<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 333-55817
Prospectus Supplement to Prospectus Dated June 17, 1999
[LOGO OF PROVIDIAN NATIONAL BANK]
Providian Master Trust
Issuer
Providian National Bank
Seller and Servicer
$500,000,000 Floating Rate Class A Asset Backed Certificates, Series 1999-1
$65,705,000 6.80% Class B Asset Backed Certificates, Series 1999-1
You should consider carefully the risk factors beginning on page S-11 in this
prospectus supplement and on page 17 in the prospectus.
A certificate is not a deposit and neither the certificates nor the
underlying accounts or receivables are insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
The certificates will represent interests in the Providian Master Trust only,
not interests in or obligations of Providian National Bank or any of its
affiliates.
This prospectus supplement may be used to offer and sell the certificates
only if accompanied by the prospectus.
<TABLE>
<CAPTION>
Class B
Class A certificates certificates
-------------------- ------------
<S> <C> <C>
Principal amount $500,000,000 $65,705,000
Certificate rate One-month LIBOR plus 6.80% per year
0.23% per year
Interest paid Monthly, beginning Monthly, beginning
August 16, 1999 August 16, 1999
Expected final payment date June 15, 2004 August 16, 2004
Series termination date January 15, 2009 January 15, 2009
Price to public per certificate 99.91150% 99.91846%
Underwriting discount per certificate 0.27500% 0.30000%
Proceeds to seller per certificate 99.63650% 99.61846%
</TABLE>
The total price to public is $565,208,924, the total amount of the
underwriting discount is $1,572,115 and the total amount of proceeds plus
accrued interest before deduction of expenses is $563,636,809.
Credit Enhancement
. The Class B certificates are subordinated to the Class A
certificates.Subordination of the Class B certificates provides credit
enhancement for the Class A certificates.
. The Providian Master Trust also is issuing the collateral interest and the
Class D interest, which are subordinated to both the Class A certificates
and the Class B certificates. Subordination of the collateral interest and
the Class D interest provides credit enhancement for both the Class A
certificates and the Class B certificates.
This prospectus supplement and the accompanying prospectus relate only to the
offering of the Class A certificates and the Class B certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these certificates or determined that
this prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Underwriters of the Class A certificates
Lehman Brothers
Chase Securities Inc.
Credit Suisse First Boston
Merrill Lynch & Co.
Underwriters of the Class B certificates
Lehman Brothers Credit Suisse First Boston
June 17, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about the Class A certificates and the Class B
certificates in two separate documents: (a) the accompanying prospectus, which
provides general information about the Providian Master Trust and the
securities issued by it, some of which may not apply to your certificates and
(b) this prospectus supplement, which describes the specific terms of your
certificates. This prospectus supplement may be used to sell certificates only
if accompanied by the prospectus.
If the terms of your certificates vary between this prospectus supplement and
the accompanying prospectus, you should rely on the information in this
prospectus supplement.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
additional related information. The following table of contents and the table
of contents in the accompanying prospectus provide the pages on which these
captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement and the prospectus are defined under the caption "Index
of Terms for Prospectus Supplement" beginning on page S-43 in this document and
under the caption "Index of Terms for Prospectus" beginning on page 70 in the
accompanying prospectus. The capitalized terms are provided for your
convenience, to avoid unnecessary duplication of terms.
----------------
S-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF SERIES TERMS............. S-4
Overview.......................... S-4
Offered Securities................ S-5
Certificates.................... S-5
Distribution Dates.............. S-5
Interest........................ S-5
Principal....................... S-5
Collateral Interest; Class D
Interest......................... S-5
Credit Enhancement................ S-6
Other Interests in the Trust...... S-6
Other Series of Certificates.... S-6
The Seller's Interest........... S-6
The Receivables................... S-6
Collections by the Servicer....... S-6
Allocations....................... S-6
Application of Collections........ S-7
Finance Charge Receivables
Collections.................... S-7
Principal Collections........... S-7
Pay Out Events.................... S-8
Optional Repurchase............... S-8
Registration...................... S-8
Tax Status........................ S-9
ERISA Considerations.............. S-9
Mailing Address and Telephone
Number of Principal Executive
Offices.......................... S-9
SELECTED TRUST PORTFOLIO SUMMARY
DATA............................... S-10
RISK FACTORS........................ S-11
Recent Developments............... S-11
Credit Enhancement May Not Be
Sufficient to Prevent Loss....... S-11
Class B Certificates Are
Subordinate to the Class A
Certificates; Trust Assets May Be
Diverted From Class B to Pay
Class A.......................... S-12
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
MATURITY CONSIDERATIONS............. S-13
THE PROVIDIAN PORTFOLIO............. S-15
General........................... S-15
Revenue Experience................ S-15
Loss and Delinquency Experience... S-17
COMPOSITION OF THE ACCOUNTS......... S-19
THE BANK............................ S-22
USE OF PROCEEDS..................... S-22
SERIES PROVISIONS................... S-23
General........................... S-23
Interest.......................... S-23
Principal......................... S-25
Allocation Percentages............ S-26
Application of Collections........ S-27
Payments of Interest, Fees and
Other Items.................... S-27
Payments of Principal........... S-32
Sharing of Additional Finance
Charges.......................... S-35
Principal Funding Account......... S-35
Reserve Account................... S-36
Defaulted Amounts; Charge-Offs.... S-37
Pay Out Events.................... S-39
Distributions..................... S-39
Paired Series..................... S-40
Series Termination................ S-40
UNDERWRITING........................ S-42
INDEX OF TERMS FOR PROSPECTUS
SUPPLEMENT......................... S-44
ANNEX I: OTHER ISSUANCES OF
CERTIFICATES....................... A-1
</TABLE>
S-3
<PAGE>
SUMMARY OF SERIES TERMS
This summary highlights selected information and does not contain all of the
information that you need in making your investment decision. It also provides
general, simplified descriptions of matters that, in some cases, are highly
technical and complex. More detail is provided in other sections of this
document and in the prospectus.
Do not rely upon this summary for a full understanding of the matters you
need to consider for any potential investment in the certificates.
To understand all the terms of the offering of the certificates, you should
carefully read this entire document and the accompanying prospectus.
OVERVIEW
<TABLE>
<S> <C>
Trust: Providian Master Trust--"Trust"
Seller: Providian National Bank--the "Bank"
Servicer: the Bank
Trustee: Bankers Trust Company
Pricing Date: June 17, 1999
Closing Date: June 24, 1999
Clearance and Settlement: DTC/Cedelbank/Euroclear
Trust Assets: receivables originated in consumer revolving credit card accounts
and other consumer revolving credit accounts
</TABLE>
<TABLE>
<S> <C> <C>
Series Structure: Amount % of Total Series
Class A $500,000,000 78.00%
Class B $ 65,705,000 10.25%
Collateral interest $ 52,884,000 8.25%
Class D interest $ 22,436,642 3.50%
Annual Servicing Fee Rate: 1.75% if the Bank is the servicer, or
up to 2.0% if the Bank is not the
servicer
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
----------------------------- ---------------------------------
<S> <C> <C>
Anticipated Ratings:*
(Moody's/Standard &
Poor's/Fitch IBCA) Aaa/AAA/AAA A2/A/A
Credit Enhancement: subordination of Class B, the subordination of the collateral
collateral interest and the interest and the Class D interest
Class D interest
Interest Rate: One-month LIBOR 6.80% per year
plus 0.23% per year
Interest Accrual Method: actual / 360 30 / 360
Interest Payment Dates: monthly (15th) monthly (15th)
First Interest Payment
Date: August 16, 1999 August 16, 1999
Expected Final Payment
Date: June 15, 2004 August 16, 2004
Commencement of
Accumulation Period
(subject to
adjustment): May 31, 2002 May 31, 2004
Series Termination Date: January 15, 2009 January 15, 2009
</TABLE>
- --------
* It is a condition to issuance that one of these ratings be obtained.
S-4
<PAGE>
OFFERED SECURITIES
Certificates
Providian Master Trust is offering:
.$500,000,000 of Class A certificates; and
.$65,705,000 of Class B certificates.
In this document, references to certificates include both Class A and Class B
but do not include the collateral interest or the Class D interest.
Only the Class A and Class B certificates are offered by this prospectus
supplement and the accompanying prospectus.
Beneficial interests in the certificates may be purchased in minimum
denominations of $1,000 and integral multiples of $1,000.
The certificates are expected to be issued on June 24, 1999.
Distribution Dates
Distribution dates for the certificates will be August 16, 1999 and, after
that, the 15th day of each month if the 15th is a business day and, if not, the
following business day.
Interest
Interest on the certificates will be paid on each distribution date.
The Class A certificates will bear interest at one-month LIBOR as determined
each month plus 0.23% per year.
The Class B certificates will bear interest at 6.80% per year.
Interest for the Class A certificates will be calculated based on the actual
number of days in the interest period and a 360-day year. Interest for the
Class B certificates will be calculated based on a 360-day year of twelve 30-
day months.
Principal
Principal of the Class A certificates is expected to be paid in full on the
June 2004 distribution date. We are scheduled to begin accumulating collections
of principal receivables for payment to the Class A certificateholders starting
on May 31, 2002, but we may begin accumulating at a later date. No principal
will be paid to the Class B certificateholders until the Class A
certificateholders are paid in full.
Principal of the Class B certificates is expected to be paid in full on the
August 2004 distribution date. We will begin accumulating collections of
principal receivables for payment to the Class B certificateholders starting on
May 31, 2004.
The certificates are expected to be paid on the dates noted above; however,
principal may be paid earlier or later. Certificateholders will not be entitled
to any premium for early or late payment of principal. If certain adverse
events known as pay out events occur, principal may be paid earlier than
expected. If collections of the receivables are less than expected or are
collected more slowly than expected, then principal payments may be delayed. If
the Class A certificates or Class B certificates are not paid on their expected
final payment date, collections of principal receivables will continue to be
used to pay principal on the certificates until the certificates are paid or
until January 15, 2009, whichever occurs first. January 15, 2009 is the series
termination date for Series 1999-1.
See "Maturity Considerations," "Series Provisions--Allocation Percentages"
and "--Principal" in this prospectus supplement.
COLLATERAL INTEREST; CLASS D INTEREST
At the same time as the certificates are issued, the trust will issue
interests in the assets of the trust known as the collateral interest and the
Class D interest. The initial amount of the collateral interest is $52,884,000,
and the initial amount of the Class D interest is $22,436,642.
The holders of the collateral interest and the Class D interest will have
voting and certain other rights as if each were a subordinated class of
certificates. The collateral interest and the Class D interest will be
subordinated to both the Class A certificates and the Class B certificates.
Neither the collateral interest nor the Class D interest is offered by this
prospectus supplement and the accompanying prospectus.
S-5
<PAGE>
CREDIT ENHANCEMENT
Credit enhancement for the Class A certificates is provided by the
subordination of the Class B certificates, the collateral interest and the
Class D interest.
Credit enhancement for the Class B certificates is provided by the
subordination of the collateral interest and the Class D interest.
Credit enhancement for your certificates is for your benefit only, and you
are not entitled to the benefits of credit enhancement available to other
series issued by the trust.
See "Series Provisions--Application of Collections--Payments of Interest,
Fees and Other Items" and "--Defaulted Amounts; Charge-Offs" in this prospectus
supplement.
OTHER INTERESTS IN THE TRUST
Other Series of Certificates
The trust has previously issued eight series of certificates that are
currently outstanding and expects to issue additional series. A summary of the
outstanding series is in "Annex I: Other Issuances of Certificates" included at
the end of this prospectus supplement. The issuance of future series will occur
without prior review or consent by you or any other certificateholder.
The Seller's Interest
The interest in the trust not represented by your series or by any other
series is the seller's interest. The seller's interest is owned by the Bank.
The Bank may, however, sell a portion of its seller's interest. The seller's
interest does not provide credit enhancement for your series or any other
series.
THE RECEIVABLES
The primary assets of the trust are receivables in VISA(R) /1/ and
MasterCard(R) /1/ revolving credit card accounts and other revolving consumer
credit accounts. The receivables consist of principal receivables and finance
charge receivables.
- --------
/1/ VISA(R) and MasterCard(R) are registered trademarks of VISA U.S.A., Inc.
and Mastercard International Incorporated, respectively.
The following information is as of March 31, 1999:
. Receivables in the trust: $7,357,603,261
. Accounts designated to the trust: 2,608,028 (excludes 2,227,151 closed
accounts with a zero balance and 467,694 charged-off accounts)
The above numbers include receivables added to the trust between March 31,
1999 and the closing date.
See "Composition of the Accounts" in this prospectus supplement.
COLLECTIONS BY THE SERVICER
The Bank, as servicer, will collect payments on the receivables and will
deposit those collections in an account. It will keep track of those
collections that are finance charge receivables and those that are principal
receivables.
ALLOCATIONS
Each month the Bank, as servicer, will allocate collections received among
. your series;
. other series outstanding; and
. the seller's interest in the trust.
The amount allocated to your series will be determined based mainly upon the
size of the invested amount of your series compared to the total amount of
principal receivables in the trust. At the time of issuance of the
certificates, the invested amount for Series 1999-1 will be $641,025,642.
You are entitled to receive payments of interest and principal only from
collections and other trust assets allocated to your series. The invested
amount, which is the primary basis for allocations to your series, is the sum
of (a) the Class A invested amount, (b) the Class B invested amount, (c) the
collateral invested amount and (d) the Class D invested amount.
If the invested amount of your series declines, amounts of finance charge
collections and, during the revolving period, principal collections allocated
and available for payment to your series and to you
S-6
<PAGE>
will be reduced. In addition, for purposes of allocating finance charge
collections and amounts that are written off as uncollectible, the allocations
to the certificates will be based upon the adjusted invested amount, which will
be the invested amount less amounts accumulated in the principal funding
account for payment to the certificateholders on the expected final payment
dates. For a description of the events which may lead to these reductions, see
"Series Provisions--Allocation Percentages" and "--Application of Collections
Payments of Interest, Fees and Other Amounts" in this prospectus supplement.
APPLICATION OF COLLECTIONS
The following steps describe how the trust allocates and applies collections
of finance charge receivables and other amounts described below to your series.
Finance Charge Receivables Collections
Collections of finance charge receivables allocated to your series and your
series' share of additional finance charges from other series will be used as
follows:
. first to pay interest on the Class A certificates calculated based on
the principal amount of Class A certificates;
. second, to pay interest on the Class B certificates calculated based on
the invested amount of the Class B certificates;
. third, to pay the servicing fee;
. fourth, to cover Class A's portion of receivables that are written off
as uncollectible;
. fifth, to cover previous reductions in the Class A invested amount that
were not due to principal payments;
. sixth, to pay interest on the Class B certificates calculated based on
the principal amount of the Class B certificates for which interest was
not paid as described above;
. seventh, to cover Class B's portion of receivables that are written off
as uncollectible;
. eighth, to cover previous reductions in the Class B invested amount that
were not due to principal payments;
. ninth, to pay interest on the collateral interest;
. tenth, to cover the collateral interest's portion of receivables that
are written off as uncollectible;
. eleventh, to fund a reserve account to cover interest payment shortfalls
on the Class A certificates during their accumulation period;
. twelfth, to make payments to the collateral interest holder and the
holder of the Class D interest and to cover previous reductions in the
collateral interest and the Class D interest that were not due to
principal payments; and
. finally, to make payments to other series or to the holder of the
Seller's interest.
Principal Collections
The trust will apply your series' share of principal collections each month as
follows:
. First, principal collections allocated to the Class D interest, the
collateral interest and the Class B certificates may be reallocated, if
necessary, to make required payments on the Class A certificates, the
Class B certificates and the collateral interest not made from finance
charge collections or additional finance charges from other series
allocated to your series.
. During the revolving period, no principal will be paid to you or
accumulated in a trust account. Instead, your series' share of principal
collections generally will be treated as shared principal collections
and may be available to make principal payments for other series.
S-7
<PAGE>
. The Class A accumulation period is scheduled to begin on May 31, 2002,
but may begin at a later date. During the Class A accumulation period,
principal collections will be deposited in a trust account, up to a
controlled deposit amount, for payment to the holders of the Class A
certificates on the expected final payment date for the Class A
certificates.
. The Class B accumulation period will begin on May 31, 2004. During the
Class B accumulation period, principal collections will be deposited in
a trust account, up to a controlled deposit amount, for payment to the
holders of the Class B certificates on the expected final payment date
for the Class B certificates.
. If a pay out event (described below) that applies to Series 1999-1 or to
all series occurs, the early amortization period will begin. During the
early amortization period, principal collections will be paid first to
the Class A certificateholders, then to the Class B certificateholders,
then to the collateral interest holder and then to the Class D interest
holder.
. Any remaining principal collections will be first made available to
other series and then paid to the holder of the seller's interest or
deposited in the special funding account.
PAY OUT EVENTS
The documents under which the Series 1999-1 interests will be issued include
a list of adverse events known as pay out events. If a pay out event that
applies to Series 1999-1 or to all series occurs, the trust will use
collections of principal receivables allocated to Series 1999-1 each month to
pay principal.
Pay out events may occur if the seller fails to make required payments or
deposits, violates other covenants and agreements or makes representations and
warranties that are materially incorrect.
The following also are pay out events:
. The seller does not transfer additional assets to the trust when
required;
. The finance charge collections on the trust portfolio plus certain other
amounts available to Series 1999-1, less the amount of receivables that
are written off as uncollectible allocated to Series 1999-1, averaged
over three months, is less than the interest and servicing fees payable
on Series 1999-1, calculated by taking into account the interest for
Class A and Class B and the collateral interest, plus an assumed
servicing fee rate of 2% for Series 1999-1, averaged over three months
(in each case expressed as a percentage of the Series 1999-1 invested
amount);
. Certain defaults of the servicer;
. The Class A certificates are not paid in full on the Class A expected
final payment date;
. The Class B certificates are not paid in full on the Class B expected
final payment date;
. The occurrence of certain events of insolvency or receivership relating
to the seller;
. The seller is unable to transfer receivables to the trust as required
under the pooling and servicing agreement; or
. The trust becomes an "investment company" under the Investment Company
Act of 1940.
For a more detailed discussion of the pay out events, see "Series
Provisions--Pay Out Events" in this prospectus supplement. In addition, see
"Description of the Certificates--Pay Out Events" in the accompanying
prospectus.
OPTIONAL REPURCHASE
The Bank has the option to repurchase your certificates when the invested
amount for your series has been reduced to 5% or less of the initial invested
amount.
REGISTRATION
The certificates will be in book-entry form and will be registered in the
name of Cede & Co., as the
S-8
<PAGE>
nominee of The Depository Trust Company. Except in certain limited
circumstances, you will not receive a definitive certificate representing your
interest. See "The Pooling Agreement Generally--Definitive Certificates" in the
accompanying prospectus.
You may hold your certificates through The Depository Trust Company in the
United States or through Cedelbank, societe anonyme or the Euroclear System in
Europe. See "The Pooling Agreement Generally--Book-Entry Registration" and "--
Definitive Certificates" in the accompanying prospectus.
TAX STATUS
Cravath, Swaine & Moore, special tax counsel to the Bank, is of the opinion
that under existing law your certificates will be characterized as debt for
federal income tax purposes. By your acceptance of a certificate, you will
agree to treat your certificates as debt of the Bank for federal, state and
local income and franchise tax purposes. See "Tax Matters" in the accompanying
prospectus for additional information concerning the application of federal,
California and New Hampshire tax laws.
ERISA CONSIDERATIONS
Subject to important considerations described under "ERISA Considerations" in
the accompanying prospectus, the Class A certificates may be eligible for
purchase by persons investing assets of employee benefit plans or individual
retirement accounts.
For the reasons discussed under "ERISA Considerations" in the accompanying
prospectus, the Class B certificates are not eligible for purchase by persons
investing assets of employee benefit plans or individual retirement accounts.
MAILING ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
The mailing address of Providian National Bank is 295 Main Street, Tilton, NH
03276 and the telephone number is (603) 286-4348.
S-9
<PAGE>
SELECTED TRUST PORTFOLIO SUMMARY DATA
Geographic Distribution of Receivables in Trust Portfolio
as of March 31, 1999
[PIE CHART]
California 12.81%
Texas 7.56%
New York 6.62%
Florida 5.40%
Illinois 4.32%
Pennsylvania 4.08%
Ohio 4.03%
Other 55.18%
The chart above shows the geographic distribution of the receivables in the
Trust portfolio among the 50 states and the District of Columbia. Other than
the states specifically shown in the chart, no state accounts for more than 4%
of receivables in the Trust portfolio.
Receivable in Trust Portfolio by Age of Account
as of March 31, 1999
[BAR GRAPH]
Months %
------ -----
0-6 14.18
7-12 5.17
13-24 16.69
25-36 18.38
37-48 15.12
49-60 10.54
61-72 4.53
73-84 2.74
84+ 12.25
The chart above shows the percentages of the receivables in the Trust
portfolio arising under accounts within the age brackets shown.
S-10
<PAGE>
RISK FACTORS
In the accompanying prospectus you will find a section called "Risk Factors".
The information in that section applies to all series, including yours. The
information in this section applies more specifically to your series.
Please carefully read the "Risk Factors" section in the accompanying
prospectus and the risk factors discussed below before deciding whether to
purchase any of the certificates.
Recently, the Bank has been the subject of
Recent Developments media coverage concerning complaints made
by some of the Bank's customers regarding
certain of the Bank's sales and collections
practices, including the marketing of
certain fee-based products and the posting
of customer payments. The San Francisco
District Attorney's Office has confirmed
that it has begun an investigation with
respect to the Bank. The remedies available
to the District Attorney's Office include,
but are not limited to, damages, penalties,
fines and injunctive relief. Several
private lawsuits seeking class action
status have also been filed against the
Bank alleging the Bank used unfair and
deceptive business practices. In addition,
a private lawsuit has been filed on behalf
of shareholders alleging that Providian
Financial Corporation violated the
disclosure requirements of the securities
laws in connection with its business
practices. The Bank is cooperating fully
with the investigation by the San Francisco
District Attorney's Office. In addition,
the Bank has been responsive to the issues
raised by the customer complaints and has
initiated an enhanced customer satisfaction
program. Although there can be no assurance
as to the ultimate outcome of these
matters, the Bank intends to defend itself
vigorously and believes, based on the
claims that have been alleged in the
complaints, that they will not have a
material adverse effect on the
Certificateholders or the Bank's ability to
originate and service Receivables.
Credit Enhancement May Not Be Credit enhancement for the Class A
Sufficient to Prevent Loss certificates is provided through the
subordination of the Class B certificates,
the collateral interest and the Class D
interest. Credit enhancement for the Class
B certificates is provided through
subordination of the collateral interest
and the Class D interest. However, such
credit enhancement is limited. The only
sources of payment for your certificates
are the assets of the trust allocated to
your series. If problems develop with the
receivables, such as an increase in losses
on the receivables, or there are problems
in the collection and transfer of the
receivables to the trust, it is possible
that you may not receive the full amount of
interest and principal that you would
otherwise receive.
See "Series Provisions--Allocation
Percentages" and "--Defaulted Amounts;
Charge-Offs" in this prospectus supplement.
S-11
<PAGE>
Class B Certificates Are If you purchase a Class B certificate, your
Subordinate to the Class A right to receive principal payments is
Certificates; Trust Assets May subordinated to the payment in full of the
Be Diverted From Class B to Pay Class A certificates. No principal will be
Class A paid to you until the full amount of
principal has been paid on the Class A
certificates. In addition, if collections
of finance charge receivables allocated to
Series 1999-1, additional finance charges
from other series allocated to your series,
the collateral interest's share of
principal collections and the Class D
interest's share of principal collections
are insufficient to make all required
payments for the Class A certificates,
collections of principal receivables
allocated to Class B may be diverted to
Class A. Also, if Class A's share of losses
on the receivables exceeds collections
available to cover losses and the Class D
invested amount and the collateral interest
amount are reduced to zero, the Class B
invested amount will be reduced to avoid
reducing the Class A invested amount. If
this occurs, you may receive payments of
interest or principal later than you expect
or you may not receive the full amount of
principal and interest due to you.
See "Series Provisions--Application of
Collections--Payments of Interest, Fees and
Other Amounts" and "--Defaulted Amounts;
Charge-Offs" in this prospectus supplement.
S-12
<PAGE>
MATURITY CONSIDERATIONS
The Pooling Agreement and the Series 1999-1 Supplement provide that the Class
A Invested Amount is payable to the Class A Certificateholders, to the extent
funds are available therefor in the Principal Funding Account, on June 15, 2004
(the "Class A Expected Final Payment Date") or earlier in the event of a Pay
Out Event which results in the commencement of an early amortization period
with respect to the Series 1999-1 Certificates (an "Early Amortization
Period"). The Class A Certificateholders will receive payments of principal on
each Distribution Date following the Monthly Period in which a Pay Out Event
occurs (each such Distribution Date, a "Special Payment Date") until the Class
A Invested Amount is paid in full or the Series Termination Date occurs. The
Class B Certificateholders will not begin to receive payments of principal
until the final principal payment on the Class A Certificates has been made.
On each Distribution Date with respect to the Class A Accumulation Period,
Available Principal Collections in an amount up to the Class A Controlled
Deposit Amount with respect to such Distribution Date will be deposited in the
Principal Funding Account (as described under "Series Provisions--Application
of Collections--Payments of Principal"), until the Principal Funding Account
Balance is equal to the Class A Invested Amount. The Class A Certificateholders
will receive the aggregate principal amount on deposit in the Principal Funding
Account on the Class A Expected Final Payment Date. Although it is anticipated
that Available Principal Collections for each Monthly Period with respect to
the Class A Accumulation Period will be sufficient to fund the deposit of the
Class A Invested Amount in the Principal Funding Account for payment to the
Class A Certificateholders on the Class A Expected Final Payment Date, no
assurance can be given in that regard. If the Class A Invested Amount is not
paid in full on the Class A Expected Final Payment Date, principal will be paid
to the Class A Certificateholders monthly on each Distribution Date until the
Class A Invested Amount is paid in full and then to the Class B
Certificateholders until the Class B Invested Amount is paid in full or, in
either case, until the Series Termination Date occurs.
If the Class A Invested Amount is paid in full on the Class A Expected Final
Payment Date, then on each Distribution Date with respect to the Class B
Accumulation Period, Available Principal Collections in an amount up to the
Class B Controlled Deposit Amount with respect to such Distribution Date will
be deposited in the Principal Funding Account (as described under "Series
Provisions--Application of Collections--Payments of Principal"), until the
Principal Funding Account Balance is equal to the Class B Invested Amount. The
Class B Certificateholders will receive the aggregate principal amount on
deposit in the Principal Funding Account on August 16, 2004 (the "Class B
Expected Final Payment Date"). Although it is anticipated that Available
Principal Collections for each Monthly Period with respect to the Class B
Accumulation Period will be sufficient to fund the deposit of the Class B
Invested Amount in the Principal Funding Account for payment to the Class B
Certificateholders on the Class B Expected Final Payment Date, no assurance can
be given in that regard. If the Class B Invested Amount is not paid in full on
the Class B Expected Final Payment Date, principal will be paid to the Class B
Certificateholders monthly on each Distribution Date until the Class B Invested
Amount is paid in full or until the Series Termination Date occurs.
At or after the time at which the Class A Accumulation Period commences for
Series 1999-1, the Bank may designate another Series (or some portion thereof)
as a Paired Series with respect to Series 1999-1 and may use such other Series
to finance the increase in the Seller's Interest caused by the accumulation of
principal in the Principal Funding Account with respect to Series 1999-1. A
Paired Series is intended to be issued as a pair with a Series which is in its
Accumulation Period or Scheduled Amortization Period, and, accordingly, new
Paired Series may be excluded from the definition of Required Principal Balance
and thereby increase the aggregate Invested Amounts that may be issued by the
Trust in relation to the aggregate amount of Principal Receivables. If a Pay
Out Event occurs with respect to any Paired Series and the Early Amortization
Period for such Series overlaps the Class A Accumulation Period, the Class B
Accumulation Period or the Early Amortization Period for the Series 1999-1
Certificates, the final payment of principal to the Class A Certificateholders
and Class B Certificateholders may be delayed.
S-13
<PAGE>
If a Pay Out Event occurs with respect to the Series 1999-1 Certificates and
the Early Amortization Period commences, any amount on deposit in the Principal
Funding Account on the first Special Payment Date, and the Available Principal
Collections on each Distribution Date thereafter, will be paid to the Class A
Certificateholders until the Class A Invested Amount is paid in full and then
to the Class B Certificateholders until the Class B Invested Amount is paid in
full or, in either case, until the Series Termination Date occurs. See
"Description of the Certificates--Pay Out Events" in the Prospectus and "Series
Provisions--Pay Out Events" herein. If the commencement of the Class A
Accumulation Period is delayed as described under "Series Provisions--
Principal", and a Pay Out Event with respect to the Series 1999-1 Certificates
or with respect to any other Series occurs after the date originally scheduled
for the commencement of the Class A Accumulation Period, then it is probable
that the Class A Certificateholders, and consequently the Class B
Certificateholders, would receive some of their principal later than if the
Class A Accumulation Period had not been delayed.
The following table sets forth the highest and lowest accountholder monthly
payment rates for the Providian Portfolio during any month in the period shown
and the average accountholder 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 applicable months. Payments shown in the table
consist of amounts that would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts.
Accountholder Monthly Payment Rates
Providian Portfolio(1)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------- ------------------------------
1999 1998 1997 1996 1995 1994
--------------- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lowest.......................... 8.34% 8.93% 8.59% 7.84% 7.31% 7.29%
Highest......................... 10.45% 11.51% 10.58% 9.35% 8.95% 8.98%
Monthly Average................. 9.15% 9.78% 9.39% 8.47% 8.01% 8.20%
</TABLE>
- --------
(1) The figures shown for the years ended December 31, 1997, 1996, 1995 and
1994 do not incorporate information with respect to the Acquired
Portfolios.
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, legal factors, general economic conditions and consumer
spending and borrowing patterns. The Bank cannot predict, and no assurance can
be given as to, the accountholder monthly payment rates that will actually
occur in any future period. There can be no assurance that collections of
Principal Receivables with respect to the Accounts, and thus the rate at which
the Principal Funding Account could be funded during the Class A Accumulation
Period or the Class B Accumulation Period, or the rate at which Class A
Certificateholders and Class B Certificateholders could expect to receive
payments of principal on their Class A Certificates and their Class B
Certificates during the Early Amortization Period, will be similar to the
historical experience set forth above. In addition, the Trust, as a master
trust, has issued and may issue additional Series from time to time, and there
can be no assurance that the terms of any such Series might not have an impact
on the timing or amount of payments received by a Class A Certificateholder or
Class B Certificateholder. If a Pay Out Event occurs with respect to the Series
1999-1 Certificates or other Series in certain circumstances discussed above,
payments of principal on the Class A Certificates and the Class B Certificates
could be delayed. In other circumstances, if a Pay Out Event occurs with
respect to the Series 1999-1 Certificates, the average life and maturity of the
Class A Certificates and the Class B Certificates could be significantly
reduced. As a result, 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 the respective final Distribution Dates with respect to
the Class A Certificates and the Class B Certificates will equal the expected
number of months. See "Risk Factors--Payments and Maturity" in the Prospectus.
S-14
<PAGE>
THE PROVIDIAN PORTFOLIO
General
Set forth below is certain information with respect to the Providian
Portfolio. See "The Bank's Credit Card and Consumer Lending Business" 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 Providian Portfolio.
During the first and second quarters of 1998 the Bank acquired from First
Union Direct Bank, N.A. two portfolios of unsecured credit card accounts (the
"First Union Portfolios"). As of March 31, 1999, the total receivables
outstanding in the First Union Portfolios was approximately $1.5 billion, which
represents approximately 15% of the Providian Portfolio. The accounts in the
First Union Portfolios were underwritten by First Union Direct Bank, N.A. See
"The Bank's Credit Card and Consumer Lending Business--Business Overview" in
the Prospectus. Accounts acquired by the Bank from First Union Direct Bank,
N.A. were originally opened using criteria which are different than the Bank's
and were not subject to the same underwriting procedures and credit review as
accounts established by the Bank. The accounts in the First Union Portfolios
have higher delinquency and loss rates than the accounts in the Trust
Portfolio. Information about the criteria used to open the credit card accounts
owned by First Union (which were the source of the First Union Portfolios) and
historical loss and delinquency data for those accounts can be found in
publicly available filings made by First Union National Bank of Georgia, the
predecessor of First Union Direct Bank, N.A., with the Commission prior to
August 1, 1996 (the "First Union Filings"). The Bank makes no representations
as to the accuracy or completeness of such filings or as to whether there were
changes in those criteria and undertakes no obligation to verify any such
information.
During the fourth quarter of 1998 the Bank acquired a portfolio of credit
card accounts from Morgan Stanley Dean Witter's Bravo card program. As of March
31, 1999, the total receivables outstanding in the Bravo portfolio was
approximately $334 million, which represents approximately 3.4% of the
Providian Portfolio. During the first quarter of 1999, the Bank acquired a
portfolio of credit card accounts from H&R Block, Inc.'s "WebCard" program. As
of March 31, 1999, the total receivables outstanding in the WebCard program was
approximately $147 million, which represents approximately 1.5% of the
Providian Portfolio. These acquired portfolios, together with the First Union
Portfolios, are collectively referred to as the "Acquired Portfolios".
On October 20, 1998, randomly selected accounts from the First Union
Portfolios with an aggregate principal balance of approximately $300 million
were added to the Trust Portfolio. The conditions, including the eligibility
criteria in the Pooling Agreement, applicable to any Addition of Accounts were
satisfied in connection with this Addition and will be satisfied in connection
with any future Addition. No accounts from the Bravo or WebCard programs are
currently included in the Trust Portfolio, although accounts from those
programs may be added to the Trust in the future. See "Description of the
Certificates--Addition of Trust Assets" in the Prospectus.
Revenue Experience
Gross revenues from periodic finance charges and fees billed to
accountholders on accounts contained in the Providian Portfolio for the three
months ended March 31, 1999 and for each of the five years ended December 31,
1998, 1997, 1996, 1995 and 1994 are set forth in the following table. Revenue
from the Receivables will depend on the types of fees and charges assessed on
the Accounts, and could be adversely affected by future changes made by the
Bank or the Servicer in such fees and charges or by other factors. See "Risk
Factors--Certain Legal Aspects" and "The Ability of the Bank to Change Terms of
the Accounts" and "The Accounts--Billing and Payments" in the Prospectus.
S-15
<PAGE>
Revenue Experience
Providian Portfolio(1)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------- ----------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(2)......... $9,679,963 $9,248,467 $7,654,900 $6,646,608 $4,810,220 $3,567,940
Finance Charge and Fee
Income(3).............. $568,202 $1,966,404 $1,523,513 $1,233,457 $ 975,434 $ 743,553
Average Revenue
Yield(4)(5)............ 23.81% 21.26% 19.90% 18.56% 20.28% 20.84%
</TABLE>
- --------
(1) The figures shown for the four years ended December 31, 1997, 1996, 1995
and 1994 do not incorporate information with respect to the Acquired
Portfolios.
(2) Average Receivables Outstanding for any period is equal to the average of
the Average Daily Balance for each month in such period. The Average Daily
Balance for a month is equal to the average of the Receivables outstanding
on each day in such month. Receivables outstanding on any day are the sum
of Principal Receivables and Finance Charge Receivables on such day.
(3) Finance Charge and Fee Income includes Interchange and is reduced by
purchase rebates with respect to certain accounts.
(4) Average Revenue Yield is the result of dividing Finance Charge and Fee
Income by Average Receivables Outstanding during the periods indicated.
(5) The percentage for the three months ended March 31, 1999 is an annualized
figure.
Excluding the Acquired Portfolios, the Average Revenue Yield for the
Providian Portfolio for the year ended December 31, 1998 and the three months
ended March 31, 1999 would have been 22.46% and 24.41%, respectively. Excluding
the impact of the Acquired Portfolios, the increase in the Providian
Portfolio's Average Revenue Yield for the year ended December 31, 1998 compared
to the year ended December 31, 1997 is primarily attributable to higher finance
charge yields realized on certain accounts that were repriced in the prior
year, combined with increased income from fee-based products and late fees.
S-16
<PAGE>
Loss and Delinquency Experience
The following tables set forth the delinquency and loss experience with
respect to payments by accountholders on the Providian Portfolio for each of
the periods shown. There can be no assurance, however, that the loss and
delinquency experience for the Receivables will be similar to the historical
experience for the Providian Portfolio set forth below.
Delinquency Experience
Providian Portfolio(1)
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------------- ---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------- --------------------- --------------------- --------------------- ---------------------
(Dollars in Thousands)
Delinquent Percentage Delinquent Percentage Delinquent Percentage Delinquent Percentage Delinquent Percentage
Amount (2) Amount (2) Amount (2) Amount (2) Amount (2)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
30-59
days....... $141,312 1.44% $160,600 1.70% $108,142 1.37% $127,322 1.63% $ 81,933 1.45%
60-89
days....... 88,963 0.91% 96,092 1.02% 69,228 0.88% 71,890 0.92% 44,170 0.78%
90 days or
more....... 173,845 1.77% 174,998 1.86% 127,583 1.62% 120,571 1.55% 57,579 1.02%
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total....... $404,120 4.12% $431,690 4.58% $304,953 3.87% $319,783 4.10% $183,682 3.25%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
<CAPTION>
1994
---------------------
Delinquent Percentage
Amount (2)
---------- ----------
<S> <C> <C>
30-59
days....... $ 54,160 1.34%
60-89
days....... 29,000 0.72%
90 days or
more....... 38,278 0.95%
---------- ----------
Total....... $121,438 3.01%
========== ==========
</TABLE>
- -------
(1) The figures shown for the four years ended December 31, 1997, 1996, 1995
and 1994 do not incorporate information with respect to the Acquired
Portfolios.
(2) The percentages are the result of dividing the Delinquent Amount by the
aggregate Receivables outstanding at the dates indicated. The aggregate
Receivables outstanding at March 31, 1999 and at December 31, 1998, 1997,
1996, 1995 and 1994 were $9,823,778, $9,425,177, $7,891,220, $7,790,346,
$5,637,675 and $4,040,238, respectively. Receivables outstanding on any day
are the sum of Principal Receivables and Finance Charge Receivables on such
day.
S-17
<PAGE>
Loss Experience
Providian Portfolio(1)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
--------------- ------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(2)......... $9,679,963 $9,248,467 $7,654,900 $6,646,608 $4,810,220 $3,567,940
Gross Charge-offs(3).... 214,986 865,552 608,097 410,614 253,367 197,936
Recoveries.............. 23,914 77,086 58,004 44,570 35,555 28,283
Net Charge-offs(4)...... 191,072 788,466 550,093 366,044 217,812 169,653
Net Charge-offs as a
Percentage of Average
Receivables(5)......... 8.01% 8.53% 7.19% 5.51% 4.53% 4.75%
</TABLE>
- --------
(1) The figures shown for the four years ended December 31, 1997, 1996, 1995
and 1994 do not incorporate information with respect to the Acquired
Portfolios.
(2) Average Receivables Outstanding for any period is equal to the average of
the Average Daily Balance for each month in such period. The Average Daily
Balance for a month is equal to the average of the Receivables outstanding
on each day in such month. Receivables outstanding on any day are the sum
of Principal Receivables and Finance Charge Receivables on such day.
(3) Gross Charge-offs are Receivables charged off as uncollectible in
accordance with the Bank's customary practices (excludes reductions due to
fraud, returned goods and customer disputes for all periods shown).
(4) Gross Charge-offs less the total amount of recoveries on previously
Charged-off Accounts.
(5) The percentage for the three months ended March 31, 1999 is an annualized
figure.
The increase in the delinquency and loss rates for the Providian Portfolio
for the year ended December 31, 1998 is due in part to the higher rates of
delinquencies and losses associated with the Acquired Portfolios. Excluding the
Acquired Portfolios, the total delinquent amount (the amount with respect to
payments from accountholders that is 30 days or more past due) as a percentage
of the Providian Portfolio at December 31, 1998 and March 31, 1999 would have
been 3.88% and 3.54%, respectively, and Net Charge-Offs as a Percentage of
Average Receivables in the Providian Portfolio for the year ended December 31,
1998 and the three months ended March 31, 1999 would have been 7.49% and 6.55%,
respectively. Excluding the impact of the Acquired Portfolios, the increase in
the Providian Portfolio's Net Charge-Offs as a Percentage of Average
Receivables for the year ended December 31, 1998 compared to the year ended
December 31, 1997 is primarily attributable to seasoning of the accounts in the
Providian Portfolio.
The Bank may, from time to time, remove groups of charged-off receivables
from the Trust for transfer to a third party. Any initial cash proceeds
received by the Bank from such a disposition of removed charged-off receivables
will be treated as recoveries by the Trust with any residual amounts payable to
the Bank remaining the property of the Bank. The effect on the Trust will be to
accelerate the receipt of recoveries that might otherwise be received by the
Trust in future months. This, in turn, will result in a reduction in the
aggregate amount of recoveries that the Trust would otherwise have received in
future months had the Seller not removed such charged-off receivables from the
Trust.
S-18
<PAGE>
COMPOSITION OF THE ACCOUNTS
The Receivables in the Accounts as of March 31, 1999 included $160,956,305 of
Finance Charge Receivables and $7,196,646,956 of Principal Receivables (which
amounts include overdue Finance Charge Receivables and overdue Principal
Receivables, respectively). As of March 31, 1999, there were 5,302,873 Accounts
(including 2,227,151 closed Accounts with a zero balance and 467,694 charged-
off Accounts). As of March 31, 1999, the Accounts had an average total
Principal Receivables balance of $2,762 (excluding 2,694,845 closed Accounts
with a zero balance and charged-off Accounts) and an average credit limit of
$7,190 (excluding 2,694,845 closed Accounts with a zero balance and charged-off
Accounts). As of March 31, 1999, the average total Principal Receivables
balance in the Accounts as a percentage of the average credit limit with
respect to the Accounts (excluding 2,694,845 closed Accounts with a zero
balance and charged-off Accounts) was approximately 38.41%. As of March 31,
1999, the weighted average age of the Accounts was 41.12 months. The
information in this paragraph includes approximately $545,000,000 of
Receivables in Accounts added to the Trust after March 31, 1999 and on or prior
to the Series Issuance Date. The Accounts were selected from the Providian
Portfolio in the manner described in the Prospectus under "The Accounts--
General." See "The Accounts" in the Prospectus.
The following tables summarize the Accounts by various criteria as of March
31, 1999 and include approximately $545,000,000 of Receivables in Accounts
added to the Trust after March 31, 1999 and on or prior to the Series Issuance
Date. References to "Receivables Outstanding" in the following tables include
both Finance Charge Receivables and Principal Receivables. Because the
composition of the Accounts will change in the future, these tables are not
necessarily indicative of the future composition of the Accounts.
Composition of Accounts by Account Balance
(As of March 31, 1999)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Balance Accounts(1) Accounts Outstanding(1) Outstanding
- --------------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Credit Balance(2)............ 57,221 2.19% $ (7,981,713) (0.10)%
No Balance(3)................ 928,275 35.59% 0 0.00 %
$0.01 to $1,499.99........... 537,132 20.60% 258,451,929 3.51 %
$1,500.00 to $2,999.99....... 223,272 8.56% 503,391,179 6.84 %
$3,000.00 to $4,499.99....... 217,354 8.33% 811,414,689 11.03 %
$4,500.00 to $5,999.99....... 223,723 8.58% 1,145,615,593 15.57 %
$6,000.00 to $7,499.99....... 113,688 4.36% 762,234,840 10.36 %
$7,500.00 to $8,999.99....... 76,590 2.94% 627,737,659 8.53 %
$9,000.00 to $10,499.99...... 56,834 2.18% 551,978,658 7.50 %
$10,500.00 and above......... 173,939 6.67% 2,704,760,427 36.76 %
--------- ------ -------------- ------
Total...................... 2,608,028 100.00% $7,357,603,261 100.00 %
========= ====== ============== ======
</TABLE>
- --------
(1) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 2,227,151 closed Accounts with a zero
balance and 467,694 charged-off Accounts. The Receivables of the charged-
off Accounts are valued at zero. However, for purposes of realizing
recoveries, the Receivables of such Accounts (or, in the event such
charged-off receivables are sold to a third party, the initial cash
proceeds from such sale) have been assigned to the Trust.
(2) Credit Balances are a result of accountholder payments and credit
adjustments applied in excess of an Account's unpaid balance. Accounts with
a credit balance are included, as Receivables may be generated with respect
thereto in the future.
(3) Accounts with no balance are included, as Receivables may be generated with
respect thereto in the future.
S-19
<PAGE>
Composition of Accounts by Credit Limit
(As of March 31, 1999)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number Receivables Receivables
Credit Limit Accounts(1) of Accounts Outstanding(1) Outstanding
- ------------ ---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
$0.01 to $1,499.99........... 21,748 0.83% $ 10,947,097 0.15%
$1,500.00 to $2,999.99....... 28,806 1.10% 37,279,907 0.51%
$3,000.00 to $4,499.99....... 108,470 4.16% 198,581,413 2.70%
$4,500.00 to $5,999.99....... 1,332,597 51.10% 1,459,945,386 19.84%
$6,000.00 to $7,499.99....... 364,569 13.98% 959,157,328 13.04%
$7,500.00 to $8,999.99....... 180,465 6.92% 623,309,799 8.47%
$9,000.00 to $10,499.99...... 183,272 7.03% 663,957,870 9.02%
$10,500.00 and above......... 388,101 14.88% 3,404,424,461 46.27%
--------- ------ -------------- ------
Total...................... 2,608,028 100.00% $7,357,603,261 100.00%
========= ====== ============== ======
</TABLE>
- --------
(1) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 2,227,151 closed Accounts with a zero
balance and 467,694 charged-off Accounts. The Receivables of the charged-
off Accounts are valued at zero. However, for purposes of realizing
recoveries, the Receivables of such Accounts (or, in the event such
charged-off receivables are sold to a third party, the initial cash
proceeds from such sale) have been assigned to the Trust.
Composition of Accounts by Payment Status
(As of March 31, 1999)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Payment Status Accounts(1) Accounts Outstanding(1) Outstanding
- -------------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Current (2).................. 2,566,440 98.41% $7,085,400,302 96.30%
30-59 Days Delinquent........ 15,197 0.58% 95,749,977 1.30%
60-89 Days Delinquent........ 8,984 0.34% 59,411,845 0.81%
90 Days Delinquent or more... 17,407 0.67% 117,041,137 1.59%
--------- ------ -------------- ------
Total...................... 2,608,028 100.00% $7,357,603,261 100.00%
========= ====== ============== ======
</TABLE>
- --------
(1) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 2,227,151 closed Accounts with a zero
balance and 467,694 charged-off Accounts. The Receivables of the charged-
off Accounts are valued at zero. However, for purposes of realizing
recoveries, the Receivables of such Accounts (or, in the event such
charged-off receivables are sold to a third party, the initial cash
proceeds from such sale) have been assigned to the Trust.
(2) Includes Accounts on which the minimum payment has not been received prior
to the second billing date following issuance of the related billing
statement.
S-20
<PAGE>
Composition of Accounts by Account Age
(As of March 31, 1999)
<TABLE>
<CAPTION>
Percentage Percentage
of Total of Total
Number of Number of Receivables Receivables
Account Age Accounts(1) Accounts Outstanding(1) Outstanding
- ----------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
0 to 6 months old............. 485,556 18.62% $1,043,612,329 14.18%
Over 6 to 12 months........... 191,829 7.36% 380,347,288 5.17%
Over 12 to 24 months.......... 576,930 22.12% 1,227,771,848 16.69%
Over 24 to 36 months.......... 409,185 15.69% 1,352,518,016 18.38%
Over 36 to 48 months.......... 284,596 10.91% 1,112,169,500 15.12%
Over 48 to 60 months.......... 234,591 8.99% 804,913,727 10.94%
Over 60 to 72 months.......... 111,860 4.29% 333,409,013 4.53%
Over 72 to 84 months.......... 58,365 2.24% 201,808,625 2.74%
Over 84 months................ 255,116 9.78% 901,052,915 12.25%
--------- ------ -------------- ------
Total....................... 2,608,028 100.00% $7,357,603,261 100.00%
========= ====== ============== ======
</TABLE>
- --------
(1) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 2,227,151 closed Accounts with a zero
balance and 467,694 charged-off Accounts. The Receivables of the charged-
off Accounts are valued at zero. However, for purposes of realizing
recoveries, the Receivables of such Accounts (or, in the event such
charged-off receivables are sold to a third party, the initial cash
proceeds of such sale) have been assigned to the Trust.
S-21
<PAGE>
Composition of Accounts by Geographic Distribution(1)
(As of March 31, 1999)
<TABLE>
<CAPTION>
Percentage Percentage of
of Total Total
Number of Number Receivables Receivables
State Accounts(2) of Accounts Outstanding(2) Outstanding
- ----- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
California................. 340,058 13.04% $ 942,590,236 12.81%
Texas...................... 189,665 7.27% 556,140,482 7.56%
New York................... 183,617 7.04% 487,106,161 6.62%
Florida.................... 149,392 5.73% 396,964,295 5.40%
Illinois................... 112,156 4.30% 317,899,232 4.32%
Pennsylvania............... 113,658 4.36% 300,016,833 4.08%
Ohio....................... 102,933 3.95% 296,585,251 4.03%
North Carolina............. 77,361 2.97% 248,311,714 3.37%
Michigan................... 84,734 3.25% 234,299,830 3.18%
New Jersey................. 87,325 3.35% 218,854,768 2.97%
Georgia.................... 69,725 2.67% 218,418,334 2.97%
Indiana.................... 62,419 2.39% 183,802,349 2.50%
Virginia................... 58,407 2.24% 179,702,381 2.44%
Washington................. 60,387 2.31% 172,843,445 2.35%
Massachusetts.............. 65,186 2.50% 153,543,041 2.09%
Missouri................... 53,219 2.04% 151,937,716 2.07%
Tennessee.................. 48,660 1.87% 149,929,168 2.04%
Alabama.................... 42,024 1.61% 135,959,611 1.85%
Minnesota.................. 54,997 2.11% 133,318,876 1.81%
Colorado................... 49,266 1.89% 129,406,091 1.76%
All Others (3)(4).......... 602,839 23.11% 1,749,973,447 23.78%
--------- ------ -------------- ------
Total.................... 2,608,028 100.00% $7,357,603,261 100.00%
========= ====== ============== ======
</TABLE>
- --------
(1) Determined on the basis of accountholders' telephone area codes.
(2) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 2,227,151 closed Accounts with a zero
balance and 467,694 charged-off Accounts. The Receivables of the charged-
off Accounts are valued at zero. However, for purposes of realizing
recoveries, the Receivables of such Accounts (or, in the event such
charged-off receivables are sold to a third party, the initial cash
proceeds from such sale) have been assigned to the Trust.
(3) No state other than those listed has more than 2.00% of the total
Receivables Outstanding, excluding Accounts for which computer records show
"unknown" in the state field.
(4) Includes Accounts representing approximately 0.002% of the total
Receivables Outstanding for which computer records show "unknown" in the
state field.
THE BANK
As of the Bank's March 31, 1999 Call Report, the Bank had total deposits of
approximately $4,810 million, total assets of approximately $7,707 million and
total equity of approximately $843 million. See "The Bank" in the Prospectus.
USE OF PROCEEDS
Net proceeds from the sale of the Series 1999-1 Certificates in the amount of
the Class A Initial Invested Amount, Class B Initial Invested Amount and the
Collateral Invested Amount, less offering expenses, will be paid to the Bank.
The Bank will use such proceeds for general corporate purposes.
S-22
<PAGE>
SERIES PROVISIONS
General
The Series 1999-1 Certificates will be issued pursuant to the Pooling
Agreement and a Supplement thereto relating to the Series 1999-1 Certificates
(the "Series 1999-1 Supplement"). The "Series 1999-1 Certificates" will consist
of four Classes, the Floating Rate Class A Asset Backed Certificates, Series
1999-1 (the "Class A Certificates"), the 6.80% Class B Asset Backed
Certificates, Series 1999-1 (the "Class B Certificates"), a Class comprising a
collateral interest (the "Collateral Interest") and a Class comprising a Class
D interest (the "Class D Interest"). Reference should be made to the Prospectus
for additional information concerning the Series 1999-1 Certificates and the
Pooling Agreement.
The interests of holders of beneficial interests in the Class A Certificates
(the "Class A Certificateholders") in the Trust Assets (the "Class A
Certificateholders' Interest"), the interests of holders of beneficial
interests in the Class B Certificates (the "Class B Certificateholders") in the
Trust Assets (the "Class B Certificateholders' Interest"), the Collateral
Interest and the Class D Interest are sometimes collectively referred to herein
as the "Series 1999-1 Certificateholders' Interest". Each of the Class A
Certificates and the Class B Certificates offered hereby represents an
undivided interest in certain Trust Assets and, in the case of the Class A
Certificates, an undivided interest in investments and moneys on deposit in the
Principal Funding Account in respect of the Class A Certificates and, in the
case of the Class B Certificates, an undivided interest in investments and
moneys on deposit in the Principal Funding Account in respect of the Class B
Certificates. Each of the Collateral Interest and the Class D Interest is an
uncertificated undivided interest in certain assets of the Trust. The providers
of the Collateral Interest and the Class D Interest are referred to herein as
the "Collateral Interest Holder" and the "Class D Holder", respectively. The
Class D Holder will be the Bank.
Interest
Interest will accrue on the outstanding principal amount of the Class A
Certificates at the Class A Certificate Rate. Interest will be distributed to
the Class A Certificateholders on August 16, 1999 and each Interest Payment
Date thereafter in an amount equal to the product of the Class A Certificate
Rate, the outstanding principal amount of the Class A Certificates as of the
preceding Record Date and a fraction, the numerator of which is the actual
number of days in the related Interest Period and the denominator of which is
360. Interest with respect to the Class A Certificates due but not paid on any
Interest Payment Date will be due on the next succeeding Interest Payment Date
with additional interest on such amount at a rate equal to the Class A
Certificate Rate to the extent permitted by law.
"Interest Payment Date" means the 15th day of each month (or, if any such
15th day is not a business day, the next succeeding business day; and "business
day" means any day other than (a) a Saturday or a Sunday or (b) a day on which
banks are legally obligated or authorized to close in New York City or any of
the cities in New Hampshire or California in which the Bank is headquartered or
has affiliated operations centers.
"Class A Certificate Rate" means a rate per annum equal to LIBOR for one-
month United States Dollar deposits, determined as of the related LIBOR
Determination Date as described below, plus 0.23%.
The Servicer will determine LIBOR for each Interest Period as of the second
LIBOR business day before the commencement of such Interest Period (each, a
"LIBOR Determination Date"). For purposes of calculating LIBOR, a LIBOR
business day is any business day on which dealings in deposits in United States
Dollars are transacted in the London interbank market.
"LIBOR" means, with respect to each day of each Interest Period (or portion
thereof), the rate per annum shown on page 3750 of the Dow Jones & Company
Telerate screen or any successor page as the rate for United States Dollar
deposits for a period of one month as of 11:00 a.m., London time, on the LIBOR
Determination Date for such Interest Period; provided, however, that if no such
rate is shown, LIBOR will be
S-23
<PAGE>
the rate per annum (rounded upwards, if necessary, to the nearest one-sixteenth
of one percent) based on the offered rates for United States Dollar deposits
for a period of one month as displayed on page "LIBO" of the Reuters Monitor
Money Rates Service or any successor page as of 11:00 a.m., London time, on the
LIBOR Determination Date for such Interest Period, it being understood that if
at least two such rates appear on such page, the rate will be the arithmetic
mean of such displayed rates; and provided further, that (i) if fewer than two
such rates are displayed, LIBOR will be the rate per annum (rounded upwards, if
necessary, to the nearest one-sixteenth of one percent) equal to the arithmetic
mean of the rates at which deposits in United States Dollars are offered by the
Reference Banks at approximately 11:00 a.m., London time, on the LIBOR
Determination Date for such Interest Period to prime banks in the London
interbank market for a period of one month and (ii) if fewer than two such
rates are provided as requested, LIBOR will be the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent) equal to
the arithmetic mean of the rates quoted by two or more major banks in New York
City, selected by the Servicer, at approximately 11:00 a.m., New York City
time, on the LIBOR Determination Date for such Interest Period to leading
European banks for United States Dollar deposits for a period of one month. If
fewer than two major banks in New York City are quoting rates for such deposits
at such time, the rate for that day will be deemed to be the rate as determined
with respect to the preceding Interest Period.
"Reference Banks" means two or more major banks in the London interbank
market selected by the Servicer.
"Interest Period" means, with respect to any Interest Payment Date, the
period from and including the preceding Interest Payment Date to but excluding
such Interest Payment Date; provided, however, that the initial Interest Period
will commence on and include the Series Issuance Date and end on but exclude
the first Interest Payment Date following the Series Issuance Date, which first
Interest Payment Date will be August 16, 1999.
Interest will accrue on the Class B Invested Amount at the rate of 6.80% per
annum (the "Class B Certificate Rate"). Interest will be distributed to the
Class B Certificateholders on August 16, 1999 and each Interest Payment Date
thereafter in an amount equal to one-twelfth of the product of the Class B
Certificate Rate and the Class B Invested Amount as of the preceding Record
Date, except that interest distributed on the first Interest Payment Date with
respect to the Class B Certificates will be equal to the interest accrued on
the Class B Invested Amount at the Class B Certificate Rate from the Series
Issuance Date, calculated on the basis of a 360-day year of twelve 30-day
months. Interest with respect to the Class B Certificates due but not paid on
any Interest Payment Date will be due on the next succeeding Interest Payment
Date with additional interest on such amount at a rate equal to the Class B
Certificate Rate to the extent permitted by law.
Interest payments on the Class A Certificates and the Class B Certificates on
any Interest Payment Date will be funded from Available Finance Charge
Collections for the related Monthly Period as described under "--Application of
Collections--Payments of Interest, Fees and Other Items". To the extent that
Available Finance Charge Collections for such Monthly Period are insufficient
to pay interest on the Class A Certificates, Reallocated Principal Collections
that would otherwise be allocable to the Class D Invested Amount, the
Collateral Invested Amount and the Class B Invested Amount will be used to make
such payments. To the extent that Available Finance Charge Collections for such
Monthly Period are insufficient to pay interest on the Class B Certificates,
Reallocated Class D Principal Collections, Reallocated Collateral Principal
Collections and, to the extent that the application thereof to pay interest on
the Class B Certificates would not result in a reduction of the Class B
Invested Amount, Reallocated Class B Principal Collections, that would
otherwise be allocable to the Class D Invested Amount, the Collateral Invested
Amount and the Class B Invested Amount (to the extent such amounts are not
needed to pay interest on the Class A Certificates) will be used to make such
payments.
"Available Finance Charge Collections" means, with respect to any
Distribution Date, an amount equal to the sum of: (a) the product of the
Floating Allocation Percentage and the aggregate amount of collections of
Finance Charge Receivables with respect to the related Monthly Period
(including any investment earnings and
S-24
<PAGE>
certain other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Pooling Agreement, but excluding any
investment earnings constituting Principal Funding Investment Proceeds); (b)
the Principal Funding Investment Proceeds, if any, with respect to such
Distribution Date; (c) amounts, if any, withdrawn from the Reserve Account that
are required to be included in Available Finance Charge Collections pursuant to
the Series 1999-1 Supplement with respect to such Distribution Date; (d) any
Additional Finance Charges from other Series in Group One that are allocated to
Series 1999-1 with respect to such Monthly Period; and (e) payments, if any,
received with respect to such Distribution Date under any interest rate swap or
cap agreement assigned to the Trust for the benefit of the Series 1999-1
Certificateholders.
Principal
During the revolving period with respect to the Series 1999-1 Certificates
(the "Revolving Period") (which begins on May 31, 1999 (the "Series Cut-Off
Date") and ends immediately prior to the commencement of the Class A
Accumulation Period or, if earlier, the Early Amortization Period), no
principal payments will be made to Class A Certificateholders or Class B
Certificateholders. On each Distribution Date with respect to the Class A
Accumulation Period, principal will be deposited in the Principal Funding
Account in an amount up to the Class A Controlled Deposit Amount with respect
to such Distribution Date and amounts on deposit therein will be distributed to
the Class A Certificateholders on the Class A Expected Final Payment Date. If
the Class A Invested Amount is paid in full on the Class A Expected Final
Payment Date, then on each Distribution Date with respect to the Class B
Accumulation Period, principal will be deposited in the Principal Funding
Account in an amount up to the Class B Controlled Deposit Amount with respect
to such Distribution Date and amounts on deposit therein will be distributed to
the Class B Certificateholders on the Class B Expected Final Payment Date. If
the Class A Invested Amount is not paid in full on the Class A Expected Final
Payment Date or the Class B Invested Amount is not paid in full on the Class B
Expected Final Payment Date, a Pay Out Event will occur and an Early
Amortization Period will commence. During the Early Amortization Period,
principal will be paid to the Class A Certificateholders monthly on each
Special Payment Date until the Class A Invested Amount is paid in full and then
to the Class B Certificateholders until the Class B Invested Amount is paid in
full or, in either case, until the Series Termination Date occurs. If a Pay Out
Event occurs with respect to the Series 1999-1 Certificates during the Class A
Accumulation Period or the Class B Accumulation Period, any amount on deposit
in the Principal Funding Account will be paid to the Class A Certificateholders
or the Class B Certificateholders, as the case may be, on the first Special
Payment Date. See "--Application of Collections--Payments of Principal" and "--
Pay Out Events" herein and "Description of the Certificates--Pay Out Events" in
the Prospectus for a discussion of events that might lead to the commencement
of an Early Amortization Period.
The accumulation period with respect to the Class A Certificates (the "Class
A Accumulation Period") is scheduled to commence at the close of business on
May 31, 2002. However, the Servicer may elect to postpone the commencement of
the Class A Accumulation Period and extend the length of the Revolving Period,
subject to the conditions set forth below. The Servicer may make such election
only if the Class A Accumulation Period Length (determined as described below)
is less than twenty-four months and if no Pay Out Event has occurred and is
continuing with respect to any other Series. On each Determination Date during
the Revolving Period, the Servicer will determine the "Class A Accumulation
Period Length", which is the number of months expected to be required fully to
fund the Class A Initial Invested Amount no later than the Class A Expected
Final Payment Date, based on (a) the expected monthly collections of Principal
Receivables allocated to all outstanding Series (other than certain variable
funding Series), assuming a principal payment rate no greater than the lowest
monthly principal payment rate on the Receivables for the preceding twelve
months and (b) the amount of principal expected to be distributable to the
Certificateholders of all outstanding Series (excluding any variable funding
Series) that are not expected to be in their revolving period during the Class
A Accumulation Period. If the Class A Accumulation Period Length is less than
twenty-four months, the Servicer may, at its option, postpone the commencement
of the Class A Accumulation Period such that the number of months included in
the Class A Accumulation Period will be equal to or exceed the Class A
Accumulation Period Length. The effect of the foregoing calculation is to
permit the reduction of the length of the Class A
S-25
<PAGE>
Accumulation Period based on the invested amounts of certain other Series which
are expected to be in their revolving periods during the Class A Accumulation
Period or on increases in the principal payment rate occurring after the Series
Issuance Date. The length of the Class A Accumulation Period will not be less
than one month. If the commencement of the Class A Accumulation Period is
delayed in accordance with the foregoing, and if a Pay Out Event with respect
to Series 1999-1 occurs after the date originally scheduled as the commencement
of the Class A Accumulation Period or a Pay Out Event occurs with respect to
any other Series, then it is probable that the Class A Certificateholders, and
consequently the Class B Certificateholders, would receive some of their
principal later than if the Class A Accumulation Period had not been delayed.
Unless a Pay Out Event occurs, the accumulation period with respect to the
Class B Certificates (the "Class B Accumulation Period") will commence at the
close of business on the last business day of the Monthly Period immediately
preceding the Class A Expected Final Payment Date.
Allocation Percentages
Pursuant to the Pooling Agreement, for each day during each Monthly Period,
the Servicer will allocate between the Series 1999-1 Certificateholders'
Interest, the Seller's Interest and the Certificateholders' Interests of the
other Series issued and outstanding from time to time all collections of
Finance Charge Receivables and Principal Receivables and the Defaulted Amount
with respect to such Monthly Period. Collections of Finance Charge Receivables
and the Defaulted Amount with respect to any Monthly Period will be allocated
at all times to the Series 1999-1 Certificateholders' Interest based on the
percentage equivalent of a fraction, the numerator of which is the Adjusted
Invested Amount as of the last day of the immediately preceding Monthly Period
and the denominator of which is the sum of the total amount of Principal
Receivables in the Trust and the amount on deposit in the Special Funding
Account as of the last day of such immediately preceding Monthly Period;
provided, however, that for the first Monthly Period, the numerator will be the
Initial Invested Amount for the period from and including the Series Issuance
Date through and including the last day of such first Monthly Period and the
denominator will be the sum of the Principal Receivables in the Trust and the
amount on deposit in the Special Funding Account as of the Series Cut-Off Date
(the "Floating Allocation Percentage"). Collections of Principal Receivables
with respect to each day during any Monthly Period at all times will be
allocated to the Series 1999-1 Certificateholders' Interest based on the
percentage equivalent of a fraction, the numerator of which is (a) during the
Revolving Period, the Invested Amount as of the last day of the preceding
Monthly Period and (b) during the Class A Accumulation Period, the Class B
Accumulation Period or the Early Amortization Period, the Invested Amount as of
the last day of the Revolving Period and the denominator of which is the
greater of (i) the sum of the Principal Receivables in the Trust and the amount
on deposit in the Special Funding Account as of the last day of the preceding
Monthly Period and (ii) the sum of the numerators used to calculate the
allocation percentages with respect to collections of Principal Receivables for
all Series outstanding as of the date of determination (the "Principal
Allocation Percentage").
"Adjusted Invested Amount" means, when used with respect to any date of
determination, an amount equal to the sum of the Class A Adjusted Invested
Amount, the Class B Adjusted Invested Amount, the Collateral Invested Amount
and the Class D Invested Amount.
"Class A Adjusted Invested Amount" means, when used with respect to any date
of determination, an amount equal to the excess, if any, of the Class A
Invested Amount over the amount, if any, on deposit in the Principal Funding
Account with respect to the Class A Certificate on such date.
"Class B Adjusted Invested Amount" means, when used with respect to any date
of determination, an amount equal to the excess, if any, of the Class B
Invested Amount over the amount, if any, on deposit in the Principal Funding
Account with respect to the Class B Certificates on such date.
"Class A Invested Amount" means, when used with respect to any date of
determination, an amount equal to (a) the Class A Initial Invested Amount,
minus (b) the aggregate amount of principal payments made to Class A
Certificateholders prior to such date, minus (c) the excess, if any, of the
aggregate amount of Class
S-26
<PAGE>
A Charge-Offs over the aggregate amount of Class A Charge-Offs reimbursed as
described under "--Application of Collections--Payments of Interest, Fees and
Other Items" prior to such date; provided, however, that the Class A Invested
Amount will not be reduced below zero. "Class A Initial Invested Amount" means
$500,000,000.
"Class B Invested Amount" means, when used with respect to any date of
determination, an amount equal to (a) the Class B Initial Invested Amount,
minus (b) the aggregate amount of principal payments made to Class B
Certificateholders prior to such date, minus (c) the aggregate amount by which
the Class B Invested Amount has been reduced in respect of the application of
Reallocated Class B Principal Collections on all prior Distribution Dates as
described under "--Application of Collections--Payments of Interest, Fees and
Other Items", minus (d) the aggregate amount of Class B Charge-Offs prior to
such date, plus (e) the aggregate amount of Available Finance Charge
Collections applied on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d) as
described under "--Application of Collections--Payments of Interest, Fees and
Other Items"; provided, however, that the Class B Invested Amount will not be
reduced below zero. "Class B Initial Invested Amount" means $65,705,000.
"Collateral Invested Amount" means, when used with respect to any date of
determination, an amount equal to (a) the Collateral Initial Invested Amount,
minus (b) the aggregate amount of principal payments made to the Collateral
Interest Holder prior to such date, minus (c) the aggregate amount by which the
Collateral Invested Amount has been reduced in respect of the application of
Reallocated Class B Principal Collections and Reallocated Collateral Principal
Collections on all prior Distribution Dates as described under "--Application
of Collections--Payments of Interest, Fees and Other Items", minus (d) the
aggregate amount by which the Collateral Invested Amount has been reduced on
all prior Distribution Dates as described under "--Defaulted Amounts; Charge-
Offs", plus (e) the aggregate amount of Available Finance Charge Collections
applied on all prior Distribution Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c) and (d) as described under "--
Application of Collections--Payments of Interest, Fees and Other Items";
provided, however, that the Collateral Invested Amount will not be reduced
below zero. "Collateral Initial Invested Amount" means $52,884,000.
"Class D Invested Amount" means, when used with respect to any date of
determination, an amount equal to (a) the Class D Initial Invested Amount,
minus (b) the aggregate amount of principal payments made to the Class D Holder
prior to such date, minus (c) the aggregate amount by which the Class D
Invested Amount has been reduced in respect of the application of Reallocated
Principal Collections on all prior Distribution Dates as described under "--
Application of Collections--Payments of Interest, Fees and Other Items", minus
(d) the aggregate amount by which the Class D Invested Amount has been reduced
on all prior Distribution Dates as described under "--Defaulted Amounts;
Charge-Offs", plus (e) the aggregate amount of Available Finance Charge
Collections applied on all prior Distribution Dates for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d) as
described under "--Application of Collections--Payments of Interest, Fees and
Other Items"; provided, however, that the Class D Invested Amount will not be
reduced below zero. "Class D Initial Invested Amount" means $22,436,642.
"Invested Amount" means, with respect to any date of determination, an amount
equal to the sum of the Class A Invested Amount, the Class B Invested Amount,
the Collateral Invested Amount and the Class D Invested Amount. "Initial
Invested Amount" means $641,025,642.
Application of Collections
Payments of Interest, Fees and Other Items. On each Distribution Date, the
Servicer will apply (if the Bank is the Servicer and the Collection Account is
maintained with the Bank) or will cause the Trustee to apply Available Finance
Charge Collections and Reallocated Principal Collections on deposit in the
Collection Account with respect to such Distribution Date to make the following
distributions:
S-27
<PAGE>
(a) On each Distribution Date, Available Finance Charge Collections with
respect to such Distribution Date will be distributed in the following
priority:
(i) an amount equal to Class A Monthly Interest for such Distribution
Date, plus the amount of any Class A Monthly Interest previously due but
not distributed to Class A Certificateholders on any prior Distribution
Date, plus the amount of any Class A Additional Interest for such
Distribution Date and any Class A Additional Interest previously due but
not distributed to Class A Certificateholders on any prior Distribution
Date, will be distributed to the Paying Agent for payment to the Class A
Certificateholders;
(ii) an amount equal to Class B Monthly Interest for such Distribution
Date, plus the amount of any Class B Monthly Interest previously due but
not distributed to Class B Certificateholders on any prior Distribution
Date, plus the amount of any Class B Additional Interest for such
Distribution Date and any Class B Additional Interest previously due but
not distributed to Class B Certificateholders on any prior Distribution
Date, will be distributed to the Paying Agent for payment to the Class B
Certificateholders;
(iii) an amount equal to the Monthly Investor Servicing Fee for such
Distribution Date, plus the amount of any Monthly Investor Servicing Fee
previously due but not distributed to the Servicer on any prior
Distribution Date, will be distributed to the Servicer (unless such amount
has been netted against deposits to the Collection Account in accordance
with the Pooling Agreement);
(iv) an amount equal to the Class A Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date;
(v) an amount equal to the aggregate amount of Class A Charge-Offs that
have not been previously reimbursed will be treated as a portion of
Available Principal Collections for such Distribution Date;
(vi) an amount equal to accrued and unpaid interest (including any
interest on amounts due but not paid pursuant to this paragraph on a prior
Distribution Date) at the Class B Certificate Rate on the excess, if any,
of the outstanding principal amount of the Class B Certificates over the
Class B Invested Amount will be distributed to the Paying Agent for payment
to the Class B Certificateholders;
(vii) an amount equal to the Class B Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date;
(viii) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (c) and (d) of the
definition of "Class B Invested Amount" above (but not in excess of the
aggregate amount of such reductions that have not been previously
reimbursed) will be treated as a portion of Available Principal Collections
with respect to such Distribution Date;
(ix) an amount equal to Collateral Monthly Interest for such Distribution
Date, plus the amount of any Collateral Monthly Interest previously due but
not paid to the Collateral Interest Holder on any prior Distribution Date,
will be paid to the Collateral Interest Holder for application in
accordance with the Collateral Agreement;
(x) an amount equal to the Collateral Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections with respect to such Distribution Date;
(xi) on each Distribution Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates
pursuant to the Series 1999-1 Supplement, an amount up to the excess, if
any, of the Required Reserve Account Amount over the Available Reserve
Account Amount will be deposited into the Reserve Account;
(xii) an amount equal to the aggregate amount by which the Collateral
Invested Amount has been reduced pursuant to clauses (c) and (d) of the
definition of "Collateral Invested Amount" above (but not in excess of the
aggregate amount of such reductions that have not been previously
reimbursed) will be treated as a portion of Available Principal Collections
with respect to such Distribution Date;
(xiii) an amount equal to the Class D Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections with respect to such Distribution Date;
S-28
<PAGE>
(xiv) an amount equal to the aggregate amount by which the Class D
Invested Amount has been reduced pursuant to clauses (c) and (d) of the
definition of "Class D Invested Amount" above (but not in excess of the
aggregate amount of such reductions that have not been previously
reimbursed) will be treated as a portion of Available Principal Collections
with respect to such Distribution Date;
(xv) an amount equal to the aggregate of any other amounts then due to
the Collateral Interest Holder pursuant to the Collateral Agreement (to the
extent such amounts are payable pursuant to the Collateral Agreement out of
Available Non-Principal Funds (as defined in the Collateral Agreement))
will be distributed to the Collateral Interest Holder for application in
accordance with the Collateral Agreement; and
(xvi) the balance, if any, will constitute Additional Finance Charges for
such Distribution Date and will be available for allocation to other Series
in Group One or to or at the direction of the Bank as described under "--
Sharing of Additional Finance Charges."
"Class A Additional Interest" means, with respect to any Distribution Date
and the concurrent Interest Payment Date, if the Class A Interest Shortfall
with respect to the preceding Interest Payment Date is greater than zero, an
amount equal to the product of (i) a fraction, the numerator of which is the
actual number of days in the related Interest Period and the denominator of
which is 360, (ii) the Class A Certificate Rate and (iii) such Class A Interest
Shortfall.
"Class A Defaulted Amount" means, with respect to any Distribution Date, an
amount equal to the product of (i) the Defaulted Amount for the related Monthly
Period multiplied by the Floating Allocation Percentage for such Monthly Period
and (ii) the Class A Percentage for such Monthly Period.
"Class A Interest Shortfall" means, with respect to any Interest Payment
Date, the excess, if any, of the Class A Monthly Interest for such Interest
Payment Date over the aggregate amount of funds allocated and available to pay
such Class A Monthly Interest on such Interest Payment Date.
"Class A Monthly Interest" means, with respect to any Interest Payment Date,
an amount equal to the product of (i) a fraction, the numerator of which is the
actual number of days in the related Interest Period and the denominator of
which is 360, (ii) the Class A Certificate Rate and (iii) the outstanding
principal amount of the Class A Certificates as of the immediately preceding
Record Date.
"Class A Percentage" means, with respect to any Monthly Period, the
percentage equivalent of a fraction, the numerator of which is the Class A
Adjusted Invested Amount as of the last day of the immediately preceding
Monthly Period (or, in the case of the first Monthly Period, the Series
Issuance Date) and the denominator of which is the Adjusted Invested Amount as
of the last day of such immediately preceding Monthly Period (or, in the case
of the first Monthly Period, the Series Issuance Date).
"Class B Additional Interest" means, with respect to any Distribution Date
and the concurrent Interest Payment Date, if the Class B Interest Shortfall
with respect to the preceding Interest Payment Date is greater than zero, an
amount equal to one-twelfth the product of (i) the Class B Certificate Rate and
(ii) such Class B Interest Shortfall.
"Class B Defaulted Amount" means, with respect to any Distribution Date, an
amount equal to the product of (i) the Defaulted Amount for the related Monthly
Period multiplied by the Floating Allocation Percentage for such Monthly Period
and (ii) the Class B Percentage for such Monthly Period.
"Class B Interest Shortfall" means, with respect to any Interest Payment
Date, the excess, if any, of the Class B Monthly Interest for such Interest
Payment Date over the aggregate amount of funds allocated and available to pay
such Class B Monthly Interest on such Interest Payment Date.
"Class B Monthly Interest" means, with respect to any Interest Payment Date,
an amount equal to one-twelfth of the product of (i) the Class B Certificate
Rate and (ii) the Class B Invested Amount as of the
S-29
<PAGE>
immediately preceding Record Date, except that, with respect to the first
Interest Payment Date, Class B Monthly Interest means interest accrued on the
Class B Invested Amount at the Class B Certificate Rate from the Series
Issuance Date to but excluding the first Interest Payment Date, calculated on
the basis of a 360-day year of twelve 30-day months.
"Class B Percentage" means, with respect to any Monthly Period, the
percentage equivalent of a fraction, the numerator of which is the Class B
Adjusted Invested Amount as of the last day of the immediately preceding
Monthly Period (or, in the case of the first Monthly Period, the Series
Issuance Date) and the denominator of which is the Adjusted Invested Amount as
of the last day of such immediately preceding Monthly Period (or, in the case
of the first Monthly Period, the Series Issuance Date).
"Class D Defaulted Amount" means, with respect to each Distribution Date, an
amount equal to the product of (i) the Defaulted Amount for the related Monthly
Period multiplied by the Floating Allocation Percentage for such Monthly Period
and (ii) the Class D Percentage for such Monthly Period.
"Class D Percentage" means, with respect to any Monthly Period, 100% minus
the sum of the Class A Percentage, the Class B Percentage and the Collateral
Percentage.
"Collateral Agreement" means the agreement between the Bank, the Servicer and
the Trustee, relating to the Collateral Interest, as amended, supplemented or
modified from time to time.
"Collateral Defaulted Amount" means, with respect to each Distribution Date,
an amount equal to the product of (i) the Defaulted Amount for the related
Monthly Period multiplied by the Floating Allocation Percentage for such
Monthly Period and (ii) the Collateral Percentage for such Monthly Period.
"Collateral Monthly Interest" means, with respect to any Distribution Date,
one-twelfth of the product of (i) 8.00%, or such lesser rate as may be
designated as the "Collateral Interest Rate" in the Collateral Agreement, and
(iii) the outstanding principal amount of the Collateral Interest as of the
last business day of the preceding Monthly Period, except that, with respect to
the first Interest Payment Date, Collateral Monthly Interest means interest
accrued on the outstanding principal amount of the Collateral Interest at the
Collateral Interest Rate from the Series Issuance Date to but excluding the
first Interest Payment Date, calculated on the basis of a 360-day year of
twelve 30-day months.
"Collateral Percentage" means, with respect to any Monthly Period, the
percentage equivalent of a fraction, the numerator of which is the Collateral
Invested Amount as of the last day of the immediately preceding Monthly Period
(or, in the case of the first Monthly Period, the Series Issuance Date) and the
denominator of which is the Adjusted Invested Amount as of the last day of such
immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Series Issuance Date).
"Series Issuance Date" means June 24, 1999.
(b) On each Distribution Date, if Available Finance Charge Collections are
less than the sum of (i) current and overdue Class A Monthly Interest and any
Class A Additional Interest, (ii) current and overdue Class B Monthly Interest
and any Class B Additional Interest, (iii) current and overdue Monthly Investor
Servicing Fees, (iv) the Class A Defaulted Amount, (v) the Class B Defaulted
Amount and (vi) the Collateral Defaulted Amount as of, in each case, such
Distribution Date (such deficiency, the "Required Amount"), Reallocated Class D
Principal Collections for the related Monthly Period will be distributed to
fund any deficiency pursuant to paragraphs (a)(i), (a)(ii), (a)(iii), (a)(iv),
(a)(vii) and (a)(x) under "--Payments of Interest, Fees and Other Items", in
the priority set forth in such paragraphs, and the Class D Invested Amount
(after giving effect to reductions in the Class D Invested Amount on such
Distribution Date as described in the first paragraph under "--Defaulted
Amounts; Charge-Offs" in respect of the amount by which the Class D Defaulted
Amount exceeded the amount of Available Finance Charge Collections available to
fund the Class D Defaulted Amount) will be reduced by the amount of Reallocated
Class D Principal Collections so distributed;
S-30
<PAGE>
(c) On each Distribution Date, following the application of Available Finance
Charge Collections as described above and the application of Reallocated Class
D Principal Collections on such Distribution Date to fund the Required Amount,
if any, as described in the immediately preceding paragraph, Reallocated
Collateral Principal Collections for the related Monthly Period will be
distributed to fund any deficiency pursuant to paragraphs (a)(i), (a)(ii),
(a)(iii), (a)(iv) and (a)(vii) above, in the priority set forth in such
paragraphs, and the Class D Invested Amount (after giving effect to reductions
in the Class D Invested Amount on such Distribution Date (i) as described in
paragraph (b) above in respect of the application of the Reallocated Class D
Principal Collections and (ii) as described in the first paragraph under "--
Defaulted Amounts; Charge-Offs" in respect of the amount by which the Class D
Defaulted Amount exceeded the amount of Available Finance Charge Collections
available to fund the Class D Defaulted Amount) will be reduced by the amount
of Reallocated Collateral Principal Collections so distributed. If such
reduction would cause the Class D Invested Amount to be reduced below zero, the
Class D Invested Amount will be reduced to zero and the Collateral Invested
Amount (after giving effect to reductions in the Collateral Invested Amount on
such Distribution Date as described in the first paragraph under "--Defaulted
Amounts; Charge-Offs" in respect of the amount by which the Collateral
Defaulted Amount exceeded the amount of Available Finance Charge Collections
available to fund the Collateral Defaulted Amount) will be reduced by the
amount by which the Class D Invested Amount would have been reduced below zero;
and
(d) On each Distribution Date, following the application of Available Finance
Charge Collections as described above and the application of Reallocated Class
D Principal Collections and Reallocated Collateral Principal Collections for
the related Monthly Period as described in the two immediately preceding
paragraphs, Reallocated Class B Principal Collections will be distributed to
fund any deficiency pursuant to paragraphs (a)(i), (a)(ii) (but only to the
extent that any application of Reallocated Class B Principal Collections to the
amount described in paragraph (a)(ii) would not result in a reduction of the
Class B Invested Amount), (a)(iii) and (a)(iv) above, in the priority set forth
in such paragraphs, and the Class D Invested Amount (after giving effect to
reductions in the Class D Invested Amount on such Distribution Date (i) as
described in paragraph (b) above in respect of the application of the
Reallocated Class D Principal Collections, (ii) as described in paragraph (c)
above in respect of the application of the Reallocated Collateral Principal
Collection and (iii) as described in the first paragraph under "--Defaulted
Amounts; Charge-Offs" in respect of the amount by which the Class D Defaulted
Amount exceeded the amount of Available Finance Charge Collections available to
fund the Class D Defaulted Amount) will be reduced by the amount of Reallocated
Class B Principal Collections so distributed. If such reduction would cause the
Class D Invested Amount to be reduced below zero, the Class D Invested Amount
will be reduced to zero and the Collateral Invested Amount (after giving effect
to reductions in the Collateral Invested Amount on such Distribution Date (i)
as described in paragraph (c) above in respect of the application of the
Reallocated Collateral Principal Collections and (ii) as described in the first
paragraph under "--Defaulted Amounts; Charge-Offs" in respect of the amount by
which the Collateral Defaulted Amount exceeded the amount of Available Finance
Charge Collections available to fund the Collateral Defaulted Amount) will be
reduced by the amount so distributed. If such reduction would cause the
Collateral Invested Amount to be reduced below zero, the Collateral Invested
Amount will be reduced to zero and the Class B Invested Amount (after giving
effect to reductions in the Class B Invested Amount on such Distribution Date
as described in the third paragraph under "--Defaulted Amounts; Charge-Offs" in
respect of the amount by which the Class B Defaulted Amount exceeded the amount
of Available Finance Charge Collections, Reallocated Class D Principal
Collections and Reallocated Collateral Principal Collections available to fund
the Class B Defaulted Amount) will be reduced by the amount by which the
Collateral Invested Amount would have been reduced below zero.
"Reallocated Class B Principal Collections" means, with respect to any
Monthly Period, the lesser of (i) an amount equal to the excess, if any, of the
full amount required to be paid pursuant to paragraphs (a)(i), (a)(ii) (but
only to the extent that any application of Class B Principal Collections to the
amount described in paragraph (a)(ii) would not result in a reduction of the
Class B Invested Amount), (a)(iii) and (a)(iv) above over Available Finance
Charge Collections, Reallocated Collateral Principal Collections and
Reallocated Class D Principal Collections applied with respect thereto for such
Monthly Period and (ii) the sum for each day of
S-31
<PAGE>
the related Monthly Period of the product obtained by multiplying (A) the
Principal Allocation Percentage with respect to such day, (B) the amount of
such day's collections of Principal Receivables and (C) the Class B Percentage
as of the last day of the immediately preceding Monthly Period.
"Reallocated Class D Principal Collections" means, with respect to any
Monthly Period, the lesser of (i) the Required Amount and (ii) the sum for each
day of the related Monthly Period of the product obtained by multiplying (A)
the Principal Allocation Percentage with respect to such day, (B) the amount of
such day's collections of Principal Receivables and (C) the Class D Percentage
as of the last day of the immediately preceding Monthly Period.
"Reallocated Collateral Principal Collections" means, with respect to any
Monthly Period, the lesser of (i) an amount equal to the excess, if any, of the
full amount required to be paid pursuant to paragraphs (a)(i), (a)(ii),
(a)(iii), (a)(iv) and (a)(vii) above over Available Finance Charge Collections
and Reallocated Class D Principal Collections applied with respect thereto for
such Monthly Period and (ii) the sum for each day of the related Monthly Period
of the product obtained by multiplying (A) the Principal Allocation Percentage
with respect to such day, (B) the amount of such day's collections of Principal
Receivables and (C) the Collateral Percentage as of the last day of the
immediately preceding Monthly Period.
"Reallocated Principal Collections" means, with respect to any Monthly
Period, the sum of (i) Reallocated Class B Principal Collections with respect
to such Monthly Period, (ii) Reallocated Collateral Principal Collections with
respect to such Monthly Period and (iii) Reallocated Class D Principal
Collections with respect to such Monthly Period.
Payments of Principal. On each Distribution Date, the Servicer will apply (if
the Bank is the Servicer and the Collection Account is maintained with the
Bank) or will cause the Trustee to apply Available Principal Collections then
on deposit in the Collection Account to make the following distributions:
(a) On each Distribution Date during the Revolving Period, an amount
equal to the Available Principal Collections deposited in the Collection
Account for the related Monthly Period will be distributed in the following
priority:
(i) an amount equal to Collateral Monthly Principal, if any, for such
Distribution Date will be distributed to the Collateral Interest Holder
for application in accordance with the Collateral Agreement; and
(ii) the balance, if any, of Available Principal Collections then on
deposit in the Collection Account will be treated as Shared Principal
Collections and applied in accordance with the Pooling Agreement.
(b) On each Distribution Date during the period beginning on the earlier
to occur of (w) the first Distribution Date with respect to the Class A
Accumulation Period and (x) the first Special Payment Date and ending on
the earlier to occur of (y) the date on which the Invested Amount has been
paid in full to the Series 1999-1 Certificateholders and (z) the Series
Termination Date, an amount equal to the Available Principal Collections
deposited in the Collection Account for the related Monthly Period will be
distributed in the following priority:
(i) an amount equal to Class A Monthly Principal for such
Distribution Date will be deposited in the Principal Funding Account,
and on the Class A Expected Final Payment Date and each Special Payment
Date such amounts will be paid to Class A Certificateholders;
(ii) an amount equal to Class B Monthly Principal for such
Distribution Date will be deposited in the Principal Funding Account,
and on the Class B Expected Final Payment Date and each Special Payment
Date such amounts will be paid to Class B Certificateholders;
S-32
<PAGE>
(iii) an amount equal to the Collateral Monthly Principal, if any,
for such Distribution Date will be distributed to the Collateral
Interest Holder for application in accordance with the Collateral
Agreement;
(iv) an amount equal to the Class D Monthly Principal, if any, for
such Distribution Date will be distributed to the Class D Interest
Holder; and
(v) the balance, if any, of Available Principal Collections then on
deposit in the Collection Account will be treated as Shared Principal
Collections and applied in accordance with the Pooling Agreement.
"Available Principal Collections" means, with respect to any Distribution
Date, an amount equal to (i) the sum of (x) an aggregate amount equal to the
sum for each day in the related Monthly Period of the product of the Principal
Allocation Percentage with respect to such day and the amount of such day's
collections of Principal Receivables, (y) any Shared Principal Collections with
respect to other Series that are allocated to Series 1999-1 with respect to
such Monthly Period and (z) any other amounts treated as Available Principal
Collections pursuant to the Series 1999-1 Supplement with respect to such
Distribution Date, minus (ii) Reallocated Principal Collections with respect to
such Monthly Period.
"Class A Controlled Accumulation Amount" means, for any Distribution Date
with respect to the Class A Accumulation Period, $20,833,333.34; provided,
however, that if the Servicer elects to postpone the commencement of the Class
A Accumulation Period as described above under "--Principal", the Class A
Controlled Accumulation Amount for each Distribution Date with respect to the
Class A Accumulation Period will be an amount determined by the Servicer such
that the sum of the Class A Controlled Accumulation Amounts for all such
Distribution Dates will not be less than the Class A Initial Invested Amount.
"Class A Controlled Deposit Amount" means, for any Distribution Date with
respect to the Class A Accumulation Period, an amount equal to the sum of the
Class A Controlled Accumulation Amount for such Distribution Date and any Class
A Deficit Controlled Accumulation Amount for the preceding Distribution Date.
"Class A Deficit Controlled Accumulation Amount" means, (i) on the first
Distribution Date with respect to the Class A Accumulation Period, the excess,
if any, of the Class A Controlled Accumulation Amount for such Distribution
Date over the amount deposited in the Principal Funding Account as Class A
Monthly Principal for such Distribution Date and (ii) on each subsequent
Distribution Date with respect to the Class A Accumulation Period, the excess,
if any, of the Class A Controlled Accumulation Amount for such subsequent
Distribution Date and any Class A Deficit Controlled Accumulation Amount for
the prior Distribution Date over the amount deposited in the Principal Funding
Account as Class A Monthly Principal on such subsequent Distribution Date.
"Class A Monthly Principal" means, beginning with the first to occur of (i)
the first Special Payment Date, if any, and (ii) the first Distribution Date
with respect to the Class A Accumulation Period, an amount equal to the least
of (x) Available Principal Collections on deposit in the Collection Account
with respect to such Distribution Date, (y) for each Distribution Date with
respect to the Class A Accumulation Period, the Class A Controlled Deposit
Amount for such Distribution Date and (z) the Class A Adjusted Invested Amount
on such Distribution Date.
"Class B Controlled Accumulation Amount" means, for any Distribution Date
with respect to the Class B Accumulation Period, $32,852,500, or such other
amount as the Servicer may determine upon written notice to the Trustee prior
to the commencement of the Class B Accumulation Period; provided, however, that
the Class B Controlled Accumulation Amount for each Distribution Date with
respect to the Class B Accumulation Period will be an amount determined by the
Servicer such that the sum of the Class B Controlled Accumulation Amounts for
all such Distribution Dates will not be less than the Class B Initial Invested
Amount.
S-33
<PAGE>
"Class B Controlled Deposit Amount" means, for any Distribution Date with
respect to the Class B Accumulation Period, an amount equal to the sum of the
Class B Controlled Accumulation Amount for such Distribution Date and any Class
B Deficit Controlled Accumulation Amount for the preceding Distribution Date.
"Class B Deficit Controlled Accumulation Amount" means, (i) on the first
Distribution Date with respect to the Class B Accumulation Period, the excess,
if any, of the Class B Controlled Accumulation Amount for such Distribution
Date over the amount deposited in the Principal Funding Account as Class B
Monthly Principal for such Distribution Date and (ii) on each subsequent
Distribution Date with respect to the Class B Accumulation Period, the excess,
if any, of the Class B Controlled Accumulation Amount for such subsequent
Distribution Date and any Class B Deficit Controlled Accumulation Amount for
the prior Distribution Date over the amount deposited in the Principal Funding
Account as Class B Monthly Principal on such subsequent Distribution Date.
"Class B Monthly Principal" means, beginning with the Class B Principal
Commencement Date, an amount equal to the least of (x) Available Principal
Collections on deposit in the Collection Account with respect to such
Distribution Date (less the portion of Available Principal Collections applied
to Class A Monthly Principal on such Distribution Date), (y) for each
Distribution Date with respect to the Class B Accumulation Period, the Class B
Controlled Deposit Amount for such Distribution Date and (z) the Class B
Adjusted Invested Amount on such Distribution Date.
"Class B Principal Commencement Date" means (a) if the Class A Invested
Amount is paid in full on the Class A Expected Final Payment Date and the Early
Amortization Period has not commenced, the Distribution Date following the
Class A Expected Final Payment Date and (b) otherwise, the Distribution Date on
which the Class A Invested Amount is paid in full.
"Class D Monthly Principal" means for any Distribution Date beginning with
the Distribution Date on which the Class A Invested Amount, the Class B
Invested Amount and the Collateral Invested Amount are paid in full, an amount
equal to the lesser of (x) Available Principal Collections (minus the portion
of Available Principal Collections applied to Class A Monthly Principal, Class
B Monthly Principal or Collateral Monthly Principal on such Distribution Date)
and (y) the Class D Invested Amount for such Distribution Date.
"Collateral Monthly Principal" means (i) for any Distribution Date prior to
the Distribution Date on which the Class A Invested Amount and the Class B
Invested Amount are paid in full, an amount equal to the lesser of (x)
Available Principal Collections not applied to Class A Monthly Principal or
Class B Monthly Principal on such Distribution Date and (y) the excess, if any,
of the Collateral Invested Amount over the Required Collateral Invested Amount
(after giving effect to any adjustments made to the Required Collateral
Invested Amount on such Distribution Date) and (ii) for any remaining
Distribution Date beginning with the Distribution Date on which the Class A
Invested Amount and the Class B Invested Amount are paid in full, an amount
equal to the lesser of (x) Available Principal Collections (minus the portion
of Available Principal Collections applied to Class A Monthly Principal or
Class B Monthly Principal on such Distribution Date) and (y) the Collateral
Invested Amount for such Distribution Date.
"Required Collateral Invested Amount" means the excess, if any, of (i) the
Required Enhancement Amount over (ii) the Required Class D Invested Amount.
"Required Enhancement Amount" means, with respect to any Distribution Date
(i) 11.75% of the Initial Invested Amount or (ii) with the consent of the
Collateral Interest Holder, 11.75% of the Adjusted Invested Amount on such
Distribution Date after taking into account any adjustments to the Adjusted
Invested Amount on such Distribution Date, but not less than $19,230,770;
provided, however, that (x) in the case of clause (ii), if a Pay Out Event with
respect to Series 1999-1 has occurred, the Required Enhancement Amount will
thereafter equal the Required Enhancement Amount for the Distribution Date
immediately preceding such Pay
S-34
<PAGE>
Out Event and (y) the Required Enhancement Amount may be reduced at the Bank's
option at any time, subject to the approval of each Rating Agency that has
rated the Class A Certificates and the Class B Certificates and subject to
certain requirements to notify the Servicer and the Trustee and obtain the
consent of the Collateral Interest Holder.
"Required Class D Invested Amount" means $22,436,642.
The Series 1999-1 Supplement may be amended by the Bank to reduce the
Required Class D Invested Amount or the Required Collateral Invested Amount
provided that the Required Enhancement Amount is not reduced. Any such
amendment to the Series 1999-1 Supplement will not require the consent of the
Class A Certificateholders or the Class B Certificateholders but will be
subject to the approval of each Rating Agency that has rated the Class A
Certificates or the Class B Certificates and the consent of the Collateral
Interest Holder.
Sharing of Additional Finance Charges
Upon the issuance of the Series 1999-1 Certificates, eight Series issued by
the Trust will be outstanding as of the Series Issuance Date and will be
included in a group of Series designated as "Group One". Group One is expected
to include additional Series issued from time to time. Subject to certain
limitations described under "Description of the Certificates--Sharing of
Additional Finance Charges" in the Prospectus, Additional Finance Charges, if
any, with respect to any Series included in Group One will be applied to cover
any shortfalls with respect to amounts payable from collections of Finance
Charge Receivables allocable to any other Series in Group One, pro rata based
upon the amount of the shortfall, if any, with respect to each other Series in
Group One. See "Description of the Certificates--Sharing of Additional Finance
Charges" in the Prospectus.
Principal Funding Account
The Servicer will establish and maintain in the name of the Trustee, on
behalf of the Trust, an Eligible Deposit Account for the benefit of the Class A
Certificateholders and the Class B Certificateholders (the "Principal Funding
Account"). Principal will be deposited in the Principal Funding Account on each
Distribution Date with respect to the Class A Accumulation Period, for the
Class A Certificates, and with respect to the Class B Accumulation Period, for
the Class B Certificates, as described above under "Application of
Collections--Payments of Principal". All amounts on deposit in the Principal
Funding Account (the "Principal Funding Account Balance") with respect to any
Distribution Date (after giving effect to any deposits to, or withdrawals from,
the Principal Funding Account to be made before or on such Distribution Date)
will be invested to the business day immediately preceding the following
Distribution Date by the Trustee at the direction of the Servicer in Eligible
Investments.
On each Distribution Date with respect to the Class A Accumulation Period and
the Class B Accumulation Period and on the first Special Payment Date, the
interest and other investment income (net of investment expenses and losses)
earned on such investments (the "Principal Funding Investment Proceeds") will
be withdrawn from the Principal Funding Account and will be included in
Available Finance Charge Collections as described above under "--Interest". If
such investments for any Distribution Date with respect to the Class A
Accumulation Period or the first Special Payment Date (on or prior to the Class
A Expected Final Payment Date) yield less than the Class A Certificate Rate for
the related Interest Period, the Principal Funding Investment Proceeds with
respect to such Distribution Date will be less than the Covered Amount for such
Distribution Date. It is intended that any such shortfall will be funded from
Available Finance Charge Collections available therefor (including, if
necessary, a withdrawal from the Reserve Account) or from Reallocated Principal
Collections, as described above under "--Application of Collections--Payments
of Interest, Fees and Other Items". Additionally, if such investments for any
Distribution Date with respect to the Class B Accumulation Period or the first
Special Payment Date (after the Class A Expected Final Payment Date) yield less
than the Class B Certificate Rate for the related Interest Period, the
Principal Funding
S-35
<PAGE>
Investment Proceeds with respect to such Distribution Date will be less than
the amount of interest due Class B Certificateholders relating to amounts on
deposit in the Principal Funding Account in respect of the Class B
Certificates. It is intended that any such shortfall will be funded from
Available Finance Charge Collections available therefor, Reallocated Class D
Principal Collections, Reallocated Collateral Principal Collections or, to the
extent the application thereof to pay interest on the Class B Certificates
would not result in a reduction of the Class B Invested Amount, Reallocated
Class B Principal Collections, as described above under "--Application of
Collections--Payments of Interest, Fees and Other Items". Such available
amounts at any time will be limited and there can be no assurance that
sufficient funds will be available to fund any such shortfall.
The Principal Funding Account Balance, if any, in respect of the Class A
Certificates will be distributed to Class A Certificateholders on the Class A
Expected Final Payment Date or, if earlier, the first Special Payment Date and
the Principal Funding Account Balance, if any, in respect of the Class B
Certificates will be distributed to Class B Certificateholders on the Class B
Expected Final Payment Date or, if earlier, the first Special Payment Date
(after the Class A Expected Final Payment Date), in each case as described
under "-- Distributions".
Reserve Account
The Servicer will establish and maintain in the name of the Trustee, on
behalf of the Trust, an Eligible Deposit Account for the benefit of the Class A
Certificateholders (the "Reserve Account"). On each Distribution Date from and
after the Reserve Account Funding Date, but prior to the termination of the
Reserve Account, the Trustee, acting pursuant to the Servicer's instructions,
will apply Available Finance Charge Collections (to the extent described above
under "--Application of Collections--Payment of Interest, Fees and Other
Items") to increase the amount on deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve Account Amount). The "Reserve
Account Funding Date" will be no later than the third Distribution Date prior
to the first Distribution Date with respect to the Class A Accumulation Period
(as it may have been postponed at the election of the Servicer as described
under "--Principal").
The "Required Reserve Account Amount" for any Distribution Date after the
Reserve Account Funding Date will be equal to the product of 0.50% and the
Class A Initial Invested Amount as of such Distribution Date, as provided in
the Servicer's instructions to the Trustee. On each Distribution Date, after
giving effect to any deposit to be made to, and any withdrawal to be made from,
the Reserve Account on such Distribution Date, the Trustee will withdraw from
the Reserve Account an amount equal to the excess, if any, of the amount on
deposit in the Reserve Account over the Required Reserve Account Amount and
will distribute such excess to or at the direction of the Bank.
Provided that the Reserve Account has not been terminated as described below,
all amounts on deposit in the Reserve Account with respect to any Distribution
Date (after giving effect to any deposits to, or withdrawals from, the Reserve
Account to be made on such Distribution Date) will be invested to the business
day immediately preceding the following Distribution Date by the Trustee at the
direction of the Servicer in Eligible Investments. The interest and other
investment income (net of investment expenses and losses) earned on such
investments will be retained in the Reserve Account (to the extent the amount
on deposit therein is less than the Required Reserve Account Amount) or
distributed to or at the direction of the Bank.
On or before each of the Distribution Dates with respect to the Class A
Accumulation Period and the first Special Payment Date (on or prior to the
Class A Expected Final Payment Date), funds, if any, on deposit in the Reserve
Account will be withdrawn from the Reserve Account, deposited in the Collection
Account and included in Available Finance Charge Collections as described above
under "--Interest", in an amount equal to the lesser of (a) the Available
Reserve Account Amount with respect to such Distribution Date or Special
Payment Date and (b) the excess, if any, of the Covered Amount with respect to
such Distribution Date or
S-36
<PAGE>
Special Payment Date over the Principal Funding Investment Proceeds with
respect to such Distribution Date or Special Payment Date; provided, however,
that the amount of such withdrawal will be reduced to the extent that funds
otherwise would be available to be deposited in the Reserve Account on such
Distribution Date or Special Payment Date. On the business day immediately
preceding each Distribution Date, the amount available to be withdrawn from the
Reserve Account (the "Available Reserve Account Amount") will be equal to the
lesser of the amount on deposit in the Reserve Account (before giving effect to
any deposit to be made to the Reserve Account on such Distribution Date) and
the Required Reserve Account Amount for such Distribution Date. The "Covered
Amount" for any Distribution Date with respect to the Class A Accumulation
Period or the first Special Payment Date (on or prior to the Class A Expected
Final Payment Date) will be equal to the product of (a) a fraction, the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, (b) the Class A Certificate Rate for such
Interest Period and (c) the Principal Funding Account Balance, if any, with
respect to the Class A Certificates as of the preceding Distribution Date.
The Reserve Account will not be available for the benefit of Class B
Certificateholders to fund any deficiency with respect to the yield on the
Principal Funding Account during the Class B Accumulation Period. The Reserve
Account will be terminated following the earliest to occur of (a) the date on
which the Class A Certificates are paid in full, (b) the business day
immediately preceding the first Special Payment Date (on or prior to the Class
A Expected Final Payment Date) and (c) the business day immediately preceding
the Class A Expected Final Payment Date. Upon the termination of the Reserve
Account, all amounts on deposit therein (after giving effect to any withdrawal
from the Reserve Account on such date as described above) will be distributed
to or at the direction of the Bank. Any amounts withdrawn from the Reserve
Account and distributed to or at the direction of the Bank as described above
will not be available for distribution to the Class A Certificateholders.
Defaulted Amounts; Charge-Offs
If, on any Distribution Date, the Class D Defaulted Amount exceeds the amount
of Available Finance Charge Collections available to fund the Class D Defaulted
Amount on such Distribution Date as described in paragraph (a)(xiii) under "--
Application of Collections--Payments of Interest, Fees and Other Items" above,
then the Class D Invested Amount will be reduced by the amount of such excess;
provided, however, that the Class D Invested Amount will not be reduced below
zero. Such reductions will thereafter be reimbursed and the Class D Invested
Amount increased (but not by an amount in excess of the aggregate unreimbursed
reductions) on any Distribution Date by the amount of Available Finance Charge
Collections available for that purpose as described in paragraph (a)(xiv) under
"--Application of Collections--Payments of Interest, Fees and Other Items"
above.
If, on any Distribution Date, the Class A Defaulted Amount for the related
Monthly Period exceeds the amount of Available Finance Charge Collections and
Reallocated Principal Collections applied thereto on such Distribution Date,
the Class D Invested Amount (after giving effect to reductions in the Class D
Invested Amount on such Distribution Date (a) as described in paragraphs (b),
(c) and (d) under "--Application of Collections--Payments of Interest, Fees and
Other Items" above in respect of the application of the Reallocated Principal
Collections and (b) as described in the immediately preceding paragraph in
respect of the amount by which the Class D Defaulted Amount exceeded the amount
of Available Finance Charge Collections available to fund the Class D Defaulted
Amount) will be reduced by the amount of such excess. If such reduction would
cause the Class D Invested Amount to be reduced below zero, the Class D
Invested Amount will be reduced to zero and the Collateral Invested Amount
(after giving effect to reductions in the Collateral Invested Amount on such
Distribution Date (a) as described in paragraphs (c) and (d) under "--
Application of Collections--Payments of Interest, Fees and Other Items" above
in respect of the application of the Reallocated Class B Principal Collections
and Reallocated Collateral Principal Collections and (b) as described in the
second immediately following paragraph in respect of the amount by which the
Collateral Defaulted Amount exceeded the amount of Available Finance Charge
Collections and Reallocated Class D Principal
S-37
<PAGE>
Collections available to fund the Collateral Defaulted Amount) will be reduced
by the amount of such excess. If such reduction would cause the Collateral
Invested Amount to be reduced below zero, the Collateral Invested Amount will
be reduced to zero and the Class B Invested Amount (after giving effect to
reductions in the Class B Invested Amount on such Distribution Date (a) as
described in paragraph (d) under "--Application of Collections--Payments of
Interest, Fees and Other Items" above in respect of the application of the
Reallocated Class B Principal Collections and (b) as described in the
immediately following paragraph in respect of the amount by which the Class B
Defaulted Amount exceeded the amount of Available Finance Charge Collections,
Reallocated Class D Principal Collections and Reallocated Collateral Principal
Collections available to fund the Class B Defaulted Amount) will be reduced by
the amount by which the Collateral Invested Amount would have been reduced
below zero. In the event that such reduction would cause the Class B Invested
Amount to be reduced below zero, the Class A Invested Amount will be reduced by
the amount by which the Class B Invested Amount would have been reduced below
zero (a "Class A Charge-Off"). Class A Charge-Offs will thereafter be
reimbursed and the Class A Invested Amount increased (but not by an amount in
excess of the aggregate unreimbursed Class A Charge-Offs) on any Distribution
Date by the amount of Available Finance Charge Collections available for that
purpose as described in paragraph (a)(v) under "--Application of Collections--
Payments of Interest, Fees and Other Items" above.
If, on any Distribution Date, the Class B Defaulted Amount for the related
Monthly Period exceeds the amount of the Available Finance Charge Collections,
Reallocated Class D Principal Collections and Reallocated Collateral Principal
Collections applied thereto on such Distribution Date, the Class D Invested
Amount (after giving effect to reductions in the Class D Invested Amount on
such Distribution Date (a) as described in paragraphs (b), (c) and (d) under
"--Application of Collections--Payments of Interest, Fees and Other Items"
above in respect of the application of the Reallocated Principal Collections,
(b) as described in the second immediately preceding paragraph in respect of
the amount by which the Class D Defaulted Amount exceeded the amount of
Available Finance Charge Collections available to fund the Class D Defaulted
Amount and (c) as described in the immediately preceding paragraph in respect
of the amount by which the Class A Defaulted Amount exceeded the amount of
Available Finance Charge Collections and Reallocated Principal Collections
available to fund the Class A Defaulted Amount) will be reduced by the amount
of such excess. If such reduction would cause the Class D Invested Amount to be
reduced below zero, the Class D Invested Amount will be reduced to zero and the
Collateral Invested Amount (after giving effect to reductions in the Collateral
Invested Amount on such Distribution Date (a) as described in paragraphs (c)
and (d) under "--Application of Collections--Payments of Interest, Fees and
Other Items" above in respect of the application of the Reallocated Class B
Principal Collections and Reallocated Collateral Principal Collections, (b) as
described in the immediately following paragraph in respect of the amount by
which the Collateral Defaulted Amount exceeded the amount of Available Finance
Charge Collections available to fund the Collateral Defaulted Amount and (c) as
described in the immediately preceding paragraph in respect of the amount by
which the Class A Defaulted Amount exceeded the amount of Available Finance
Charge Collections and Reallocated Principal Collections available to fund the
Class A Defaulted Amount) will be reduced by the amount of such excess. If such
reduction would cause the Collateral Invested Amount to be reduced below zero,
the Collateral Invested Amount will be reduced to zero and the Class B Invested
Amount will be reduced by the amount by which the Collateral Invested Amount
would have been reduced below zero (any reduction in the Class B Invested
Amount as described in this paragraph or the immediately preceding paragraph, a
"Class B Charge-Off"). Class B Charge-Offs will thereafter be reimbursed and
the Class B Invested Amount increased (but not by an amount in excess of the
aggregate unreimbursed Class B Charge-Offs) on any Distribution Date by the
amount of Available Finance Charge Collections available for that purpose as
described in paragraph (a)(viii) under "--Application of Collections--Payments
of Interest, Fees and Other Items" above.
If, on any Distribution Date, the Collateral Defaulted Amount for the related
Monthly Period exceeds the amount of the Available Finance Charge Collections
and Reallocated Class D Principal Collections applied thereto on such
Distribution Date, the Class D Invested Amount (after giving effect to
reductions in the Class D Invested Amount on such Distribution Date (a) as
described in paragraphs (b), (c) and (d) under "--Application of Collections--
Payments of Interest, Fees and Other Items" above in respect of the
S-38
<PAGE>
application of the Reallocated Principal Collections, (b) as described in the
third immediately preceding paragraph in respect of the amount by which the
Class D Defaulted Amount exceeded the amount of Available Finance Charge
Collections available to fund the Class D Defaulted Amount, (c) as described in
the second immediately preceding paragraph in respect of the amount by which
the Class A Defaulted Amount exceeded the amount of Available Finance Charge
Collections and Reallocated Principal Collections available to fund the Class A
Defaulted Amount and (c) as described in the immediately preceding paragraph in
respect of the amount by which the Class B Defaulted Amount exceeded the amount
of Available Finance Charge Collections, Reallocated Class D Principal
Collections and Reallocated Collateral Principal Collections available to fund
the Class B Defaulted Amount) will be reduced by the amount of such excess. If
such reduction would cause the Class D Invested Amount to be reduced below
zero, the Class D Invested Amount will be reduced to zero and the Collateral
Invested Amount will be reduced by the amount by which the Class D Invested
Amount would have been reduced below zero; provided, however, that the
Collateral Invested Amount will not be reduced below zero. Such reductions will
thereafter be reimbursed and the Collateral Invested Amount increased (but not
by an amount in excess of the aggregate unreimbursed reductions) on any
Distribution Date by the amount of Available Finance Charge Collections
available for that purpose as described in paragraph (a)(xii) under "--
Application of Collections--Payments of Interest, Fees and Other Items" above.
Pay Out Events
The Pay Out Events with respect to the Series 1999-1 Certificates will
include each of the events specified in the Prospectus under "Description of
the Certificates--Pay Out Events" and the following: the failure to pay in full
the Class A Invested Amount on the Class A Expected Final Payment Date or the
Class B Invested Amount on the Class B Expected Final Payment Date.
For purposes of the Pay Out Event described in clause (f) under "Description
of the Certificates--Pay Out Events" in the Prospectus, the terms "Base Rate"
and "Portfolio Yield" will be defined as follows with respect to the Series
1999-1 Certificates:
"Base Rate" means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the sum
of the Class A Monthly Interest, the Class B Monthly Interest and the
Collateral Monthly Interest and the Monthly Investor Servicing Fee based on an
assumed Series Servicing Fee Percentage of 2% per annum, in each case with
respect to the related Distribution Date, and the denominator of which is the
Invested Amount of the last day of the immediately preceding Monthly Period.
"Portfolio Yield" means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to (a)
Available Finance Charge Collections for the Distribution Date with respect to
such Monthly Period, minus (b) the Series 1999-1 Defaulted Amount for the
Distribution Date with respect to such Monthly Period, and the denominator of
which is the Invested Amount as of the last day of the immediately preceding
Monthly Period.
Distributions
Payments to the Class A Certificateholders and the Class B Certificateholders
will be made from the Collection Account and the Principal Funding Account. The
Servicer will instruct the Trustee to apply the funds on deposit in such
accounts to make the following distributions:
(a) on each Interest Payment Date and Special Payment Date with respect
to the Class A Certificates, all amounts on deposit in the Collection
Account that are allocated and available to pay interest on the Class A
Certificates (as described under "--Application of Collections") will be
distributed to the Class A Certificateholders;
S-39
<PAGE>
(b)(i) on the first Special Payment Date (on or prior to the Class A
Expected Final Payment Date) and on the Class A Expected Final Payment
Date, the Principal Funding Account Balance, if any, with respect to the
Class A Certificates and (ii) on each Special Payment Date (on or prior to
the Class B Principal Commencement Date), all amounts on deposit in the
Collection Account and the Principal Funding Account that are allocated and
available to pay principal of the Class A Certificates (as described under
"--Application of Collections") will be distributed to Class A
Certificateholders up to a maximum amount on any such date equal to the
Class A Invested Amount on such date (unless there has been an optional
repurchase of the Series 1999-1 Certificateholders' Interest due to the
failure to find a successor Servicer upon a Servicer Default (as described
in the Prospectus under "The Pooling Agreement Generally--Servicer
Default"), in which event, the foregoing limitation will not apply);
(c) on each Interest Payment Date and Special Payment Date with respect
to the Class B Certificates, all amounts on deposit in the Collection
Account that are allocated and available to pay interest on the Class B
Certificates (as described under "--Application of Collections") will be
distributed to the Class B Certificateholders; and
(d)(i) on the first Special Payment Date (after the Class A Expected
Final Payment Date) and on the Class B Expected Final Payment Date, the
Principal Funding Account Balance, if any, with respect to the Class B
Certificates and (ii) on each Special Payment Date (on or after the Class B
Principal Commencement Date), all amounts on deposit in the Collection
Account that are allocated and available to pay principal of the Class B
Certificates (as described under "--Application of Collections") will be
distributed to Class B Certificateholders up to a maximum amount on any
such date equal to the Class B Invested Amount on such date (unless there
has been an optional repurchase of the Series 1999-1 Certificateholders'
Interest due to the failure to find a successor Servicer upon a Servicer
Default (as described in the Prospectus under "The Pooling Agreement
Generally--Servicer Default"), in which event, the foregoing limitation
will not apply).
Paired Series
The Series 1999-1 Certificates may be paired with one or more other Series
(each, a "Paired Series") at or after the commencement of the Class A
Accumulation Period. Each Paired Series either (a) will be refunded in whole or
in part with an initial deposit to a prefunding account in an amount up to the
initial principal balance of such Paired Series and primarily from the proceeds
of the offering of such Paired Series or (b) will have a variable principal
amount. Any such prefunding account will be held for the benefit of such Paired
Series and not for the benefit of Series 1999-1 Certificateholders. As funds
are accumulated in the Principal Funding Account, either (i) in the case of a
refunded Paired Series, an equal or lesser amount of funds on deposit in any
prefunding account for such refunded Paired Series may be released (which funds
will be distributed to or at the direction of the Bank) or (ii) in the case of
a Paired Series having a variable principal amount, an interest in such
variable Paired Series in an equal or lesser amount may be sold by the Trust
(and the proceeds thereof will be distributed to or at the direction of the
Bank), and, in either case, the Invested Amount in the Trust of such Paired
Series will increase by up to a corresponding amount. In addition, it is
expected that any Paired Series will be excluded from the calculation of the
Required Principal Balance as described under "Special Considerations--Payments
and Maturity" in the Prospectus. The issuance of a Paired Series will be
subject to the conditions described under "Description of the Certificates--New
Issuances" in the Prospectus. There can be no assurance, however, that the
terms of any Paired Series might not have an impact on the timing or amount of
payments received by a Class A Certificateholder or a Class B
Certificateholder. See "Risk Factors--Issuance of Additional Series" in the
Prospectus.
Series Termination
If, on the November 2008 Distribution Date, two months prior to the Series
Termination Date, the Invested Amount (after giving effect to all changes
therein on such Distribution Date) exceeds zero, the Servicer will, within the
40-day period beginning on such date, solicit bids for the sale of interests in
certain Principal Receivables, together in each case with the related Finance
Charge Receivables, in an amount equal
S-40
<PAGE>
to the Invested Amount at the close of business on the last day of the Monthly
Period preceding the Series Termination Date (after giving effect to all
distributions required to be made on the Series Termination Date). The Bank and
the Collateral Interest Holder will be entitled to participate in, and to
receive notice of each bid submitted in connection with, such bidding process.
Upon the expiration of such 40-day period, the Trustee will determine (a) which
bid is the highest cash purchase offer (the "Highest Bid") and (b) the amount
(the "Available Final Distribution Amount") which otherwise would be available
in the Collection Account on the Series Termination Date for distribution to
the Series 1999-1 Certificateholders. The Servicer will sell such Receivables
on the Series Termination Date to the bidder who provided the Highest Bid and
will deposit the proceeds of such sale in the Collection Account for allocation
(together with the Available Final Distribution Amount) to the Series 1999-1
Certificateholders' Interest.
S-41
<PAGE>
UNDERWRITING
Each of the underwriters named below (the "Class A Underwriters") has
severally agreed to purchase from the Bank the principal amount of the Class A
Certificates set forth opposite its name:
<TABLE>
<CAPTION>
Principal Amount of
Class A
Class A Underwriters Certificates
-------------------- -------------------
<S> <C>
Lehman Brothers Inc. ................................ $462,500,000
Chase Securities Inc................................. 12,500,000
Credit Suisse First Boston Corporation............... 12,500,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated... 12,500,000
------------
$500,000,000
============
</TABLE>
The underwriting agreement (the "Underwriting Agreement") between the Bank
and the Underwriters provides that the obligations of the Class A Underwriters
to pay for and accept delivery of the Class A Certificates are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Class A Underwriters are committed to purchase and pay for all
of the Class A Certificates if any are purchased.
The Class A Underwriters propose initially to offer a portion of the Class A
Certificates to the public at the price set forth on the cover page hereof, and
to certain dealers at such price less a concession not in excess of 0.165% of
the aggregate principal amount of the Class A Certificates. The Class A
Underwriters may allow, and such dealers may reallow, a concession not in
excess of 0.085% of such aggregate principal amount to certain brokers and
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Class A Underwriters. One of the Class A
Underwriters may sell a substantial portion of the Class A Certificates to a
trust with respect to which such Class A Underwriter would act as depositor.
From time to time thereafter, such Class A Underwriter may repurchase the Class
A Certificates from such trust and offer the Class A Certificates to the public
for sale in negotiated transactions or otherwise, at market prices prevailing
at the time of sale or at negotiated prices.
Each of the underwriters named below (the "Class B Underwriters", and
together with the Class A Underwriters, the "Underwriters") has severally
agreed to purchase from the Bank the principal amount of the Class B
Certificates set forth opposite its name:
<TABLE>
<CAPTION>
Principal Amount of
Class B
Class B Underwriters Certificates
-------------------- -------------------
<S> <C>
Lehman Brothers Inc. ................................. $32,852,500
Credit Suisse First Boston Corporation................ 32,852,500
-----------
Total............................................... $65,705,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Class B
Underwriters to pay for and accept delivery of the Class B Certificates are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Class B Underwriters are committed to purchase
and pay for all of the Class B Certificates if any are purchased.
The Class B Underwriters propose initially to offer the Class B Certificates
to the public at the price set forth on the cover page hereof and to certain
dealers at such price less a concession not in excess of 0.18% of the aggregate
principal amount of the Class B Certificates. The Class B Underwriters may
allow, and such dealers may reallow, a concession not in excess of 0.10% of
such aggregate principal amount to certain brokers and dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Class B Underwriters.
Each Underwriter will represent and agree that:
(a) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the Class A Certificates and the Class B Certificates in,
from or otherwise involving the United Kingdom;
S-42
<PAGE>
(b) it has only issued, distributed or passed on and will only issue,
distribute or pass on in the United Kingdom any document received by it
in connection with the issue of the Class A Certificates and the Class
B Certificates to a person who is of a kind described in Article 11(3)
of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued, distributed or passed on;
(c) if it is an authorized person under Chapter III of Part I of the
Financial Services Act 1986, it has only promoted and will only promote
(as that term is defined in Regulation 1.02(2) of the Financial
Services (Promotion of Unregulated Schemes) Regulations 1991) to any
person in the United Kingdom the scheme described in this Prospectus
Supplement and the Prospectus if that person is a kind described either
in Section 76(2) of the Financial Services Act 1986 or in Regulation
1.04 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991; and
(d) it is a person of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996.
The Bank will indemnify the Underwriters against certain liabilities,
including liabilities under the Act, or contribute to payments the Underwriters
may be required to make in respect thereof.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and/or commercial banking
transactions with the Bank, its affiliates and the Trust. In addition, the
Underwriters may from time to time take positions in the Certificates issued by
the Trust.
If the Underwriters create a short position in the Class A Certificates or
the Class B Certificates in connection with the offering, i.e., if they sell
more Class A Certificates or Class B Certificates than are set forth on the
cover page of this Prospectus Supplement, the Underwriters may reduce that
short position by purchasing Class A Certificates or Class B Certificates, as
the case may be, in the open market.
In general, the purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchase.
None of the Bank, the Servicer, or the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Class A Certificates
or the Class B Certificates. In addition, none of the Bank, the Servicer, or
the Underwriters makes any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
S-43
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Acquired Portfolios................ S-14
Adjusted Invested Amount........... S-26
Available Final Distribution
Amount............................ S-41
Available Finance Charge
Collections....................... S-24
Available Principal Collections.... S-33
Available Reserve Account Amount... S-37
Bank............................... S-4
Base Rate.......................... S-39
Business Day....................... S-23
Class A Accumulation Period........ S-25
Class A Accumulation Period
Length............................ S-25
Class A Additional Interest........ S-29
Class A Adjusted Invested Amount... S-26
Class A Certificates............... S-23
Class A Certificateholders......... S-23
Class A Certificateholders'
Interest.......................... S-23
Class A Certificate Rate........... S-23
Class A Charge-Off................. S-38
Class A Controlled Accumulation
Amount............................ S-33
Class A Controlled Deposit Amount.. S-33
Class A Defaulted Amount........... S-29
Class A Deficit Controlled
Accumulation Amount............... S-33
Class A Initial Invested Amount.... S-26
Class A Invested Amount............ S-26
Class A Interest Shortfall......... S-29
Class A Monthly Interest........... S-29
Class A Monthly Principal.......... S-33
Class A Percentage................. S-29
Class A Underwriters............... S-42
Class B Accumulation Period........ S-26
Class B Additional Interest........ S-29
Class B Adjusted Invested Amount... S-26
Class B Certificates............... S-23
Class B Certificateholders......... S-23
Class B Certificateholders'
Interest.......................... S-23
Class B Certificate Rate........... S-24
Class B Charge-Off................. S-38
Class B Controlled Accumulation
Amount............................ S-33
Class B Controlled Deposit Amount.. S-34
Class B Deficit Controlled
Accumulation Amount............... S-34
Class B Defaulted Amount........... S-29
Class B Interest Shortfall......... S-29
Class B Initial Invested Amount.... S-27
Class B Invested Amount............ S-27
Class B Monthly Interest........... S-29
Class B Monthly Principal.......... S-34
Class B Percentage................. S-30
Class B Principal Commencement
Date.............................. S-34
Class B Underwriters............... S-42
Class D Defaulted Amount........... S-30
Class D Holder..................... S-23
Class D Initial Invested Amount.... S-27
Class D Interest................... S-23
</TABLE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Class D Invested Amount............................................... S-27
Class D Monthly Principal............................................. S-34
Class D Percentage.................................................... S-30
Collateral Agreement.................................................. S-30
Collateral Defaulted Amount........................................... S-30
Collateral Initial Invested Amount.................................... S-27
Collateral Interest................................................... S-23
Collateral Interest Holder............................................ S-23
Collateral Interest Rate.............................................. S-30
Collateral Invested Amount............................................ S-27
Collateral Monthly Interest........................................... S-30
Collateral Monthly Principal.......................................... S-34
Collateral Percentage................................................. S-30
Covered Amount........................................................ S-37
Early Amortization Period............................................. S-13
First Union Portfolios................................................ S-15
First Union Filings................................................... S-15
Floating Allocation Percentage........................................ S-26
Highest Bid........................................................... S-41
Initial Invested Amount............................................... S-27
Interest Payment Date................................................. S-23
Interest Period....................................................... S-24
Invested Amount....................................................... S-27
LIBOR................................................................. S-23
LIBOR Determination Date.............................................. S-23
Paired Series......................................................... S-40
Portfolio Yield....................................................... S-39
Principal Allocation Percentage....................................... S-26
Principal Funding Account............................................. S-35
Principal Funding Account Balance..................................... S-35
Principal Funding Investment Proceeds................................. S-35
Reallocated Class B Principal Collections............................. S-31
Reallocated Class D Principal Collections............................. S-32
Reallocated Collateral Principal Collections.......................... S-32
Reallocated Principal Collections..................................... S-32
Reference Banks....................................................... S-24
Required Amount....................................................... S-32
Required Class D Invested Amount...................................... S-35
Required Collateral Invested Amount................................... S-34
Required Enhancement Amount........................................... S-34
Required Reserve Account Amount....................................... S-36
Reserve Account....................................................... S-36
Reserve Account Funding Date.......................................... S-36
Revolving Period...................................................... S-25
Series Cut-Off Date................................................... S-25
Series Issuance Date.................................................. S-30
Series 1999-1 Certificateholders' Interest............................ S-23
Series 1999-1 Certificates............................................ S-23
Series 1999-1 Supplement.............................................. S-23
Servicer.............................................................. S-4
Special Payment Date.................................................. S-13
Trust................................................................. S-4
Underwriters.......................................................... S-42
Underwriting Agreement................................................ S-42
</TABLE>
S-44
<PAGE>
ANNEX I
OTHER ISSUANCES OF CERTIFICATES
The table below sets forth the principal characteristics of the Asset Backed
Certificates, Series 1993-3, 1995-1, 1996-1, 1997-1, 1997-2, 1997-3, 1997-4 and
1998-1, the only Series heretofore issued by the Trust and still outstanding.
For more specific information with respect to any Series, any prospective
investor should contact the Servicer (in care of Providian Financial
Corporation, attention: Chief Financial Officer) at (415) 543-0404. The
Servicer will provide, without charge, to any prospective purchaser of the
Class A Certificates and the Class B Certificates a copy of the Prospectus
Supplement for any previous publicly-issued Series.
Previous Issuance of Certificates
<TABLE>
<S> <C>
Remarketed Asset Backed Certificates, Series 1993-3
Maximum Series Invested Amount ................................ $750,000,000(1)
Maximum Amount of Remarketed Certificates ......................... 653,750,000
Initial Amount of Collateral Interest .............................. 96,250,000
Initial Cash Collateral Amount ..................................... 20,000,000
Group ..................................................................... One
Certificate Rate ..................................................... Floating
Series Servicing Fee Percentage ...................................... 1.75%(2)
Initial Revolving Period Expiration Date ................. February 28, 1998(3)
Initial Series Termination Date ........................... October 15, 2002(3)
Asset Backed Certificates, Series 1995-1
Senior Initial Invested Amount ................................... $750,500,000
Senior Certificate Rate .............................................. Floating
Expected Final Payment Date ..................................... June 15, 2000
Scheduled Accumulation Period Commencement Date ............... May 31, 1998(4)
Controlled Accumulation Amount ................................. $31,270,833(4)
Collateral Initial Invested Amount ............................... $199,500,000
Group ..................................................................... One
Series Servicing Fee Percentage ...................................... 1.75%(2)
Series Termination Date ....................................... August 15, 2004
Asset Backed Certificates, Series 1996-1
Senior Initial Invested Amount.....................................$750,500,000
Senior Certificate Rate............................................... Floating
Expected Final Payment Date...................................... June 15, 2003
Scheduled Accumulation Period Commencement Date................ May 31, 2001(4)
Controlled Accumulation Amount.................................. $31,270,833(4)
Collateral Initial Invested Amount..................................199,500,000
Group...................................................................... One
Series Servicing Fee Percentage........................................1.75%(2)
Series Termination Date........................................ August 15, 2007
Asset Backed Certificates, Series 1997-1
Class A Initial Invested Amount .................................. $489,000,000
Class B Initial Invested Amount ................................... $57,000,000
Class A Certificate Rate ............................................. Floating
Class B Certificate Rate ............................................. Floating
Class A Expected Final Payment Date ............................ March 15, 2002
Class B Expected Final Payment Date .............................. May 15, 2002
</TABLE>
(Footnotes on page A-3)
A-1
<PAGE>
<TABLE>
<S> <C>
Scheduled Class A Accumulation Period Commencement Date .. February 28, 2000(4)
Class A Controlled Accumulation Amount ......................... $20,375,000(4)
Collateral Initial Invested Amount ................................ $54,000,000
Group ..................................................................... One
Series Servicing Fee Percentage ...................................... 1.75%(2)
Series Termination Date .......................................... May 15, 2006
Asset Backed Certificates, Series 1997-2
Class A Initial Invested Amount .................................. $570,500,000
Class B Initial Invested Amount ................................... $66,500,000
Class A Certificate Rate ............................................. Floating
Class B Certificate Rate ............................................. Floating
Class A Expected Final Payment Date ............................ March 15, 2004
Class B Expected Final Payment Date .............................. May 15, 2004
Scheduled Class A Accumulation Period Commencement Date .. February 28, 2002(4)
Class A Controlled Accumulation Amount ......................... $23,770,883(4)
Collateral Initial Invested Amount ................................ $63,000,000
Group ..................................................................... One
Series Servicing Fee Percentage ...................................... 1.75%(2)
Series Termination Date .......................................... May 15, 2008
Asset Backed Certificates, Series 1997-3
Class A Initial Invested Amount .................................. $570,500,000
Class B Initial Invested Amount ................................... $66,500,000
Class A Certificate Rate ............................................. Floating
Class B Certificate Rate ............................................. Floating
Class A Expected Final Payment Date .............................. May 15, 2001
Class B Expected Final Payment Date ............................. July 15, 2001
Scheduled Class A Accumulation Period Commencement Date ..... April 30, 1999(4)
Class A Controlled Accumulation Amount ......................... $23,770,833(4)
Collateral Initial Invested Amount ................................ $63,000,000
Group ..................................................................... One
Series Servicing Fee Percentage ...................................... 1.75%(2)
Series Termination Date ..................................... December 15, 2005
Asset Backed Certificates, Series 1997-4
Class A Initial Invested Amount .................................. $501,000,000
Class B Initial Invested Amount ................................... $47,000,000
Class A Certificate Rate ................................................ 6.25%
Class B Certificate Rate ................................................ 6.45%
Class A Expected Final Payment Date ......................... November 15, 2002
Class B Expected Final Payment Date .......................... January 15, 2003
Scheduled Class A Accumulation Period Commencement Date ... October 31, 2000(4)
Class A Controlled Accumulation Amount ......................... $20,875,000(4)
Collateral Initial Invested Amount ................................ $51,000,000
Group ..................................................................... One
Series Servicing Fee Percentage ...................................... 1.75%(2)
Series Termination Date ......................................... June 15, 2007
Asset Backed Certificates, Series 1998-1
Maximum Class A Initial Invested Amount ....................... $561,000,000(1)
Maximum Class B Initial Invested Amount ........................ $39,000,000(1)
Class A Certificate Rate ............................................. Floating
</TABLE>
(Footnotes on next page)
A-2
<PAGE>
<TABLE>
<S> <C>
Class B Certificate Rate ............................................. Floating
Maximum Collateral Invested Amount...............................$25,000,000(1)
Group ..................................................................... One
One Series Servicing Fee Percentage .................................. 1.75%(2)
Initial Revolving Period Expiration Date........................May 26, 1999(3)
Initial Series Termination Date .......................... February 15, 2004(3)
</TABLE>
- --------
(1) Invested Amount may vary, but may not exceed the stated Maximum Invested
Amount.
(2) Subject to change if Providian National Bank is replaced as Servicer.
(3) Subject to delay if Revolving Period is extended.
(4) Subject to change if the commencement of the Accumulation Period is or has
been delayed.
A-3
<PAGE>
PROSPECTUS
Providian Master Trust
Asset Backed Certificates
Providian National Bank
Seller and Servicer
-----------------
This Prospectus relates to certain asset backed certificates (the
"Certificates") that may be issued from time to time by the Providian
Master Trust, formerly known as the First Deposit Master Trust (the
"Trust") in one or more Series (each a "Series"). The Trust was formed
pursuant to a Pooling and Servicing Agreement (the "Pooling
Agreement") among Providian National Bank (the "Bank"), as seller
and servicer, and Bankers Trust Company, as trustee (the
"Trustee"). The property of the Trust includes receivables (the
"Receivables") generated from time to time in a portfolio of
consumer revolving credit card accounts and other consumer
revolving credit accounts owned by the Seller (the
"Accounts"), collections thereon and certain other
property, as more fully described herein and, with
respect to any Series, in an accompanying prospectus
supplement (a "Prospectus Supplement") relating to
such Series.
Certificates will be sold from time to time under this Prospectus on terms
determined for each Series at the time of the sale and described in the
related Prospectus Supplement. Each Series will consist of one or more
classes of Certificates (each a "Class"). Each Certificate will represent
an undivided interest in the Trust and the interest of the
Certificateholders of each Class or Series will include the right to
receive a varying percentage of each month's collections with respect
to the Receivables at the times, in the manner and to the extent
described herein and, with respect to any Series offered hereby, in
the related Prospectus Supplement. Interest and principal payments
with respect to each Series offered hereby will be made as
specified in the related Prospectus Supplement. One or more
Classes of a Series offered hereby may be entitled to the
benefits of a cash collateral account, letter of credit, surety
bond, insurance policy or other form of enhancement as
specified in the Prospectus Supplement relating to such
Series. In addition, any Series offered hereby may include
one or more Classes which are subordinated in right and
priority to payment of principal of, and/or interest on,
one or more other Classes of such Series or another
Series, in each case to the extent described in the
related Prospectus Supplement.
While the specific terms of any Series in respect of which this
Prospectus is being delivered will be described in the related
Prospectus Supplement, the terms of such Series will not be
subject to prior review by, or consent of, the holders
of the Certificates of any previously issued Series.
Potential investors should consider, among other things, the
information set forth in "Risk Factors" commencing on
page 17 herein and in the related Prospectus
Supplement.
-----------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE BANK OR ANY AFFILIATE OF THE
BANK. NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES
OR ANY COLLECTIONS THEREON ARE INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
Certificates may be sold by the Bank directly to purchasers, through agents
designated from time to time, through underwriting syndicates led by one or
more managing underwriters or through one or more underwriters acting alone.
If underwriters or agents are involved in the offering of the Certificates of
any Series offered hereby, the name of the managing underwriter or
underwriters or agents will be set forth in the related Prospectus Supplement.
If an underwriter, agent or dealer is involved in the offering of the
Certificates of any Series offered hereby, the underwriter's discount, agent's
commission or dealer's purchase price will be set forth in, or may be
calculated from, the related Prospectus Supplement, and the net proceeds to
the Bank from such offering will be the public offering price of such
Certificates less such discount in the case of an underwriter, the purchase
price of such Certificates less such commission in the case of an agent or the
purchase price of such Certificates in the case of a dealer, and less, in each
case, the other expenses of the Bank associated with the issuance and
distribution of such Certificates. See "Plan of Distribution".
This Prospectus may not be used to consummate sales of Certificates
of any Series unless accompanied by the related Prospectus Supplement.
-----------------
The date of this Prospectus is June 17, 1999.
<PAGE>
AVAILABLE INFORMATION
The Bank, as originator of the Trust, has filed a Registration Statement
under the Securities Act of 1933, as amended (the "Act"), with the Securities
and Exchange Commission (the "Commission") on behalf of the Trust with respect
to the Certificates offered hereby. This Prospectus, which forms a part of the
Registration Statement, omits certain information contained in such
Registration Statement pursuant to the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement (including any amendments thereof and exhibits thereto) and any
reports and other documents incorporated herein by reference as described
below under "Incorporation of Certain Documents by Reference", which are
available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, any such reports or other documents filed with the
Commission through its Electronic Data Gathering, Analysis and Retrieval
system are publicly available through the Commission's web site
(http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, Monthly Reports, which
contain unaudited information concerning the Trust and are prepared by the
Servicer, will be sent on behalf of the Trust to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Certificates offered hereby, pursuant to the Pooling Agreement. If Definitive
Certificates are issued, such Monthly Reports will be sent on behalf of the
Trust to registered holders of the Certificates (the "Certificateholders").
See "Description of the Certificates--Reports" and "The Pooling Agreement--
Book-Entry Registration" and "--Evidence as to Compliance". Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Pooling Agreement will not require the
sending of, and the Bank does not intend to send, any of its financial reports
to holders of interests in Certificates offered hereby. The Servicer will file
with the Commission such periodic reports with respect to the Trust as are
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer (currently Providian
National Bank) on behalf of the Trust, pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Certificates offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be part
hereof. The following documents filed with the Commission by the Servicer, on
behalf of the Trust, are incorporated in this Prospectus by reference: the
Trust's Annual Report on Form 10-K for the year ended December 31, 1998 and
the Current Reports on Form 8-K filed since December 31, 1998. Any statement
contained herein or in a document deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in any other subsequently
filed document which also is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of Certificates, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any of
or all the documents incorporated herein by reference (other than exhibits to
such documents). Written requests for such copies should be directed to
Providian National Bank, in care of Providian Financial Corporation, 201
Mission Street, San Francisco, CA 94105, attention: Chief Financial Officer.
Telephone requests for such copies should be directed to the Servicer (in care
of Providian Financial Corporation, attention: Chief Financial Officer) at
(415) 543-0404.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 5
RISK FACTORS.............................................................. 17
Limited Liquidity........................................................ 17
Issuance of Additional Series; Effect on Timing or Amount of Payments to
Certificateholders and Voting Rights.................................... 17
Effect of Addition of Trust Assets on Credit Quality..................... 17
Characterization of Transfer of Receivables; Potential Effect of
Insolvency and Receivership of the Bank................................. 17
Effect of Consumer Protection Laws on Certificateholders................. 18
Timing of Principal Payments Other Than at Expected Maturity............. 19
Limited Nature of Rating; Reduction or Withdrawal of Rating.............. 20
Book-Entry Registration.................................................. 20
Risks Presented by Social, Geographic, Economic and Other Factors........ 21
Competition in the Credit Card and Consumer Revolving Loan Industry...... 21
The Ability of the Bank to Change Terms of the Accounts; Decreases in
Finance Charges......................................................... 21
Control.................................................................. 22
THE BANK'S CREDIT CARD AND CONSUMER LENDING BUSINESS...................... 23
Business Overview........................................................ 23
Underwriting Procedures.................................................. 24
Telemarketing and Customer Service....................................... 24
Collection Efforts and Delinquencies..................................... 24
Interchange.............................................................. 25
Year 2000................................................................ 25
THE ACCOUNTS.............................................................. 27
General.................................................................. 27
Billing and Payments..................................................... 28
THE BANK.................................................................. 29
USE OF PROCEEDS........................................................... 29
THE TRUST................................................................. 29
DESCRIPTION OF THE CERTIFICATES........................................... 30
General.................................................................. 30
Interest................................................................. 30
Principal................................................................ 31
Addition of Trust Assets................................................. 31
Removal of Accounts...................................................... 34
New Issuances............................................................ 34
Collection Account....................................................... 36
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Allocation Percentages.................................................... 37
Deposits in Collection Account............................................ 37
Shared Principal Collections.............................................. 38
Special Funding Account................................................... 38
Sharing of Additional Finance Charges..................................... 38
Funding Period............................................................ 39
Defaulted Receivables; Rebates and Fraudulent Charges..................... 39
Credit Enhancement........................................................ 40
General.................................................................. 40
Subordination............................................................ 41
Letter of Credit......................................................... 41
Cash Collateral Account.................................................. 41
Surety Bond or Insurance Policy.......................................... 41
Spread Account........................................................... 42
Other Series Enhancement.................................................. 42
Pay Out Events............................................................ 42
Servicing Compensation and Payment Expenses............................... 43
Record Date............................................................... 44
Optional Termination; Final Payment of Principal.......................... 44
Reports................................................................... 45
List of Investor Certificateholders....................................... 45
THE POOLING AGREEMENT...................................................... 46
Book-Entry Registration................................................... 46
Definitive Certificates................................................... 48
The Seller's Interest; Additional Sellers................................. 49
Termination of Trust...................................................... 50
Conveyance of Receivables................................................. 50
Representations and Warranties............................................ 50
Indemnification........................................................... 53
Collection and Other Servicing Procedures................................. 53
Servicer Covenants........................................................ 54
Certain Matters Regarding the Servicer.................................... 54
Services Default.......................................................... 55
Evidence as to Compliance................................................. 56
Amendments................................................................ 56
Trustee................................................................... 57
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES................................... 58
Transfer of Receivables................................................... 58
Certain Matters Relating to Receivership.................................. 58
Consumer Protection Laws.................................................. 59
TAX MATTERS................................................................ 60
Federal Income Tax Consequences--General.................................. 60
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Treatment of the Certificates as Indebtedness............................ 61
Treatment of the Trust................................................... 61
Federal Income Tax Consequences--United States Investors................. 61
Interest Income to Certificateholders.................................... 61
Possible Classification of the Certificates as Interests in a Partnership
or Association.......................................................... 62
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Federal Income Tax Consequences--Non-United States Investors.............. 63
State and Local Tax Consequences.......................................... 64
California............................................................... 64
New Hampshire............................................................ 65
ERISA CONSIDERATIONS....................................................... 67
PLAN OF DISTRIBUTION....................................................... 68
LEGAL MATTERS.............................................................. 69
INDEX OF TERMS FOR PROSPECTUS.............................................. 70
</TABLE>
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in any
accompanying Prospectus Supplement. Reference is made to the Index of Terms,
beginning on page 70, for the location herein of the definitions of certain
capitalized terms used herein. Unless the context requires otherwise,
capitalized terms used in this Prospectus and in any accompanying Prospectus
Supplement refer only to the particular Series being offered by such Prospectus
Supplement.
Trust....................... Providian Master Trust, formerly known as the
First Deposit Master Trust. The Trust, as a
master trust, has issued other Series (described
in Annex I to the Prospectus Supplement) and is
expected to issue additional Series from time to
time. The assets of the Trust (the "Trust
Assets") include a portfolio of Receivables
arising under the Accounts included in the Trust
from time to time, funds collected or to be
collected from accountholders in respect of the
Receivables, the right to receive certain
Interchange attributable to accountholder
charges for merchandise and services in certain
of the Accounts, certain amounts recovered with
respect to Accounts in which the Receivables
have been charged-off as uncollectible, monies
on deposit in certain accounts of the Trust, any
Participations included in the Trust, funds
collected or to be collected with respect to
such Participations and any Series Enhancement
with respect to a particular Series or Class.
The term "Series Enhancement" means, with
respect to any Series or Class of Certificates,
any Credit Enhancement, guaranteed rate
agreement, maturity liquidity facility, tax
protection agreement, interest rate cap
agreement, interest rate swap agreement or other
similar arrangement for the benefit of
Certificateholders of such Series or Class. The
Trust Assets are expected to change over the
life of the Trust as receivables in revolving
credit card accounts and other revolving credit
accounts and related assets are included in the
Trust and as receivables in accounts subject to
the Trust are charged-off or removed. See "The
Trust" and "Description of the Certificates--
Addition of Trust Assets", "--Removal of
Accounts" and "New Issuances".
Bank........................ Providian National Bank, a national banking
association, is the seller of the Receivables
and originator of the Trust. Subject to certain
conditions described herein under "The Pooling
Agreement--The Bank's Certificate; Additional
Sellers", the Bank may designate one or more
affiliates of the Bank to sell Receivables or
Participations to the Trust from time to time.
Additional Sellers will generally have the same
rights and obligations as those of the Bank
described herein.
Trustee..................... Bankers Trust Company.
The Accounts................ The Accounts consist of the Initial Accounts and
any Additional Accounts but will not include any
Removed Accounts. The Bank has conveyed to the
Trust all Receivables existing on a specified
5
<PAGE>
date prior to the issuance of the first Series
(the "Trust Cut-Off Date") in certain consumer
revolving credit card accounts and other
consumer revolving credit accounts (the "Initial
Accounts") and all Receivables arising in the
Initial Accounts from time to time thereafter
until the termination of the Trust. Since the
Trust Cut-Off Date, the Bank has conveyed to the
Trust Receivables in certain Additional Accounts
in accordance with the provisions of the Pooling
Agreement. Pursuant to the Pooling Agreement,
the Bank expects (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.
The Bank 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 (other than
Automatic Additional Accounts) or Participations
will be subject to certain conditions,
including, among others, that (a) such addition
will not result in a Ratings Effect and (b) the
Bank shall have delivered to the Trustee and
certain providers of Series Enhancement a
certificate of an authorized officer to the
effect that, in the reasonable belief of the
Bank, such addition will not, based on the facts
known to such officer at the time of such
certification, cause a Pay Out Event to occur
with respect to any Series. See "Description of
the Certificates--Addition of Trust Assets".
Pursuant to the Pooling Agreement, the Bank will
have the right (subject to certain limitations
and conditions) to remove the Receivables in
certain Accounts owned by it from the Trust
("Removed Accounts"). See "Description of the
Certificates--Removal of Accounts".
The Receivables............. The Receivables consist of all amounts charged by
accountholders for merchandise and services and
cash advances ("Principal Receivables") and all
related periodic finance charges, cash advance
fees, late charges and any other fees and
charges billed on the Accounts and certain
Interchange attributable to accountholder
charges for goods and services in certain of the
Accounts ("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.
The Certificates............ The Certificates will be issued in Series, each
of which will consist of one or more Classes.
The specific terms of a Series or Class will be
established as described herein under
"Description of the Certificates--New
Issuances". However, while the specific terms of
any Series or Class offered hereby will be
described in the related Prospectus Supplement,
the terms of such Series or Class will not be
subject to prior review by, or consent of, the
holders of the Certificates of any previously
issued Series.
6
<PAGE>
The Certificates of a Series offered hereby will
be available for purchase in minimum
denominations of $1,000 and integral multiples
thereof, and will only be available in book-
entry form except in certain limited
circumstances as described herein under "The
Pooling Agreement--Definitive Certificates". A
portion of the Trust Assets will be allocated
among the Certificateholders of a particular
Series (the "Certificateholders' Interest"), the
Certificateholders of other Series and the
interest of the Bank and its permitted
transferees (the "Seller's Interest"), as
described below. The aggregate principal amount
of the Certificateholders' Interest of a Series
offered hereby will, except as otherwise
provided herein and in the related Prospectus
Supplement, remain fixed at the aggregate
initial principal amount of the Certificates of
such Series. The Certificateholders' Interest of
a Series will include the right to receive (but
only to the extent needed to make required
payments under the Pooling Agreement and the
related Supplement and subject to any
reallocation of such amounts if the related
Supplement so provides) varying percentages of
collections of Finance Charge Receivables and
Principal Receivables and will be allocated a
varying percentage of the Defaulted Amount with
respect to each Monthly Period. If the
Certificates of a Series offered hereby include
more than one Class of Certificates, the Trust
Assets allocable to the Certificateholders'
Interest of such Series may be further allocated
among each Class in such Series as described in
the related Prospectus Supplement.
The Certificates of a Series will evidence
undivided interests in the Trust Assets
allocated to the Certificateholders' Interest of
such Series. The Certificates represent
beneficial interests in the Trust only and do
not represent interests in or obligations of the
Bank or any affiliate of the Bank. Neither the
Certificates nor the Accounts, the Receivables
or any collections thereon are insured or
guaranteed by the Federal Deposit Insurance
Corporation (the "FDIC") or any other
governmental agency or instrumentality.
The Seller's Interest....... The Seller's Interest at any time represents the
right to the Trust Assets in excess of the
Certificateholders' Interest of all Series then
outstanding. The principal amount of the
Seller's Interest will fluctuate as the amount
of the Principal Receivables held by the Trust
changes from time to time. In addition, the Bank
intends to cause the issuance of additional
Series from time to time and any such issuance
will have the effect of decreasing the Seller's
Interest to the extent of the Invested Amount of
such Series. See "Description of the
Certificates--New Issuances". The Seller's
Interest is currently held exclusively by the
Bank (the interests of the Bank and any
Additional Sellers in the Seller's Interest
being the "Bank's Interest") though a portion of
the Seller's Interest may be sold separately in
one or more public or private transactions. See
"The Pooling Agreement--The Seller's Interest;
Additional Sellers".
7
<PAGE>
The Pooling Agreement provides that the Bank will
be required to make an Addition to the Trust in
the event that the Seller's Interest is less
than the Required Seller's Participation Amount
on the last business day of any Monthly Period.
See "Description of the Certificates--Addition
of Trust Assets". The level of the Required
Seller's Participation Amount, which may be
reduced subject to certain conditions described
under "Description of the Certificates--Addition
of Trust Assets", is intended to enable the
Seller's Interest to absorb fluctuations in the
amount of Principal Receivables held by the
Trust from time to time (due to, among other
things, seasonal purchase and payment habits of
accountholders or adjustments in the amount of
Principal Receivables because of rebates,
refunds, fraudulent charges or otherwise). See
"Risk Factors--Payments and Maturity" and
"Description of the Certificates--Defaulted
Receivables; Rebates and Fraudulent Charges".
Issuance of Additional The Pooling Agreement provides that, pursuant to
Series...................... any one or more supplements to the Pooling
Agreement (each a "Supplement"), the Bank may
cause the Trustee to issue one or more new
Series and accordingly cause a reduction in the
Bank's Interest. Under the Pooling Agreement,
the Bank may define, with respect to any Series,
the Principal Terms of such Series. See
"Description of the Certificates--New
Issuances". The Bank may offer any Series to the
public or other investors under a disclosure
document (a "Disclosure Document"), which will
consist of a Prospectus Supplement in the case
of a Series offered hereby, in transactions
either registered under the Act or exempt from
registration thereunder, directly or through one
or more underwriters or placement agents, in
fixed-price offerings or in negotiated
transactions or otherwise. See "Plan of
Distribution". The Bank expects to offer, from
time to time, additional Series issued by the
Trust.
A new Series may only be issued upon satisfaction
of the conditions described herein under
"Description of the Certificates--New Issuances"
including, among others, that (a) such issuance
will not result in a Ratings Effect and (b) the
Bank shall have delivered to the Trustee and
certain providers of Series Enhancement a
certificate of an authorized officer to the
effect that, in the reasonable belief of the
Bank, such issuance will not, based on the facts
known to such officer at the time of such
certification, cause a Pay Out Event to occur
with respect to any Series.
Collections................. All collections of Receivables will be allocated
by the Servicer between amounts collected on
Principal Receivables and on Finance Charge
Receivables. The Servicer will allocate between
the Certificateholders' Interest of each Series
and the Seller's Interest all amounts collected
with respect to Finance Charge Receivables and
Principal Receivables and the Defaulted Amount
8
<PAGE>
with respect to each day during each Monthly
Period. Collections of Finance Charge
Receivables and the Defaulted Amount will be
allocated to each Series at all times based upon
its Floating Allocation Percentage. Collections
of Principal Receivables will be allocated to
each Series at all times based upon its
Principal Allocation Percentage. The Floating
Allocation Percentage and the Principal
Allocation Percentage with respect to each
Series will be determined as set forth in the
related Supplement and, with respect to each
Series offered hereby, in the related Prospectus
Supplement.
Interest.................... Interest will accrue on the Invested Amount of
the Certificates of a Series or Class offered
hereby at the per annum rate either specified in
or determined in the manner specified in the
related Prospectus Supplement. Collections of
Finance Charge Receivables and certain other
amounts allocable to the Certificateholders'
Interest of a Series offered hereby will be used
to the extent specified in the related
Prospectus Supplement to make interest payments
to Certificateholders of such Series on each
Interest Payment Date with respect thereto,
provided that if an Early Amortization Period
commences with respect to such Series,
thereafter interest will be distributed to such
Certificateholders monthly on each Special
Payment Date.
Principal................... The principal of the Certificates of each Series
offered hereby will be scheduled to be paid
either in full on an expected date specified in
the related Prospectus Supplement (the "Expected
Final Payment Date"), in which case such Series
will have an Accumulation Period as described
below under "--Accumulation Period", or in
installments commencing on a date specified in
the related Prospectus Supplement (the
"Principal Commencement Date"), in which case
such Series will have a Scheduled Amortization
Period as described below under "--Scheduled
Amortization Period".
If a Series has more than one Class of
Certificates, a different method of paying
principal, Expected Final Payment Date and/or
Principal Commencement Date may be assigned to
each Class. The payment of principal with
respect to the Certificates of a Series or Class
may commence earlier than the applicable
Expected Final Payment Date or Principal
Commencement Date, and the final principal
payment with respect to the Certificates of a
Series or Class may be made later than the
applicable Expected Final Payment Date or other
expected date, if a Pay Out Event occurs with
respect to such Series or Class or under certain
other circumstances described herein. See "Risk
Factors--Payments and Maturity" for a
description of factors that may affect the
timing of principal payments on Certificates.
Revolving Period............ The Certificates of each Series offered hereby
will have a revolving period (the "Revolving
Period"), which will commence at the
9
<PAGE>
close of business on a date specified in the
related Prospectus Supplement (the "Series Cut-
Off Date") and continue until the earlier of (a)
the commencement of the Early Amortization
Period with respect to such Series and (b) the
date specified in the related Prospectus
Supplement as the end of the Revolving Period
with respect to such Series. During the
Revolving Period with respect to a Series
offered hereby, collections of Principal
Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of
such Series will be treated as Shared Principal
Collections and will be distributed to, or for
the benefit of, the Certificateholders of other
Series or the Bank. See "Description of the
Certificates--Principal" and "--Shared Principal
Collections" and see "--Pay Out Events" for a
discussion of the events which might lead to the
termination of the Revolving Period with respect
to a Series prior to its scheduled ending date.
Accumulation Period......... If the related Prospectus Supplement so
specifies, unless an Early Amortization Period
commences with respect to a Series offered
hereby, the Certificates of such Series will
have an accumulation period (the "Accumulation
Period"), which will commence at the close of
business on the date specified in such
Prospectus Supplement and continue until the
earliest of (a) the commencement of the Early
Amortization Period with respect to such Series,
(b) payment in full of the Invested Amount of
the Certificates of such Series and (c) the
Series Termination Date with respect to such
Series. During the Accumulation Period of a
Series, collections of Principal Receivables and
certain other amounts allocable to the
Certificateholders' Interest of such Series will
be deposited on each Distribution Date with
respect to such Accumulation Period in a trust
account established for the benefit of the
Certificateholders of such Series (a "Principal
Funding Account") and used to make principal
distributions to the Certificateholders of such
Series when due. The "Distribution Date" is the
15th day of each month (or if such 15th day is
not a business day, the next succeeding business
day). The amount to be deposited in the
Principal Funding Account for any Series offered
hereby on any Distribution Date may, but will
not necessarily, be limited to an amount (the
"Controlled Deposit Amount") equal to an amount
specified in the related Prospectus Supplement
(the "Controlled Accumulation Amount") plus any
existing deficit controlled accumulation amount
arising from prior Distribution Dates. If a
Series has more than one Class of Certificates,
each Class may have a separate Principal Funding
Account and Controlled Accumulation Amount and
there may be priorities among such Classes with
respect to deposits of principal into such
Principal Funding Accounts.
Scheduled Amortization If the related Prospectus Supplement so
Period...................... specifies, unless an Early Amortization Period
commences with respect to a Series offered
10
<PAGE>
hereby, the Certificates of such Series will
have an amortization period (the "Scheduled
Amortization Period"), which will commence at
the close of business on the date specified in
such Prospectus Supplement and continue until
the earliest of (a) the commencement of the
Early Amortization Period with respect to such
Series, (b) payment in full of the Invested
Amount of the Certificates of such Series and
(c) the Series Termination Date with respect to
such Series. During the Scheduled Amortization
Period of a Series, collections of Principal
Receivables and certain other amounts allocable
to the Certificateholders' Interest of such
Series will be used on each Distribution Date
with respect to such Scheduled Amortization
Period to make principal distributions to
Certificateholders of such Series or any Class
of such Series then scheduled to receive such
distributions. The amount to be distributed to
Certificateholders of any Series offered hereby
on any Distribution Date may, but will not
necessarily, be limited to an amount (the
"Controlled Distribution Amount") equal to an
amount (the "Controlled Amortization Amount")
specified in the related Prospectus Supplement
plus any existing deficit controlled
amortization amount arising from prior
Distribution Dates. If a Series has more than
one Class of Certificates, each Class may have a
separate Controlled Amortization Amount and
there may be priorities among such Classes with
respect to such distributions.
Early Amortization Period... During the period from the day on which a Pay Out
Event has occurred with respect to a Series to
the date on which the Invested Amount of the
Certificates of such Series and the Enhancement
Invested Amount, if any, with respect to such
Series have been paid in full or the related
Series Termination Date has occurred (the "Early
Amortization Period"), collections of Principal
Receivables and certain other amounts allocable
to the Certificateholders' Interest of such
Series (including Shared Principal Collections,
if any, allocable to such Series) will be
distributed as principal payments to the
Certificateholders of such Series monthly on
each Distribution Date beginning with the first
Special Payment Date with respect to such
Series. In addition, upon the commencement of
the Early Amortization Period with respect to a
Series, any funds on deposit in a Principal
Funding Account with respect to such Series will
be paid to the Certificateholders of the
relevant Class or Series on the first Special
Payment Date with respect to such Series. See
"Description of the Certificates--Pay Out
Events" for a discussion of the events which
might lead to the commencement of the Early
Amortization Period with respect to a Series.
Shared Principal To the extent that collections of Principal
Collections................. Receivables and certain other amounts that are
allocated to the Certificateholders' Interest of
any Series are not needed to make payments to
the Certificateholders of such Series or
required to be deposited in a
11
<PAGE>
Principal Funding Account for such Series, such
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. See
"Description of the Certificates--Shared
Principal Collections".
Special Funding Account..... If on any date the Seller's Interest is less than
or equal to the Required Seller's Participation
Amount or the amount of Principal Receivables in
the Trust is less than or equal to the Required
Principal Balance, the Servicer shall not
distribute to the Bank any Shared Principal
Collections which otherwise would be distributed
to the Bank, but shall deposit such funds in the
Special Funding Account. Funds on deposit in the
Special Funding Account will be withdrawn and
paid to the Bank on any Distribution Date to the
extent that, after giving effect to such
payment, the Seller's Interest exceeds the
Required Seller's Participation Amount and the
amount of Principal Receivables in the Trust
exceeds the Required Principal Balance on such
date; provided, however, that if an Accumulation
Period, Scheduled Amortization Period or Early
Amortization Period commences with respect to
any Series, any funds on deposit in the Special
Funding Account will be released and treated as
Shared Principal Collections to the extent
needed to cover principal payments due to or for
the benefit of such Series.
Sharing of Additional Subject to certain limitations described under
Finance Charges............. "Description of the Certificates--Sharing of
Additional Finance Charges", collections of
Finance Charge Receivables and certain other
amounts allocable to the Certificateholders'
Interest of any Series which is included in a
Group in excess of the amounts necessary to make
required payments with respect to such Series
(including payments to the provider of any
related Series Enhancement) will be applied to
cover any shortfalls with respect to amounts
payable from collections of Finance Charge
Receivables allocable to any other Series
included in such Group, in each case pro rata
based upon the amount of the shortfalls, if any,
with respect to such other Series. See
"Description of the Certificates--Sharing of
Additional Finance Charges".
Funding Period.............. The Prospectus Supplement relating to a Series of
Certificates may specify that for a period
beginning on the Series Issuance Date with
respect to such Series and ending on a specified
date before the commencement of the Scheduled
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
Certificates of such Series. If so specified in
the related Prospectus Supplement, the amount of
such difference will be held in a trust account
established with the
12
<PAGE>
Trustee for the benefit of Certificateholders of
such Series (the "Prefunding Account") pending
the transfer of additional Principal Receivables
to the Trust or pending the reduction of the
Certificateholders' Interests of other Series
issued by the Trust. The related Prospectus
Supplement will specify the initial
Certificateholders' Interest on the Series
Issuance Date with respect to such Series, the
aggregate principal amount of the Certificates
of such Series (the "Initial Amount") and the
date by which the Certificateholders' Interest
is expected to equal the Initial Amount. The
Funding Period with respect to a Prefunded
Series shall not exceed one year.
If so specified in the related Prospectus
Supplement, during the Funding Period, funds on
deposit in the Prefunding Account for a Series
may or, under certain circumstances, must be
withdrawn and paid to the Bank to effect
increases in the Certificateholders' Interest.
In the event that the Certificateholders'
Interest does not equal the Initial Amount by
the end of the Funding Period, any amount
remaining in the Prefunding Account and
additional amounts specified, if any, in the
related Prospectus Supplement will be payable to
the Certificateholders of such Series in a
manner and at such time as set forth in the
related Prospectus Supplement. If so specified
in the related Prospectus Supplement, monies in
the Prefunding Account with respect to any
Series will be invested by the Trustee in
Eligible Investments or will be subject to a
guaranteed rate or investment agreement or other
similar arrangement, and investment earnings and
any applicable payment under any such investment
arrangement will be applied to pay interest on
the Certificates of such Series.
Credit Enhancement.......... The credit enhancement with respect to a Series
offered hereby (the "Credit Enhancement") may
include a letter of credit, a cash collateral
account, a surety bond, an insurance policy or
any other form of credit enhancement described
in the related Prospectus Supplement. Credit
Enhancement may also be provided to a Class or
Classes of a Series by subordination provisions
which require that distributions of principal
and/or interest be made with respect to the
Certificates of such Class or Classes before
distributions are made to one or more other
Classes of such Series.
The type, characteristics and amount of the
Credit Enhancement with respect to any Series
will be determined based on several factors,
including the characteristics of the Receivables
and Accounts underlying or comprising the Trust
Assets as of the Series Issuance Date with
respect thereto, and will be established on the
basis of requirements of each applicable Rating
Agency. The terms of the Credit Enhancement with
respect to any Series offered hereby will be
described in the related Prospectus Supplement.
See "Description of the Certificates--Credit
Enhancement" and "Risk Factors--Limited Nature
of Rating".
13
<PAGE>
Servicing................... The Servicer (initially, the Bank) will be
responsible for servicing, managing and making
collections on the Receivables. Subject to
certain exceptions described under "Description
of the Certificates--Deposits in Collection
Account", the Servicer will deposit any
collections on the Receivables in a Monthly
Period into the Collection Account within two
business days of the Date of Processing (or, in
the case of Interchange, no later than the
Distribution Date) to the extent such
collections are allocable to the
Certificateholders' Interest of any Series and
are required to be deposited into an account for
the benefit of, or distributed to, the
Certificateholders of any Series or the issuer
of any Series Enhancement. On the earlier of (i)
the second business day following the Date of
Processing and (ii) the day on which the
Servicer deposits any collections into the
Collection Account, subject to certain
exceptions described herein, the Servicer will
pay to the Bank its allocable portion of any
collections then held by the Servicer. The "Date
of Processing" is the business day a record of
any transaction is first recorded pursuant to
the Servicer's data processing procedures. On or
about the third business day preceding each
Distribution Date (each, a "Determination
Date"), the Servicer will calculate the amounts
to be allocated to the Certificateholders of
each Class or Series and the Bank as described
herein in respect of collections of Receivables
received with respect to the preceding Monthly
Period.
In certain limited circumstances, the Bank may
resign or be removed as Servicer, in which event
either the Trustee or, so long as it meets
certain eligibility standards set forth in the
Pooling Agreement, a third-party servicer may be
appointed as successor servicer. (The Bank or
any such successor servicer is referred to
herein as the "Servicer".) The Bank is permitted
to delegate any of its duties as Servicer to any
of its affiliates and to certain third-party
service providers, but any such delegation will
not relieve the Servicer of its obligations
under the Pooling Agreement or any Supplement.
The Servicer will receive servicing fees payable
with respect to each Series offered hereby as
servicing compensation from the Trust. See
"Description of the Certificates--Servicing
Compensation and Payment of Expenses".
Mandatory Reassignment and
Transfer of Certain Pursuant to the Pooling Agreement, as of each
Receivables................ Series Issuance Date (and on each date of
addition) the Bank, in its capacity as seller,
has severally made or will severally make
certain representations and warranties in the
Pooling Agreement with respect to the Accounts
(or Additional Accounts) owned by the Bank and
the Receivables (or Receivables in Additional
Accounts) transferred by the Bank to the Trust.
If the Bank breaches any such representation and
warranty, under certain circumstances and
subject to certain conditions described under
"The Pooling
14
<PAGE>
Agreement--Representations and Warranties", all
Receivables with respect to the affected Account
will be reassigned to the Bank. In addition, if
the Bank breaches certain other representations
and warranties described under "The Pooling
Agreement--Representations and Warranties", all
the Receivables transferred by the Bank to the
Trust may be reassigned to the Bank. See "The
Pooling Agreement--Representations and
Warranties".
The Bank has provided certain covenants in the
Pooling Agreement in its capacity as Servicer.
If the Servicer breaches any such covenant with
respect to any Receivable, subject to certain
conditions described under "The Pooling
Agreement--Servicer Covenants", all Receivables
with respect to the affected Account will be
assigned to the Servicer. In the event of a
transfer of servicing obligations to a successor
servicer, such successor servicer, rather than
the Bank, would be responsible for any
subsequent failure to comply with the Servicer's
covenants.
Tax Status.................. In the opinion of Cravath, Swaine & Moore,
special tax counsel for the Bank and the Trust
("Tax Counsel"), the Certificates of each Series
offered hereby will properly be characterized as
debt for federal income tax purposes and under
current law the Trust will not be subject to
federal income tax. Each Certificateholder, by
acceptance of a Certificate of such a Series,
will agree to treat the Certificates of such
Series as indebtedness of the Bank for federal,
state and local income and franchise tax
purposes. To the extent that Certificates are
issued with OID, Certificateholders may be
required to report income in respect of the
Certificates on the accrual basis and such
Certificateholders may be required to report
taxable income prior to receiving corresponding
cash distribution. See "Tax Matters" for
additional information concerning the
application of federal, California and New
Hampshire tax laws.
Income Tax Withholding...... Interest on Certificates that are characterized
as debt and that are held by non-U.S. persons
will be subject to United States withholding tax
unless the holder complies with applicable IRS
identification requirements. Interest on
Certificates that are characterized as debt and
that are held by U.S. persons will be subject to
backup withholding unless the holder complies
with applicable IRS identification requirements.
See "Tax Matters".
ERISA Considerations........ Certificates of any Series offered hereby may or
may not be eligible for purchase by Benefit
Plans. See "ERISA Considerations".
Certificate Rating.......... It will be a condition to the issuance of the
Certificates of each Series offered hereby that
they be rated in one of the four highest
applicable rating categories by at least one
nationally recognized statistical rating
organization selected by the Bank (the rating
agency or agencies rating any Series, the
"Rating Agency") or in such higher rating
categories as is necessary to receive opinions
15
<PAGE>
of Tax Counsel. The rating or ratings applicable
to the Certificates of each such Series will be
as set forth in the related Prospectus
Supplement.
A security rating should be evaluated
independently of similar ratings of different
types of securities. A rating is not a
recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at
any time by the assigning Rating Agency. Each
rating should be evaluated independently of any
other rating. See "Risk Factors--Limited Nature
of Rating".
16
<PAGE>
RISK FACTORS
INVESTORS SHOULD CONSIDER THE FOLLOWING MATERIAL FACTORS IN CONNECTION WITH
THE PURCHASE OF CERTIFICATES.
Limited Liquidity. There can be no assurance that a secondary market will
develop with respect to the Certificates of any Series offered hereby or, if
such a secondary market does develop, that it will provide Certificateholders
with liquidity of investment or that it will continue for the life of such
Certificates. It is anticipated that, to the extent permitted, the
underwriters of any Series of Certificates offered hereby will make a market
in such Certificates, but in no event will any such underwriter be under an
obligation to do so.
Issuance of Additional Series; Effect on Timing or Amount of Payments to
Certificateholders and Voting Rights. The Trust, as a master trust, has issued
other Series and is expected to issue additional Series from time to time.
While the terms of any Series will be specified in a Supplement, the
provisions of a Supplement and, therefore, the terms of any additional Series,
will not be subject to the prior review by, or consent of, holders of the
Certificates of any previously issued Series. Such terms may include methods
for determining applicable investor percentages and allocating collections,
provisions creating different or additional security or other Series
Enhancements and any other amendment or supplement to the Pooling Agreement
which is made applicable only to such Series. The obligation of the Trustee to
issue any new Series is subject to the following conditions, among others: (a)
such issuance will not result in any Rating Agency reducing or withdrawing its
rating of the Certificates of any outstanding Series (any such reduction or
withdrawal is referred to herein as a "Ratings Effect") and (b) the Bank shall
have delivered to the Trustee and certain providers of Series Enhancement a
certificate of an authorized officer to the effect that, in the reasonable
belief of the Bank, such issuance will not, based on the facts known to such
officer at the time of such certification, cause a Pay Out Event to occur with
respect to any Series. There can be no assurance, however, that the terms of
any Series might not have an impact on the timing or amount of payments
received by a Certificateholder of another Series. See "Description of the
Certificates--New Issuances".
Effect of Addition of Trust Assets on Credit Quality. The Bank expects, and
in some cases will be obligated, to designate Additional Accounts, the
Receivables in which will be conveyed to the Trust. Such Additional Accounts
may include accounts originated using criteria different from those which were
applied to the Initial Accounts because such accounts were originated at a
later date or were part of a portfolio of accounts which were not part of the
Providian Portfolio as of the Trust Cut-Off Date or which were acquired from
another institution. Moreover, Additional Accounts designated at any time may
not be accounts of the same type as those previously included in the Trust.
See "The Pooling Agreement--Representations and Warranties". Consequently,
there can be no assurance that such Additional Accounts will be of the same
credit quality as the Initial Accounts or the Additional Accounts previously
included in the Trust. In addition, such Additional Accounts may consist of
revolving credit card accounts or other revolving credit accounts which have
different terms than the Initial Accounts and the Additional Accounts
previously included in the Trust, including lower periodic finance charges and
other fees and charges, which may have the effect of reducing the average
yield on the portfolio of Accounts included in the Trust. The designation of
Additional Accounts will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates--Addition of Trust
Assets", including that (a) such addition will not result in a Ratings Effect
and (b) the Bank shall have delivered to the Trustee and certain providers of
Series Enhancement a certificate of an authorized officer to the effect that,
in the reasonable belief of the Bank, such addition will not, based on the
facts known to such officer at the time of such certification, cause a Pay Out
Event to occur with respect to any Series. Since the Trust Cut-Off Date, the
Bank has conveyed to the Trust Receivables in Additional Accounts in
accordance with the terms of the Pooling Agreement. See "Description of the
Certificates--Addition of Trust Assets".
Characterization of Transfer of Receivables; Potential Effect of Insolvency
and Receivership of the Bank. While the Bank has sold and will sell
Receivables to the Trust, a court could treat such a transaction as an
assignment of collateral as security for the benefit of the Certificateholders
of the outstanding Series. The Bank warrants in the Pooling Agreement that the
transfer of Receivables by it to the Trust is either a sale of such
Receivables to the Trust or the grant to the Trust of a security interest in
such Receivables. The Bank will take
17
<PAGE>
certain actions under applicable state law to perfect the Trust's interest in
the Receivables transferred to the Trust by the Bank and, in the Pooling
Agreement, the Bank warrants that, if the transfer by the Bank to the Trust is
a grant to the Trust of a security interest in the applicable Receivables, the
Trust will have a first priority perfected security interest therein and, with
certain exceptions and for certain limited periods of time, in the proceeds
thereof (subject, in each case, to certain potential tax liens referred to
under "The Pooling Agreement--Representations and Warranties"). Nevertheless,
if the transfer of Receivables by the Bank to the Trust is deemed to create a
security interest therein under the California or New Hampshire Uniform
Commercial Code (the "UCC"), a tax or government lien or other nonconsensual
lien on property of the Bank arising before Receivables come into existence
may have priority over the Trust's interest in such Receivables and, if the
FDIC were appointed receiver of the Bank, the receiver's administrative
expenses may also have priority over the Trust's interest in such Receivables.
In addition, while the Bank is the Servicer, cash collections held by the Bank
may, subject to certain conditions, be commingled and used for the benefit of
the Bank prior to the date on which such collections are required to be
deposited in the Collection Account as described under "Description of the
Certificates--Deposits in Collection Account" and, in the event of the
insolvency or receivership of the Bank or, in certain circumstances, the lapse
of certain time periods, the Trust may not have a perfected interest in such
collections.
If the FDIC were appointed receiver of the Bank or if certain other events
relating to the bankruptcy, insolvency or receivership of the Bank were to
occur (an "Insolvency Event"), then a Pay Out Event would occur with respect
to each Series and, pursuant to the terms of the Pooling Agreement, new
Principal Receivables would not be transferred to the Trust and the Trustee
would sell the Receivables (unless each other holder of the Seller's Interest,
Certificateholders holding Certificates of each Series or, if a Series
includes more than one Class, each Class of such Series evidencing more than
50% of the aggregate unpaid principal amount of each such Series or Class and,
to the extent provided in the Supplement for any Series, any Credit Enhancer
instruct otherwise), thereby causing early termination of the Trust and a loss
to the Certificateholders of a particular Series if the sum of (a) the portion
of the proceeds of such sale allocable to such Certificateholders and (b) the
proceeds of any collections on the Receivables in the Collection Account
allocated to the Certificateholders' Interest of such Series is insufficient
to pay such Certificateholders in full. To the extent the Bank grants a
security interest in the Receivables to the Trust, and such security interest
is validly perfected before the occurrence of an Insolvency Event and is not
taken in contemplation of insolvency or with the intent to hinder, delay or
defraud the Bank or its creditors, based upon opinions issued by the general
counsel of the FDIC and a related policy statement issued by the FDIC
addressing the enforceability against the FDIC, as conservator or receiver for
a depository institution, of a security interest in collateral granted by such
depository institution, such security interest should not be subject to
avoidance, and payments to the Trust with respect to the Receivables should
not be subject to recovery, by the FDIC. However, such opinions and policy
statement are not binding on the FDIC and, if the FDIC were to assert a
contrary position, certain provisions of the FDIA which, at the request of the
FDIC, have been applied in lawsuits to avoid security interests in collateral
granted by depository institutions, would permit the FDIC to avoid such
security interest, thereby resulting in possible delays and reductions in
payments to the Certificateholders of all outstanding Series. In addition,
federal law governing receiverships of federally-insured depository
institutions would be interpreted to require compliance with certain claims
procedures if a receiver were appointed for the Bank before the Trustee could
collect, sell, dispose of or otherwise liquidate the Receivables, which could
delay or possibly reduce payments on the Certificates of all outstanding
Series. Upon the occurrence of an Insolvency Event, if no Pay Out Event other
than such Insolvency Event exists, the FDIC may have the power to continue to
require the Bank to transfer new Principal Receivables to the Trust and to
prevent the early sale, liquidation or disposition of the Receivables and the
commencement of an Early Amortization Period. In the event of a Servicer
Default, if a conservator, receiver or liquidator is appointed for the
Servicer, and no Servicer Default other than such conservatorship,
receivership, liquidation or insolvency of the Servicer exists, the
conservator, receiver or liquidator may have the power to prevent either the
Trustee or the Certificateholders from appointing a successor Servicer. See
"Certain Legal Aspects of the Receivables--Transfer of Receivables" and "--
Certain Matters Relating to Receivership".
Effect of Consumer Protection Laws on Certificateholders. The Accounts and
Receivables are subject to numerous federal and state consumer protection laws
which impose requirements on the making, enforcement
18
<PAGE>
and collection of consumer loans. The United States Congress and the states
may enact laws and amendments to existing laws to further regulate the credit
card and consumer revolving loan industry or to reduce finance charges or
other fees or charges applicable to credit card and other consumer revolving
loan accounts. Such laws, as well as any new laws or rulings which may be
adopted, may adversely affect the Servicer's ability to collect on the
Receivables or maintain the current level of periodic finance charges and
other fees and charges with respect to the Accounts. In addition, failure by
the Servicer to comply with such requirements could adversely affect the
Servicer's ability to enforce the Receivables. From time to time members of
Congress have attempted unsuccessfully, and may in the future attempt, to
limit the maximum annual percentage rate that may be assessed on credit card
accounts. In addition, in May, 1992, two members of the House Banking
Committee asked the United States General Accounting Office (the "GAO") to
undertake a study of competition in the credit card industry and particularly
to address how a government-imposed limit on credit card interest rates could
affect credit availability. In Spring 1994, the GAO released its study on
competitive pricing and disclosure in the credit card industry. The GAO did
not recommend that Congress enact legislation capping interest rates on credit
cards, but did recommend monitoring of the industry. The Bank cannot predict
what action, if any, will be taken by Congress as a result thereof. If federal
legislation were enacted which contained an interest rate cap substantially
lower than the annual percentage rates currently assessed on the Accounts, it
is possible that the Portfolio Yield would be reduced and therefore a Pay Out
Event could occur with respect to the Certificates of each Series. See
"Description of the Certificates--Pay Out Events". In addition, during recent
years, there has been increased consumer awareness with respect to the level
of finance charges and fees and other practices of credit card issuers and
other consumer revolving loan providers. As a result of these developments and
other factors, there can be no assurance as to whether any federal or state
legislation will be promulgated which would impose additional limitations on
the periodic finance charges or other fees or charges 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 credit cards. These actions challenged various fees and charges (such as
late fees, over-the-limit fees, returned check charges 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 credit card issuers. In June, 1996, the United
States Supreme Court upheld a decision of the California Supreme Court holding
that the late payment fees in question were "interest" and as such were
governed by federal law, which authorizes national banks to charge out-of-
state customers an interest rate allowed by the bank's home state. See
"Certain Legal Aspects of the Receivables--Consumer Protection Laws".
Pursuant to the Pooling Agreement, if a Receivable fails to comply in all
material respects with applicable requirements of law, subject to certain
conditions described under "The Pooling Agreement--Representations and
Warranties", all Receivables in the affected Account will be reassigned to the
Bank or, in some circumstances, to the Servicer. On the Series Issuance Date
with respect to each Series and on each date of addition, the Bank has made
and (with respect to future Series and designations of Additional Accounts)
will make certain representations and warranties relating to the validity and
enforceability of the Accounts and the related Receivables. The sole remedy if
any such representation or warranty is breached is that, subject to certain
conditions described herein under "The Pooling Agreement--Representations and
Warranties", the interest of Certificateholders of all Series in the
Receivables affected thereby will be reassigned to the Bank or assigned to the
Servicer, as the case may be. In addition, in the event of the breach of
certain representations and warranties, the Bank may be obligated to accept
the reassignment of all the Receivables, which reassignment will constitute
the sole remedy available to Certificateholders with respect to any such
breach. See "The Pooling Agreement--Representations and Warranties" and "--
Servicer Covenants" and "Certain Legal Aspects of the Receivables--Consumer
Protection Laws".
Timing of Principal Payments Other Than at Expected Maturity. The
Receivables may be paid at any time and there is no assurance that there will
be new Receivables created in the Accounts, that Receivables will be added to
the Trust or that any particular pattern of accountholder repayments will
occur. The actual rate of accumulation of principal with respect to a Series
in a Principal Funding Account during an Accumulation Period
19
<PAGE>
and the rate of distribution of principal with respect to a Series during a
Scheduled Amortization Period or Early Amortization Period will depend on,
among other factors, the rate of accountholder repayments, the timing of the
receipt of repayments and the rate of default by accountholders. As a result,
no assurance can be given that the Invested Amount of a Series of Certificates
will be paid on the Expected Final Payment Date, if any, with respect to such
Series or that payments of principal during the Scheduled Amortization Period
with respect to a Series of Certificates will equal the Controlled
Amortization Amount, if any, with respect to such Series or will follow any
expected pattern. Accountholder monthly payment rates with respect to the
Accounts are dependent upon a variety of factors, including seasonal
purchasing and payment habits of accountholders, the availability of other
sources of credit, general economic conditions, tax laws and the terms of the
Accounts (which are subject to change by the Bank). No assurance can be given
as to the accountholder payment rates which will actually occur in any future
period.
A decline in the amount of Receivables in the Accounts for any reason
(including, the decision by accountholders to use competing sources of credit,
an economic downturn or other factors) could result in the occurrence of a Pay
Out Event with respect to a Series and the commencement of an Early
Amortization Period with respect to such Series. The Pooling Agreement
provides that the Bank will be required to make an Addition to the Trust in
the event that either (a) the Seller's Interest is not maintained at a minimum
level equal to the Required Seller's Percentage of the sum of (i) the
aggregate amount of Principal Receivables and (ii) the aggregate principal
amount on deposit in the Special Funding Account (the "Required Seller's
Participation Amount") or (b) the amount of Principal Receivables in the Trust
is not maintained at a minimum level equal to the excess of (i) the sum of the
initial Invested Amounts of each Series then outstanding (provided that
certain Series may be excluded from such calculation if the issuance of such
Series will not result in a Ratings Effect) over (ii) the aggregate principal
amount on deposit in the Special Funding Account (the "Required Principal
Balance"). The "Required Seller's Percentage" is equal to 4% but may be
reduced under certain circumstances described under "Description of the
Certificates--Addition of Trust Assets". In the event that the Bank fails to
make such Addition by the day on which it is required to make such Addition
pursuant to the Pooling Agreement, as described under "Description of the
Certificates--Addition of Trust Assets", a Pay Out Event will occur with
respect to all outstanding Series.
Limited Nature of Rating; Reduction or Withdrawal of Rating. Any rating
assigned to the Certificates of a Series or a Class by a Rating Agency will
reflect such Rating Agency's assessment of the likelihood that
Certificateholders of such Series or Class will receive the payments of
interest and principal required to be made under the Pooling Agreement and the
related Supplement and will be based primarily on the value of the Receivables
in the Trust and the availability of any Series Enhancement with respect to
such Series or Class. However, any such rating will not address the likelihood
that the principal of, or interest on, any Certificates of such Class or
Series will be paid on a scheduled date. In addition, any such rating will not
address the possibility of the occurrence of a Pay Out Event with respect to
such Class or Series or the possibility of the imposition of United States
withholding tax with respect to non-U.S. Certificateholders. Further, the
available amount of any Credit Enhancement or other Series Enhancement with
respect to any such Series or Class will be limited and will be subject to
reduction from time to time as described in the related Prospectus Supplement.
The rating of the Certificates of a Class or Series will not be a
recommendation to purchase, hold or sell such Certificates, and such rating
will not comment as to the marketability of such Certificates, any market
price or suitability for a particular investor. There is no assurance that any
rating will remain for any given period of time or that any rating will not be
lowered or withdrawn entirely by a Rating Agency if in such Rating Agency's
judgment circumstances so warrant. Any such reduction or withdrawal of a
rating, if it were to occur, could adversely affect the market value of the
Certificates.
Book-Entry Registration. The Certificates of each Series offered hereby
initially will be represented by one or more certificates registered in the
name of Cede, the nominee for DTC, and will not be registered in the names of
the Certificateholders or their nominees. Consequently, unless and until
Definitive Certificates are issued, Certificateholders will not be recognized
by the Trustee as "Certificateholders" (as such term is used in the Pooling
Agreement and any Supplement). Hence, until such time, Certificateholders will
only be able to
20
<PAGE>
exercise the rights of Certificateholders indirectly through DTC, CEDEL or
Euroclear and their respective participating organizations. See "The Pooling
Agreement--Book Entry Registration" and "--Definitive Certificates".
Risks Presented by Social, Geographic, Economic and Other Factors. Changes
in credit use and payment patterns by accountholders result from a variety of
economic, geographic and social factors. Economic factors include the rate of
inflation, unemployment levels 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. Social factors include changes in
consumer confidence levels and attitudes regarding incurring debt and changing
attitudes regarding personal bankruptcy. The use of incentive programs (e.g.,
gift awards for credit usage) may affect credit use. The Bank is unable to
determine whether or to what extent changes in economic, geographic or social
factors will affect credit use or repayment patterns.
Competition in the Credit Card and Consumer Revolving Loan Industry. The
credit card and consumer revolving loan industry is highly competitive and
operates in a legal and regulatory environment increasingly focused on the
cost of services charged to consumers. There is increased use of advertising,
target marketing, pricing competition and incentive programs. New consumer
credit providers have entered the market and existing providers have launched
strategies such as co-branding and balance transfer programs to increase their
market share. In addition, certain consumer credit providers offer low
introductory rates or lower rates generally to increase their market share.
Such rates may be lower than those currently assessed on the Accounts. The
Bank may also solicit existing accountholders to open other revolving credit
card accounts or revolving credit accounts which offer certain benefits not
available under the Accounts, including lower periodic finance charges or
reduced late charges and other fees or charges. If accountholders choose to
utilize competing sources of credit, the rate at which new Receivables are
generated in the Accounts may be reduced and certain purchase and payment
patterns with respect to the Receivables may be affected. The Trust will be
dependent upon the Bank's continued ability to generate new Receivables. If
the rate at which new Receivables are generated declines significantly and the
Bank does not add Additional Accounts to the Trust, a Pay Out Event could
occur with respect to each Series.
The Ability of the Bank to Change Terms of the Accounts; Decreases in
Finance Charges. Pursuant to the Pooling Agreement, the Bank does not transfer
to the Trust the Accounts but only the Receivables arising in the Accounts. As
owner of the Accounts, the Bank will have the right to determine the periodic
finance charge, the fees and the other charges which will be applicable from
time to time to the Accounts, to alter the minimum monthly payment required
under the Accounts and to change various other terms with respect to the
Accounts. A decrease in the periodic finance charge or other fees or charges
applicable to the Accounts would decrease the effective yield on the Accounts
and could result in the occurrence of a Pay Out Event with respect to a Series
and the commencement of an Early Amortization Period with respect to such
Series, as well as decreased protection to Certificateholders against charged-
off Accounts. Under the Pooling Agreement, the Bank has agreed that, unless
required by law or unless, in its sole discretion, the Bank deems it necessary
to maintain on a competitive basis its lending business, it will not reduce
the annual percentage rate of the periodic finance charge assessed on the
Receivables or reduce other fees on the Accounts, if as a result of such
reduction, either its reasonable expectation is that such reduction will,
based on the facts known at such time, cause a Pay Out Event to occur with
respect to a Series or such reduction is not applied to any comparable segment
of consumer revolving credit accounts owned by the Bank which have
characteristics the same as or substantially similar to the Accounts. In
addition, the Bank, subject to compliance with applicable laws, may in its
sole discretion change the other terms of its Accounts, if such change is made
applicable to any comparable segment of consumer revolving credit accounts
owned by the Bank which have characteristics the same as, or substantially
similar to, such Accounts. Except as specified above, there are no
restrictions on the Bank's ability to change the terms of the Accounts. There
can be no assurance that changes in applicable law, changes in the
marketplace, including other credit card issuers lowering their annual
percentage rates, or prudent business practice might not result in a
determination by the Bank to decrease customer finance charges or otherwise
take actions which would change
21
<PAGE>
any Account terms. See "--Competition in the Credit Card and Consumer
Revolving Loan Industry". In addition, there can be no assurance that a change
made in the terms of the Accounts would not result in the downgrade or
withdrawal of the rating of the Certificates. In servicing the Accounts, the
Servicer is required to apply its usual and customary servicing procedures for
servicing receivables comparable to the Receivables and to act in accordance
with the Bank's written policies and procedures relating to the operation of
their consumer revolving lending business (the "Lending Guidelines").
Control. Subject to certain exceptions, the Certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the Pooling Agreement or the related Supplement. However, under certain
circumstances, the consent or approval of a specified percentage of the
aggregate unpaid principal amount of the Certificates of all outstanding
Series will be required to direct certain actions, including requiring the
appointment of a successor Servicer following a Servicer Default, amending the
Pooling Agreement under certain circumstances and directing a reassignment of
the entire portfolio of Accounts. In addition, following the occurrence of an
Insolvency Event with respect to the Bank, the Trust Assets will be liquidated
unless the holders of Certificates evidencing more than 50% of the aggregate
unpaid principal amount of each Series or, if a Series includes more than one
Class, each Class of such Series (along with each other holder of the Seller's
Interest and, to the extent provided in the Supplement for any Series, any
Credit Enhancer) direct the Trustee not to sell or otherwise liquidate the
Receivables. Further, in certain cases (including with respect to certain
amendments described under "The Pooling Agreement--Amendments"), when
determining whether the required percentage of Certificateholders of a Series
have given their approval or consent, all the Certificateholders of such
Series will be treated as a single class (whether or not such Series includes
more than one Class). Accordingly, one or more Classes of Certificateholders
may have the power to determine whether any such action is taken without
regard to the position or interests of other Classes of Certificateholders
relating to such action.
22
<PAGE>
THE BANK'S CREDIT CARD AND CONSUMER LENDING BUSINESS
Business Overview
The Bank is a national banking association and a wholly owned subsidiary of
Providian Financial Corporation. The Bank is a diversified consumer lender,
offering a range of lending products, including unsecured credit cards,
revolving lines of credit, home loans, secured and partially secured credit
cards, and fee-based products. The "Providian Portfolio" discussed herein
includes unsecured credit card accounts and unsecured revolving line of credit
accounts (which are accessed by checks rather than credit cards) under
management by the Bank or its affiliates but does not currently include
secured and partially secured credit card accounts, home loans and, except for
the Bank's Visa Classic product, credit card accounts with lower credit limits
designed to serve individuals who have limited access to credit and are
underserved by traditional financial institutions. The Providian Portfolio
consists primarily of unsecured credit card receivables generated through
VISA(R)/1/ and MasterCard(R)/1/ credit cards.
Secured and partially secured credit card accounts and credit card accounts
with lower credit limits designed to serve individuals who have limited access
to credit and are underserved by traditional financial institutions may be
included in the Providian Portfolio in the future. Secured and partially
secured accounts are revolving credit card accounts that are secured or
partially secured by a savings deposit established by the accountholder and
held at the Bank. The amount initially required to be deposited by the
accountholder in the savings deposit will be determined based on the
accountholder's credit profile and the amount of the credit line and may vary
from accountholder to accountholder. The amount of the required savings
deposit, as a portion of the accountholder's credit limit, may be reduced over
time or otherwise modified based on the accountholder's credit performance.
Receivables transferred and to be transferred by the Bank to the Trust
pursuant to the Pooling Agreement are generated from transactions made and
cash advances obtained by accountholders under accounts in the Providian
Portfolio. All accounts in the Providian Portfolio (other than certain
accounts purchased from third parties) were originated using the Bank's
account opening procedures. Certain of the accounts were originated by former
affiliates of the Bank or were acquired by the Bank in portfolio acquisitions.
The Bank uses its affiliate, Providian Bancorp Services, and third party
vendors in the process of originating and servicing accounts in the Providian
Portfolio. Account set-up, telemarketing, customer service, collection
activities and certain data processing services are performed by Providian
Bancorp Services primarily at operations centers located in northern
California. Other data processing functions are handled by Total System
Services, Inc. ("Total System"), a Columbus, Georgia-based company. Total
System is the nation's second largest credit card processing company. Total
System is responsible for issuing and encoding cards, authorizing
accountholder purchases and processing transactions for merchants. Total
System also sends monthly billing statements, stores customer data files,
updates master files daily and provides master file tapes each month. The
accounts in the Providian Portfolio were principally generated through direct
mail, telemarketing and other direct marketing channels. Solicitations are
made to a pre-screened list of prospective accountholders, followed by credit
verification and telemarketing support. The Bank's underwriting,
telemarketing, customer service and collection procedures, described below,
are subject to change as the competitive environment, industry practice, legal
requirements or the Bank's business objectives may require.
The Bank has acquired and may from time to time acquire accounts originated
by third parties the receivables of which may be included in the Providian
Portfolio and the Trust Portfolio. Accounts acquired by the Bank from third
parties, which are part of the Providian Portfolio, were originally opened
using criteria established by other institutions and may not have been subject
to the same underwriting procedures and credit review as accounts established
by the Bank. During the first and second quarters of 1998 the Bank acquired
two portfolios of credit card accounts from First Union Direct Bank, N.A.
("First Union"). The credit card accounts acquired by the Bank from First
Union were principally generated through pre-approved direct-mail
solicitations
- --------
/1/ VISA(R) and MasterCard(R) are registered trademarks of VISA U.S.A., Inc.
and MasterCard International Incorporated, respectively.
23
<PAGE>
sent to pre-screened lists of consumers. As part of the pre-screening process,
First Union provided a set of credit history criteria to credit reporting
agencies, which in turn generated a list of prospective cardholders with
desired attributes. First Union further refined the list by applying
additional underwriting criteria designed to predict the potential credit risk
of prospective cardholders. Consumers responding to the solicitations were
subject to a back-end verification process during which an applicant's credit
history was reviewed a second time and updated and verified against First
Union's underwriting criteria. First Union based each customer's credit limit
upon, among other things, such customer's credit profile, level of
indebtedness and demographic data. Approximately $300 million of the credit
card receivables acquired by the Bank from First Union were added to the Trust
in 1998. During the fourth quarter of 1998 the Bank acquired a portfolio of
credit card accounts from Morgan Stanley Dean Witter's Bravo card program and
during the first quarter of 1999 the Bank acquired a portfolio of credit card
accounts from H&R Block, Inc.'s "WebCard" program. Credit card receivables
acquired by the Bank from these and other credit card issuers may be added to
the Trust from time to time. There can be no assurance that the purchased
accounts will perform similarly to accounts originated by the Bank. See
"Description of the Certificates--Addition of Trust Assets".
Underwriting Procedures
The Bank's credit screening process begins with a "prescreening" review
which identifies creditworthy consumers who are likely to be eligible for an
account. In the "prescreening" process, the Bank provides a set of credit
criteria directly, or indirectly through a third party, to credit reporting
agencies. The credit reporting agencies screen their databases and generate a
list of names with the desired attributes. The list is further refined by
applying an additional set of targeting criteria which have been derived by
the Bank from a statistical modeling of attributes from previous
solicitations, behavioral usage and credit risk. This final list is then
statistically verified by the Bank to ensure that the list complies with the
criteria supplied.
Individuals who receive account solicitations from the Bank must respond in
writing or by telephone. Once the response is received, the Bank reviews
credit reporting agency information and information provided by the applicant
to confirm that the applicant meets the Bank's credit criteria. The Bank
establishes pricing and credit limits on an individualized basis, based on the
customer's risk profile, loan feature preferences and price sensitivity and on
the Bank's profitability and risk guidelines.
Each accountholder is subject to an agreement governing the terms and
conditions of the account. Pursuant to such lending agreement, the Bank
reserves the right to change or terminate any terms, conditions, services or
features of the account (including increasing or decreasing periodic finance
charges, other charges or minimum payments). The Bank monitors customers' risk
profiles, and may adjust product features and/or pricing as the customer
relationship evolves. By their terms, the Bank's lending agreements are
governed by New Hampshire law.
Telemarketing and Customer Service
The Bank believes that customer contact must be quickly established to take
advantage of additional marketing opportunities, verify application
information and assist in the collections process. Customers have access to
their account information 24 hours a day, seven days a week. Customer service
representatives have on-line access to the customer's account history in order
to immediately resolve most questions. When charges are in dispute, the Bank's
current policy is to note on the accountholder's monthly billing statements
that such portion of the balance is in dispute, and such portion will not
accrue finance charges pending resolution of the dispute. Multiple tracking
and reporting systems are employed to ensure that service standards are
achieved and maintained.
Collection Efforts and Delinquencies
Efforts to collect delinquent consumer credit receivables are made by the
Bank or its affiliates as well as attorneys retained in different states.
Current collection practices are characterized by quick intervention when
payments become overdue, automated calling systems designed to improve
efficiency in contacting customers,
24
<PAGE>
and close monitoring of delinquencies and charge-offs. Collections practices
are revised from time to time in accordance with the Bank's experience.
Under the Bank's current collections policy, statements are sent monthly and
accountholders have approximately 30 days after the statement date to remit
payments before an account is considered past-due. The Bank uses risk
assessment and segmentation models to determine when to contact accountholders
by telephone after an account balance becomes past due, with an emphasis on
early intervention for accounts with the highest risk, and arrangements may be
made with accountholders to extend or change payment schedules. Because
collection efforts are event-driven, accounts are escalated to more
experienced collectors, suspended, closed and/or referred for legal collection
based on customer behavior, rather than on the passage of time.
The Bank's policy is to charge off the principal balance of delinquent
accounts no more than 180 days after the delinquency occurs unless prior to
the time the balance would otherwise be charged off the accountholder enters
into a payment arrangement with the Bank, which generally must include an
initial payment of no less than the total amount past due or 4% of the current
balance, whichever is greater, and monthly payments of no less than 4% of the
current balance. At the time a loan is charged off, related unpaid finance
charges and fee income are written off as a reversal of interest and fee
revenue. Accounts of deceased accountholders are written off upon
determination of uncollectibility, but in no event more than 180 days after
delinquency. Accounts of bankrupt accountholders are charged off upon
notification of bankruptcy.
Information with respect to the delinquency and loss experience of the
Bank's portfolio is contained in the Prospectus Supplement. Such information
sets forth delinquencies grouped by the number of days Receivables are
delinquent and the percentage of the portfolio which is delinquent. The loss
experience information will show charge-offs in dollars and as a percentage of
the Receivables outstanding.
Interchange
Members participating in the Visa and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses, funding receivables and servicing accountholders for a
limited period prior to initial billing. Under the Visa and MasterCard
systems, Interchange in connection with accountholder charges for merchandise
and services is passed from the banks that clear the transactions for
merchants to the credit card-issuing banks. Interchange ranges from
approximately 1% to 2% of the transaction amount, although Visa and MasterCard
may from time to time change the amount of Interchange reimbursed to banks
issuing their credit cards. Interchange paid to the Bank will be allocated to
the Trust with respect to each Monthly Period on the basis of (i) the
Interchange for all accounts in the Providian Portfolio and (ii) the
percentage equivalent of the ratio that the amount of accountholder charges
for merchandise and services for the Accounts bears to the total amount of
accountholder charges for merchandise and services for all accounts in the
Providian Portfolio, in each case for such Monthly Period. The Bank will be
required, pursuant to the terms of the Pooling Agreement, to transfer to the
Trust for the benefit of Certificateholders the aforementioned percentage of
the Interchange. This percentage is an estimate of the actual Interchange paid
to the Bank from time to time in respect of the Accounts and may be more or
less than the actual amount of Interchange so paid. Interchange transferred to
the Trust will be included in Finance Charge Receivables pursuant to the
Pooling Agreement for purposes of determining the amount of Finance Charge
Receivables and allocating collections and payments thereof to the
Certificateholders. Interchange attributable to the Accounts as determined
above will also be included in Finance Charge Receivables for purposes of
calculating the Portfolio Yield.
Year 2000
Some older computer programs were written using two digits rather than four
to define the applicable year. As a result, those computer programs have time-
sensitive software that recognize a date using "00" as the Year 1900 rather
than the Year 2000. These computer programs may fail to operate properly in
the Year 2000 and after if they are not modified or replaced to comply with
year 2000 requirements. This could result in a disruption of operations,
including, among other things, a temporary inability to process transactions,
send billing statements or engage in similar normal business practices.
25
<PAGE>
The Bank's parent company, Providian Financial Corporation, has completed a
Year 2000 assessment which includes the Bank's computer systems, and has
determined that it will have to modify or replace portions of its software so
that its computer systems will function properly with respect to dates in the
Year 2000 and thereafter. Providian Financial Corporation has also initiated
formal communications with the Bank's significant vendors for the purpose of
identifying and remediating risks arising from such vendors' own Year 2000
conversion issues. The testing has commenced and is expected to be completed
by mid-July 1999.
The Bank believes that with modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems. However, there can be no assurance that the necessary
modifications or conversions to the Bank's systems will be completed on time
or that significant vendors will timely convert their own systems.
26
<PAGE>
THE ACCOUNTS
General
The Receivables arise in certain Eligible Accounts (the "Trust Portfolio")
selected by the Bank from the Providian Portfolio as described below. See "The
Bank's Credit Card and Consumer Lending Business--Business Overview" for a
description of the Providian Portfolio and "The Pooling and Servicing
Agreement--Representations and Warranties" for a description of Eligible
Accounts.
The accounts originated by the Bank are grouped into "Rollouts" for purposes
of administrative convenience. A Rollout represents a group of accounts
established from replies to a specific solicitation program. Each rollout has
a discrete set of targeting criteria corresponding to it. Product
solicitations for a particular rollout are made within a discrete period,
normally two to four weeks in length. Accounts may be added to the Trust which
were originated by third parties for which the account groupings may differ.
The Accounts included in the Trust consisting of rollouts or other account
groupings may include accounts for which Receivables have been charged off as
uncollectible prior to their addition to the Trust. Receivables in charged-off
Accounts are deemed to have a zero balance. The Trust generally has the right
to receive recoveries with respect to such charged-off Receivables.
Although the characteristics (including loss experience) of a particular
rollout or account grouping may differ from those of the Providian Portfolio
as a whole, the Bank believes that, collectively, the Accounts currently
included in the Trust are generally representative of the Accounts in the
Providian Portfolio. There can be no assurance that performance of the
Accounts included in the Trust (including but not limited to the payment rate,
yield, loss and delinquency experience with respect to such Accounts) will be
comparable to that of the Accounts in the entire Providian Portfolio.
The Bank has transferred and will transfer to the Trust all Receivables
existing in each Account owned by it on the date of 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 Agreement, the Bank has the right, and in certain cases the obligation
(subject to certain limitations and conditions described below), to designate
from time to time additional qualifying accounts in the Providian Portfolio 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. These Accounts must be Eligible Accounts as of the date the Bank
designates such accounts as Additional Accounts. Since the Trust Cut-Off Date,
the Bank has conveyed to the Trust Receivables in certain Additional Accounts
in accordance with the provisions of the Pooling Agreement. In addition, as of
the Trust Cut-Off Date (or as of the applicable addition date) and on the date
any new Receivables are created, the Bank has represented and warranted or
will represent and warrant to the Trust, as the case may be, that each of the
Receivables in any Account or Additional Account owned by the Bank which is
conveyed to the Trust on such day meets the eligibility requirements specified
in the Pooling Agreement. See "The Pooling Agreement--Representations and
Warranties". However, there can be no assurance that all the Accounts will
continue to meet the applicable eligibility requirements throughout the life
of the Trust.
Subject to certain limitations and restrictions, the Bank may also designate
certain Accounts owned by it the Receivables in which will be removed from the
Trust. In such case, the Receivables in the Removed Accounts will be
reassigned to the Bank. The Bank may from time to time remove from the Trust
certain charged-off Accounts and closed accounts having a zero balance. See
"Description of the Certificates--Removal of Accounts". Throughout the term of
the Trust, the Trust Portfolio will consist of the Initial Accounts, plus any
Additional Accounts, and minus any Removed Accounts.
The Trust Portfolio currently does not include the receivables arising in
secured and partially secured accounts or accounts with lower credit limits
designed to serve individuals who have limited access to credit and are
underserved by traditional financial institutions. However, such accounts may
in the future be selected by the
27
<PAGE>
Bank to be designated for inclusion in the Trust Portfolio. For a description
of the Bank's secured and partially secured accounts, see "The Bank's Credit
Card and Consumer Lending Business--Business Overview".
Additional Accounts designated after the date hereof may be accounts of a
different type from those previously included in the Trust. Therefore there
can be no assurance that such Additional Accounts will be of the same credit
quality as the Initial Accounts or the Additional Accounts the Receivables in
which have been conveyed previously to the Trust. Moreover, such Additional
Accounts may contain Receivables which consist of fees, charges and amounts
which 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. The Bank 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 which
would have a material effect on the composition of the Accounts.
Billing and Payments
The following is information with respect to the billing and payment
characteristics generally applicable to the accounts in the Providian
Portfolio.
Monthly billing statements are sent by the Bank to active accountholders.
The accounts generally require a minimum monthly payment equal to at least 2%
of the new balance shown on the statement, plus any amount that is past-due
and any amount by which the new balance exceeds the accountholder's credit
limit. The payment due will not be less than $15.00 (unless the new balance is
less than $15.00, in which case the payment due will be the amount of the new
balance).
Finance charges are posted to the accounts at the end of each monthly
billing cycle. A daily finance charge is calculated by multiplying the daily
balance on the account by the applicable daily periodic rate. For the majority
of accounts, there is no grace period during which accountholders may avoid
monthly periodic charges on cash advances. However, most accounts do have a
grace period for new purchases if the entire account balance is paid in full
by the due date shown on the monthly billing statement.
Accounts may have different annual percentage rates for cash advances,
purchases and balance transfers and the annual percentage rate may be fixed or
variable. New accountholders may be offered a reduced annual percentage rate
(which in some cases may be as low as 0%) for an introductory period, and the
annual percentage rate on some accounts may be lower or higher than those
generally offered by the Bank. For an additional fee, certain accountholders
have subscribed to a credit protection feature pursuant to which the
accountholder's obligation to make payments and the accrual of finance charges
will be suspended upon the occurrence of certain conditions. Other add-on fee
products are also offered to accountholders.
The Bank typically charges accounts certain additional fees including late
fees, returned payment check fees, over-limit fees, and returned check fees
for any checks written on the account that the Bank returns unpaid. The Bank
also charges cash advance fees for certain types of cash advances. Any of
these fees may be waived or modified by the Bank at any time.
The Bank generally does not charge customers an annual fee for the accounts
in the Providian Portfolio that are included in the Trust Portfolio. However,
the Bank reserves the right to modify the terms of any account to charge an
annual fee or other types of fees.
Payments to the Bank on the accounts are processed and applied first to
finance charges, then to any fees billed to the account and then to unpaid
principal. Any excess creates a credit balance. Finance charges are posted as
of the last day of an account's monthly billing cycle. Principal receivables
are posted daily.
28
<PAGE>
Annual percentage rates, minimum monthly payment requirements, fees and
other charges may increase or decrease from current levels. The lending
agreements governing the accounts permit the Bank to change rates and other
terms at any time after an applicable notice period. There can be no assurance
that annual percentage rates, minimum monthly payment requirements, fees and
other charges will remain at current levels in the future. See "Risk Factors--
The Ability of the Bank to Change Terms of the Accounts".
THE BANK
The Bank is a wholly-owned subsidiary of Providian Financial Corporation, a
publicly owned financial services company which provides lending and deposit
products to consumers nationwide. Providian Financial Corporation and its
subsidiaries offer a range of lending products, including unsecured credit
cards, revolving lines of credit, home loans, secured and partially secured
credit cards, and fee based products nationwide, primarily through direct mail
and telemarketing. Providian Financial Corporation became an independent,
publicly held company in a spin-off transaction that occurred on June 10,
1997, when shares of its common stock were distributed to the shareholders of
Providian Corporation, which was Providian Financial Corporation's parent
company prior to the spin-off.
The Bank is the surviving entity in the merger, completed on January 1, 1998
of Providian National Bank, another subsidiary of Providian Financial
Corporation, into First Deposit National Bank. Immediately following the
merger, First Deposit National Bank changed its name to Providian National
Bank.
The Bank is a national bank regulated by the Office of the Comptroller of
the Currency. Under the grandfather provisions of the Competitive Equality
Banking Act of 1987. Providian Financial Corporation is not required to
register as a bank holding company so long as certain restrictions are
observed, including limitations on new activities by the Bank and on affiliate
overdrafts and limitations on the Bank's ability to cross-market its products
and services with products and services of its affiliates. The principal
executive offices of the Bank are located at 295 Main Street, Tilton, New
Hampshire 03276, and the principal executive offices of Providian Financial
Corporation are located at 201 Mission Street, San Francisco, California
94105.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates of any Series offered
hereby will be paid to the Bank and will be used for the Bank's general
corporate purposes or will be applied in such other manner as may be specified
in the related Prospectus Supplement.
THE TRUST
The Trust, as a master trust, previously has issued other Series and is
expected to issue additional Series from time to time. The Trust has not
engaged and will not engage in any business activity other than acquiring and
holding Trust Assets and proceeds therefrom, issuing Series of Certificates
and the Seller's Interest and making payments thereon and related activities.
As a consequence, the Trust does not and is not expected to have any source of
capital resources other than the Trust Assets. The Trust is administered in
accordance with the laws of the State of New York.
The Bank has conveyed to the Trust, without recourse, its interest in all
Receivables arising under the Accounts. The Trust Assets consist of the
Receivables, all monies due or to become due thereunder, the proceeds of the
Receivables, and certain Interchange attributable to accountholder charges for
goods and services in certain of the Accounts, all monies on deposit in the
Collection Account and in certain accounts maintained for the benefit of the
Certificateholders, any Participations included in the Trust, funds collected
or to be collected with respect to such Participations and any Series
Enhancements. The Trust Assets are expected to change over the
29
<PAGE>
life of the Trust as revolving credit card accounts, other revolving credit
accounts and related assets become subject to the Trust and as Accounts are
closed, charged off or removed and are no longer subject to the Trust.
Pursuant to the Pooling Agreement, the Bank will have the right (subject to
certain limitations and conditions), and in some circumstances will be
obligated, to designate as Trust Assets Receivables arising in Additional
Accounts or, in lieu thereof or in addition thereto, Participations. See
"Description of the Certificates--Addition of Trust Assets". In addition, the
Bank will have the right to remove from the Trust Receivables arising in
designated Accounts as described herein under "Description of the
Certificates--Removal of Accounts".
DESCRIPTION OF THE CERTIFICATES
General
The Certificates of a Series will be issued pursuant to the Pooling
Agreement, and a Supplement thereto relating to such Certificates, between the
Bank, as seller of its interest in the Receivables and as servicer of the
Accounts, and the Trustee; the Pooling Agreement and each Supplement with
respect to any Series offered hereby will be substantially in the form filed
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Description of the Certificates--New Issuances". The Trustee will provide
a copy of the Pooling Agreement (without exhibits or schedules), including any
Supplements, to Certificateholders upon written request. The following summary
describes certain material provisions common to each Series. Information
specific to a Series will be contained in the related Prospectus Supplement.
The following summary, together with information included elsewhere in this
Prospectus and the information with respect to a specific Series contained in
the related Prospectus Supplement, describes the terms of the Certificates.
The Certificates of each Series offered hereby will initially be represented
by one or more certificates registered in the name of the nominee of DTC
(together with any successor depository selected by the Bank, the
"Depository"), except as set forth below. The Certificates of each Series
offered hereby will be available for purchase in minimum denominations of
$1,000 and in integral multiples thereof in book-entry form. The Bank has been
informed by DTC that DTC's nominee will be Cede. See "The Pooling Agreement--
Book-Entry Registration" and "--Definitive Certificates".
The Certificates of each Series offered hereby will evidence undivided
interests in the Trust Assets allocated to the Certificateholders' Interest of
such Series, representing the right to receive from such Trust Assets funds up
to (but not in excess of) the amounts required to make payments of interest
and principal with respect thereto as described in the related Prospectus
Supplement.
Interest
Interest will accrue on the Invested Amount of the Certificates of a Series
or Class offered hereby at the per annum rate either specified in or
determined in the manner specified in the related Prospectus Supplement.
Collections of Finance Charge Receivables and certain other amounts allocable
to the Certificateholders' Interest of a Series offered hereby will be used to
the extent specified in the related Prospectus Supplement to make interest
payments to Certificateholders of such Series on each Interest Payment Date
specified with respect thereto in the related Prospectus Supplement, provided
that if an Early Amortization Period commences with respect to such Series,
thereafter interest will be distributed to such Certificateholders monthly on
each Special Payment Date. If the Interest Payment Dates for a Series or Class
occur less frequently than monthly, such collections or other amounts (or the
portion thereof allocable to such Class) will be deposited in one or more
trust accounts (each an "Interest Funding Account") and used to make interest
payments to Certificateholders of such Series or Class on the following
Interest Payment Date. If a Series has more than one Class of Certificates,
each such Class may have a separate Interest Funding Account. Funds on deposit
in an Interest Funding Account will be invested in Eligible Investments. Any
earnings (net of losses and investment expenses) on funds in an Interest
Funding Account will be paid to, or at the direction of, the Bank. Interest
with respect to the Certificates of each Series offered hereby will accrue and
be calculated on the basis described in the related Prospectus Supplement.
30
<PAGE>
Principal
The Certificates of each Series will have a Revolving Period during which
collections of Principal Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of such Series will be treated
as Shared Principal Collections and will be distributed to, or for the benefit
of, the Certificateholders of other Series or the Bank. Unless an Early
Amortization Period commences with respect to a Series, following the
Revolving Period with respect to such Series, such Series will have either an
Accumulation Period or a Scheduled Amortization Period.
During the Accumulation Period, if any, of a Series, collections of
Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be deposited on each
Distribution Date with respect to such Accumulation Period in a Principal
Funding Account and used to make principal distributions to the
Certificateholders of such Series when due. The amount to be deposited in a
Principal Funding Account for any Series offered hereby on any Distribution
Date may, but will not necessarily, be limited to a Controlled Deposit Amount
equal to a Controlled Accumulation Amount specified in the related Prospectus
Settlement plus any existing deficit controlled accumulation amount arising
from prior Distribution Dates. If a Series has more than one Class of
Certificates, each Class may have a separate Principal Funding Account and
Controlled Accumulation Amount. In addition, the related Prospectus Supplement
may describe certain priorities among such Classes with respect to deposits of
principal into such Principal Funding Accounts.
During the Scheduled Amortization Period, if any, of a Series, collections
of Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be used on each Distribution
Date with respect to such Scheduled Amortization Period to make principal
distributions to any Class of Certificateholders then scheduled to receive
such distributions. The amount to be distributed to Certificateholders of any
Series offered hereby on any Distribution Date may, but will not necessarily,
be limited to a Controlled Distribution Amount equal to a Controlled
Amortization Amount specified in the related Prospectus Supplement plus any
existing deficit controlled amortization amount arising from prior
Distribution Dates. If a Series has more than one Class of Certificates, each
Class may have a separate Controlled Amortization Amount. In addition, the
related Prospectus Supplement may describe certain priorities among such
Classes with respect to such distributions.
During the Early Amortization Period of a Series, collections of Principal
Receivables and certain other amounts allocable to the Certificateholders'
Interest of such Series (including Shared Principal Collections, if any,
allocable to such Series) will be distributed as principal payments to the
applicable Certificateholders monthly on each Distribution Date beginning with
the first Special Payment Date. During the Early Amortization Period of a
Series, distributions of principal to Certificateholders of such Series will
not be subject to any Controlled Deposit Amount or Controlled Distribution
Amount. In addition, upon the commencement of the Early Amortization Period,
any funds on deposit in a Principal Funding Account with respect to such
Series will be paid to the Certificateholders of the relevant Class or Series
on the first Special Payment Date. See "Series Provisions--Pay Out Events" for
a discussion of the events which might lead to the commencement of the Early
Amortization Period with respect to a Series.
Funds on deposit in any Principal Funding Account established with respect
to a Class or Series offered hereby will be invested in Eligible Investments
and may be subject to a guarantee or guaranteed investment contract or other
mechanism specified in the related Prospectus Supplement intended to assure a
minimum rate of return on the investment of such funds. In order to enhance
the likelihood of the payment in full of the principal amount of a Class of
Certificates offered hereby at the end of an Accumulation Period with respect
thereto, such Class may be subject to a maturity liquidity facility or other
similar mechanism specified in the relevant Prospectus Supplement.
Addition of Trust Assets
If, as of the close of business on the last business day of any Monthly
Period, either (a) the Seller's Interest is less than the Required Seller's
Participation Amount or (b) the amount of Principal Receivables in the Trust
is
31
<PAGE>
less than the Required Principal Balance, the Bank shall, on or prior to the
close of business on the tenth business day following such day, unless the
Seller's Interest equals or exceeds the Required Seller's Participation Amount
or the amount of Principal Receivables in the Trust equals or exceeds the
Required Principal Balance, as the case may be, as of the close of business on
any day after the last business day of such Monthly Period and prior to such
tenth business day, make an Addition to the Trust such that, after giving
effect to such Addition, the Seller's Interest is at least equal to the
Required Seller's Participation Amount and the amount of Principal Receivables
in the Trust is at least equal to the Required Principal Balance. An
"Addition" will consist of (i) receivables arising in Eligible Accounts owned
by the Bank or (ii) participations representing undivided interests in a pool
of assets primarily consisting of revolving credit card accounts or other
revolving credit accounts owned by the Bank or any affiliate thereof and
collections thereon ("Participations"). The addition of Participations to the
Trust pursuant to this paragraph will be effected by an amendment to the
Pooling Agreement which will not require the consent of Certificateholders but
will be subject to the conditions that (x) the Bank shall have delivered to
the Trustee a certificate of an authorized officer to the effect that the Bank
reasonably believes, based on the facts known to such officer at the time of
such certificate, that such amendment will not adversely affect in any
material respect the interests of any Certificateholder and (y) such amendment
will not result in a Ratings Effect. The Bank may, upon 30 days' prior notice
to the Trustee, the Rating Agency and certain providers of Series Enhancement,
reduce the Required Seller's Percentage, provided that (a) such reduction will
not result in a Ratings Effect and (b) the Bank shall have delivered to the
Trustee and certain providers of Series Enhancement a certificate of an
authorized officer to the effect that, in the reasonable belief of the Bank,
such reduction will not, based on the facts known to such officer at the time
of such certification, cause a Pay Out Event to occur with respect to any
Series; and provided further that the Required Seller's Percentage shall never
be less than 2%. In addition, the Bank may from time to time, at its sole
discretion, subject to the conditions described below, voluntarily make an
Addition to the Trust.
The Bank may designate, from time to time, at its sole discretion, Eligible
Accounts to be included as Accounts ("Automatic Additional Accounts"), subject
to the limitations specified in this paragraph. If the aggregate number of
Automatic Additional Accounts designated to be included as Accounts plus the
number of Accounts added pursuant to the preceding paragraph without prior
review by the Rating Agency with respect to any of the three consecutive
Monthly Periods beginning in January, April, July and October of each calendar
year would exceed 15% of the number of Accounts as of the first day of the
calendar year during which such Monthly Periods commence or the number of such
Accounts designated during any twelve-month period would exceed 20% of the
number of Accounts as of the first day of such twelve-month period (the
"Aggregate Additional Limit"), then no Automatic Additional Accounts may be
added during such periods without the consent of the Rating Agency. On or
before each Distribution Date, the Bank shall have delivered to the Trustee,
the Rating Agency and certain providers of Series Enhancement an opinion of
counsel with respect to the Automatic Additional Accounts included as Accounts
during the preceding Monthly Period confirming the validity and perfection of
each transfer of such Automatic Additional Accounts. If such opinion of
counsel with respect to any Automatic Additional Accounts is not so received,
the ability of the Bank to designate Automatic Additional Accounts will be
suspended until such time as the Rating Agency otherwise consents in writing.
The addition to the Trust of Receivables in Automatic Additional Accounts will
be subject to the further condition that revolving credit card accounts or
other revolving credit accounts either (i) not originated by the Bank or any
affiliate of the Bank or (ii) of a type not included in the Accounts at the
time of their addition may only be designated as Automatic Additional Accounts
upon compliance with the conditions described below with respect to Additions.
Automatic Additional Accounts and Accounts relating to any Addition are
collectively referred to herein as "Additional Accounts".
In connection with an Addition of Accounts, the Bank will convey to the
Trust the Receivables arising in Additional Accounts subject to the following
conditions, among others (provided that the following conditions (other than
the delivery of a written assignment and a computer file or microfiche list as
described in clause (b)) shall not apply to the transfer to the Trust of
Receivables in Automatic Additional Accounts): (a) on or before the tenth
business day immediately preceding such Addition, the Bank shall have given
the Trustee, the Servicer, the Rating Agency and certain providers of Series
Enhancement written notice that the Receivables arising in
32
<PAGE>
the Additional Accounts will be included as Trust Assets; (b) on or before the
date on which any such Receivables are added to the Trust, the Bank shall have
delivered to the Trustee a written assignment and a computer file or
microfiche list containing a true and complete list of the Additional Accounts
specifying for each such Account its account number, the aggregate amount
outstanding in such Account and the aggregate amount of Principal Receivables
outstanding in such Account; (c) in the case of an Addition other than a
required Addition, the Trustee shall have received confirmation from the
Rating Agency that such Addition will not result in a Ratings Effect; (d) in
the case of a required Addition which exceeds the Aggregate Additional Limit,
the Bank shall have provided the Rating Agency with 15 days' prior written
notice and the Rating Agency shall not have notified the Bank that such
addition would result in a Ratings Effect; and (e) prior to or on the date any
such Receivables are added to the Trust, the Bank shall have delivered to the
Trustee and certain providers of Series Enhancement a certificate of an
authorized officer stating that any related Additional Accounts are Eligible
Accounts and that the Bank reasonably believes that (i) such Addition will
not, based on the facts known to such officer at the time of such
certification, cause a Pay Out Event to occur with respect to any Series and
(ii) no selection procedure was utilized by the Bank which would result in a
selection of Additional Accounts (from the available Eligible Accounts owned
by the Bank) that would be materially adverse to the interests of the
Certificateholders of any Series as of the date of addition.
In connection with an Addition of Participations, the Bank will convey the
Participations to the Trust subject to the following conditions, among others:
(a) on or before the tenth business day immediately preceding such Addition,
the Bank shall have given the Trustee, the Servicer, the Rating Agency and
certain providers of Series Enhancement written notice that the Participations
will be included as Trust Assets, (b) the Trustee shall have received
confirmation from the Rating Agency that such Addition will not result in a
Ratings Effect and (c) prior to or on the date any such Participations are
added to the Trust, the Bank shall have delivered to the Trustee and certain
providers of Series Enhancement a certificate of an authorized officer stating
that such Addition will not, based on the facts known to such officer at the
time of such certification, cause a Pay Out Event to occur with respect to any
Series.
The Bank may direct that the Principal Receivables in the Additional
Accounts be treated as Principal Receivables outstanding on the last day of
the Monthly Period preceding the Monthly Period in which the Addition is made
for purposes of calculating Floating Allocation Percentages and Principal
Allocation Percentages for the Monthly Period of such Addition. Such direction
may be made on the date of addition subject to the condition that all
collections with respect to the Additional Accounts for the period from the
last day of the preceding Monthly Period through the date of addition must be
deposited in the collection Account on the date of addition. Following any
such Addition, the Servicer will allocate collections for the balance of such
Monthly Period, including the collections deposited on the date of addition,
to the Certificateholders' Interest of each Series and the Seller's Interest
so that each interest receives the same allocations of Finance Charge
Receivables, Principal Receivables and Defaulted Amounts that it would have
received if such Additional Accounts had been included in the Trust for the
entire Monthly Period in which the Addition occurred.
Affiliates of the Bank may originate or acquire portfolios of revolving
credit card accounts or other revolving credit accounts the receivables in
which may be participated to the Bank and sold to the Trust. Such a sale of
receivables to the Trust will be subject to the conditions described above
relating to Additions.
Additional Accounts or Participations may include accounts originated using
criteria different from those which were applied to the Initial Accounts
because such accounts were originated at a later date or were part of a
portfolio of revolving credit card accounts or other revolving credit accounts
which were not part of the Providian Portfolio as of the Trust Cut-Off Date or
which were acquired from another institution. Moreover, Additional Accounts
and accounts included in Participations may not be accounts of the same type
previously included in the Trust. See "The Pooling Agreement--Representations
and Warranties". Consequently, there can be no assurance that such Additional
Accounts or Participations will be of the same credit quality or have the same
payment characteristics as the Initial Accounts or the Additional Accounts
previously included in the Trust.
33
<PAGE>
Additional Accounts of a type different than the Initial Accounts may
contain Receivables which consist of fees, charges and amounts which are
different from the fees, charges and amounts which have been designated as
Finance Charge Receivables and Principal Receivables herein and Participations
may be added to the Trust as Additions. In either case, the Servicer will
designate the portions of funds collected or to be collected in respect of
such Receivables or Participations to be treated for purposes of the Pooling
Agreement as Principal Receivables and Finance Charge Receivables.
Removal of Accounts
On any day of any Monthly Period the Bank shall have the right to require
the reassignment to it or its designee of all the Trust's right, title and
interest in, to and under the Receivables then existing and thereafter
created, all monies due or to become due and all amounts received with respect
thereto and all proceeds thereof in or with respect to the Removed Accounts
owned and designated by the Bank, upon satisfaction of the following
conditions: (a) on or before the tenth business day (the "Removal Notice
Date") immediately preceding the date upon which the Receivables in such
Accounts are to be removed from the Trust, the Bank shall have given the
Trustee, the Servicer, the Rating Agency and certain providers of Series
Enhancement written notice of such removal specifying the date for removal of
the Removed Accounts (the "Removal Date"); (b) on or prior to the date that is
ten business days after the Removal Date, the Bank shall have delivered to the
Trustee a computer file or microfiche list containing a true and complete list
of the Removed Accounts specifying for each such Account, as of the Removal
Notice Date, its account number, the aggregate amount outstanding in such
Account and the aggregate amount of Principal Receivables outstanding in such
Account; (c) the Bank shall have represented and warranted as of each Removal
Date that the list of Removed Accounts delivered pursuant to clause (b) above,
as of the Removal Date, is true and complete in all material respects (except
the balances set forth in such list of Removed Accounts, which shall be true
and correct in all material respects as of the Removal Notice Date); (d) the
Trustee shall have received confirmation from the Rating Agency that such
removal will not result in a Ratings Effect unless the aggregate amount of
Principal Receivables outstanding in such Removed Accounts is zero; (e) the
Bank shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer, dated the Removal Date, to
the effect that the Bank reasonably believes that (i) such removal will not,
based on the facts known to such officer at the time of such certification,
cause a Pay Out Event to occur with respect to any Series and (ii) no
selection procedure was utilized by the Bank which would result in a selection
of Removed Accounts that would be materially adverse to the interests of the
Certificateholders of any Series as of the Removal Date; and (f) as of the
Removal Notice Date, either (i) the Receivables in the Accounts owned by the
Bank are not more than 15% delinquent by estimated principal amount and the
weighted average delinquency of such Receivables is not more than 60 days or
(ii) the Receivables in the Accounts owned by the Bank are not more than 7%
delinquent by estimated principal amount and the weighted average delinquency
of such Receivables does not exceed 90 days.
Upon satisfaction of the above conditions, the Trustee shall execute and
deliver to the Bank a written reassignment and shall be deemed to sell,
transfer, assign, set over and otherwise convey to the Bank or its designee,
without recourse, representation or warranty, all the right, title and
interest of the Trust in and to the Receivables arising in the Removed
Accounts, all monies due and to become due and all amounts received with
respect thereto and all proceeds thereof. Notwithstanding the above, in
certain cases, amounts received in connection with the disposition, after
removal from the Trust, of Receivables charged-off as uncollectible prior to
removal from the Trust will be applied under the Pooling Agreement to offset
Defaulted Receivables. See "Description of the Certificates--Defaulted
Receivables; Rebates and Fraudulent Charges".
New Issuances
The Pooling Agreement provides that, pursuant to any one or more
Supplements, the Bank may direct the Trustee to issue from time to time new
Series subject to the conditions described below (each such issuance a "New
Issuance"). Each New Issuance will have the effect of decreasing the Seller's
Interest to the extent of the Invested Amount of such new Series. Under the
Pooling Agreement, the Bank may designate, with respect to
34
<PAGE>
any newly issued Series: (i) its name or designation; (ii) its initial
principal amount (or method for calculating such amount) and its invested
amount in the Trust (the "Invested Amount"); (iii) its certificate rate (or
formula for the determination thereof); (iv) the interest payment date or
dates (the "Interest Payment Dates") and the date or dates from which interest
shall accrue; (v) the method for allocating collections to Certificateholders
of such Series; (vi) any bank accounts to be used by such Series and the terms
governing the operation of any such bank accounts; (vii) the percentage used
to calculate monthly servicing fees; (viii) the provider and terms of any form
of Series Enhancement with respect thereto; (ix) the terms on which the
Certificates of such Series may be repurchased or remarketed to other
investors; (x) the Series Termination Date; (xi) the number of Classes of
Certificates of such Series, and if such Series consists of more than one
Class, the rights and priorities of each such Class; (xii) the extent to which
the Certificates of such Series will be issuable in temporary or permanent
global form (and, in such case, the depositary for such global certificate or
certificates, the terms and conditions, if any, upon which such global
certificate may be exchanged, in whole or in part, for definitive
certificates, and the manner in which any interest payable on a global
certificate will be paid); (xiii) whether the Certificates of such Series may
be issued in bearer form and any limitations imposed thereon; (xiv) the
priority of such Series with respect to any other Series; (xv) the Group, if
any, in which such Series will be included; and (xvi) any other relevant terms
(all such terms, the "Principal Terms" of such Series). None of the Bank, the
Servicer, the Trustee or the Trust is required or intends to obtain the
consent of any Certificateholder of any outstanding Series to issue any
additional Series. The Bank may offer any Series to the public under a
Prospectus Supplement or other 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. See "Plan of Distribution". Any
such Series may be issued in fully registered or book-entry form in minimum
denominations determined by the Bank. The Bank intends to offer, from time to
time, additional Series.
The Pooling Agreement provides that the Bank may designate Principal Terms
such that each Series has an Accumulation Period or a Scheduled Amortization
Period which may have a different length and begin on a different date than
such periods for any other Series. Further, one or more Series may be in their
Accumulation Period or Scheduled Amortization Period while other Series are
not. Collections of Principal Receivables otherwise allocable to a Series
which is not amortizing or accumulating principal will be treated as Shared
Principal Collections and reallocated to a Series which is amortizing or
accumulating principal. Moreover, each Series may have the benefits of Series
Enhancements issued by enhancement providers different from the providers of
Series Enhancement with respect to any other Series. Under the Pooling
Agreement, the Trustee shall hold any such Series Enhancement only on behalf
of the Series to which such Series Enhancement relates. With respect to each
such Series Enhancement, the Bank may deliver a different form of Series
Enhancement agreement. The Bank also has the option under the Pooling
Agreement to vary among Series the terms upon which a Series may be
repurchased by the Bank or remarketed to other investors. There is no limit to
the number of New Issuances that the Bank may cause under the Pooling
Agreement. The Trust will terminate only as provided in the Pooling Agreement.
There can be no assurance that the terms of any Series might not have an
impact on the timing and amount of payments received by a Certificateholder of
another Series.
Under the Pooling Agreement and pursuant to a Supplement, a New Issuance may
only occur upon the satisfaction of certain conditions provided in the Pooling
Agreement. The obligation of the Trustee to authenticate the Certificates of
such new Series and to execute and deliver the related Supplement is subject
to the satisfaction of the following conditions: (a) on or before the fifth
business day immediately preceding the date upon which the New Issuance is to
occur, the Bank shall have given the Trustee, the Servicer, the Rating Agency
and certain providers of Series Enhancement written notice of such New
Issuance and the date upon which the New Issuance is to occur; (b) the Bank
shall have delivered to the Trustee the related Supplement, in form
satisfactory to the Trustee, executed by each party to the Pooling Agreement
other than the Trustee; (c) the Bank shall have delivered to the Trustee any
related Series Enhancement agreement executed by each of the parties to such
agreement; (d) the Trustee shall have received confirmation from the Rating
Agency that such New Issuance will not result in a Ratings Effect; (e) the
Bank shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer, dated the date upon which
the New
35
<PAGE>
Issuance is to occur, to the effect that the Bank reasonably believe that such
issuance will not, based on the facts known to such officer at the time of
such certification, cause a Pay Out Event to occur with respect to any Series;
(f) the Bank shall have delivered to the Trustee, the Rating Agency and
certain providers of Series Enhancement an opinion of counsel acceptable to
the Trustee that for federal income tax purposes (x) following such New
Issuance the Trust will not be deemed to be an association (or publicly traded
partnership) taxable as a corporation, (y) such New Issuance will not affect
the tax characterization as debt of Certificates of any outstanding Series or
Class that were characterized as debt at the time of their issuance and (z)
such New Issuance will not cause or constitute an event in which gain or loss
would be recognized by any Certificateholders or the Trust (an opinion of
counsel to the effect referred to in clauses (x), (y) and (z) with respect to
any action is referred to herein as a "Tax Opinion"); (g) the Bank's remaining
interest in Principal Receivables shall not be less than 2% of the total
amount of Principal Receivables, in each case as of the date upon which the
New Issuance is to occur after giving effect to such issuance; (h) the sum of
the Invested Amounts to be used in calculating the Floating Allocation
Percentages of all outstanding Series shall not exceed the amount of Principal
Receivables to be used in calculating such Floating Allocation Percentages, in
each case as of the date of the New Issuance and after giving effect to such
New Issuance; and (i) any other conditions specified in any Supplement. Upon
satisfaction of the above conditions, the Trustee shall execute the Supplement
and issue to the Bank the Certificates of such new Series for execution and
redelivery to the Trustee for authentication.
Collection Account
The Servicer maintains for the benefit of the Certificateholders of each
Series, in the name of the Trustee, on behalf of the Trust, an Eligible
Deposit Account bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders of each
Series (the "Collection Account"). "Eligible Deposit Account" means either (a)
a segregated account with an Eligible Institution or (b) a segregated trust
account with the corporate trust department of a depository institution
organized under the laws of the United States or any one of the states
thereof, including the District of Columbia (or any domestic branch of a
foreign bank), and acting as a trustee for funds deposited in such account, so
long as any of the securities of such depository institution shall have a
credit rating from the Rating Agency in one of its generic credit rating
categories which signifies investment grade. "Eligible Institution" means a
depository institution (which may be the Trustee) organized under the laws of
the United States or any one of the states thereof which at all times (a) has
either (i) a long-term unsecured debt rating of A2 or better by Moody's
Investors Service, Inc. ("Moody's") or (ii) a certificate of deposit rating of
P-1 by Moody's, (b) has either (i) a long-term unsecured debt rating of AAA by
Standard & Poor's Ratings Group ("Standard & Poor's") or (ii) a certificate of
deposit rating of A-1+ by Standard & Poor's and (c) is a member of the FDIC.
The Collection Account is currently maintained with Bankers Trust Company. If
at any time the Collection Account ceases to be an Eligible Deposit Account,
the Collection Account shall be moved so that it will again be qualified as an
Eligible Deposit Account. Funds in the Collection Account generally will be
invested 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 commercial paper, if any, of which has
the highest rating from the Rating Agency, (iii) commercial paper (or other
short-term obligations) having, at the time of the Trust's investment therein,
a rating in the highest rating category from the Rating Agency, (iv) demand
deposits, time deposits and certificates of deposit which are fully insured by
the FDIC, (v) notes or bankers' acceptances issued by any depository
institution or trust company described in (ii) above, (vi) money market funds
which have the highest rating from, or have otherwise been approved in writing
by, the Rating Agency, (vii) time deposits with an entity, the commercial
paper of which has the highest rating from the Rating Agency and (viii) any
other investments approved in writing by the Rating Agency (collectively,
"Eligible Investments"). Such funds may be invested in debt obligations of
Providian Financial Corporation or its affiliates so long as such obligations
qualify as Eligible Investments. Any earnings (net of losses and investment
expenses) on funds in the Collection Account will be treated as collections of
Finance Charge Receivables with respect to the last day of the related Monthly
Period except as otherwise specified in any Supplement. The Servicer will have
the revocable power to withdraw funds from the Collection Account and to
instruct the Trustee to make withdrawals and payments from the Collection
Account for the purpose of carrying out its duties under the Pooling Agreement
and any Supplement. The Paying Agent shall
36
<PAGE>
have the revocable power to withdraw funds from the Collection Account for the
purpose of making distributions to the Certificateholders. The Paying Agent
shall initially be the Trustee.
Allocation Percentages
Pursuant to the Pooling Agreement, the Servicer will allocate among the
Certificateholders' Interest of each Series and the Seller's Interest all
amounts collected with respect to Finance Charge Receivables and Principal
Receivables and the Defaulted Amount with respect to each day during any
Monthly Period as follows: (a) collections of Finance Charge Receivables and
the Defaulted Amount will at all times be allocated to the Certificateholders'
Interest of a Series based on the Floating Allocation Percentage of such
Series; and (b) collections of Principal Receivables will at all times be
allocated to the Certificateholders' Interest of such Series based on the
Principal Allocation Percentage of such Series.
The "Floating Allocation Percentage" and the "Principal Allocation
Percentage" with respect to any Series will be determined as set forth in the
related Supplement and, with respect to each Series offered hereby, in the
related Prospectus Supplement. Amounts not allocated to the
Certificateholders' Interest of any Series as described above will be
allocated to the Seller's Interest.
Deposits in Collection Account
For as long as (i) the Bank remains the Servicer under the Pooling Agreement
and (ii) either (x) the Bank, as the Servicer, provides to the Trustee a
letter of credit covering collection risk of the Servicer acceptable to the
Rating Agency (as evidenced by a letter from the Rating Agency to the effect
that no Ratings Effect would occur) or (y) the Bank has and maintains a
certificate of deposit rating of at least A-1 and P-1 (or their equivalent) by
the Rating Agency, the Bank may use for its own benefit all collections
received with respect to the Receivables in each Monthly Period until the
business day preceding the related Distribution Date, at which time the Bank
will deposit all such collections, to the extent described below, into the
Collection Account, and the Servicer will make the deposits and payments to
the accounts and parties described herein and in the related Prospectus
Supplement on the date of such deposit. However, if the Bank is no longer the
Servicer or fails to maintain the required letter of credit covering
collection risk or the required certificate of deposit rating, the Servicer
will make such deposits, as described below, not later than two business days
after the Date of Processing, except in the case of collections consisting of
Interchange, which will be deposited not later than each Distribution Date.
Whether the Servicer is required to make deposits of collections pursuant to
the first or the second preceding sentence, (i) the Servicer will only be
required to deposit collections into the Collection Account up to the
aggregate amount of collections required to be deposited into an account
established for any Series or, without duplication, distributed on the related
Distribution Date or Payment Date to Certificateholders of any Series or to
the issuer of any Series Enhancement pursuant to the terms of any Supplement
or Series Enhancement agreement and (ii) if at any time prior to such
Distribution Date or Payment Date the amount of collections deposited in the
Collection Account exceeds the amount required to be deposited pursuant to
clause (i) above, the Servicer will be permitted to withdraw such excess from
the Collection Account. Unless otherwise agreed by the Rating Agency, if at
any time the Bank or another eligible affiliate of Providian Financial
Corporation is not the Servicer, the Collection Account will be moved from the
Bank, if then maintained there.
On the earlier of (i) the second business day after the Date of Processing
and (ii) the day on which the Servicer deposits any collections into the
Collection Account, the Servicer will pay to the Bank (a) the Bank's allocable
portion of collections on Principal Receivables, provided that the Seller's
Interest in Principal Receivables on such day (after giving effect to any new
Receivables transferred to the Trust on such day) is greater than zero; and
(b) the Bank's allocable portion of collections on Finance Charge Receivables,
except in the case of collections consisting of Interchange, the Bank's
allocable portion of which will be retained by the Bank. Any amount not
allocated to the Bank because the Seller's Interest in Principal Receivables
is zero will be held in the Collection Account unallocated ("Unallocated
Principal Collections") until the Seller's Interest in Principal Receivables
is greater than zero (at which time such amount will be allocated to the Bank)
or until an Accumulation Period, Scheduled Amortization Period or Early
Amortization Period commences for any Series
37
<PAGE>
(after which such amount will be treated as Shared Principal Collections to
the extent needed to cover principal payments due to or for the benefit of
such Series).
Shared Principal Collections
Collections on Principal Receivables for any Monthly Period allocated to the
Certificateholders' Interest of any Series offered hereby will first be used
to cover certain amounts described in the related Prospectus Supplement
(including any required deposits into a Principal Funding Account or required
distributions to Certificateholders of such Series). The Servicer will
determine the amount of collections of Principal Receivables for any Monthly
Period (plus certain other amounts described in the related Prospectus
Supplement) allocated to such Series remaining after covering such required
deposits and distributions and any similar amount remaining for any other
Series (collectively, "Shared Principal Collections"). The Servicer will
allocate the Shared Principal Collections to cover any principal distributions
to Certificateholders and deposits to Principal Funding Accounts for any
Series which are either scheduled or permitted and which have not been covered
out of the investor principal collections and certain other amounts for such
Series ("Principal Shortfalls"). If Principal Shortfalls exceed Shared
Principal Collections for any Monthly Period, Shared Principal Collections
will be allocated pro rata among the applicable Series based on the respective
Principal Shortfalls of such Series. To the extent that Shared Principal
Collections exceed Principal Shortfalls, the balance will be allocated to the
Bank, provided that (a) such Shared Principal Collections will be distributed
to the Bank only to the extent that the Seller's Interest in Principal
Receivables is greater than zero (see "--Deposits in Collection Account") and
(b) in certain circumstances described below under "--Special Funding
Account", such Shared Principal Collections will be deposited in the Special
Funding Account. Any such reallocation of collections on Principal Receivables
will not result in a reduction in the Invested Amount of the Series to which
such collections were initially allocated. There can be no assurance that
there will be any Shared Principal Collections with respect to any Monthly
Period.
Special Funding Account
If, on any date, the Seller's Interest is less than or equal to the Required
Seller's Participation Amount or the amount of Principal Receivables in the
Trust is less than or equal to the Required Principal Balance, the Servicer
shall not distribute to the Bank any Shared Principal Collections that
otherwise would be distributed to the Bank, but shall deposit such funds in an
Eligible Deposit Account established and maintained by the Servicer for the
benefit of the Certificateholders of each Series, in the name of the Trustee,
on behalf of the Trust, and bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the Certificateholders of
each Series (the "Special Funding Account"). Funds on deposit in the Special
Funding Account will be withdrawn and paid to the Bank on any Distribution
Date to the extent that, after giving effect to such payment, the Seller's
Interest exceeds the Required Seller's Participation Amount and the amount of
Principal Receivables in the Trust exceeds the Required Principal Balance on
such date; provided, however, that if an Accumulation Period, Scheduled
Amortization Period or Early Amortization Period commences with respect to any
Series, any funds on deposit in the Special Funding Account will be released
from the Special Funding Account, deposited in the Collection Account and
treated as Shared Principal Collections to the extent needed to cover
principal payments due to or for the benefit of such Series.
Funds on deposit in the Special Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Eligible Investments. Any
earnings (net of losses and investment expenses) earned on amounts on deposit
in the Special Funding Account during any Monthly Period will be withdrawn
from the Special Funding Account and treated as collections of Finance Charge
Receivables with respect to such Monthly Period.
Sharing of Additional Finance Charges
Any Series offered hereby may be included in a group of Series (a "Group").
Each Series in a specific Group will be entitled to share Additional Finance
Charges in the manner, and to the extent, described below with each other
Series, if any, in such Group. The Prospectus Supplement with respect to a
Series offered hereby
38
<PAGE>
will specify whether such Series will be included in a Group and whether any
previously issued Series have been included in such Group. Subsequently issued
Series may also be included in such Group. Collections of Finance Charge
Receivables and certain other amounts allocable to the Certificateholders'
Interest of any Series which is included in a Group in excess of the amounts
necessary to make required payments with respect to such Series (including
payments to the provider of any related Series Enhancement) that are payable
out of collections of Finance Charge Receivables ("Additional Finance
Charges") will be applied to cover any shortfalls with respect to amounts
payable from collections of Finance Charge Receivables allocable to any other
Series included in such Group, pro rata based upon the amount of the
shortfall, if any, with respect to each other Series in such Group; provided,
however, that the sharing of Additional Finance Charges among Series in any
Group will continue only until such time, if any, at which the Bank shall
deliver to the Trustee a certificate of an authorized officer to the effect
that, in the reasonable belief of the Bank, the continued sharing of
Additional Finance Charges among Series in any Group would have adverse
regulatory implications with respect to the Bank. Following the delivery by
the Bank of any such certificate to the Trustee there will not be any further
sharing of Additional Finance Charges among the Series in any Group. In all
cases, any Additional Finance Charges remaining after covering shortfalls with
respect to all outstanding Series in a Group will be paid to the Bank. While
any Series offered hereby may be included in a Group, there can be no
assurance that (i) any other Series will be included in such Group, (ii) there
will be any Additional Finance Charges with respect to such Group for any
Monthly Period or (iii) the Bank will not at any time deliver a certificate as
described above. While the Bank believes that, based upon applicable rules and
regulations as currently in effect, the sharing of Additional Finance Charges
among Series in a Group will not have adverse regulatory implications for it,
there can be no assurance that this will continue to be true in the future.
Funding Period
For any Series, the related Prospectus Supplement may specify that during a
Funding Period, an amount (the "Prefunding Account Balance") will be held in a
Prefunding Account pending the transfer of additional Receivables to the Trust
or pending the reduction of the Certificateholders' Interest of other Series
issued by the Trust. The related Prospectus Supplement will specify the
initial Certificateholders' Interest with respect to such Series, the Initial
Amount and the date by which the Certificateholders' Interest is expected to
equal the Initial Amount. The Funding Period with respect to a Prefunded
Series shall not exceed one year.
If so specified in the related Prospectus Supplement, during the Funding
Period, funds on deposit in the Prefunding Account for a Series may or, under
certain circumstances, must be withdrawn and paid to the Bank to effect
increases in the Certificateholders' Interest. In the event that the
Certificateholders' Interest does not for any reason equal the Initial Amount
by the end of the Funding Period, any amount remaining in the Prefunding
Account and any additional amounts, if any, 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
Prefunding Account will be invested by the Trustee in Eligible Investments or
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Prefunding Account during the
related Monthly Period will be withdrawn from the Prefunding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Collection Account
for distribution in respect of interest on the Certificates of the related
Series in the manner specified in the related Prospectus Supplement.
Defaulted Receivables; Rebates and Fraudulent Charges
"Defaulted Receivables" for any Monthly Period are Principal Receivables
that were charged-off as uncollectible in such Monthly Period. The "Defaulted
Amount" for any Monthly Period will be an amount (not less than zero) equal to
(a) the amount of Defaulted Receivables for such Monthly Period minus (b) the
sum of (i) the amount of any Defaulted Receivables included in any Account the
Receivables in which the Bank or the
39
<PAGE>
Servicer becomes obligated to accept reassignment or assignment during such
Monthly Period (unless an Insolvency Event has occurred with respect to the
Bank or the Servicer, in which event the amount of such Defaulted Receivables
will not be added to the sum so subtracted), (ii) the aggregate amount of
recoveries received in such Monthly Period with respect to both Finance Charge
Receivables and Principal Receivables previously charged-off as uncollectible
and (iii) the excess, if any, for the immediately preceding Monthly Period of
the sum computed pursuant to this clause (b) over the amount of Principal
Receivables which became Defaulted Receivables in such Monthly Period.
Receivables in any Account will be charged-off as uncollectible in accordance
with the Lending Guidelines and the Servicer's customary and usual policies
and procedures for servicing revolving credit card and other revolving credit
account receivables comparable to the Receivables. The current policy of the
Bank is to charge off the receivables in an account when that account becomes
180 days delinquent, unless the accountholder cures such default by making a
partial payment which satisfies the criteria for curing delinquencies set
forth in the Lending Guidelines of the Bank. If the Bank receives notice that
an accountholder is deceased or in bankruptcy proceedings, the Bank will
generally charge off the receivables in such account when a determination is
made as to collectibility, but in no event more than 180 days after
delinquency.
If the Servicer adjusts downward the amount of any Principal Receivable
(other than Ineligible Receivables which have been, or are to be, reassigned
to the Bank) because of a rebate, refund, counterclaim, defense, error,
fraudulent charge or counterfeit charge to a cardholder or such Principal
Receivable was created in respect of merchandise which was refused or returned
by a cardholder, or if the Servicer otherwise adjusts downward the amount of
any Principal Receivable without receiving collections therefor or charging
off such amount as uncollectible, the amount of the Principal Receivables in
the Trust with respect to the Monthly Period in which such adjustment takes
place will be reduced by the amount of the adjustment. Furthermore, in the
event that the exclusion of any such Receivables would cause the Seller's
Interest in Principal Receivables at such time to be a negative number, the
Bank shall be required to pay an amount equal to such deficiency into the
Collection Account (each such payment an "Adjustment Payment" with respect to
such Distribution Date). Any such Adjustment Payment will be treated as a
portion of Shared Principal Collections as described under "--Shared Principal
Collections".
Credit Enhancement
General. For any Series, Credit Enhancement may be provided with respect to
one or more Classes thereof. Credit Enhancement with respect to one or more
Classes of a Series offered hereby may include a letter of credit, the
establishment of a cash collateral account, a surety bond, an insurance policy
or another form of credit enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. Credit Enhancement may also
be provided to a Class or Classes of a Series by subordination provisions
which require that distributions of principal and/or interest be made with
respect to the Certificates of such Class or Classes before distributions are
made to one or more Classes of such Series. If so specified in the related
Prospectus Supplement, any form of Credit Enhancement may be structured so as
to be available to more than one Class or Series to the extent described
therein.
The presence of Credit Enhancement with respect to a Class is intended to
enhance the likelihood of receipt by Certificateholders of such Class of the
full amount of principal and interest with respect thereto and to decrease the
likelihood that such Certificateholders will experience losses. However, the
Credit Enhancement, if any, with respect thereto will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by the Credit Enhancement or which are not
covered by the Credit Enhancement, Certificateholders will bear their
allocable share of deficiencies. In addition, if specific Credit Enhancement
is provided for the benefit of more than one Class or Series,
Certificateholders of any such Class or Series will be subject to the risk
that such Credit Enhancement will be exhausted by the claims of
Certificateholders of other Classes or Series.
40
<PAGE>
If Credit Enhancement is provided with respect to a Series offered hereby,
the related Prospectus Supplement will include a description of (a) the amount
payable under such Credit Enhancement, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions (if any) under
which the amount payable under such Credit Enhancement may be reduced and
under which such Credit Enhancement may be terminated or replaced and (d) any
material provisions of any agreement relating to such Credit Enhancement.
Additionally, in certain cases, the related Prospectus Supplement may set
forth certain information with respect to the provider of any third-party
Credit Enhancement (the "Credit Enhancer"), including (i) a brief description
of its principal business activities, (ii) its principal place of business,
place of incorporation and/or 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 a date specified in the Prospectus Supplement. If so
described in the related Prospectus Supplement, Credit Enhancement with
respect to a Series offered hereby may be available to pay principal of the
Certificates of such Series following the occurrence of certain Pay Out Events
with respect to such Series. In such event, the Credit Enhancer will have an
interest in certain cash flows in respect of the Receivables to the extent
described in such Prospectus Supplement (the "Enhancement Invested Amount")
and may be entitled to the benefit of the Trustee's security interest in the
Receivables, in each case subordinated to the interest of the
Certificateholders of such Series.
Subordination. If so specified in the related Prospectus Supplement, one or
more Classes of a Series (in which the Bank may have an interest) may be
subordinated to one or more other Classes of such Series. If so specified in
the related Prospectus Supplement, the rights of the holders of the
subordinated Classes to receive distributions of principal and/or interest on
any Payment Date will be subordinated to such rights of the holders of the
Classes which are senior to such subordinated Classes to the extent set forth
in the related Prospectus Supplement. The related Prospectus Supplement will
also set forth information concerning the amount of subordination of a Class
or Classes in a Series, the circumstances in which such subordination will be
applicable, the manner, if any, in which the amount of subordination will
decrease over time, and the conditions under which amounts available from
payments that would otherwise be made to holders of such subordinated Classes
will be distributed to holders of Classes which are senior to such
subordinated Classes. The amount of subordination will decrease whenever
amounts otherwise payable to the holders of subordinated Classes are paid to
the holders of the Classes which are senior to such subordinated Classes.
Letter of Credit. If so specified in the related Prospectus Supplement, a
letter of credit with respect to a Series or Class of Certificates offered
hereby may be issued by a bank or financial institution specified in the
related Prospectus Supplement (the "L/C Issuer"). Subject to the terms and
conditions specified in the related Prospectus Supplement, an L/C Issuer will
be obligated to honor drawings under a letter of credit in an aggregate dollar
amount (which may be fixed or may be reduced as described in the related
Prospectus Supplement), net of unreimbursed payments thereunder, equal to the
amount described in the related Prospectus Supplement. The amount available
under a letter of credit will be reduced to the extent of the unreimbursed
payments thereunder.
Cash Collateral Account. If specified in the related Prospectus Supplement,
the Certificates of any Class or Series offered hereby may have the benefit of
a cash collateral account. A cash collateral account with respect to a Class
or Series will be funded on the Series Issuance Date with respect thereto and
the funds on deposit therein will be invested in Eligible Investments. The
amount available to be withdrawn from a cash collateral account will be the
lesser of the amount on deposit in the cash collateral account and an amount
specified in the related Prospectus Supplement. The related Prospectus
Supplement will set forth the circumstances under which such withdrawals will
be made from the Cash Collateral Account.
Surety Bond or Insurance Policy. If so specified in the related Prospectus
Supplement, insurance with respect to a Series or Class of Certificates
offered hereby may be provided by one or more insurance companies. Such
insurance will guarantee, with respect to one or more Classes of the related
Series, distributions of interest or principal in the manner and amount
specified in the related Prospectus Supplement.
41
<PAGE>
If so specified in the related Prospectus Supplement, a surety bond may be
purchased for the benefit of the holders of any Series or Class of
Certificates offered hereby to assure distributions of interest or principal
with respect to such Series or Class of Certificates in the manner and amount
specified in the related Prospectus Supplement.
Spread Account. If so specified in the related Prospectus Supplement,
support for a Series or one or more Classes of a Series offered hereby may be
provided by the periodic deposit of certain available excess cash flow from
the Trust Assets into an account (the "Spread Account") intended to assure the
subsequent distributions of interest and principal on the Certificates of such
Class or Series in the manner specified in the related Prospectus Supplement.
Other Series Enhancement
For any Series or for any Class of any Series, there may be, in addition to
Credit Enhancement, other Series Enhancement in the form of a guaranteed rate
agreement, maturity liquidity facility, tax protection agreement, interest
rate cap agreement, interest rate swap agreement or other similar arrangement
for the benefit of Certificateholders of such Series or Class.
Pay Out Events
As described above, the Revolving Period with respect to a Series will
continue until the commencement of the Accumulation Period or the Scheduled
Amortization Period with respect thereto, which will continue until the
Invested Amount of such Series shall have been paid in full or the Series
Termination Date with respect to such Series occurs, unless a Pay Out Event
occurs with respect to such Series prior to any of such dates. A "Pay Out
Event" with respect to a Series refers to any of the following events and any
other events specified as such in the related Prospectus Supplement: (a)
failure on the part of the Bank (i) to make any payment or deposit required
under the Pooling Agreement or the Supplement relating to such Series within
five business days after the date such payment or deposit is required to be
made or (ii) to observe or perform any other covenants or agreements of the
Bank set forth in the Pooling Agreement or such Supplement, which failure has
a material adverse effect on the Certificateholders of such Series and which
continues unremedied for a period of 60 days after written notice; provided
that no such 60-day cure period shall apply in the case of a failure by the
Bank to perform its agreement to accept reassignment of Receivables which were
the subject of a breached representation or warranty as described in the first
paragraph under the heading "The Pooling Agreement--Representations and
Warranties" and that only a five day cure period shall apply in the case of a
failure by the Bank to observe its covenant not to grant a security interest
or otherwise intentionally create a lien on the Receivables; (b) any
representation or warranty made by the Bank in the Pooling Agreement or the
Supplement with respect to such Series or any information required to be given
by the Bank to the Trustee to identify the Accounts proves to have been
incorrect in any material respect when made and continues to be incorrect in
any material respect for a period of 60 days after written notice and as a
result of which the interests of the Certificateholders of such Series are
materially and adversely affected; provided, however, that a Pay Out Event
shall not be deemed to occur thereunder if the Bank has repurchased the
related Receivables or all such Receivables, if applicable, during such period
in accordance with the provisions of the Pooling Agreement; (c) the occurrence
of an Insolvency Event relating to the Bank; (d) a failure by the Bank to make
an Addition to the Trust by the day on which it is required to make such
Addition pursuant to the Pooling Agreement; (e) the Trust becomes an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended; (f) the average of the Portfolio Yields for any three consecutive
Monthly Periods is less than the average of the Base Rates with respect to
such Series for such Monthly Periods; the terms "Base Rate" and "Portfolio
Yield" with respect to a Series offered hereby will have the meanings set
forth in the related Prospectus Supplement; (g) the occurrence of any Servicer
Default; or (h) the Bank becomes unable for any reason to transfer Receivables
to the Trust in accordance with the Pooling Agreement.
In the case of any event described in (a), (b) or (g), a Pay Out Event with
respect to any Series will be deemed to have occurred only if, after the
applicable grace period described in such clauses, if any, either the
42
<PAGE>
Trustee or Certificateholders holding Certificates evidencing more than 50% of
the aggregate unpaid principal amount of the Certificates of any Series to
which such event relates by written notice to the Bank and the Servicer (and
the Trustee, if given by the Certificateholders) declare that a Pay Out Event
has occurred as of the date of such notice. See "Risk Factors--Control". In
the case of any event described in clause (c), (d), (e) or (h), a Pay Out
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 of
any Series immediately upon the occurrence of such event. In the case of the
event described in clause (f), a Pay Out Event with respect to the related
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
Determination Date following the occurrence of such event. The Early
Amortization Period with respect to a Series will commence on the day on which
a Pay Out Event occurs with respect thereto. Monthly distributions of
principal to the Certificateholders of such Series will begin on the
Distribution Date in the Monthly Period following the Monthly Period in which
such Pay Out Event occurs (such Distribution Date and each following
Distribution Date with respect to such Series, a "Special Payment Date"). Any
amounts on deposit in a Principal Funding Account or an Interest Funding
Account with respect to such Series at such time will be distributed on such
first Special Payment Date to the Certificateholders of such Series. If a
Series has more than one Class of Certificates, each Class may have different
Pay Out Events which, in the case of any Series of Certificates offered
hereby, will be described in the related Prospectus Supplement.
In addition to the consequences of a Pay Out Event discussed above, if an
Insolvency Event occurs, pursuant to the Pooling Agreement, on the day of such
Insolvency Event, the Bank will immediately cease to transfer Principal
Receivables to the Trust and promptly give notice to the Trustee of such
Insolvency Event. Under the terms of the Pooling Agreement, within 15 days the
Trustee will publish a notice of the occurrence of the Insolvency Event
stating that the Trustee intends to sell, dispose of or otherwise liquidate
the Receivables in a commercially reasonable manner and on commercially
reasonable terms unless within 90 days from the date such notice is published
each other holder of the Seller's Interest and the holders of Certificates of
each Series or, if a Series includes more than one Class, each Class of such
Series evidencing more than 50% of the aggregate unpaid principal amount of
each such Series or Class (and, in the case of any Series with respect to
which there is an Enhancement Invested Amount, any Credit Enhancer with
respect thereto) instruct the Trustee not to dispose of or liquidate the
Receivables and to continue transferring Principal Receivables as before such
Insolvency Event. The proceeds from any such sale, disposition or liquidation
of the Receivables will be deposited in the Collection Account and allocated
as described in the Pooling Agreement and each Series Supplement. If the sum
of (a) the portion of such proceeds allocated to the Certificateholders'
Interest of any Series and (b) the proceeds of any collections on the
Receivables in the Collection Account allocated to the Certificateholders'
Interest of such Series is not sufficient to pay the Invested Amount of the
Certificates of such Series in full, such Certificateholders will incur a
loss.
Servicing Compensation and Payment of Expenses
The Servicer's compensation for its servicing activities and reimbursement
for its expenses for any Monthly Period will be a servicing fee (the
"Servicing Fee") payable monthly on each Distribution Date in an amount equal
to one-twelfth of the product of (a) the weighted average of the applicable
servicing fee percentages with respect to each Series outstanding (based upon
the applicable servicing fee percentage for each Series and the amount of
Receivables serviced on behalf of each Series) and (b) the amount of Principal
Receivables in the Trust on the last day of the prior Monthly Period. The
Servicing Fee will be allocated among the Seller's Interest, the
Certificateholders' Interests of each Series and, after the Certificates of a
Series have been paid in full, the interest represented by the Enhancement
Investment Amount, if any, with respect to such Series. The share of the
Servicing Fee allocable to the Certificateholders' Interest, which includes
the Enhancement Invested Amount, if any, of a Series offered hereby with
respect to any Distribution Date shall be equal to one-twelfth of the product
of (A) the servicing fee percentage specified in the related Prospectus
Supplement with respect to such Series (the "Series Servicing Fee Percentage")
and (B) the sum of the Invested Amount with respect to such Series (less the
amount, if any, on deposit in any Principal Funding Account with respect to
such Series and the amount, if any, on deposit in the Special Funding Account
allocable to such Series) and the Enhancement
43
<PAGE>
Invested Amount, if any, with respect to such Series as of the last day of the
prior Monthly Period (the "Monthly Investor Servicing Fee"). The portion of
the Servicing Fee not so allocated to the Certificateholders' Interest of a
Series shall be paid by the Bank and in no event shall the Trust, the Trustee
or the Certificateholders of any Series be liable for the share of the
Servicing Fee to be paid by the Bank. In the case of the first Distribution
Date with respect to any Series, the Monthly Investor Servicing Fee shall
accrue from the Series Issuance Date with respect to such Series. The Monthly
Investor Servicing Fee with respect to a Series will be funded from
collections of Finance Charge Receivables allocable to such Series, and will
be paid on the Distribution Date with respect to each Monthly Period from the
Collection Account (unless such amount has been netted against deposits by the
Servicer to the Collection Account).
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, expenses related to the enforcement of the Receivables, payment of
the fees and disbursements of the Trustee and independent accountants and
other fees which are not expressly stated in the Pooling Agreement to be
payable by the Trust, the Certificateholders of a Series or the Bank (other
than Federal, state, local and foreign income, franchise or other taxes based
on income, if any, or any interest or penalties with respect thereto, imposed
upon the Trust). In the event that the Bank is acting as Servicer and fails to
pay the fees and disbursements of the Trustee, the Trustee will be entitled to
receive the portion of the Servicing Fee that is equal to such unpaid amounts.
In no event will the Certificateholders of a Series be liable to the Trustee
for the Servicer's failure to pay such amounts, and any such amounts so paid
to the Trustee will be treated as paid to the Servicer for all other purposes
of the Pooling Agreement.
Record Date
Payments on the Certificates of a Series offered hereby will be made as
described herein and in the relevant Prospectus Supplement to the
Certificateholders in whose names the Certificates were registered (expected
to be Cede, as nominee of DTC) at the close of business on the last business
day of the calendar month preceding the date of such payment (each a "Record
Date"). However, the final payment on the Certificates of a Series offered
hereby will be made only upon presentation and surrender of such Certificates.
Distributions will be made to DTC in immediately available funds. See "The
Pooling Agreement--Book-Entry Registration".
Optional Termination; Final Payment of Principal
On any day occurring on or after the day that the sum of the Invested Amount
of the Certificates of a Series and the Enhancement Invested Amount, if any,
with respect to such Series is reduced to 5% (or such other percentage as may
be specified in the related Prospectus Supplement) or less of the initial
Invested Amount of the Certificates of such Series, the Bank will have the
option to repurchase the Certificateholders= Interest of such Series. The
purchase price will be equal to the sum of the Invested Amount of such Series
(less the amount, if any, on deposit in any Principal Funding Account with
respect to such Series), plus the Enhancement Invested Amount, if any, with
respect to such Series, plus accrued and unpaid interest on the unpaid
principal amount of the Certificates (and accrued and unpaid interest with
respect to interest amounts that were due but not paid on a prior Payment
Date) through (a) if the day on which such repurchase occurs is a Distribution
Date, the day preceding such Distribution Date or (b) if the day on which such
repurchase occurs is not a Distribution Date, the day preceding the
Distribution Date following such day, at the applicable certificate rate.
Following any such repurchase, the Certificateholders of such Series will have
no further rights with respect to the Receivables. In the event that the Bank
fails for any reason to deposit the aggregate purchase price for the
Certificateholders' Interest of a Series offered hereby, payments would
continue to be made to the Certificateholders of such Series as described
herein and in the related Prospectus Supplement.
In any event, the last payment of principal and interest on the Certificates
of a Series offered hereby will be due and payable not later than the date
(the "Series Termination Date") specified in the related Prospectus
Supplement. In the event that the Invested Amount of the Certificates of such
Series is greater than zero on the Series Termination Date (or a Distribution
Date prior thereto specified in the related Prospectus Supplement), the
Trustee may, subject to any conditions specified in such Prospectus
Supplement, sell or cause to be sold
44
<PAGE>
interests in the Principal Receivables or certain Principal Receivables,
together in each case with related Finance Charge Receivables, as specified in
such Prospectus Supplement, in an amount equal to the sum of the Invested
Amount and the Enhancement Invested Amount, if any, with respect to such
Series. The net proceeds of any such sale will be deposited in the Collection
Account and allocated to the Certificateholders of such Series, as provided in
such Prospectus Supplement.
Reports
No later than the third business day prior to each Distribution Date, the
Servicer will forward to the Trustee and the Paying Agent, and no later than
each Distribution Date, the Paying Agent will provide to each Rating Agency, a
statement (the "Monthly Report") prepared by the Servicer setting forth
certain information with respect to the Trust and the Certificates of such
Series (unless otherwise indicated), including: (a) the aggregate amount of
Principal Receivables and Finance Charge Receivables in the Trust as of the
end of such Monthly Period; (b) the Invested Amount with respect to such
Series (and, if such Series includes more than one Class, each such Class);
(c) the Floating Allocation Percentage and, during any Accumulation Period,
Scheduled Amortization Period or Early Amortization Period with respect to
such Series, the Principal Allocation Percentage with respect to such Series;
(d) the amount of collections of Principal Receivables and Finance Charge
Receivables processed during the related Monthly Period and the portion
thereof allocated to the Certificateholders' Interest of such Series; (e) the
aggregate outstanding balance of Accounts which were 31, 61 and 91 days or
more delinquent as of the end of such Monthly Period; (f) the Defaulted Amount
with respect to such Monthly Period and the portion thereof allocated to the
Certificateholders' Interest of such Series; (g) the amount, if any, of
charge-offs with respect to the Certificateholders' Interest of such Series
for such Monthly Period; (h) the Monthly Investor Servicing Fee with respect
to such Series for such Monthly Period; and (i) the available amount of Credit
Enhancement with respect to such Series for such Distribution Date.
With respect to each Interest Payment Date or Special Payment Date (each, a
"Payment Date"), as the case may be, the Monthly Report with respect to any
Series will include the following additional information with respect to the
Certificates of such Series: (a) the total amount distributed; (b) the amount
of such distribution allocable to principal on the Certificates; (c) the
amount of such distribution allocable to interest on the Certificates; and (d)
the amount, if any, by which the unpaid principal balance of the Certificates
exceeds the Invested Amount of such Series as of the Record Date with respect
to such Payment Date. On each Distribution Date, the Paying Agent, on behalf
of the Trustee, will forward to each Certificateholder of record a copy of the
Monthly Report.
On or before January 31 of each calendar year, the Paying Agent, on behalf
of the Trustee, will furnish (or cause to be furnished) to each person who at
any time during the preceding calendar year was a Certificateholder of record
a statement containing the information required to be provided by an issuer of
indebtedness under the Code for such preceding calendar year or the applicable
portion thereof during which such person was a Certificateholder, together
with such other customary information as is necessary to enable the
Certificateholders to prepare their tax returns. See "Tax Matters".
List of Investor Certificateholders
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Certificateholder or group of Certificateholders of
record holding Certificates evidencing not less than 10% of the aggregate
unpaid principal amount of the Certificates of a Series or all outstanding
Series, as the case may be, the Trustee will afford such Certificateholders
access during normal business hours to the current list of Certificateholders
of such Series or all outstanding Series, as the case may be, for purposes of
communicating with other Certificateholders with respect to their rights under
the Pooling Agreement or any Supplement or Certificates. See "The Pooling
Agreement--Book-Entry Registration" and "--Definitive Certificates".
The Pooling Agreement does not provide for any annual or other meetings of
Certificateholders.
45
<PAGE>
THE POOLING AGREEMENT
The following summary, as well as other pertinent information included
elsewhere in this Prospectus and the related Prospectus Supplement, describes
the material terms of the Pooling Agreement. A form of the Pooling Agreement
has been filed as an Exhibit to the Registration Statement of which this
Prospectus forms a part.
Book-Entry Registration
Certificateholders may initially hold Certificates of a Series offered
hereby through DTC (in the United States) or CEDEL or Euroclear (in Europe) if
they are participants of such systems, or indirectly through organizations
which are participants in such systems.
Cede, as nominee for DTC, will be the registered holder of the global
Certificates. No Certificateholder will be entitled to receive a certificate
representing such person=s interest in the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
below, all references herein to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from its Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and
statements to Cede, as the registered holder of the Certificates, for
distribution to 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. ("Citibank"), will act as depositary for
CEDEL and Morgan Guaranty Trust Company of New York ("Morgan") will act as
depositary for Euroclear (in such capacities, the "Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their
applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. CEDEL Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time zone differences, credits of securities received in CEDEL or
Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in
DTC. For information with respect to tax documentation procedures relating to
the Certificates, see "Tax Matters--Federal Income Tax Consequences--Non-
United States 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 UCC and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities
46
<PAGE>
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
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 Paying Agent or the
Trustee through DTC and its Participants. Under a book-entry format,
Certificateholders will receive payments after the related Payment Date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to its Participants
which thereafter will be required to forward them to Indirect Participants or
Certificateholders. It is anticipated that the only "Certificateholder" (as
such term is used in the Pooling Agreement and the Supplements) will be Cede,
as nominee of DTC, and that Certificateholders will not be recognized by the
Trustee as "Certificateholders" under the Pooling Agreement and the
Supplements. Certificateholders will only be permitted to exercise the rights
of Certificateholders under the Pooling Agreement and the Supplements
indirectly through DTC and its Participants which in turn will exercise their
rights 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.
Because DTC can only act on behalf of Participants, which 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 has advised the Bank that it will take any action permitted to be taken
by a Certificateholder under the Pooling Agreement or the Supplements only at
the direction of one or more Participants to whose account with DTC the
Certificates are credited. Additionally, DTC has advised the Bank that it will
take such actions with respect to specified percentages of the
Certificateholders' Interest only at the direction of and on behalf of
Participants whose holdings include undivided interests that satisfy such
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
CEDEL Bank, societe anonyme ("CEDEL") is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ("CEDEL Participants") and facilitates the
clearance and settlement of securities transactions between CEDEL Participants
through electronic book-entry changes in accounts of CEDEL Participants,
thereby eliminating the need for physical movement of certificates.
Transactions may be settled in CEDEL in any of 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
depository, CEDEL is subject to regulation by the Luxembourg Monetary
Institute. CEDEL Participants are recognized financial institutions around the
world including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include any underwriters, agents or dealers with respect to a Series of
Certificates offered hereby. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust
47
<PAGE>
companies that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 27 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements
for cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include any underwriters, agents or dealers with respect to a Series
of Certificates offered hereby. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within the Euroclear System,
withdrawals of securities and cash from the Euroclear System and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Tax Matters". CEDEL or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a
Certificateholder under the Pooling Agreement or the relevant Supplement on
behalf of a CEDEL Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Certificates among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
Definitive Certificates
The Certificates of a Series offered hereby 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 Bank 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 Bank is unable to locate a
qualified successor, (ii) the Bank, at its option, elects to terminate the
book-entry system through DTC or (iii)
48
<PAGE>
after the occurrence of a Servicer Default, Certificateholders evidencing not
less than 50% of the aggregate unpaid principal amount of the Certificates of
any Class of such Series 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 Pooling
Agreement and the relevant 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 Pooling Agreement and the relevant 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 the Trustee. No
service charge will be imposed for any registration of transfer or exchange,
but the Transfer Agent and Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
The Seller's Interest; Additional Sellers
The Pooling Agreement provides that the Bank may exchange a portion of the
Bank's Interest in the Trust for one or more interests (each, a "Supplemental
Interest") for transfer or assignment to a person designated by the Bank upon
the execution and delivery of a supplement to the Pooling Agreement (which
supplement shall be subject to the amendment section of the Pooling Agreement
to the extent that it amends any of the terms of the Pooling Agreement; see
"--Amendments"); provided that (a) such transfer will not result in a Ratings
Effect, (b) the Bank's and any Additional Sellers remaining interest in
Principal Receivables shall not be less in the aggregate than 2% of the total
amount of Principal Receivables, in each case as of the date of, and after
giving effect to, such exchange and (c) prior to such transfer, the Bank shall
have delivered to the Trustee a Tax Opinion with respect to the transfer or
assignment of such Supplemental Interest. Any transfer or assignment of a
Supplemental Interest is subject to the conditions set forth in clauses (a)
and (c) of the preceding sentence. The Bank may also transfer a portion of the
Bank's Interest in the Trust to certain affiliates provided that the condition
set forth in clause (c) of the second preceding sentence has been satisfied.
The Bank may designate affiliates of the Bank which may be banks, finance
companies or similar organizations to be included as sellers ("Additional
Sellers") under the Pooling Agreement (by means of an amendment to the Pooling
Agreement which will not require the consent of any Certificateholder; see "--
Amendments"); provided, however, that (a) the conditions set forth in clauses
(a) and (c) in the preceding paragraph with respect to a transfer of a
Supplemental Interest shall have been satisfied with respect to such
designation and issuance and (b) any applicable conditions described in
"Description of the Certificates--Addition of Trust Assets" shall have been
satisfied with respect to the transfer of Receivables or Participations by any
Additional Seller to the Trust. Following the inclusion of an Additional
Seller, the Additional Seller will be treated in the same manner as the Bank
and each Additional Seller generally will have the same obligations and rights
as the Bank described herein.
49
<PAGE>
Termination of Trust
Unless the Bank instructs the Trustee otherwise, the Trust will only
terminate on the earlier to occur of (a) the day following the day on which
the aggregate Invested Amounts and Enhancement Invested Amounts of all Series
is zero (provided that the Bank shall have delivered a written notice to the
Trustee electing to terminate the Trust), (b) June 1, 2014, or (c) if the
Receivables are sold, disposed of or liquidated following the occurrence of an
Insolvency Event as described under "Description of the Certificates--Pay Out
Events", immediately following such sale, disposition or liquidation (the
"Trust Termination Date"). Upon termination of the Trust, all right, title and
interest in the Receivables and other funds of the Trust (other than amounts
in accounts maintained by the Trust for the final payment of principal and
interest to Certificateholders) will be conveyed and transferred to the Bank.
Conveyance of Receivables
Pursuant to the Pooling Agreement, the Bank has sold and assigned and will
sell and assign to the Trust its interests in all Receivables in the Initial
Accounts outstanding as of the Trust Cut-Off Date, and all Receivables in the
Additional Accounts as of the applicable additional cut-off date, all
Receivables thereafter created under the Accounts and the proceeds of all of
the foregoing.
In connection with the transfer of any Receivables to the Trust, the Bank is
required to indicate in its computer records that the Receivables have been
conveyed to the Trust. In addition, the Bank has provided or will provide to
the Trustee a computer file or a microfiche list containing a true and
complete list showing for each Initial Account, as of the Trust Cut-Off Date,
and for each Additional Account, as of the applicable additional cut-off date
(i) its account number and (ii) the aggregate amount outstanding and the
aggregate amount of Principal Receivables in such Account. The Bank, as
initial Servicer, will retain and will not deliver to the Trustee any other
records or agreements relating to the Accounts or the Receivables. Except as
set forth above, the records and agreements relating to the Accounts and the
Receivables will not be segregated from those relating to other revolving
credit accounts and receivables, and the physical documentation relating to
the Accounts or Receivables will not be stamped or marked to reflect the
transfer of Receivables to the Trust. The Bank has filed and is required to
file UCC financing statements with respect to the sale of the Receivables to
the Trust meeting the requirements of applicable state law. See "Risk Factors"
and "Certain Legal Aspects of the Receivables".
Representations and Warranties
As of the issuance date for a Series offered hereby (the "Series Issuance
Date") specified in the related Prospectus Supplement, the Bank will make
representations and warranties to the Trust relating to the Accounts owned by
it and the Receivables transferred by it to the Trust to the effect, among
other things, that (a) as of the Trust Cut-Off Date (or as of the date of
addition) each Account or each Additional Account was an Eligible Account, (b)
as of the Trust Cut-Off Date (or as of the date of addition), each of the
Receivables in any Account or Additional Account which is conveyed to the
Trust on such day is an Eligible Receivable and (c) thereafter, as of the date
of creation of any new Receivable, such Receivable is an Eligible Receivable.
If the Bank breaches any representation and warranty described in this
paragraph, such breach remains uncured for 60 days, or such longer period as
may be agreed to by the Trustee, after the earlier to occur of the discovery
of such breach by the Bank or receipt of written notice of such breach by the
Bank, and as a result of such breach any Receivables in the related Account
become Defaulted Receivables or the Trust's rights in, to or under such
Receivables or the proceeds of such Receivables are impaired or such proceeds
are not available for any reason to the Trust free and clear of any lien, then
the Certificateholders' Interest in all Receivables with respect to the
affected Account ("Ineligible Receivables") will be reassigned to the Bank on
the terms and conditions set forth below and such Account shall no longer be
included as an Account; provided, however, that such Receivables will not be
deemed to be Ineligible Receivables and will not be reassigned to the Bank if,
on any day prior to the end of such 60-day or longer period, (i) the relevant
representation and warranty shall be true and correct in all material respects
as if made on such day and (ii) the Bank shall have delivered to the Trustee a
certificate of an authorized officer
50
<PAGE>
describing the nature of such breach and the manner in which the relevant
representation and warranty became true and correct.
An Ineligible Receivable shall be reassigned to the Bank on or before the
end of the Monthly Period in which such reassignment obligation arises by the
Bank directing the Servicer to deduct the portion of such Ineligible
Receivable which is a Principal Receivable from the aggregate amount of the
Principal Receivables used to calculate the Seller's Interest. In the event
that the exclusion of an Ineligible Receivable from the calculation of the
Seller's Interest would cause the Seller's Interest to be a negative number,
on the Distribution Date following the Monthly Period in which such
reassignment obligation arises, the Bank will make a deposit into the
Collection Account in immediately available funds in an amount equal to the
amount by which the Seller's Interest would be reduced below zero. Any deposit
into the Collection Account in connection with the reassignment of an
Ineligible Receivable (the amount of any such deposit being referred to herein
as a "Transfer Deposit Amount") shall be considered a payment in full of the
Ineligible Receivable. The reassignment of any Ineligible Receivable to the
Bank is the sole remedy respecting any breach of the representations and
warranties described in the preceding paragraph with respect to such
Receivable available to Certificateholders of any Series (or the Trustee on
behalf of such Certificateholders) or any provider of Series Enhancement. Any
such Transfer Deposit Amount will be treated as a portion of Shared Principal
Collections as described under "Description of the Certificates--Shared
Principal Collections".
The Bank will also make representations and warranties to the Trust to the
effect, among other things, that as of each Series Issuance Date (a) it is a
national banking association validly existing under the laws of the United
States, it has the authority to consummate the transactions contemplated by
the Pooling Agreement and the related Supplement and each of the Pooling
Agreement and the related Supplement constitutes a valid, binding and
enforceable agreement of the Bank and (b) the Pooling Agreement constitutes a
valid sale, transfer and assignment to the Trust of all right, title and
interest of the Bank in the Receivables, whether then existing or thereafter
created and the proceeds thereof (including proceeds in any of the accounts
established for the benefit of the Certificateholders) or the grant of a first
priority perfected security interest under the UCC as in effect in California
and New Hampshire in such Receivables and the proceeds thereof (including
proceeds in any of the accounts established for the benefit of the
Certificateholders), which is effective as to each Receivable then existing on
the Series Issuance Date or, as to each Receivable arising thereafter, upon
the creation thereof and until termination of the Trust. In the event that the
breach of any of the representations and warranties described in this
paragraph has a material adverse effect on the Certificateholders' Interest of
all Series in the Receivables transferred to the Trust by the Bank, either the
Trustee or the holders of Certificates evidencing not less than 50% of the
aggregate unpaid principal amount of the Certificates of all Series, by
written notice to the Bank and the Servicer (and to the Trustee if given by
the holders of the requisite percentage of Certificates of all Series), may
direct the Bank to accept the reassignment of the Receivables transferred by
it to the Trust within 60 days of such notice, or within such longer period
specified in such notice; provided, however, that such Receivables will not be
reassigned to the Bank if, on any day prior to the end of such 60-day or
longer period, (i) the relevant representation and warranty shall be true and
correct in all material respects as if made on such day and (ii) the Bank
shall have delivered to the Trustee a certificate of an authorized officer
describing the nature of such breach and the manner in which the relevant
representation and warranty became true and correct. The Bank will be
obligated to accept the reassignment of such Receivables on the Distribution
Date following the Monthly Period in which such reassignment obligation
arises. The price for such reassignment will generally be equal to the
aggregate Invested Amounts and Enhancement Invested Amounts of all Series on
the Distribution Date on which the purchase is scheduled to be made plus
accrued and unpaid interest on the unpaid principal amount of all Series and
any interest amounts that were due but not paid on a prior date and interest
on such overdue interest amounts (if the applicable Supplement so provides) at
the applicable certificate rates through the day preceding such Distribution
Date. The payment of such reassignment price, in immediately available funds,
will be considered a payment in full of such Receivables and the principal
portion of such funds and the interest portion of such funds will be deposited
into the Special Funding Account and the Collection Account, respectively. If
the Trustee or the requisite percentage of Certificateholders of all Series
gives a notice as provided above, the obligation of the Bank to make any such
deposit will constitute the sole remedy respecting a
51
<PAGE>
breach of the representations and warranties available to Certificateholders
of all Series (or the Trustee on behalf of such Certificateholders) or any
provider of Series Enhancement.
An "Eligible Account" is defined to mean a revolving credit card account or
other revolving credit account owned by the Bank which as of the Trust Cut-Off
Date with respect to an Initial Account or as of the addition date with
respect to an Additional Account (a) is payable in United States dollars; (b)
except as provided below, has not been identified as an account the credit
cards or checks, if any, with respect to which have been reported to the Bank
as having been lost or stolen; (c) has an accountholder who has provided, as
his or her billing address at the date such account was opened, an address
located in the United States or its territories or possessions or a military
address; (d) has an accountholder who has not been identified by the Bank as
an employee of the Bank or any affiliate; (e) has not been, and does not have
any receivables which have been, sold, pledged, assigned or otherwise conveyed
to any person (except pursuant to the Pooling Agreement); (f) except as
provided below, does not have any receivables which are Defaulted Receivables;
and (g) except as provided below, does not have any receivables which have
been identified as having been incurred as a result of fraudulent use of any
related credit card or check. Eligible Accounts may include accounts, the
receivables of which have been written off, or with respect to which the Bank
believes the related accountholder is bankrupt, or as to which certain
receivables have been identified by the accountholder as having been incurred
as a result of fraudulent use of any credit cards or checks, or as to which
any credit cards or checks have been reported to the Bank as lost or stolen;
provided, that (a) the balance of all receivables in such accounts is
reflected on the books and records of the Bank (and is treated for purposes of
the Pooling Agreement) as "zero," and (b) charging or check writing privileges
with respect to all such accounts have been canceled in accordance with the
Lending Guidelines of the Bank and will not be reinstated by the Bank or the
Servicer.
An "Eligible Receivable" is defined to mean each Receivable (a) which has
arisen under an Eligible Account; (b) which was created in compliance with the
Lending Guidelines and all requirements of law applicable to the Bank, the
failure to comply with which would have a material adverse effect on
Certificateholders, and pursuant to a lending agreement which complies with
all requirements of law applicable to the Bank, the failure to comply with
which would have a material adverse effect on Certificateholders; (c) with
respect to which all consents, licenses, approvals or authorizations of, or
registrations with, any governmental authority required to be obtained or
given by the Bank in connection with the creation of such Receivable or the
execution, delivery and performance by the Bank of the related lending
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 transfer to the Trust, the Bank or the Trust will have good and
marketable title free and clear of all liens and security interests (other
than any lien for municipal or other local taxes if such taxes are not then
due and payable or if the Bank is then contesting the validity thereof in good
faith by appropriate proceedings and has set aside on its books adequate
reserves with respect thereto); (e) which has been the subject of either a
valid transfer and assignment from the Bank to the Trust of all the Bank's
right, title and interest therein or the grant of a first priority perfected
security interest therein (and in the proceeds thereof), effective until the
termination of the Trust; (f) which at and after the time of transfer to the
Trust is the legal, valid and binding payment obligation of the accountholder
thereof, legally enforceable against such accountholder in accordance with its
terms (with certain bankruptcy and equity-related exceptions); (g) which
constitutes either an "account" or a "general intangible" under Article 9 of
the UCC as then in effect in the States of California and New Hampshire; (h)
which, at the time of its transfer to the Trust, has not been waived or
modified except as permitted by the Pooling Agreement; (i) which, at the time
of its transfer to the Trust, is not subject to any right of rescission,
setoff, counterclaim or other defense of the accountholder (including the
defense of usury), other than certain bankruptcy and equity-related defenses
and adjustments permitted by the Pooling Agreement to be made by the Servicer;
(j) as to which the Bank has satisfied all obligations to be fulfilled at the
time it is transferred to the Trust; and (k) as to which the Bank has not
taken any action which, or failed to take any action the omission of which,
would, at the time of its transfer to the Trust, impair the rights of the
Trust or the Certificateholders therein.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of any documents or records related to the
Receivables or the Accounts for the purpose of establishing the presence or
52
<PAGE>
absence of defects, compliance with the Bank's representations and warranties
or for any other purpose. In addition, it is not anticipated or required that
the Trustee will make any initial or periodic general examination of the
Servicer for the purpose of establishing the compliance by the Servicer with
its representations or warranties or the performance by the Servicer of its
obligations under the Pooling Agreement or for any other purpose. The
Servicer, however, will deliver to the Trustee on or before March 31 of each
calendar year an opinion of counsel with respect to the validity of the
interest of the Trust in and to the Receivables.
Indemnification
The Pooling Agreement provides that the Servicer will indemnify the Trust
and the Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained arising out of the Servicer's actions or
omissions with respect to the Trust pursuant to the Pooling Agreement.
Under the Pooling Agreement, the Bank has agreed 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 Certificateholder in the capacity
of an investor in the Certificates of any Series) arising out of or based on
the arrangement created by the Pooling Agreement (to the extent that the Trust
assets remaining after the Investor Certificateholders and certain providers
of Series Enhancement have been paid in full are insufficient to pay such
losses, claims, damages, or liabilities) as though such agreement created a
partnership under the New York Uniform Partnership Act in which the Bank was a
general partner. In the event of a Service Transfer, the successor Servicer
will indemnify and hold harmless the Bank for any losses, claims, damages and
liabilities of the Bank as described in this paragraph arising from the
actions or omissions of such successor Servicer.
Except as provided in the preceding paragraph, the Pooling Agreement
provides that none of the Bank, the Servicer or any of their directors,
officers, employees or agents will be under any other liability to the Trust,
the Trustee, the Certificateholders of any Series, any provider of Series
Enhancement or any other person for any action taken, or for refraining from
taking any action, in good faith pursuant to the Pooling Agreement. However,
none of the Bank, 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 Pooling 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 Agreement. The
Servicer may, in its sole discretion, undertake any such legal action which it
may deem necessary or desirable for the benefit of the Certificateholders of
any Series with respect to the Pooling Agreement and the rights and duties of
the parties thereto and the interest of such Certificateholders thereunder.
Collection and Other Servicing Procedures
Pursuant to the Pooling Agreement, the Servicer is responsible for
servicing, collecting, enforcing and administering the Receivables in
accordance with its customary and usual procedures for servicing receivables
comparable to the Receivables and the Lending Guidelines.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with accountholders, investigating payment
delinquencies, evaluating the increase of credit limits and the issuance of
credit cards, providing billing and tax records, if any, to accountholders and
maintaining internal records with respect to each Account. Managerial and
custodial services performed by the Servicer on behalf of the Trust include
providing assistance in any inspections of the documents and records relating
to the Accounts and Receivables by the Trustee pursuant to the Pooling
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 of any Series and on
behalf of the Trustee.
Pursuant to the Pooling Agreement, the Bank, as Servicer, has the right to
delegate any of its responsibilities and obligations as Servicer to any of its
affiliates and to certain third-party service providers that agrees to
53
<PAGE>
conduct such duties in accordance with the Pooling Agreement and the Lending
Guidelines. The Bank currently contracts with Total System and intends to
continue to contract with Total System (and possibly one or more other third-
party service providers) to perform certain of its servicing activities as
described under "The Bank's Credit Card and Consumer Lending Business--
Business Overview". Notwithstanding any such delegation to any entity, the
Servicer will continue to be liable for all of its obligations under the
Pooling Agreement.
Servicer Covenants
In the Pooling Agreement, the Servicer has covenanted as to each Receivable
and related Account that: (a) 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 the failure to comply with which would have a material
adverse effect on the Certificateholders or any provider of Series
Enhancement; (b) it will not permit any rescission or cancelation of the
Receivable except as ordered by a court of competent jurisdiction or other
governmental authority or in the ordinary course of business and in accordance
with the Lending Guidelines; (c) it will do nothing to substantially impair
the rights of the Certificateholders in the Receivables or Accounts; (d) it
will not reschedule, revise or defer payments due on the Receivable except in
accordance with the Lending Guidelines; and (e) except in connection with its
enforcement or collection of an Account, it will take no action to cause any
Receivables to be evidenced by any instruments (as defined in the UCC) and if
any Receivable is so evidenced, it shall be reassigned or assigned to the
Servicer as provided below.
Under the terms of the Pooling Agreement, in the event any of the
representations, warranties or covenants of the Servicer contained in clauses
(a) through (e) above with respect to any Receivable or the related Account is
breached, such breach is not cured within 60 days (or such longer period, not
in excess of 150 days, as may be agreed to by the Trustee) of the earlier to
occur of the discovery of such event by the Servicer or receipt by the
Servicer of written notice of such event given by the Trustee, and as a result
of such breach the Trust's rights in, to or under any Receivables in the
related Account or the proceeds of such Receivables are impaired or such
proceeds are not available for any reason to the Trust free and clear of any
lien, then all Receivables in the Account or Accounts to which such event
relates shall be reassigned or assigned to the Servicer on the terms and
conditions set forth below; provided, however, that such Receivables will not
be reassigned or assigned to the Servicer if, on any day prior to the end of
such 60-day or longer period, (i) the relevant representation and warranty
shall be true and correct, or the relevant covenant shall have been complied
with, in all material respects and (ii) the Servicer shall have delivered to
the Trustee a certificate of an authorized officer describing the nature of
such breach and the manner in which such breach was cured. If the Bank is the
Servicer, such reassignment will be made on or before the Distribution Date
following the Monthly Period in which such reassignment obligation arises by
the Servicer deducting the portion of any such Receivable which is a Principal
Receivable from the aggregate amount of Principal Receivables used to
calculate the Seller's Interest. In addition, if the deduction of such
Principal Receivable would reduce the Seller's Interest below zero, the Bank
as the Servicer will deposit into the Collection Account the applicable
Transfer Deposit Amount described above under "--Representations and
Warranties". If the Bank is not the Servicer, such assignment and transfer
will be made when the Servicer deposits an amount equal to the amount of such
Receivable in the Collection Account on the business day preceding the
Distribution Date following the Monthly Period during which such obligation
arises. The amount of such deposit shall be deemed a Transfer Deposit Amount
hereunder and shall be treated as a portion of Shared Principal Collections as
described under "Description of the Certificates--Shared Principal
Collections". This reassignment or transfer and assignment to the Servicer
constitutes the sole remedy available to the Certificateholders of any Series
if such covenant or warranty of the Servicer is not satisfied and the Trust's
interest in any such reassigned Receivables shall be automatically assigned to
the Servicer.
Certain Matters Regarding the Servicer
The Servicer may not resign from its obligations and duties under the
Pooling 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
54
<PAGE>
obligations under the Pooling Agreement. Notwithstanding the foregoing, the
Bank may transfer its servicing obligations to any other direct or indirect
wholly owned subsidiary of Providian Financial Corporation (which meets
certain eligibility standards set forth in the Pooling Agreement) and be
relieved of its obligations and duties under the Pooling Agreement.
Any person into which, in accordance with the Pooling Agreement, the Bank or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Bank or the Servicer is a party, or any
person succeeding to the business of the Bank or the Servicer, will be the
successor to the Bank, as servicer, or the Servicer, as the case may be, under
the Pooling Agreement.
Servicer Default
In the event of any Servicer Default, either the Trustee or
Certificateholders holding Certificates evidencing more than 50% of the
aggregate unpaid principal amount of all outstanding Series, by written notice
to the Servicer (and to the Trustee and certain providers of Series
Enhancement, if given by the Certificateholders) (a "Termination Notice"), may
terminate all of the rights and obligations of the Servicer, as servicer,
under the Pooling Agreement. If the Trustee within 60 days of receipt of a
Termination Notice is unable to obtain any bids from eligible Servicers and
the Bank delivers an officer's certificate to the effect that the Servicer
cannot in good faith cure the Servicer Default which gave rise to the
Termination Notice, then the Trustee shall offer the Bank the right at its
option to purchase the Certificateholders' Interest for all Series. The
purchase price for such a purchase shall be paid on a Distribution Date and
shall generally be equal to, with respect to each Series, the higher of (a)
the sum of the Invested Amount and the Enhancement Invested Amount, if any, of
such Series on such Distribution Date (less the amount, if any, on deposit in
any Principal Funding Account with respect to such Series) plus accrued and
unpaid interest at the applicable certificate rate (together with, if
applicable, interest on interest amounts that were due and not paid on a prior
date), through the last day of the calendar month preceding such Distribution
Date and (b) the sum of (i) the average bid price quoted by at least two
recognized dealers for similar securities rated in the same rating category as
the initial rating of the Certificates of such Series with a remaining
maturity approximately equal to the remaining maturity of the Certificates of
such Series and (ii) the Enhancement Invested Amount, if any, of such Series.
The Trustee shall, as promptly as possible after giving a Termination
Notice, appoint a successor Servicer (a "Service Transfer"), and if no
successor Servicer has been appointed by the Trustee and has accepted such
appointment by the time the Servicer ceases to act as Servicer, all rights,
authority, power and obligations of the Servicer under the Pooling Agreement
shall 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 Pooling Agreement to serve as a
successor Servicer for servicing compensation not in excess of the Servicing
Fee. The rights and interest of the Bank under the Pooling Agreement and any
Supplement in the Seller's Interest will not be affected by any Termination
Notice or Service Transfer.
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
or to give notice to the Trustee to make such payment, transfer or deposit, on
the date the Servicer is required to do so under the Pooling Agreement or any
Supplement, which is not cured within a five business day grace period; (b)
failure on the part of the Servicer duly to observe or perform in any material
respect any other covenants or agreements of the Servicer in the Pooling
Agreement or any Supplement which has a material adverse effect on the
Certificateholders of any Series or Class (which determination shall be made
without regard to whether funds are then available pursuant to any Series
Enhancement) and which continues unremedied for a period of 60 days after
written notice, or the Servicer delegates its duties under the Pooling
Agreement, except as specifically permitted thereunder, and such delegation
continues unremedied for 15 days after written notice; (c) any representation,
warranty or certification made by the Servicer in the Pooling Agreement or any
Supplement or in any certificate delivered pursuant to the Pooling Agreement
or any Supplement proves to have been incorrect when made, which has a
material adverse effect on the rights of the Certificateholders of any Series
or Class (which determination shall be made without regard to whether funds
are then available pursuant to any Series Enhancement), and which material
adverse
55
<PAGE>
effect continues for a period of 60 days after written notice; or (d) the
occurrence of certain events of bankruptcy, insolvency or receivership with
respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance referred
to under clause (a) above for a period of five business days or referred to
under clause (b) or (c) for a period of 60 days (in addition to any period
provided in (a), (b) or (c)) shall not constitute a Servicer Default until the
expiration of such additional five business days or 60 days, respectively, 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
Agreement and any Supplement and the Servicer shall provide the Trustee, the
Bank, certain providers of Series Enhancement and the Certificateholders of
each Series prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Trustee in writing of any Servicer Default.
Evidence as to Compliance
The Pooling Agreement provides that on or before March 31 of each calendar
year the Servicer will cause a firm of nationally recognized independent
public accountants (who may also render other services to the Servicer or the
Bank) to furnish a report addressed to the Trustee to the effect that such
firm has applied certain procedures agreed upon with the Servicer and examined
certain documents and records relating to the servicing of the Accounts and
that, on the basis of such procedures, such firm is of the opinion that such
servicing was conducted in compliance with the Pooling Agreement and the
applicable provisions of each Supplement except for such exceptions or errors
as such firm shall believe to be immaterial and such other exceptions as shall
be set forth in such statement.
The Pooling Agreement provides for delivery to the Trustee, the Rating
Agency and certain providers of Series Enhancement on or before March 31 of
each calendar year of a statement signed by an officer of the Servicer to the
effect that, to the best of such officer's knowledge, the Servicer has
performed its obligations in all material respects under the Pooling 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.
Amendments
The Pooling Agreement and any Supplement may be amended from time to time
(including in connection with (x) the issuance of a Supplemental Certificate,
(y) the addition of a Participation to the Trust or (z) the designation of an
Additional Seller) by agreement of the Trustee and the Bank without the
consent of the Certificateholders of any Series or the consent of the provider
of any Series Enhancement provided that (i) the Bank shall have delivered to
the Trustee a certificate of an authorized officer to the effect that the Bank
reasonably believes, based on the facts known to such officer at the time of
such certificate, that such amendment will not adversely affect in any
material respect the interests of any such Certificateholder and (ii) such
amendment will not result in a Ratings Effect.
The Pooling Agreement and any Supplement may also be amended from time to
time by the Bank, the Servicer and the Trustee with the consent of the
Certificateholders evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the Certificates of all adversely affected Series for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Pooling Agreement or any Supplement or of
modifying in any manner the rights of such Certificateholders. No such
amendment, however, may (a) reduce in any manner the amount of or delay the
timing of any distributions to be made to Certificateholders or deposits of
amounts to be so distributed or the amount available under any Series
56
<PAGE>
Enhancement without the consent of each Certificateholder affected (provided
that an amendment of the terms of a Pay Out Event shall not be deemed to be
within the scope of this clause (a)); (b) change the definition or the manner
of calculating the interest of any Certificateholder without the consent of
each affected Certificateholder; (c) reduce the aforesaid percentage required
to consent to any such amendment, without the consent of each
Certificateholder; or (d) adversely affect the rating of any Series or Class
by the Rating Agency without the consent of the Certificateholders of such
Series or Class evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the Certificates of such Series or Class. Promptly
following the execution of any such amendment (other than an amendment
described in the preceding paragraph), the Trustee will furnish written notice
of the substance of such amendment to each Certificateholder.
Trustee
Bankers Trust Company is the Trustee under the Pooling Agreement. The
Corporate Trust Department of Bankers Trust Company is located at Four Albany
Street, New York, New York 10006. The Bank, the Servicer and their respective
affiliates may from time to time enter into normal banking and trust
relationships with the Trustee and its affiliates. The Trustee, the Bank, the
Servicer and any of their respective affiliates may hold Certificates of any
Series 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 such Certificateholders as a group. In addition, for purposes of
meeting the legal requirements of certain local jurisdictions, the Trustee
shall have the power to appoint a co-trustee or separate trustees of all or
any part of the Trust. In the event of such appointment, all rights, powers,
duties and obligations shall be conferred or imposed upon the Trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
Trustee shall be incompetent or unqualified to perform certain acts, singly
upon such separate trustee or co-trustee, who shall exercise and perform such
rights, powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Bank will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling 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 will not
become effective until acceptance of the appointment by the successor Trustee.
57
<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Transfer of Receivables
The Bank has sold and will sell Receivables to the Trust. Pursuant to the
Pooling Agreement, the Bank represents and warrants that the transfer of
Receivables by it to the Trust constitutes either a valid transfer and
assignment to the Trust of all right, title and interest of the Bank in and to
such Receivables, except for the interest of the Bank as a holder of the
Bank's Interest, or a grant of a security interest to the Trust in and to the
Receivables. The Bank also represents and warrants to the Trust in the Pooling
Agreement that, in the event the transfer of Receivables by the Bank to the
Trust is deemed to create a security interest under the UCC, there will exist
a valid, subsisting and enforceable first priority perfected security interest
in such Receivables, in existence at the time of the formation of the Trust or
at the date of addition of any Additional Accounts, in favor of the Trust and
a valid, subsisting and enforceable first priority perfected security interest
in such Receivables created thereafter in favor of the Trust on and after
their creation, in each case until termination of the Trust. For a discussion
of the Trust's rights arising from these representations and warranties not
being satisfied, see "The Pooling Agreement--Representations and Warranties".
Pursuant to the Pooling Agreement, the Bank represents that the Receivables
transferred by it to the Trust are "accounts" or "general intangibles" for
purpose of the UCC. Both the sale of accounts and the transfer of accounts as
security for an obligation are treated under the UCC as creating a security
interest therein and are subject to its provisions, and the filing of an
appropriate financing statement or statements is required to perfect the
interest of the Trust in the Receivables. If a transfer of general intangibles
is deemed to create a security interest, the UCC applies and filing an
appropriate financing statement or statements is also required in order to
perfect the Trust's security interest. Financing statements covering the
Receivables have been and will be filed under the UCC to protect the Trust in
the event the transfer by the Bank is deemed to be subject to the UCC. If a
transfer of general intangibles is deemed to be a sale, then the UCC is not
applicable and no further action under the UCC is required to protect the
Trust's interest from third parties. Although the priority of a transfer of
general intangibles arising after the formation of the Trust or the date of
addition is not as clear under the laws of the States of California and New
Hampshire as the priority of interests governed by the UCC, counsel to the
Bank is of the opinion, in New Hampshire, that it would be inconsistent for a
court to afford the Trust less favorable treatment if the transfer of the
Receivables is deemed to be a sale than if it were deemed to be a security
interest, and, in California, that a court should conclude that a sale of
Receivables (including after-arising Receivables) consisting of general
intangibles would be deemed to have occurred as of the date of execution of
the related assignment under the Pooling Agreement.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the date of
the Pooling Agreement could have an interest in such Receivables with priority
over the Trust's interest. A tax or other government lien on property of the
Bank arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivables. Furthermore, if
the FDIC were appointed as a receiver of either of the Bank, the receiver's
administrative expenses may also have priority over the interest of the Trust
in such Receivables. Under the Pooling Agreement, however, the Bank warrants
that it has transferred the Receivables to the Trust free and clear of the
lien of any third party (subject to certain potential tax liens referred to
under "The Pooling Agreement--Representations and Warranties"). In addition,
the Bank covenants that it will not sell, pledge, assign, transfer or grant
any lien on any Receivable (or any interest therein) other than to the Trust.
Certain Matters Relating to Receivership
The Federal Deposit Insurance Act ("FDIA"), as amended by the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), which
became effective August 9, 1989, sets forth certain powers that the FDIC could
exercise if it were appointed as receiver or conservator of the Bank.
58
<PAGE>
Subject to clarification by FDIC regulations or interpretations, it would
appear from the positions taken by the FDIC that the FDIC, in its capacity as
receiver or conservator for the Bank, would not interfere with the timely
transfer to the Trust of payments collected on the Receivables or interfere
with the timely liquidation of Receivables as described below. To the extent
that the Bank has granted a security interest in the Receivables to the Trust,
and such security interest is validly perfected before an Insolvency Event and
is not taken in contemplation of insolvency or with the intent to hinder,
delay or defraud the Bank or its creditors, based upon opinions issued by the
general counsel of the FDIC and a related policy statement issued by the FDIC
addressing the enforceability against the FDIC, as conservator or receiver for
a depository institution, of a security interest in collateral granted by such
depository institution, such security interest should not be subject to
avoidance, and payments to the Trust with respect to the Receivables should
not be subject to recovery, by the FDIC. However, such opinions and policy
statement are not binding on the FDIC and, if the FDIC were to assert a
contrary position, certain provisions of the FDIA which, at the request of the
FDIC, have been applied in lawsuits to avoid security interests in collateral
granted by depository institutions, would permit the FDIC to avoid such
security interest, thereby resulting in possible delays and reductions in
payments to the Certificateholders of all outstanding Series. In addition, if
the FDIC were to require the Trustee to establish its right to such payments
by submitting to and completing the administrative claims procedure under the
FDIA, as amended by FIRREA, delays in payments on the Certificates of all
Series and possible reductions in the amount of those payments could occur.
The Pooling Agreement provides that, upon the occurrence of an Insolvency
Event, the Bank will promptly give notice thereof to the Trustee and a Pay Out
Event will occur with respect to each outstanding Series. Under the Pooling
Agreement, no new Principal Receivables will be transferred to the Trust and,
unless otherwise instructed within a specified period by each other holder of
the Seller's Interest and the Certificateholders holding Certificates of each
Series or, if a Series includes more than one Class, each Class of such
Series, evidencing more than 50% of the aggregate unpaid principal amount of
each such Series or Class (and, in the case of any Series with respect to
which there is an Enhancement Invested Amount, any Credit Enhancer with
respect thereto), 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, however, could be delayed
as described above. Upon the occurrence of an Insolvency Event, if no Pay Out
Event other than such Insolvency Event exists, the FDIC may have the power to
continue to require the Bank to transfer new Principal Receivables to the
Trust and to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of the Early Amortization Period. See
"Description of the Certificates--Pay Out Events".
In the event of a Servicer Default, if a conservator, receiver or liquidator
is appointed for the Servicer, and no Servicer Default other than such
conservatorship, receivership, liquidation or insolvency of the Servicer
exists, the conservator, receiver or liquidator may have the power to prevent
either the Trustee or the requisite percentage of Certificateholders of all
Series from appointing a successor Servicer. See "The Pooling Agreement--
Servicer Default".
Consumer Protection Laws
The relationship between an accountholder and consumer lender is extensively
regulated by federal, state and local consumer protection laws. With respect
to consumer revolving credit accounts owned by the Bank, the most significant
federal laws include the Federal Truth-in-Lending, Equal Credit Opportunity,
Fair Credit Reporting, Telemarketing and Consumer Fraud and Abuse Prevention
and Fair Debt Collection Practices Acts. These statutes impose disclosure
requirements before and when an Account is opened and at the end of monthly
billing cycles and, in addition, limit accountholder liability for
unauthorized use, prohibit certain discriminatory practices in extending
credit, impose certain limitations on the type of account-related charges that
may be issued and regulate collection practices by third parties. In addition,
accountholders are entitled under these laws to have payments and credits
applied to their accounts promptly and to require billing errors to be
resolved promptly.
59
<PAGE>
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables, either as assignee from the Bank with respect
to obligations arising before transfer of the Receivables to the Trust or as
the party directly responsible for obligations arising after the transfer. In
addition, an accountholder may be entitled to assert such violations by way of
setoff against the obligation to pay the amount of Receivables owing. See
"Risk Factors--Certain Legal Aspects" and "--The Ability of the Bank to Change
Terms of the Accounts". All Receivables that were not created in compliance in
all material respects with the requirements of such laws, subject to certain
conditions described under "The Pooling Agreement--Representations and
Warranties", will be reassigned to the Bank. The Servicer has also agreed in
the Pooling Agreement to indemnify the Trust, among other things, for any
liability arising from such violations. For a discussion of the Trust's rights
if the Receivables were not created in compliance in all material respects
with applicable laws, see "The Pooling Agreement--Representations and
Warranties".
The Soldiers' and Sailors' Civil Relief Act of 1940 allows individuals on
active duty in the military to cap the interest rate on debts incurred before
the call to active duty at 6%. In addition, subject to judicial discretion,
any action or court proceeding in which an individual in military service is
involved may be stayed if the individual's rights would be prejudiced by
denial of such a stay.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders of all Series if such laws
result in any Receivables being charged off as uncollectible. See "Description
of the Certificates--Defaulted Receivables; Rebates and Fraudulent Charges".
TAX MATTERS
Federal Income Tax Consequences--General
Set forth below is a discussion of the material federal income tax
consequences to holders of Certificates offered hereunder. Additional federal
income tax considerations may be disclosed in the applicable Prospectus
Supplement for a particular Series or Class. This discussion does not purport
to deal with all aspects of federal income taxation that may be relevant to
holders of the Certificates in light of their personal investment
circumstances, nor to certain types of holders subject to special treatment
under the federal income tax laws (for example, banks, life insurance
companies and tax-exempt organizations). It is recommended that prospective
investors consult their own tax advisors with regard to the federal income tax
consequences of holding and disposing of Certificates, 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 discussion assumes that a Certificate is issued in registered form, has
all payments denominated in U.S. dollars and has a term that exceeds one year.
Moreover, the discussion assumes that the interest formula for the
Certificates meets the requirements for "qualified stated interest" under
Treasury regulations (the "OID regulations") relating to original issue
discount ("OID"), and that any OID on the Certificates arising from any excess
of the principal amount of a Certificate over its issue price is de minimis
(i.e., less than 1/4% of its principal amount multiplied by the number of full
years until its maturity date), all within the meaning of the OID regulations.
If those conditions are not satisfied, additional tax considerations will be
disclosed in the applicable Prospectus Supplement.
As noted below, Tax Counsel is of the opinion that the Certificates will be
characterized as debt for federal income tax purposes and that the Trust will
not be subject to federal income tax under current law. Except as provided in
a related Prospectus Supplement, Tax Counsel will render no other opinions to
the Bank with respect to the offered Certificates or the Trust.
60
<PAGE>
Treatment of the Certificates as Indebtedness
The Bank and Certificateholders will express in the Pooling Agreement the
intent that for federal, state and local income and franchise tax purposes,
the Certificates will be indebtedness of the Bank secured by the Receivables.
The Bank, by entering into the Pooling Agreement, and each investor, by the
acceptance of a Certificate, will agree to treat the Certificates as
indebtedness of the Bank for federal, state and local income and franchise tax
purposes. However, the Pooling Agreement generally refers to the transfer of
Receivables as a "sale", and because different criteria are used in
determining the nontax accounting treatment of the transaction, the Bank will
treat the Pooling Agreement, for certain nontax accounting purposes, as a
transfer of an ownership interest in the Receivables and not as creating a
debt obligation of the Bank.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its
economic substance. In appropriate circumstances, the courts have allowed
taxpayers, as well as the IRS, to treat a transaction in accordance with its
economic substance, as determined under federal income tax law, even though
the participants in the transaction have characterized it differently for
nontax purposes.
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed
to determine whether the seller has relinquished (and the purchaser has
obtained) substantial incidents of ownership in the property. Among those
factors, the primary factors examined are whether the purchaser has the
opportunity to gain if the property increases in value, and has the risk of
loss if the property decreases in value. Based upon its analysis of such
factors, Tax Counsel believes that the holders of Certificates (through their
ownership of the Certificates) are not the owners of the Receivables for
federal income tax purposes. As a result, in the opinion of Tax Counsel, the
Certificates will properly be characterized as debt for federal income tax
purposes.
Treatment of the Trust
The Trust could be viewed for federal income tax purposes either as (1) a
collateral arrangement for debt issued directly by the Bank and other holders
of the Seller's Interest or (2) a separate entity owning the Receivables,
issuing its own debt. However, in the former event the Trust will be
disregarded for federal income tax purposes and in the latter event under
current law the Trust would be a partnership, rather than an association (or
publicly traded partnership) taxable as a corporation. Therefore, in the
opinion of Tax Counsel, under current law the Trust will not be subject to
federal income tax.
If the Trust were considered to be a partnership, as described in the
preceding paragraph, and if any of its interests that are properly treated as
equity for Federal income tax purposes were considered to be publicly traded,
the Trust might be treated as a publicly traded partnership taxable as a
corporation, even though all of its publicly offered Certificates were
properly treated as debt for Federal income tax purposes. The Bank intends to
take measures to minimize the risk that the Trust would be considered to have
publicly traded equity and thus to be a publicly traded partnership. It is
believed such measures will be successful, but no assurance can be given in
this regard.
Federal Income Tax Consequences--United States Investors
Interest Income to Certificateholders
Assuming the Certificates are debt obligations for federal income tax
purposes, based on the above assumptions they will not be considered issued
with OID (except as discussed below or in the applicable Prospectus
Supplement). Interest thereon will be taxable as ordinary interest income when
received or accrued by holders utilizing the cash or accrual methods of
accounting, respectively. Under the OID regulations, a holder of a Certificate
issued with a de minimis amount of OID must include such OID in income, on a
pro rata basis,
61
<PAGE>
as principal payments are made on the Certificate. A purchaser who buys a
Certificate for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
If any interest due on a Series or Class of Certificates is not paid in full
on its scheduled payment date, Certificates of that Series or Class will
thereafter be considered to be issued with OID. The Bank intends to take the
position that OID does not arise on a Series or Class of Certificates unless
and until an event described in the preceding sentence occurs. This position
is based on the Bank's belief that the likelihood of any such event is a
"remote contingency" under applicable Treasury regulations. However, if at the
time of issuance of a Series or Class of Certificates such an event was not
considered to be a "remote contingency", the Certificates of that Series or
Class would be considered to have OID from their date of issuance without
regard to the occurrence of any such event. Tax Counsel can give no opinion on
this issue, because the "remote contingency" standard involves both factual
and legal uncertainties.
If the Certificates of a Series or Class were considered to have OID, either
initially or subsequently, all holders of Certificates of that Series or Class
would thereafter be required to accrue OID into income at a rate equal to the
full interest rate payable on the Certificates, whether or not all or part of
the interest on the Certificates was paid currently. Moreover, the holders
would be required to accrue any de minimis discount into income over the life
of the Certificates rather than when principal is paid. As a result, holders
might be required to report taxable income prior to the receipt of cash
attributable to such income.
The Paying Agent will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (or OID accrued) on
the Certificates (and the amount of interest withheld for federal income
taxes, if any) for each calendar year, except as to exempt holders (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). As long as the
only "Certificateholder" of record is Cede, as nominee for DTC,
Certificateholders and the IRS will receive tax and other information only
from Participants and Indirect Participants rather than the Paying Agent.
Accordingly, each nonexempt Certificateholder will be required to provide,
under penalties of perjury, a certificate on IRS Form W-9 containing the
holder's name, address, correct federal taxpayer identification number and a
statement that such holder is not subject to backup withholding. If a
nonexempt Certificateholder fails to provide the required certification, the
Paying Agent (or the Participants or Indirect Participants) 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 amount to the IRS as a
credit against the holder's federal income tax liability.
Possible Classification of the Certificates as Interests in a Partnership or
Association
Although, as described above, it is the opinion of Tax Counsel that the
Certificates will properly be characterized as debt for federal income tax
purposes, such opinion is not binding on the IRS and thus no assurance can be
given that such a characterization will prevail. If the IRS were to contend
successfully that some or all of the Certificates were not debt obligations
for federal income tax purposes, the arrangement among the Bank, any other
holders of the Seller's Interest, the holders of such Certificates and holders
of other Certificates might be classified as a partnership for federal income
tax purposes, as an association taxable as a corporation or as a "publicly
traded partnership" taxable as a corporation.
If some or all of the Certificates are treated as equity interests in a
partnership, the partnership would in all likelihood be treated as a "publicly
traded partnership". A publicly traded partnership is, in general, taxable as
a corporation. If the partnership were nevertheless not taxable as a
corporation (because of an exception for an entity whose income is interest
income that is not derived in the conduct of a financial business) it would
not be subject to federal income tax. Rather, each item of income, gain, loss,
deduction and credit generated through the ownership of the Receivables by the
partnership would be passed through to the partners in such a partnership
(including holders of Certificates that are treated as equity interests in the
partnership) according to their respective interests therein.
62
<PAGE>
The income reportable by Certificateholders as partners in such a
partnership could differ from the income reportable by Certificateholders as
holders of debt. However, except as provided below, it is not expected that
such differences would be material. A cash basis Certificateholder treated as
a partner might be required to report income when it accrues to the
partnership rather than when it is received by the Certificateholder.
Moreover, an individual Certificateholder's share of expenses of the
partnership would be miscellaneous itemized deductions that might not be
deductible in whole or in part, meaning that the holder might be taxed on a
greater amount of income than the stated interest on the Certificates.
Finally, if any Certificates are treated as equity interests in a partnership
in which other Certificates are debt, all or part of a tax-exempt investor's
share of income from the Certificates that are treated as equity would be
treated as unrelated debt-financed income under the Code taxable to the
investor.
If, alternatively, some or all of the Certificates were treated as equity
interests in an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation, the resulting entity would be subject
to federal income taxes at corporate tax rates on its taxable income generated
by ownership of the Receivables. Moreover, distributions by the entity on such
Certificates and the Seller's Interest would probably not be deductible in
computing the entity's taxable income and distributions to such
Certificateholders would probably be treated as dividend income to such
holders. Such an entity-level tax could result in reduced distributions to all
Certificateholders, and the holders of Certificates that are treated as equity
could also be liable for a share of such a tax.
Since the Bank will treat the Certificates as indebtedness for federal
income tax purposes, the Paying Agent (and Participants and Indirect
Participants) will not comply with the tax reporting requirements that would
apply under those alternative characterizations of the Certificates.
Federal Income Tax Consequences--Non-United States Investors
Tax Counsel has given its opinion that the Certificates will properly be
classified as debt for federal income tax purposes. If the Certificates 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 Providian Financial
Corporation, is not a controlled foreign corporation with respect to Providian
Financial Corporation, and does not bear certain relationships to holders of
the Seller's Interest other than the Bank). Applicable identification
requirements will be satisfied if there is delivered to a securities clearing
organization (or bank or other financial institution that holds Certificates
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 the
Certificates 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 the Certificates or such owner's agent claiming an exemption from
withholding under an applicable tax treaty, or (iii) IRS Form 4224 signed by
the beneficial owner of the Certificates or 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 that in any such case (x) the
applicable form is delivered pursuant to applicable procedures and is properly
transmitted to the United States entity otherwise required to withhold tax and
(y) none of the entities receiving the form has actual knowledge that the
holder is a U.S. person or that any certification on the form is false; (b) a
holder of a Certificate 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 Certificate, 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 Certificate 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 Providian Financial Corporation, and does
not bear certain relationships to holders of the Seller's Interest
63
<PAGE>
other than the Bank and (ii) the holding of such Certificate was not
effectively connected with the conduct by the decedent of a trade or business
in the United States. Revised Treasury Regulations would modify the foregoing
identification requirements effective January 1, 2001.
If the IRS were to contend successfully that some or all of the Certificates
are equity interests in a partnership (not taxable as a corporation), a holder
of such a Certificate 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 some or all of the
Certificates are recharacterized as equity interests in an association taxable
as a corporation or a "publicly traded partnership" taxable as a corporation,
to the extent distributions on such Certificates 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 the rate
of 30% unless such rate were reduced by an applicable treaty.
State and Local Tax Consequences
Set forth below is a discussion of the material California and New Hampshire
state and local tax consequences to holders of Certificates offered hereunder.
Additional tax considerations may be disclosed in the applicable Prospectus
Supplement for a particular Series or Class. This discussion does not purport
to deal with all aspects of state and local taxation that may be relevant to
holders of Certificates in light of their personal investment circumstances.
It is recommended that prospective investors consult their own tax advisors
with regard to the state and local tax consequences of holding or disposing of
Certificates. As noted below, California Tax Counsel and New Hampshire Tax
Counsel are of the opinion that if the Certificates are treated as debt for
federal income tax purposes, California and New Hampshire respectively, would
also treat the Certificates as debt for California state income tax purposes
and New Hampshire state tax purposes. New Hampshire Tax Counsel is further of
the opinion that the Trust is not subject to the New Hampshire Interest and
Dividends Tax.
California. This discussion is based upon present provisions of the
California Revenue & Tax Code and the regulations promulgated thereunder, and
applicable 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 California Franchise Tax Board.
California imposes an income tax on corporations doing business in the state
and a franchise tax on corporations earning income from the state. The
California Revenue & Tax Code, which governs the taxation of individuals,
partnerships, trusts and corporations, largely incorporates the Federal
Internal Revenue Code. Accordingly, in the opinion of Farella Braun & Martel
LLP, special California tax counsel to the Bank ("California Tax Counsel"), if
the Certificates are treated as debt of the Bank for federal income tax
purposes, California would also treat the Certificates as debt of the Bank.
Pursuant to this treatment, the Trust would be treated as a mere security
device and would not be subject to California income or franchise tax. In
addition, Certificateholders not otherwise subject to California taxes would
not become subject to them solely by reason of their ownership of the
Certificates. Certificateholders already subject to taxation in California,
however, could be required to pay tax on income generated from the
Certificates.
If the Trust were treated for federal income tax purposes either (i) as a
partnership (not taxable as a corporation) between the Bank and any other
owners of the Seller's Interest (of which the Certificateholders or other
holders of Certificates are treated as creditors) or (ii) as a partnership
(not taxable as a corporation) among the Bank, any other owners of the
Seller's Interest and some or all of the Certificateholders or other holders
of Certificates (in which any other Certificateholders or other holders of
Certificates are treated as creditors), in the opinion of California Tax
Counsel, the same treatment should also apply for California tax purposes.
Since only certain publicly traded partnerships are liable for entity-level
California income or franchise tax, and all other partnerships are 100% pass-
through, neither kind of partnership should be liable for entity-level income
or franchise tax in California.
64
<PAGE>
If the Pooling Agreement is characterized for federal income tax purposes as
a partnership between the Bank and any other owners of the Seller's Interest,
and the Certificates are respected as debt of such a partnership, neither the
Trustee nor the Certificateholders should be subject to California income or
franchise tax merely by virtue of their acting as Trustee or their investment
in the Certificates.
If, however, the relationship created by the Pooling Agreement is
characterized for federal income tax purposes as a partnership that includes
not only the Bank and any other owners of the Seller's Interest but also one
or more of the Certificateholders, California would view such a partnership as
doing business in California to the extent the activities of the Bank in
servicing the Receivables take place principally in California. As a result,
each Certificateholder that is treated as an equity investor of the
partnership for federal tax purposes would be treated as an equity investor of
the partnership for California tax purposes and would be subject to California
income or franchise tax. Under these circumstances, such a Certificateholder
might be taxed by California on its share of the partnership's income
apportioned to California and the partnership would be required to withhold 7%
of all distributions in excess of $1,500 to any U.S. Certificateholder not
resident in California, unless the Certificateholder either obtains a waiver
from the Franchise Tax Board or notifies the partnership that (i) the
Certificateholder reported the income on a duly filed California tax return,
or (ii) the Certificateholder has a permanent place of business within
California. In addition, in the event of such a partnership characterization,
a holder of a Certificate that is a nonresident alien or foreign corporation
would be subject to California withholding on its share of California
apportioned income at the highest individual or corporate rate (9.3% and
8.84%, respectively). Moreover, such partnership characterization might cause
a Certificateholder not otherwise subject to tax in California to pay
California tax on income beyond that derived from the Certificates.
If the Pooling Agreement were characterized for federal income tax purposes
as a publicly traded partnership, which is taxable as a corporation, or as a
corporation, California would follow this characterization. The resulting
entity would be liable for California income or franchise tax, which would
reduce the amounts available for distribution to the Certificateholders. The
Certificateholders, themselves, however, would be treated as owning interests
in a corporation for California tax purposes, and Certificateholders not
otherwise subject to California taxes should not become subject to such taxes
solely by reason of their ownership of Certificates.
New Hampshire. This discussion is based upon present provisions of the New
Hampshire statutes, the regulations promulgated thereunder, and applicable
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 New Hampshire Department of Revenue Administration.
New Hampshire has a Business Profits Tax, an Interest and Dividends Tax and
a Business Enterprise Tax. New Hampshire taxing authorities would follow
federal income tax standards on characterization of the Certificates as debt.
Accordingly, it is the opinion of Gallagher, Callahan & Gartrell, P.A., New
Hampshire tax counsel to the Bank ("New Hampshire Tax Counsel") that if the
Certificates were characterized as debt for federal income tax purposes, they
would also be characterized as debt for New Hampshire tax purposes. Pursuant
to this characterization, the Trust would be treated as a mere security
device.
The activities to be undertaken by the Bank in originating and conveying
Receivables to the Trust might be viewed as taking place in New Hampshire;
pursuant to the Pooling Agreement, the Bank, as Servicer, will be responsible
for the administration and the servicing of the Receivables. All Trust
operations, however, will take place outside of New Hampshire. Because the
situs of the Trust is outside the State of New Hampshire and all duties and
obligations of the trustee of the Trust are performed outside of the State of
New Hampshire (except in connection with the enforcement of rights and
remedies in the event of default), New Hampshire Tax Counsel is of the opinion
that the Trust will not be considered as carrying on any business activity in
the State of New Hampshire and will not be subject to the Business Profits Tax
or the Business Enterprise Tax. There is insufficient nexus to justify New
Hampshire taxation.
65
<PAGE>
In the alternative, if the Trust was characterized for federal income tax
purposes as a partnership, as a corporation, or as a publicly-traded
partnership taxable as a corporation, there would still be insufficient nexus
with New Hampshire to subject the Trust to New Hampshire taxation at the
entity level.
Although it is not expected that the Trust will be subject to tax by New
Hampshire, the effect of taxation at the entity level would be reduced
distributions to Certificateholders. However, Certificateholders not otherwise
subject to taxation in New Hampshire would not become subject to New Hampshire
taxation solely due to ownership of Certificates.
New Hampshire imposes a tax on interest and dividends received by a
partnership, association or trust, the beneficial interest in which is not
represented by transferable shares. It is the opinion of New Hampshire Tax
Counsel that the Trust is not subject to the Interest and Dividends Tax
because: (i) there is insufficient nexus with the State of New Hampshire; and
(ii) the beneficial interests in the Trust are represented by transferable
shares. Certificateholders already subject to taxation in New Hampshire would
be required to pay Interest and Dividends Tax on income generated from the
Certificates. In this regard, New Hampshire would follow federal OID
characterization. Amounts characterized as OID for federal purposes would be
interest taxable to New Hampshire Certificateholders under the Interest and
Dividends Tax or the Business Profits Tax.
New Hampshire does not follow federal pass-through treatment of non-publicly
traded partnerships. Partnerships are subject to the Business Profits Tax and
Business Enterprise Tax at the entity-level in New Hampshire. Therefore, if
the relationship established under the Pooling Agreement between the Bank and
the Certificateholders is characterized as a partnership or corporation for
federal tax purposes, and if the activity of the Bank as Servicer is deemed to
be conducted on behalf of the partnership or corporation and sufficient to
provide taxable nexus within the State of New Hampshire, the entity would be
liable for Business Profits Tax and Business Enterprise Tax at the entity
level, which would result in reduced distributions to Certificateholders.
66
<PAGE>
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan (including an individual retirement
account) (collectively referred to as "Benefit Plans") from engaging in
certain transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified persons" under Section 4975 of the Code
with respect to the Benefit Plan. A violation of these "prohibited
transaction" rules may generate excise tax and other liabilities under ERISA
and the Code for such persons. For example, a prohibited transaction would
arise, unless an exemption were available, if a Certificate were viewed as
debt of the Bank and the Bank was a disqualified person or a party in interest
with respect to a Benefit Plan that acquired the Certificate.
Moreover, additional prohibited transactions could arise if the Trust Assets
were deemed to constitute "plan assets" of any Benefit Plan that owned
Certificates. The Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") concerning the definition of what constitutes "plan
assets" of a Benefit Plan. Under the Final Regulation, the assets and
properties of corporations, partnerships and certain other entities in which a
Benefit Plan makes an investment in an "equity interest" could in certain
circumstances be deemed to be assets of the Benefit Plan, or "plan assets".
Accordingly, if Benefit Plans or other entities whose assets include plan
assets purchase Certificates, the Trust could be deemed to hold plan assets
unless one of the exceptions under the Final Regulation is applicable to the
Trust.
The Final Regulation only applies to the use of the assets of a Benefit Plan
to acquire an "equity interest" in an entity. Assuming that a Certificate is
an equity interest, the Final Regulation contains an exception which provides
that if assets of a Benefit Plan are used to acquire a "publicly-offered
security", the issuer of the security is not deemed to hold plan assets. A
publicly-offered security is a security that is (i) freely transferable, (ii)
part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another at the conclusion of the initial
offering and (iii) either is (A) part of a class of securities registered
under Section 12(b) or 12(g) of the Exchange Act, or (B) sold to the Benefit
Plan as part of an offering of securities to the public pursuant to an
effective registration statement under the Act and the class of securities of
which such security is a part is registered under the Exchange Act within 120
days (or such later time as may be allowed by the Commission) after the end of
the fiscal year of the issuer during which the offering of such securities to
the public occurred.
The Certificates of each Class and Series must be separately tested under,
and may each meet, the criteria of publicly-offered securities as described
above. There are no restrictions imposed on the transfer of the Certificates
offered hereby, and the Certificates offered hereby will be sold as part of an
offering pursuant to an effective registration statement under the Act and
then will be timely registered under the Exchange Act. Based on information
provided by an underwriter, agent or dealer involved in the distribution of
the Certificates offered hereby, the Bank will notify the Trustee as to
whether or not the Certificates of a Class or Series offered by this
Prospectus and an accompanying Supplement will be held by at least 100
separately named persons at the conclusion of the offering thereof. The Bank
will not, however, determine whether the 100-independent investor requirement
of the exception for publicly-offered securities is satisfied as to either a
specific Class or Series. Prospective purchasers may obtain a copy of the
notification described in the second preceding sentence from the Trustee at
its Corporate Trust Department.
If the Certificates of a Class or Series fail to meet the criteria of
publicly-offered securities and the Trust Assets are deemed to include assets
of Benefit Plans, transactions involving the Trust and "parties in interest"
or "disqualified persons" with respect to such Benefit Plans might be
prohibited under Section 406 of ERISA and Section 4975 of the Code unless an
exemption is available. Thus, for example, if a participant in any Benefit
Plan holding Certificates is an accountholder of one of the Accounts, under a
DOL interpretation the purchase of such Certificates by such Benefit Plan
could constitute a prohibited transaction.
67
<PAGE>
Moreover, as discussed above, while Tax Counsel has given its opinion that
the Certificates of a Series offered hereby will properly be treated as debt
for federal income tax purposes, if any Certificates were instead treated as
equity interests in a partnership not taxable as a corporation in which any
other Class or Series of Certificates are debt, all or part of a tax-exempt
investors share of income from the Certificates that are treated as equity
would be treated as unrelated debt-financed income under the Code taxable to
the investor.
In light of the foregoing, fiduciaries of Benefit Plans or other investors
of "plan assets" considering the purchase of Certificates should consult their
own counsel as to whether the acquisition of such Certificates would be a
prohibited transaction, whether Trust Assets which are represented by such
Certificates would be considered plan assets, the consequences that would
apply if the Trust Assets were considered plan assets, the applicability of
exemptive relief from the prohibited transaction rules, and the applicability
of the tax on unrelated business income and unrelated debt-financed income. In
addition, based on the reasoning of the United States Supreme Courts decision
in John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 510 U.S. 86
(1993), under certain circumstances assets in the general account of an
insurance company might be deemed to be plan assets for certain purposes, and
under such reasoning the purchase of Certificates with assets of an insurance
company's general account might be subject to the prohibited transaction rules
described above. Insurance company general account investors should also
consider the effect of Section 401(c) of ERISA and regulations thereunder.
If the Bank does not notify the Trustee, as described above, that the
Certificates of any particular Class or Series will be held by at least 100
separately named persons, the Certificates of such Class or Series may not be
acquired by any Benefit Plan or by any entity investing with assets that are
treated as assets of a Benefit Plan. Furthermore, in that case, the Pooling
Agreement, the related Supplement and each Certificate of such Class or Series
will provide that each holder of such Certificate shall be deemed to have
represented and warranted that it is not a Benefit Plan, is not purchasing
such Certificate on behalf of a Benefit Plan, and is not using assets treated
as assets of any Benefit Plan to effect the purchase.
PLAN OF DISTRIBUTION
The Bank may sell Certificates in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The related Prospectus Supplement will set forth the terms of
the offering of any Certificates offered hereby, including, without
limitation, the names of any underwriters, the purchase price of such
Certificates and the proceeds to the Bank from such sale, any underwriting
discounts and other items constituting underwriters' compensation, any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers.
If underwriters are used in a sale of any Certificates of a Series offered
hereby, such Certificates will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of
commitment therefor. Such Certificates may be offered to the public either
through underwriting syndicates represented by managing underwriters or by
underwriters without a syndicate. The obligations of the underwriters to
purchase such Certificates will be subject to certain conditions precedent,
and the underwriters will be obligated to purchase all of such Certificates if
any of such Certificates are purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Certificates of a Series offered hereby may also be offered and sold, if so
indicated in the related Prospectus Supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption or repayment
pursuant to their terms, by one or more firms ("remarketing firms") acting as
principals for their own accounts or as agents for the Bank. Any remarketing
firm will be identified and the terms of its agreement, if any, with the Bank
and its compensation will be described in the related Prospectus Supplement.
Remarketing firms may be deemed to be underwriters in connection with the
Certificates remarketed thereby.
68
<PAGE>
Certificates may also be sold directly by the Bank or through agents
designated by the Bank from time to time. Any agent involved in the offer or
sale of Certificates will be named, and any commissions payable by the Bank to
such agent will be set forth, in the related Prospectus Supplement. Any such
agent will act on a best efforts basis for the period of its appointment.
Any underwriters, agents or dealers participating in the distribution of
Certificates may be deemed to be underwriters, and any discounts or
commissions received by them on the sale or resale of Certificates may be
deemed to be underwriting discounts and commissions, under the Act. Agents and
underwriters may be entitled under agreements entered into with the Bank to
indemnification by the Bank against certain civil liabilities, including
liabilities under the Act, or to contribution with respect to payments that
the agents or underwriters may be required to make in respect thereof. Agents
and underwriters may be customers of, engage in transactions with, or perform
services for, the Bank or their affiliates in the ordinary course of business.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Bank and the Trust by Cravath, Swaine & Moore, New York, New York and for
any underwriters, agents or dealers by Orrick, Herrington & Sutcliffe LLP, New
York, New York. Certain federal income tax matters will be passed upon for the
Bank by Cravath, Swaine & Moore, New York, New York, certain California tax
matters will be passed upon for the Bank by Farella Braun & Martel LLP, San
Francisco, California and certain New Hampshire tax matters will be passed
upon for the Bank by Gallagher, Callahan & Gartrell, P.A., Concord, New
Hampshire.
69
<PAGE>
INDEX OF TERMS FOR PROSPECTUS
<TABLE>
<CAPTION>
Term Page
- ---- ----
Accounts................................................................... 1
<S> <C>
Accumulation Period........................................................ 10
Act........................................................................ 2
Addition................................................................... 32
Additional Accounts........................................................ 32
Additional Finance Charges................................................. 39
Additional Sellers......................................................... 49
Adjustment Payment......................................................... 40
Aggregate Additional Limit................................................. 32
Automatic Additional Accounts.............................................. 32
Bank....................................................................... 1
Bank's Interest............................................................ 7
Base Rate.................................................................. 42
Benefit Plans.............................................................. 67
California Tax Counsel..................................................... 64
Cede....................................................................... 2
CEDEL...................................................................... 47
CEDEL Participants......................................................... 47
Certificateholders......................................................... 2
Certificateholders' Interest............................................... 7
Certificates............................................................... 1
Citibank................................................................... 46
Class...................................................................... 1
Code....................................................................... 60
Collection Account......................................................... 36
Commission................................................................. 2
Controlled Accumulation Amount............................................. 10
Controlled Amortization Amount............................................. 11
Controlled Deposit Amount.................................................. 10
Controlled Distribution Amount............................................. 11
Cooperative................................................................ 48
Credit Enhancement......................................................... 13
Credit Enhancer............................................................ 41
Date of Processing......................................................... 14
Defaulted Amount........................................................... 39
Defaulted Receivables...................................................... 39
Definitive Certificates.................................................... 48
Depositaries............................................................... 45
Depository................................................................. 30
Determination Date......................................................... 14
Disclosure Document........................................................ 8
Distribution Date.......................................................... 10
DOL........................................................................ 67
DTC........................................................................ 2
Early Amortization Period.................................................. 11
Eligible Account........................................................... 52
Eligible Deposit Account................................................... 36
Eligible Institution....................................................... 36
Eligible Investments....................................................... 36
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Eligible Receivable........................................................ 52
Enhancement Invested Amount................................................ 41
ERISA...................................................................... 67
Euroclear.................................................................. 48
Euroclear Operator......................................................... 48
Euroclear Participants..................................................... 48
Exchange Act............................................................... 2
Expected Final Payment Date................................................ 9
FDIA....................................................................... 58
FDIC....................................................................... 7
Final Regulation........................................................... 67
Finance Charge Receivables................................................. 6
FIRREA..................................................................... 58
Floating Allocation Percentage............................................. 37
Funding Period............................................................. 12
GAO........................................................................ 19
Group...................................................................... 38
Holders.................................................................... 49
Indirect Participants...................................................... 47
Ineligible Receivables..................................................... 50
Initial Accounts........................................................... 6
Initial Amount............................................................. 13
Insolvency Event........................................................... 18
Interchange................................................................ 25
Interest Funding Account................................................... 30
Interest Payment Dates..................................................... 35
Invested Amount............................................................ 35
IRS........................................................................ 60
L/C Issuer................................................................. 41
Lending Guidelines......................................................... 22
Monthly Investor Servicing Fee............................................. 44
Monthly Period............................................................. 27
Monthly Report............................................................. 45
Moody's.................................................................... 36
Morgan..................................................................... 46
New Hampshire Tax Counsel.................................................. 65
New Issuance............................................................... 34
OID........................................................................ 60
OID regulations............................................................ 60
Participants............................................................... 47
Participations............................................................. 32
Pay Out Event.............................................................. 42
Payment Date............................................................... 45
Pooling Agreement.......................................................... 1
Portfolio Yield............................................................ 42
Prefunding Account......................................................... 13
Prefunding Account Balance................................................. 39
Principal Allocation Percentage............................................ 37
Principal Commencement Date................................................ 9
Principal Funding Account.................................................. 10
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Principal Receivables...................................................... 6
Principal Shortfalls....................................................... 38
Principal Terms............................................................ 35
Prospectus Supplement...................................................... 1
Providian Portfolio........................................................ 23
Publicly-offered security.................................................. 67
Rating Agency.............................................................. 15
Ratings Effect............................................................. 17
Receivables................................................................ 1
Record Date................................................................ 44
Remarketing Firms.......................................................... 68
Removal Date............................................................... 34
Removal Notice Date........................................................ 34
Removed Accounts........................................................... 6
Required Principal Balance................................................. 20
Required Seller's Participation Amount..................................... 20
Required Seller's Percentage............................................... 20
Revolving Period........................................................... 9
Rollouts................................................................... 27
Scheduled Amortization Period.............................................. 11
Seller's Interest.......................................................... 7
Series..................................................................... 1
Series Cut-off Date........................................................ 10
Series Enhancement......................................................... 5
Series Issuance Date....................................................... 50
Series Termination Date.................................................... 44
Service Transfer........................................................... 55
Servicer................................................................... 14
Servicer Default........................................................... 55
Servicing Fee.............................................................. 43
Shared Principal Collections............................................... 38
Special Funding Account.................................................... 38
Special Payment Date....................................................... 43
Spread Account............................................................. 42
Standard & Poor's.......................................................... 36
Supplement................................................................. 8
Supplemental Interest...................................................... 49
Tax Counsel................................................................ 15
Tax Opinion................................................................ 36
Termination Notice......................................................... 55
Terms and Conditions....................................................... 48
Total System............................................................... 23
Transfer Deposit Amount.................................................... 51
Trust...................................................................... 1
Trust Assets............................................................... 5
Trust Cut-off Date......................................................... 6
Trustee.................................................................... 1
Trust Portfolio............................................................ 27
Trust Termination Date..................................................... 50
UCC........................................................................ 18
Unallocated Principal Collections.......................................... 37
</TABLE>
72
<PAGE>
[LOGO OF PROVIDIAN NATIONAL BANK]
Providian Master Trust
Issuer
Providian National Bank
Seller and Servicer
$500,000,000 Floating Rate Class A
Asset Backed Certificates
$65,705,000 6.80% Class B
Asset Backed Certificates
SERIES 1999-1
--------------------------
PROSPECTUS SUPPLEMENT
Dated June 17, 1999
--------------------------
Underwriters of the Class A certificates
Lehman Brothers
Chase Securities Inc.
Credit Suisse First Boston
Merrill Lynch & Co.
Underwriters of the Class B certificates
Lehman Brothers
Credit Suisse First Boston
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the Class A certificates and Class B certificates in any
state where the offer is not permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Class A certificates and Class B certificates and with
respect to their unsold allotments or subscriptions. In addition, all dealers
with Class A certificates and Class B certificates will deliver a prospectus
supplement and prospectus until September 15, 1999.
