 18,483,595,665 100.0%
========= ===== ================ =====
Composition by Period of Delinquency
Trust Portfolio
Percentage
Period of Delinquency of Total Percentage of
(Days Contractually Number of Number of Amount of Total Amount of
Delinquent) Accounts Accounts Receivables Receivables
--------------------- -------- -------- ----------- ---------------
Not Delinquent ........... 9,038,492 94.5% $16,306,471,811 88.2%
Up to 34 Days ............ 313,395 3.3 1,199,611,953 6.5
35 to 64 Days ............ 80,101 0.8 335,204,366 1.8
65 to 94 Days ............ 44,448 0.5 197,308,283 1.1
95 or More Days .......... 93,120 0.9 444,999,252 2.4
--------- ----- --------------- -----
TOTAL .............. 9,569,556 100.0% $18,483,595,665 100.0%
========= ===== =============== =====
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<PAGE>
Composition by Geographic Distribution
Trust Portfolio
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
State Accounts Accounts Receivables Receivables
----- -------- -------- ----------- -----------
Alabama .................. 92,684 1.0% $ 189,690,824 1.0%
Alaska ................... 24,525 0.3 61,684,676 0.3
Arizona .................. 155,515 1.6 310,057,794 1.7
Arkansas ................. 79,845 0.8 142,487,677 0.8
California ............... 1,158,194 12.1 2,623,302,638 14.2
Colorado ................. 144,278 1.5 289,911,738 1.6
Connecticut .............. 144,922 1.5 280,645,714 1.5
Delaware ................. 19,947 0.2 42,557,420 0.2
District of Columbia ..... 20,573 0.2 44,637,414 0.2
Florida .................. 648,409 6.8 1,286,438,273 7.0
Georgia .................. 220,582 2.3 471,728,762 2.6
Hawaii ................... 45,183 0.5 101,009,205 0.5
Idaho .................... 37,701 0.4 72,497,743 0.4
Illinois ................. 466,182 4.9 802,524,993 4.3
Indiana .................. 61,120 0.6 96,947,361 0.5
Iowa ..................... 8,207 0.1 13,878,764 0.1
Kansas ................... 87,528 0.9 165,518,501 0.9
Kentucky ................. 96,702 1.0 165,791,141 0.9
Louisiana ................ 240,549 2.5 392,761,772 2.1
Maine .................... 32,232 0.3 62,499,382 0.3
Maryland ................. 247,975 2.6 516,936,740 2.8
Massachusetts ............ 305,259 3.2 536,581,176 2.9
Michigan ................. 323,236 3.4 625,873,842 3.4
Minnesota ................ 64,533 0.7 88,208,711 0.5
Mississippi .............. 61,443 0.6 116,544,214 0.6
Missouri ................. 160,632 1.7 291,350,620 1.6
Montana .................. 36,626 0.4 66,789,197 0.4
Nebraska ................. 61,058 0.6 97,715,628 0.5
Nevada ................... 74,314 0.8 161,654,847 0.9
New Hampshire ............ 50,273 0.5 87,487,099 0.5
New Jersey ............... 417,304 4.4 732,072,085 4.0
New Mexico ............... 60,748 0.6 109,577,909 0.6
New York ................. 746,869 7.8 1,478,448,366 8.0
North Carolina ........... 177,596 1.9 361,180,447 2.0
North Dakota ............. 20,753 0.2 30,075,535 0.2
Ohio ..................... 361,842 3.8 651,765,893 3.5
Oklahoma ................. 173,280 1.8 296,795,209 1.6
Oregon ................... 130,053 1.4 253,496,344 1.4
Pennsylvania ............. 404,358 4.2 640,863,817 3.5
Rhode Island ............. 40,168 0.4 70,325,155 0.4
South Carolina ........... 90,543 0.9 168,864,658 0.9
South Dakota ............. 22,124 0.2 36,845,389 0.2
Tennessee ................ 59,751 0.6 103,808,443 0.6
Texas .................... 1,015,907 10.6 1,960,176,568 10.6
Utah ..................... 60,011 0.6 102,508,871 0.6
Vermont .................. 21,403 0.2 35,776,138 0.2
Virginia ................. 260,129 2.7 547,352,110 3.0
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<PAGE>
<PAGE>
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
State Accounts Accounts Receivables Receivables
----- -------- -------- ----------- -----------
Washington ............... $ 228,210 2.4% 503,489,811 2.7%
West Virginia ............ 48,099 0.5 89,874,873 0.4
Wisconsin ................ 15,325 0.2 25,581,443 0.1
Wyoming .................. 17,256 0.2 31,297,394 0.1
Other U.S. territories
and possessions ........ 27,600 0.4 47,705,341 0.2
---------- ----- --------------- -----
TOTAL ............. $9,569,556 100.0% $18,483,595,665 100.0%
========== ===== =============== =====
Since the largest number of cardholders (based on billing addresses) whose
accounts were included in the Trust as of September 30, 1996 were in California,
Texas, New York, Florida and Illinois, adverse changes in the economic
conditions in these areas could have a direct impact on the timing and amount of
payments on the Certificates.
Composition of Accounts by Age
Trust Portfolio
Percentage
of Total Percentage of
Number of Number of Amount of Total Amount of
Age Accounts Accounts Receivables Receivables
--- -------- -------- ----------- -----------
Less than or equal
to 6 Months ........... $ 809,116 8.5% $ 2,295,903,515 12.4%
Over 6 Months to
12 Months ............. 1,627,459 17.0 3,696,720,409 20.0
Over 12 Months to
24 Months ............. 2,914,852 30.5 5,805,746,909 31.4
Over 24 Months to
36 Months ............. 1,961,378 20.5 3,276,411,346 17.7
Over 36 Months to
48 Months ............. 949,867 9.9 1,337,499,893 7.2
Over 48 Months to
60 Months ............. 343,329 3.6 427,260,103 2.3
Over 60 Months .......... 963,555 10.0 1,644,053,490 9.0
---------- ----- --------------- -----
TOTAL .......... $9,569,556 100.0% $18,483,595,665 100.0%
========== ===== =============== =====
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<PAGE>
MATURITY CONSIDERATIONS
The Pooling and Servicing Agreement provides that Class A
Certificateholders will not begin to receive payments of principal until the
Class A Scheduled Payment Date, which is the November 2003 Distribution Date, or
earlier in the event of a Pay Out Event which results in the commencement of the
Rapid Amortization Period. The Class B Certificateholders will not begin to
receive payments of principal until the Class A Invested Amount has been paid in
full. Principal on the Class B Certificates is expected to be paid on the Class
B Scheduled Payment Date which is the November 2003 Distribution Date.
On each Transfer Date during the Accumulation Period prior to the payment
of the Class A Invested Amount in full, an amount equal to, for each Monthly
Period, the least of (a) the Available Investor Principal Collections, (b) the
applicable "Controlled Deposit Amount," which is equal to the sum of the
applicable Controlled Accumulation Amount for such Monthly Period and the
applicable Accumulation Shortfall, if any, and (c) the Class A Adjusted Invested
Amount prior to any deposits on such day will be deposited in the Principal
Funding Account until the amount on deposit in the Principal Funding Account
(the "Principal Funding Account Balance") equals the Class A Invested Amount.
After the full amount of the Class A Invested Amount has been deposited in the
Principal Funding Account, an amount equal to, for each Monthly Period, the
least of (a) the Available Investor Principal Collections remaining after the
application thereof to the Class A Invested Amount, if any, (b) the applicable
Controlled Deposit Amount (minus the Class A Monthly Principal) and (c) the
Class B Adjusted Invested Amount prior to any deposits on such day, will be
deposited in the Principal Funding Account until the Principal Funding Account
Balance equals the sum of the Class A Invested Amount and the Class B Invested
Amount and such amount will be distributed to the Class B Certificateholders on
the Class B Scheduled Payment Date and, if the Class B Invested Amount is not
paid in full on such date, on each subsequent Distribution Date until the
earlier of the date the Class B Invested Amount has been paid in full and the
Stated Series Termination Date. After the Class A Invested Amount and the Class
B Invested Amount have each been paid in full, an amount equal to, for each
Monthly Period, the least of (a) the Available Investor Principal Collections
remaining after the application thereof to the Class A Invested Amount and the
Class B Invested Amount, if any, (b) the applicable Controlled Deposit Amount
(minus the Class A Monthly Principal and Class B Monthly Principal) and (c) the
CIA Adjusted Invested Amount prior to any deposits on such day will be deposited
in the Principal Funding Account until the Principal Funding Account Balance
equals the sum of the Class A Invested Amount, the Class B Invested Amount and
the CIA Invested Amount and such amount will be distributed to the CIA
Certificateholders on the CIA Scheduled Payment Date and, if the CIA Invested
Amount is not paid in full on such date, on each subsequent Distribution Date
until the earlier of the date on which the Invested Amount has been paid in full
and the Stated Series Termination Date. Amounts in the Principal Funding Account
are expected to be available to pay the Class A Invested Amount on the Class A
Scheduled Payment Date and the Class B Invested Amount on the Class B Scheduled
Payment Date. Although it is anticipated that collections of Principal
Receivables will be available on each Transfer Date during the Accumulation
Period to make a deposit of the applicable Controlled Deposit Amount and that
the Class A Invested Amount will be paid to the Class A Certificateholders on
the Class A Scheduled Payment Date and the Class B Invested Amount will be paid
to the Class B Certificateholders on the Class B Scheduled Payment Date,
respectively, no assurance can be given in this regard. If the amount required
to pay the Class A Invested Amount or the Class B Invested Amount in full is not
available on the Class A Scheduled Payment Date or the Class B Scheduled Payment
Date, respectively, the Rapid Amortization Period will commence.
If a 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 next
Distribution Date. In addition, to the extent that the Class A Invested Amount
has not been paid in full on the Class A Scheduled Payment Date, the Class A
Certificateholders will be entitled to monthly payments of principal on each
succeeding Distribution Date equal to the Available Investor Principal
Collections until the Class A Certificates have been paid in full. After the
Class A Certificates have been paid in full, Available Investor Principal
Collections will be paid to the Class B Certificates on each Distribution Date
until the earlier of the date on which the Class B Invested Amount has been paid
in full and the Stated Series Termination Date.
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<PAGE>
<PAGE>
A "Pay Out Event" occurs, either automatically or after specified notice,
upon (a) the failure of the Transferor to make certain payments or transfers of
funds for the benefit of the Certificateholders within the time periods stated
in the Pooling and Servicing Agreement, (b) material breaches of certain
representations, warranties or covenants of the Transferor, (c) certain events
of insolvency or receivership relating to the Transferor, (d) the occurrence of
a Servicer Default which would have a material adverse effect on the
Certificateholders, (e) the failure of the Transferor to convey Receivables
arising under Additional Accounts to the Trust when required by the Pooling and
Servicing Agreement, (f) the Trust's becoming an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or (g) a reduction in
the average Portfolio Yield for any three consecutive Monthly Periods to a rate
which is less than the weighted average Base Rate for such three consecutive
Monthly Periods. The "Base Rate" means, with respect to any Monthly Period, the
weighted average of the Class A Certificate Rate, the Class B Certificate Rate
and the CIA Certificate Rate as of the last day of such Monthly Period (weighted
based on the Class A Invested Amount, the Class B Invested Amount and the CIA
Invested Amount, respectively, as of the last day of such Monthly Period) plus
the product of 2.00% per annum and the percentage equivalent of a fraction the
numerator of which is the sum of the Class A Adjusted Invested Amount, the Class
B Adjusted Invested Amount and the CIA Adjusted Invested Amount and the
denominator of which is the Invested Amount, each as of the last day of such
Monthly Period. The term "Portfolio Yield" means, with respect to any Monthly
Period, the annualized percentage equivalent of a fraction, the numerator of
which is an amount equal to the sum of (i) the amount of collections of Finance
Charge Receivables allocable to the Certificateholders for such Monthly Period,
(ii) the investment proceeds on amounts on deposit in the Principal Funding
Account which are deposited in the Finance Charge Account on the Transfer Date
related to such Monthly Period and (iii) the amount, if any, withdrawn from the
Reserve Account to be deposited in the Finance Charge Account on the Transfer
Date relating to such Monthly Period, calculated on a cash basis after
subtracting an amount equal to the Investor Default Amount for such Monthly
Period, and the denominator of which is the Invested Amount as of the last day
of the preceding Monthly Period. See "Description of the Certificates--Pay Out
Events" herein and in the Prospectus.
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Bank Portfolio during any month in the period shown and
the average cardholder monthly payment rates for all months during the periods
shown, in each case calculated as a percentage of total opening monthly account
balances during the periods shown. Payment rates shown in the table are based on
amounts which would be deemed payments of Principal Receivables and Finance
Charge Receivables with respect to the Accounts.
Cardholder Monthly Payment Rates
Bank Portfolio
Three Months
Ended Fiscal Year Ended June 30,
September 30, -------------------------------
1996 1996 1995 1994
------------- ------ ------ ------
Lowest Month ................... 10.71% 9.86% 10.46% 10.74%
Highest Month .................. 11.39 11.79 11.63 13.23
Monthly Average ................ 11.12 10.98 10.96 11.86
The amount of collections of Receivables may vary from month to month due
to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of Principal
Receivables with respect to the Trust Portfolio will be similar to the
historical experience set forth above. If a Pay Out Event occurs, the average
life and maturity of the Certificates could be significantly reduced. In
addition, there can be no assurance that the issuance of other Series or the
terms of any other Series might not have an impact on the timing of the payments
received by the Certificateholders.
Because there may be a slowdown in the payment rate below the payment rate
used to determine the Controlled Accumulation Amount or a Pay Out Event may
occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. See "Risk
Factors--Payments and Maturity" in the Prospectus. As described under
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<PAGE>
<PAGE>
"Description of the Certificates--Postponement of Accumulation Period" herein
the Servicer may shorten the Accumulation Period and, in such event, there can
be no assurance that the duration of the Accumulation Period will be sufficient
for the accumulation of all amounts necessary to pay the Class A Invested Amount
and the Class B Invested Amount on the Class A Scheduled Payment Date and the
Class B Scheduled Payment Date, respectively, especially if a pay out event were
to occur with respect to one or more other Series thereby limiting the amount of
Excess Principal Collections allocable to Series 1996-6 (the "Offered Series").
RECEIVABLE YIELD CONSIDERATIONS
The portfolio yield on the Bank Portfolio for each of the three fiscal
years contained in the period ended June 30, 1996 and for the three months ended
September 30, 1996 is set forth in the following table. The portfolio yields in
the table are calculated on an accrual basis. The portfolio yield on Receivables
included in the Trust is calculated on a cash basis. Portfolio yields calculated
on an accrual basis may differ from portfolio yields calculated on a cash basis
due to (a) a lag between when finance charges and fees are charged to cardholder
accounts and when such finance charges and fees are collected and (b) finance
charges and fees that are not ultimately collected from the cardholder. However,
during the three fiscal years contained in the period ended June 30, 1996 and
for the three months ended September 30, 1996, portfolio yield on an accrual
basis approximated portfolio yield on a cash basis. Portfolio yield on both an
accrual and a cash basis will also be affected by numerous factors, including
changes in the Monthly Periodic Rates, variations in the rate of payments and
new borrowings on the Accounts, the amount of the Annual Membership Fees and
Other Charges, changes in the delinquency and loss rates on the Receivables and
the percentage of cardholders who pay their balances in full each month and do
not incur Periodic Finance Charges, which may in turn be caused by a variety of
factors, including seasonal variations, the availability of other sources of
credit and general economic conditions. See "Maturity Assumptions" in the
Prospectus. Interchange allocated to the Trust with respect to the Receivables
may vary from the amounts included in the table below because Interchange will
be included in the Trust on an estimated basis by initially treating 1.3% of
collections on the Receivables, other than collections with respect to Periodic
Finance Charges, Annual Membership Fees and Other Charges, as Discount
Receivables.
Portfolio Yield
Bank Portfolio
Three Months
Ended Fiscal Year Ended June 30,
September 30, ---------------------------------
1996 1996 1995 1994
--------- --------- --------- ---------
Average account monthly accrued
fees and charges (1)(2) ...... $ 38.07 $ 34.43 $ 29.90 $ 25.73
Average account balance(3) ..... 2,793 2,711 2,415 1,976
Portfolio yield from fees
and charges (l)(4) ........... 16.36% 15.24% 14.85% 15.62%
- ----------
(1) Fees and charges are comprised of Periodic Finance Charges, Interchange,
Annual Membership Fees and Other Charges.
(2) Average account monthly accrued fees and charges are presented net of
adjustments made pursuant to the Bank's normal servicing procedures,
including removal of incorrect or disputed Periodic Finance Charges, and
include Interchange.
(3) Average account balance includes Purchases, Cash Advances and accrued and
unpaid Periodic Finance Charges, Annual Membership Fees and Other Charges
and is calculated based on the average of the month end balances for
accounts with balances.
(4) Annualized.
The increase in portfolio yield for the fiscal year ended June 30, 1996 and
for the three months ended September 30, 1996 reflects changes in the overall
pricing distribution of the Bank Portfolio. The decline in portfolio yield for
fiscal year 1995 was primarily the result of the Bank's focus on the direct
solicitation of low-rate, no annual fee credit cards which on average had a
lower introductory rate and had the effect of lowering finance charge income and
annual fee income. The accounts in the Bank Portfolio that are not included in
the Trust Portfolio are primarily newly originated accounts with a greater
proportion of Receivables arising under accounts generated under this type of
solicitation than the average accounts in the Trust Portfolio, which are more
seasoned. Therefore, the actual portfolio yield with respect to the Receivables
in the Trust Portfolio may be different from that set forth above.
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<PAGE>
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued in Series. Each Series will represent an
interest in the Trust other than the interests represented by any other Series
of Certificates issued by the Trust (which may include Series offered pursuant
to this Prospectus) and the Exchangeable Transferor Certificate. Each Series
will be issued pursuant to the Pooling and Servicing Agreement entered into by
the Bank and the Trustee and a Supplement to the Pooling and Servicing
Agreement, a copy of the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Prospectus
Supplement for each Series will describe any provisions of the Pooling and
Servicing Agreement relating to such Series which may differ materially from the
Pooling and Servicing Agreement filed as an exhibit to the Registration
Statement. The following summaries describe certain provisions common to each
Series of Certificates. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the related Pooling and Servicing Agreement and Supplement.
General
The Certificates of each Series will represent undivided interests in
certain assets of the Trust, including the right to the applicable allocation
percentage of all cardholder payments on the Receivables. For each Series of
Certificates, unless otherwise specified in the related Prospectus Supplement,
the Invested Amount on any date will be equal to the Initial Invested Amount as
of the related Closing Date for such Series minus the amount of principal paid
to the related Certificateholders prior to such date and minus the amount of
unreimbursed Investor Charge-Offs with respect to such Series prior to such
date. If so specified in the Prospectus Supplement relating to any Series of
Certificates, under certain circumstances the Invested Amount may be further
adjusted by the amount of principal allocated to Certificateholders, the funds
on deposit in any specified account, and any other amount specified in the
related Prospectus Supplement.
Each Series of Certificates may consist of one or more Classes, one or more
of which may be Senior Certificates and one or more of which may be Subordinated
Certificates. Each Class of a Series will evidence the right to receive a
specified portion of each distribution of principal or interest or both. The
Invested Amount with respect to a Series with more than one Class will be
allocated among the Classes as described in the related Prospectus Supplement.
The Certificates of a Class may differ from Certificates of other Classes of the
same Series in, among other things, the amounts allocated to principal payments,
maturity date, Certificate Rate and the availability of Enhancement.
For each Series of Certificates, payments of interest and principal will be
made on Distribution Dates or other payment dates as specified in the related
Prospectus Supplement to Certificateholders in whose names the Certificates were
registered on the record dates (each, a "Record Date") specified in the related
Prospectus Supplement. Interest will be distributed to Certificateholders in the
amounts, for the periods and on the dates specified in the related Prospectus
Supplement.
For each Series of Certificates, the Transferor initially will own the
Exchangeable Transferor Certificate. The Exchangeable Transferor Certificate
will represent the undivided interest in the Trust not represented by the
Certificates issued and outstanding under the Trust or the rights, if any, of
any Enhancement Providers to receive payments from the Trust. The holder of the
Exchangeable Transferor Certificate will have the right to a percentage (the
"Transferor Percentage") of all cardholder payments from the Receivables in the
Trust.
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<PAGE>
Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, during the Revolving Period, the
Invested Amount will remain constant except under certain limited circumstances.
See "--Defaulted Receivables; Rebates and Fraudulent Charges" and "--Investor
Charge-Offs." The amount of Principal Receivables in the Trust, however, will
vary each day as new Principal Receivables are created and others are paid or
charged-off. The amount of the Transferor Interest will fluctuate each day,
therefore, to reflect the changes in the amount of the Principal Receivables in
the Trust. When a Series is amortizing, the Invested Amount of such Series will
generally decline as payments of principal are distributed to the
Certificateholders. As a result, the Transferor Interest will generally increase
each month during an Amortization Period for any Series to reflect the
reductions in the Invested Amount of such Series and will also change to reflect
the variations in the amount of Principal Receivables in the related Trust. The
Transferor Interest may also be reduced as the result of an Exchange. See
"--Exchanges."
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 Transferor, the "Depository") except as set forth
below. Unless otherwise specified in the related Prospectus Supplement, with
respect to each Series of Certificates, beneficial interests in the Certificates
will be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form only. The Transferor has been informed by
DTC that DTC's nominee will be Cede. 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 Definitive Certificates are issued.
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 Series of Certificates of such Series, or
all or a portion of any Class thereof, on the Luxembourg Stock Exchange or any
other specified exchange.
Interest Payments
For each Series of Certificates and Class thereof, interest will accrue
from the relevant Closing Date on the applicable Invested Amount, plus, if
applicable, the Pre-Funding Amount (or other amount specified in the related
Prospectus Supplement). at the applicable Certificate Rate, which may be a
fixed, floating or other type of rate as specified in the related Prospectus
Supplement. Interest will be distributed to Certificateholders on the
Distribution Dates specified in the related Prospectus Supplement. Interest
payments on any Distribution Date will generally be funded from collections of
Finance Charge Receivables allocated to the Investor Interest during the
preceding monthly period or periods (each, a "Monthly Period") and may be funded
from certain investment earnings on funds held in accounts of the Trust, from
any applicable Enhancement, if necessary, or certain other amounts as specified
in the related Prospectus Supplement. If the Distribution Dates for payment of
interest for a Series or Class occur less frequently than monthly, such
collections or other amounts (or the portion thereof allocable to the Investor
Interest of such Class) may be deposited in one or more trust accounts (each, an
"Interest Funding Account") pending distribution to the Certificateholders of
such Series or Class, as described in the related Prospectus Supplement. If a
Series has more than one Class of Certificates, each such Class may have a
separate Interest Funding Account. The Prospectus Supplement relating to each
Series of Certificates and each Class thereof will describe the amounts and
sources of interest payments to be made, the Certificate Rate, and, for a Series
or Class thereof bearing interest at a floating Certificate Rate, the initial
Certificate Rate, the dates and the manner for determining subsequent
Certificate Rates, and the formula, index or other method by which such
Certificate Rates are determined.
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Principal Payments
Unless otherwise specified in the related Prospectus Supplement, during the
Revolving Period for each Series of Certificates (which begins on the Closing
Date relating to such Series and ends on the day before an Amortization Period
begins), no principal payments will be made to the Certificateholders of such
Series. During the Controlled Amortization Period, Principal Amortization Period
or Accumulation Period, as applicable, which will be scheduled to begin on the
date specified in the related Prospectus Supplement, and during the Rapid
Amortization Period, which will begin upon the occurrence of a Pay Out Event,
principal will be paid to the Certificateholders in the amounts and on
Distribution Dates specified in the related Prospectus Supplement or will be
accumulated in a Principal Funding Account for later distribution to
Certificateholders on the Scheduled Payment Date in the amounts specified in the
related Prospectus Supplement. Principal payments for any Series or Class
thereof will be funded from collections of Principal Receivables received during
the related Monthly Period or Periods as specified in the related Prospectus
Supplement and allocated to the Investor Interest of such Series or Class and
from certain other sources specified in the related Prospectus Supplement. In
the case of a Series with more than one Class of Certificates, the
Certificateholders of one or more Classes may receive payments of principal at
different times. The related Prospectus Supplement will describe the manner,
timing and priority of payments of principal to Certificateholders of each
Class.
Funds on deposit in any Principal Funding Account applicable to a Series
may be subject to a guaranteed rate or investment agreement or other arrangement
specified in the related Prospectus Supplement intended to assure a minimum rate
of return on the investment of such funds. In order to enhance the likelihood of
the payment in full of the principal amount of a Series of Certificates or Class
thereof at the end of an Accumulation Period, such Series of Certificates or
Class thereof may be subject to a principal guaranty or other similar
arrangement specified in the related Prospectus Supplement.
Shared Excess Finance Charge Collections
If so specified in the related Prospectus Supplement, the
Certificateholders of a Series or any Class thereof may be entitled to receive
all or a portion of Excess Finance Charge Collections with respect to another
Series to cover any shortfalls with respect to amounts payable from collections
of Finance Charge Receivables allocable to such Series or Class.
Shared Collections of Principal Receivables
Unless otherwise specified in the related Prospectus Supplement, to the
extent that collections of Principal Receivables and certain other amounts that
are allocated to the Invested Amount of any Series are not needed to make
payments or deposits with respect to such Series, such collections ("Excess
Principal Collections") will be applied to cover principal payments due to or
for the benefit of Certificateholders of another Series. Any such reallocation
will not result in a reduction in the Invested Amount of the Series to which
such collections were initially allocated.
Companion Series
If so provided in the Prospectus Supplement relating to a Series, each such
Series is subject to being paired with another Series (in such case, a
"Companion Series"). The Prospectus Supplement for such Series and the
Prospectus Supplement for the Companion Series will each specify the
relationship between the Series.
Transfer and Assignment of Receivables
With respect to the Trust, the Transferor has transferred and assigned to
the Trust all its rights, title and interest in and to Receivables in certain
Accounts which were selected from its portfolio based upon criteria set forth in
the Pooling and Servicing Agreement.
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In connection with the transfer of the Receivables to the Trust, the
Transferor has indicated in its computer files that the Receivables have been
conveyed to the Trust. In addition, the Transferor has provided to the Trustee
computer files or microfiche lists containing a true and complete list showing
each Account, including each Additional Account, identified by account number
and by total outstanding balance, respectively. The Transferor has not delivered
and will not deliver to the Trustee any other records or agreements relating to
the Accounts or the Receivables, except in connection with additions or removals
of Accounts. Except as stated above, the records and agreements relating to the
Accounts and the Receivables maintained by the Transferor or the Servicer are
not segregated by the Transferor or the Servicer from other documents and
agreements relating to other credit card accounts and receivables and are not
stamped or marked to reflect the transfer of the Receivables to the Trust, but
the computer records of the Transferor are required to be marked to evidence
such transfer. The Transferor has filed UCC financing statements with respect to
the Receivables meeting the requirements of Delaware state law. See "Risk
Factors--Certain Legal Aspects" and "Certain Legal Aspects of the Receivables."
Exchanges
The Pooling and Servicing Agreement provides for the Trustee to issue two
types of certificates: (i) one or more Series of certificates which are
transferable and have the characteristics described below and (ii) the
Exchangeable Transferor Certificate, a certificate which evidences the
Transferor Interest, which initially is held by the Transferor and is
transferable only as provided in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement also provides that, pursuant to any one or more
Supplements, the holder of the Exchangeable Transferor Certificate may tender
such certificate, or the Exchangeable Transferor Certificate and the
certificates evidencing any Series of certificates, to the Trustee in exchange
for one or more new Series and a reissued Exchangeable Transferor Certificate.
Under the Pooling and Servicing Agreement, the holder of the Exchangeable
Transferor Certificate may define, with respect to any newly issued Series,
certain terms including: (i) its name or designation; (ii) its initial investor
interest (or method for calculating such amount); (iii) its certificate rate (or
formula for the determination thereof); (iv) the closing date; (v) the rating
agency or agencies, if any, rating the Series; (vi) the interest payment date or
dates and the date or dates from which interest shall accrue; (vii) the name of
the clearing agency, if any; (viii) the method for allocating collections to
certificateholders of such Series with respect to Principal Receivables, Finance
Charge Receivables and Receivables in Defaulted Accounts and the method by which
the principal amount of such Series shall amortize or accrete; (ix) the names of
any accounts to be used by such Series and the terms governing the operation of
any such accounts; (x) the percentage used to calculate monthly servicing fees;
(xi) the Minimum Transferor Interest; (xii) the Enhancement Provider, if
applicable, and the terms of any Enhancement with respect to such Series; (xiii)
the base rate applicable to such Series; (xiv) the terms on which the
certificates of such Series may be repurchased or remarketed to other investors;
(xv) the series termination date; (xvi) any deposit into any account provided
for such Series; (xvii) the number of classes of such Series, and if more than
one class, the rights and priorities of each such class; (xviii) whether
interchange or other fees will be included in funds available to
certificateholders in such Series; (xix) the priority of such Series with
respect to any other Series; (xx) the rights, if any, of the holder of the
Exchangeable Transferor Certificate that have been transferred to the holders of
such Series; (xxi) the pool factor (consisting of a seven-digit decimal
expressing the ratio of the investor interest to the initial investor interest);
(xxii) the Minimum Aggregate Principal Receivables; (xxiii) whether such Series
will be part of a group; and (xxiv) any other relevant terms, including whether
or not such Series will be pledged as collateral for an issuance of any other
securities, including commercial paper (all such terms, the "Principal Terms" of
such Series). None of the Transferor, the Servicer, the Trustee or the Trust is
required or intends to obtain the consent of any Certificateholder to issue any
additional Series. However, as a condition of an Exchange, the holder of the
Exchangeable Transferor Certificate will deliver to the Trustee written
confirmation that the Exchange will not result in the Rating Agency reducing or
withdrawing its rating of any outstanding Series, including the Certificates.
The Transferor may offer any Series to the public under a Disclosure Document in
transactions either registered under the Securities Act or exempt from
registration thereunder directly, through the Underwriters or one or more other
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 Transferor. Other
Series have been or are being issued by the Trust. The Transferor intends to
offer, from time to time, additional Series issued by the Trust.
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The Pooling and Servicing Agreement provides that the holder of the
Exchangeable Transferor Certificate may perform Exchanges and define Principal
Terms such that each Series has a period during which amortization of the
principal amount thereof is intended to occur which may have a different length
and begin on a different date than such period for any other Series.
Furthermore, one or more Series may be in their amortization periods while other
Series are not. Thus, certain Series may not be amortizing, while other Series
are amortizing. Moreover, each Series may have the benefit of an Enhancement
which is available only to such Series. Under the Pooling and Servicing
Agreement, the Trustee shall hold any such form of Enhancement only on behalf of
the Series with respect to which it relates. Likewise, with respect to each such
form of Enhancement, the holder of the Exchangeable Transferor Certificate may
deliver a different form of Enhancement agreement. The Pooling and Servicing
Agreement also provides that the holder of the Exchangeable Transferor
Certificate may specify different coupon rates and monthly servicing fees with
respect to each Series (or a particular class within such Series). Collections
allocated to Finance Charge Receivables not used to pay interest on the
certificates, the monthly servicing fee, the investor default amount or investor
charge-offs with respect to any Series will be allocated as provided in such
Enhancement agreement, if applicable. The holder of the Exchangeable Transferor
Certificate also has the option under the Pooling and Servicing Agreement to
vary between Series the terms upon which a Series (or a particular class within
such Series) may be repurchased by the Transferor or remarketed to other
investors. Additionally, certain Series may be subordinated to other Series, or
classes within a Series may have different priorities. There is no limit to the
number of Exchanges that may be performed 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 Supplement, an
Exchange may only occur upon the satisfaction of certain conditions provided in
the Pooling and Servicing Agreement. Under the Pooling and Servicing Agreement,
the holder of the Exchangeable Transferor Certificate may perform an Exchange by
notifying the Trustee at least five days in advance of the date upon which the
Exchange is to occur. Under the Pooling and Servicing Agreement, the notice will
state the designation of any Series to be issued on the date of the Exchange
and, with respect to each such Series: (i) its initial principal amount (or
method for calculating such amount) which amount may not be greater than the
current principal amount of the Exchangeable Transferor Certificate, (ii) its
certificate rate (or method of calculating such rate) and (iii) the provider of
the Enhancement, if any, which is expected to provide credit support with
respect to it. On the date of the Exchange, the Pooling and Servicing Agreement
provides that the Trustee will authenticate any such Series only upon delivery
to it of the following, among others, (i) a Supplement specifying the Principal
Terms of such Series, (ii) an opinion of counsel to the effect that, unless
otherwise stated in the related Supplement, the certificates of such Series will
be characterized as indebtedness for federal income tax purposes under existing
law, and that the issuance of such Series will not have a material adverse
effect on the federal income tax characterization of any outstanding Series,
(iii) if required by the related Supplement, the form of Enhancement, (iv) if an
Enhancement is required by the Supplement, an appropriate Enhancement agreement
with respect thereto, (v) written confirmation from each Rating Agency that the
Exchange will not result in such Rating Agency's reducing or withdrawing its
rating on any then outstanding Series rated by it, (vi) the existing
Exchangeable Transferor Certificate and, if applicable, the certificates
representing the Series to be exchanged, and (vii) an officer's certificate of
the Transferor to the effect that on the date of the Exchange the Transferor,
after giving effect to the Exchange, would not be required to add the
Receivables Additional Accounts pursuant to the Pooling and Servicing Agreement,
and the Transferor Interest would be at least equal to a Minimum Transferor
Interest. Upon satisfaction of such conditions, the Trustee will cancel the
existing Exchangeable Transferor Certificate and the certificates of the
exchanged Series, if applicable, and authenticate the new Series and a new
Exchangeable Transferor Certificate.
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Representations and Warranties
The Transferor has made and will make certain representations and
warranties to the Trust to the effect that, among other things, (a) as of the
date of issuance of a Series (a "Series Closing Date"), the Transferor was duly
incorporated and in good standing and that it has the authority to consummate
the transactions contemplated by the Pooling and Servicing Agreement and (b) as
of the cut off date for each Series, as defined herein and in the related
Prospectus Supplement (the "Series Cut Off Dates"), each Account was an Eligible
Account (as defined below). If (i) any of these representations and warranties
proves to have been incorrect in any material respect when made, and continues
to be incorrect for 60 days after notice to the Transferor by the Trustee or to
the Transferor and the Trustee by the Certificateholders holding more than 50%
of the Investor Interest, and (ii) as a result the interests of the
Certificateholders are materially adversely affected, and continue to be
materially adversely affected during such period, then the Trustee or
Certificateholders holding more than 50% of the Investor Interest may give
notice to the Transferor (and to the Trustee in the latter instance) declaring
that a Pay Out Event has occurred, thereby commencing the Rapid Amortization
Period. See "--Pay Out Events."
The Transferor has made and will make representations and warranties to
the Trust relating to the Receivables to the effect, among other things, that
(a) as of the Series Closing Date for the 1992-1 Series (the "Initial Closing
Date"), each of the Receivables then existing is an Eligible Receivable (as
defined below) and (b) as of the date of creation of any new Receivable, such
Receivable is an Eligible Receivable and the representation and warranty set
forth in clause (b) in the immediately following paragraph is true and correct
with respect to such Receivable. In the event (i) of a breach of any
representation and warranty set forth in this paragraph, within 60 days, or such
longer period as may be agreed to by the Trustee, of the earlier to occur of the
discovery of such breach by the Transferor or Servicer or receipt by the
Transferor of written notice of such breach given by the Trustee, or, with
respect to certain breaches relating to prior liens, immediately upon the
earlier to occur of such discovery or notice and (ii) that as a result of such
breach, the Receivables in the related Accounts are charged off as
uncollectible, the Trust's rights in, to or under the Receivables or its
proceeds are impaired or the proceeds of such Receivables are not available for
any reason to the Trust free and clear of any lien, the Transferor shall accept
reassignment of each Principal Receivable as to which such breach relates (an
"Ineligible Receivable" on the terms and conditions set forth below; provided,
however, that no such reassignment shall be required to be made with respect to
such Ineligible Receivable if, on any day within the applicable period (or such
longer period as may be agreed to by the Trustee), the representations and
warranties with respect to such Ineligible Receivable shall then be true and
correct in all material respects. The Transferor shall accept reassignment of
each such Ineligible Receivable by (i) directing the Servicer to deduct the
amount of each such Ineligible Receivable from the aggregate amount of Principal
Receivables used to calculate the Transferor Interest and (ii) depositing into
the Collection Account an amount equal to the finance charge at the annual
percentage rate applicable to such Ineligible Receivable from the last date
billed through the end of the Monthly Period in which such reassignment
obligation arises. In the event that the exclusion of an Ineligible Receivable
from the calculation of the Transferor Interest would cause the Transferor
Interest to be a negative number, on the date of reassignment of such Ineligible
Receivable the Transferor shall make a deposit in the Principal Account in
immediately available funds in an amount equal to the amount by which the
Transferor Interest would be reduced below zero. Any such deduction or deposit
shall be considered a repayment in full of the Ineligible Receivable. The
obligation of the Transferor to accept reassignment of any Ineligible Receivable
is the sole remedy respecting any breach of the representations and warranties
set forth in this paragraph with respect to such Receivable available to the
Certificateholders or the Trustee on behalf of Certificateholders.
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The Transferor has made representations and warranties to the Trust to the
effect, among other things, that as of the Initial Closing Date (a) the Pooling
and Servicing Agreement constituted a legal, valid and binding obligation of the
Transferor and (b) the transfer of Receivables by it to the Trust under the
Pooling and Servicing Agreement constituted either a valid transfer and
assignment to the Trust of all right, title and interest of the Transferor in
and to the Receivables (other than Receivables in Additional Accounts), whether
then existing or thereafter created and the proceeds thereof (including amounts
in any of the accounts established for the benefit of certificateholders) or the
grant of a first priority perfected security interest in such Receivables
(except for certain tax liens) and the proceeds thereof (including amounts in
any of the accounts established for the benefit of certificateholders), which is
effective as to each such Receivable upon the creation thereof. In the event of
a breach of any of the representations and warranties described in this
paragraph, either the Trustee or the holders of certificates evidencing
undivided interests in the Trust aggregating more than 50% of the investor
interest of all Series outstanding, by written notice to the Transferor (and to
the Trustee and the Servicer if given by the certificateholders of all Series
outstanding), may direct the Transferor to accept reassignment of the Trust
Portfolio within 60 days of such notice, or within such longer period specified
in such notice. The Transferor will be obligated to accept reassignment of such
Receivables on a Distribution Date occurring within such applicable period. Such
reassignment will not be required to be made, however, if at any time during
such applicable period, or such longer period, the representations and
warranties shall then be true and correct in all material respects. The deposit
amount for such reassignment, unless otherwise specified in the related
Prospectus Supplement, will be equal to the invested amount for all Series of
certificates required to be repurchased on the last day of the Monthly Period
preceding the Distribution Date on which the reassignment is scheduled to be
made less the amount, if any, previously allocated for payment of principal to
such certificateholders on such Distribution Date, plus an amount equal to all
interest accrued but unpaid on such certificates at the applicable certificate
rate through such last day of such Monthly Period, less the amount transferred
to the Distribution Account from the Finance Charge Account in respect of
interest on such certificates. The payment of the reassignment deposit amount
and the transfer of all other amounts deposited for the preceding month in the
Distribution Account will be considered a payment in full of the invested amount
for all Series of certificates required to be repurchased and will be
distributed upon presentation and surrender of the certificates for each such
Series. If the Trustee or certificateholders give a notice as provided above,
the obligation of the Transferor to make any such deposit will constitute the
sole remedy respecting a breach of the representations and warranties available
to the Trustee or such certificateholders.
An "Eligible Account" is defined to mean, as of the Original Cut Off Date
(or, with respect to Additional Accounts, as of their date of designation for
inclusion or their date of inclusion in the Trust), each Account owned by the
Transferor (a) which was in existence and maintained with the Transferor, (b)
which is payable in United States dollars, (c) the cardholder of which has
provided, as his most recent billing address, an address located in the United
States or its territories or possessions, (d) which has not been identified by
the Transferor in its computer files as being involved in a voluntary or
involuntary bankruptcy proceeding, (e) which has not been identified as an
Account with respect to which the related card has been lost or stolen, (f)
which is not sold or pledged to any other party at the time of its inclusion in
the Trust, (g) which does not have receivables which are sold or pledged to any
other party at the time of their inclusion in the Trust, and (h) which is a VISA
or MasterCard revolving credit card account.
An "Eligible Receivable" is defined to mean each Receivable (a) which has
arisen under an Eligible Account, (b) which was created in compliance, in all
material respects, with all requirements of law applicable to the Transferor,
and pursuant to a credit card agreement which complies in all material respects
with all requirements of law applicable to the Transferor, (c) with respect to
which all consents, licenses or authorizations of, or registrations with, any
governmental authority required to be obtained or given by the Transferor in
connection with the creation of such Receivable or the execution, delivery,
creation and performance by the Transferor or the related credit card agreement
have been duly obtained or given and are in full force and effect as of the date
of the creation of such Receivable, (d) as to which, at the time of its
inclusion in the Trust, the Transferor or the Trust had good and marketable
title, free and clear of all liens and security interests arising under or
through the Transferor (other than certain tax liens for taxes not then due or
which the Transferor is contesting), (e) which is the legal, valid and binding
payment obligation of the cardholder thereof, legally enforceable against such
cardholder in accordance with its terms (with certain bankruptcy-related
exceptions), and (f) which constitutes an "account" under Article 9 of the UCC
as then in effect in the State of Delaware.
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It is not required or anticipated that the Trustee will make any initial
or periodic general examination of the Receivables or any records relating to
the Receivables for the purpose of establishing the presence or absence of
defects, compliance with the Transferor's representations and warranties or for
any other purpose. The Servicer, however, will deliver to the Trustee on or
before March 31 of each year an opinion of counsel with respect to the validity
of the security interest of the Trust in and to the Receivables.
Addition of Accounts
As described above in "The Receivables," the Transferor has the right and,
in some circumstances, is obligated to designate from time to time Additional
Accounts to be included as Accounts. The Transferor will be required to
designate Additional Accounts, (i) if the average of the Transferor Interest for
any 30-day period is less than the Minimum Transferor Interest, or (ii) if, on
the last day of any Monthly Period, the aggregate amount of Principal
Receivables is less than the Minimum Aggregate Principal Receivables.
Receivables from such Additional Accounts shall be transferred to the Trust on
or before the tenth Business Day following such 30-day period or the last day of
any Monthly Period, as the case may be. The Transferor will convey to the Trust
its interest in all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created, subject to the following
conditions, among others: (i) each such Additional Account must be an Eligible
Account and (ii) no selection procedure believed by the Transferor to be
materially adverse to the interests of the holders of any Series of certificates
was used in selecting the Additional Accounts.
Each Additional Account must be an Eligible Account at the time of its
designation. However, Additional Accounts may not be of the same credit quality
as the initial Accounts; Additional Accounts may have been originated by the
Transferor using credit criteria different from those which were applied by the
Transferor to the initial Accounts or may have been acquired by the Transferor
from a third-party financial institution who had different credit criteria.
Removal of Accounts
Subject to the conditions set forth in the next succeeding sentence, the
Transferor may, but shall not be obligated to, designate from time to time all
Receivables from certain Accounts for deletion and removal from the Trust (such
Accounts, the "Removed Accounts"); provided, however, that the Transferor shall
not make more than one such designation in any Monthly Period. The Transferor
will be permitted to designate and require reassignment to it of the Receivables
from Removed Accounts only upon satisfaction of the following conditions: (i)
the removal of any Receivables of any Removed Accounts shall not, in the
reasonable belief of the Transferor, cause a Pay Out Event to occur, cause the
Transferor Interest as a percentage of the aggregate amount of Principal
Receivables to be less than 7% on such date of removal, or result in the failure
to make any payment specified in the related Supplement with respect to any
Series; (ii) the Transferor shall have delivered to the Trustee for execution a
written assignment and, within five business days thereafter, a computer file or
microfiche list containing a true and complete list of all Removed Accounts
identified by account number and the aggregate amount of the Receivables in such
Removed Accounts; (iii) not more than 15% of the Trust Portfolio is more than 34
days delinquent; (iv) the Transferor shall represent and warrant that no
selection procedures believed by the Transferor to be materially adverse to the
interests of the Certificateholders were utilized in selecting the Removed
Accounts to be removed from the Trust; (v) the Rating Agency shall have received
notice of such proposed removal of Accounts and the Transferor shall not have
received notice from the Rating Agency that such proposed removal will result in
a downgrade of its then-current rating for any Series of Certificates; (vi) the
Principal Receivables of the Removed Accounts shall not equal or exceed 5% of
the aggregate amount of the Principal Receivables in the Trust at such time;
provided, that if any Series has been paid in full, the Principal Receivables in
such Removed Accounts may equal the initial invested amount of such Series; and
(vii) the Transferor shall have delivered to the Trustee an officer's
certificate confirming the items set forth in clauses (i) through (vi) above.
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Collection and Other 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 policies and procedures for servicing credit card receivables
comparable to the Receivables. The Servicer is required to maintain fidelity
bond coverage insuring against losses through wrongdoing of its officers and
employees who are involved in the servicing of credit card receivables covering
such actions and in such amounts as the Servicer believes to be reasonable from
time to time.
Trust Accounts
The Trustee has established and maintains in the name of the Trust two
separate accounts in a segregated trust account (which need not be a deposit
account), a "Finance Charge Account" and a "Principal Account" for the benefit
of the certificateholders of each Series. The Trustee has also established a
"Distribution Account" (a non-interest bearing segregated demand deposit account
established with a "Qualified Institution" other than the Transferor). The
Servicer has established and maintains, in the name of the Trust, for the
benefit of certificateholders of all Series, a "Collection Account," which is a
non-interest bearing segregated account established and maintained with the
Servicer or with a Qualified Institution, defined as a depository institution,
which may include the Trustee, organized under the laws of the United States or
any one of the states thereof, which at all times has a certificate of deposit
rating of P-1 by Moody's Investors Service, Inc. ("Moody's") and of A-1+ by
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's") or long-term unsecured debt obligation (other than
such obligation the rating of which is based on collateral or on the credit of a
person other than such institution or trust company) rating of Aa3 by Moody's
and AA- by Standard & Poor's and deposit insurance provided by either the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"), each
administered by the FDIC, or a depository institution, which may include the
Trustee, which is acceptable to the Rating Agency. Funds in the Principal
Account and the Finance Charge Account will be invested, at the direction of the
Servicer, in (i) obligations fully guaranteed by the United States of America,
(ii) demand deposits, time deposits or certificates of deposit of depository
institutions or trust companies, the certificates of deposit of which have the
highest rating from Moody's and Standard & Poor's, (iii) commercial paper
having, at the time of the Trust's investment, a rating in the highest rating
category from Moody's and Standard & Poor's, (iv) bankers acceptances issued by
any depository institution or trust company described in clause (ii) above, (v)
money market funds which have the highest rating from, or have otherwise been
approved in writing by, Moody's and Standard & Poor's, (vi) certain open end
diversified investment companies, and (vii) any other investment if the Rating
Agency confirms in writing that such investment will not adversely affect its
then current rating of the Investor Certificates (such investment, "Permitted
Investments"). Any earnings (net of losses and investment expenses) on funds in
the Finance Charge Account or the Principal Account will be paid to the
Transferor. The Servicer has the revocable power to withdraw funds from the
Collection Account and to instruct the Trustee to make withdrawals and payments
from the Finance Charge Account and the Principal Account for the purpose of
carrying out the Servicer's duties under the Pooling and Servicing Agreement.
The Paying Agent has the revocable power to withdraw funds from the Distribution
Account for the purpose of making distributions to the Certificateholders.
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Discount Receivables
The Pooling and Servicing Agreement provides that 1.3% (the "Yield
Factor") of the amount of Receivables consisting of amounts charged by
cardholders for goods and services and cash advances be treated as Finance
Charge Receivables (the "Discount Receivables"). On the date of processing of
any collections, the product of the Yield Factor and collections of Receivables
consisting of amounts charged by cardholders for goods and services and cash
advances on such day which otherwise would be Principal Receivables will be
deemed "Discount Receivable Collections." An amount equal to the product of (i)
the investor percentage with respect to Finance Charge Receivables for each
Series of certificates issued and outstanding and (ii) the amount of such
Discount Receivables Collections will be deposited by the Transferor into the
Collection Account and an amount equal to the product of (iii) the Transferor
Percentage and (iv) the amount of the Discount Receivable Collections will be
paid to the holder of the Exchangeable Transferor Certificate. The former amount
deposited into the Collection Account will be applied as provided below
regarding payments with respect to Finance Charge Receivables. The Transferor
may at any time increase the Yield Factor to a fixed percentage up to 4%;
provided that the Transferor must provide 30 days' prior written notice to the
Servicer, the Trustee, any provider of Enhancement and the Rating Agency of any
such designation, and such designation will become effective on the date
specified therein only if (i) in the reasonable belief of the Transferor such
designation would not cause a Pay Out Event to occur or an event, which with
notice or the lapse of time or both would constitute a Pay Out Event and (ii)
the Rating Agency confirms in writing its then current rating on any outstanding
Series.
Application of Collections
Allocations. Except as otherwise 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 to be paid to the holder of the Exchangeable Transferor
Certificate 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 as long as the Bank remains the Servicer under the
Pooling and Servicing Agreement, and (a)(i) the Servicer provides to the Trustee
a letter of credit covering risk collection of the Servicer acceptable to the
Rating Agency and (ii) the Transferor shall not have received a notice from the
Rating Agency that such letter of credit would result in the lowering of such
Rating Agency's then-existing rating of any Series of certificates then
outstanding, or (b) the Servicer has and maintains a certificate of deposit
rating of P-l by Moody's and of A-1 by Standard & Poor's and deposit insurance
provided by either BIF or SAIF, then the Servicer may make such deposits and
payments on the business day immediately prior to the Distribution Date (the
"Transfer Date") in an amount equal to the net amount of such deposits and
payments which would have been made had the conditions of this proviso not
applied.
Any amounts collected in respect of Principal Receivables not paid to the
Transferor because the Transferor Interest has been reduced to zero
("Unallocated Principal Collections"), together with any adjustment payments, as
described below, will be paid to and held in the Principal Account and paid to
the Transferor if and to the extent that the Transferor Interest is greater than
zero. If an Amortization Period has commenced, Unallocated Principal Collections
will be held for distribution to the Certificateholders on the related
Distribution Date.
Funding Period
For any Series of Certificates, the related Prospectus Supplement may
specify that for a period beginning on the Closing Date and ending on a
specified date before the commencement of an Amortization Period or Accumulation
Period with respect to such Series (the "Funding Period"), the aggregate amount
of Principal Receivables in the Trust allocable to such Series may be less than
the aggregate principal amount of the
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Certificates of such Series and that the amount of such deficiency (the
"Pre-Funding Amount") will be held in a trust account established with the
trustee for the benefit of the Certificateholders of such Series (the
"Pre-Funding Account") pending the transfer of additional Receivables to the
Trust or pending the reduction of the Invested Amounts of other Series. The
related Prospectus Supplement will specify the Initial Invested Amount with
respect to such Series, the aggregate principal amount of such Series (the "Full
Invested Amount") and the date by which the Invested Amount is expected to equal
the Full Invested Amount. The Invested Amount will increase as Receivables are
delivered to the Trust or as the Invested Amounts of other Series are reduced.
The Invested Amount may also decrease due to Investor Charge-Offs as provided in
the related Prospectus Supplement.
During the Funding Period, funds on deposit in the Pre-Funding Account for
a Series of Certificates will be withdrawn and paid to the Transferor to the
extent of any increases in the Invested Amount. In the event that the Invested
Amount does not for any reason equal the Full Invested Amount by the end of the
Funding Period, any amount remaining in the Pre-Funding Account and any
additional amounts specified in the related Prospectus Supplement will be
payable to the Certificateholders of such Series in the manner and at such time
as set forth in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, monies in the
Pre-Funding Account will be invested by the Trustee in Permitted Investments or
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Pre-Funding Account during the
related Monthly Period will be withdrawn from the Pre-Funding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Collection Account
for distribution in respect of interest on the Certificates of the related
Series in the manner specified in the related Prospectus Supplement.
Defaulted Receivables; Rebates and Fraudulent Charges
On the first business day on or before the eighth calendar day prior to
each Distribution Date (the "Determination Date"), the Servicer will calculate
the Investor Default Amount for the preceding Monthly Period. Receivables in any
Account will be charged off as uncollectible in accordance with the Servicer's
customary and usual policies and procedures for servicing its own comparable
credit card accounts (such an Account, a "Defaulted Account"). A portion of all
Receivables in Defaulted Accounts (the "Investor Default Amount") will be
allocated to the Certificateholders for each Distribution Date in an amount
equal to the product of the Investor Percentage for the relevant Series
applicable during the related Monthly Period and the amount of Receivables in
Defaulted Accounts for such related Monthly Period. In the case of a Series of
Certificates having more than one Class, the Investor Default Amount will be
allocated among the Classes in the manner described in the related Prospectus
Supplement. If so provided in the related Prospectus Supplement, an amount equal
to the Investor Default Amount for any Monthly Period may be paid from other
amounts, including from Enhancement, and applied to pay principal to
Certificateholders or the holder of the Exchangeable Transferor Certificate, as
appropriate. In the case of a Series of Certificates having one or more Classes
of Subordinated Certificates, the related Prospectus Supplement may provide that
all or a portion of amounts otherwise allocable to such Subordinated
Certificates may be paid to the Senior Certificateholders to make up any
Investor Default Amount allocable to such Senior Certificateholders.
If the Servicer adjusts the amount of any Principal Receivable because of
transactions occurring in respect of a rebate or refund to a cardholder, or
because such Principal Receivable was created in respect of merchandise which
was refused or returned by a cardholder, then the amount of the Transferor
Interest in the Trust will be reduced, on a net basis, by the amount of the
adjustment. In addition, the Transferor Interest in the Trust will be reduced,
on a net basis, as a result of transactions in respect of any Principal
Receivable which was discovered as having been created through a fraudulent or
counterfeit charge.
Investor Charge-Offs
With respect to each Series of Certificates, if the amount payable on a
Distribution Date or other specified date in respect of interest on the
Certificates, the Investor Servicing Fee (unless otherwise specified in the
related
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Prospectus Supplement), the Investor Default Amount and other required fees
exceeds the amount on deposit in the Collection Account available therefor,
available Enhancement amounts, if any, and amounts available from other
specified sources, then the Invested Amount with respect to such Series will be
reduced by the amount of such excess, but not more than the Investor Default
Amount (an "Investor Charge-Off"). Investor Charge-Offs will be reimbursed on
any Distribution Date to the extent amounts on deposit in the Collection Account
and otherwise available therefor exceed such interest, fees and any aggregate
Investor Default Amount payable on such date. Such reimbursement of Investor
Charge-Offs will result in an increase in the Invested Amount with respect to
such Series. In the case of a Series of Certificates having more than one Class,
the related Prospectus Supplement will describe the manner and priority of
allocating Investor Charge-Offs and reimbursements thereof among the Invested
Amounts of the Classes.
Final Payment or Principal; Termination
With respect to each Series, the Certificates will be subject to optional
repurchase by the Transferor on any Distribution Date after the Invested Amount
is reduced to an amount less than or equal to 5% (or such other amount specified
in the related Prospectus Supplement) of the initial outstanding principal
amount of the Certificates, if certain conditions set forth in the related
Pooling and Servicing Agreement are met. Unless otherwise specified in the
related Prospectus Supplement, the repurchase price will be equal to the
Invested Amount plus accrued and unpaid interest on the Certificates.
The Certificates of each Series will be retired on the day following the
Distribution Date on which the final payment of principal is scheduled to be
made to the Certificateholders, whether as a result of optional reassignment to
the Transferor or otherwise. Each Prospectus Supplement will specify the final
date on which principal and interest with respect to the related Series of
Certificates will be scheduled to be distributed (the "Stated Series Termination
Date"); provided, however, that the Certificates may be subject to prior
termination as provided above. If the Invested Amount is greater than zero on
the Stated Series Termination Date, the Trustee will sell or cause to be sold
certain Receivables allocable to such Series in the manner provided in the
Pooling and Servicing Agreement and Supplement and pay the net proceeds of such
sale and any collections on the Receivables, up to an amount equal to the
Invested Amount plus accrued interest due on the Certificates and any other
amounts specified in the related Supplement, to the Certificateholders of such
Series on such Stated Series Termination Date as final payment of the
Certificates.
Unless the Servicer and the holder of the Exchangeable Transferor
Certificate instruct the Trustee otherwise, the Trust will terminate on the
earlier of (a) the day after the Distribution Date with respect to any Series
following the date on which funds shall have been deposited in the Distribution
Account for the payment to certificateholders of each Series outstanding
sufficient to pay in full the aggregate investor interest of all Series
outstanding plus interest thereon at the applicable certificate rates through
the end of the related Monthly Period, or (b) August 1, 2032. Upon the
termination of the Trust and the surrender of the Exchangeable Transferor
Certificate, the Trustee shall convey to the holder of the Exchangeable
Transferor Certificate all right, title and interest of the Trust in and to the
Receivables and other funds of the Trust (other than funds on deposit in the
Distribution Account and other similar bank accounts of the Trust with respect
to other Series).
Pay Out Events
Unless otherwise specified in the related Prospectus Supplement, as
described above, the Revolving Period will continue through the date specified
in the related Prospectus Supplement unless a Pay Out Event occurs prior to such
date. A "Pay Out Event" occurs with respect to all Series issued by the Trust
upon the occurrence of either of the following events:
(a) certain events of insolvency or receivership relating to the
Transferor; or
(b) the Trust becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
In addition, a Pay Out Event may occur with respect to any specific Series
upon the occurrence of any other event specified in the related Prospectus
Supplement. On the date on which a Pay Out Event is deemed to have
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occurred, the Rapid Amortization Period will commence. If, because of the
occurrence of a Pay Out Event, the Rapid Amortization Period begins earlier than
the scheduled commencement of an Amortization Period or prior to a Scheduled
Payment Date, Certificateholders will begin receiving distributions of principal
earlier than they otherwise would have, which may shorten the average life of
the Certificates.
If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a receiver or conservator for the Transferor,
the receiver or conservator for the Transferor may have the power to delay or
prevent commencement of the Rapid Amortization Period.
In addition to the consequences of a Pay Out Event discussed above, if
pursuant to certain provisions of federal law, the Transferor voluntarily enters
liquidation or a receiver is appointed for the Transferor, on the day of such
event the Transferor will immediately cease to transfer Principal Receivables to
the Trust and promptly give notice to the Trustee of such event. Within 15 days,
the Trustee will publish a notice of the liquidation or the appointment stating
that the Trustee intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner. Unless otherwise instructed
within a specified period by certificateholders representing undivided interests
aggregating more than 50% of the invested amount of each Series (or, if any
Series has more than one class, of each class of such Series and with respect to
any Series any additional person specified in such Prospectus Supplement), the
Trustee will sell, dispose of, or otherwise liquidate the portion of the
Receivables allocated to the Certificates and the Receivables allocable to other
Series with respect to which all outstanding classes did not vote to continue
the Trust in accordance with the Pooling and Servicing Agreement in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale, disposition or liquidation of the Receivables will be
treated as collections of the Receivables and applied with respect to such
Series as provided above in "--Application of Collections."
If the only Pay Out Event to occur is either the insolvency of the
Transferor or the appointment of a conservator or receiver for the Transferor,
the conservator or receiver may have the power to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Rapid
Amortization Period. In addition, a conservator or receiver may have the power
to cause the early sale of the Receivables and the early retirement of the
Certificates.
Certain Matters Regarding the Transferor and the Servicer
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement, except upon determination that performance of
its duties is no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor to the Servicer has
assumed the Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement. The Bank, as initial Servicer, intends to delegate some of
its servicing duties to FDR; however, such delegation will not relieve it of its
obligation to perform such duties in accordance with the Pooling and Servicing
Agreement.
The Pooling and Servicing Agreement provides that the Servicer will
indemnify the Trust and the Trustee from and against any reasonable loss,
liability, expense, damage or injury suffered or sustained by reason of any acts
or omissions or alleged acts or omissions of the Servicer with respect to the
activities of the Trust or the Trustee; provided, however, that the Servicer
shall not indemnify (a) the Trustee for liabilities imposed by reason of fraud,
negligence, or willful misconduct by the Trustee in the performance of its
duties under the Pooling and Servicing Agreement, (b) the Trust, the
Certificateholders or the Certificate Owners for liabilities arising from
actions taken by the Trustee at the request of Certificateholders, (c) the
Trust, the Certificateholders or the Certificate Owners for any losses, claims,
damages or liabilities incurred by any of them in their capacities as investors,
including, without limitation, losses incurred as a result of defaulted
Receivables or Receivables which are written off as uncollectible, or (d) the
Trust, the Certificateholders or the Certificate Owners for any liabilities,
costs or expenses of the Trust, the Certificateholders or the Certificate Owners
arising under any tax law, including without limitation, any federal, state or
local income or franchise tax or any other tax imposed on or measured by income
(or any interest or penalties with respect thereto or arising from a failure to
comply therewith) required to be paid by the Trust, the Certificateholders or
the Certificate Owners in connection with the Pooling and Servicing Agreement to
any taxing authority.
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In addition, the Pooling and Servicing Agreement provides that, subject to
certain exceptions, the Transferor will indemnify the Trust and the Trustee from
and against any reasonable loss, liability, expense, damage or injury arising
out of or based upon the arrangement created by the Pooling and Servicing
Agreement as though the Pooling and Servicing Agreement created a partnership
under the New York Uniform Partnership Act in which the Transferor is a general
partner.
The Pooling and Servicing Agreement provides that neither the Transferor
nor the Servicer nor any of their respective directors, officers, employees or
agents will be under any other liability to the Trust, the Certificateholders or
any other person for any action taken, or for refraining from taking any action,
in good faith pursuant to the Pooling and Servicing Agreement. Neither the
Transferor, the Servicer, nor any of their respective directors, officers,
employees or agents will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of the Transferor, the Servicer or any such person in the performance
of its duties or by reason of reckless disregard of obligations and duties
thereunder. In addition, the Pooling and Servicing Agreement provides that the
Servicer is not under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its servicing responsibilities under the
Pooling and Servicing Agreement and which in its opinion may expose it to any
expense or liability.
The Pooling and Servicing Agreement provides that, in addition to
Exchanges, the Transferor may transfer its interest in a portion of the
Exchangeable Transferor Certificate, provided that prior to any such transfer
(a) the Trustee receives written notification from each Rating Agency that such
transfer will not result in a lowering of its then-existing rating of the
certificates rated by it and (b) the Trustee receives a written opinion of
counsel confirming that such transfer would not adversely affect the treatment
of the certificates for each outstanding Series as debt for federal income tax
purposes.
Any person into which, in accordance with the Pooling and Servicing
Agreement, the Transferor or the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which the Transferor or the
Servicer is a party, or any person succeeding to the business of the Transferor
or the Servicer, upon execution of a supplement to the Pooling and Servicing
Agreement, delivery of an opinion of counsel with respect to the compliance of
the transaction with the applicable provisions of the Pooling and Servicing
Agreement, will be the successor to the Transferor or the Servicer, as the case
may be, under the Pooling and Servicing Agreement.
Servicer Default
In the event of any Servicer Default (as defined below), either the
Trustee or certificateholders representing undivided interests aggregating more
than 50% of the aggregate investor interests for all outstanding Series, by
written notice to the Servicer (and to the Trustee if given by the
certificateholders), may terminate all of the rights and obligations of the
Servicer as servicer under the Pooling and Servicing Agreement and in and to the
Receivables and the proceeds thereof and the Trustee may appoint a new Servicer
(a "Service Transfer"). The rights and interest of the Transferor under the
Pooling and Servicing Agreement and in the Transferor Interest will not be
affected by such termination. The Trustee shall as promptly as possible appoint
a successor Servicer. If no such Servicer has been appointed and has accepted
such appointment by the time the Servicer ceases to act as Servicer, all
authority, power and obligations of the Servicer under the Pooling and Servicing
Agreement shall pass to and be vested in the Trustee. If the Trustee is unable
to obtain any bids from eligible servicers and the Servicer delivers an
officer's certificate to the effect that it cannot in good faith cure the
Servicer Default which gave rise to a transfer of servicing, and if the Trustee
is legally unable to act as Successor Servicer, then the Trustee shall give the
Transferor the right of first refusal to purchase the Receivables on terms
equivalent to the best purchase offer as determined by the Trustee.
A "Servicer Default" refers to any of the following events:
(a)failure by the Servicer to make any payment, transfer or deposit,
or to give instructions to the Trustee to make certain payments, transfers
or deposits, on the date the Servicer is required to do so under the
Pooling and Servicing Agreement or any Supplement (or within the
applicable grace period, which shall not exceed five business days);
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(b) failure on the part of the Servicer duly to observe or perform
in any respect any other covenants or agreements of the Servicer which has
a material adverse effect on the certificateholders of any Series then
outstanding and which continues unremedied for a period of 60 days after
written notice and continues to have a material adverse effect on the
certificateholders of any Series, including the Certificates (which
determination shall be made without regard to whether funds are available
from any Enhancement), then outstanding for such period; or the delegation
by the Servicer of its duties under the Pooling and Servicing Agreement,
except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the
Servicer in the Pooling and Servicing Agreement, or in any certificate
delivered pursuant to the Pooling and Servicing Agreement, proves to have
been incorrect when made which has a material adverse effect on the
certificateholders of any Series, including the Certificates (which
determination shall be made without regard to whether funds are available
from any Enhancement), then outstanding, and which continues to be
incorrect in any material respect for a period of 60 days after written
notice and continues to have a material adverse effect on such
certificateholders for such period; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in clause (a) above for a period of 10 business days, or referred to
under clause (b) or (c) for a period of 60 business days, shall not constitute a
Servicer Default if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused by
an act of God or other similar occurrence. Upon the occurrence of any such
event, the Servicer shall not be relieved from using its best efforts to perform
its obligations in a timely manner in accordance with the terms of the Pooling
and Servicing Agreement, and the Servicer shall provide the Trustee, any
provider of Enhancement, the Transferor and the holders of certificates of all
Series outstanding prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts to perform its
obligations.
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 the insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
majority of the certificateholders from effecting a Service Transfer.
Reports to Certificateholders
On each Distribution Date, the Trustee or any paying agent appointed by
the Trustee will forward to each Certificateholder of record a statement
prepared by the Servicer setting forth certain information with respect to the
Trust and the Certificates of each Series, including: (a) the total amount
distributed, (b) the amount of the distribution allocable to principal on the
Certificates, (c) the amount of such distribution allocable to interest on the
Certificates, (d) the amount of collections of Principal Receivables processed
during the related Monthly Period and allocated in respect of the Certificates,
(e) the amount of collections of Finance Charge Receivables processed during the
related Monthly Period and allocated in respect of the Certificates, (f) the
Investor Percentage for the related Monthly Period, (g) the aggregate
outstanding balance of Accounts which are 35 or more days contractually
delinquent, by class of delinquency, as of the end of the last day of the
related Monthly Period, (h) the applicable Investor Default Amount for the
related Monthly Period, (i) the applicable Investor Charge-Offs for the related
Monthly Period and the amount of Investor Charge-Offs reimbursed on the Transfer
Date immediately preceding the Distribution Date, (j) the amount of the Investor
Servicing Fee for the related Monthly Period, (k) the Invested Amount at the
close of business on the last day of the related Monthly Period, (1) the Pool
Factor as of the end of the last day of the related Monthly Period, and (m) the
amount available, if any, pursuant to the applicable Enhancement.
On or before January 31 of each calendar year, the Trustee or any paying
agent appointed by the Trustee will furnish to each person who at any time
during the preceding calendar year was a Certificateholder of record a statement
prepared by the Servicer containing the information required to be contained in
the regular monthly
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report to Certificateholders, as set forth in clauses (a), (b) and (c) above
aggregated for such calendar year or the applicable portion thereof during which
such person was a Certificateholder, together with such other customary
information (consistent with the treatment of the Certificates as debt) as the
Trustee or the Servicer deems necessary or desirable to enable the
Certificateholders to prepare their United States tax returns.
Reports; Notices
The Trustee will publish or will cause to be published following each
Distribution Date in a daily newspaper in Luxembourg (expected to be the
Luxemburger Wort) a notice to the effect that the information set forth in the
foregoing paragraph will be available for review at the main office of the
Listing Agent of the Trust in Luxembourg, Luxembourg.
Notices to Certificateholders will be given by publication in a daily
newspaper in Luxembourg, which is expected to be the Luxemburger Wort. In the
event that Definitive Certificates are issued, notices to Certificateholders
will also be given by mail to the addresses of such holders as they appear in
the Certificate Register.
Evidence as to Compliance
The Pooling and Servicing Agreement provides that the Servicer will cause
a firm of independent public accountants to furnish to the Trustee on an annual
basis a report to the effect that such firm has reviewed the Servicer's computer
reports regarding the Receivables, including information regarding
delinquencies, charge-offs and yield and that such reports are in agreement with
monthly statements prepared by the Servicer and distributed to the Trustee and
the Certificateholders, except as set forth in such report.
The Pooling and Servicing Agreement provides that the Servicer will cause
a firm of independent public accountants to furnish to the Trustee on an annual
basis a report to the effect that such firm has made a study and evaluation in
accordance with generally accepted auditing standards of the Servicer's internal
accounting controls relative to the servicing of the Accounts and that, on the
basis of such examination, such firm is of the opinion (assuming the accuracy of
reports by the Servicer's third party agents) that the system of internal
controls in effect for the reporting period relating to servicing procedures
performed by the Servicer, taken as a whole, provided reasonable assurance that
the internal control system was sufficient for the prevention and detection of
errors and irregularities and that such servicing was conducted in compliance
with such provisions of the Pooling and Servicing Agreement with which such
accountants can reasonably be expected to possess adequate knowledge of the
subject matter, which are susceptible of positive assurance by such accountants
and for which their professional competence is relevant, except for such
exceptions as such firm shall believe to be immaterial and such other exceptions
as shall be set forth in such statement.
The Pooling and Servicing Agreement also provides for delivery to the
Trustee, on or before a certain date each year, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Pooling and Servicing Agreement throughout the preceding twelve months
or, if there has been a default in the fulfillment of any such obligations,
describing each such default.
Amendments
The Pooling and Servicing Agreement and any Supplement may be amended by
the Transferor, the Servicer and the Trustee, without the consent of
certificateholders of any Series then outstanding for any purpose, provided that
(i) the Transferor shall deliver an opinion of counsel acceptable to the Trustee
to the effect that such amendment will not adversely affect in any material
respect the interest of such certificateholders, and (ii) such amendment will
not result in a withdrawal or reduction of the rating of any outstanding Series.
Such an amendment may be entered into in order to comply with or obtain the
benefits of certain future tax legislation (such as legislation creating FASITs)
as described below under "Certain U.S. Federal Income Tax Consequences--Recent
Legislation."
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The Pooling and Servicing Agreement and the Supplement may be amended by
the Transferor, the Servicer and the Trustee with the consent of the holders of
certificates evidencing undivided interests aggregating not less than 66 2/3% of
the investor interests of all Series adversely affected, for the purpose of
adding any provisions to, changing in any manner or eliminating any of the
provisions of the Pooling and Servicing Agreement or the Supplement or of
modifying in any manner the rights of certificateholders of any then outstanding
Series. No such amendment, however, may (a) reduce in any manner the amount of,
or delay the timing of, distributions required to be made on any such Series,
(b) change the definition of or the manner of calculating the interest of any
certificateholder of such Series, or (c) reduce the aforesaid percentage of
undivided interests the holders of which are required to consent to any such
amendment, in each case without the consent of all certificateholders of all
Series adversely affected. Promptly following the execution of any amendment to
the Pooling and Servicing Agreement, the Trustee will furnish written notice of
the substance of such amendment to each Certificateholder. Any Supplement and
any amendments regarding the addition or removal of Receivables from the Trust
will not be considered an amendment requiring certificateholder consent under
the provisions of the Pooling and Servicing Agreement and any Supplement.
List of Certificateholders
Upon written request of Certificateholders of record representing
undivided interests in the Trust aggregating not less than 10% of the Invested
Amount of a Series, the Trustee after having been adequately indemnified by such
Certificateholders for its costs and expenses, and having given the Servicer
notice that such request has been made, will afford such Certificateholders
access during business hours to the current list of Certificateholders of the
Trust for purposes of communicating with other Certificateholders with respect
to their rights under the Pooling and Servicing Agreement. See "--Book-Entry
Registration" and "--Definitive Certificates" above.
The Trustee
The Bank of New York (Delaware) is currently the Trustee under the Pooling
and Servicing Agreement. The Transferor, the Servicer and their respective
affiliates may from time to time enter into normal banking and trustee
relationships with the Trustee and its affiliates. The Trustee, the Transferor,
the Servicer and any of their respective affiliates may hold Certificates in
their own names. 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.
The Trustee may resign at any time, in which event the Transferor will be
obligated to appoint a successor Trustee. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. In such
circumstances, the Transferor will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
does not become effective until acceptance of the appointment by the successor
Trustee.
Other Litigation
The Bank was named a defendant in a class action lawsuit filed on May 26,
1995 in the District Court of Willacy County, Texas by a former cardmember of
the Bank. In this action, the plaintiff contends that he and all others
similarly situated are entitled to statutory penalties for alleged violations by
the Bank of the Texas Debt Collection Act and the Texas Deceptive Trade
Practices Act. Similar class action lawsuits have been filed in Texas against
other banks and entities. The Bank believes that plaintiff's claim under these
statutes is not valid. The Bank removed the case to the United States District
Court for the Southern District of Texas, Brownsville Division. On April 8,
1996, the United States District Court for the Southern District of Texas,
Brownsville Division granted the Bank's motion for summary judgment and
dismissed the plaintiff's claim. The plaintiff has appealed the judgment and the
Bank intends to vigorously defend against all claims arising under such appeal.
While it is impossible to predict the outcome of such lawsuit, the Bank believes
that any liability arising from such lawsuit will not have a material adverse
effect on the Transferor's business or on the Receivables in the Trust.
A-109
<PAGE>
<PAGE>
ANNEX I
OTHER SERIES
The table below sets forth the principal characteristics of the
twenty-three Series heretofore issued by the Trust: Series 1992-1, Series
1993-1, Series 1993-2, Series 1993-3, Series 1994-1, Series 1994-2, Series
1994-3, Series 1994-4, Series 1994-5, Series 1994-6, Series 1994-7, Series
1994-8, Series 1995-1, Series 1995-2, Series 1995-3, Series 1995-4, Series
1995-5, Series 1995-6, Series 1996-1, Series 1996-El, Series 1996-2, Series
1996-3 and Series 1996-4. For more specific information with respect to any
Series, any prospective investor should contact the Servicer at (214) 849-3700.
The Servicer will provide, without charge, to any prospective purchaser of the
Certificates, a copy of the disclosure documents for any previous publicly
issued Series.
Series 1992-1
1. Class A Certificates
Initial Invested Amount ............. $308,000,000
Certificate Rate .................... 5.20%
Controlled Amortization Amount ...... $25,666,667
Commencement of Controlled
Amortization Period ............... October 1, 1995
Annual Servicing Fee Percentage ..... 2.0%
Initial Cash Collateral Amount ...... N/A
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... October 15, 1996
Scheduled Series Termination Date ... June 15, 1998
Series Issuance Date ................ September 24,1992
2. Class B Certificates
Initial Invested Amount ............. $42,000,000
Certificate Rate .................... 5.80%
Controlled Amortization Amount ...... $21,000,000
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Cash Collateral Amount ...... $14,000,000
Expected Final Payment Date ......... December 15, 1996
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1993-1
Initial Invested Amount ............. $500,000,000
Certificate Rate .................... One Month LIBOR + 0.30%
Controlled Amortization Amount ...... $41,666,667
Commencement of Controlled
Amortization Period ............... May 1, 1997
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Cash Collateral Amount ...... $70,000,000
Expected Series Termination Date .... May 15, 1998
Scheduled Series Termination Date ... February 15, 2000
Series Issuance Date ................ May 13, 1993
A-110
<PAGE>
<PAGE>
Series 1994-3
1. Class A Certificates
Initial Invested Amount ............. $532,350,000
Certificate Rate .................... One Month LIBOR + 0.22%
Controlled Amortization Amount ...... $133,087,500
Commencement of Controlled
Amortization Period ............... March 1, 1997
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $63,000,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... July 15, 1997
Scheduled Series Termination Date ... December 15, 1999
Series Issuance Date ................ June 9, 1994
2. Class B Certificates
Initial Invested Amount ............. $34,650,000
Certificate Rate .................... One Month LIBOR +0.40%
Controlled Amortization Amount ...... $34,650,000
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... August 15, 1997
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1994-4
1. Class A Certificates
Initial Invested Amount ............. $726,450,000
Certificate Rate .................... One Month LIBOR + 0.37%
Controlled Amortization Amount ...... $60,537,500
Commencement of Controlled
Amortization Period ............... November 1, 2000
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $87,000,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... November 15, 2001
Scheduled Series Termination Date ... August 15, 2003
Series Issuance Date ................ June 9, 1994
2. Class B Certificates
Initial Invested Amount ............. $56,550,000
Certificate Rate .................... One Month LIBOR + 0.58%
Controlled Amortization Amount ...... $56,550,000
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... December 15, 2001
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-111
<PAGE>
<PAGE>
Series 1994-5
1. Class A Certificates
Initial Invested Amount ............. $500,000,000
Certificate Rate .................... One Month LIBOR + 0.14%
Controlled Amortization Amount ...... $250,000,000
Commencement of Controlled
Amortization Period ............... July 1, 1997
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $63,250,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... September 15,1997
Scheduled Series Termination Date ... April 15, 2000
Series Issuance Date ................ August 24, 1994
2. Class B Certificates
Initial Invested Amount ............. $39,160,000
Certificate Rate .................... One Month LIBOR + 0.34%
Controlled Amortization Amount ...... $39,160,000
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... October 15, 1997
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1994-6
1. Class A Certificates
Initial Invested Amount ............. $750,000,000
Certificate Rate .................... One Month LIBOR +0.35%
Controlled Amortization Amount ...... $62,500,000
Commencement of Controlled
Amortization Period ............... January 1,2001
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $89,820,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... January 15, 2002
Scheduled Series Termination Date ... October 15, 2003
Series Issuance Date ................ August 24, 1994
2. Class B Certificates
Initial Invested Amount ............. $58,380,000
Certificate Rate .................... One Month LIBOR +0.58%
Controlled Amortization Amount ...... $58,380,000
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... February 15, 2002
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-112
<PAGE>
<PAGE>
Series 1994-7
1. Class A Certificates
Initial Invested Amount ............. $750,000,000
Certificate Rate .................... One Month LIBOR + 0.18%
Controlled Accumulation Amount
(subject to adjustment) ........... $62,500,000
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... October 31, 1998
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $94,880,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... November 15, 1999
Scheduled Series Termination Date ... June 15, 2002
Series Issuance Date ................ November 8, 1994
2. Class B Certificates
Initial Invested Amount ............. $58,735,000
Certificate Rate .................... One Month LIBOR + 0.40%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1994-S
1. Class A Certificates
Initial Invested Amount ............. $500,000,000
Certificate Rate .................... Three Month LIBOR + 0.24%
Controlled Accumulation Amount
(subject to adjustment) ........... $41,666,667
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... October 31, 2000
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $63,253,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... November 15, 2001
Scheduled Series Termination Date ... June 15, 2004
Series Issuance Date ................ November 8, 1994
2. Class B Certificates
Initial Invested Amount ............. $39,157,000
Certificate Rate .................... Three Month LIBOR + 0.45%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-113
<PAGE>
<PAGE>
Series 1995-1
1. Class A Certificates
Initial Invested Amount ............ $1,000,000,000
Certificate Rate .................. One Month LIBOR + 0.14%
Controlled Accumulation Amount
(subject to adjustment) .......... $83,333,333
Commencement of Controlled
Accumulation Period
(subject to adjustment) .......... February 28, 1998
Annual Servicing Fee Percentage .... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount . $126,500,000
Other Enhancement .................. Subordination of Class B Certificates
Expected Final Payment Date ........ March 15, 1999
Scheduled Series Termination Date .. October 15, 2001
Series Issuance Date ............... March 1, 1995
2. Class B Certificates
Initial Invested Amount ............. $78,300,000
Certificate Rate .................... One Month LIBOR + 0.35%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1995-2
1. Class A Certificates
Initial In vested Amount ............ $660,000,000
Certificate Rate .................... One Month LIBOR + 0.24%
Controlled Accumulation Amount
(subject to adjustment) ........... $55,000,000
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... February 28, 2001
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $83,500,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... March 15, 2002
Scheduled Series Termination Date ... October 15, 2004
Series Issuance Date ................ March 1, 1995
2. Class B Certificates
Initial Invested Amount ............. $51,700,000
Certificate Rate .................... One Month LIBOR + 0.425%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-114
<PAGE>
<PAGE>
Series 1995-3
1. Class A Certificates
Initial Invested Amount ............. $830,000,000
Certificate Rate ................... One Month LIBOR + 0.10%
Controlled Accumulation Amount
(subject to adjustment) ........... $69,166,667
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... April 30, 1997
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $105,000,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... May 15, 1998
Scheduled Series Termination Date ... December 15, 2000
Series Issuance Date ................ May 16, 1995
2. Class B Certificates
Initial Invested Amount ............. $65,000,000
Certificate Rate .................... One Month LIBOR + 0.27%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1995-4
1. Class A Certificates
Initial Invested Amount ............. $750,000,000
Certificate Rate .................... One Month LIBOR + 0.12%
Controlled Accumulation Amount
(subject to adjustment) ........... $62,500,000
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... August 29, 1997
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $85,845,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... September 15, 1998
Scheduled Series Termination Date ... April 15, 2001
Series Issuance Date ................ September 14, 1995
2. Class B Certificates
Initial Invested Amount ............. $67,770,000
Certificate Rate .................... One Month LIBOR + 0.24%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-115
<PAGE>
<PAGE>
Series 1995-5
1. Class A Certificates
Initial Invested Amount ............. $500,000,000
Certificate Rate .................... One Month LIBOR + 0.17%
Controlled Accumulation Amount
(subject to adjustment) ........... $41,666,667
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... August 31, 1999
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $57,230,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... September 15, 2000
Scheduled Series Termination Date ... April 15, 2003
Series Issuance Date ................ September 14, 1995
2. Class B Certificates
Initial Invested Amount ............. $45,180,000
Certificate Rate .................... One Month LIBOR + 0.29%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1995-6
1. Class A Certificates
Initial Invested Amount ............. $1,245,000,000
Certificate Rate .................... One Month LIBOR + 0.17%
Controlled Accumulation Amount
(subject to adjustment) ........... $103,750,000
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... October 31, 1999
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial Collateral Invested Amount .. $142,500,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... November 10, 2000
Scheduled Series Termination Date ... July 10, 2003
Series Issuance Date ................ December 7, 1995
2. Class B Certificates
Initial Invested Amount ............. $112,500,000
Certificate Rate .................... One Month LIBOR +0.33%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial Collateral Invested Amount .. Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-116
<PAGE>
<PAGE>
Series 1996-1
1. Class A Certificates
Initial Invested Amount ............. $750,000,000
Certificate Rate .................... One Month LIBOR + 0.16%
Controlled Accumulation Amount
(subject to adjustment) ........... $75,301,250
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... February 29, 2000
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial CIA Invested Amount ......... $85,845,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... March 15, 2001
Scheduled Series Termination Date ... November 15, 2003
Series Issuance Date ................ March 6, 1996
2. Class B Certificates
Initial Invested Amount ............. $67,770,000
Certificate Rate .................... One Month LIBOR + 0.29%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial CIA Invested Amount ......... Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1996-El
Initial Invested Amount ............. $500,000,000
Outstanding Invested Amount .........
as of October 17, 1996 ............ $454,200,000
Certificate Rate .................... One month LIBOR + 1.00% (or such lesser
rate as designated in the Exchangeable
Certificate Purchase Agreement)
Controlled Accumulation Amount ...... Invested Amount at the end of Revolving
(subject to adjustment) Period divided by 3
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... November 30, 1997
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Other Enhancement ................... Group E Spread Account
Group ............................... Group E1
Exchange Period ..................... 18 months from Series Issuance Date
Expected Final Payment Date ......... March 15, 1998
Scheduled Series Termination Date ... November 15, 2000
Series Issuance Date ................ May 2, 1996
A-117
<PAGE>
<PAGE>
Series 1996-2
1. Class A Certificates
Initial Invested Amount ............. $600,000,000
Certificate Rate .................... One Month LIBOR + 0.18%
Controlled Accumulation Amount
(subject to adjustment) ........... $60,250,000
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... May 31,2002
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial CIA Invested Amount ......... $68,700,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... June 10, 2003
Scheduled Series Termination Date ... February 10, 2006
Series Issuance Date ................ June 4, 1996
2. Class B Certificates
Initial Invested Amount ............. $54,300,000
Certificate Rate .................... One Month LIBOR + 0.33%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial CIA Invested Amount ......... Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
Series 1996-3
1. Class A Certificates
Initial Invested Amount ............. $400,000,000
Certificate Rate .................... One Month LIBOR +0.10%
Controlled Accumulation Amount
(subject to adjustment) ........... $40,166,667
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... May 31, 1998
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial CIA Invested Amount ......... $45,800,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... June 10, 1999
Scheduled Series Termination Date ... February 10, 2002
Series Issuance Date ................ June 6, 1996
2. Class B Certificates
Initial Invested Amount ............. $36,200,000
Certificate Rate .................... One Month LIBOR + 0.23%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial CIA Invested Amount ......... Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-118
<PAGE>
<PAGE>
Series 1996-4
1. Class A Certificates
Initial Invested Amount ............. $500,000,000
Certificate Rate .................... One Month LIBOR + 0.19%
Controlled Accumulation Amount
(subject to adjustment) ........... $50,200,834
Commencement of Controlled
Accumulation Period
(subject to adjustment) ........... July 31, 2005
Annual Servicing Fee Percentage ..... 1.5%, subject to increase to 2.0%
Initial CIA Invested Amount ......... $57,230,000
Other Enhancement ................... Subordination of Class B Certificates
Expected Final Payment Date ......... August 10, 2006
Scheduled Series Termination Date ... April10, 2009
Series Issuance Date ................ August 6, 1996
2. Class B Certificates
Initial Invested Amount ............. $45,180,000
Certificate Rate .................... One Month LIBOR + 0.37%
Controlled Accumulation Amount
(subject to adjustment) ........... Same as above for Class A Certificates
Commencement of Controlled
Accumulation Period
(subject to adjustment) ....s....... Same as above for Class A Certificates
Annual Servicing Fee Percentage ..... Same as above for Class A Certificates
Initial CIA Invested Amount ......... Same as above for Class A Certificates
Expected Final Payment Date ......... Same as above for Class A Certificates
Scheduled Series Termination Date ... Same as above for Class A Certificates
Series Issuance Date ................ Same as above for Class A Certificates
A-119
<PAGE>
<PAGE>
Lehman Card Account Trust 1994-1,
Floating Rate Asset Backed Notes
The following excerpts are from the 1994-1 Prospectus Supplement only. The
1994-1 Prospectus is virtually identical to the Prospectus for LCAT 1995-1.
Please refer to the 1995-1 Prospectus for defined terms not defined herein.
<PAGE>
<PAGE>
THE TRUST
General
The Issuer, Lehman Card Account Trust 1994-1, is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. The Trust Agreement
constitutes the "governing instrument" under the laws of the State of Delaware
relating to business trusts. After its formation, the Issuer will not engage in
any activity other than (i) acquiring, holding and managing the CABS and the
other assets of the Trust and proceeds therefrom, (ii) issuing the Notes and the
Certificates, (iii) making payments on the Notes and the Certificates and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith.
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee, at the address listed below under
"The Owner Trustee".
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the Indenture dated as of June 1,
1994, between the Trust and The Bank of New York, as Indenture Trustee. The
Depositor will provide a copy of the Indenture to prospective investors without
charge upon request.
The following summaries describe certain terms of the Notes and the
Indenture. The summaries do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the provisions of the Indenture.
Wherever particular defined terms of the Indenture are referred to, such defined
terms are thereby incorporated herein by reference. See "The Indenture" herein
for a summary of additional terms of the Indenture.
The Notes will be issued in fully registered form only and each Class of
Notes will be secured by a specified group of assets of the Trust. The Notes
will be freely transferable and exchangeable at the corporate trust office of
the Indenture Trustee. The Depositor will retain at least 0.2% of the
outstanding principal amount of each Class of Notes at all times prior to the
payment in full of the Notes.
Payments on Notes
Payments on the Notes, as described below, will be made by the Indenture
Trustee on the Payment Date to persons in whose names the Notes are registered
on the last day of the month preceding the month in which such Payment Date
occurs (the "Record Date"). Payments to each Noteholder will be made through the
facilities of The Depository Trust Company ("DTC") (in the United States) or
Cede I or Euroclear (in Europe) to an account specified in writing by such
holder as of the preceding Record Date or in such other manner as may be agreed
to by the Indenture Trustee and such holder. The final payment in retirement of
a Note will be made only upon surrender of the Note to the Indenture Trustee at
the office thereof specified in the notice to Noteholders of such final payment.
Notice will be mailed prior to the Payment Date on which the final payment of
principal and interest on a Note is expected to be made to the holder thereof.
Payments of Interest
Interest on the principal balances of the Classes of the Notes will accrue
at the respective per annum interest rates specified below and will be payable
monthly on each Payment Date.
Interest in respect of a Payment Date will accrue on the outstanding
principal of the Notes from and including the preceding Payment Date (in the
case of the first Payment Date, from and including June 15, 1994 (the "Closing
Date")) to but excluding such current Payment Date (each, an "Interest Accrual
Period"). Interest will be calculated on the basis of the actual number of days
in each Interest Accrual Period divided by 360.
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Except for payments made pursuant to the Interest Rate Cap Agreements
described below, interest payments on the Class A1 Notes will be funded from the
collections of interest on the Group I CABS on such date, and interest payments
on the Class A2 Notes will be funded from the collections of interest on the
Group II CABS on such date. Interest on all of the CABS is payable on the 15th
day of each month or, if such day is not a Business Day, the next succeeding
Business Day (each, a "CABS Distribution Date"). If interest collections on the
Group I CABS or the Group II CABS plus amounts received with respect to the
respective Interest Rate Cap Agreements are not sufficient to pay the interest
due on the respective classes of Notes for any Payment Date and such default
continues for five days, an Event of Default will occur in respect of all of the
Notes.
Calculation of LIBOR. LIBOR applicable to the calculation of the interest
rates on the Class A1 Notes in respect of a Payment Date shall be calculated by
the Indenture Trustee and shall be equal to the weighted average of the LIBOR
interest rates (weighted on the basis of the outstanding principal balances of
the Group I CABS immediately prior to such CABS Distribution Date) applicable to
the distributions of interest on the Group I CABS distributable on such CABS
Distribution Date. LIBOR applicable to the calculation of the interest rates on
the Class A2 Notes in respect of a Payment Date shall be calculated by the
Indenture Trustee and shall be equal to the weighted average of the LIBOR
interest rates (weighted on the basis of the outstanding principal balances of
the Group II CABS immediately prior to such CABS Distribution Date) applicable
to the distributions of interest on the Group II CABS distributable on such CABS
Distribution Date. The LIBOR applicable to the CABS is described under
"Description of the CABS--Interest Distributions" herein. The Indenture Trustee
shall transmit the results of its calculations of LIBOR to any securities
exchange to which application to list the Notes has been made prior to the
Closing Date.
Class A1. The Class A1 Notes will bear interest at an annual rate equal to
LIBOR (calculated as described herein) plus 0.25% on the aggregate principal
amount of the Class A1 Notes.
Class A2. The Class A2 Notes will bear interest at an annual rate equal to
LIB OR plus 0.20% on the aggregate principal amount of the Class A2 Notes,
subject to a maximum rate of 12% until the January 1998 Payment Date, and,
subsequently, subject to no maximum rate.
Payments of Principal
Principal payments to the Noteholders are expected to commence on the May
1998 Payment Date with respect to the Class A1 Notes and the March 1998 Payment
Date with respect to the Class A2 Notes. If, however, a CABS Amortization Event
(as defined herein) shall occur, principal payments on the Notes will commence
on the first Payment Date after such CABS Amortization Event.
On each Payment Date in respect of which principal is distributed on the
Group I CABS, principal payments will be made on the Class A1 Notes in an amount
generally equal to 97% (the "Class A1 Note Percentage") of the principal
distributed on the Group I CABS only. Such principal will be applied pro rata in
accordance with the outstanding principal balances of the Class A1 Notes. The
principal balance of the Class A1 Notes, to the extent not previously paid, will
be due on the June 1999 Payment Date (the "Class A1 Final Scheduled Payment
Date").
On each Payment Date in respect of which principal is distributed on the
Group II CABS, principal payments will be made on the Class A2 Notes in an
amount generally equal to 97% (the "Class A2 Note Percentage") of such principal
distributed on the Group II CABS only. Such principal will be applied pro rata
in accordance with the outstanding principal balances of the Class A2 Notes. The
principal balance of the Class A2 Notes, to the extent not previously paid, will
be due on the March 1999 Payment Date (the "Class A2 Final Scheduled Payment
Date").
Principal on the Class A1 Notes will be payable solely from principal on
the Group I CABS and principal on the Class A2 Notes will be payable solely from
principal on the Group II CABS.
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<PAGE>
Interest Rate Cap Agreements
On the Closing Date the Trust will enter into interest rate cap agreements
(such agreements, the "Interest Rate Cap Agreements") with the Interest Rate Cap
Provider.
Pursuant to the Interest Rate Cap Agreements, the Interest Rate Cap
Provider will make payments (the "Interest Rate Cap Payments") to the Trust on
each Payment Date with respect to the Class A1 Notes, and commencing with the
January 1998 Payment Date with respect to the Class A2 Notes, to the extent the
applicable LIBOR on any such Payment Date exceeds the following rates ("Cap
Rates"):
11.75% in the case of the Class A1 Notes and,
11.80% in the case of the Class A2 Notes.
For each Class of Notes listed above, the Interest Rate Cap Payment will
equal the product of (i) the principal balances of such Class of Notes and (ii)
the product of (x) the amount by which the applicable LIBOR exceeds the related
Cap Rate and (y) the number of days in the Interest Accrual Period divided by
360. Payments with respect to each Interest Rate Cap Agreement will be available
for payment on the respective Class of Notes only and not for payment on the
other Class of Notes.
Payments received by the Indenture Trustee pursuant to the Interest Rate
Cap Agreements will be deposited in the Collection Account.
Interest Rate Cap Provider
The Interest Rate Cap Provider will be Lehman Asset Backed Caps Inc., a
newly formed wholly owned subsidiary of the Depositor. On the Closing Date the
sole assets of the Interest Rate Cap Provider will be a cap agreement (the
"Initial Cap") from Lehman Brothers Special Financing Inc. ("LBSF") and cash
(the "Cash Collateral") deposited by the Depositor in an account (the "Cash
Collateial Account") held by the Indenture Trustee on behalf of the Interest
Rate Cap Provider. On a weekly basis LBSF will determine whether the Cash
Collateral is sufficient to maintain the rating of the Notes. If the Cash
Collateral is not sufficient, the Depositor or an affiliate thereof will
contribute additional cash to the Cash Collateral Account. By October 15, 1994,
(the "Agreement Date"), it is anticipated that the Interest Rate Cap Provider
will assign the Initial Cap to Lehman Brothers Financial Products, Inc.
("LBFP"), in exchange for interest rate cap agreements (the "Interest Rate Cap
Support Agreements") which are to be entered into by LBFP. Upon receipt of the
Interest Rate Cap Support Agreements the Cash Collateral will be released to the
Depositor. LBFP is incorporated in New York. Its main office is located at 3
World Financial Center, 12th Floor, New York, New York 10285-1200. LBFP is a
wholly owned subsidiary of Lehman Brothers Inc. and an indirect subsidiary of
Lehman Brothers Holdings Inc. LBFP will initially be capitalized with $200
million of equity. LBFP's primary objective is to provide comprehensive treasury
and risk management and derivative product services, including interest-rate and
currency swaps, to its own and its shareholders' clients worldwide. It has been
assigned a rating of "Aaa" by Moody's and "AAA" by S&P.
If LBFP does not enter into the Interest Rate Cap Support Agreements with
the Interest Rate Cap Provider by the Agreement Date, then the Interest Rate Cap
Provider will use all or part of the Cash Collateral to enter into the Interest
Rate Cap Support Agreements with a provider selected by the Depositor and rated
"Aaa" by Moody's and "AAA" by S&P.
In the event of a reduction or withdrawal of the credit rating by any
Rating Agency of the short-term debt of the provider of the Interest Rate Cap
Support Agreements (or, if such provider does not have such a rating by the
relevant Rating Agency, the long-term debt), the Interest Rate Cap Provider may,
but is not required to, obtain a substitute interest rate cap support provider
or enter into a substitute arrangement that is satisfactory to such Rating
Agency, in order to avoid a reduction or withdrawal of the rating of the Notes.
Distributions on the CABS; Collection Account
A1l distributions on the CABS will be remitted directly to an account (the
"Collection Account") to be established with the Indenture Trustee under the
Indenture on the Closing Date. The Indenture Trustee will hold such moneys
uninvested and without liability for interest thereon for the benefit of holders
of the Securities. The CABS Distribution Date in each month is the Payment Date
for such month.
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<PAGE>
Assignment of CABS
The Depositor will acquire the CABS for deposit into the Trust from Lehman
Government Securities, Inc. ("LGSI"). At the time of issuance of the Securities,
the Depositor will cause the beneficial interest in such CABS, which will be
held in book-entry form through the facilities of The Depository Trust Company,
to be delivered to the Indenture Trustee's participant account at The Depository
Trust Company.
Termination
A1l obligations of the Depositor and the Indenture Trustee created by the
Indenture will terminate upon the payment to Noteholders of all amounts required
to be paid to them pursuant to the Indenture. In addition, the occurrence of
certain CABS Amortization Events (as defined herein) may lead to an early
termination of the obligations of the Depositor and the Indenture Trustee
created by the Indenture.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Trust Agreement dated as
of June 1, 1994, among the Depositor, LGSI and Wilmington Trust Company as Owner
Trustee. The Depositor will provide a copy of the Trust Agreement to prospective
investors without charge upon request.
The following summaries describe certain terms of the Certificates and the
Trust Agreement. The summaries do not purport to be complete and are subject to,
and qualified in their entirety by reference to, the provisions of the Trust
Agreement. Wherever particular defined terms of the Trust Agreement are referred
to, such defined terms are thereby incorporated herein by reference. See "The
Trust Agreement" herein for a summary of additional terms of the Trust
Agreement.
The Certificates will be issued in fully registered, certificated form
only and will represent undivided interests in the Trust. Subject to the
limitations described in this paragraph, the Certificates will be freely
transferable and exchangeable at the corporate trust office of the Owner
Trustee. The Certificates will be issued in minimum denominations of $1,660,000
and will not be eligible to be resold or subdivided in units smaller than the
minimum denomination for issuance, except for one Certificate issued in a
denomination of $324,850 which will be held by the Depositor. In addition,
non-United States persons will not be permitted to purchase Certificates. Such
restrictions will be set forth in a legend contained in the registered form of
Certificate. By accepting delivery of a Certificate the holder will be deemed to
have agreed to comply with such restrictions. Any attempt to transfer
Certificates in violation of the foregoing restrictions will be null and void
and such transfer will not be recorded by the registrar. The Depositor will
retain at least 1.0% of the outstanding principal amount of the Certificates at
all times prior to the termination of the Trust Agreement.
Distributions on Certificates
Pursuant to an administration agreement entered into between the Trust,
the Indenture Trustee, The Bank of New York as administrator (the
"Administrator") and the Owner Trustee (the "Administration Agreement"),
distributions on the Certificates, as described below, will be made on behalf of
the Owner Trustee by the Administrator on the Payment Date to persons in whose
names the Certificates are registered on the Record Date. Distributions to each
Certificateholder will be made by the Administrator to an account specified in
writing by such holder as of the preceding Record Date or in such other manner
as may be agreed to by the Owner Trustee and such holder. The final distribution
in retirement of a Certificate will be made only upon surrender of the
Certificate to the Owner Trustee at the office thereof specified in the notice
to Certificateholders of such final distribution. Notice will be mailed prior to
the Payment Date on which the final distribution of principal and interest on a
Certificate is expected to be made to the holder thereof.
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Distributions of Interest
Interest on the principal balance of the Class A3 Certificates will accrue
at the per annum interest rate specified below and will be distributable monthly
on each Payment Date. Interest in respect of a Payment Date will accrue on the
outstanding principal of the Certificates from and including the preceding
Payment Date (in the case of the first Payment Date, from and including the
Closing Date) to but excluding such current Payment Date (each, an "Interest
Accrual Period"). Interest will be calculated on the basis of the actual number
of days in each Interest Accrual Period divided by 360.
Calculation of LIBOR: LIBOR applicable to the calculation of the interest
rates on the Class A3 Certificates in respect of a Payment Date shall be
calculated by the Indenture Trustee and shall be equal to the weighted average
of the LIBOR interest rates (weighted on the basis of the outstanding principal
balances of the CABS immediately prior to such CABS Distribution Date)
applicable to the distributions of interest on the CABS distributable on such
CABS Distribution Date. The LIBOR applicable to the CABS is described under
"Description of the CABS--Interest Distributions" herein. The Indenture Trustee
shall transmit the results of its calculations of LIBOR to any securities
exchange to which application to list the Certificates has been made prior to
the Closing Date.
Class A3. The Class A3 Certificates will bear interest on the aggregate
principal amount of the Class A3 Certificates at an annual rate equal to (x)
LIBOR (calculated as described above) plus (y) the sum of (i) 0.25% multiplied
by the ratio that the principal amount of the Group I CABS bears to the
aggregate principal amount of the CABS, such amount being subject to a maximum
rate of 12%, plus (ii) 0.20% multiplied by the ratio that the principal amount
of the Group II CABS bears to the aggregate principal amount of the CABS, such
amount being subject to a maximum rate of 12%.
Distributions of Principal
Principal distributions to Certificateholders are expected to commence on
the March 1998 Payment Date. If, however, a CABS Amortization Event (as defined
herein) shall occur, principal distributions on the Certificates will commence
on the first Payment Date after such CABS Amortization Event.
On each Payment Date in respect of which principal is distributed on the
CABS, principal distributions will, subject to the prior rights of the holders
of the Notes described under "Subordination" below, be made on the Class A3
Certificates in an amount generally equal to 3% (the "Group I Certificate
Percentage") of the principal distributed on the Group I CABS and 3% (the "Group
II Certificate Percentage") of the principal distributed on the Group II CABS.
Such principal will be applied pro rata in accordance with the outstanding
principal balances of the Class A3 Certificates. The principal balance of the
Class A3 Certificates at any time will be equal to the outstanding principal
balance of the CABS at such time multiplied by the Class A3 Certificate
Percentage at such time. As more fully described herein, the outstanding
principal balance of the CABS will be reduced as a result of principal payments
on the Receivables that are distributed in respect of the CABS.
Subordination
Distributions of interest on the Certificates with respect to the Group I
CABS and the Group II CABS will be subordinated in priority of payment to the
payment of interest due on the Class A1 Notes and Class A2 Notes, respectively.
Distributions of principal on the Certificates with respect to the Group I CABS
and the Group II CABS will be subordinated in priority of payment to the payment
of principal due on the Class A1 Notes and Class A2 Notes, respectively.
Consequently, the Certificateholders will not receive any distributions of
interest with respect to the Group I CABS or the Group II CABS with respect to a
Payment Date until the full amount of interest due on the respective Class of
Notes on such Payment Date is paid in full and will not receive any
distributions of principal with respect to the Group I CABS or the Group II CABS
until the full amount of principal due on the respective Class of Notes on such
Payment Date is paid in full.
Termination
A1l obligations of the Depositor and the Owner Trustee created by the
Trust Agreement will terminate upon the distribution to Certificateholders of
all amounts required to be distributed to them pursuant to the Trust Agreement.
In addition, the occurrence of certain CABS Amortization Events (as defined
herein) will lead to an early termination of the obligations of the Depositor
and the Owner Trustee created by the Trust Agreement.
DESCRIPTION OF THE CABS
The table below sets forth certain of the characteristics of the CABS. The
table does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the prospectuses pursuant to which the CABS were
offered and sold. The CABS are not listed on any securities exchange.
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DESCRIPTION OF THE CABS
<TABLE>
<CAPTION>
Group I
----------------------------------------------------------------------
ADVANTA First USA MBNA Master
Credit Card Credit Card Credit
Issuer: Master Trust Master Trust Card Trust
- ------- ------------ ------------ ----------
<S> <C> <C> <C>
Servicer ........................................ Colonial National First USA Bank MBNA America
Bank USA Bank, National
Association
Trustee ......................................... Chemical Bank NationsBank of Bankers Trust
Virginia, N.A. Company
Designation ..................................... Floating Rate Asset Floating Rate Asset Floating Rate Asset
Backed Certificates, Backed Certificates. Backed Certificates.
Series 1993-4 Series 1993-3 Series 1993-4
Principal Amount Purchased by Depositor ......... $75,000,000 $259,750,000 $335,360,000
Percentage of total CABS pool ................... 6.93% 24% 30.98%
Investor amount ................................. $400,000,000 $750,000,000 $1,000,000,000
Series termination date(1) ...................... December 31, 2000 December 15, 2000 December 15, 2000
Certificate rate ................................ LIBOR(2) plus 0.25%; LIBOR(3) plus 0.25%: LIBOR(2) plus 0.25%;
cap of 12% cap of 12% cap of 12%
Monthly payment date(4) ......................... 15th 15th 15th
Commencement of controlled amortization
period(5) ..................................... June 1, 1998 April 1, 1998 June 1, l998
Minimum Seller's percentage ..................... 7% 7% 7%
Cash Collateral Guaranty(6) Amount .............. $52,000,000 $97,500,000 $105,000,000
Percentage of Subordinated Class B Certificates . None None None
Optional repurchase percentage .................. 5% 5% 5%
Ratings (Moody's/S&P)(8) ........................ Aaa/AAA Aaa/AAA Aaa/AAA
<CAPTION>
Group II
---------------------------------------------
Household Affinity
First Chicago Credit Card Master
Issuer: Master Trust II Trust I
- ------- --------------- -------
<S> <C> <C>
Servicer ........................................ FCC National Bank Household Finance
Corporation
Trustee ......................................... Norwest Bank The Bank of New
Minnesota, National York
Association
Designation ..................................... Floating Rate Credit Floating Rate Class A
Card Certificates, Credit Card
Series 1993-H Participation
Certificates, Series
1993-1
Principal Amount Purchased by Depositor ......... $226,115,000 $186,260,000
Percentage of total CABS pool ................... 20.89% 17.21%
Investor amount ................................. $700,000,000 $900,000,000
Series termination date(1) ...................... April 15, 2000 September 15, 2000
Certificate rate ................................ LIBOR(2) plus 0.20%; LIBOR(3) plus 0.20%;
cap of 12% cap of 12%
Monthly payment date(4) ......................... 15th 15th
Commencement of controlled amortization
period(5) ..................................... February 1, 1998 March 1, 1998
Minimum Seller's percentage ..................... 7% 7%
Cash Collateral Guaranty(6) Amount .............. $91,000,000 (7)
Percentage of Subordinated Class B Certificates . None 6%
Optional repurchase percentage .................. 5% 5%
Ratings (Moody's/S&P)(8) ........................ Aaa/AAA Aaa/AAA
</TABLE>
- ----------
(1) Includes defined terms: Series Termination Date and Stated Series
Termination Date
(2) Reuters LIBOR
(3) Telerate LIBOR
(4) Includes defined terms: Payment Date and Distribution Date
(5) Includes defined terms: Controlled Amortization Period. Amortization Period
and Controlled Liquidation Period
(6) A "Cash Collateral Guaranty" generally provides, that in the event that a
deficiency exists with respect to a payment of interest and/or principal,
an amount equal to such deficiency may be withdrawn from the cash
collateral account and applied to such deficiency up to the amount provided
in the Agreement.
(7) On each payment date for the investors, the amount of Enhancement available
to the investors will equal the lesser of (i) the Collateral Amount and
(ii) the Required Collateral Amount. "Collateral Amount" means an amount
equal to the sum of the Collateral Invested Amount and the amount, if any,
on deposit in the cash collateral account. The "Required Collateral Amount"
with respect to any payment date means (i) $105,883,000 until the payment
date on which the invested amount of the Class A Certificates has been
reduced to zero and (ii) on any payment date thereafter 60% of the unpaid
principal balance of the Class B Certificates as of the last day of the due
period preceding such payment date.
The investors have the benefit of a cash collateral account. The cash
collateral account had a beginning balance of zero which may be increased
(i) to the extent the Seller elects, subject to rating agency approval, to
apply collections of Principal Receivables to decrease the Collateral
Invested Amount and (ii) to the extent either collections of Principal
Receivables allocable to the Collateral Invested Amount or collections of
excess Finance Charge Receivables are required to be deposited therein.
"Collateral Invested Amount" means an undivided interest in the assets of
the CABS Issuer in the initial amount of $105,883,000 of Principal
Receivables.
(8) As of June 14, 1994.
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General
This Prospectus Supplement sets forth certain relevant terms with respect
to the CABS, but does not provide detailed information with respect to the CABS.
Appendix A to this Prospectus Supplement contains excerpts from each prospectus
pursuant to which the CABS were offered and sold. This Prospectus Supplement
relates only to the Securities offered hereby and does not relate to the CABS.
Each CABS Issuer is subject to the information requirements of the Exchange
Act. Accordingly, each CABS Issuer is required to file reports, and other
information with respect to the CABS Issuer, including monthly Servicer Reports
regarding the Receivables, with the Commission. Copies of such reports and other
information may be inspected and copies at certain offices of the Commission at
the address listed under "Available Information" in the Prospectus.
Neither the Depositor nor the Underwriter participated in the preparation
of such Servicer Reports. Such reports and information will have been prepared
by the respective CABS Issuer and will not be independently verified by the
Depositor or the Underwriter. There can be no assurance that events have not
occurred which would affect the accuracy or completeness of any statements
included in such Servicer Reports or in the publicly available documents filed
by or on behalf of the CABS Issuers.
Although the Depositor has no reason to believe the information concerning
the CABS, the CABS Issuers, or each prospectus or prospectus supplement relating
to the CABS is not reliable, the Depositor has not verified either its accuracy
or its completeness. Such information is as of the date of each related
prospectus and comparable information if given as of the date hereof may be
different.
Set forth below is certain information excerpted and summarized from each
prospectus relating to the CABS.
The CABS have been issued pursuant to Agreements entered into between
various sellers and various trustees. See "Appendix A" for further description
of the various CABS Issuers. The following summary describes certain general
terms of such Agreements, but investors should refer to the Agreements
themselves for all the terms governing the CABS.
Each CABS represents an undivided interest in one of the CABS Issuers,
including the right to a percentage of cardholder payments on the Receivables
underlying such issue of CABS. The assets of each CABS Issuer include a pool of
Receivables arising under Accounts, funds collected or to be collected from
cardholders in respect of the Receivables and services in the Accounts, monies
on deposit in certain accounts of the CABS Issuers, the right to draw upon
various enhancements and may also include the right to receive certain
interchange fees attributed to cardholder charges for merchandise. Each CABS
represents the right to receive payments of interest for the related interest
period at the applicable CABS Certificate Rate (as defined herein) for such
interest period from collections of Receivables and, in certain circumstances,
from draws on applicable enhancement, and payments of principal during the CABS
Amortization Period (as defined herein) funded from collections of Receivables.
Each seller of CABS (each, a "Seller") holds the interest in the
Receivables of a CABS Issuer not represented by the CABS and any other series of
securities issued by the CABS Issuer. Such Seller holds an undivided interest in
the CABS Issuer (the "Seller's Interest"), including the right to a percentage
(the "Seller's Percentage") of all cardholder payments on the Receivables.
The Group I CABS
The Group I CABS will consist of the CABS issued by the following CABS
Issuers: ADVANTA Credit Card Master Trust, First USA Credit Card Master Trust,
and MBNA Master Credit Card Trust.
The Group II CABS
The Group II CABS will consist of the CABS issued by the following CABS
Issuers: First Chicago Master Trust II and Household Affinity Credit Card Master
Trust I.
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Interest Distributions
Interest accrues on the CABS at the certificate rate for each class and
series of CABS (a "CABS Certificate Rate"), from the date of the initial
issuance of the CABS. Interest at the applicable rate will be distributed to the
holders of the CABS monthly on each CABS Distribution Date.
Interest on the CABS is calculated on the basis of the actual number of
days in the related interest period and a 360-day year.
The CABS all bear interest at a rate per annum above the arithmetic mean of
London interbank offered quotations for one-month Eurodollar deposits ("LIBOR");
provided, however, that the rate at which interest will accrue on the CABS will
in no event exceed 12% per annum. In the case of the CABS issued by ADVANTA
Credit Card Master Trust, First Chicago Master Trust II, and MBNA Master Credit
Card Trust, LIBOR is determined according to the Reuters Screen LIBO Page (as
defined in the International Swap Dealers Association, Inc. Code of Standard
Wording, Assumption and Provisions for SWAPS, 1986 edition) ("Reuters LIBOR").
In the case of the CABS issued by First USA Credit Card Master Trust and
Household Affinity Credit Card Master Trust I, LIBOR is determined according to
the Telerate Page 3750 of the Dow Jones Telerate Service (or such other page as
may replace Telerate Page 3750 on that service for the purpose of displaying
London interbank offered rates of major banks) ("Telerate LIBOR").
Principal Distributions
Generally, principal distributions due to the holders of the CABS are
scheduled to commence on the first CABS Distribution Date with respect to a
controlled amortization period for a series of CABS (a "CABS Controlled
Amortization Period"), but may be distributed earlier or later than such date.
However, if an Early Amortization Event, Payout Event, Liquidation Event or
Economic Amortization Event (as such terms are defined in the Agreements) (each
such event, a "CABS Amortization Event") occurs, monthly distributions of
principal to the holders of the CABS will begin on the first CABS Distribution
Date following the occurrence of such CABS Amortization Event. See "CABS
Amortization Events" below.
If a CABS Amortization Event does not occur, principal will be distributed
to the holders of the CABS on the first CABS Distribution Date during the
applicable CABS Controlled Amortization Period. If, however, the amount of
principal distributed on the scheduled final CABS Distribution Date is not
sufficient to pay the holders of the CABS in full, then monthly distributions of
principal to the holders of CABS will occur on each CABS Distribution Date after
the scheduled final CABS Distribution Date.
Investor Percentage and Seller's Percentage
Pursuant to the Agreements, all amounts collected on Receivables will be
allocated between the investor interest of the holders of the CABS, the investor
interest of any other Series, and the Seller's Interest by reference to the
investor percentage of the holders of the CABS, the investor percentage of any
other Series, and the Seller's Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
Allocation of Collections
The CABS Servicer will deposit any payments collected by the CABS Servicer
with respect to the Receivables and will generally allocate such amounts as
follows:
(a) an amount equal to the applicable Seller's Percentage of the aggregate
amount of deposits in respect of Principal Receivables and Finance
Charge Receivables, respectively, will be paid to the holder of the
Seller's Interest,
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<PAGE>
(b) an amount equal to the applicable investor percentage of the aggregate
amount of such deposits in respect of Finance Charge Receivables will
be deposited into an account for the benefit of the holders of the
CABS.
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of the aggregate amount of such
collections in respect of Principal Receivables will be paid to the
holder of the Seller's Certificate, provided, however, that such
amount may not exceed the amount equal to the Seller's Interest,
(d) during the CABS Controlled Amortization Period or after the occurrence
of a CABS Amortization Event, collections of Principal Receivables
will be allocated to the holders of CABS based on the investor
percentage.
The term "Seller's Interest" also encompasses the terms Seller's Certificate,
Exchangeable Seller's Certificate and Exchangeable Transferor's Certificate.
"Principal Receivables" generally consist of amounts charged by cardholders for
merchandise and services, amounts advanced as cash advances and the interest
portion of any participation interests. "Finance Charge Receivables" generally
consist of monthly periodic charges, annual fees, cash advance fees, late
charges, over-limit fees and all other fees billed to cardholders, including
administrative fees.
CABS Amortization Events
The following is a summary of the typical CABS Amortization Events for each
series of CABS. Certain additional CABS Amortization Events unique to particular
series of CABS are described following this summary:
(a) failure to make payments to holders of CABS within the time periods
given in the Agreements,
(b) material breaches of certain representations, warranties or covenants
or failure to observe or perform in a material respect any covenant or
agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CABS (a "CABS Servicer"),
(d) failure to maintain the Seller's Interest in an amount at least equal
to minimum Seller's Percentage of Principal Receivables in the CABS
Issuer as of such date,
(e) failure to maintain a certain minimum level of Receivables or
Accounts, or if the Seller is unable to transfer Receivables or
Accounts to a CABS Issuer,
(f) certain events of bankruptcy or insolvency relating to the Seller,
(g) CABS Issuer becomes an "investment company" within the meaning of the
Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged over
any three consecutive months) to a rate below a certain rate provided
in the Agreement for such period,
(i) the available amount of the Cash Collateral Guaranty is less than 3%
of the amount of the investor interest for the underlying series of
CABS.
Household Affinity Credit Card Master Trust I, Series 1993-1
(a) failure to distribute either the full invested amount of the Class A
Certificates by March 15, 1999 or the full invested amount of the Class B
Certificates by April 15, 1999,
(b) if invested amount of the Class B Certificates is less than 1% on
initial invested amount on a payment date.
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ADVANTA Credit Card Master Trust, Series 1993-4
(a) the available amount in the Cash Collateral Account is less than an
amount equal to $9,000,000 plus 3% of any increases in the invested amount
during the period money is held in a pre-funding account.
Servicing Compensation and Payment of Expenses
Generally, the CABS Servicer's compensation for its servicing activities
and reimbursement for its expenses for any monthly period will be a servicing
fee (a "CABS Servicing Fee") payable monthly. The CABS Servicing Fee will be
allocated among the Seller's Interest and the investor interests of all Series
issued by the CABS Issuer.
Generally, the CABS 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 CABS
Trustee and independent accountants and other fees which are not expressly
stated in the related Agreement to be payable by the CABS Issuer or the holders
of CABS.
THE DEPOSITOR
Lehman ABS Corporation (the "Depositor") was incorporated in the State of
Delaware on January 29, 1988. As of January 4, 1993, the Depositor is a wholly
owned, special purpose subsidiary of Lehman Commercial Paper Inc. ("LCPI"),
which is itself a wholly owned subsidiary of Lehman Brothers Inc. ("Lehman
Brothers"), which is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Holdings"). None of Lehman Brothers, LCPI, Holdings or the Depositor, nor any
affiliate of the foregoing, has guaranteed or is otherwise obligated with
respect to the Securities.
As of December 31, 1993, the Depositor's total assets were approximately
$29.2 million, its total liabilities were approximately $1.1 million, its total
stockholders' equity was approximately $28.1 million, and for the fiscal year
ended December 31, 1993, the Depositor had net income of approximately $144,000
and as of December 31, 1992, the Depositor's total assets were approximately
$220,000, its total liabilities were approximately $14,000, its total
stockholders' equity was approximately $206,000, and for the fiscal year ended
December 31, 1992, the Depositor experienced a net loss of $7,689.
The principal executive offices of the Depositor are located at 200 Vesey
Street, Three World Financial Center, New York, New York 10285 (Telephone: (212)
526-7000). See "The Depositor" in the Prospectus.
THE INDENTURE
The following summary describes certain terms of the Indenture. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Indenture. Whenever particular sections
or defined terms of the Indenture are referred to, such sections or defined
terms are thereby incorporated herein by reference. See "Description of the
Notes" herein for a summary of certain additional terms of the Indenture.
Collection of Distributions on CABS
The CABS will be assets of the Trust. All distributions on the CABS will be
made directly to the Indenture Trustee. The obligation of the Indenture Trustee
in making payments on the Notes is limited to distributions on the underlying
CABS and Interest Rate Cap Payments which were actually received by it. However,
if the Indenture Trustee has not received a distribution with respect to a CABS
by the fifth Business Day after the date on which such distribution was due and
payable pursuant to the terms of such CABS, the Indenture will require it to
take such actions as are permissible pursuant to the related CABS Agreement to
ensure that the distribution be made as promptly as possible and legally
permitted and to take such legal action as the Indenture Trustee deems
appropriate under the circumstances, including the prosecution of any claims in
connection therewith. The reasonable legal fees and expenses incurred by the
Indenture Trustee in connection with the prosecution of any legal
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action will be reimbursable to the Indenture Trustee out of the proceeds of any
such action and will be retained by the Indenture Trustee prior to the deposit
of any remaining proceeds in the Collection Account pending distribution thereof
to Noteholders. Payments on the Notes will be reduced by an aggregate amount
equal to such fees and expenses in proportion to the payments of principal and
interest that would have been otherwise made on the Notes on the Payment Date
following the recovery of any such proceeds. In the event that the Indenture
Trustee has reason to believe that the proceeds of any such legal action may not
be sufficient to reimburse it for its projected legal fees and expenses, the
Indenture Trustee will notify the Noteholders that it is not obligated to pursue
any such available remedies unless adequate indemnity for its legal fees and
expenses is provided by the Noteholders.
Reports to Noteholders
The Indenture Trustee will mail to each Noteholder, at such Noteholder's
request, at its address listed on the Note Register maintained with the
Indenture Trustee a report stating (i) the amounts of principal and interest,
respectively, paid on each $1,000 in face amount of Notes, (ii) the outstanding
principal balance of each Class of Notes and (iii) the outstanding balances of
the Group I CABS or the Group II CABS.
The Indenture Trustee shall forward by mail to each Noteholder the most
current CABS Distribution Date Statement (as defined in the Indenture) received
by the Indenture Trustee as of the date of such request.
Events of Default; Rights upon Event of Default
With respect to the Notes, "Events of Default" under the Indenture will
consist of: (i) a default for five days or more in the payment of any interest
on any Note; (ii) a default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and payable;
(iii) a default in the observance or performance of any covenant or agreement of
the Trust made in the Indenture and the continuation of any such default for a
period of 30 days after notice thereof is given to the Trust by the Indenture
Trustee or to the Trust and the Indenture Trustee by the holders of at least 25%
in principal amount of the Notes then outstanding; (iv) any representation or
warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a material
respect as of the time made, and such breach not having been cured within 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in principal
amount of Notes then outstanding; or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust. The amount of principal
required to be paid to Noteholders under the Indenture will generally be limited
to amounts available to be deposited in the Collection Account. Therefore, the
failure to pay principal on a Class of Notes generally will not result in the
occurrence of an Event of Default until the final scheduled Payment Date for
such Class of Notes.
If there is an Event of Default with respect to a Note due to late payment
or nonpayment of interest due on a Note, additional interest will accrue on such
unpaid interest at the interest rate on the Note (to the extent lawful) until
such interest is paid. Such additional interest on unpaid interest shall be due
at the time such interest is paid. If there is an Event of Default due to late
payment or nonpayment of principal on a Note, interest will continue to accrue
on such principal at the interest rate on the Note until such principal is paid.
If an Event of Default should occur and be continuing with respect to the
Notes, the Indenture Trustee or holders of a majority in principal amount of
each Class of Notes then outstanding may declare the principal of such Class of
Notes to be immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by the holders of a majority in principal amount of
the applicable Class of Notes then outstanding.
If the Notes are due and payable following an Event of Default with respect
thereto, the Indenture Trustee may institute proceedings to collect amounts due
or foreclose on Trust property, exercise remedies as a secured party, sell the
CABS or elect to have the Trust maintain possession of the CABS
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and continue to apply collections on the CABS as if there had been no
declaration or acceleration. The Indenture Trustee is prohibited from selling
the CABS following an Event of Default, other than a default in the payment of
any principal of or a default for five days or more in the payment of any
interest on any Note, unless (i) the holders of all outstanding Notes consent to
such sale, (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding Notes at the date of
such sale or (iii) the Indenture Trustee determines that the proceeds of CABS
would not be sufficient on an ongoing basis to make all payments on the Notes as
such payments would have become due if such obligations had not been declared
due and payable, and the Indenture Trustee obtains the consent of the holders of
at least 66 2/3% of the aggregate outstanding amount of the Notes.
If an Event of Default occurs and is continuing with respect to the Notes,
the Indenture Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture at the request or direction of any of the holders
of the Notes, if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and the holders of a majority in principal
amount of the Notes then outstanding may, in certain cases, waive any default
with respect thereto, except a default in the payment of principal or interest
or a default in respect of a covenant or provision of the Indenture that cannot
be modified without the waiver or consent of all the holders of the outstanding
Notes.
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than 25% in principal amount of the outstanding Notes have
made written request to the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days failed to institute such proceeding and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during the 60-day
period by the holders of a majority in principal amount of the Notes.
In addition, the Indenture Trustee and the Noteholders, by accepting the
Notes, will covenant that they will not at any time institute against the Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
With respect to the Trust, neither the Indenture Trustee nor the Owner
Trustee in its individual capacity, nor any holder of a Certificate representing
an ownership interest in the Trust nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the Notes
or for the agreements of the Trust contained in the Indenture.
Certain Covenants
The Indenture will provide that the Trust may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Trust under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust has been advised
that the ratings of the Securities then in effect would not be reduced or
withdrawn by any Rating Agency as a result of such merger or consolidation and
(v) the Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any Noteholder or Certificateholder.
The Trust will not, among other things, (i) except as expressly permitted
by the Indenture, sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) claim any credit on or make any deduction from the
principal and interest payable in respect of the Notes (other than amounts
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withheld under the Code or applicable state law) or assert any claim against any
present or former holder of Notes because of the payment of taxes levied or
assessed upon the Trust, (iii) dissolve or liquidate in whole or in part, (iv)
permit the validity or effectiveness of the Indenture to be impaired or permit
any person to be released from any covenants or obligations with respect to the
Notes under the Indenture except as may be expressly permitted thereby or (v)
permit any lien, charge excise, claim, security interest, mortgage or other
encumbrance to be created on or extent to or otherwise arise upon or burden the
assets of the Trust or any part thereof, or any interest therein or the proceeds
thereof.
The Trust may not engage in any activity other than as specified under "The
Trust" herein. The Trust will not incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes and the Indenture.
Annual Compliance Statement
The Trust will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all Noteholders
a report relating to any change in its eligibility and qualification to continue
as Indenture Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of any indebtedness owing
by the Trust to the Indenture Trustee in its individual capacity, any change in
the property and funds physically held by the Indenture Trustee as such and any
action taken by it that materially affects the Notes and that has not been
previously reported, but if no such changes have occurred, then no report shall
be required.
Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all the
Notes or, with certain limitations, upon deposit with the Indenture Trustee of
funds sufficient for the payment in full of all the Notes.
Modification of Indenture
With the consent of the holders of a majority of the outstanding Notes, the
Trust and the Indenture Trustee may execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the
Indenture, or modify (except as provided below) in any manner the rights of the
Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto or change any place of payment where or the coin or currency in
which any Note or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the Indenture
regarding payment; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes, the consent of the holders of which is required for any
supplemental indenture or the consent of the holders of which is required for
any waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture;
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Trust, the Depositor, LGSI or an affiliate of any of them; (v)
reduce the percentage of the aggregate outstanding amount of Notes, the consent
of the holders of which is required to direct the Indenture Trustee to sell or
liquidate the CABS if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the outstanding Notes; (vi)
decrease the percentage of the aggregate principal amount of Notes required to
amend the sections of the Indenture which specify the applicable percentage of
aggregate principal amount of the Notes necessary to amend the Indenture or
certain other related agreements; or (vii) permit the creation of any lien
ranking prior
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to or on a parity with the lien of the Indenture with respect to any of the
collateral for the Notes or, except as otherwise permitted or contemplated in
the Indenture, terminate the lien of the Indenture on any such collateral or
deprive the holder of any Note of the security afforded by the lien of the
Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders, for the purpose
of, among other things, adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any manner
the rights of the Noteholders; provided that such action will not materially and
adversely affect the interest of any Noteholder.
Voting Rights
At all times, the voting rights of Noteholders under the Indenture will be
allocated among the Notes pro rata in accordance with their outstanding
principal balances.
Certain Matters Regarding the Indenture Trustee and the Depositor
Neither the Depositor, the Indenture Trustee nor any director, officer or
employee of the Depositor or the Indenture Trustee will be under any liability
to the Trust or the related Noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties under the Indenture.
Subject to certain limitations set forth in the Indenture, the Indenture
Trustee and any director, officer, employee or agent of the Indenture Trustee
shall be indemnified by the Trust and held harmless against any loss, liability
or expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the Indenture
or the underlying CABS other than any loss, liability or expense incurred by
reason of willful malfeasance, bad faith or gross negligence in the performance
of its duties under such Indenture or by reason of reckless disregard of its
obligations and duties under the Indenture. Any such indemnification by the
Trust will reduce the amount distributable to the Noteholders.
All persons into which the Indenture Trustee may be merged or with which it
may be consolidated or any person resulting from such merger or consolidation
shall be the successor of the Indenture Trustee under each Indenture.
THE TRUST AGREEMENT
The following summary describes certain terms of the Trust Agreement. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Trust Agreement. Whenever
particular sections or defined terms of the Trust Agreement are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
"Description of the Certificates" herein for a summary of certain additional
terms of the Trust Agreement.
Collection of Distributions on CABS
The CABS will be assets of the Trust. All distributions thereon will be
made directly to the Indenture Trustee. Pursuant to the Administration
Agreement, distributions on the Certificates will be made to Certificateholders
by the Administrator acting on behalf of the Owner Trustee.
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Exercise of Remedies
The Trust Agreement provides that until all the Notes have been paid in
full, the Indenture Trustee will take all actions to collect any distributions
due on the CABS or to exercise remedies pursuant to the Indenture.
Reports to Certificateholders
The Owner Trustee will mail to each Certificateholder, at such
Certificateholder's request, at its address listed on the Certificate Register
maintained with the Owner Trustee a report stating (i) the amounts of principal
and interest, respectively, distributed on each $1,000 in face amount of
Certificates and (ii) the outstanding balances of the CABS.
The Owner Trustee shall forward by mail to each Certificateholder the most
current CABS Distribution Date Statement (as defined in the Trust Agreement)
received by the Owner Trustee as of the date of such request.
Amendment
The Trust Agreement may be amended by the Depositor, LGSI and the Owner
Trustee, without consent of the Noteholders or Certificateholders, to cure any
ambiguity, to correct or supplement any provision or for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
thereof or of modifying in any manner the rights of such Noteholders or
Certificateholders; provided, however, that such action will not, as evidenced
by an opinion of counsel satisfactory to the Owner Trustee, adversely affect in
any material respect the interests of any Noteholders or Certificateholders. The
Trust Agreement may also be amended by the Depositor, LGSI and the Owner Trustee
with the consent of the holders of Notes evidencing at least a majority in
principal amount of then outstanding Notes and Certificateholders owning Voting
Interests (as herein defined) aggregating not less than a majority of the
aggregate Voting Interests for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Trust
Agreement or modifying in any manner the rights of the Noteholders or
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or delay the timing of, collections of
payments on the CABS or distributions that are required to be made for the
benefit of such Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the Notes or the Voting Interests of Certificates which are
required to consent to any such amendment, without the consent of all the
outstanding Notes or Certificates, as the case may be.
Insolvency Event
"Insolvency Event" means, with respect to any Person, any of the following
events or actions; certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings with respect to such
Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
If an Insolvency Event occurs with respect to the Depositor, the CABS will
be liquidated and the Trust will be terminated. Upon termination of the Trust,
the Owner Trustee shall direct the Indenture Trustee promptly to sell the assets
of the Trust (other than the Collection Account) in a commercially reasonable
manner and on commercially reasonable terms. The proceeds from any such sale,
disposition or liquidation of the CABS will be treated as collections on the
CABS and deposited in the Collection Account. If the proceeds from the
liquidation of the Group I CABS or the Group II CABS and any respective amounts
on deposit in the Collection Account are not sufficient to pay the Class A1
Notes or Class A2 Notes, respectively, and the Certificates in full, the amount
of principal returned to the respective Noteholders and Certificateholders will
be reduced and some or all of the Noteholders and Certificateholders will incur
a loss.
The Trust Agreement will provide that the Owner Trustee does not have the
power to commence a voluntary proceeding in bankruptcy with respect to the Trust
without the unanimous prior approval of all Certificateholders (including the
Depositor) of the Trust and the delivery to the Owner Trustee by
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each Certificateholder (including the Depositor) of a certificate certifying
that the Certificateholder reasonably believes that the Trust is insolvent.
Liability of the Depositor
Under the Trust Agreement, the Depositor will agree to be liable directly
to an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to the Trust) arising out of or based
on the arrangement created by the Trust Agreement.
Voting Interests
As of any date, the aggregate principal balance of all Certificates
outstanding will constitute the voting interest of the Issuer (the "Voting
Interests"), except that, for purposes of determining Voting Interests,
Certificates owned by the Issuer or its affiliates (other than the Depositor)
will be disregarded and deemed not to be outstanding, and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Owner Trustee knows to be so owned will be so disregarded.
Certificates so owned that have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Owner Trustee
the pledgor's right so to act with respect to such Certificates and that the
pledgee is not the Issuer or its affiliates.
Certain Matters Regarding the Owner Trustee and the Depositor
Neither the Depositor, the Owner Trustee nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust or the related Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Trust
Agreement or for errors in judgment; provided, however, that none of the Owner
Trustee, the Depositor and any director, officer or employee thereof will be
protected against any liability which would otherwise be imposed by reason of
willful malfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties under the Trust
Agreement.
Subject to certain limitations set forth in the Trust Agreement, the Owner
Trustee and any director, officer, employee or agent of the Owner Trustee shall
be indemnified by the Trust and held harmless against any loss, liability or
expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the Trust
Agreement or the underlying CABS other than any loss, liability or expense
incurred by reason of willful malfeasance, bad faith or gross negligence in the
performance of its duties under such Trust Agreement or by reason of reckless
disregard of its obligations and duties under the Trust Agreement. Any such
indemnification by the Trust will reduce the amount distributable to the
Certificateholders.
All persons into which the Owner Trustee may be merged or with which it may
be consolidated or any person resulting from such merger or consolidation shall
be the successor of the Owner Trustee under each Trust Agreement.
ADMINISTRATION AGREEMENT
The Indenture Trustee, in its capacity as Administrator, will enter into
the Administration Agreement with the Trust and the Owner Trustee pursuant to
which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide notices and perform other administrative
obligations required by the Indenture and the Trust Agreement.
THE INDENTURE TRUSTEE
The Bank of New York is the Indenture Trustee under the Indenture. The
mailing address of the Indenture Trustee is The Bank of New York, 101 Barclay
Street, New York NY 10286, Attention: Corporate Trust Department.
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THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
The mailing address of the Owner Trustee is Wilmington Trust Company, Rodney
Square North, Wilmington, DE 19890, Attention: Corporate Trust Administration.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates and the Notes, which are
expected to be $1,077,610,844, will be applied by the Depositor on the Closing
Date towards the purchase price of the CABS, the payment of expenses related to
such sale and the purchase of the CABS and other corporate purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Set forth below is a discussion of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes and Certificates offered hereunder. This discussion is based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, judicial decisions and other applicable authorities.
There are no cases or Internal Revenue Service ("IRS") rulings on similar
transactions involving both debt and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, there can
be no assurance that the IRS will not challenge the conclusions reached herein,
and no ruling from the IRS has been or will be sought on any of the issues
discussed below. Furthermore, legislative, judicial or administrative changes
may occur, perhaps with retroactive effect, which could affect the accuracy of
the statements and conclusions set forth herein as well as the tax consequences
to Noteholders and Certificateholders.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to the Noteholders and Certificateholders in light
of their personal investment circumstances nor, except for certain limited
discussions of particular topics, to certain types of holders subject to special
treatment under the federal income tax laws (e.g., financial institutions,
broker-dealers, life insurance companies, foreign investors and tax-exempt
organizations). This information is directed to prospective purchasers who
purchase Notes or Certificates in the initial distribution thereof, who are
citizens or residents of the United States, including domestic corporations and
partnerships, and who hold the Notes or Certificates as "capital assets" within
the meaning of Section 1221 of the Code. Taxpayers and preparers of tax returns
(including those filed by any partnership or other issuer) should be aware that
under applicable Treasury regulations a provider of advice on specific issues of
law is not considered an income tax return preparer unless the advice (i) is
given with respect to events that have occurred at the time the advice is
rendered and is not given with respect to the consequences of contemplated
actions and (ii) is directly relevant to the determination of an entry on a tax
return. Accordingly, taxpayers should consult their own tax advisors and tax
return preparers regarding the preparation of any item on a tax return, even
where the anticipated tax treatment has been discussed herein. PROSPECTIVE
INVESTORS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE.
LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF NOTES OR CERTIFICATES.
For purposes of this discussion, references to a "Certificateholder" or a
"Noteholder" are to the beneficial owner of a Certificate or Note, respectively.
Tax Considerations Relating to the CABS
The CABS are the primary assets of the Trust. Each CABS evidences an
interest in a trust fund created by one of the Agreements. Prospective investors
should be aware that each CABS involves certain United States federal income tax
consequences not described herein and as to which Mayer,
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Brown & Platt, special tax counsel to the Depositor ("Tax Counsel") has not
provided any opinions. In particular, with respect to each CABS, an opinion was
rendered by the respective tax counsel to the underlying transaction that the
CABS would be treated as debt instruments for federal income tax purposes and,
in the discussion set forth herein, and for purposes of its opinion described
below Tax Counsel has relied upon the descriptions of such opinions in the
related prospectuses. Prospective investors are urged to consider the discussion
of United States federal income tax consequences in each prospectus relating to
the CABS for a discussion of the United States federal income tax consequences
of the purchase, ownership and disposition of the CABS and of the trust funds in
which the CABS represent an undivided interest.
Tax Treatment of the Notes
Characterization as Debt. The Depositor, the Owner Trustee, the Indenture
Trustee, the Certificateholders by their purchase of the Certificates, and the
Noteholders by their purchase of the Notes will agree to treat the Notes as debt
for purposes of any federal, state and local income taxes based on or measured
by income or capital. Tax Counsel is of the opinion that, although no specific
authority exists with respect to the characterization for federal income tax
purposes of securities having the same terms as the Notes, based on the terms of
the Notes, the Notes will be treated as debt for federal income tax purposes.
See "Tax Consequences to Holders of the Certificates--Possible Alternative
Characterization of the Trust as a Partnership" and "Other Possible Alternative
Characterizations of the Trust" for a discussion of the potential federal income
tax consequences if the IRS were successful in challenging the characterization
of the Trust as a grantor trust and "--Possible Alternative Characterizations of
the Notes" for a discussion of potential alternative characterizations of the
Notes for federal income tax purposes.
Treatment of Stated Interest. Based on the foregoing opinion, subject to
the discussion below regarding original issue discount ("OID") the stated
interest on the Notes will be taxable to a Noteholder as ordinary income when
received or accrued in accordance with such Noteholder's method of tax
accounting. The following discussion is based in part upon the rules governing
OID in final Treasury regulations issued under the OID provisions of the Code
and certain proposed OID regulations concerning "contingent" payments. Under
those regulations, a holder of a Note issued with a de minimis amount of OID
must include such OID in income, on a pro rata basis, as principal payments are
made on the Note. The Trust intends to treat the Notes as issued with no OID
(other than any de minimis OID).
Market Discount. If a Noteholder purchases a Note for an amount that is
less than its issue price (or, in the case of a subsequent purchaser, its stated
redemption price at maturity), the amount of the difference will be treated as
"market discount", unless such difference is less than a specified de minimis
amount.
Under the market discount rules, a Noteholder will be required to treat any
partial principal payment on, or any gain realized on the sale, exchange,
retirement or other disposition of a Note as ordinary income to the extent of
the lesser of (i) the amount of such payment or realized gain and (ii) the
accrued market discount on such Note at the time of such payment or disposition.
Market discount will be considered to accrue ratably during the period from the
date of acquisition to the maturity date of the Note, unless the Noteholder
elects to accrue market discount on a yield to maturity basis.
A Noteholder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
its earlier disposition in a taxable transaction. A Noteholder may elect to
include market discount in income currently as it accrues (on either a ratable
or yield to maturity basis), in which case the rules described above will not
apply. Generally, a current inclusion of market discount is treated as ordinary
interest income for United States federal income tax purposes.
Premium. If a Noteholder purchases a Note for an amount that is greater
than its stated redemption price at maturity, such Noteholder will be considered
to have purchased the Note with "amortizable bond premium" equal in amount to
such excess. A Noteholder may elect to amortize such premium using a constant
yield method over the remaining term of the Note. Premium amortizations
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may offset only interest otherwise required to be included in respect of the
Note and are not treated as a separate deduction.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any OID, market discount, acquisition discount,
and gain previously included by such Noteholder in income with respect to the
Note and decreased by the amount of bond premium (if any) previously amortized
and by the amount of principal payments previously received by such Noteholder
with respect to such Note. Any such gain or loss will be capital gain or loss if
the Note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Tax Consequences to Foreign Holders of Debt. If interest paid (or accrued)
to a holder of debt who is a nonresident alien, foreign corporation or other
non-United States person (a "foreign person") is not effectively connected with
the conduct of a trade or business within the United States by the foreign
person, the interest generally will be considered "portfolio interest," and
generally will not be subject to a United States federal income tax and
withholding tax, as long as the foreign person (i) is not actually or
constructively a "10 percent shareholder" of the issuer of the debt or a
"controlled foreign corporation" with respect to which the issuer of the debt is
a "related person" within the meaning of the Code, and (ii) provides an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the debt is a foreign person and providing that foreign
person's name and address. If the information provided in this statement
changes, the foreign person must so inform the Trust within 30 days of such
change. The statement generally must be provided in the year a payment occurs or
in either of the two preceding years. If such interest were not portfolio
interest, then it would be subject to United States federal income and
withholding tax at a rate of 30 percent unless reduced or eliminated pursuant to
an applicable tax treaty. See, however, "Tax Treatment of the Notes--Possible
Alternative Characterizations of the Notes" for a discussion of the potential
adverse United States federal income and withholding tax consequences to
Noteholders if the IRS were successful in treating the Trust as a partnership
and the Notes as partnership interests for federal income tax purposes.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person, and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year of such sale, redemption, retirement or other taxable
disposition of the Notes.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person, the holder (although exempt from the withholding
tax previously discussed if an appropriate statement is furnished) generally
will be subject to United States federal income tax on the interest, gain or
income at regular federal income tax rates. In addition, if the foreign person
is a foreign corporation, it may be subject to a branch profits tax equal to 30
percent of its "effectively connected earnings and profits" within the meaning
of the Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
Information Reporting and Backup Withholding. Backup withholding of United
States federal income tax at a rate of 31% may apply to payments made in respect
of the Notes to registered owners who are not "exempt recipients" and who fail
to provide certain identifying information (such as the registered owner's
taxpayer identification number) in the required manner. Generally, individuals
are not exempt recipients, whereas corporations and certain other entities
generally are exempt recipients. Payments made in respect of the Notes to a
Noteholder must be reported to the IRS, unless the Noteholder is an exempt
recipient or establishes an exemption.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% 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, in the required manner, certain identifying information
and, in the case of a Noteholder which is a foreign person, certifies that such
seller is a foreign person (and
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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 would be made normally on an IRS Form W-8 under penalties of perjury,
although in certain cases it may be possible to submit other documentary
evidence.
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States federal income tax liability provided the
required information is furnished to the IRS.
Possible Alternative Characterizations of the Notes. Despite Tax Counsel's
opinion that the Notes will be treated as debt for federal income tax purposes,
there can be no assurance that the IRS will not challenge this conclusion and
that such challenge would not be successful. However, Tax Counsel is of the
opinion that, if the IRS successfully challenged treatment of some or all of the
Notes as debt for federal income tax purposes, such Notes would properly be
treated as interests in an entity which would not be treated as an association
taxable as a corporation for federal income tax purposes.
If the IRS successfully challenged treatment of some or all of the Notes as
debt for federal income tax purposes, such Notes may be treated as interests in
a grantor trust or trusts. If such Notes were treated as interests in a grantor
trust or trusts, a Noteholder would generally be subject to the same rules which
will apply to the Certificateholders assuming that the Trust is properly
classified as a grantor trust. See "Tax Consequences to Holders of the
Certificates--Treatment of the Trust as a Grantor Trust" and "--Tax Consequences
to Foreign Certificateholders."
Alternatively, if the IRS successfully challenged treatment of some or all
of the Notes as debt for federal income tax purposes, such Notes might be
treated as interests in a partnership. If such Notes were treated as interests
in a partnership, such partnership would be a "publicly traded partnership"
under the Code. Accordingly, such a partnership would be treated as a publicly
traded partnership taxable as a corporation for any taxable year if 10% or more
of the income of such partnership for such taxable year were not "qualifying
income" (for these purposes interest income is qualifying income, but income
from the Interest Rate Cap Agreements may not constitute qualifying income). If
the Notes were treated as interests in a partnership, certain holders could
suffer adverse consequences. For example, a cash basis Noteholder might be
required to report income when it accrued to the partnership rather than when it
is received by the Noteholder.
Further, it is not clear whether the Trust, as a partnership, would be
required to withhold amounts payable to foreign Noteholders, as deemed partners
of the Trust, because there is no clear authority regarding the treatment of a
partnership under facts substantially similar to those described herein. It is
also unclear whether such withholding would be required to be on a net basis
(which would be at the rate of 35% for foreign corporations and 39.6% for all
other foreign holders) or on a gross basis (which would be at a rate of 30%). If
the Notes were treated as interests in a partnership, the Trust would be
required to withhold with respect to the Notes in order to protect the Trust
from adverse consequences of a failure to withhold.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Grantor Trust. The Depositor and the
Certificateholders will agree to treat the Trust as a grantor trust for federal
and state tax purposes, with the assets of the grantor trust being the assets
held by the Trust and the Notes being the debt of the grantor trust. In the
opinion of Tax Counsel, while not free from doubt, the Trust should be
classified for federal income tax purposes as a grantor trust under Subpart E,
Part 1 of Subchapter J of the Code, but, in the opinion of Tax Counsel, the
Trust will not be classified as an association or publicly traded partnership
taxable as a corporation. However, the proper characterization of the
arrangement involving the Trust, the Certificates and the Depositor is not clear
because there is no authority on transactions closely comparable to that
contemplated herein. The following discussion assumes that the Trust will be
classified as a grantor trust.
As a holder of an interest in a grantor trust, each Certificateholder must
report on its federal income tax return its pro rata share of the gross income
and deductions of the Trust. The Trust will derive income from the CABS and may
derive income from the Interest Rate Cap Agreements.
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Accordingly, a Certificateholder will be required to report its pro rata share
of the gross income derived from such items. In addition, if the Notes are sold
at a premium, a Certificateholder will be required to treat its pro rata share
of such premium as gross income under section 61 of the Code and applicable
regulations. The Trust will derive deductions from interest paid on the Notes
and amortization of amounts paid to acquire the Interest Rate Cap Agreements.
Accordingly, a Certificateholder will be entitled to deduct its pro rata share
of the interest paid on the Notes and amortization of the amounts paid to
acquire the Interest Rate Cap Agreements. However, because the timing of the
inclusion in income of amortization of any premium attributable to issuance of
the Notes may not correspond precisely to the timing of deductions attributable
to amortization of amounts paid for the Interest Rate Cap Agreements, the amount
of taxable income recognized by a Certificateholder may not correspond precisely
to the Certificateholder's yield from its Certificates. However, any such
variations are expected to be insubstantial.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such holder under the Code.
For additional rules with respect to the tax treatment of grantor trusts,
see "Tax Status as a Grantor Trust" in the Prospectus.
Possible Alternative Characterization of the Trust as a Partnership.
Despite Tax Counsel's opinion that the Trust should be treated as a grantor
trust for federal income tax purposes, there can be no assurance that the IRS
will not challenge this conclusion and that such challenge would not be
successful. However, Tax Counsel is of the opinion that, if the IRS successfully
challenged treatment of the Trust as a grantor trust for federal income tax
purposes, the Trust would be classified as a partnership and not as an
association or publicly traded partnership taxable as a corporation. Generally,
except as described below under "Tax Consequences to Foreign
Certificateholders", such treatment would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Trust as a grantor trust for federal income tax purposes. If
the Trust were treated as a partnership (and not a publicly traded partnership),
the following rules would apply.
Partnership Taxation. As a partnership, the Trust would not be subject to
federal income tax. Rather, each Certificateholder would be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income would consist
primarily of interest on the CABS and any gain upon collection or disposition of
the CABS, amortization of premium on the sale of the Notes, and any amounts
received on the Interest Rate Cap Agreements, and the Trust's deductions would
consist primarily of interest paid or accrued on the Notes and amortization of
amounts paid to acquire the Interest Rate Cap Agreements.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. It should be
noted that special rules apply to the amortization of payments made to acquire
an interest rate cap and amounts received as bond premium. See "Treatment of the
Trust as a Grantor Trust." Further, because tax allocations and tax reporting
would be done on a uniform basis for all Certificateholders and
Certificateholders might be purchasing Certificates at different times and at
different prices, Certificateholders might be required to report on their tax
returns taxable income that is greater or less than the amount that would be
reported to them by the Trust.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) would constitute "unrelated
business taxable income" generally taxable to such holder under the Code.
Section 708 Termination. Under Section 708 of the Code, the Trust would be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust were sold or exchanged within a 12
month period. If such a termination were to occur, the Trust would be considered
to distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust would
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it were required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
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Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses would be determined monthly and the tax items for a
particular calendar month would be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates
might be allocated tax items (which would affect tax liability and tax basis)
attributable to periods before the actual transfer.
The use of such a monthly convention might not be permitted by existing
regulations. If a monthly convention were not allowed (or only applied to a
transfer of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders.
Section 754 Election. In the event that a Certificateholder sold its
Certificates at a profit (or loss), the purchasing Certificateholder would have
a higher (or lower) basis in the Certificates than the selling
Certificateholder. The tax basis of the Trust's assets would not be adjusted to
reflect that higher (or lower) basis unless the Trust were to file an election
under Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Trust would not make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Owner Trustee would be required to maintain the
books of the Trust for financial reporting and tax purposes on an accrual basis
and the fiscal year of the Trust would be the calendar year. The Owner Trustee
would file a partnership information return (IRS Form 1065) with the IRS for
each taxable year of the Trust and would report each Certificateholder's
allocable share of items of Trust income and expense to holders and the IRS on
Schedule K-1. The Trust would provide the Schedule K-1 information to nominees
that fail to provide the Trust with the information statement described below
and such nominees would be required to forward such information to the
beneficial owners of the Certificates. Generally, holders would be required to
file tax returns that are consistent with the information return filed by the
Trust or be subject to penalties unless the holder notifies the IRS of all such
inconsistencies.
Disposition of Certificates. Generally, capital gain or loss would be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate would generally equal the
holder's cost increased by the holder's share of Trust income and decreased by
any distributions received with respect to such Certificate. In addition, both
the tax basis in the Certificates and the amount realized on a sale of a
Certificate would include the holder's share of the Notes and other liabilities
of the Trust. A holder acquiring Certificates at different prices may be
required to maintain a single aggregate adjusted tax basis in such Certificates,
and upon sale or other disposition of some of the Certificates, allocate a
portion of such aggregate tax basis to the Certificates sold (rather than
maintaining a separate tax basis in each Certificate for purposes of computing
gain or loss on a sale of that Certificate).
If a Certificateholder were required to recognize an aggregate amount of
income over the life of the Certificate that exceeds the aggregate cash
distributions with respect thereto, such excess would generally give rise to a
capital loss upon the retirement of the Certificate.
Tax Consequences to Foreign Certificateholders. Although Tax Counsel has
opined that, while the matter is not free from doubt, the Trust should be
treated as a grantor trust, if the Trust were treated as a partnership for
federal income tax purposes, it is not clear whether the Trust would be
considered to be engaged in a trade or business in the United States for
purposes of United States federal withholding taxes with respect to foreign
holders because there is no clear authority regarding the issue under facts
substantially similar to those described herein. It is expected that the Trust
would either (i) be required to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Code Section 1446,
as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders (in which event Certificateholders might
be subject to the branch profits tax and related IRS reporting requirements), or
(ii) might be required to withhold at a 30% rate on a gross basis, in which
event its ability to make distributions and fully comply with its withholding
obligations is unclear.
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BECAUSE OF UNCERTAINTY AS TO THE PROPER UNITED STATES FEDERAL INCOME TAX
TREATMENT OF FOREIGN CERTIFICATEHOLDERS. THE CERTIFICATES ARE NOT A SUITABLE
INVESTMENT FOR NON-UNITED STATES PERSONS. ACCORDINGLY, NON-UNITED STATES PERSONS
WILL NOT BE PERMITTED TO PURCHASE CERTIFICATES.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
Other Possible Alternative Characterizations of the Trust
Despite Tax Counsel's opinion that the Notes will be treated as debt for
federal income tax purposes and that the Trust should be treated as a grantor
trust and will not be treated as an association or publicly traded partnership
for federal income tax purposes, there can be no assurance that the IRS will not
challenge these conclusions and that such challenge would not be successful. If
the Trust were treated as an association taxable as a corporation for federal
income tax purposes, the Trust would be subject to corporate income tax. Any
such corporate income tax could materially reduce or eliminate cash that would
otherwise be distributable with respect to the Certificates (and
Certificateholders could be liable for any such tax that is unpaid by the
Trust). However, Tax Counsel is of the opinion that the Trust will not be
classified as an association taxable as a corporation because it will not have
certain characteristics necessary for a trust to be an association taxable as a
corporation.
Even if the Notes are treated as debt and the Trust were not an association
taxable as a corporation, it would be subject to corporate income tax if it were
a "publicly traded partnership" taxable as a corporation. Under Notice 88-75 of
the IRS, in general, a partnership interest will not be considered to be
publicly traded if each transfer of partnership interests by a partner is with
respect to partnership interests representing in the aggregate more than 5
percent of the total interests in partnership capital or profits. The
Certificates will be issued in minimum denominations of 5.1% of the total amount
of the Certificates, and will not be eligible for resale or to be subdivided in
units smaller than such minimum denominations, except that one Certificate will
be issued in a denomination equal to 1% of the total amount of the Certificates
and will be retained by the Depositor. Also, any attempt to transfer the
Certificates in violation of the foregoing restrictions will be null and void
and such transfer will not be recorded by the registrar. The Certificates will
contain a legend setting forth such restrictions. In the opinion of Tax Counsel,
assuming that (i) such restrictions are complied with and (ii) the Notes are
treated as debt for federal income tax purposes, the Trust will not be treated
as a publicly traded partnership. Moreover, even if treated as a publicly traded
partnership, assuming that income attributable to the CABS is interest income or
other "qualifying income" (as to which Tax Counsel has not rendered any
opinions) the Trust would not be taxable as a corporation for any taxable year
unless more than 10% of the income of the Trust for such taxable year was
derived from the Interest Rate Cap Agreements and such income was not classified
as "qualifying income" under Section 7704 of the Code. See "Tax Treatment of the
Notes--Possible Alternative Characterizations of the Notes." Nonetheless, if the
Trust were treated as a publicly traded partnership and the Certificates were
treated as equity interests in such a partnership, certain holders could suffer
adverse consequences.
STATE TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences" herein, potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Securities offered hereunder. State income tax law may differ substantially
from the corresponding federal tax law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the various tax
consequences of investments in the Securities offered hereunder.
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ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under section 410(d) of the Code), are not subject to the restrictions of ERISA,
and assets of such plans may be invested in the Securities without regard to the
ERISA considerations described below, subject to other applicable federal and
state law. However, any such governmental or church plan which is qualified
under section 401(a) of the Code and exempt from taxation under section 501(a)
of the Code is subject to the prohibited transaction rules set forth in section
503 of the Code. Any Plan fiduciary which proposes to cause a Plan to acquire
any of the Securities should consult with its counsel with respect to the
potential consequences under ERISA, and the Code, of the Plan's acquisition and
ownership of the Securities. See "ERISA Considerations" in the Prospectus.
Investments by Plans are also subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
As discussed under "Certain Federal Income Tax Consequences" a Plan would
likely realize unrelated business taxable income if it purchases Certificates
since the underlying assets of the Trust are debt financed assets. Thus, the
Certificates are not being offered to Plans. In view of this restriction, the
discussion below is limited to the ERISA considerations resulting from the
purchase and ownership of Notes.
Prohibited Transactions
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions (including loans) involving a Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
parties in interest which engage in non-exempt prohibited transactions.
Plan Asset Regulation
The United States Department of Labor ("Labor") has issued final
regulations concerning the definition of what constitutes the assets of a Plan
for purposes of ERISA and the prohibited transaction provisions of the Code (the
"Plan Asset Regulation"). The Plan Asset Regulation describes the circumstances
under which the assets of an entity in which a Plan invests will be considered
to be "plan assets" such that any person who exercises control over such assets
would be subject to ERISA's fiduciary standards. Under the Plan Asset
Regulation, generally when a Plan invests in another entity, the Plan's assets
do not include, solely by reason of such investment, any of the underlying
assets of the entity. However, the Plan Asset Regulation provides that, if a
Plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" (as defined therein) nor a security issued by an
investment company registered under the Investment Company Act of 1940, the
assets of the entity will be treated as assets of the Plan investor unless
certain exceptions apply. If the Notes were deemed to be equity interests and no
statutory, regulatory or administrative exemption applies, the Trust could be
considered to hold plan assets by reason of a Plan's investment in the Notes.
Such plan assets would include an undivided interest in any assets held by the
Trust. In such an event, the Trustee and other persons, in providing services
with respect to the Trust's assets, may be parties in interest with respect to
such Plans, subject to the fiduciary responsibility provisions of Title I of
ERISA, including the prohibited transaction provisions of Section 406 of ERISA,
and Section 4975 of the Code with respect to transactions involving the Trust's
assets.
Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question
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of which law constitutes "applicable local law" for this purpose, Labor has
stated that these determinations should be made under the state law governing
interpretation of the instrument in question. In the preamble to the Plan Assets
Regulation, Labor declined to provide a precise definition of what features are
equity features or the circumstances under which such features would be
considered "substantial," noting that the question of whether a plan's interest
has substantial equity features is an inherently factual one, but that in making
a determination it would be appropriate to take into account whether the equity
features are such that a Plan's investment would be a practical vehicle for the
indirect provision of investment management services.
Brown & Wood ("ERISA Counsel") has rendered its opinion that the Notes will
be classified as indebtedness without substantial equity features for ERISA
purposes. ERISA Counsel's opinion is based upon the terms of the Notes, the
opinion of Tax Counsel that the Notes will be classified as debt instruments for
federal income tax purposes and the ratings which have been assigned to the
Notes. However, if contrary to ERISA Counsel's opinion the Notes are deemed to
be equity interests in the Trust and no statutory, regulatory or administrative
exemption applies, the Trust could be considered to hold plan assets by reason
of a Plan's investment in the Notes.
Review by Plan Fiduciaries
Any Plan fiduciary considering whether to purchase any Notes on behalf of a
Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment. Among other things, before purchasing any Notes, a
fiduciary of a Plan should make its own determination as to whether the Trust,
as obligor on the Notes, is a party in interest with respect to the Plan, the
availability of the exemptive relief provided in the Plan Asset Regulations and
the availability of any other prohibited transaction exemptions.
In particular, purchasers that are insurance companies should consult with
their counsel with respect to the recent United States Supreme Court case, John
Hancock Mutual Life Insurance Co. v. Harris Bank and Trust (decided December 13,
1993). In John Hancock, the Supreme Court ruled that assets held in an insurance
company's general account may be deemed to be "plan assets" for ERISA purposes
under certain circumstances. Purchasers should analyze whether the decision may
have an impact with respect to purchases of the Notes.
A-144
<PAGE>
<PAGE>
MBNA Master Credit Card Trust II
The following excerpts are from the Prospectus Supplement dated November 19,
1996 and the Prospectus dated November 19, 1996 relating to the Floating Rate
Asset Backed Certificates, Series 1996-M. The CABS include Series 1994-C.
<PAGE>
<PAGE>
MBNA'S CREDIT CARD ACTIVITIES
General
With respect to each Series of Certificates, the Receivables conveyed or to
be conveyed to a Trust by MBNA pursuant to the related Agreement have been or
will be generated from transactions made by holders of selected MasterCard and
VISA credit card accounts, including premium accounts and standard accounts,
from the Bank Portfolio. Generally, both premium and standard accounts undergo
the same credit analysis, but premium accounts carry higher credit limits and
offer a wider variety of services to the cardholders. MBNA currently services
the Bank Portfolio in the manner described in the related Prospectus Supplement.
Certain data processing and administrative functions associated with the
servicing of the Bank Portfolio are performed on behalf of MBNA by MBNA Hallmark
Information Services, Inc. ("MBNA Hallmark"). See "--Description of MBNA
Hallmark." MBNA Hallmark is a wholly-owned subsidiary of MBNA.
Acquisition and Use of Credit Card Accounts
MBNA primarily relies on affinity marketing in the acquisition of new
credit card accounts. Affinity marketing involves the solicitation of
prospective cardholders from identifiable groups with a common interest or a
common cause. Affinity marketing is conducted through two approaches: the first
relies on the solicitation of members of organized membership groups with the
endorsement of such group's leadership, and the second utilizes direct
solicitation of purchased list prospects. MBNA also relies on targeted direct
response marketing in the acquisition of new accounts.
Credit applications that are approved are reviewed individually by a credit
analyst, who approves the application and assigns a credit line based on a
review of the potential customer's financial history and capacity to repay.
Credit analysts review credit reports obtained through an independent credit
reporting agency, and use a delinquency probability model to assist them in
reaching a credit decision for each applicant. Credit analysts also review and
verify other information, such as employment and income, when necessary to make
a credit decision. Further levels of review are automatically triggered,
depending upon the levels of risk indicated by the delinquency probability
model. Credit analysts review applications obtained through pre-approved offers
to ensure adherence to credit standards and that the appropriate credit limit is
assigned. MBNA's Loan Review Department independently reviews selected
applications to ensure quality and consistency. Less than half of all credit
applications are approved.
Credit card accounts that have been purchased by the Seller were originally
opened using criteria established by institutions other than MBNA and may not
have been subject to the same level of credit review as accounts established by
MBNA. It is expected that portfolios of credit card accounts purchased by the
Seller from other credit card issuers will be added to Trusts from time to time.
Each cardholder is subject to an agreement with MBNA governing the terms
and conditions of the related MasterCard or VISA account. Pursuant to each such
agreement, MBNA reserves the right, upon advance notice to the cardholder, to
add or to change any terms, conditions, services or features of its MasterCard
or VISA accounts at any time, including increasing or decreasing periodic
finance charges, other charges or minimum payment terms. The agreement with each
cardholder provides that MBNA may apply such changes, when applicable, to
current outstanding balances as well as to future transactions. The cardholder
can avoid certain changes in terms by giving timely written notification to MBNA
and by not using the account.
A cardholder may use the credit card for two types of transactions:
purchases and 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.
Cardholders may use special cash advance checks issued by MBNA to draw against
their MasterCard or VISA credit lines. Cardholders may draw against their MBNA
credit lines by transferring balances owed to other creditors to their MBNA
accounts.
A-145
<PAGE>
<PAGE>
Description of MBNA Hallmark
Credit card processing services performed by MBNA Hallmark include data
processing, payment processing, statement rendering, card production and network
services. MBNA Hallmark's data network provides an interface to MasterCard
International Inc. and VISA U.S.A., Inc. for performing authorizations and funds
transfers. Most data processing and network functions are performed at MBNA
Hallmark's facility in Addison, Texas.
Interchange
Creditors participating in the VISA and MasterCard associations receive
Interchange as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard Systems, a portion of this Interchange in
connection with cardholder charges for goods and services is passed from banks
which clear the transactions for merchants to credit card issuing banks.
Interchange fees are set annually by MasterCard and VISA and are based on the
number of credit card transactions and the amount charged per transaction. The
Seller may be required, as described in the related Prospectus Supplement, to
transfer to a Trust a percentage of the Interchange attributed to cardholder
charges for goods and services in the related Accounts. If so required to be
transferred, Interchange arising under the Accounts will be allocated to the
related Certificates of any Series in the manner provided in the related
Prospectus Supplement, and, unless otherwise provided in the related Prospectus
Supplement, will be treated as collections of Finance Charge Receivables and
will be used to pay required monthly payments including interest on the related
Series of Certificates, and, in some cases, to pay all or a portion of the
Servicing Fee to the Servicer.
THE RECEIVABLES
The Receivables conveyed to each Trust will arise in Accounts selected from
the Bank Portfolio on the basis of criteria set forth in the related Agreement
as applied on the relevant Cut-Off Date and, with respect to Additional
Accounts, as of the related date of their designation (the "Trust Portfolio").
The Seller will have the right (subject to certain limitations and conditions
set forth therein), and in some circumstances will be obligated, to designate
from time to time Additional Accounts and to transfer to the related Trust all
Receivables of such Additional Accounts, whether such Receivables are then
existing or thereafter created, or to transfer to such Trust Participations in
lieu of such Receivables or in addition thereto. Any Additional Accounts
designated pursuant to an Agreement must be Eligible Accounts as of the date the
Seller designates such accounts as Additional Accounts. Furthermore, pursuant to
each Agreement, the Seller has the right (subject to certain limitations and
conditions) to designate certain Accounts as Removed Accounts and to require the
Trustee to reconvey all receivables in such Removed Accounts to the Seller,
whether such Receivables are then existing or thereafter created. Throughout the
term of each Trust, the related Accounts from which the Receivables arise will
be the Accounts designated by the Seller on the relevant Cut-Off Date plus any
Additional Accounts minus any Removed Accounts. With respect to each Series of
Certificates, the Seller will represent and warrant to the related Trust that,
as of the Closing Date and the date Receivables are conveyed to the Trust, such
Receivables meet certain eligibility requirements. See "Description of the
Certificates--Representations and Warranties."
The Prospectus Supplement relating to each Series of Certificates will
provide certain information about the related Trust Portfolio as of the date
specified. Such information will include, but not be limited to, the amount of
Principal Receivables, the amount of Finance Charge Receivables, the range of
principal balances of the Accounts and the average thereof, the range of credit
limits of the Accounts and the average thereof, the range of ages of the
Accounts and the average thereof, the geographic distribution of the Accounts.
the types of Accounts and delinquency statistics relating to the Accounts.
A-146
<PAGE>
<PAGE>
MBNA'S CREDIT CARD PORTFOLIO
General
The Receivables conveyed or to be conveyed to Trust II by MBNA pursuant to
Agreement II have been or will be generated from transactions made by holders of
selected MasterCard and VISA credit card accounts, including premium accounts
and standard accounts, from the Bank Portfolio.
Billing and Payments
MBNA, using MBNA Hallmark Information Services, Inc. as its service bureau,
generates and mails to cardholders monthly statements summarizing account
activity and processes cardholder monthly payments. Currently, cardholders must
make a monthly minimum payment at least equal to the greater of (i) 2% of the
statement balance plus past due amounts and (ii) a stated minimum payment
(generally $15) plus past due amounts. Certain eligible cardholders are given
the option periodically to take a payment deferral.
The finance charges on purchases assessed monthly are calculated by
multiplying the account's average daily purchase balance by the applicable daily
periodic rate, and multiplying the result by the number of days in the billing
cycle. Finance charges are calculated on purchases from the date of the purchase
or the first day of the billing cycle in which the purchase is posted to the
account, whichever is later. Monthly periodic finance charges are not assessed
in most circumstances on purchases if all balances shown on the previous billing
statement are paid by the due date, which is generally 25 days after the billing
date. The finance charges assessed monthly on cash advances are calculated by
multiplying the account's average cash advance balance by the applicable daily
periodic rate, and multiplying the result by the number of days in the billing
cycle. Finance charges are calculated on cash advances (including balance
transfers) from the date of the transaction. Currently, MBNA generally treats
the day (excluding Sundays and bank holidays) before the day on which a cash
advance check is presented to MBNA for payment as the transaction date for such
check.
MBNA offers fixed rate and variable rate credit card accounts. Generally,
fixed annual percentage rates range from 13.9% to 20.9%, and variable rates
range from 7.1% to 10.9% above the prime rate. MBNA also offers temporary
promotional rates and, under certain circumstances, the periodic finance charges
on a limited number of accounts may be either greater than or less than those
assessed by MBNA generally.
MBNA assesses annual membership fees (generally ranging from $18 to $40) on
certain accounts although under various marketing programs these fees may be
waived or rebated. For most credit card accounts, MBNA also assesses late,
overlimit and returned check charges (generally $18). MBNA generally assesses a
fee on cash advances and certain purchase transactions typically ranging from 1%
to 2% of the cash advance or purchase amount with a $2 minimum fee. In some
cases, the fee is capped at $10 or $25. Generally, a cash advance fee is not
assessed on balance transfers.
Delinquency and Gross Charge-off Experience
An account is contractually delinquent if the minimum payment is not
received by the due date indicated on the customer's statement. Efforts to
collect contractually delinquent credit card receivables currently are made by
MBNA's Customer Assistance personnel. Collection activities include statement
messages, telephone calls and formal collection letters. MBNA employs two
principal computerized systems for collecting past due accounts. The Predictive
Management System analyzes each cardholder's purchase and repayment habits and
selects accounts for initial contact with the objective of contacting the
highest risk accounts first. The accounts selected are queued to MBNA's
proprietary Outbound Call Management System ("OCMS"). OCMS sorts accounts by a
number of factors, including time zone, degree of delinquency and dollar amount
due. OCMS automatically dials delinquent accounts in order of priority.
Representatives are automatically linked to the cardholder's account information
and voice line when a contact is established.
Accounts are worked continually at each stage of delinquency through the
180 day past due level. As an account enters the 180 day delinquency level, it
is classified as a potential charge-off. Accounts failing to make a payment
during the 180 day cycle are written off. Managers may defer a charge-off of an
account for another month, pending continued payment activity or other special
circumstances. Senior manager approval is
A-147
<PAGE>
<PAGE>
required on all exceptions to charge-off. Accounts of cardholders in bankruptcy
are currently charged-off no later than is consistent with this policy.
The following tables set forth the delinquency and gross charge-off
experience for each of the periods shown for the Bank Portfolio of credit card
accounts. The Bank Portfolio's delinquency and gross charge-off experience is
comprised of segments which may, when taken individually, have delinquency and
gross charge-off characteristics different from those of the overall Bank
Portfolio of credit card accounts. As of the beginning of the day on November 5,
1996, the Receivables in the Trust II Portfolio represented approximately 72% of
the Bank Portfolio. Because the Trust II Portfolio is only a portion of the Bank
Portfolio, actual delinquency and gross charge-off experience with respect to
the Receivables may be different from that set forth below for the Bank
Portfolio. There can be no assurance that the delinquency and gross charge-off
experience for the Receivables in the future will be similar to the historical
experience of the Bank Portfolio set forth below.
Delinquency Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993
------------------------ ------------------------ ------------------------- -------------------------
Percentage Percentage Percentage Percentage
of Total of Total of Total of Total
Receivables Receivables Receivables Receivables Receivables Receivables Receivables Receivables
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables Outstanding(1) $30,160,243 $24,269,670 $17,162,700 $11,483,205
Receivables Delinquent:
35-64 Days ............ $ 538,862 1.79% $ 393,142 1.62% $ 234,686 1.37% $ 140,512 1.22%
65-94 Days ............ 250,786 0.83 178,038 0.73 106,309 0.62 70,988 0.62
95 or More Days ....... 500,690 1.66 352,813 1.46 187,764 1.09 160,305 1.40
----------- ---- ----------- ---- ----------- ---- ----------- ----
Total ........... $ 1,290,338 4.28% $ 923,993 3.81% $ 528,759 3.08% $ 371,805 3.24%
=========== ==== =========== ==== =========== ==== =========== ====
</TABLE>
- ----------
(1) The Receivables Outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts as of the date shown.
Gross Charge-Off Experience
Bank Portfolio
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended ----------------------------------------------------
September 30, 1996 1995 1994 1993
------------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1) . $26,599,241 $20,562,315 $13,594,814 $9,905,037
Total Gross Charge-Offs(2) ......... 856,218 686,687 423,551 344,956
Total Gross Charge-Offs as a
percentage of Average
Receivables Outstanding(3) ....... 4.29% 3.34% 3.12% 3.48%
</TABLE>
- ----------
(1) Average Receivables Outstanding is the average of the daily receivable
balance during the period indicated.
(2) Total Gross Charge-Offs are total principal and interest change-offs before
recoveries and do not include the amount of any reductions in Average
Receivables Outstanding due to fraud, returned goods, customer disputes or
other miscellaneous credit adjustments.
(3) The percentage reflected for the nine months ended September 30, 1996 is an
annualized figure.
A-148
<PAGE>
<PAGE>
Interchange
The Seller will be required, pursuant to the terms of Agreement II, to
transfer to Trust II a percentage of the Interchange attributed to cardholder
charges for goods and services in the Accounts. Interchange arising under the
Accounts will be allocated to the Certificates and the Collateral Interest on
the basis of the percentage equivalent of the ratio which the amount of the
Investor Percentage, with regard to Finance Charge Receivables, of cardholder
charges for goods and services in the Accounts bears to the total amount of
cardholder charges for goods and services in the MasterCard and VISA credit card
accounts owned by MBNA, as reasonably estimated by the Seller. MasterCard and
VISA may from time to time change the amount of Interchange reimbursed to banks
issuing their credit cards. Interchange will be treated as collections of
Finance Charge Receivables for the purposes of determining the amount of Finance
Charge Receivables, allocating collections of Finance Charge Receivables, making
required monthly payments, and calculating the Portfolio Yield. Under the
circumstances described herein, Interchange will be used to pay a portion of the
Investor Servicing Fee required to be paid on each Transfer Date. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses" herein and "MBNA's Credit Card Activities--Interchange" in the
Prospectus.
THE RECEIVABLES
The Receivables conveyed to Trust II arise in Accounts selected from the
Bank Portfolio on the basis of criteria set forth in Agreement II as applied on
the Cut-Off Date and, with respect to Additional Accounts, as of the related
date of their designation (the "Trust II Portfolio"). Pursuant to Agreement II,
the Seller has the right, subject to certain limitations and conditions set
forth therein, to designate from time to time Additional Accounts and to
transfer to Trust II all Receivables of such Additional Accounts, whether such
Receivables are then existing or thereafter created. Any Additional Accounts
designated pursuant to Agreement II must be Eligible Accounts as of the date the
Seller designates such accounts as Additional Accounts. On September 19, 1994,
November 15, 1994, March 30, 1995, July 6, 1995, October 3, 1995, March 8, 1996,
May 30, 1996, September 4, 1996, October 3, 1996 and November 5, 1996, the
Seller designated Additional Accounts and conveyed the Receivables arising
therein to Trust II, which included approximately $1.487 billion, $1.087
billion, $1.288 billion, $1.094 billion, $l.193 billion, $l.981 billion, $1 .685
billion, $1 .986 billion, $1 .087 billion and $690.6 million of Principal
Receivables, respectively. In addition, the Seller will be required to designate
Additional Accounts, to the extent available, (a) to maintain the Seller
Interest so that, during any period of 30 consecutive days, the Seller Interest
averaged over that period equals or exceeds the Minimum Seller Interest for the
same period and (b) to maintain, for so long as certificates of any Series
(including the Certificates) remain outstanding, an aggregate amount of
Principal Receivables equal to or greater than the Minimum Aggregate Principal
Receivables. "Minimum Seller Interest" for any period means 7% of the average
Principal Receivables for such period; provided, however, that the Seller may
reduce the Minimum Seller Interest to not less than 2% of the average Principal
Receivables for such period upon satisfaction of the Rating Agency Condition and
certain other conditions to be set forth in Agreement II. "Minimum Aggregate
Principal Receivables" means, with respect to all Series then outstanding,
unless otherwise provided in the related Series Supplement, an amount equal to
the sum of the numerators used in the calculation of the Investor Percentages
with respect to Principal Receivables for all outstanding Series on such date;
provided, however, that with respect to any Series in its Rapid Accumulation
Period, or such other period as designated in the related Series Supplement,
with an investor interest as of such date of determination equal to the
principal funding account balance relating to such Series, taking into account
any deposit to be made to the principal funding account relating to such Series
on the Transfer Date following such date of determination, the numerator used in
the calculation of the Investor Percentage with respect to Principal Receivables
relating to such Series shall, solely for the purpose of the definition of
Minimum Aggregate Principal Receivables, be deemed to equal zero; provided
further, however, that the Minimum Aggregate Principal Receivables may be
reduced to a lesser amount at any time if the Rating Agency Condition is
satisfied. The Seller will convey the Receivables then existing or thereafter
created under such Additional Accounts to Trust II. Further, pursuant to
Agreement II, the Seller will have the right (subject to certain limitations and
conditions) to designate certain Removed Accounts and to require
A-l49
<PAGE>
<PAGE>
the Trustee to reconvey all Receivables in such Removed Accounts to the Seller,
whether such Receivables are then existing or thereafter created. Throughout the
term of Trust II, the Accounts from which the Receivables arise will be the
Accounts designated by the Seller on the Cut-Off Date plus any Additional
Accounts minus any Removed Accounts. As of the Cut-Off Date and, with respect to
Receivables in Additional Accounts, as of the related date of their conveyance
to Trust II, and on the date any new Receivables are created, the Seller will
represent and warrant to Trust II that the Receivables meet the eligibility
requirements specified in Agreement II. See "Description of the Certificates--
Representations and Warranties" in the Prospectus.
The Receivables in the Trust II Portfolio, as of the beginning of the day
on November 5, 1996, included $21,974,861,513 of Principal Receivables and
$334,987,286 of Finance Charge Receivables. The Accounts had an average
Principal Receivable balance of $1,261 and an average credit limit of $7,533.
The percentage of the aggregate total Receivable balance to the aggregate total
credit limit was 17.0%. The average age of the Accounts was approximately 28
months. As of the beginning of the day on November 5, 1996, cardholders whose
Accounts are included in the Trust II Portfolio had billing addresses in all 50
States and the District of Columbia or other United States territories and
possessions. As of the beginning of the day on November 5, 1996, 56.4% of the
Accounts were standard accounts and 43.6% were premium accounts, and the
aggregate Principal Receivable balances of standard accounts and premium
accounts, as a percentage of the total aggregate Principal Receivables, were
42.2% and 57.8%, respectively.
The following tables summarize the Trust II Portfolio by various criteria
as of the beginning of the day on November 5, 1996. Because the future
composition of the Trust II Portfolio may change over time, these tables are not
necessarily indicative of the composition of the Trust II Portfolio at any
subsequent time.
Composition by Account Balance
Trust II Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Balance Range Accounts Accounts Receivables Receivables
- --------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance .................. 203,175 1.2% $ (18,735,185) (0.1)%
No Balance ...................... 9,827,600 56.4 0 0.0
$.01 - $5,000.00 ................ 5,742,393 33.0 8,428,114,192 37.8
$5,000.01 - $10,000.00 .......... 1,315,653 7.5 8,988,356,704 40.3
$10,000.01 - $15,000.00 ......... 241,411 1.4 2,889,437,765 13.0
$15,000.01 - $20,000.00 ......... 60,620 0.3 1,033,704,054 4.6
$20,000.01 - $25,000.00 ......... 21,101 0.1 469,469,775 2.1
$25,000.01 or More .............. 15,953 0.1 519,501,494 2.3
---------- ----- --------------- -----
Total .................... 17,427,906 100.0% $22,309,848,799 100.0%
========== ===== =============== =====
</TABLE>
Composition by Credit Limit
Trust II Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Credit Limit Range Accounts Accounts Receivables Receivables
- --------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $5,000.00 . 6,302,025 36.2% $ 3,520,267,826 15.8%
$5,000.01 - $10,000.00 .......... 7,391,771 42.4 10,229,689,423 45.8
$10,000.01 -$15,000.00 .......... 2,451,292 14.1 4,564,637,665 20.5
$15,000.01 - $20,000.00 ......... 699,413 4.0 1,859,332,478 8.3
$20,000.01 - $25,000.00 ......... 305,692 1.7 963,197,636 4.3
$25,000.01 or More .............. 277,713 1.6 1,172,723,771 5.3
---------- ----- --------------- -----
Total .................... 17,427,906 100.0% $22,309,848,799 100.0%
========== ===== =============== =====
</TABLE>
A-150
<PAGE>
<PAGE>
Composition by Period of Delinquency
Trust II 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 .................. 16,790,233 96.3% $19,806,421,533 88.8%
Up to 34 Days ................... 395,085 2.3 1,539,055,039 6.9
35 to 64 Days ................... 101,507 0.6 393,279,312 1.8
65 to 94 Days ................... 48,968 0.3 185,824,998 0.8
95 or More Days ................. 92,113 0.5 385,267,917 1.7
---------- ----- --------------- -----
Total .................... 17,427,906 100.0% $22,309,848,799 100.0%
========== ===== =============== =====
</TABLE>
Composition by Account Age
Trust II Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of of Total
Account Age Accounts Accounts Receivables Receivables
- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Not More than 6 Months .......... 3,104,242 17.8% $ 3,162,813,083 14.2%
Over 6 Months to 12 Months ...... 2,600,423 14.9 2,330,677,725 10.4
Over 12 Months to 24 Months ..... 5,392,425 30.9 5,592,334,111 25.1
Over 24 Months to 36 Months ..... 3,877,959 22.3 5,990,686,544 26.9
Over 36 Months to 48 Months ..... 379,735 2.2 538,161,239 2.4
Over 48 Months to 60 Months ..... 184,776 1.1 300,134,721 1.3
Over 60 Months to 72 Months ..... 137,007 0.8 274,540,361 1.2
Over 72 Months .................. 1,751,339 10.0 4,120,501,015 18.5
---------- ----- --------------- -----
Total .................... 17,427,906 100.0% $22,309,848,799 100.0%
========== ===== =============== =====
</TABLE>
A-151
<PAGE>
<PAGE>
Geographic Distribution of Accounts
Trust II Portfolio
<TABLE>
<CAPTION>
Percentage
of Total Percentage
Number of Number of Total
State Accounts of Accounts Receivables Receivables
- ----- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Alabama ......................... 163,370 0.9% $ 224,461,890 1.0%
Alaska .......................... 31,816 0.2 59,700,071 0.3
Arizona ......................... 277,608 1.6 393,231,681 1.8
Arkansas ........................ 127,534 0.7 171,376,839 0.8
California ...................... 1,873,724 10.8 3,159,485,808 14.2
Colorado ........................ 295,045 1.7 380,507,575 1.7
Connecticut ..................... 300,688 1.7 364,317,734 1.6
Delaware ........................ 71,882 0.4 90,928,301 0.4
Florida ......................... 886,747 5.1 1,203,394,320 5.4
Georgia ......................... 396,056 2.3 557,670,225 2.5
Hawaii .......................... 65,304 0.4 103,863,258 0.5
Idaho ........................... 76,479 0.4 93,398,850 0.4
Illinois ........................ 658,919 3.8 799,240,772 3.6
Indiana ......................... 385,168 2.2 394,961,596 1.8
Iowa ............................ 195,517 1.1 163,303,329 0.7
Kansas .......................... 158,053 0.9 182,359,619 0.8
Kentucky ........................ 196,423 1.1 214,627,597 1.0
Louisiana ....................... 228,781 1.3 285,975,340 1.3
Maine ........................... 127,518 0.7 133,358,102 0.6
Maryland ........................ 585,319 3.4 853,557,876 3.8
Massachusetts ................... 575,641 3.3 632,811,103 2.8
Michigan ........................ 601,371 3.5 645,145,572 2.9
Minnesota ....................... 336,999 1.9 341,962,748 1.5
Mississippi ..................... 97,378 0.6 126,131,363 0.6
Missouri ........................ 305,826 1.8 353,476,393 1.6
Montana ......................... 58,742 0.3 59,651,840 0.3
Nebraska ........................ 140,410 0.8 141,780,973 0.6
Nevada .......................... 109,521 0.6 191,486,407 0.9
New Hampshire ................... 108,946 0.6 126,163,482 0.6
New Jersey ...................... 696,862 4.0 938,181,125 4.2
New Mexico ...................... 102,076 0.6 143,712,831 0.6
New York ........................ 1,295,906 7.4 1,638,150,765 7.3
North Carolina .................. 414,924 2.4 516,887,061 2.3
North Dakota .................... 41,271 0.2 38,036,212 0.2
Ohio ............................ 702,201 4.0 732,608,857 3.3
Oklahoma ........................ 182,282 1.1 257,023,070 1.1
Oregon .......................... 138,051 0.8 194,408,522 0.9
Pennsylvania .................... 965,386 5.5 924,558,428 4.1
Rhode Island .................... 85,742 0.5 93,720,202 0.4
South Carolina .................. 204,059 1.2 246,631,711 1.1
South Dakota .................... 49,725 0.3 49,564,080 0.2
Tennessee ....................... 347,711 2.0 484,791,649 2.2
Texas ........................... 1,167,935 6.7 1,646,278,019 7.4
Utah ............................ 122,332 0.7 131,820,889 0.6
Vermont ......................... 49,903 0.3 56,903,921 0.2
Virginia ........................ 489,250 2.8 668,858,382 3.0
Washington ...................... 342,316 2.0 491,197,899 2.2
West Virginia ................... 94,739 0.5 107,201,980 0.5
Wisconsin ....................... 392,183 2.3 339,895,025 1.5
Wyoming ......................... 38,390 0.2 44,162,737 0.2
District of Columbia ............ 45,271 0.3 76,995,877 0.3
Other ........................... 22,606 0.1 39,928,893 0.2
---------- ----- --------------- -----
Total .................... 17,427,906 100.0% $22,309,848,799 100.0%
========== ===== =============== =====
</TABLE>
A-152
<PAGE>
<PAGE>
MATURITY ASSUMPTIONS
Agreement II provides that Class A Certificateholders will not receive
payments of principal until the Class A Scheduled Payment Date, or earlier in
the event of a Pay Out Event which results in the commencement of the Rapid
Amortization Period. The Class B Certificateholders will not begin to receive
principal until the final principal payment on the Class A Certificates has been
made.
Controlled Accumulation Period. On each Transfer Date during the Controlled
Accumulation Period prior to the payment of the Class A Investor Interest in
full, an amount equal to, for each Monthly Period, the least of (a) the
Available Investor Principal Collections, (b) the applicable "Controlled Deposit
Amount," which is equal to the sum of the applicable Controlled Accumulation
Amount for such Monthly Period and the applicable Accumulation Shortfall, if
any, and (c) the Class A Adjusted Investor Interest prior to any deposits on
such day, will be deposited in the Principal Funding Account established by the
Trustee until the amount on deposit in the Principal Funding Account (the
"Principal Funding Account Balance") equals the Class A Investor Interest. After
the Class A Investor Interest has been paid in full, Available Investor
Principal Collections, to the extent required, will be distributed to the Class
B Certificateholders on each related Distribution Date until the earlier of the
date the Class B Investor Interest has been paid in full and the Series 1996-M
Termination Date. After the Class A Investor Interest and the Class B Investor
Interest have each been paid in full, Available Investor Principal Collections,
to the extent required, will be distributed to the Collateral Interest Holder on
each related Transfer Date until the earlier of the date the Collateral Interest
has been paid in full and the Series 1996-M Termination Date. Amounts in the
Principal Funding Account are expected to be available to pay the Class A
Investor Interest in full on the Class A Scheduled Payment Date. Also, after the
payment of the Class A Investor Interest in full, Available Investor Principal
Collections are expected to be available to pay the Class B Investor Interest in
full on the Class B Scheduled Payment Date. Although it is anticipated that
collections of Principal Receivables will be available on each Transfer Date
during the Controlled Accumulation Period to make a deposit of the applicable
Controlled Deposit Amount and that the Class A Investor Interest will be paid to
the Class A Certificateholders on the Class A Scheduled Payment Date and the
Class B Investor Interest will be paid to the Class B Certificateholders on the
Class B Scheduled Payment Date, respectively, no assurance can be given in this
regard. If the amount required to pay the Class A Investor Interest or the Class
B Investor Interest in full is not available on the Class A Scheduled Payment
Date or the Class B Scheduled Payment Date, respectively, a Pay Out Event will
occur and the Rapid Amortization Period will commence.
Rapid Amortization Period. If a Pay Out Event occurs during the Controlled
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 in the month following the
commencement of the Rapid Amortization Period. In addition, to the extent that
the Class A Investor Interest has not been paid in full, the Class A
Certificateholders will be entitled to monthly payments of principal equal to
the Available Investor Principal Collections until the earlier of the date on
which the Class A Certificates have been paid in full and the Series 1996-M
Termination Date. After the Class A Certificates have been paid in full and if
the Series 1996-M Termination Date has not occurred, Available Investor
Principal Collections will be paid to the Class B Certificateholders on each
Distribution Date until the earlier of the date on which the Class B
Certificates have been paid in full and the Series 1996-M Termination Date.
Pay Out Events. A Pay Out Event occurs, either automatically or after
specified notice, upon (a) the failure of the Seller to make certain payments or
transfers of funds for the benefit of the Certificateholders within the time
periods stated in Agreement II, (b) certain material breaches of certain
representations, warranties or covenants of the Seller, (c) certain insolvency
events involving the Seller, (d) the average of the Portfolio Yields for any
three consecutive Monthly Periods being less than the average of the Base Rates
for such period, (e) Trust II becoming an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, (f) the failure of
the Seller to convey Receivables arising under Additional Accounts or
Participations to Trust II when required by Agreement II, (g) the occurrence of
a Servicer Default which would have a material adverse effect on the
Certificateholders, (h) insufficient monies in the Distribution Account to pay
the Class A Investor Interest or the Class B Investor Interest in full on the
Class A Scheduled Payment Date or the Class B Scheduled Payment Date,
respectively, or (i) the Seller
A-153
<PAGE>
<PAGE>
becomes unable for any reason to transfer Receivables to Trust II in accordance
with the provisions of Agreement II. See "Description of the Certificates--Pay
Out Events." The term "Base Rate" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is the
sum of the Class A Monthly Interest, the Class B Monthly Interest and the
Collateral Monthly Interest, each for the related Interest Period and the
Certificateholder Servicing Fee and the Servicer Interchange, each for such
Monthly Period, and the denominator of which is the Investor Interest as of the
close of business on the last day of such Monthly Period. The term "Portfolio
Yield" means, with respect to any Monthly Period, the annualized percentage
equivalent of a fraction, the numerator of which is the sum of collections of
Finance Charge Receivables, annual membership fees, Principal Funding Investment
Proceeds, the amount of any investment earnings (net of investment losses and
expenses) on funds on deposit in the Interest Funding Account for the related
Transfer Date ("Interest Funding Investment Proceeds") and amounts withdrawn
from the Reserve Account deposited into the Finance Charge Account and allocable
to the Certificates and the Collateral Interest for such Monthly Period,
calculated on a cash basis after subtracting the Investor Default Amount for
such Monthly Period, and the denominator of which is the Investor Interest as of
the close of business on the last day of such Monthly Period.
Payment Rates. The following table sets forth the highest and lowest
cardholder monthly payment rates for the Bank Portfolio during any month in the
period shown and the average cardholder monthly payment rates for all months
during the periods shown, in each case calculated as a percentage of total
opening monthly account balances during the periods shown. Payment rates shown
in the table are based on amounts which would be deemed payments of Principal
Receivables and Finance Charge Receivables with respect to the Accounts.
Cardholder Monthly Payment Rates
Bank Portfolio
Nine Months Year Ended December 31,
Ended --------------------------
September 30, 1996 1995 1994 1993
------------------ ------ ------ ------
Lowest Month 10.69% 10.22% 10.46% 12.55%
Highest Month 11.56% 11.34% 12.93% 14.10%
Monthly Average 11.14% 10.79% 11.79% 13.24%
Prior to May 1, 1991, the Seller required each cardholder to make monthly
minimum payments of 3.0% of the statement balance plus past due amounts,
insurance payments and other fees. Between May 1, 1991 and September 20, 1993,
the Seller required each cardholder to make monthly minimum payments of 2.5% of
the statement balance plus past due amounts. Currently, cardholders must make a
monthly minimum payment equal to 2.0% of the statement balance plus past due
amounts. However, the cardholder was and is generally required to make a monthly
minimum payment (generally $15) plus past due amounts. There can be no assurance
that the cardholder monthly payment rates in the future will be similar to the
historical experience set forth above. In addition, the amount of collections of
Receivables may vary from month to month due to seasonal variations, general
economic conditions and payment habits of individual cardholders. There can be
no assurance that collections of Principal Receivables with respect to the Trust
II Portfolio will be similar to the historical experience set forth above or
that deposits into the Principal Funding Account or the Distribution Account, as
applicable, will be made in accordance with the applicable Controlled
Accumulation Amount. If a Pay Out Event occurs, the average life of the
Certificates could be significantly reduced.
Because there may be a slowdown in the payment rate below the payment rates
used to determine the Controlled Accumulation Amounts, or a Pay Out Event may
occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described under
"Description of the Certificates--Postponement of Controlled Accumulation
Period," the Servicer may shorten the Controlled Accumulation Period and, in
such event, there can be no assurance that there will be sufficient time to
accumulate all amounts necessary to pay the Class A Investor Interest and the
Class B Investor Interest on the Class A Scheduled
A-154
<PAGE>
<PAGE>
Payment Date and the Class B Scheduled Payment Date, respectively. See "Maturity
Assumptions" and "Risk Factors--Payments and Maturity" in the Prospectus.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in the
Bank Portfolio for each of the three calendar years contained in the period
ended December 31, 1995 and the nine calendar months contained in the period
ended September 30, 1996 are set forth in the following table.
The historical yield figures in the following table are calculated on an
accrual basis. Collections of Receivables included in Trust II will be on a cash
basis and may not reflect the historical yield experience in the table. During
periods of increasing delinquencies or periodic payment deferral programs,
accrual yields may exceed cash amounts accrued and billed to cardholders.
Conversely, cash yields may exceed accrual yields as amounts collected in a
current period may include amounts accrued during prior periods. However, the
Seller believes that during the three calendar years contained in the period
ended December 31, 1995 and the nine calendar months contained in the period
ended September 30, 1996, the yield on an accrual basis closely approximated the
yield on a cash basis. The yield on both an accrual and a cash basis will be
affected by numerous factors, including the monthly periodic finance charges on
the Receivables, the amount of the annual membership fees and other fees,
changes in the delinquency rate on the Receivables and the percentage of
cardholders who pay their balances in full each month and do not incur monthly
periodic finance charges. See "Risk Factors" in the Prospectus.
Bank Portfolio Yield
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended --------------------------------------
September 30, 1996 1995 1994 1993
------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Account Monthly Accrued Finance
Charges and Fees(1)(2) ............... $ 23.59 $ 23.70 $ 22.27 $ 23.11
Average Account Balance(3) ............. $1,713.77 $1,718.08 $1,624.11 $1,593.64
Yield from Finance Charges and Fees(4) . 16.52% 16.55% 16.45% 17.40%
Yield from Interchange(5) .............. 1.08% 1.20% 1.58% 1.84%
Yield from Finance Charges, Fees and
Interchange(6) ....................... 17.60% 17.75% 18.03% 19.24%
</TABLE>
- ----------
(1) Finance Charges and Fees are comprised of monthly periodic finance charges
and other credit card fees.
(2) Average Account Monthly Accrued Finance Charges and Fees are presented net
of adjustments made pursuant to MBNA's normal servicing procedures,
including removal of incorrect or disputed monthly periodic finance
charges.
(3) Average Account Balances include purchases, cash advances and accrued and
unpaid monthly periodic finance and other charges and are calculated based
on the average of the account balances during the periods shown for
accounts with charging privileges.
(4) Yield from Finance Charges and Fees is the result of dividing the
annualized Average Account Monthly Accrued Finance Charges and Fees by the
Average Account Balance for the period.
(5) Yield from Interchange is the result of dividing annualized revenue
attributable to Interchange received during the period by the Average
Account Balance for the period. The amount of Interchange for each of the
periods indicated above has been estimated.
(6) The percentage reflected for the nine months ended September 30, 1996 is an
annualized figure.
These revenues vary for each account based on the type and volume of
activity for each account. Because the Trust II Portfolio is only a portion of
the Bank Portfolio, actual yield with respect to Receivables may be different
from that set forth above for the Bank Portfolio. See "MBNA's Credit Card
Portfolio" herein and "MBNA Credit Card Activities" in the Prospectus.
A-155
<PAGE>
<PAGE>
MBNA AND MBNA CORPORATION
MBNA America Bank, National Association, a national banking association
located in Wilmington, Delaware, conducts nationwide consumer lending programs
principally comprised of credit card related activities. MBNA International Bank
Limited, a private limited company incorporated under the laws of England and
Wales, is a wholly-owned subsidiary of MBNA. As of June 30, 1996, MBNA was the
second largest MasterCard and VISA lender based on managed loans according to an
August 1996 issue of The Nilson Report, a bi-weekly industry publication. On a
managed basis, including loans originated by MBNA International Bank Limited,
MBNA maintained loan accounts with aggregate outstanding balances of $34.4
billion as of September 30, 1996. Of this amount, $30.6 billion were MasterCard
and VISA credit card loans originated in the United States. As of September 30,
1996, the premium credit card portfolio in the United States accounted for 48%
of MBNA's domestic MasterCard and VISA credit card accounts with outstanding
balances and 62% of MBNA's outstanding domestic MasterCard and VISA credit card
loans.
MBNA conducts all direct customer contact processes with respect to the
cardholder. This involves a 24 hour, 365 day per year Customer Service telephone
staff, Credit Decisions, Correspondence Resolution, Security and Collection
Operations. As of September 30, 1996, MBNA had assets of $14.4 billion, deposits
of $9.9 billion and capital and surplus accounts of $1.3 billion.
MBNA is a wholly-owned subsidiary of the Corporation. MBNA was established
in January 1991 in connection with a restructuring of the former MBNA America
Bank, N.A., a wholly-owned subsidiary of MNC Financial, Inc. The Corporation is
a bank holding company organized under the laws of Maryland in 1990 and
registered under the Bank Holding Company Act of 1956, as amended. As of
September 30, 1996, the Corporation had consolidated assets of $15.6 billion,
consolidated deposits of $9.6 billion and capital and surplus accounts of $1.6
billion. The principal asset of the Corporation is the capital stock of MBNA.
Legal Matters and Litigation. In May 1996, a lawsuit was filed against MBNA
in the United States District Court for the Middle District of Florida. This
suit is a purported class action. The plaintiff complains that MBNA's
advertising of its cash advance promotional rate program was deceptive. The
plaintiff seeks to recover unspecified damages which the plaintiff alleges
resulted from MBNA's breach of contract and violation of federal and state law.
In October 1996, the case was transferred to the District Court of Delaware.
MBNA believes its advertising practices are proper under applicable federal and
state law and intends to defend vigorously against the action.
A-156
<PAGE>
<PAGE>
OTHER SERIES ISSUED
The table below sets forth the principal characteristics of the twenty-six
other Series previously issued by Trust II, as well as another Series that is
expected to be issued by Trust II on or about December 3, 1996, all of which are
in Group One. For more specific information with respect to any Series, any
prospective investor should contact MBNA at (800) 362-6255 or (302) 456-8588.
MBNA will provide, without charge, to any prospective purchaser of the
Certificates, a copy of the Disclosure Documents for any previous
publicly-issued Series.
<TABLE>
<S> <C> <C>
1. Series 1994-A
Initial Class A Investor Interest...........................................................$661,200,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.17% per annum
Initial Class B Investor Interest............................................................$34,200,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.37% per annum
Class A Controlled Accumulation Amount......................................................$55,100,000*
Class A Scheduled Payment Date.............................................August 1999 Distribution Date
Class B Scheduled Payment Date..........................................September 1999 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$64,600,000
Other Enhancement for the Class A Certificates ....................Subordination of Class B Certificates
Series 1994-A Termination Date............................................January 2002 Distribution Date
Series Issuance Date......................................................................August 4, 1994
2. Series 1994-B
Initial Class A Investor Interest...........................................................$870,000,000
Class A Certificate Rate................................Thirteen-week Treasury Bill plus 0.45% per annum
Initial Class B Investor Interest............................................................$45,000,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.35% per annum
Class A Controlled Accumulation Amount......................................................$72,500,000*
Class A Scheduled Payment Date.............................................August 1999 Distribution Date
Class B Scheduled Payment Date..........................................September 1999 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$85,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1994-B Termination Date............................................January 2002 Distribution Date
Series Issuance Date.....................................................................August 18, 1994
3. Series 1994-C
Initial Class A Investor Interest...........................................................$870,000,000
Class A Certificate Rate.............................................One-Month LIBOR plus .25% per annum
Initial Class B Investor Interest............................................................$45,000,000
Class B Certificate Rate.............................................One-Month LIBOR plus .45% per annum
Class A Controlled Accumulation Amount......................................................$72,500,000*
Class A Scheduled Payment Date............................................October 2001 Distribution Date
Class B Scheduled Payment Date...........................................November 2001 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$85,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1994-C Termination Date..............................................March 2004 Distribution Date
Series Issuance Date....................................................................October 26, 1994
</TABLE>
A-157
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
4. Series 1994-D
Initial Class A Investor Interest...........................................................$870,000,000
Class A Certificate Rate....................................Daily Federal Funds Rate plus .33% per annum
Initial Class B Investor Interest............................................................$45,000,000
Class B Certificate Rate.............................................One-Month LIBOR plus .35% per annum
Class A Controlled Accumulation Amount......................................................$72,500,000*
Class A Scheduled Payment Date............................................October 1997 Distribution Date
Class B Scheduled Payment Date...........................................November 1997 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$85,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1994-D Termination Date..............................................March 2000 Distribution Date
Series Issuance Date....................................................................October 26, 1994
5. Series 1994-E
Initial Investor Interest...................................................................$500,000,000
Current Investor Interest as of October 31, 1996............................................$700,000,000
Maximum Investor Interest...................................................................$700,000,000
Certificate Rate..................................................................Commercial Paper Index
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Cash Collateral Amount...............................................................$20,000,000
Series Issuance Date...................................................................December 15, 1994
6. Series 1995-A
Initial Class A Investor Interest...........................................................$500,250,000
Class A Certificate Rate.............................................One-Month LIBOR plus .27% per annum
Initial Class B Investor Interest............................................................$25,875,000
Class B Certificate Rate.............................................One-Month LIBOR plus .45% per annum
Class A Controlled Accumulation Amount......................................................$41,687,500*
Class A Scheduled Payment Date.............................................August 2004 Distribution Date
Class B Scheduled Payment Date..........................................September 2004 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$48,875,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-A Termination Date............................................January 2007 Distribution Date
Series Issuance Date......................................................................March 22, 1995
7. Series 1995-B
Initial Class A Investor Interest...........................................................$652,500,000
Class A Certificate Rate.............................................One-Month LIBOR plus .16% per annum
Initial Class B Investor Interest............................................................$33,750,000
Class B Certificate Rate.............................................One-Month LIBOR plus .32% per annum
Class A Controlled Accumulation Amount......................................................$54,375,000*
Class A Scheduled Payment Date................................................May 2000 Distribution Date
Class B Scheduled Payment Date...............................................June 2000 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$63,750,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-B Termination Date............................................October 2002 Distribution Date
Series Issuance Date.........................................................................May 23,1995
</TABLE>
A-158
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
8. Series 1995-C
Initial Class A Investor Interest...........................................................$500,250,000
Class A Certificate Rate.................................................................6.45% per annum
Initial Class B Investor Interest............................................................$25,875,000
Class B Certificate Rate.............................................One-Month LIBOR plus .42% per annum
Class A Controlled Accumulation Amount......................................................$41,687,500*
Class A Scheduled Payment Date...............................................June 2005 Distribution Date
Class B Scheduled Payment Date...............................................July 2005 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$48,875,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-C Termination Date...........................................February 2008 Distribution Date
Series Issuance Date.......................................................................June 29, 1995
9. Series 1995-D
Initial Class A Investor Interest...........................................................$435,000,000
Class A Certificate Rate.................................................................6.05% per annum
Initial Class B Investor Interest............................................................$22,500,000
Class B Certificate Rate.............................................One-Month LIBOR plus .29% per annum
Class A Controlled Accumulation Amount......................................................$36,250,000*
Class A Scheduled Payment Date...............................................June 2000 Distribution Date
Class B Scheduled Payment Date...............................................July 2000 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$42,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-D Termination Date...........................................November 2002 Distribution Date
Series Issuance Date.......................................................................June 29, 1995
10. Series 1995-E
Initial Class A Investor Interest...........................................................$435,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.22% per annum
Initial Class B Investor Interest............................................................$22,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.32% per annum
Class A Controlled Accumulation Amount......................................................$36,250,000*
Class A Scheduled Payment Date.............................................August 2002 Distribution Date
Class B Scheduled Payment Date..........................................September 2002 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$42,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-E Termination Date............................................January 2005 Distribution Date
Series Issuance Date......................................................................August 2, 1995
</TABLE>
A-159
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
11. Series 1995-F
Initial Class A Investor Interest...........................................................$455,000,000
Class A Certificate Rate.................................................................6.60% per annum
Initial Class B Investor Interest............................................................$18,750,000
Class B Certificate Rate.................................................................6.75% per annum
Class A Controlled Accumulation Amount...................................................$37,916,666.67*
Class A Scheduled Payment Date.............................................August 2000 Distribution Date
Class B Scheduled Payment Date..........................................September 2000 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$26,250,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-F Termination Date............................................January 2003 Distribution Date
Series Issuance Date.....................................................................August 30, 1995
12. Series 1995-G
Initial Class A Investor Interest...........................................................$435,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.21% per annum
Initial Class B Investor Interest............................................................$22,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.33% per annum
Class A Controlled Accumulation Amount......................................................$36,250,000*
Class A Scheduled Payment Date............................................October 2002 Distribution Date
Class B Scheduled Payment Date...........................................November 2002 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$42,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-G Termination Date..............................................March 2005 Distribution Date
Series Issuance Date..................................................................September 27, 1995
13. Series 1995-H
Initial Class A Investor Interest...........................................................$285,245,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.07% per annum
Initial Class B Investor Interest............................................................$14,755,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.19% per annum
Class A Controlled Accumulation Amount...................................................$23,770,416.67*
Class A Scheduled Payment Date............................................October 1998 Distribution Date
Class B Scheduled Payment Date...........................................November 1998 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$27,875,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-H Termination Date..............................................March 2001 Distribution Date
Series Issuance Date..................................................................September 28, 1995
</TABLE>
A-160
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
14. Series 1995-I
Initial Class A Investor Interest...........................................................$652,500,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.17% per annum
Initial Class B Investor Interest............................................................$33,750,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.27% per annum
Class A Controlled Accumulation Amount......................................................$54,375,000*
Class A Scheduled Payment Date............................................October 2000 Distribution Date
Class B Scheduled Payment Date...........................................November 2000 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$63,750,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-I Termination Date..............................................March 2003 Distribution Date
Series Issuance Date....................................................................October 26, 1995
15. Series 1995-J
Initial Class A Investor Interest...........................................................$435,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.23% per annum
Initial Class B Investor Interest............................................................$22,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.35% per annum
Class A Controlled Accumulation Amount......................................................$36,250,000*
Class A Scheduled Payment Date...........................................November 2002 Distribution Date
Class B Scheduled Payment Date...........................................December 2002 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$42,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1995-J Termination Date..............................................April 2005 Distribution Date
Series Issuance Date...................................................................November 21, 1995
16. Series 1996-A
Initial Class A Investor Interest...........................................................$609,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.21% per annum
Initial Class B Investor Interest............................................................$31,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.34% per annum
Class A Controlled Accumulation Amount......................................................$50,750,000*
Class A Scheduled Payment Date...........................................February 2003 Distribution Date
Class B Scheduled Payment Date..............................................March 2003 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$59,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-A Termination Date...............................................July 2005 Distribution Date
Series Issuance Date...................................................................February 28, 1996
</TABLE>
A-161
<PAGE>
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<TABLE>
<S> <C> <C>
17. Series 1996-B
Initial Class A Investor Interest...........................................................$435,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.26% per annum
Initial Class B Investor Interest............................................................$22,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.37% per annum
Class A Controlled Accumulation Amount......................................................$36,250,000*
Class A Scheduled Payment Date..............................................March 2006 Distribution Date
Class B Scheduled Payment Date..............................................April 2006 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$42,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-B Termination Date.............................................August 2008 Distribution Date
Series Issuance Date.......................................................................March 26,1996
18. Series 1996-C
Initial Class A Investor Interest...........................................................$435,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.14% per annum
Initial Class B Investor Interest............................................................$22,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.28% per annum
Class A Controlled Accumulation Amount......................................................$36,250,000*
Class A Scheduled Payment Date..............................................March 2001 Distribution Date
Class B Scheduled Payment Date..............................................April 2001 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$42,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-C Termination Date.............................................August 2003 Distribution Date
Series Issuance Date......................................................................March 27, 1996
19. Series 1996-D
Initial Class A Investor Interest...........................................................$850,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.15% per annum
Initial Class B Investor Interest............................................................$75,000,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.29% per annum
Class A Controlled Accumulation Amount...................................................$70,833,333.33*
Class A Scheduled Payment Date..............................................April 2001 Distribution Date
Class B Scheduled Payment Date................................................May 2001 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$75,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-D Termination Date..........................................September 2003 Distribution Date
Series Issuance Date.........................................................................May 1, 1996
</TABLE>
A-162
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
20. Series 1996-E
Initial Class A Investor Interest...........................................................$637,500,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.17% per annum
Initial Class B Investor Interest............................................................$56,250,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.31% per annum
Class A Controlled Accumulation Amount......................................................$53,125,000*
Class A Scheduled Payment Date................................................May 2003 Distribution Date
Class B Scheduled Payment Date...............................................June 2003 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$56,250,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-E Termination Date............................................October 2005 Distribution Date
Series Issuance Date........................................................................May 21, 1996
21. Series 1996-F
Initial Class A Investor Interest...........................................................$470,000,000
Initial Collateral Interest..................................................................$30,000,000
Current Investor Interest as of October 31, 1996............................................$500,000,000
Maximum Investor Interest...................................................................$500,000,000
Certificate Rate..................................................................Commercial Paper Index
Annual Servicing Fee Percentage...........................................................2.0% per annum
Series Issuance Date.......................................................................June 25, 1996
22. Series 1996-G
Initial Class A Investor Interest...........................................................$425,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.18% per annum
Initial Class B Investor Interest............................................................$37,500,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.35% per annum
Class A Controlled Accumulation Amount...................................................$35,416,666.67*
Class A Scheduled Payment Date...............................................July 2006 Distribution Date
Class B Scheduled Payment Date.............................................August 2006 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$37,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-G Termination Date...........................................December 2008 Distribution Date
Series Issuance Date.......................................................................July 17, 1996
23. Series 1996-H
Initial Class A Investor Interest.........................................................$1,020,000,000
Class A Certificate Rate..........................................Three-Month LIBOR plus 0.10% per annum
Initial Class B Investor Interest............................................................$90,000,000
Class B Certificate Rate..........................................Three-Month LIBOR plus 0.27% per annum
Class A Controlled Accumulation Amount......................................................$85,000,000*
Class A Scheduled Payment Date.............................................August 2001 Distribution Date
Class B Scheduled Payment Date..........................................September 2001 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$90,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-H Termination Date............................................January 2004 Distribution Date
Series Issuance Date.....................................................................August 14, 1996
</TABLE>
A-163
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
24. Series 1996-I
Initial Class A Deutsche Mark ("DM") Investor Interest..................................DM 1,000,000,000
Initial Class A Investor Interest........................................................$666,444,518.49
Class A Certificate Rate.......................................Three-Month DM LIBOR plus 0.09% per annum
Class A Floating Dollar Rate.....................................Three-Month LIBOR plus 0.115% per annum
Initial Class B Investor Interest............................................................$58,804,000
Class B Certificate Rate............................Not to Exceed Three-Month LIBOR plus 0.50% per annum
Class A Controlled Accumulation Amount...................................................$55,537,043.21*
Class A Scheduled Payment Date........................................................September 19, 2001
Class B Scheduled Payment Date............................................October 2001 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$58,804,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-I Termination Date.........................................................February 18, 2004
Series Issuance Date..................................................................September 25, 1996
25. Series 1996-J
Initial Class A Investor Interest...........................................................$850,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.15% per annum
Initial Class B Investor Interest............................................................$75,000,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.36% per annum
Class A Controlled Accumulation Amount...................................................$70,833,333.33*
Class A Scheduled Payment Date..........................................September 2003 Distribution Date
Class B Scheduled Payment Date............................................October 2003 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$75,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-J Termination Date...........................................February 2006 Distribution Date
Series Issuance Date..................................................................September 19, 1996
26. Series 1996-K
Initial Class A Investor Interest...........................................................$850,000,000
Class A Certificate Rate............................................One-Month LIBOR plus 0.13% per annum
Initial Class B Investor Interest............................................................$75,000,000
Class B Certificate Rate............................................One-Month LIBOR plus 0.35% per annum
Class A Controlled Accumulation Amount...................................................$70,833,333.34*
Class A Scheduled Payment Date............................................October 2003 Distribution Date
Class B Scheduled Payment Date...........................................November 2003 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$75,000,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-K Termination Date..............................................March 2006 Distribution Date
Series Issuance Date....................................................................October 24, 1996
</TABLE>
A-164
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<TABLE>
<S> <C> <C>
27. Series 1996-L
Initial Class A Investor Interest...........................................................$425,000,000
Class A Certificate Rate..........................................Three-Month LIBOR plus 0.03% per annum
Initial Class B Investor Interest............................................................$37,500,000
Class B Certificate Rate..........................................Three-Month LIBOR plus 0.24% per annum
Class A Controlled Accumulation Amount...................................................$35,416,666.67*
Class A Scheduled Payment Date...........................................November 1999 Distribution Date
Class B Scheduled Payment Date...........................................December 1999 Distribution Date
Annual Servicing Fee Percentage...........................................................2.0% per annum
Initial Collateral Interest..................................................................$37,500,000
Other Enhancement for the Class A Certificates.....................Subordination of Class B Certificates
Series 1996-L Termination Date...........................................November 2001 Distribution Date
Series Issuance Date....................................................................December 3, 1996
</TABLE>
- ----------
* Subject to change if the commencement of the Accumulation Period or
Controlled Accumulation Period, as applicable, is delayed.
A-165
<PAGE>
<PAGE>
PROSPECTUS
LEHMAN ABS CORPORATION
Asset Backed Notes
Asset Backed Certificates
(Issuable in Series)
------------------
Lehman ABS Corporation (the "Depositor") may offer from time to time under
this Prospectus and related Prospectus Supplements the Asset Backed Notes (the
"Notes") and the Asset Backed Certificates (the "Certificates" and, together
with the Notes, the "Securities") described herein which may be sold from time
to time in one or more series, in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (a "Prospectus Supplement").
As specified in the related Prospectus Supplement, the Certificates will
evidence an interest in certain assets deposited into a trust (a "Trust") by the
Depositor as depositor or transferor pursuant to a Pooling and Servicing
Agreement, Master Pooling and Servicing Agreement, Sale and Servicing Agreement
or Trust Agreement, as described herein. The Notes of each series will be issued
and secured pursuant to an Indenture between the Trust and the Indenture Trustee
specified in the related Prospectus Supplement (the"Indenture Trustee") and will
represent indebtedness of the related Trust. The Certificates of a series will
represent fractional undivided interests in the related Trust. The property of
each Trust will include assets composed of (a) Primary Assets, which may include
(i) one or more pools of receivables (collectively, the "Receivables") generated
or to be generated from time to time in the ordinary course of business in one
or more portfolios of accounts (collectively, the "Accounts"), purchased from
the seller or sellers or transferor or transferors specified in the related
Prospectus Supplement (each a "Seller") and (ii) CABS Securities (as defined
herein), (b) all monies due thereunder net, if and as provided in the related
Prospectus Supplement, of certain amounts payable to the servicer of the
Receivables, which servicer may also be the Seller, specified in the related
Prospectus Supplement (the "Servicer"), and (c) certain funds, Enhancement (as
defined herein) and other assets as described herein and in the related
Prospectus Supplement. In addition, if so specified in the related Prospectus
Supplement, the property of the Trust will include monies on deposit in a trust
account (the "Pre-Funding Account") to be established with the related Trustee,
which will be used to purchase additional Primary Assets or CABS Securities from
a Seller from time to time during the Funding Period specified in the related
Prospectus Supplement.
Purchases of CABS Securities for a Series by the Seller or the Depositor
will be made in secondary market transactions, not from the issuer of such CABS
Securities or any affiliate thereof. See "Trust Assets--CABS Securities.
Each Series of Securities will be issued in one or more classes (each, a
"Class"), which may include subclasses. Interest on and principal of the
Securities of a Series will be payable on each Payment Date specified in the
related Prospectus Supplement, at the times, at the rates, in the amounts and in
the order of priority set forth in the related Prospectus Supplement. Securities
may be sold for U.S. dollars or for one or more foreign or composite currencies
and the principal of and any interest on Securities may be payable in U.S.
dollars or one or more foreign or composite currencies.
If a Series includes multiple Classes, such Classes may vary with respect to
the amount, percentage and timing of distributions of principal, interest or
both and one or more Classes may be subordinated to other Classes with respect
to distributions of principal, interest or both as described herein and in the
related Prospectus Supplement. A Series may include one or more classes of Notes
and Certificates. A Series may include one or more classes entitled to
distributions of principal with disproportionate, nominal or no interest
distributions, or to interest distributions with disproportionate, nominal or no
distributions in respect of principal. If so specified in the related Prospectus
Supplement, the Primary Assets and other assets comprising the Trust may be
divided into one or more Asset Groups and each Class of the related Series will
be secured by, or will evidence beneficial ownership of, the corresponding Asset
Group, as applicable. Each Series of Securities may be subject to termination
under the circumstances described herein and in the related Prospectus
Supplement.
------------------
For a discussion of certain factors which should be considered by
prospective purchasers of the Securities, see "Risk Factors" on page 11 herein
and on page S-6 of the Prospectus Supplement.
------------------
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES EVIDENCE BENEFICIAL INTERESTS IN THE RELATED TRUST ONLY AND ARE NOT
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR BY THE DEPOSITOR, ANY SELLER, THE
TRUSTEE, THE SERVICER OR BY ANY OF THEIR RESPECTIVE AFFILIATES OR, UNLESS
OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS SUPPLEMENT, BY ANY OTHER
PERSON OR ENTITY. THE DEPOSITOR'S ONLY OBLIGATIONS WITH RESPECT TO ANY
SERIES OF SECURITIES WILL BE PURSUANT TO CERTAIN REPRESENTATIONS
AND WARRANTIES SET FORTH IN THE RELATED POOLING AND SERVICING
AGREEMENT, MASTER POOLING AND SERVICING AGREEMENT, SALE AND
SERVICING AGREEMENT, INDENTURE OR TRUST AGREEMENT,
AS DESCRIBED HEREIN OR IN THE RELATED PROSPECTUS
SUPPLEMENT. SEE "RISK FACTORS" FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING
THE SECURITIES.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The Securities offered by this Prospectus and by the related Prospectus
Supplement are offered by Lehman Brothers Inc. and the other underwriters set
forth in the related Prospectus Supplement, if any, subject to prior sale, to
withdrawal, cancellation or modification of the offer without notice, to
delivery to and acceptance by Lehman Brothers Inc. and the other 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.
------------------
LEHMAN BROTHERS
The date of this Prospectus is December 31, 1996
<PAGE>
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to such Series of
Securities: (i) the aggregate principal amount, interest rate, and authorized
denominations of each Class of such Securities; (ii) certain information
concerning the Receivables, the Seller and the Servicer; (iii) the terms of any
enhancement with respect to such Series (the "Enhancement"); (iv) information
concerning any other assets in the related Trust, including any Enhancement; (v)
the expected date or dates on which the principal amount of each Class of
Securities will be paid to holders of such Securities; (vi) the extent to which
any Class within a Series is subordinated to any other Class of such Series; and
(vii) additional information with respect to the plan of distribution of such
Securities. To the extent that the terms of this Prospectus conflict or are
otherwise inconsistent with the terms of any related Prospectus Supplement, the
terms of such related Prospectus Supplement shall govern.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and its Regional Offices located as follows: Midwest
Regional Office, Citicorp Center, 500 West Madison Street,Suite 1400, Chicago,
Illinois 60661; and Northeast Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission,Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Securities
And Exchange Commission (the "Commission") maintains a Web site at
http://www.sec.gov containing reports, proxy and information regarding
registrants, including the Depositor, that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with respect to each Trust pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended,
subsequent to the date of any Prospectus Supplement and prior to the termination
of any offering of Securities shall be deemed to be incorporated by reference
into such Prospectus Supplement and this Prospectus. Any statement contained in
a document incorporated or deemed to be incorporated by reference in any
Prospectus Supplement or in this Prospectus shall be deemed to be modified or
superseded for purposes of such Prospectus Supplement and this Prospectus to the
extent that a statement contained in any Prospectus Supplement or in this
Prospectus modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute part of any Prospectus Supplement.
REPORTS TO HOLDERS
Periodic and annual reports concerning the related Trust for a Series of
Securities are required under the Agreement to be forwarded to holders. Unless
otherwise specified in the related Prospectus Supplement, such reports will not
be examined and reported on by an independent public accountant. See "THE
AGREEMENTS--Reports to Holders" herein.
2
<PAGE>
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series contained in the related Prospectus
Supplement to be prepared and delivered in connection with the offering of
Certificates or Notes of such Series. Capitalized terms used and not otherwise
defined herein or in the related Prospectus Supplement shall have the meanings
set forth in the "Glossary of Terms" herein.
The Certificates............. Asset Backed Certificates (the"Certificates") are
issuable from time to time in Series pursuant
to separate Pooling and Servicing Agreements,
Master Pooling and Servicing Agreements, Sale
and Servicing Agreements, or Trust Agreements
(each, an "Agreement"). Each Certificate of a
Series will evidence an interest in the Trust
for such Series, or in an Asset Group specified
in the related Prospectus Supplement. Each
Series of Certificates will consist of one or
more Classes, one or more of which maybe
Classes of Variable Interest Certificates, Zero
Coupon Certificates, Principal Only
Certificates, Compound Interest Certificates,
Interest Only Certificates, Participating
Certificates, Senior Certificates, Subordinate
Certificates or other types of Certificates.
Each Class may differ in, among other things,
the amounts allocated to and the priority of
principal and interest payments, Final
Scheduled Payment Dates, Payment Dates and
interest rate. The Certificates of each Class
will be issued in fully registered form in the
denominations specified in the related
Prospectus Supplement. If so specified in the
related Prospectus Supplement, the Certificates
or certain Classes of such Certificates offered
thereby may be available in book-entry form
only.
The Notes.................... Each Series of Securities may include one or more
classes of Notes, which will be issued pursuant
to an Indenture between the Trust and the
Indenture Trustee (as amended and supplemented
from time to time, an "Indenture"). The terms
of any Notes will be set forth in the
Prospectus Supplement relating to such Notes.
Unless otherwise specified in the related
Prospectus Supplement, each class of Notes will
have a stated principal amount and will bear
interest at a specified rate or rates (with
respect to each class of Notes, the "Interest
Rate"). Each class of Notes may have a
different Interest Rate, which may be fixed,
variable or an adjustable Interest Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the Interest
Rate for each class of Notes, and the method
for determining the Interest Rate.
With respect to a Series that includes two or
more classes of Notes, each class may differ as
to the timing and priority of payments,
seniority, allocations of losses, Interest Rate
or amount of payments of principal or interest,
or payments of principal or interest in respect
of any such class or classes may or may not be
made upon the occurrence of specified events or
on the basis of collections from designated
portions of the Pool of Receivables.
In addition, a Series may include one or more
classes of Notes, entitled to (i) principal
payments with disproportionate, nominal or no
interest payments or (ii) interest payments
with disproportionate, nominal or no principal
payments.
All discussions in this Prospectus of the
Certificates, the terms thereof as well as any
investment and tax considerations related
thereto will be generally applicable to any
Notes.
Depositor ................... Lehman ABS Corporation (the "Depositor")was
incorporated in the State of Delaware on
January 29, 1988. As of January 4, 1993, the
Depositor is a wholly owned, special purpose
subsidiary of Lehman Commercial Paper Inc.
("LCPI"), which itself is a wholly owned
subsidiary of Lehman Brothers Inc. ("Lehman
Brothers"), which is a wholly owned subsidiary
of Lehman Brothers
3
<PAGE>
<PAGE>
Holdings Inc. ("Holdings"). None of Lehman
Brothers, LCPI, Holdings, the Depositor, the
Servicer, the Trustee or the Seller, nor any
other affiliate of the foregoing, has
guaranteed or is otherwise obligated with
respect to the Certificates of any Series. See
"THE DEPOSITOR."
Interest Payments............ Interest payments on the Certificates of a Series
entitled by their terms to receive interest
will be made on each Payment Date, to the
extent set forth in, and at the applicable rate
specified in (or determined in the manner set
forth in), the related Prospectus Supplement.
The interest rate on Certificates of a Series
may be variable or change with changes in the
rates of interest on the pool of receivables
(collectively, the "Receivables") generated or
to be generated from time to time in the
ordinary course of business in a portfolio of
accounts (collectively, the "Accounts")
underlying or comprising the Primary Assets
and/or as early amortizations or prepayments
occur with respect to any CABS Securities
underlying or comprising the Primary Assets.
Interest Only Certificates may be assigned a
"Notional Amount" set forth in the related
Prospectus Supplement which issued solely for
convenience in expressing the calculation of
interest and for certain other purposes and
does not represent the right to receive any
distributions allocable to principal. Principal
Only Certificates may not be entitled to
receive any interest payments or may be
entitled to receive only nominal interest
payments. Interest payable on the Certificates
of a Series on a Payment Date will include all
interest accrued during the period specified in
the related Prospectus Supplement. See
"DESCRIPTION OF THE CERTIFICATES -- Payments of
Interest."
Principal Payments........... All payments of principal of a Series of
Certificates will be made in an aggregate
amount determined as set forth in the related
Prospectus Supplement and will be paid at the
times and will be allocated among the Classes
of such Series in the order and amounts, and
will be applied either on a pro rata or a
random lot basis among all Certificates of any
such Class, all as specified in the related
Prospectus Supplement.
Final Scheduled Payment Date
of the Certificates........ The Final Scheduled Payment Date for each Class
of Certificates of a Series is the date after
which no Certificates of such Class are
expected to remain outstanding, calculated on
the basis of the assumptions applicable to such
Series described in the related Prospectus
Supplement. The Final Scheduled Payment Date of
a Class may equal the maturity date of the
Primary Asset in the related Trust which has
the latest stated maturity or will be
determined as described herein and in the
related Prospectus Supplement.
The actual final Payment Date of the Certificates
of a Series will depend primarily upon the rate
of payment (including early amortization,
prepayments and repurchases) of the Receivables
underlying or comprising the Primary Assets in
the related Trust. Unless otherwise specified
in the related Prospectus Supplement, the
actual final Payment Date of any Certificate is
likely to occur earlier and may occur
substantially earlier than its Final Scheduled
Payment Date as a result of the application of
prepayments to the reduction of the principal
balances of Certificates or if an early
amortization occurs with respect to the Primary
Assets, or may occur later than its Final
Scheduled Payment Date. See "RISK FACTORS" and
"DESCRIPTION OF THE CERTIFICATES" herein for a
more detailed description of factors that may
affect the timing of principal payments on the
Certificates.
Optional Termination......... One or more Classes of Certificates of any Series
may be repurchased in whole, but not in part,
at the Depositor's or the related Seller's
option, at such time and under the
circumstances specified in the related
Prospectus Supplement, at the redemption price
set forth therein. If so specified in the
related
4
<PAGE>
<PAGE>
Prospectus Supplement for a Series of
Certificates, the Depositor, the Servicer, the
related Seller or such other entity that is
specified in the related Prospectus Supplement
may, at its option, cause an early termination
of the related Trust by repurchasing all of the
Primary Assets remaining in the Trust on or
after a specified date, or on or after such
time as the aggregate principal balance of the
Certificates of the Series or the Primary
Assets relating to such Series, as specified in
the related Prospectus Supplement, is less than
the amount or percentage specified in the
related Prospectus Supplement. See "DESCRIPTION
OF THE CERTIFICATES -- Optional Purchase or
Termination."
In addition, the Prospectus Supplement may
provide other circumstances under which holders
of Certificates of a Series could be fully paid
significantly earlier than would otherwise be
the case if payments or distributions were
solely based on the activity of the related
Primary Assets.
Trust Assets................. The Trust for a Series of Certificates will
consist of one or more of the assets described
below, as described in the related Prospectus
Supplement.
A. Primary Assets............ The Primary Assets for a Series may consist of
any combination of the following assets, to the
extent and as specified in the related
Prospectus Supplement. The Primary Assets will
be purchased from the Seller or may be
purchased by the Depositor in secondary market
transactions, not from the issuer of such CABS
Securities or an affiliate thereof, or, in the
case of the Receivables, in privately
negotiated transactions, including transactions
with entities affiliated with the Depositor.
The assets of the Trust created with respect to
any Series may include a pool of Receivables
arising under the Accounts included in such
Trust from time to time, funds collected or to
be collected from cardholders in respect of the
Receivables, the right to receive certain
Interchange fees attributed to cardholder
charges for merchandise and services in the
Accounts, monies on deposit in certain accounts
of the Trust, funds collected or to be
collected from Participations, if any, and any
Enhancement issued with respect to a particular
Series (the drawing on or payment of any
Enhancement for the benefit of a Series or
class of investor certificates will not be
available to the investor certificateholders of
any other Series or class).
The designated Accounts will meet the criteria
provided in each Agreement applied as of the
applicable Cut-off Date. The Accounts will
consist of the Initial Accounts and any
Additional Accounts but will not include any
Removed Accounts. In addition, pursuant to each
Agreement, each Seller may (subject to certain
limitations and conditions), and in some
circumstances, will be obligated to designate
Additional Accounts, the Receivables in which
will be included in the Trust or, in lieu
thereof or in addition thereto, to include
Participations in the Trust.
Pursuant to each Agreement, a Seller will have
the right (subject to certain limitations and
conditions), but not the obligation, to remove
the Receivables in certain Accounts from the
Trust ("Removed Accounts").
(1) The Receivables
(a) Credit Card
Receivables........ Credit Card Receivables consist of periodic
finance charges, annual membership fees, cash
advance fees, late charges on amounts charged
for merchandise and services, certain other
designated fees ("Finance Charge Receivables")
and all amounts charged by cardholders for
merchandise and services, amounts advanced to
cardholders as cash advances and all other fees
billed to cardholders on the Accounts
("Principal Receivables"). In addition, certain
Interchange attributed to cardholder charges
for merchandise and services in the Accounts
may be treated as Finance Charge Receivables.
Recoveries of charged-off Finance Charge
Receivables will be treated as collections of
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Finance Charge Receivables and recoveries of
charged-off Principal Receivables will be
applied against charge-offs of Principal
Receivables. From time to time, subject to
certain conditions, certain of the amounts
described above which are included in Principal
Receivables may be treated as Finance Charge
Receivables. "Interchange" consists of certain
fees received by a credit card-issuing bank
from the VISA USA, Inc. ("VISA"1) and
MasterCard International Incorporated
("MasterCard International"1) associations as
partial compensation for taking credit risk,
absorbing fraud losses and funding receivables
for a limited period prior to initial billing.
(b) Charge Card
Receivables........ Charge Card Receivables consist of amounts
charged on the designated Accounts for
merchandise and services, and annual membership
fees and certain other administrative fees
billed to the designated Accounts. Receivables
originated under charge card accounts are not
subject to a monthly finance charge and,
therefore, it will be necessary to treat a
portion of the collections on the Charge Card
Receivables as "yield". The remainder of such
collections will be treated as principal
collections.
(c) General............ All new Receivables arising in the designated
Accounts (including in any Additional Accounts)
during the term of the Trust will be the
property of the Trust. Accordingly, the amount
of Receivables will fluctuate as new
Receivables are generated and an existing
Receivables are collected, charged off as
uncollectible or otherwise adjusted.
Receivables may be payable in U.S. dollars or
in any foreign currency.
(2) CABS Securities....... Primary Assets for a Series may consist, in whole
or in part, of card assetbacked securities
("CABS Securities") which include certificates
representing undivided interests in, or notes
or loans secured by, Receivables generated in
Accounts (as described above). Such
certificates, notes or loans will have
previously been (a) offered and distributed to
the public pursuant to an effective
registration statement or are being registered
under the Securities Act of 1933 in connection
with the offering of a Series of Securities or
(b) purchased in a transaction not involving
any public offering from a person who is not an
affiliate of the issuer of such securities at
the time of sale (nor an affiliate thereof at
any time during the three preceding months);
provided a period of three years has elapsed
since the later of the date the securities were
acquired from the issuer or an affiliate
thereof See "THE TRUST ASSETS -- CABS
Securities." Unless otherwise specified in the
Prospectus Supplement relating to a Series of
Securities, payments on the CABS Securities
will be distributed directly to the Trustee as
registered owner of such CABS Securities.
The related Prospectus Supplement for a Series
will specify (such disclosure may be on an
approximate basis), to the extent relevant and
to the extent such information is reasonably
available to the Depositor and the Depositor
reasonably believes such information to be
reliable, (i) the aggregate approximate
principal amount and type of any CABS
Securities to be included in the Trust for such
Series; (ii) certain characteristics of the
Receivables which comprise the underlying
assets for the CABS Securities; (iii) the
expected maturity and the final maturity of the
CABS Securities; (iv) the certificate rate for
the CABS Securities; (v) the issuer or issuers
of the CABS Securities (the "CABS Issuer"), the
servicer or servicers of the CABS Securities
(the "CABS Servicer") and the trustee or
trustees of the Securities (the "CABS
Trustee"); (vi) certain characteristics of
enhancement, if any, such
- --------
(1) VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
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as reserve funds, insurance policies, letters
of credit or guarantees relating to such CABS
Securities; (vii) any early amortization events
applicable to the CABS Securities; (viii) the
terms on which underlying Receivables for such
CABS Securities may, or are required to, be
repurchased prior to stated maturity; and (ix)
the terms on which substitute Receivables may
be delivered to replace those initially
deposited with the CABS Trustee. See "THE TRUST
ASSETS" herein.
B. Collection, Distribution,
Pre-Funding and other
Trust Accounts......... Unless otherwise provided in the related
Prospectus Supplement, all payments on or with
respect to the Primary Assets for a Series will
be remitted directly to an account (the
"Collection Account") to be established for
such Series with the Trustee, or the Servicer
in the name of the Trustee. Unless otherwise
provided in the related Prospectus Supplement
the Trustee shall be required to apply a
portion of the amount in the Collection
Account, together with reinvestment earnings
thereon at the rate or rates specified in the
related Prospectus Supplement, to the payment,
if and as provided in the related Prospectus
Supplement, of certain amounts payable to the
Servicer under the related Agreement and any
other person specified in the related
Prospectus Supplement, and to deposit a portion
of the amount in the Collection Account into a
separate account (the "Distribution Account")
to be established for such Series, each in the
manner and at the times established in the
related Prospectus Supplement. All amounts
deposited in such Distribution Account will be
available unless otherwise specified in the
related Prospectus Supplement, for (i)
application to the payment of principal of and
interest on such Series of Certificates on the
next Payment Date, (ii) the making of adequate
provision for future payments on certain
Classes of Certificates and (iii) any other
purpose specified in the related Prospectus
Supplement. After applying the funds in the
Collection Account as described above, any
funds remaining in the Collection Account may
be paid over to the Servicer, the Depositor,
any provider of Enhancement with respect to
such Series (an "Enhancer") or any other person
entitled thereto in the manner and at the times
established in the related Prospectus
Supplement. From time to time, various
accounts, including Pre-Funding Accounts, may
be created under the terms of the documents
related to a specific Series.
In addition, a Prospectus Supplement may provide
that the assets of a Trust will include a
Pre-Funding Account (the "Pre-Funding
Account"). To the extent provided in the
related Prospectus Supplement, the Depositor
will be obligated (subject only to the
availability thereof) to deposit, and the
related Trust will be obligated to accept
(subject to the satisfaction of certain
conditions described in the applicable Sale and
Servicing Agreement), additional Receivables
(the "Subsequent Receivables") from time to
time (as frequently as daily) during the
Funding Period specified in the related
Prospectus Supplement having an aggregate
principal balance approximately equal to the
amount on deposit in the Pre-Funding Account
(the "Pre-Funded Amount") on the related
Closing Date.
Enhancement................ If stated in the Prospectus Supplement relating
to a Series, enhancement may be provided with
respect to one or more Classes of the
Certificates of such 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 surety bond,
insurance, the use of cross support features or
another method of Enhancement described in the
related Prospectus Supplement, or any
combination of the foregoing. Series
Enhancement may also include any type of
derivative arrangement, including a guaranteed
rate agreement, maturity liquidity facility,
tax protection
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agreement, interest rate cap or floor
agreement, interest rate or currency swap
agreement or other similar arrangement. The
Enhancement will support the payments on the
Certificates and may be used for other
purposes, to the extent and under the
conditions specified in such related Prospectus
Supplement. See "ENHANCEMENT" herein.
Enhancement for a Series may include one or more
of the following types of Enhancement, or such
other type of Enhancement specified in the
related Prospectus Supplement.
The type, characteristics and amount of the
Enhancement will be determined based on several
factors, including the characteristics of the
Receivables and Accounts underlying or
comprising the portfolio 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. If so specified in
the related Prospectus Supplement, any such
Enhancement may apply only in the event of
certain types of losses and the protection
against losses provided by such Enhancement
will be limited.
(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 Payment 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 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 subordinated 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
across-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
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 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."
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(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") reserved for the
beneficiaries of the Cash Collateral Guaranty
or by a Cash Collateral Account alone. The
amount available pursuant to the Cash
Collateral Guaranty or the Cash Collateral
Account will be the lesser of amounts on
deposit in the Cash Collateral Account and an
amount specified in the related Prospectus
Supplement. The related Prospectus Supplement
will set forth the circumstances under which
payments are made to beneficiaries of the Cash
Collateral Guaranty from the Cash Collateral
Account or from the Cash Collateral Account
directly.
(d) Reserve Fund....... If so specified in the related Prospectus
Supplement, the Depositor may deposit cash, a
letter or letters of credit, short-term
investments, or other instruments acceptable to
the Rating Agency in one or more reserve funds
to be established in the name of the Trustee
(each, a "Reserve Fund"), which will be used,
as specified in such Prospectus Supplement, by
the Trustee to make required payments of
principal of or interest on the Certificates of
such Series, to make adequate provision for
future payments on such Certificates or for any
other purpose specified in the Agreement, with
respect to such Series, to the extent that
funds are not otherwise available. In the
alternative or in addition to such deposit, a
Reserve Fund for a Series may be funded through
application of all or a portion of the excess
cash flow from the Primary Assets for such
Series, to the extent described in the related
Prospectus Supplement.
(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.
(g) Derivative Products If so specified in the related Prospectus
Supplement, the Depositor may enter into any
type of derivative arrangement with respect to
the Certificates of any Class or Series. Such
derivative arrangement may include a guaranteed
rate agreement, a maturity liquidity facility,
a tax protection agreement, an interest rate
cap or floor agreement, an interest rate or
currency swap agreement or any other similar
arrangement.
Servicing .................. The Servicer will be responsible for servicing,
managing and making collections on the
Receivables for a Series. The Servicer may
perform such functions alone, through
subservicers or in conjunction with a Master
Servicer. In performing these functions, the
Servicer will exercise the same degree of skill
and care that it customarily exercises with
respect to similar receivables owned or
serviced by it. Under certain limited
circumstances, the Servicer may resignor be
removed, in which event either the Trustee or a
third-party servicer
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will be appointed as successor servicer. The
Servicer will receive a periodic fee as
servicing compensation and may, as specified
herein and in the related Prospectus
Supplement, receive certain additional
compensation. See "SERVICING OF RECEIVABLES"
herein.
Federal Income
Tax Considerations......... Except as set forth in the related Prospectus
Supplement, it is anticipated that Special Tax
Counsel to the Depositor will be of the opinion
that, under existing law, the Trust will be
classified as either a grantor trust under the
Internal Revenue Code of 1986, as amended (the
"Code"), and not as an association taxable as a
corporation or as an owner trust and the Notes
will be treated as debt instruments for
Federal, state and local income and franchise
tax purposes as of the Closing Date. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" for
additional information concerning the
application of Federal income tax laws.
ERISA Considerations......... A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or the Internal
Revenue Code of 1986, as amended (the "Code"),
should carefully review with its own legal
advisors whether the purchase or holding of
Certificates could give rise to a transaction
prohibited or otherwise impermissible under
ERISA or the Code. See "ERISA CONSIDERATIONS."
Legal Investment............. Investors whose investment authority is subject
to legal restrictions should consult their own
legal advisors to determine whether and to what
extent the Certificates constitute legal
investments for them.
Use of Proceeds.............. The Depositor will use the net proceeds from the
sale of each Series for one or more of the
following purposes: (i) to purchase the related
Primary Assets, (ii) to repay indebtedness
which has been incurred to obtain funds to
acquire such Primary Assets, (iii) to establish
a Pre-Funding Account for such Series, (iv) to
establish any Reserve Funds or Cash Collateral
Accounts described in the related Prospectus
Supplement, (v) to provide enhancement for any
other Series or for securities issued by
another issuer, and (vi) to pay costs of
structuring and issuing such Certificates,
including the costs of obtaining Enhancement,
if any. If so specified in the related
Prospectus Supplement, the purchase of the
Primary Assets for a Series may be effected by
an exchange of Certificates with the Seller of
such Primary Assets. See "USE OF PROCEEDS."
Ratings...................... It will be a requirement for issuance of any
Series that the Certificates offered by this
Prospectus and the related Prospectus
Supplement be rated by at least one Rating
Agency in one of its four highest applicable
rating categories. The rating or ratings
applicable to Certificates of each Series
offered hereby and by the related Prospectus
Supplement will be as set forth in the related
Prospectus Supplement. A securities rating
should be evaluated independently of similar
ratings on different types of securities.
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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
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. Each Seller will warrant in its Pooling and
Servicing Agreement, Master Pooling and Servicing Agreement, Sale and Servicing
Agreement or Trust Agreement (collectively, an "Agreement") that the transfer of
the Receivables by it to the Trust is and will be either a valid transfer and
assignment of all right, title and interest in the Receivables and all proceeds
thereof to the Trust or the grant to the Trust of a security interest in the
Receivables. The Seller has taken and will take certain actions required to
perfect the Trust's interest in the Receivables. The Seller has warranted that
if the transfer by it to the Trust is deemed to be a grant to the Trust of a
security interest in the Receivables, the Trustee will have a first priority
perfected security interest therein. If the transfer of the Receivables and all
proceeds thereof to the Trust is deemed to create a security interest therein, a
tax or government lien on property of the Seller arising before Receivables come
into existence may have priority over the Trust's interest in such Receivables.
See "CERTAIN LEGAL ASPECTS OF THE RECEIVABLES -- Transfer of Receivables."
If any Seller is a regulated financial institution, to the extent that a
Seller grants a security interest in the Receivables to the Trust and that
security interest is validly perfected before any insolvency of the Seller and
is not granted or taken in contemplation of insolvency or with the intent to
hinder, delay or defraud the Seller or its creditors, that security interest
should not be subject to avoidance in the event of insolvency and receivership,
and payments to the Trust with respect to the Receivables should not be subject
to recovery by a conservator or receiver for the Seller. If, however, the
conservator or receiver were to assert a contrary position, or were to require
the Trustee to establish its right to those payments by submitting to and
completing the administrative claims procedure established under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), or the
conservator or receiver were to request a stay of proceedings with respect to
the Seller as provided under FIRREA, delays in payments on the Certificates and
possible reductions in the amount of those payments could occur. 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 the majority of the Certificateholders
from effecting a transfer of servicing to a successor Servicer. If a conservator
or receiver were appointed for the Seller pursuant to the Agreement, new
Principal Receivables would not be transferred to the Trust and the Trustee
would sell the portion of the Receivables allocable in accordance with the
Agreement to each Series (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, instruct otherwise), thereby causing early
termination of the Trust and a loss to the Certificateholders if the net
proceeds of such sale were insufficient to pay Certificates in full. Upon the
occurrence of a Liquidation Event, if a conservator or receiver was appointed
for the Seller and no Liquidation Event other than such conservatorship,
receivership or insolvency of the 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 Seller may have the power to cause early
payment of the Certificates. 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 Seller or the Servicer to
comply with such requirements also could adversely affect the Servicer's ability
to collect on the
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Receivables. Pursuant to the Agreement, the Depositor covenants to accept the
transfer of all Receivables in an Account if any Receivable in such Account does
not comply with all requirements of law, if any Receivable is charged off as
uncollectible or if the proceeds of any Receivable in such Account are not
available to the Trust. The Depositor 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 Depositor 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, the Depositor may be obligated to accept the
reassignment and transfer of the interest in the Trust of the holders of all
Series.
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.
Certain Legal Concerns Applicable to Accounts. In November 1991, the
United States Senate voted to amend a then-proposed Senate banking bill to
include an amendment to the Federal Truth-in-Lending Act which would have
limited the annual percentage rate charged on credit card accounts to a rate not
exceeding four percentage points over the rate charged by the IRS on
underpayments of federal taxes. Based on the then-current IRS rate, such
amendment would have limited the maximum annual percentage rate for all credit
card accounts to 14%. Although the amendment was not approved by the House of
Representatives, the Depositor cannot predict whether Congress will pass a
similar bill in the future or if such a bill would be signed by the President.
The potential effect of any legislation which limits the amount of finance
charges that may be charged on credit card balances could be to reduce the Net
Portfolio Yield of a Series. If such Net Portfolio Yield for such Series is
reduced, a Liquidation Event may occur, and the Rapid Amortization Period for
such Series could commence prior to the Scheduled Amortization Date for such
Series. In addition, during the past year, there has been increased consumer
awareness of the level of finance charges and fees and other practices of card
issuers. As a result of these developments and other factors, there can be no
assurance as to whether any federal or state legislation will be promulgated
which would impose additional limitations on the monthly periodic finance
charges or fees relating to the Accounts.
Since October 1991, a number of lawsuits and administrative actions have
been filed in several states against out-of-state banks (both federally insured
state-chartered banks and federally insured national banks) which issue cards.
These actions challenge various fees and charges (such as late fees,
over-the-limit fees, returned payment check fees and annual membership fees)
assessed against residents of the states in which such suits were filed, based
on restrictions or prohibitions under such states' laws alleged to be applicable
to the out-of-state cards issuers. There can be no assurance that one of the
Sellers will not be named as a defendant in similar lawsuits or other
administrative actions. In December 1994, the Superior Court of Pennsylvania
reinstated a class-action law suit, stating that not all of Pennsylvania's
consumer protection laws which purport to prohibit credit card fees and
contingent default charges have been preempted by federal law. This case has
been appealed to the Pennsylvania Supreme Court. The Supreme Courts of
California, Colorado and New Jersey have also recently handed down decisions in
similar actions. The California and Colorado Supreme Courts opined that federal
law governs late fees and found for the defendant credit card issuers, while the
New Jersey Supreme Court found that late payment fees are not interest and that,
therefore, state law is not preempted by federal law with respect to such fees.
On January 19, 1996, the United States Supreme Court accepted an appeal from the
California Supreme Court's decision, which found that the charge in question was
governed by federal law and was, therefore, proper. Such actions and similar
actions which may be brought in other states as a result of such actions, if
resolved adversely to card issuers, could have the effect of limiting certain
charges, other than periodic finance charges, that could be assessed on accounts
of residents of such states and could require card issuers to pay refunds and
civil penalties with respect to charges previously imposed on cardholders in
such states. Consequently, such actions could have an adverse impact on a
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Seller's card operations. One potential effect of any such litigation involving
a Seller, if successful, would be to reduce the Net Portfolio Yield for a
Series. If such a reduction occurs, a Liquidation Event may occur.
Competition. The credit card and charge 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 and charge card issuers seek to expand or to
enter the market. As a result of this competition, certain major credit card and
charge card issuers assess finance charges for selected portions of their
portfolios at rates lower than the rates currently being assessed on the
Accounts. A Seller's ability to compete in the credit card and charge card
industry will affect its ability to generate new Receivables.
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 Liquidation Event for one or more Series and the commencement of
the Rapid Amortization Period for each such Series. 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 related Prospectus Supplement. Each
Agreement will provide that the Depositor or the related Seller may, or will be
required to, designate Additional Accounts, the Receivables of which will be
added to the Trust in the event that the amount of the Principal Receivables is
not maintained at a certain minimum amount. If Additional Accounts are not
designated by the Depositor or the related Seller when required, a Liquidation
Event for one or more Series may occur and result in the commencement of a Rapid
Amortization Period for such Series. See the related Prospectus Supplement for a
discussion of other events which might lead to the commencement of the Rapid
Amortization Period for a Series.
Basis Risk. If so specified in the related Prospectus Supplement, a
portion of the Accounts in a Trust will have finance charges set at a variable
rate above a designated prime rate or other designated index. A Series of
Certificates issued by such Trust may bear interest at a fixed rate or at a
floating rate based on an index other than the prime rate or other designated
index. If there is a decline in the prime rate or other designated index, the
amount of collections of Finance Charge Receivables on such Accounts may be
reduced, whereas the amounts payable as Monthly Interest on such Series of
Certificates and other amounts required to be funded out of Finance Charge
Receivables with respect to such Series may not be similarly reduced.
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. Social factors include the public's
perceptions of the use of credit cards. Legal factors include any charges in the
current legal structure affecting the relative balance of power between credit
card issuers and the obligors under credit card accounts. Economic factors
include the rate of inflation 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. The Depositor is unable to determine
and has no basis to predict whether, or to what extent, economic, social or
geographic factors will affect future card use or repayment patterns. New credit
card issuers have been entering the market while other issuers have been seeking
to expand market share through increased advertising, target marketing and
pricing competition. Additionally, the use of incentive or affinity programs
(e.g., gift awards for card usage) may affect card usage patterns.
In 1992, a jury in Federal court in Utah held that the VISA association
violated antitrust laws when it denied membership in VISA to a subsidiary of
Sears Roebuck & Co., on the basis that another Sears subsidiary is the issuer of
the Discover Card, a competitor of the VISA credit card. In September 1994, the
United States Court of Appeals reversed the trial court's decision upholding the
verdict, and held VISA's conduct did not violate the antitrust laws. The United
States Court of Appeals denied Dean Witter, Discover and Co.'s motion for a
rehearing
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en banc, and in June 1995, the United Stated Supreme Court refused to review the
decision of the Court of Appeals. While the United Stated Supreme Court refused
to review the Court of Appeals decision with regard to Dean Witter, Discover &
Co.'s antitrust claims, the case is continuing on Dean Witter, Discover & Co.'s
state law claims and VISA's counterclaims.
A Seller's Ability to Change Terms of the Receivables. Any Seller may
have the right to determine the finance charges and the other fees and charges
which will be applicable from time to time on its 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 would
decrease the effective yield on the Accounts and could result in the occurrence
of a Liquidation Event for one or more Series and commencement of the Rapid
Amortization Period for each such Series. Under an Agreement a Seller may agree
that, unless required by law or as is otherwise necessary, in its good faith
judgment, to maintain its credit card business on a competitive basis, 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 the Accounts, if, as a
result of such reduction, the Net Portfolio Yield for any Series (as defined
below under "Maturity Assumptions") as of such date would be less than the Base
Rate for such Series. The terms "Base Rate" and "Net Portfolio Yield" for each
Series have the meanings set forth in the Prospectus Supplement relating to each
such Series. The Seller may also covenant that it will change the terms relating
to the Accounts only if the change is made applicable to the comparable segment
of the accounts owned and serviced by the Seller with characteristics the same
as or substantially similar to the Accounts, except as otherwise restricted by
the terms of the applicable cardholder agreement. In servicing Accounts, a
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 Agreement does not contain any restrictions on
the ability of a Seller to change the terms of the Accounts or the Receivables.
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
a 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.
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
Agreement and will be based primarily on the value of the Primary Assets in the
Trust and the availability of any 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.
Book-Entry Certificates. Issuance of the Certificates in book-entry form
may reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Certificates for which they cannot
obtain physical certificates. See "DESCRIPTION OF THE CERTIFICATES -- Book-Entry
Registration" herein.
Because transactions in the Certificates can be effected only through
DTC, CEDEL, Euroclear, participating organizations, indirect participants and
certain banks, the ability of a Certificate Owner to pledge a Certificate to
persons or entities that do not participate in the DTC, CEDEL or Euroclear
system, or otherwise to take actions in respect of such Certificates, may be
limited due to lack of a physical certificate representing the Certificates. See
"DESCRIPTION OF THE CERTIFICATES -- Book-Entry Registration" herein.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates because such
distributions will be forwarded by the Trustee to DTC and DTC will credit such
distributions to the accounts of its Participants (as defined herein) which will
thereafter credit them to the accounts
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of Certificate Owners either directly or indirectly through indirect
participants. See "DESCRIPTION OF THE CERTIFICATES -- Book-Entry Registration"
herein.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in Series pursuant to separate Pooling
and Servicing Agreements, Master Pooling and Servicing Agreements, Sale and
Servicing Agreements or Trust Agreements (collectively, an "Agreement") between
the Depositor, the Servicer and the Trustee for the related Series identified in
the related Prospectus Supplement. A form of Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
Agreement relating to each Series of Certificates will be filed as an exhibit to
a report on Form 8-K to be filed with the Commission within 15 days following
the issuance of such Series of Certificates.
The Seller may agree to reimburse the Depositor for certain fees and
expenses of the Depositor incurred in connection with the offering of
Certificates.
The following summaries describe certain provisions in the Agreements
which are anticipated to be common to each Series of Certificates. The summaries
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Agreement and the Prospectus
Supplement relating to each Series of Certificates. Where particular provisions
or terms used in the Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated herein by reference as part of such
summaries.
The Certificates are issuable in Series. Each Series will consist of one
or more Classes of Certificates, one or more of which may be Variable Interest
Certificates, Zero Coupon Certificates, Principal Only Certificates, Interest
Only Certificates or other types of Certificates as described in the related
Prospectus Supplement. A Series may also include one or more Classes of
Subordinate Certificates. The Certificates of each Series will be issued only in
fully registered form, without coupons, in the authorized denominations for each
Class specified in the related Prospectus Supplement. Upon satisfaction of the
conditions, if any, applicable to a Class of a Series, as described in the
related Prospectus Supplement, the transfer of the Certificates may be
registered and the Certificates may be exchanged at the office of the Trustee
specified in the related Prospectus Supplement without the payment of any
service charge other than any tax or governmental charge payable in connection
with such registration of transfer or exchange. If specified in the related
Prospectus Supplement, one or more Classes of a Series may be available in
book-entry form only.
Unless otherwise provided in the related Prospectus Supplement, payments
of principal of and interest on a Series of Certificates will be made on the
Payment Dates specified in the Prospectus Supplement relating to such Series by
check mailed to Certificateholders of such Series, registered as such at the
close of business on the record date specified in the related Prospectus
Supplement applicable to such Payment Dates at their addresses appearing on the
certificate register, except that (a) payments may be made by wire transfer (at
the expense of the Certificateholder requesting payment by wire transfer) in
certain circumstances described in the related Prospectus Supplement and (b)
final payments of principal in retirement of each Certificate will be made only
upon presentation and surrender of such Certificate at the office of the Trustee
specified in the related Prospectus Supplement. Notice of the final payment on a
Certificate will be mailed to the holder of such certificate before the Payment
Date on which the final principal payment on any Certificate is expected to be
made to the holder of such Certificate.
Payments of principal of and interest on the Certificates will be made
by the Trustee, or a paying agent on behalf of the Trustee, as specified in the
related Prospectus Supplement. Unless otherwise provided in the related
Prospectus Supplement, all payments with respect to the Primary Assets for a
Series, together with reinvestment income thereon, amounts withdrawn from any
Reserve Fund, and amounts available pursuant to any other
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Enhancement will be deposited directly into the Collection Account and, net, if
and as provided in the related Prospectus Supplement, of certain amounts payable
to the Series under the related Agreement and any other person specified in the
related Prospectus Supplement, will thereafter be deposited into the
Distribution Account and will be available to make payments on Certificates of
such Series on the next Payment Date, as the case may be. See "THE TRUST ASSETS
- -- Collection and Distribution Accounts."
Payments of Interest
The Certificates of each Class which by their terms are entitled to
receive interest will bear interest (calculated, unless otherwise specified in
the related Prospectus Supplement, on the basis of a 360-day year of twelve
30-day months) from the date and at the rate per annum specified, or calculated
in the method described in the related Prospectus Supplement. Interest on such
Certificates of a Series will be payable on the Payment Date specified in the
related Prospectus Supplement. The rate of interest on Certificates of a Series
may be floating. Principal Only Certificates may not be entitled to receive any
interest distributions or may be entitled to receive only nominal interest
distributions. Any interest on Zero Coupon Certificates that is not paid on the
related Payment Date will accrue and be added to the principal thereof on such
Payment Date.
Interest payable on the Certificates on a Payment Date will include all
interest accrued during the period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Payment Date the effective yield to Certificateholders will be reduced from the
yield that would otherwise be obtainable if interest payable on the Certificates
were to accrue through the day immediately preceding such Payment Date.
Payments of Principal
On each Payment Date for a Series, principal payments will be made to
the holders of the Certificates of such Series on which principal is then
payable, to the extent set forth in the related Prospectus Supplement. Such
payments will be made in an aggregate amount determined as specified in the
related Prospectus Supplement and will be allocated among the respective Classes
of a Series in the manner, at the times and in the priority (which may, in
certain cases, include allocation by random lot) set forth in the related
Prospectus Supplement.
Final Scheduled Payment Date
The Final Scheduled Payment Date of each Class of a Series of
Certificates will be specified in the related Prospectus Supplement and will be
the date (calculated on the basis of the assumptions applicable to such Series
described therein) on which the entire aggregate principal balance of such Class
is expected to be reduced to zero. Because payments on the Primary Assets will
be used to make distributions in reduction of the outstanding principal amount
of the Certificates, it is likely that the actual final Payment Date of any such
Class will occur earlier, and may occur substantially earlier, than its Final
Scheduled Payment Date.
Companion Series
If so specified in the related Prospectus Supplement, a Series of
Certificates may be paired with another Series issued by the related Trust (a
"Companion Series") on or prior to the commencement of an Accumulation Period or
Amortization Period for such Series. As the Investor Interest of the Series
having a Companion Series is reduced, the Investor Interest of the Companion
Series will increase by an equal amount. Upon payment in full of such Series,
the Investor Interest of the Companion Series will be equal to the amount of the
Investor Interest paid to Certificateholders of such Series.
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Optional Purchase or Termination
The Depositor may, at its option, purchase a Class of Certificates of
any Series, on any Payment Date under the circumstances, if any, specified in
the Prospectus Supplement relating to such Series. Alternatively, if so
specified in the related Prospectus Supplement for a Series of Certificates, the
Depositor, the Servicer, or another entity designated in the related Prospectus
Supplement may, at its option, cause an early termination of a Trust by
repurchasing all of the Primary Assets from such Trust on or after a date
specified in the related Prospectus Supplement, or on or after such time as the
aggregate outstanding principal amount of the Certificates or Primary Assets, as
specified in the related Prospectus Supplement, is less than the amount or
percentage specified in the related Prospectus Supplement. Notice of such
purchase or termination must be given by the Depositor or the Trustee prior to
the related date. The purchase or repurchase price will be set forth in the
related Prospectus Supplement.
In addition, the related Prospectus Supplement may provide other
circumstances under which holders of Certificates of a Series could be fully
paid significantly earlier than would otherwise be the case as a result of the
occurrence of an Early Amortization Event.
Book-Entry Registration
If so specified in the related Prospectus Supplement, Certificateholders
may hold their Certificates through DTC (in the United States) or CEDEL or
Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold one or more global Certificates.
Unless and until Definitive Certificates are issued under the limited
circumstances described in the related Prospectus Supplement, all references
herein or in such Prospectus Supplement to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from its participating
organizations (the "Participants") and all references herein to distributions,
notices, reports and statements to 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
Certificateholders in accordance with DTC procedures.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Citibank, N.A. will act as depositary for CEDEL and Morgan
Guaranty Trust Company of New York will act as depositary for Euroclear (in such
capacities, the "Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same- day
funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
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Because of time-zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a DTC participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for the
Certificates, see Annex I hereto and for information with respect to tax
documentation procedures relating to the Certificates, see Annex I hereto and
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS -- Foreign Investors."
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations (including the Underwriters).
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodian
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Certificateholders that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Certificates may do so only through Participants and Indirect
Participants. In addition, Certificateholders will receive all distributions of
principal of and interest on the Certificates from the Trustee, as paying agent,
or its successor in such capacity (the "Paying Agent"), through the Participants
who in turn will receive them from DTC. Under a book-entry format,
Certificateholders may experience some delay in their receipt of payments, since
such payments will be forwarded by the Paying Agent to Cede, as nominee for DTC.
DTC will forward such payments to its Participants which thereafter will forward
them to Indirect Participants or Certificateholders. It is anticipated that the
only "Certificateholder" for a Series may be Cede, as nominee of DTC.
Certificateholders would not then be recognized by the Trustee as
Certificateholders, as such term is used in the Agreement, and
Certificateholders would only be permitted to exercise the rights of
Certificateholders indirectly through the Participants who in turn will exercise
the rights of Certificateholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Certificates and is
required to receive and transmit distributions of principal of and interest on
the Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificateholders. Accordingly, although
Certificateholders will not possess Certificates, Certificateholders will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder 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 will take any action permitted to be taken by a Certificateholder
under the Agreement only at the direction of one or more Participants to whose
account with DTC the Certificates are credited. Additionally, DTC will take such
actions with respect to specified percentages of the Certificateholders'
interests only at the direction of and on behalf of Participants whose holdings
include undivided interests that satisfy such specified percentages.
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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.
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") is
incorporated under the laws of Luxembourg as a professional depositary. 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 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
depositary, CEDEL is subject to regulation by the Luxembourg Monetary Institute.
Cedel Participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations and may include the
Underwriters. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for its
participants ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating both the need for physical
movement of certificates and the risk resulting from transfers of securities and
cash that are not simultaneous.
The System has subsequently been extended to clear and settle
transactions between Euroclear Participants and counterparties both in CEDEL and
in many domestic securities markets. Transactions may be settled in any of 32
settlement currencies, including United States dollars. In addition to
safekeeping (custody) and securities clearance and settlement, the Euroclear
System includes securities lending and borrowing and money transfer services.
The Euroclear System is operated by the Brussels, Belgium, office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance System S.C., a Belgian cooperative corporation that
establishes policy on behalf of Euroclear Participants. 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.
All operations are conducted by the Euroclear Operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
Operator. They 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 all transfers of securities and cash, both within the System
and receipts and withdrawals of securities and cash. All securities in the
Euroclear System are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts.
Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly. The
Euroclear Operator 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 Considerations." The CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a Certificateholder under the Agreement on behalf of a CEDEL
Participant or Euroclear Participant only in
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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
The Certificates of any Series will be issued in fully registered,
certificated form to Certificateholders or their respective nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository with respect to the
Certificates, and the Trustee or the Depositor are unable to locate a qualified
successor, (ii) the Depositor, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of a Servicer Default,
Certificateholders of the related series evidencing not less than 50% of the
aggregate unpaid principal amount of the Certificates advise the Trustee and DTC
through Participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of the
Certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates, and instructions for
re-registration, the Trustee will issue such Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders, under the Agreement and
the Series Supplement ("Holders").
If Definitive Certificates are issued, distribution of principal and
interest on the Definitive Certificates will be made by the Paying Agent or the
Trustee directly to the Holders in whose names the Definitive Certificates were
registered on the related Record Date in accordance with the procedures set
forth herein and in the Agreement and the Series Supplement. Distributions will
be made by check mailed to the address of each Holder as it appears on the
register maintained by the Trustee, except that the final payment on any
Definitive Certificate will be made only upon presentation and surrender of such
Definitive Certificate on the date for such final payment at such office or
agency as is specified in the notice of final distribution to Holders. The
Trustee will provide such notice to Holders not later than the fifth day of the
month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be Citibank.
No service charge will be imposed for any registration of transfer or exchange,
but the Transfer Agent and Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
Each series of Securities may include one or more classes of Notes,
which will be issued pursuant to an Indenture between the Trust and the
Indenture Trustee (as amended and supplemented from time to time, an
"Indenture"). The terms of any Notes will be set forth in the Prospectus
Supplement relating to such Notes.
All discussions in this Prospectus of the Certificates, the terms
thereof as well as any investment considerations related thereto will be
generally applicable to any Notes.
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TRUST ASSETS
General
The Trust for each Series of Certificates will be composed of certain
assets delivered, assigned and transferred to the Trustee by the Depositor, in
each case consisting, unless otherwise specified in the related Prospectus
Supplement, of (i) the Primary Assets, (ii) any Enhancement, (iii) the amount,
if any, initially deposited in the Collection Account, Distribution Account or
Pre-Funding Account for a Series as specified in the related Prospectus
Supplement.
The Primary Assets for a Series will be sold by the Seller to the
Depositor or purchased by the Depositor in secondary market transactions, not
from the issuer of such CABS Securities or an affiliate thereof, or, in the case
of the Receivables, in privately negotiated transactions, which may include
transactions with affiliates. Receivables relating to a Series will be serviced
by the Servicer, which may be the Seller, specified in the related Prospectus
Supplement, either pursuant to a Pooling and Servicing Agreement or, if serviced
by the Seller, a Sale and Servicing Agreement (any of the Pooling and Servicing
Agreements or the Sale and Servicing Agreements are referred to herein
individually as an "Agreement").
Primary Assets included in the Trust for a Series may consist of any
combination of Receivables and CABS Securities, to the extent and as specified
in the related Prospectus Supplement.
The following is a brief description of the Primary Assets expected to
be included in the Trusts. Specific information regarding the Primary Assets
will be provided in the related Prospectus Supplement and, to the extent not
contained in the related Prospectus Supplement, in a report on Form 8-K to be
filed with the Securities and Exchange Commission within fifteen days after the
initial issuance of such Certificate. A copy of the Agreement with respect to
each Series of Certificates, or the Indenture with respect to each Series of
Notes, will be attached to the Form 8-K and will be available for inspection at
the corporate trust office of the Trustee specified in the related Prospectus
Supplement.
The Receivables
General. The Primary Assets for a Series may consist, in whole or in
part, of consumer, corporate, revolving credit card, charge card or debit card
receivables (collectively, the "Receivables") generated from time to time in the
ordinary course of business in a portfolio of consumer, corporate, revolving
credit card, charge card or debit card accounts (collectively, the "Accounts").
The Accounts will consist of the Initial Accounts sold by a Seller, as well as
any Additional Accounts added from time to time, but will not include any
Removed Accounts. Each Seller will convey to the Trust all Receivables existing
on the Cut-off Date in certain consumer, revolving credit card, charge card or
debit card accounts (the "Initial Accounts") and all Receivables arising in the
Initial Accounts from time to time thereafter until the termination of the
Trust. The Receivables may be payable in U.S. dollars or in any other foreign
currency. After the Cut-off Date, the Seller will convey to the Trust the
Receivables in certain New Accounts and the Receivables in certain other
Accounts included in certain Lump Sum Additions, in each case in accordance with
the provisions of the Agreement. In addition, pursuant to the Agreement, the
Seller in some circumstances will be obligated to designate Additional Accounts
the Receivables in which will be included in the Trust or, in lieu thereof or in
addition thereto, to include Participations in the Trust. Additional Accounts
will consist of New Accounts and accounts relating to any Lump Sum Additions.
The Seller will convey to the Trust all Receivables in Additional Accounts,
whether such Receivables are then existing or thereafter created. The addition
to the Trust of Receivables in Additional Accounts or Participations will be
subject to certain conditions.
Pursuant to the Agreement, the Seller will have the right (subject to
certain limitations and conditions), but not the obligation, to remove the
Receivables in certain Accounts from the Trust ("Removed Accounts"). If so
specified in the related Prospectus Supplement, the Seller will be able to
include in the related Trust, participations
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representing undivided interests in a pool of assets primarily consisting of
revolving credit card accounts or other revolving credit accounts owned by the
Seller or any affiliate thereof and collections thereon ("Participations").
Credit Card Accounts and Receivables. The Credit Card Receivables
consist of periodic finance charges, annual membership fees, cash advance fees
and late charges on amounts charged for merchandise and services and certain
other fees designated by the Seller ("Finance Charge Receivables") and all
amounts charged by cardholders for merchandise and services, amounts advanced to
cardholders as cash advances and all other fees billed to cardholders on the
Accounts ("Principal Receivables"). In addition, certain Interchange attributed
to cardholder charges for merchandise and services in the Accounts may be
treated as Finance Charge Receivables. Recoveries of charged-off Finance Charge
Receivables will be treated as collections of Finance Charge Receivables and
recoveries of charged-off Principal Receivables will be applied against
charge-offs of Principal Receivables. From time to time, subject to certain
conditions, certain of the amounts described above which are included in
Principal Receivables may be treated as Finance Charge Receivables. The amount
of Receivables will fluctuate from day to day as new Receivables are generated
or added to the Trust and as existing Receivables are collected, charged-off as
uncollectible or otherwise adjusted. "Interchange" consists of certain fees
received by a credit card-issuing bank from the VISA and MasterCard
International associations 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. VISA and MasterCard International may from time to
time change the amount of Interchange reimbursed to banks issuing their credit
cards.
Charge Card Accounts and Receivables. Charge Card Receivables consist of
amounts charged on designated Accounts for merchandise and services, and all
annual membership fees and certain other administrative fees billed to the
designated Accounts. Receivables originated under Charge Card Accounts are not
subject to a monthly finance charge.
There are distinctions between the Credit Card Accounts and the Charge
Card Accounts. The Credit Card Accounts offer revolving credit plans to their
customers. Charge Card Accounts generally have no pre-set spending limit and are
designed for use as a convenient method of payment for the purchase of
merchandise and services. Charge Card Accounts generally cannot be used as a
means of financing such purchases. Accordingly, the full balance of a month's
purchases is billed to cardmembers and is due upon receipt of the billing
statement. By contrast, revolving credit plans allow customers to make a minimum
monthly payment and to borrow the remaining outstanding balance from the credit
issuer up to a predetermined limit. As a result of these payment requirement
differences, the Charge Card Accounts have a high monthly payment rate and
balances which turn over rapidly relative to their charge volume when compared
to Credit Card Accounts.
Another distinction between Charge Card Accounts and Credit Card
Accounts is that Charge Card Account balances are generally not subject to
monthly finance charges. As described above, the full Account balance is billed
monthly and is due upon receipt of the billing statement. Cardmembers do not
have the option of using their Charge Card Accounts to extend payment and to pay
a finance charge on the remaining outstanding balance. Credit Card Accounts, by
contrast, do allow customers to pay a specified minimum portion of an
outstanding amount and to finance the balance at a finance charge rate
determined by the credit card issuer. (Because Charge Card Account balances are
not assessed finance charges, for the purpose of providing yield to the Trust a
portion of Collections on Receivables in Accounts received in any Due Period
equal to the product of Collections and the Yield Factor will generally be
treated as Yield Collections.) Each related Prospectus Supplement, where
applicable, will describe the Yield Calculation for a specific portfolio of
Charge Card Accounts.
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Additional Information Relating to Receivables
The related Prospectus Supplement for each Series will provide
information with respect to the Receivables that are Primary Assets as of the
Cut-off Date, including, among other things, the aggregate principal balance of
the Receivables and whether the Receivables are Credit Card Receivables or
Charge Card Receivables.
The eligibility criteria which shall apply with respect to the Primary
Assets will be specified in the related Prospectus Supplement. The related
Prospectus Supplement will provide information, including, among other things,
(a) underwriting criteria; (b) the loss and delinquency experience for the
portfolio of Receivables; (c) the composition of the portfolio by account
balance; and (d) the geographic distribution of Accounts and Receivables. The
related Prospectus Supplement will also specify any other limitations on the
types or characteristics of Receivables for a Series.
If information of the nature described above respecting the Receivables
is not known to the Seller at the time the Certificates are initially offered,
approximate or more general information of the nature described above will be
provided in the related Prospectus Supplement and additional information will be
set forth in a Current Report on Form 8-K to be available to investors on the
date of issuance of the related Series and to be filed with the Commission
within 15 days after the initial issuance of such Certificates.
CABS Securities
General. Primary Assets for a Series may consist, in whole or in part,
of CABS Securities which include certificates evidencing an undivided interest
in, or notes or loans secured by, Receivables generated in Accounts. Such
certificates, notes or loans will have previously been (a) offered and
distributed to the public pursuant to an effective registration statement or are
being registered under the Securities Act of 1933 in connection with the
offering of a Series of Securities or (b) purchased in a transaction not
involving any public offering from a person who is not an affiliate of the
issuer of such securities at the time of sale (nor an affiliate thereof at any
time during the three preceding months); provided a period of three years has
elapsed since the later of the date the securities were acquired from the issuer
or an affiliate thereof. CABS Securities will have been issued pursuant to a
Pooling and Servicing Agreement, a Master Pooling and Servicing Agreement, a
Sale and Servicing Agreement, a Trust Agreement, Indenture or similar agreement
(a "CABS Agreement"). The seller/servicer of the underlying Receivables will
have entered into the CABS Agreement with the trustee under such CABS Agreement
(the "CABS Trustee"). Receivables underlying a CABS Security will be serviced by
a servicer (the "CABS Servicer") directly or by one or more sub-servicers who
may be subject to the supervision of the CABS Servicer.
All purchases of CABS Securities for a Series by the Seller or the
Depositor will be made in secondary market transactions, not from the issuer of
such CABS Securities or any affiliate thereof. As a result, no such purchases of
CABS Securities offered and distributed to the public pursuant to an effective
registration statement will be made by the Seller or Depositor for at least
ninety days after the initial issuance of such CABS Securities. The issuer of
the CABS Securities (the "CABS Issuer") will be a financial institution,
corporation, or other entity engaged generally in the business of issuing credit
or charge cards; any form of store or merchandiser that issues credit or charge
cards; or a limited purpose corporation organized for the purpose of, among
other things, establishing trusts and acquiring and selling receivables to such
trusts, and selling beneficial interests in such trusts; or one of such trusts.
If so specified in the related Prospectus Supplement, the CABS Issuer may be an
affiliate of the Depositor. The obligations of the CABS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Unless otherwise specified in the related
Prospectus Supplement, the CABS Issuer will not have guaranteed any of the
assets conveyed to the related trust or any of the CABS Securities issued under
the CABS Agreement.
Distributions of principal and interest will be made on the CABS
Securities on the dates specified in the related Prospectus Supplement. The CABS
Securities may be entitled to receive nominal or no principal distributions
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or nominal or no interest distributions. Principal and interest distributions
will be made on the CABS Securities by the CABS Trustee or the CABS Servicer.
The CABS Issuer or the CABS Servicer may have the right to repurchase assets
underlying the CABS Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Receivables. The Receivables underlying the CABS Securities
may consist of Credit Card Receivables or Charge Card Receivables.
Enhancement Relating to CABS Securities. Enhancement in the form of
reserve funds, subordination of other CABS issued under the CABS Agreement,
guarantees, letters of credit, cash collateral accounts, insurance policies or
other types of Enhancement may be provided with respect to the Receivables
underlying the CABS Securities or with respect to the CABS Securities
themselves. The type, characteristics and amount of Enhancement will be a
function of certain characteristics of the Receivables and other factors and
will have been established for the CABS Securities on the basis of requirements
of the rating agencies.
Additional Information. The related Prospectus Supplement for a Series
for which the Primary Assets includes CABS Securities will specify, to the
extent relevant and to the extent such information is reasonably available to
the Depositor and the Depositor reasonably believes such information to be
reliable, (i) the aggregate approximate principal amount and type of the CABS
Securities to be included in the Primary Assets; (ii) certain characteristics of
the Receivables which comprise the underlying assets for the CABS Securities
including, (A) whether such Receivables are Credit Card Receivables or Charge
Card Receivables, (B) the fees and charges associated with such Receivables and
(C) the servicing fee or range of servicing fees with respect to the
Receivables; (iii) the expected and final maturity of the CABS Securities; (iv)
the interest rate of the CABS Securities; (v) the CABS Issuer, the CABS Servicer
(if other than the CABS Issuer) and the CABS Trustee for such CABS Securities;
(vi) certain characteristics of Enhancement, if any, such as reserve funds,
insurance policies, letters of credit or guarantees relating to the Receivables
underlying the CABS Securities or to such CABS Securities themselves; (vii) the
terms on which the underlying Receivables for such CABS Securities may, or are
required to, be purchased prior to their stated maturity or the stated maturity
of the CABS Securities; and (viii) the terms on which Receivables may be
substituted for those originally underlying the CABS Securities.
If information of the nature described above representing the CABS
Securities is not known to the Depositor at the time the Certificates are
initially offered, approximate or more general information of the nature
described above will be provided in the related Prospectus Supplement and the
additional information, if available, will be set forth in a Current Report on
Form 8-K to be available to investors on the date of issuance of the related
Series and to be filed with the Commission within 15 days of the initial
issuance of such Certificates.
Collection and Distribution Accounts
A separate Collection Account will be established by the Trustee or the
Servicer, in the name of the Trustee, for each Series of Certificates for
receipt of the amount of cash, if any, specified in the related Prospectus
Supplement to be initially deposited therein by the Depositor, all amounts
received on or with respect to the Primary Assets and, unless otherwise
specified in the related Prospectus Supplement, income earned thereon. Certain
amounts on deposit in such Collection Account and certain amounts available
pursuant to any Enhancement, as provided in the related Prospectus Supplement,
will be deposited in a related Distribution Account, which will also be
established by the Trustee for each such Series of Certificates, for
distribution to the related Certificateholders. The Trustee will invest the
funds in the Collection and Distribution Accounts in Eligible Investments
maturing, with certain exceptions, not later, in the case of funds in the
Collection Account, than the day preceding the date such funds are due to be
deposited in the Distribution Account or otherwise distributed and, in the case
of funds in the Distribution Account, than the day preceding the next Payment
Date for the related Series of Certificates. Eligible Investments include, among
other investments, obligations of the United States and certain agencies
thereof, federal funds, certificates of deposit, commercial paper, demand and
time deposits and banker's acceptances, certain
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repurchase agreements of United States government securities and certain
guaranteed investment contracts, in each case, acceptable to the Rating Agency.
From time to time, various accounts including Pre-Funding Accounts may
be created under the terms of the documents related to a specific Series.
ENHANCEMENT
General
For any Series, Enhancement may be provided with respect to one or more
Classes thereof. 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 surety bond,
insurance, the use of cross support features or another method of Enhancement
described in the related Prospectus Supplement, or any combination of the
foregoing. Enhancement may also include any type of derivative product or
arrangement. If so specified in the related Prospectus Supplement, any form of
Enhancement may be structured so as to be drawn upon by more than one Class to
the extent described therein.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by the Enhancement or which are not covered by the Enhancement,
certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Enhancement, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions (if any) under which the amount payable
under such Enhancement may be reduced and under which such Enhancement may be
terminated or replaced and (d) any material provisions of any agreement relating
to such Enhancement. Additionally, the related Prospectus Supplement may set
forth certain information with respect to the issuer of any third-party
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 related 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 Payment 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 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, equal to the amount described in the
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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 Seller and 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 or the Seller or the Servicer.
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 for such Series 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.
Reserve Fund
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Depositor will deposit into one or more funds to be
established with the Trustee as part of the Trust for such Series or for the
benefit of any Enhancer with respect to such Series (the "Reserve Fund") cash, a
letter or letters of credit, Eligible Investments, or other instruments meeting
the criteria of the Rating Agency rating any Series of the Certificates in the
amount specified in such Prospectus Supplement. In the alternative or in
addition to such deposit, a Reserve Fund for a Series may be funded over time
through application of all or a portion of the excess cash flow from the Primary
Assets for such Series, to the extent described in the related Prospectus
Supplement. If applicable, the initial amount of the Reserve Fund and the
Reserve Fund maintenance requirements for a Series of Certificates will be
described in the related Prospectus Supplement.
Amounts withdrawn from any Reserve Fund will be applied by the Trustee
to make payments on the Certificates of a Series, to pay expenses, to reimburse
any Enhancer or for any other purpose, in the manner and to the extent specified
in the related Prospectus Supplement.
Amounts deposited in a Reserve Fund will be invested by the Trustee, in
Eligible Investments maturing no later than the day specified in the related
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.
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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.
Derivative Products
If so specified in the related Prospectus Supplement, the Depositor may
enter into a derivative arrangement with respect to the Certificates of any
Class or Series. Such derivative arrangement may include a guaranteed rate
agreement, a maturity liquidity facility, a tax protection agreement, an
interest rate cap or floor agreement, an interest rate or currency swap
agreement or any other similar arrangement.
SERVICING OF RECEIVABLES
General
Customary servicing functions with respect to Receivables comprising or
underlying the Primary Assets in the Trust will be provided by the Servicer
directly pursuant to an Agreement.
Collection Procedures
The Servicer will make reasonable efforts to collect all payments
required to be made under the Accounts and will, consistent with the terms of
the related Agreement for a Series and any applicable Enhancement, follow such
collection procedures as it follows with respect to comparable receivables held
in its own portfolio.
Deposits to the Collection Account
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will establish a separate account (the "Collection Account") in the
name of the Trustee. Unless otherwise indicated in the related Prospectus
Supplement, the Collection Account will be an account maintained (i) at a
depository institution, the long-term unsecured debt obligations of which at the
time of any deposit herein are rated as described in the related Prospectus
Supplement and as specified by each Rating Agency rating the Certificates of
such Series or (ii) in an account or accounts the deposits in which are insured
to the maximum extent available by the FDIC or which are secured in a manner
meeting requirements established by each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, the
funds held in the Collection Account may be invested, pending remittance to the
Trustee, in Eligible Investments. If so specified in the related Prospectus
Supplement, the Servicer will be entitled to receive as additional compensation
any interest or other income earned on funds in the Collection Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Seller, the Trustee or the Depositor, as appropriate, will deposit
into the Collection Account for each Series, within two business days after the
date of receipt thereof, the following payments and collections received or made
by it:
(i) All payments on account of principal, including prepayments,
on such Primary Assets;
(ii) All payments on account of interest or finance charges on
such Primary Assets after deducting therefrom, at the discretion of the
Servicer but only to the extent of the amount permitted to be
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withdrawn or withheld from the Collection Account in accordance with the
applicable Agreement, the Servicing Fee in respect of such Primary
Assets;
(iii) All amounts received by the Servicer in connection with the
liquidation of Primary Assets other than amounts required to be paid or
refunded to the obligor pursuant to the terms of the applicable
documents or otherwise pursuant to law ("Liquidation Proceeds"),
exclusive of, in the discretion of the Servicer, but only to the extent
of the amount permitted to be withdrawn from the Collection Account in
accordance with the related Agreement, the Servicing Fee, if any, in
respect of the related Primary Asset;
(iv) All amounts required to be deposited therein from any
applicable Enhancement for such Series pursuant to the related Trust
Agreement;
(v) All repurchase prices of any such Primary Assets repurchased
by the Depositor, the Seller or the Servicer pursuant to the related
Agreement;
(vi) Any amounts payable to the applicable person with respect to
each Primary Asset acquired that has been repurchased or removed from
the Trust by the Depositor, the Servicer or the Seller pursuant to the
related Agreement, all amounts received thereon and not distributed as
of the date on which the related repurchase price was determined;
(vii) All amounts payable to the Trustee of such Series for
deposit into the Distribution Account, if any, or for remittance to the
Certificateholders of such series as provided for in the related Trust
Agreement; and
(viii) All amounts necessary to clear and terminate the
Collection Account pursuant to the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
Servicing Compensation and Payment of Expenses
Except as otherwise provided in the related Prospectus Supplement, the
Servicer will be entitled to a servicing fee in an amount to be determined as
specified in the related Prospectus Supplement. The servicing fee may be fixed
or variable, as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay certain expenses incurred in connection with the servicing of
the Receivables including, without limitation, the payment of the fees and
expenses of the Trustee and independent accountants, payment of the cost of
Enhancement, if any, and payment of expenses incurred in preparation of reports
to Certificateholders.
The rights of the Servicer to receive funds from the Collection Account
for a Series, whether as the Servicing Fee or other compensation, or for the
reimbursement of expenses or otherwise, may be subordinate to the rights of
Certificateholders of such Series.
Evidence as to Compliance
The Agreement for each Series may provide that, each year, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that such firm has examined certain documents and records relating to the
servicing of the Receivables by the Servicer and that, on the basis of such
examination, such firm is of the opinion that the servicing has been conducted
in compliance with the Agreement, except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are set forth in
such statement.
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The Agreement for each Series will provide for delivery to the Trustee
for such Series of an annual statement signed by an officer of the Servicer to
the effect that the Servicer has fulfilled its obligations under the Agreement
throughout the preceding calendar year.
Certain Matters Regarding the Servicer
The Servicer for each Series will be identified in the related
Prospectus Supplement. The Servicer may be an affiliate of the Seller and may
have other business relationships with the Depositor and its affiliates.
If an event of default occurs with respect to the Servicer under an
Agreement, the Servicer may be replaced by the Trustee or a successor Servicer.
Unless otherwise specified in the related Prospectus Supplement, Servicer events
of default and the rights of the Trustee upon such a default under the Agreement
for the related Series will be substantially similar to those described under
"THE AGREEMENTS -- Events of Default" and "--Rights upon Events of Default"
herein.
Unless otherwise provided in the related Prospectus Supplement, the
Servicer may not resign from its obligations and duties under the Agreement,
except (a) upon determination that (i) the performance of its duties under the
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 hereunder permissible under applicable law, (b) in connection with a
conveyance, consolidation or merger by the Servicer with any corporation, or
conveyance or transfer of its properties or assets substantially as an entirety
to any other person permitted under the Agreement or (c) upon the satisfaction
of the following conditions: (i) the acceptance and assumption, by an agreement
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, of the obligations and duties of the Servicer
thereunder by a proposed successor Servicer, (ii) the Servicer having given
written notice to each Rating Agency of such transfer and such Rating Agency
having notified the Servicer in writing to the effect that its then current
rating of Certificates of any Series will not be reduced or withdrawn as a
result of such transfer, (iii) the written consent of any provider of
Enhancement (such consent not to be unreasonably withheld) and (iv) the proposed
successor Servicer being an Eligible Servicer (as defined below).
Notwithstanding anything in the Agreement to the contrary, any successor
Servicer appointed under clause (c) will be deemed to be a successor Servicer.
Any such determination permitting the resignation of the Servicer will be
evidenced as to clause (a) above 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 shall have assumed the responsibilities and
obligations of the Servicer in accordance with the Agreement.
"Eligible Servicer" means the Trustee or an entity which, at the time of
its appointment as Servicer, (i) is an established financial institution having
capital or a net worth of not less than $100,000,000, (ii) is servicing a
portfolio of consumer credit card or charge card accounts, (iii) is legally
qualified and has the capacity to service the Accounts, (iv) has demonstrated
the ability to professionally and completely service a portfolio of similar
accounts in accordance with standards of skill and care customary in the
industry and (v) is qualified to use the software that is then currently being
used to service the Accounts or obtains the right to use or has its own software
which is adequate to perform its duties under the Agreement.
Indemnification
Except to the extent otherwise provided therein, each Agreement will
provide that the Servicer will indemnify the Trust, the Trustee and the
Certificateholders of all series from and against any loss, liability, expense,
damage or injury suffered or sustained by reason of any acts, omissions or
alleged acts or omissions arising out of activities of the Servicer with respect
to the Trust or the Trustee or any co-trustee pursuant to this Agreement,
including those arising from acts or omissions of the Servicer pursuant to the
Agreement, including but not limited to any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim;
provided, however, that the Servicer shall not indemnify: (i) the Trust or the
Trustee if such acts, omissions or alleged acts or omissions constitute fraud,
gross
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negligence, breach of fiduciary duty or misconduct by the Trustee; (ii) the
Trust, the Trustee or the Certificateholders of any series for any liability,
cost or expense of the Trust with respect to any action taken by the Trust at
the request of the Certificateholders of a Series in accordance with the
Agreement nor with respect to any Federal, state or local income or franchise
taxes (or any interest or penalties with respect thereto) required to be paid by
the Trust or the Certificateholders of a Series in connection herewith to any
taxing authority; or (iii) the Trust or Certificateholders for any losses
incurred by any of them as a result of defaulted Receivables or Receivables
which are written off as uncollectible unless such write-off is caused by a
breach of the Agreement by the Servicer. Subject to certain exceptions in the
Agreement, any indemnification pursuant to the Agreement will be only from the
assets of the Servicer.
THE AGREEMENTS
The following summaries describe certain provisions of the Agreements.
The summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreements. Where
particular provisions or terms used in the Agreements are referred to, such
provisions or terms are as specified in the Agreements.
Assignment of Primary Assets
Receivables; Pre-Funding Accounts. On the Closing Date specified with
respect to any given Trust in the related Prospectus Supplement (the "Closing
Date"), the Seller will transfer and assign to the applicable Trustee, without
recourse, its entire interest in the Initial Receivables of the related
receivables pool. Each such Receivable will be identified at such time of
transfer. The Applicable Trustee will, concurrently with such transfer and
assignment, execute and deliver the related Certificates. Unless otherwise
provided in the related Prospectus Supplement, the net proceeds received from
the sale of the Certificates of a given series will be applied to the purchase
of the related CABS Securities from the Seller and, to the extent specified in
the related Prospectus Supplement, to the deposit of the Pre-Funded Amount into
the Pre-Funding Account. The related Prospectus Supplement for a given Trust
will specify whether, and the terms, conditions and manner under which,
Subsequent CABS will be sold by the Seller to the applicable Trust from time to
time during the Funding Period on each date specified as a transfer date in the
related Prospectus Supplement (each, a "Subsequent Transfer Date").
General. In connection with any transfer of the Initial Receivables and
any transfer of Subsequent Receivables and CABS Securities pursuant to an
Agreement each Seller will annotate and indicate in its computer files that the
Receivables and CAB Securities have been conveyed to the Trust. In addition, the
Seller will provide to the Trustee a computer file or a microfiche list
containing a true and complete list showing each Account, the Receivables of
which have been designated for inclusion in the Trust, identified by account
number, collection status, the amount of Receivables outstanding and the amount
of Principal Receivables as of the Cut-off Date. The Seller will not deliver to
the Trustee any other records or agreements relating to such Account or the
Receivables. The records and agreements relating to such Accounts and the
Receivables maintained by the Seller or the Servicer will not be segregated by
the Seller or the Servicer from other documents and agreements relating to other
Accounts and Receivables and will not be stamped or marked to reflect the
transfer of the Receivables to the Trust. Each Seller will file the 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."
Assignment of CABS Securities; Pre-Funding Accounts. The Depositor will
cause CABS Securities to be registered in the name of the Trustee (or its
nominee or correspondent). The Trustee (or its agent or correspondent) will have
possession of any certificated CABS Securities. Unless otherwise specified in
the related Prospectus Supplement, the Trustee will not be in possession of or
be assignee of record of any underlying assets for a CABS Security. See "THE
TRUST ASSETS -- CABS Securities" herein. Each CABS Security will be identified
in a
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schedule appearing as an exhibit to the related Agreement (the "CABS Schedule"),
which will specify the original principal amount, outstanding principal balance
as of the Cut-off Date, annual pass-through rate or interest rate and maturity
date for each CABS Security conveyed to the Trustee. In the Agreement, the
Depositor will represent and warrant to the Trustee regarding the CABS
Securities: (i) that the information contained in the CABS Schedule is true and
correct in all material respects; (ii) that, immediately prior to the conveyance
of the CABS Securities, the Depositor had good title thereto, and was the sole
owner thereof; (iii) that there has been no other sale by it of such CABS
Securities; and (iv) that there is no existing lien, charge, security interest
or other encumbrance on such CABS Securities. Unless otherwise provided in the
related Prospectus Supplement, the net proceeds received from the sale of the
Certificates of a given series will be applied to the purchase of the related
CABS Securities from the Seller and, to the extent specified in the related
Prospectus Supplement, to the deposit of the Pre-Funded Amount into the
Pre-Funding Account. The related Prospectus Supplement for a given Trust will
specify whether, and the terms, conditions and manner under which, Subsequent
CABS will be sold by the Seller to the applicable Trust from time to time during
the Funding Period on each date specified as a transfer date in the related
Prospectus Supplement (each, a "Subsequent Transfer Date").
Repurchase and Substitution of Non-Conforming Primary Assets. Unless
otherwise provided in the related Prospectus Supplement, if any document in the
file relating to the Primary Assets delivered by the Depositor to the Trustee is
found by the Trustee within 45 days of the execution of the related Agreement
(or promptly after the Trustee's receipt of any document permitted to be
delivered after the Closing Date) to be defective in any material respect and
the Depositor does not cure such defect within 90 days, or within such other
period specified in the related Prospectus Supplement, the Depositor will, not
later than 90 days or within such other period specified in the related
Prospectus Supplement, after the Trustee's notice to the Depositor or the
Servicer, as the case may be, of the defect, repurchase the related Primary
Asset from the Trustee at a price equal to (a) the outstanding principal balance
of such Primary Asset and (b) accrued and unpaid interest to the date of the
next scheduled payment on such Primary Asset at the rate set forth in the
related Agreement.
If provided in the related Prospectus Supplement, the Depositor may,
rather than repurchase the Primary Asset as described above, remove such Primary
Asset from the Trust (the "Deleted Primary Asset") and substitute in its place
one or more other Primary Assets (each, a "Qualifying Substitute Primary
Asset").
Unless otherwise specified in the related Prospectus Supplement, any
Qualifying Substitute Primary Asset will have, on the date of substitution, (i)
an outstanding principal balance, after deduction of all Payments due in the
month of substitution, at least equal to the outstanding principal balance of
the Deleted Primary Asset (the amount of any shortfall to be deposited to the
Certificate Account in the month of substitution for distribution to
Certificateholders), (ii) an interest rate not less than the interest rate of
the Deleted Primary Asset, (iii) a remaining term-to-stated maturity not greater
than (and not more than two years less than) that of the Deleted Primary Asset,
and will comply with all of the representations and warranties set forth in the
applicable Agreement as of the date of substitution.
Unless otherwise provided in the related Prospectus Supplement, the
above-described cure, repurchase or substitution obligations constitute the sole
remedies available to the Certificateholders or the Trustee for a material
defect in a document for a Primary Asset.
The Depositor or another entity will make representations and warranties
with respect to Primary Assets for a Series. If the Depositor or such entity
cannot cure a breach of any such representations and warranties in all material
respects within the time period specified in the related Prospectus Supplement
after notification by the Trustee of such breach, and if such breach is of a
nature that materially and adversely affects the value of such Primary Asset,
the Depositor or such entity is obligated to repurchase the affected Primary
Asset or, if provided in the related Prospectus Supplement, provide a Qualifying
Substitute Primary Asset therefor, subject to the same conditions and
limitations on purchases and substitutions as described above.
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The Depositor's only source of funds to effect any cure, repurchase or
substitution will be through the enforcement of the corresponding obligations of
the responsible originator or seller of such Primary Assets. See "RISK FACTORS."
Reports to Holders
The Trustee will prepare and forward to each Certificateholder on each
Payment Date, or as soon thereafter as is practicable, a statement setting
forth, to the extent applicable to any Series, among other things:
(i) with respect to a Series, the amount of such distribution
allocable to interest or finance charges on the Primary Assets;
(ii) with respect to a Series the amount of such distribution
allocable to principal on the Primary Assets;
(iii) the amount of servicing compensation with respect to the
Primary Assets paid during the period commencing on the Due Date to
which such distribution relates and the amount of servicing compensation
during such period attributable to penalties and fees;
(iv) the aggregate outstanding principal balance of the Primary
Assets as of the opening of business on the Due Date, after giving
effect to distributions allocated to principal and reported under (i)
above;
(v) the aggregate outstanding principal amount of the
Certificates of such Series as of the Due Date after giving effect to
distributions allocated to principal reported under (ii) above;
(vi) with respect to Certificates that are Compound Interest
Certificates or Zero Coupon Certificates, the amount of interest accrued
on such Certificates during the related interest accrual period and
added to the Compound Value thereof;
(vii) in the case of Certificates that are Variable Interest
Certificates, the rate applicable to the distribution being made;
(viii) if applicable, the amount of any shortfall (i.e., the
difference between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Distribution Account and the amounts actually distributed);
(ix) if applicable, the number and aggregate principal balances
of Primary Assets delinquent for (A) two consecutive payments and (B)
three or more consecutive payments, as of the close of business on the
Determination Date to which such distribution relates;
(x) in the case of any Enhancement described in the related
Prospectus Supplement, the amount of coverage of such Enhancement as of
the close of business on the applicable Payment Date;
(xi) in the case of any Series which includes a Class of
Subordinate Certificates, the subordinated amount, if any, determined as
of the related Determination Date and if the distribution to the Senior
Certificateholders is less than their required distribution, the amount
of the shortfall;
(xii) the amount of any withdrawal from any applicable Reserve
Fund included in amounts actually distributed to Certificateholders and
the remaining balance of each Reserve Fund, if any, on such Payment
Date, after giving effect to distributions made on such date;
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(xiii) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(xiv) for the first such date that is on or immediately following
the end of the Funding Period (if any), the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and that is being passed through as payments on
the Certificates of the related Series; and
(xv) such other information as is specified in the related
Agreement.
In addition, within a reasonable period of time after the end of each
calendar year the Trustee, unless otherwise specified in the related Prospectus
Supplement, will furnish to each holder of record at any time during such
calendar year: (a) the aggregate of amounts reported pursuant to (i) through
(iv), (vi) and (viii) above for such calendar year and (b) such information
specified in the Agreement to enable holders to prepare their tax returns
including, without limitation, the amount of original issue discount accrued on
the Certificates, if applicable. Information in the Payment Date reports and the
annual reports provided to the holders will not have been examined and reported
upon by an independent public accountant. However, each Servicer will provide to
the Trustee an annual report by independent public accountants with respect to
the Servicer's servicing of the Receivables. See "SERVICING OF RECEIVABLES --
Evidence as to Compliance" herein.
Events of Default
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under the Agreement for each Series include (i) any failure by the
Servicer to deposit amounts in the Collection Account and Distribution Account
to enable the Trustee to distribute to Certificateholders of such Series any
required payment, which failure continues unremedied for five days after the
giving of written notice of such failure to the Servicer by the Trustee for such
Series, or to the Servicer and the Trustee by the holders of Certificates of
such Series evidencing not less than 25% of the aggregate voting rights of the
Certificates for such Series, (ii) any failure by the Servicer duly to observe
or perform in any material respect any other of its covenants or agreements in
the Agreement which continues unremedied for 30 days after the giving of written
notice of such failure to the Servicer by the Trustee, or to the Servicer and
the Trustee by the holders of Certificates of such Series evidencing not less
than 25% of the aggregate voting rights of the Certificates and (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
Rights Upon Events of Default
So long as an Event of Default remains unremedied under the Agreement
for a Series, the Trustee for such Series or holder of Certificates of such
Series evidencing not less than 51% of the aggregate principal amount of the
Certificates for such Series may terminate all of the rights and obligations of
the Servicer as servicer under the Agreement and in and to the Receivables,
whereupon the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Agreement and will be entitled to
reasonable servicing compensation not to exceed the applicable servicing fee,
together with other servicing compensation in the form of assumption fees, late
payment charges, or otherwise as provided in the Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a finance
institution, bank or loan servicing institution with a net worth of at least
$15,000,000 to act as successor Servicer under the provisions of such Agreement
relating to the servicing of the Receivables. The successor Servicer would be
entitled to reasonable servicing compensation in an amount not to exceed the
Servicing Fee as set forth in the related Prospectus Supplement, together with
the other servicing compensation in the form of assumption fees, late payment
charges or otherwise, as provided in the Agreement.
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During the continuance of any Event of Default under the Agreement for a
Series, the Trustee for such Series will have the right to take action to
enforce its rights and remedies and to protect and enforce the rights and
remedies of the Certificateholders of such Series, and holders of Certificates
evidencing not less than 51% of the aggregate voting rights of the Certificates
for such Series may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred upon that Trustee. However, the Trustee will not be under any
obligation to pursue any such remedy or to exercise any of such trusts or powers
unless such Certificateholders have offered the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred by
the Trustee therein or thereby. Also, the Trustee may decline to follow any such
direction if the Trustee determines that the action or proceeding so directed
may not lawfully be taken or would involve it in personal liability or be
unjustly prejudiced to the nonassenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's
status as a Certificateholder, will have any right under the Agreement for such
Series to institute any proceeding with respect to the Agreement, unless such
holder previously has given to the Trustee for such Series written notice of
default and unless the Holders of Certificates evidencing not less than 51% of
the aggregate voting rights of the Certificates for such Series have made
written request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and the
Trustee for 60 days has neglected or refused to institute any such proceeding.
The Trustee
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Certificates will be set
forth in the related Prospectus Supplement. The entity serving as Trustee may
have normal banking relationships with the Depositor or the Servicer. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust relating to a Series of
Certificates. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee. The
Trustee may also appoint agents to perform any of the responsibilities of the
Trustee, which agents shall have any or all of the rights, powers, duties and
obligations of the Trustee conferred on them by such appointment; provided that
the Trustee shall continue to be responsible for its duties and obligations
under the Agreement.
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Agreement, the Certificates or of any Primary Asset or related documents.
If no Event of Default (as defined in the related Agreement) has occurred, the
Trustee is required to perform only those duties specifically required of it
under the Agreement. Upon receipt of the various certificates, statements,
reports or other instruments required to be furnished to it, the Trustee is
required to examine them to determine whether they are in the form required by
the related Agreement; however, the Trustee will not be responsible for the
accuracy or content of any such documents furnished by it or the
Certificateholders to the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure
to act, or for its own misconduct; provided, however, that the Trustee will not
be personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the
Certificateholders in an Event of Default. See "--Rights Upon Events of Default"
above. The Trustee is not required to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties under an
Agreement, or in the
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exercise of any of its rights or powers, if it has reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
Resignation of Trustee
The Trustee may, upon written notice to the Depositor, resign at any
time, in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after giving such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for
appointment of a successor Trustee. The Trustee may also be removed at any time
(i) by the Depositor, if the Trustee ceases to be eligible to continue as such
under the Agreement, (ii) if the Trustee becomes insolvent or (iii) by the
holders of Certificates evidencing more than 50% of the aggregate voting rights
of the Certificates in the Trust upon 30 days' advance written notice to the
Trustee and to the Depositor. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective until acceptance of
the appointment by the successor Trustee.
Amendment of the Agreement
Unless otherwise specified in the Prospectus Supplement, the Agreement
for each Series of Certificates may be amended by the Depositor, the Servicer,
and the Trustee with respect to such Series, without notice to or consent of the
Certificateholders (i) to cure any ambiguity, (ii) to correct any defective
provisions or to correct or supplement any provision therein which may be
inconsistent with any other provision therein, (iii) to add to the duties of the
Depositor or Servicer, (iv) to add any other provisions with respect to matters
or questions arising under such Agreement or related Enhancement, (v) to add or
amend any provisions of such Agreement as required by a Rating Agency in order
to maintain or improve the rating of the Certificates, or (vi) to comply with
any requirements imposed by the Code; provided that any such amendment pursuant
to clause (iv) above will not adversely affect in any material respect the
interests of any Certificateholders of such Series, as evidenced by an opinion
of counsel. Any such amendment except pursuant to clause (vi) of the preceding
sentence shall be deemed not to adversely affect in any material respect the
interests of any Certificateholder if the Trustee receives written confirmation
from each Rating Agency rating such Certificates that such amendment will not
cause such Rating Agency to reduce the then current rating thereof. The
Agreement for each Series may also be amended by the Trustee, the Servicer and
the Depositor with respect to such Series with the consent of the holders
possessing not less than 66 2/3% of the aggregate outstanding principal amount
of the Certificates of each Class of such Series affected thereby, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Agreement or modifying in any manner the rights of
Certificateholders of such Series; provided, however, that no such amendment may
(a) reduce the amount or delay the timing of payments on any Certificate without
the consent of the holder of such Certificate; or (b) reduce the aforesaid
percentage of aggregate outstanding principal amount of Certificates of each
Class, the holders of which are required to consent to any such amendment
without the consent of the holders of 100% of the aggregate outstanding
principal amount of each Class of Certificates affected thereby.
Voting Rights
The related Prospectus Supplement will set forth the method of
determining allocation of voting rights with respect to a Series, if other than
set forth herein.
List of Certificateholders
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement or under the Certificates for such Series,
which request is accompanied by a copy of the communication which such
Certificateholders propose to transmit, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee.
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No Agreement will provide for the holding of any annual or other meeting
of Certificateholders.
Termination
The obligations created by the Agreement for a Series will terminate
upon the distribution to Certificateholders of all amounts distributable to them
pursuant to such Agreement after the earlier of (i) the final payment or other
liquidation of the last Primary Asset remaining in the Trust for such Series or
(ii) the repurchase, as described below, by the Servicer from the Trustee for
such Series of all Primary Assets and other property at that time subject to the
Agreement. The Agreement for each Series permits, but does not require, the
Servicer to repurchase from the Trust for such Series all remaining Primary
Assets at a price equal to 100% of the aggregate Principal Balance of such
Primary Assets plus, with respect to any property acquired in respect of a
Primary Asset, if any, the outstanding Principal Balance of the related Primary
Asset, and unreimbursed expenses (that are reimbursable pursuant to the terms of
the Agreement), plus accrued interest thereon at the weighted average rate on
the related Primary Assets through the last day of the Due Period in which such
repurchase occurs. The exercise of such right will effect early retirement of
the Certificates of such Series, but the Servicer's right to so purchase is
subject to the aggregate Principal Balance of the Primary Assets at the time of
repurchase being less than a fixed percentage, to be set forth in the related
Prospectus Supplement, of the Cut-off Date aggregate Principal Balance. In no
event, however, will the trust created by the Agreement continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
identified therein. For each Series, the Servicer or the Trustee, as applicable,
will give written notice of termination of the Agreement to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at an office or agency specified in the
notice of termination. If so provided in the related Prospectus Supplement for a
Series, the Depositor or another entity may effect an optional termination of
the Trust under the circumstances described in such related Prospectus
Supplement. See "DESCRIPTION OF THE CERTIFICATES -- Optional Purchase or
Termination" herein.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following discussion contains summaries of certain legal aspects of
credit, charge and debit card receivables which are general in nature. Because
certain of such legal aspects are governed by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete nor to
reflect the laws of any particular state, nor to encompass the laws of all
states in which Receivables originate. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Receivables.
Transfer of Receivables
Each Seller will warrant in the applicable Agreement that the transfer
of the Receivables by it to the Depositor constitutes either a valid transfer
and assignment to the Depositor of all right, title and interest of the Seller
in and to the Receivables free and clear from liens arising from or through the
Seller, except, to the extent specified in the related Prospectus Supplement,
for certain potential tax liens, any interest of the Seller as holder of the
Exchangeable Transferor's Certificate and the Depositor's right to receive
interest and investment earnings (net of losses and investment expenses) in
respect of the Collection Account, or a valid grant to the Depositor of a
security interest in the Receivables. The Seller will also warrant in the
Agreement that, in the event the transfer of the Receivables by the Seller to
the Depositor is deemed to create a security interest under the Uniform
Commercial Code (the "UCC") as in effect in the state in which its principal
office is located, there will exist a valid, subsisting and enforceable first
priority perfected security interest in the Receivables in favor of the
Depositor and a valid, subsisting and enforceable first priority perfected
security interest in the Receivables created thereafter in favor of the
Depositor on and after their creation, except for certain liens as described in
the Agreement.
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The Receivables are generally considered to be "accounts" for purposes
of the UCC. Both the transfer 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 Depositor. Financing statements covering the Receivables will be filed with
the appropriate governmental authority to protect the interest of the Depositor
in the Receivables.
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 Depositor could have an interest
in such Receivables with priority over the Depositor's interest. Under the
Agreement, however, the Seller will warrant that it has transferred the
Receivables to the Depositor free and clear of the lien of any third party,
except for certain tax and other governmental liens. In addition, the Seller
will covenant that, except as permitted by the Agreement, it will not sell,
pledge, assign, transfer or grant any lien on any Receivable (or any interest
therein) other than to the Depositor. A tax or other government lien on property
of the Seller arising prior to the time a Receivable comes into existence may
also have priority over the interest of the Depositor in such Receivable. In
addition, if a Seller is a Bank, if the FDIC were appointed as receiver of the
Bank, certain administrative expenses of the receiver may also have priority
over the interest of the Depositor in such Receivables.
A case recently decided by the United States Court of Appeals for the
Tenth Circuit contains language to the effect that accounts sold by an entity
which subsequently became bankrupt remained property of the debtor's bankruptcy
estate. If a Seller were to become a debtor under the federal bankruptcy code
and a court were to follow the reasoning of the Tenth Circuit,
Certificateholders could experience a delay or reduction in distributions.
Certain Matters Relating to Receivership
It is likely that many of the Sellers to the Depositor will be banking
institutions. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), which became effective August 9, 1989, sets forth certain
powers that the FDIC could exercise if it were appointed as receiver of a Seller
which is a national bank.
Subject to clarification by FDIC regulations or interpretations, it
would appear from the positions taken by the FDIC before the passage of FIRREA
that the FDIC in its capacity as receiver for the Seller would not interfere
with the timely transfer to the Depositor of payments collected on the
Receivables or interfere with the timely liquidation of Receivables as described
below. To the extent that the Seller granted a security interest in the
Receivables to the Depositor, and that interest was validly perfected before the
Seller's insolvency and was not taken or granted in contemplation of insolvency
or with the intent to hinder, delay or defraud the Seller or its creditors, that
security interest should not be subject to avoidance, and payments to the
Depositor with respect to the Receivables should not be subject to recovery by
the FDIC as receiver of the Seller. If, however, the FDIC were to assert a
contrary position, or were to require the Trustee to establish its right to
those payments by submitting to and completing the administrative claims
procedure established under FIRREA, delays in payments on the Certificates of
any Series relating to such Seller outstanding at such time and possible
reductions in the amount of those payments could occur.
Each Agreement as to which a Bank is the Seller will provide that, upon
the appointment of a receiver for the Seller, the Seller will promptly give
notice thereof to the Trustee, and a Liquidation Event will occur. Under the
Agreement, no new Principal Receivables will be transferred to the Trust and,
unless otherwise instructed within a specified period by the holders of
Certificates representing undivided interests aggregating 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) 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. The net proceeds of any such sale will first be treated by the Trustee as
collections on the Finance Charge Receivables, if any. Upon the occurrence of a
Liquidation Event, if a conservator or receiver is appointed for the Seller and
no Liquidation Event other than such conservatorship or receivership or
insolvency
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of the 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 Seller may have the power to cause
early payment of the Certificates.
If the Seller Bank is servicing its Receivables and 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 the
majority in interest of the Certificateholders from effecting a transfer of
servicing to a successor Servicer.
Consumer Protection Laws
The relationship of cardholder and card issuer is extensively regulated
by Federal and state consumer protection laws. The most significant of these
laws include the Federal Truth-in-Lending Act, Equal Credit Opportunity Act,
Fair Credit Reporting Act, Electronic Funds Transfer Act and, to the extent that
the Seller is a bank, the National Bank Act (if such Seller is a national
banking association), as well as the banking statutes of the state in which the
bank is located, and comparable statutes in the states in which cardholders
reside. These statutes impose disclosure requirements when an 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. Newly
adopted Federal legislation requires card issuers to disclose to consumers the
interest rates, annual cardholder fees, grace periods, and balance calculation
methods associated with their accounts. Cardholders are entitled under current
law to have payments and credits applied to the account promptly, to receive
prescribed notices and to have billing errors resolved promptly.
Various proposed laws and amendments to existing laws have been
introduced in Congress and certain state and local legislatures that, if
enacted, would further regulate the credit card industry. Certain such laws
would, among other things, impose a ceiling of the rate at which a financial
institution may assess finance charges on credit card accounts that would be
substantially below the rates of the finance charges currently assessed by most
Sellers on their accounts. A proposed bill of this nature was defeated in the
United States House of Representatives in 1987, and on November 14, 1991, the
United States Senate approved by a vote of 74 to 19 a measure which could have
established, if it were enacted as law, a ceiling on credit card interest rates
of 4% above the rate that the IRS charges on the underpayment of taxes. Such a
law would, in effect, reduce all interest rates on credit cards to 14% per annum
until the IRS calculates the new rate, which is currently done on a quarterly
basis. Although this proposed legislation was not passed by Congress, the issue
of federal regulation of interest rates on credit cards continues to be debated,
and there can be no assurance that such a bill will not become law in the
future. The potential effect of any legislation which limits the amount of
finance charges that may be charged on credit cards could be to reduce the Net
Portfolio Yield of each Series. If such Net Portfolio Yield of a Series is
reduced, a Liquidation Event for such Series may occur, and the Rapid
Amortization Period for such Series would commence.
In October 1991, the United States District Court for the State of
Massachusetts held that Greenwood Trust Company (a federally-insured,
Delaware-chartered bank that issues the Discover credit card) was prohibited by
Massachusetts law from assessing late charges on credit card accounts of
Massachusetts residents. On August 6, 1992, that decision was reversed by the
United States Court of Appeals for the First Circuit, which held that the
Massachusetts law was preempted by federal law permitting the charges in
question. In November 1992, the Commonwealth of Massachusetts petitioned the
United States Supreme Court to accept the case. On January 11, 1993, the U.S.
Supreme Court denied the petition of the Commonwealth to review the decision of
the First Circuit. Since October 1991, a number of lawsuits and administrative
actions have been filed in several states against out-of-state banks (both
federally insured state-chartered banks and federally insured national banks)
which issue cards. These actions challenge various fees and charges (such as
late fees, overlimit fees, returned payment check fees and annual membership
fees) assessed against residents of the states in which such suits were filed,
based on restrictions or prohibitions under such states' laws alleged to be
applicable to the out-of-state card issuers. The California
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Supreme Court in March 1992 refused to review a lower court's determination that
the practice by Wells Fargo Bank of charging its cardholders over-the-limit and
late payment fees violated California laws that require banks to limit such
charges to their costs. Such actions and similar actions which may be brought in
other states as a result of such actions, if resolved adversely to card issuers,
could have the effect of limiting certain charges, other than periodic finance
charges, that could be assessed on accounts of residents of such states and
could require card issuers to pay refunds and civil penalties with respect to
charges previously imposed on cardholders in such states.
The Depositor may be liable for certain violations of consumer
protection laws that apply to the Receivables, either as assignee of the Seller
with respect to obligations arising before transfer of the Receivables to the
Depositor 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 will covenant in the Agreement to accept the transfer of all
Receivables in an Account if any Receivable in such Account has not been created
in compliance with the requirements of such laws.
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.
THE DEPOSITOR
General
The Depositor was incorporated in the State of Delaware on January 29,
1988. As of January 4, 1993, the Depositor is a wholly owned subsidiary of LCPI,
which is a wholly owned subsidiary of Lehman Brothers, a wholly owned subsidiary
of Holdings. The Depositor's principal executive offices are located at Three
World Financial Center, New York, New York 10285. Its telephone number is (212)
526-7000.
The Depositor will not engage in any activities other than to authorize,
issue, sell, deliver, purchase and invest in (and enter into agreements in
connection with), and/or to engage in the establishment of one or more trusts
which will issue and sell, bonds, notes, debt or equity securities, obligations
and other securities and instruments ("Depositor Securities") collateralized or
otherwise secured or backed by, or otherwise representing an interest in, among
other things, receivables or pass-through certificates, or participations or
certificates of participation or beneficial ownership in one or more pools of
receivables, and the proceeds of the foregoing, that arise in connection with
(i) the sale or lease of automobiles, trucks or other motor vehicles, equipment,
merchandise and other personal property, (ii) credit card purchases or cash
advances, (iii) the sale, licensing or other commercial provision of services,
rights, intellectual properties and other intangibles, (iv) trade financings,
(v) loans secured by certain first or junior mortgages on real estate, (vi)
loans to employee stock ownership plans and (vii) all other commercial
transactions and commercial, sovereign, student or consumer loans or
indebtedness and, in connection therewith or otherwise, purchasing, acquiring,
owning, holding, transferring, conveying, servicing, selling, pledging,
assigning, financing and otherwise dealing with such receivables, pass-through
certificates, or participations or certificates of participation or beneficial
ownership. Article Third of the Depositor's Certificate of Incorporation limits
the Depositor's activities to the above activities and certain related
activities, such as Enhancement with respect to such Depositor Securities, and
to any activities incidental to and necessary or convenient for the
accomplishment of such purposes. The Certificate of Incorporation of the
Depositor provides that any Depositor Securities, except for subordinated
Depositor Securities, must be rated in one of the four highest categories by a
nationally recognized rating agency.
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USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds
from the sale of each Series of Certificates offered hereby and by the related
Prospectus Supplement for one or more of the following purposes: (i) to purchase
the related Primary Assets, (ii) to repay indebtedness which has been incurred
to obtain funds to acquire such Primary Assets, (iii) to establish a Pre-Funding
Account for such Series, (iv) to establish any Reserve Funds or Cash Collateral
Accounts described in the related Prospectus Supplement, (v) to provide
enhancement for any other Series or for securities issued by another issuer and
(vi) to pay costs of structuring and issuing such Certificates, including the
costs of obtaining Enhancement, if any. If so specified in the related
Prospectus Supplement, the purchase of the Primary Assets for a Series may be
effected by an exchange of Certificates with the Seller of such Primary Assets.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Set forth below is a discussion of certain U.S. federal income tax
consequences of the purchase, ownership and disposition of the Securities. This
discussion does not purport to deal with all aspects of federal income taxation
that may be relevant to holders of the Securities in light of their personal
investment circumstances, nor to certain types of holders subject to special
treatment under the U.S. federal income tax laws (for example, banks, life
insurance companies and tax-exempt organizations). Prospective investors are
advised to consult their own tax advisors with regard to the U.S. federal income
tax consequences of holding and disposing of the Securities, as well as the tax
consequences arising under the laws of any state, foreign country or other
jurisdiction. This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Internal Revenue Service (the "IRS").
The Securities of a Series may be classified for U.S. federal income tax
purposes as (i) indebtedness, (ii) an ownership interest in some or all of the
assets included in the Trust for a Series, or (iii) otherwise specified in the
Prospectus Supplement for a Series.
Treatment of the Notes as Indebtedness
The Seller will agree, and the Noteholders will agree by their purchase
of Notes, to treat the Notes as debt for federal income tax purposes. If so
specified in the Prospectus Supplement for a Series, Tax Counsel will advise the
Trust that the Notes of a Series will be classified as debt for federal income
tax purposes. The discussion below assumes this characterization of the Notes is
correct. If, contrary to the opinion of Special Tax Counsel, the IRS
successfully asserted that one or more of the Notes did not represent debt for
federal income tax purposes, the Notes might be treated as equity interests in
the Trust. If so treated, the Trust might be taxable as a corporation or,
alternatively, as a publicly traded partnership.
Taxation of Debt Securities
Interest Income to Securityholders. Assuming the Securities are debt
obligations for U.S. federal income tax purposes, interest thereon will be
taxable as ordinary income for U.S. federal income tax purposes when received by
Securityholders utilizing the cash basis method of accounting and when accrued
by Securityholders utilizing the accrual method of accounting. Interest received
on the Securities may also constitute "investment income" for purposes of
certain limitations of the Code concerning the deductibility of investment
interest expense. In addition, a Securityholder who buys a Security for less
than its principal amount (assuming the Security is issued without OID) will be
subject to the "market discount" rules of the Code, and a Securityholder who
buys a Security for more than its principal amount will be subject to the
premium amortization rules of the Code. See "Original
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Issue Discount" below for a description of the U.S. federal income tax
consequences if the Securities are issued with OID.
The Trustee will be required to report annually to the IRS, and to each
Securityholder of record, the amount of interest paid (and OID accrued, if any)
on the Securities (and the amount of interest withheld for U.S. federal income
taxes, if any) for each calendar year, except as to exempt holders. See "Backup
Withholding" herein.
The Code currently provides for a top marginal tax rate applicable to
ordinary income of individuals of 39.6% while maintaining a maximum marginal
rate for the long-term capital gains of individuals of 28%.
Original Issue Discount. The following summary is a general discussion
of the United States federal income tax consequences to Securityholders who are
United States persons owning Securities issued with original issue discount
("OID Securities" and "OID", respectively). It is based upon income tax
regulations (the "OID Regulations") finalized on January 27, 1994 under Code
Sections 1271 through 1273 and 1275.
In general, the OID with respect to any OID Security will equal the
difference between the principal amount of the Security and its issue price
(defined as the initial offering price to the public at which price a
substantial amount of the OID Securities have been sold), if such excess is
0.25% or more of the OID Security's principal amount multiplied by the number of
complete years to its maturity (the "de minimis amount"). Even if such excess is
less than the de minimis amount, if a failure to pay interest currently on the
Securities is not a default it is possible that all stated interest could be
treated as principal for this purpose (and for purposes of the computations
described below) with the result that the Securities could be viewed as OID
Securities. Holders of OID Securities must include OID in income for United
States federal income tax purposes as it accrues under a method that takes
account of the compounding of interest, in advance of receipt of the related
cash payments.
In general, each Securityholder of an OID Security, whether such
Securityholder uses the cash or accrual method of accounting for tax purposes,
will be required to include in ordinary gross income the sum of the "daily
portions" of OID on the Security for each day during the taxable year that the
Securityholder owns the Security. The daily portion of OID on an OID Security is
determined by allocating to each day in any "accrual period" a ratable portion
of the original issue discount allocable to that accrual period. In the case of
an initial Securityholder, the amount of original issue discount on an OID
Security allocable to each accrual period is determined by (i) multiplying the
"adjusted issue price" (as defined below) of the Security by a fraction, the
numerator of which is the annual yield to maturity of such Security and the
denominator of which is the number of accrual periods in a year, and (ii)
subtracting from the product the amount of interest paid during that accrual
period. The "adjusted issue price" of an OID Security at the beginning of any
accrual period will be the sum of its issue price and the amount of OID
allocable to all prior accrual periods, minus the amount of all payments (other
than payments of qualified stated interest) previously made with respect to the
OID Security. As a result of such "constant yield" method of including OID
income, the amounts so includible in income are lower in the early years and
greater in the later years than the amounts that would be includible on a
straightline basis.
In the event that a Securityholder purchases an OID Security at an
"acquisition premium," i.e., at a price in excess of the issue price, plus the
OID accrued prior to acquisition and minus any principal payments made with
respect to the OID Security prior to acquisition, the amount includible in
income in each taxable year as OID will be reduced by that portion of the
premium properly allocable to such year. Moreover, a Securityholder who
purchases an OID Security at a price less than the price described in the
preceding sentence will be subject to the market discount rules of the Code.
A Securityholder's tax basis in an OID Security generally will be the
Securityholder's cost increased by any OID included in income (and market
discount, if any, if the Securityholder has elected to include accrued market
discount in income on a current basis) and decreased by the amount of any
principal payment received with respect to the OID Security. Gain or loss on the
sale, exchange or redemption of an OID Security generally will
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be long-term capital gain or loss if the OID Security has been held for more
than a year except to the extent that such gain represents accrued market
discount not previously included in the Securityholder's income.
If an Early Amortization Event or Asset Composition Event occurs, the
early payments of principal as a result of either such event could result in
acceleration of income corresponding to a portion of the unaccrued OID.
Effects of Defaults and Delinquencies. Holders of Securities that are
treated as Debt Securities for U.S. federal income tax purposes will be required
to report income with respect to such Securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the Primary Assets, except possibly to the extent that
it can be established that such amounts are uncollectible. As a result, the
amount of income (including OID) reported by a holder of such a Security in any
period could significantly exceed the amount of cash distributed to such holder
in that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is reduced as a result of a Primary Asset
default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, holders of Securities should consult
their own tax advisors on this point.
Sale or Exchange. A Securityholder's tax basis in its Security is the
price such holder pays for a Security, plus amounts of original issue or market
discount included in income and reduced by any payments received (other than
qualified stated interest payments) and any amortized premium. Gain or loss
recognized on a sale, exchange, or redemption of a Security, measured by the
difference between the amount realized and the Security's basis as so adjusted,
will generally be a capital gain or loss, assuming that the Security is held as
a capital asset.
A portion of any gain from the sale of a Security that might otherwise
be capital gain may be treated as ordinary income to the extent such Security is
held as part of a "conversion transaction" within the meaning of new Section
1258 of the Code. A conversion transaction generally is one in which the
taxpayer has taken two or more positions in Securities or similar property that
reduce or eliminate market risk, if substantially all of the taxpayer's return
is attributable to the time value of the taxpayer's net investment in such
transaction. The amount of gain realized in a conversion transaction that may be
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment in such
transaction at 120% of the appropriate "applicable Federal rate" (which rate is
computed and published monthly by the IRS), subject to appropriate reduction (to
the extent provided in regulations to be issued) to reflect prior inclusion of
interest or other ordinary income items from the transaction.
Foreign Investors. If so specified in the Prospectus Supplement for a
Series, Tax Counsel will give its opinion that the Securities of a Series of
Securities will properly be classified as debt for U.S. federal income tax
purposes. If the Securities are treated as debt:
(a) interest paid to a nonresident alien or foreign corporation
or partnership would be exempt from U.S. withholding taxes (including
backup withholding taxes), provided the holder complies with applicable
identification requirements (and does not actually or constructively own
10% or more of the voting stock of the Depositor and is not a controlled
foreign corporation with respect to the Depositor). Applicable
identification requirements will be satisfied if there is delivered to a
securities clearing organization (or bank or other financial institution
that holds the Securities on behalf of the customer in the ordinary
course of its trade or business) (i) IRS Form W-8 signed under penalties
of perjury by the beneficial owner of such Securities stating that the
holder is not a U.S. Person and providing such holder's name and
address, (ii) IRS Form 1001 signed by the beneficial owner of such
Securities or such owner's agent claiming exemption from withholding
under an applicable tax treaty, or (iii) IRS Form 4224 signed by the
beneficial owner of such Securities of such owner's agent claiming
exemption from withholding of tax on income connected with the conduct
of a trade or business in the United States; provided in any such case
(x) the applicable form is delivered pursuant to applicable procedures
and is properly transmitted to
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the United States entity otherwise required to withhold tax and (y) none
of the entities receiving the form has actual knowledge that the holder
is a U.S. person or that any certification on the form is false;
(b) a holder of a Security who is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on
gain realized on the sale, exchange or redemption of such Security,
provided that (i) such gain is not effectively connected to a trade or
business carried on by the holder in the United States, (ii) in the case
of a holder that is an individual, such holder is not present in the
United States for 183 days or more during the taxable year in which such
sale, exchange or redemption occurs and (iii) in the case of gain
representing accrued interest, the conditions described in clause (a)
are satisfied; and
(c) a Security held by an individual who at the time of death is
a nonresident alien will not be subject to United States federal estate
tax as a result of such individual's death if, immediately before his
death, (i) the individual did not actually or constructively own 10% or
more of the voting stock of the Depositor and (ii) the holding of such
Security was not effectively connected with the conduct by the decedent
of a trade or business in the United States.
Interest and OID of Securityholders who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the Securityholder. They will, however, generally be
subject to the regular United States income tax.
If the IRS were to contend successfully that a Series of Securities are
interests in a partnership (not taxable as a corporation), a Securityholder that
is a nonresident alien or foreign corporation might be required to file a U.S.
individual or corporate income tax return and pay tax on its share of
partnership income at regular U.S. rates, including, in the case of a
corporation, the branch profits tax (and would be subject to withholding tax on
its share of partnership income). If the Securities are recharacterized as
interests in an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation, to the extent distributions on the
Securities were treated as dividends, a nonresident alien individual or foreign
corporation would generally be taxed on the gross amount of such dividends (and
subject to withholding) at a rate of 30% unless such rate were reduced by an
applicable treaty.
Backup Withholding. A Securityholder may, under certain circumstances,
be subject to "backup withholding" at a rate of 31% with respect to
distributions or the proceeds of a sale of Securities to or through brokers that
represent interest or OID on the Securities. This withholding generally applies
if the holder of a Security (i) fails to furnish the Trustee with its taxpayer
identification number ("TIN"); (ii) furnishes the Trustee an incorrect TIN;
(iii) fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or (iv) under certain circumstances, fails to
provide the Trustee or such holder's securities broker with a certified
statement, signed under penalty of perjury, that the TIN provided is its correct
number and that the holder is not subject to backup withholding. Backup
withholding will not apply, however, with respect to certain payments made to
Securityholders, including payments to certain exempt recipients (generally,
holders that are corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts, individual retirement accounts, or nonresident aliens who
provide certification as to their status as nonresidents) and to certain
Nonresidents (as defined below). Each nonexempt Securityholder will be required
to provide, under penalties of perjury, a certificate on IRS Form W-9 containing
such holder's name, address, federal taxpayer identification number and a
statement that such holder is not subject to backup withholding. Should a
nonexempt Securityholder fail to provide the required certification, the Trustee
will be required to withhold (or cause to be withheld) 31% of the interest (and
principal) otherwise payable to the holder, and remit the withheld amounts to
the IRS as credit against the holder's federal income tax liability. Holders of
the Securities should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining the exemption.
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The Trustee will report to the Securityholders and to the Servicer for
each calendar year the amount of any "reportable payments" during such year and
the amount of tax withheld, if any, with respect to payments on the Securities.
The Trustee will furnish or make available, within a reasonable time after the
end of each calendar year, to each Securityholder or each person holding a
Security on behalf of a Securityholder at any time during such year, such
information as the Trustee deems necessary or desirable to assist
Securityholders in preparing their federal income tax returns.
Tax Status as a Grantor Trust
General. If specified in the related Prospectus Supplement, in the
opinion of Brown & Wood LLP, special counsel to the Depositor, the Trust Fund
relating to a Series of Certificates will be classified for U.S. federal income
tax purposes as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code and not as an association taxable as a corporation (the Certificates of
such Series, "Pass-Through Securities"). In some Series there will be no
separation of the principal and interest payments on the Securities. In such
circumstances, a Certificateholder will be considered to have purchased a pro
rata undivided interest in the Securities. In other cases ("Stripped
Securities"), sale of the Certificates will produce a separation in the
ownership of all or a portion of the principal payments from all or a portion of
the interest payments on the Securities.
Each Certificateholder must report on its U.S. federal income tax return
its share of the gross income derived from the Securities (not reduced by the
amount payable as fees to the Trustee and the Servicer and similar fees
(collectively, the "Servicing Fee")), at the same time and in the same manner as
such items would have been reported under the Certificateholder's tax accounting
method had it held its interest in the Securities directly, received directly
its share of the amounts received with respect to the Securities, and paid
directly its share of the servicing fees. In the case of Pass-Through Securities
other than Stripped Securities, such income will consist of a pro rata share of
all of the income derived from all of the Securities and, in the case of
Stripped Securities, such income will consist of a pro rata share of the income
derived from each stripped bond or stripped coupon in which the
Certificateholder owns an interest. The Certificateholder will generally be
entitled to deduct servicing fees under Section 162 or Section 212 of the Code
to the extent that such servicing fees represent "reasonable" compensation for
the services rendered by the Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
holder, however, servicing fees (to the extent not otherwise disallowed, e.g.,
because they exceed reasonable compensation) will be deductible in computing
such holder's regular tax liability only to the extent that such fees, when
added to other miscellaneous itemized deductions, exceed 2% of adjusted gross
income and may not be deductible to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year.
The Code currently provides for a top marginal tax rate applicable to
ordinary income of individuals of 39.6% while maintaining a maximum marginal
rate for the long-term capital gains of Individuals of 28%.
Discount or Premium on Pass-Through Securities. Discount on a
Pass-Through Security represents OID or market discount. In the case of a CABS
Security with OID in excess of a prescribed de minimis amount or a Stripped
Security, a holder of a Certificate will be required to report as interest
income in each taxable year its share of the amount of OID that accrues during
the year.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on a CABS Security (a "Stripped
Coupon"), a right to receive only principal payments on a CABS Security or a
right to receive certain payments of both interest and principal (a "Stripped
Bond"). Pursuant to Section 1286 of the Code, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments results
in the creation
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of "stripped bonds" with respect to principal payments and "stripped coupons"
with respect to interest payments. Section 1286 of the Code applies the OID
rules to stripped bonds and stripped coupons. For purposes of computing OID, a
Stripped Bond or a Stripped Coupon is treated as a debt instrument issued on the
date that such stripped interest is purchased with an issue price equal to its
purchase price or, if more than one stripped interest is purchased, the ratable
share of the purchase price allocable to such stripped interest.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and OID rules are to apply to Stripped
Securities. Although the tax treatment of Stripped Securities is not entirely
clear, based on recent guidance by the Internal Revenue Service (the "IRS"), a
Stripped Bond Certificate generally should be treated as a single debt
instrument issued on the day it is purchased for purposes of calculating any
OID. Generally, under Treasury regulations issued on December 28, 1992 (the
"Section 1286 Treasury Regulations"), if the discount on a Stripped Bond
Certificate is larger than a de minimis amount (as calculated for purposes of
the OID rules of the Code) such Stripped Bond Certificate will be considered to
have been issued with OID. Based on the preamble to the Section 1286 Treasury
Regulations, it appears that stated interest on a Stripped Bond Certificate will
be treated as "qualified stated interest" within the meaning of the Section 1286
Treasury Regulations and such income will be so treated in the Trustee's tax
information reporting.
Under the foregoing rules, it is anticipated that Stripped Bond
Certificates will be considered to be issued with de minimis OID, which will
therefore be considered to be zero and Stripped Coupon Certificates will be
issued with OID. If Stripped Bond Certificates are issued with OID, the rules
described in this paragraph would apply. Generally, the owner of a Stripped
Security issued or acquired with OID must include in gross income the sum of the
"daily portions," as defined below, of the OID on such Stripped Security for
each day on which it owns a Stripped Security, including the date of purchase
but excluding the date of disposition. In the case of an original Stripped
Security holder, the daily portions of OID with respect to a Stripped Security
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the Stripped Security during each successive
monthly accrual period (or shorter period in respect of the date of original
issue or the final Distribution Date) that ends on the earlier to occur of the
day in the calendar year corresponding to each Distribution Date or the last day
of the related accrual period. This will be done, in the case of each full
monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Stripped Security and (ii) any payments received
during such accrual period, and subtracting from that total the "adjusted issued
price" of the Stripped Security at the beginning of such accrual period. The
"adjusted issue price" of a Stripped Security at the beginning of the first
accrual period is its issue price (as determined for purposes of the original
issue discount rules of the Code) and the "adjusted issue price" of a Stripped
Security at the beginning of a subsequent accrual period is the "adjusted issued
price" at the beginning of the immediately preceding accrual period plus the
amount of OID allocable to that accrual period and reduced by the amount of any
payment made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to an appropriate
allocation under either an exact or approximate method set forth in proposed
Treasury regulations with respect to OID, or some other reasonable method,
provided that such method is consistent with the method used to determine the
yield to maturity of the Stripped Security.
Sale or Exchange. A Certificateholder's tax basis in its Certificate is
the price such holder pays for a Certificate, plus amounts of original issue or
market discount included in income and reduced by any payments received (other
than qualified stated interest payments) and any amortized premium.
Gain or loss recognized on a sale, exchange, or redemption of a
Certificate, measured by the difference between the amount realized and the
Certificate's basis as so adjusted, will generally be capital gain or loss,
assuming that the Certificate is held as a capital asset. Gain or loss from the
sale of a Grantor Trust Certificate that might otherwise be capital gain may be
treated as ordinary income to the extent such Certificate is held as part of a
"conversion transaction" within the meaning of new Section 1258 of the Code. A
conversion transaction generally
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is one in which the taxpayer has taken two or more positions in Certificates or
similar property that reduce or eliminate market risk, if substantially all of
the taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain realized in a conversion
transaction that may be recharacterized as ordinary income generally will not
exceed the amount of interest that would have accrued on the taxpayer's net
investment in such transaction at 120% of the appropriate "applicable Federal
rate" (which rate is computed and published monthly by the IRS), subject to
appropriate reduction (to the extent provided in regulations to be issued) to
reflect prior inclusion of interest or other ordinary income items from the
transaction.
Foreign Investors. Under the Code, unless interest (including OID) paid
on a Certificate is considered to be "effectively connected" with a trade or
business conducted in the United States by a nonresident alien individual,
foreign partnership or foreign corporation ("Nonresidents"), such interest will
normally qualify as portfolio interest (except where (i) the recipient is a
holder, directly or by attribution, of 10% or more of the capital or profits
interest in the issuer of the Securities, or (ii) the recipient is a controlled
foreign corporation to which the issuer of the Securities is a related person)
and will be exempt from U.S. federal income tax. Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodic income paid to Nonresidents.
Holders of Pass-Through Securities and Stripped Securities, however, may be
subject to withholding to the extent that the Securities were originated on or
before July 18, 1984.
Interest and original issue discount of Certificateholders who are
foreign persons are not subject to withholding if they are effectively connected
with a United States business conducted by the Certificateholder. They will,
however, generally be subject to the regular United States income tax.
STATE TAX CONSIDERATIONS
In addition to the U.S. federal income tax consequences described in
"Certain Federal Income Tax Considerations," potential investors should consider
the state income tax consequences of the acquisition, ownership and disposition
of the Securities. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various state tax
consequences of an investment in the Securities.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans ("Plans")
subject to ERISA and persons who have certain specified relationships to such
Plans ("Parties in Interest"). ERISA also imposes certain duties on persons who
are fiduciaries of Plans subject to ERISA and prohibits certain transactions
between a Plan and Parties in Interest with respect to such Plans ("Prohibited
Transactions"). Under ERISA, any person who exercises any authority or control
respecting the management or disposition of the assets of a Plan is considered
to be a fiduciary of such Plan (subject to certain exceptions not here
relevant). Similar restrictions also apply to Plans that are subject to the
Code.
PLAN OF DISTRIBUTION
The Depositor may offer each Series of Certificates or Notes through
Lehman Brothers or one or more other firms that may be designated at the time of
each offering of such Certificates of Notes. The participation of Lehman
Brothers in any offering will comply with Schedule E to the By-Laws of the
National Association of
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Securities Dealers, Inc. The Prospectus Supplement relating to each Series of
Certificates or Notes will set forth the specific terms of the offering of such
Series of Certificates or Notes and of each Class within such Series, the names
of the underwriters, the purchase price of the Certificates or Notes, the
proceeds to the Depositor from such sale, any securities exchange on which the
Certificates or Notes may be listed, and, if applicable, the initial public
offering prices, the discounts and commissions to the underwriters and any
discounts and concessions allowed or reallowed to certain dealers. The place and
time of delivery of each Series of Certificates or Notes will also be set forth
in the Prospectus Supplement relating to such Series.
LEGAL MATTERS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters in connection with the Certificates and the Notes will be passed
upon for the Depositor and for the underwriters by Brown & Wood LLP, New York,
New York.
ADDITIONAL INFORMATION
The Prospectus does not contain all the information set forth in the
Registration Statement (of which this Prospectus is a part) and exhibits
relating thereto which the Depositor has filed with the Commission in
Washington, D.C. Copies of the information and the exhibits are on file at the
offices of the Commission and may be obtained, upon payment of the fee
prescribed by the Commission, or may be examined without charge at the offices
of the Commission.
Neither Lehman Brothers Inc. nor any of its affiliates, including the
Depositor, are obligated with respect to the Certificates or the Notes.
Accordingly, the Depositor has determined that financial statements of Lehman
Brothers and its affiliates including the Depositor are not material to the
offering made hereby.
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GLOSSARY OF TERMS
The following are abbreviated definitions of certain capitalized terms
used in this Prospectus. Unless otherwise provided in a "Supplemental Glossary"
in the Prospectus Supplement for a Series, such definitions shall apply to
capitalized terms used in such Prospectus Supplement. The definitions may vary
from those in the related Agreement for a Series and the related Agreement for a
Series generally provides a more complete definition of certain of the terms.
Reference should be made to the related Agreement for a Series for a more
complete definition of such terms.
"Accrual Termination Date" means, with respect to a Class of Compound
Interest Certificates, the Payment Date specified in the related Prospectus
Supplement.
"Accounts" means with respect to the Primary Assets of a Series,
portfolios of revolving credit, charge and debit card accounts.
"Advance" means a cash advance by the Servicer in respect of delinquent
payments of principal of and interest on an Account, and for any other purposes
specified in the related Prospectus Supplement.
"Agreement" means a Master Pooling and Servicing Agreement, Pooling and
Servicing Agreement, Sale and Servicing Agreement or Trust Agreement entered
into among the Seller, the Servicer, the Depositor and the Trustee with respect
to the issuance of a CABS Security.
"Asset Group" means, with respect to the Primary Assets of a Series, a
group of such Primary Assets having the characteristics described in the related
Prospectus Supplement.
"Asset Value" means, for any Primary Asset, the amount set forth in or
determined in accordance with the related Prospectus Supplement.
"Assumed Reinvestment Rate" means, with respect to a Series, the per
annum rate or rates specified in the related Prospectus Supplement for a
particular period or periods as the "Assumed Reinvestment Rate" for funds held
in any fund or account for the Series.
"Bankruptcy Code" means the federal bankruptcy code, Title 11 United
States Code Section 101 et seq., and related rules and regulations promulgated
thereunder.
"Business Day" means a day that, in the City of New York or in the city
or cities in which the corporate trust office of the Trustee are located, is
neither a legal holiday nor a day on which banking institutions are authorized
or obligated by law, regulations or executive order to be closed.
"CABS Agreement" means a Pooling and Servicing Agreement, a Master
Pooling and Servicing Agreement, a Sale and Servicing Agreement, a Trust
Agreement or similar agreement.
"CABS Issuer" means the issuer or issuers of the CABS.
"CABS" or "CABS Security" means a certificate evidencing an undivided
interest in, or a note or loan secured by Receivables generated in Accounts.
CABS or CABS Security may also include a certificate evidencing an undivided
interest in, or a note or a loan secured by CABS.
"CABS Servicer" means the servicer or servicers of the CABS.
"CABS Trustee" means the trustee or trustees of the Securities.
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"Cash Collateral Guaranty" means the guaranty that provides support for
a Series or one or more Classes of a Series if so specified in the related
Prospectus Supplement.
"Cash Collateral Account" see "Reserve Fund."
"Cedel" means Cedel Bank, societe anonyme.
"Cedel Participants" means Cedel's participating organizations.
"Certificateholder" means a holder of a Certificate.
"Certificates" means the Asset Backed Certificates.
"Certificate Schedule" means a schedule appearing as an exhibit to the
related Agreement identifying each CABS Security.
"Citibank" means Citibank, N.A.
"Class" means a Class of Certificates or Notes of a Series.
"Closing Date" means, with respect to a Series, the date specified in
the related Prospectus Supplement as the date on which Certificates of such
Series are first issued.
"Code" means the Internal Revenue Code of 1986, as amended, and
regulations (including proposed regulations) or other pronouncements of the
Internal Revenue Service promulgated thereunder.
"Collection Account" means, with respect to a Series, the account
established with the Trustee or the Servicer in the name of the Trustee for the
deposit by the Servicer of payments received from the Primary Assets.
"Commission" means the Securities and Exchange Commission.
"Compound Interest Certificate" means any Certificate of a Series on
which all or a portion of the interest accrued thereon is added to the principal
balance of such Certificate on each Payment Date, through the Accrual
Termination Date, and with respect to which no interest shall be payable until
such Accrual Termination Date, after which interest payments will be made on the
Compound Value thereof.
"Compound Value" means, with respect to a Class of Compound Interest
Certificates, the original principal balance of such Class, plus all accrued and
unpaid interest, if any, previously added to the principal balance thereof and
reduced by any payments of principal previously made on such Class of Compound
Interest Certificates.
"Cooperative" means Euroclear Clearance System S.C., a Belgian
cooperative corporation.
"Cut-off Date" means the date designated as such in the related
Prospectus Supplement for a Series.
"Debt Securities" means Certificates or Notes characterized as
indebtedness for federal income tax purposes.
"Definitive Certificates" means Certificates of any Series issued in
fully registered, certificated form.
"Deleted Primary Asset" means a Primary Asset removed from the Trust.
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"de minimis amount" is equal to .25% or more of the OID Certificate's
principal amount multiplied by the number of complete years to its maturity.
"Depositor" means Lehman ABS Corporation.
"Depositor Securities" means Depositor's bonds, notes, debt or equity
securities, obligations and other securities and instruments.
"Disqualified Organization" means the United States, any State or
political subdivision thereof, any possession of the United States, any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, a rural electric or telephone cooperative described in
section 1381 (a)(2)(C) of the Code, or any entity exempt from the tax imposed by
sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income.
"Distribution Account" means, with respect to a Series, the account
established in the name of the Trustee for the deposit of remittances received
from the Servicer with respect to the Primary Assets.
"DTC" means The Depository Trust Company.
"Due Date" means each date, as specified in the related Prospectus
Supplement for a Series, on which any payment of principal or interest is due
and payable by the obligor on any Primary Asset pursuant to the terms thereof.
"Eligible Investments" means any one or more of the obligations or
securities described as such in the related Agreement.
"Eligible Servicer" means the Trustee or an entity which, at the time of
its appointment as Servicer, (i) is an established financial institution having
capital or a net worth of not less than $100,000,000, (ii) is servicing a
portfolio of consumer credit card or charge card accounts, (iii) is legally
qualified and has the capacity to service the Accounts, (iv) has demonstrated
the ability to professionally and completely service a portfolio of similar
accounts in accordance with standards of skill and care customary in the
industry and (v) is qualified to use the software that is then currently being
used to service the Accounts or obtains the right to use or has its own software
which is adequate to perform its duties under the Agreement.
"Enhancement" means the Enhancement for a Series, if any, specified in
the related Prospectus Supplement.
"Enhancer" means the provider of the Enhancement for a Series specified
in the related Prospectus Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" or "Euroclear Operator" means Morgan Guaranty Trust Company
of New York, Brussels, Belgium office.
"Euroclear Participants" means participants of the Euroclear system.
"Final Scheduled Payment Date" means, with respect to a Class of a
Series of Certificates, the date after which no Certificates of such Class will
remain outstanding based on the assumptions set forth in the related Prospectus
Supplement.
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"Finance Charge Receivables" means all periodic finance charges, annual
membership fees, cash advance fees and late charges on amounts charged for
merchandise and services and certain other fees designated in the related
Prospectus Supplement.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1987.
"Global Securities" means the globally offered Certificates.
"Holders" or "holders" means holders of any Certificates or any Notes.
"Holdings" means Lehman Brothers Holdings Inc.
"Indirect Participants" consist of banks, brokers, dealers and trust
companies that clear through or maintain a custodian relationship with a
Participant either directly or indirectly.
"Initial Accounts" means Receivables existing on the Cut-Off Date in
certain consumer, corporate, revolving credit card, charge card or debit card
accounts.
"Interest Only Certificates" means a Class of Certificates entitled
solely or primarily to distributions of interest and which is identified as such
in the related Prospectus Supplement.
"IRS" means the Internal Revenue Service.
"Issuer" means, with respect to Securities, the issuer, depositor or
seller/servicer under an Agreement.
"Investor Interest" means a specific undivided interest in the assets of
the Trust allocated to the Certificates.
"IRS" means the Internal Revenue Service.
"L/C Bank" means the issuer of the letter of credit.
"LCPI" means Lehman Commercial Paper Inc.
"Lehman Brothers" means Lehman Brothers Inc.
"Liquidation Proceeds" means all amounts received by the Servicer in
connection with the liquidation of Primary Assets other than amounts required to
be paid or refunded to the obligor pursuant to the terms of the applicable
documents or otherwise pursuant to law.
"Mastercard International" means Mastercard International Incorporated.
"Modification" means a change in any term of a Receivable.
"Morgan" means Morgan Guaranty Trust Company of New York.
"1986 Act" means the Tax Reform Act of 1986.
"1992 Form 10-K" means the Annual Report on Form 10-K for the fiscal
year ended December 31, 1992.
"Nonresidents" means a nonresident alien individual, foreign partnership
or foreign corporation.
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"Notional Amount" means the amount set forth in the related Prospectus
Supplement for a Class of Interest Only Certificates used solely for convenience
in expressing the calculation of interest and does not represent the right to
receive distributions allocable to principal.
"OID" means original issue discount.
"OID Securities" means Securities issued with OID.
"Participants" means organizations participating in the Prospectus
Supplement.
"Participating Certificates" means Certificates entitled to receive
payments of principal and interest and an additional return on investment as
described in the related Prospectus Supplement.
"Participations" means participations representing undivided interests
in a pool of assets primarily consisting of revolving charge card accounts or
other revolving credit accounts owned by the Depositor or any affiliate thereof
and collections thereon.
"Parties in Interest" means persons who have certain specified
relationships to such plans.
"Pass-Through Securities" means classified certificates of a grantor
trust under Subpart E, Part 1 of Subchapter J of the Code.
"Paying Agent" means the Trustee, or its successor in such capacity.
"Payment Date" means, with respect to a Series or Class of Certificates,
each date specified as a distribution date for such Series or Class in the
related Prospectus Supplement.
"Payments" means the payments of principal and finance charges to be
made by obligors on Securities or by Cardholders.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization, or government or any agency or political
subdivision thereof.
"Plans" means employee benefit plans.
"Pooling and Servicing Agreement" means the pooling and servicing
agreement relating to a Series of Certificates among the Depositor, the Servicer
and the Trustee.
"Pre-Funding Account" means the Pre-Funding Account which may be deemed
necessary by a Prospectus Supplement.
"Pre-Funded Amount" means the amount on deposit in the Pre-Funded
Account.
"Primary Assets" means one or more pools of Receivables arising under
Accounts purchased from the Seller specified in the related Prospectus
Supplement and Securities which are included in the Trust Fund for such Series.
A Primary Asset refers to a specific Receivable or CABS Security, as the case
may be.
"Principal Balance" means, with respect to a Primary Asset and as of a
Due Date, the original principal amount of the Primary Asset, plus the amount of
any Deferred Interest added to such principal amount, reduced by (i) all
payments, both scheduled or otherwise, received on such Primary Asset prior to
such Due Date and
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applied to principal in accordance with the terms of the Primary Asset, (ii) the
principal portion of the purchase price of any Primary Asset removed from the
Trust Fund and (iii) the principal portion of any liquidation proceeds.
"Principal Only Certificates" means a Class of Certificates entitled
solely or primarily to distributions of Principal and identified as such in the
Prospectus Supplement.
"Principal Receivables" means all amounts charged by cardholders for
merchandise and services, amounts advanced and certain other fees billed to
cardholders on the Accounts.
"Prohibited Transactions" means certain transactions between a Plan and
Parties in Interest with respect to such Plans prohibited by ERISA.
"Proposed OID Regulations" means proposed income tax regulations.
"Qualifying Substitute Primary Asset" means Primary Assets substituted
for a Deleted Primary Asset.
"Rating Agency" means the nationally recognized statistical rating
organization (or organizations) which was (or were) requested by the Depositor
to rate the Certificates upon the original issuance thereof.
"Receivables" may consist of, with respect to the Primary Series,
consumer, corporate, revolving credit card, charge card or debit card
receivables.
"Removed Account" means receivables removed from certain Accounts from
the Trust.
"Reserve Fund" means, with respect to a Series, any Reserve Fund
established pursuant to the Pooling and Servicing Agreement.
"Revolving Period" means the period during which Primary Assets will be
continuously purchased and no principal will be paid to the Certificateholders.
"Sale and Servicing Agreement" means, in the case of a Series in which
Receivables are serviced by the Seller, the agreement among the Depositor, the
Seller and the Trustee for the sale and servicing of the Mortgage Loans.
"Section 1286 Treasury Regulations" means Treasury Regulations issued on
December 28, 1992.
"Securityholder" means a holder of a Security.
"Senior Securityholder" means a holder of a Senior Security.
"Senior Securities" means a Class of Securities as to which the holders"
rights to receive distributions of principal and interest are senior to the
rights of holders of Subordinated Securities, to the extent specified in the
related Prospectus Supplement.
"Series" means a separate series of Certificates or Notes sold pursuant
to this Prospectus and the related Prospectus Supplement.
"Servicer" means, with respect to a Series secured by Receivables, the
Person, if any, designated in the related Prospectus Supplement to service
Receivables for that Series, or the successors or assigns of such Person.
"Servicing Agreement" means, in the case of a Series which includes
Receivables not serviced by the Seller, the agreement among the Depositor, the
Trustee and the Servicer for the servicing of such Receivables.
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"Servicing Fee" means the amount payable as fees to the Trustee and the
Servicer.
"Spread Account" means an Account which supports a Series or one or more
Classes of Series by assuring the subsequent distribution of interest or
principal on the Certificates of such Class or Series.
"Stripped Coupon" means a right to receive only a portion of the
interest payments on a CABS Security.
"Stripped Securities" means Certificates whose sale produces a
separation in the ownership of all or a portion of the principal payments from
all or a portion of the interest payments on the Securities.
"Subordinated Securityholder" means a holder of a Subordinated Security.
"Subordinated Securities" means a Class of Securities as to which the
rights of holders to receive distributions of principal, interest or both is
subordinated to the rights of holders of Senior Securities, and may be allocated
losses and shortfalls prior to the allocation thereof to other Classes of
Securities, to the extent and under the circumstances specified in the related
Prospectus Supplement.
"Subsequent Receivables" means additional receivables which the related
Trust may be required to purchase.
"Subsequent Transfer Date" means the transfer dates on which Subsequent
Receivables will be sold from time to time during the Funding Period.
"Terms and Conditions" means Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System.
"Trust" means, with respect to any Series of Certificates, all money,
instruments, securities and other property, including all proceeds thereof,
which are held for the benefit of the Certificateholders by the Trustee under
the Agreement, including, without limitation, the Primary Assets, all amounts in
the Distribution Account, Collection Account or Reserve Funds, distributions on
the Primary Assets (net of servicing fees, if any), and reinvestment earnings on
such net distributions and any Enhancement and all other property and interests
held by the Trustee pursuant to the Trust Agreement for such Series.
"Trustee" means the trustee under an Agreement and its successors.
"UCC" means the Uniform Commercial Code.
"Variable Interest Certificate" means a Certificate on which interest
accrues at a rate that is adjusted, based upon a predetermined index, at fixed
periodic intervals, all as set forth in the related Prospectus Supplement.
"VISA" means VISA U.S.A., Inc.
"Zero Coupon Certificate" means a Certificate entitling the holder to
receive only payments of principal as specified in the related Prospectus
Supplement.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT
AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Certificates (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
any of 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 Global Securities will be effected on a
delivery-against-payment basis through Citibank, N.A. ("Citibank") and Morgan
Guaranty Trust Company of New York ("Morgan") as the respective depositaries of
CEDEL and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S.
withholding taxes, provided that such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors" interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, Citibank and Morgan, which in turn will hold such positions in
accounts as participants of DTC.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to securities previously issued by
the Depositor. 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 securities
previously issued by the Depositor in same-day funds.
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Trading between CEDEL and/or Euroclear participants. Secondary market
trading between CEDEL participants and/or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant the purchaser will
send instructions to CEDEL or Euroclear through a participant at least one
business day prior to settlement. CEDEL or Euroclear will instruct Citibank or
Morgan, respectively as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. For transactions settling on the 31st day of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by Citibank or Morgan to the DTC participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the CEDEL
participant's or Euroclear participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the CEDEL or Euroclear cash debit will be valued instead as of the actual
settlement date.
CEDEL participants and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, participants can elect not to preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, CEDEL
participants or Euroclear participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities to
Citibank or Morgan for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL and Euroclear participants may employ
their customary procedures for transactions in which Global Securities are to be
transferred by the respective clearing system, through Citibank or Morgan, to a
DTC participant. The seller will send instructions to CEDEL or Euroclear through
a participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct Citibank or Morgan, as appropriate, to deliver
the bonds to the 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. For transactions selling on
the 31st day of the month, payment will include interest accrued to and
excluding the first day of the following month. The payment will then be
reflected in the account of the CEDEL participant or Euroclear participant the
following day, and receipt of the cash proceeds in the CEDEL or Euroclear
participant's account would be back-valued to the value date which would be the
preceding day, when settlement occurred in New York. Should the CEDEL or
Euroclear participant have a line of credit with its respective clearing system
and elect to be in debit in anticipation of receipt of the sale proceeds in its
account, back-valuation will extinguish any overdraft
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charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
CEDEL or Euroclear participant's account would instead be valued as of the
actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail on
the sale side unless affirmative action were taken. At least three techniques
should be readily available to eliminate this potential problem.
(1) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at least one
day prior to the value date for the sale to the CEDEL participant or Euroclear
participant.
Certain U.S. Federal Income Tax Documentation Requirements
A holder of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
persons, unless such holder takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non U.S. persons that
are beneficial owners can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status).
Exemption for non-U.S. persons with effectively connected income
(Form 4224). A non-U.S. person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States,
can obtain an exemption from the withholding tax by filing Form 4224
(exemption from withholding of Tax on Income Effectively Connected with
the Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S.persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms)
by filing Form 1001 (Ownership, Exemption or Reduced Rate Class A2
Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer
alternately files Form W-8, Form 1001 may be filed by the beneficial
owner or his agent.
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Global Security
holder, or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom he
holds (the clearing agency, in the case of persons holding directly on
the books for the clearing
I-3
<PAGE>
<PAGE>
agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
This summary does not deal with all aspects of federal income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of these Global Securities.
I-4
<PAGE>
<PAGE>
_____________________________________ _____________________________________
NO DEALER, SALESMAN 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
DEPOSITOR OR LEHMAN BROTHERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH THEY RELATE
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary........................................... S-2
Risk Factors...................................... S-6
The Trust......................................... S-6
Description of the Certificates................... S-7
Description of the CABS........................... S-9
The Depositor..................................... S-16
The Pooling Agreement............................. S-16
The Trustee....................................... S-18
Use of Proceeds................................... S-19
Tax Considerations................................ S-19
ERISA Considerations.............................. S-22
Legal Investment Considerations................... S-23
Underwriting...................................... S-24
Legal Matters..................................... S-24
Rating............................................ S-24
Index of Defined Terms............................ S-25
Appendix A........................................ A-1
PROSPECTUS
Prospectus Supplement............................. 2
Available Information............................. 2
Incorporation of Certain Documents by Reference... 2
Reports to Holders................................ 2
Summary of Terms.................................. 3
Risk Factors...................................... 11
Description of the Certificates................... 15
Trust Assets...................................... 21
Enhancement....................................... 25
Servicing of Receivables.......................... 27
The Agreements.................................... 30
Certain Legal Aspects of the Receivables.......... 36
The Depositor..................................... 39
Use of Proceeds................................... 40
Certain Federal Income Tax Considerations......... 40
State Tax Considerations.......................... 46
ERISA Considerations.............................. 46
Plan of Distribution.............................. 46
Legal Matters..................................... 47
Additional Information............................ 47
Glossary of Terms................................. 48
Annex I........................................... I-1
</TABLE>
LEHMAN CARD
ACCOUNT TRUST
1996-1
$2,082,115,000
CLASS A FLOATING RATE
ASSET BACKED CERTIFICATES
CLASS S CERTIFICATES
LEHMAN ABS CORPORATION
(DEPOSITOR)
---------------------------
PROSPECTUS SUPPLEMENT
DECEMBER 31, 1996
---------------------------
LEHMAN BROTHERS
_____________________________________ _____________________________________
<PAGE>
