<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF
SECURITIES PURSUANT TO SECTION 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
PRIME RECEIVABLES CORPORATION
(Originator of Prime Credit Card Master Trust)
9111 Duke Boulevard
Mason, Ohio 45040-8999
Delaware 31-1359594
(State of Incorporation) (IRS Employer
Identification No.)
Copies of notices and other communications
should be sent to:
Dennis J. Broderick, Esq. Mark E. Betzen, Esq.
Senior Vice President, Secretary Jones, Day, Reavis & Pogue
and General Counsel 2300 Trammell Crow Center
Federated Department Stores, Inc. 2001 Ross Avenue
7 West Seventh Street Dallas, Texas 75201
Cincinnati, Ohio 45202 Telephone: (214) 220-3939
Telephone: (513) 579-7000
__________________
No debt securities are being registered. No securities are being registered
pursuant to Section 12(b) of the Act.
Securities to be registered pursuant to Section 12(g) of the Act:
6.70% Class A Asset Backed Certificates, Series 1996-1
6.85% Class B Asset Backed Certificates, Series 1996-1
Exhibit Index at Page 4
Page 1 of 4 Pages
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ITEM 1. Description of Registrant's Securities to be Registered.
-------------------------------------------------------
The information set forth under the captions "Prospectus
Summary," "The Accounts," "Maturity Assumptions," "Description
of The Offered Certificates," "Certain Legal Aspects of the
Receivables," and "Certain Federal Income Tax Consequences" in
the Prospectus filed as Exhibit 21 hereto is incorporated
herein by this reference in response to this Item 1.
ITEM 2. Exhibits.
--------
4.1 Form of Class A Asset Backed Certificate, Series
1996-1 (Exhibit A-1 to the Series 1996-1 Supplement
filed as Exhibit 4.3)
4.2 Form of Class B Asset Backed Certificate, Series
1996-1 (Exhibit A-2 to the Series 1996-1 Supplement
filed as Exhibit 4.3)
4.3 Series 1996-1 Supplement, dated as of May 14, 1996,
to Amended and Restated Pooling and Servicing
Agreement dated as of December 15, 1992
21 Prospectus, dated May 1, 1996, relating to Class A
Asset Backed Certificates, Series 1996-1, and Class B
Asset Backed Certificates, Series 1996-1,
representing undivided interests in Prime Credit Card
Master Trust
Page 2 of 4 Pages
<PAGE> 3
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned thereto duly authorized.
PRIME RECEIVABLES CORPORATION
(Originator of Prime Credit
Card Master Trust)
By: /s/ Susan R. Robinson
-----------------------------
Name: Susan R. Robinson
Title: President
Dated: May 29, 1996
Page 3 of 4 Pages
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INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit Page Number
------- -----------
<S> <C> <C>
4.1 Form of Class A Asset Backed
Certificate, Series 1996-1 (Exhibit A-1
to the Series 1996-1 Supplement filed
as Exhibit 4.3) . . . . . . . . . . . . . --
4.2 Form of Class B Asset Backed
Certificate, Series 1996-1 (Exhibit A-2
to the Series 1996-1 Supplement filed as
Exhibit 4.3) . . . . . . . . . . . . . . . --
4.3 Series 1996-1 Supplement, dated as of
May 14, 1996, to Amended and Restated
Pooling and Servicing Agreement dated
as of December 15, 1992 . . . . . . . . . --
21 Prospectus, dated May 1, 1996, relating
to Class A Asset Backed Certificates,
Series 1996-1, and Class B Asset Backed
Certificates, Series 1996-1, representing
undivided interests in Prime Credit
Card Master Trust . . . . . . . . . . . . --
</TABLE>
Page 4 of 4 Pages
<PAGE> 1
================================================================================
PRIME RECEIVABLES CORPORATION
Transferor
FDS NATIONAL BANK
Servicer
and
CHEMICAL BANK
Trustee
on behalf of the Series 1996-1 Certificateholders
----------------------------------------
SERIES 1996-1 SUPPLEMENT
Dated as of May 14, 1996
to
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of December 15, 1992
----------------------------------------
$218,000,000 6.70% Class A Asset Backed
Certificates, Series 1996-1
$20,800,000 6.85% Class B Asset Backed
Certificates, Series 1996-1
$20,800,000 9.00% Class C Asset Backed
Certificates, Series 1996-1
PRIME CREDIT CARD MASTER TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1.1. Designation...................................................................... 1
SECTION 1.2. Definitions ..................................................................... 1
SECTION 1.3. Reassignment and Transfer Terms.................................................. 20
SECTION 1.4. Delivery and Payment for the Series
1996-1 Certificates...................................................... 21
SECTION 1.5. Depositary; Form of Delivery of
Series 1996-1 Certificates............................................... 21
SECTION 1.6. Article IV of Agreement.......................................................... 21
SECTION 4.04 Rights of Certificateholders..................................................... 21
SECTION 4.05 Collections and Allocation....................................................... 22
SECTION 4.06 Determination of Monthly Interest
for the Series 1996-1
Certificates............................................................. 24
SECTION 4.07 Determination of Monthly Principal............................................... 27
SECTION 4.08 Establishment of the Principal
Funding Account for the
Certificates............................................................. 28
SECTION 4.09 Application of Funds on Deposit
in the Collection Account for
the Certificates......................................................... 30
SECTION 4.10 Coverage of Required Amount for
the Series 1996-1 Certificates........................................... 37
SECTION 4.11 Payment of Certificate Interest................................................. 38
SECTION 4.12 Payment of Certificate Principal................................................. 39
SECTION 4.13 Investor Charge-Offs............................................................. 40
SECTION 4.14 Shared Principal Collections..................................................... 41
SECTION 4.15 Reallocated Principal Collections
for the Series 1996-1 Certificates....................................... 42
SECTION 4.16 Accumulation Period.............................................................. 43
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1.7. Article V of the Agreement ...................................................... 44
SECTION 5.01 Distributions ................................................................... 44
SECTION 5.02 Monthly Certificateholders' Statement ........................................... 46
SECTION 1.8. Series 1996-1 Pay Out Events .................................................... 48
SECTION 1.9. Series 1996-1 Termination ....................................................... 49
SECTION 1.10. Periodic Finance Charges and Other Fees ......................................... 49
SECTION 1.11. Ratification of Agreement ....................................................... 50
SECTION 1.12. Counterparts .................................................................... 50
SECTION 1.13. Governing Law ................................................................... 50
SECTION 1.14. The Trustee ..................................................................... 50
SECTION 1.15. Instructions in Writing ......................................................... 50
</TABLE>
EXHIBITS
- --------
EXHIBIT A-1 Form of Class A Certificate
EXHIBIT A-2 Form of Class B Certificate
EXHIBIT A-3 Form of Class C Certificate
EXHIBIT B Letter of Representations
EXHIBIT C Form of Monthly Certificateholders' Statement
ii
<PAGE> 4
SERIES 1996-1 SUPPLEMENT, dated as of May 14, 1996 (this
"SERIES SUPPLEMENT") by and among PRIME RECEIVABLES CORPORATION, a corporation
organized and existing under the laws of the State of Delaware, as Transferor
(the "Transferor"), FDS NATIONAL BANK ("FDS"), a federally chartered credit card
bank organized and existing under the laws of the United States, as Servicer
(the "Servicer"), and CHEMICAL BANK, a banking corporation organized and
existing under the laws of the State of New York as trustee (together with its
successors in trust thereunder as provided in the Agreement referred to below,
the "TRUSTEE") under the Amended and Restated Pooling and Servicing Agreement
dated as of December 15, 1992, as amended and supplemented from time to time
(the "AGREEMENT") among the Transferor, Federated Department Stores, Inc., a
corporation organized and existing under the laws of Delaware ("FEDERATED"), as
servicer, and the Trustee as further amended by the Assumption Agreement dated
as of September 15, 1993 among the Transferor, Federated, the Trustee and FDS.
Section 6.09 of the Agreement provides, among other things,
that the Transferor and the Trustee may at any time and from time to time enter
into a supplement to the Agreement for the purpose of authorizing the issuance
by the Trustee to the Transferor, for execution and redelivery to the Trustee
for authentication, one or more Series of Certificates.
Pursuant to this Series Supplement, the Transferor and the
Trustee shall create a new Series of Investor Certificates and shall specify the
Principal Terms thereof.
SECTION 1.1. DESIGNATION. There is hereby created a Series of
Investor Certificates to be issued pursuant to the Agreement and this Series
Supplement to be known generally as the "SERIES 1996-1 CERTIFICATES." The Series
1996-1 Certificates shall be issued in three Classes, which shall be designated
generally as the Class A Certificates, Series 1996-1 (the "CLASS A
CERTIFICATES"), the Class B Certificates, Series 1996-1 (the "CLASS B
CERTIFICATES") and the Class C Certificates, Series 1996-1 (the "CLASS C
CERTIFICATES").
SECTION 1.2. DEFINITIONS. In the event that
any term or provision contained herein shall conflict
<PAGE> 5
with or be inconsistent with any provision contained in the Agreement, the terms
and provisions of this Series Supplement shall govern with respect to the Series
1996-1 Certificates. All Article, Section or subsection references herein shall
mean Article, Section or subsections of the Agreement, as amended or
supplemented by this Series Supplement, except as otherwise provided herein. All
capitalized terms not otherwise defined herein are defined in the Agreement.
Each capitalized term defined herein shall relate only to the Series 1996-1
Certificates and no other Series of Certificates issued by the Trust.
"ACCUMULATION DATE" shall mean the first day of
the August 2000 Monthly Period.
"ACCUMULATION PERIOD" shall mean, with respect to the Class A
Certificates, the period commencing on the Accumulation Date, or such later date
as may be specified by the Servicer in accordance with Section 4.16 of the
Agreement, and continuing to and including the earlier of (a) the calendar day
immediately preceding the first day of the Early Amortization Period and (b) the
date of the termination of the Trust pursuant to Section 12.01 of the Agreement.
"ACCUMULATION PERIOD LENGTH" shall have the meaning specified
in Section 4.16 of the Agreement.
"ADDITIONAL INTEREST" shall mean, at any time of
determination, the sum of Class A Additional Interest, Class B Additional
Interest and Class C Additional Interest.
"AMORTIZATION PERIOD COMMENCEMENT DATE" shall mean the earlier
of (i) the Accumulation Date, or such later date as may be specified by the
Servicer in accordance with Section 4.16 of the Agreement, and (ii) the Pay Out
Commencement Date.
"ANNUAL PORTFOLIO TURNOVER RATE" shall mean with respect to
any Business Day during a Monthly Period the aggregate amount of credit sales of
the Originators arising under Accounts during each of the twelve Monthly Periods
ending on the last day of the second preceding Monthly Period DIVIDED by the
average of the aggregate
2
<PAGE> 6
Outstanding Balances of Receivables as of the last day of each such Monthly
Period.
"AVAILABLE SERIES 1996-1 FINANCE CHARGE COLLECTIONS" shall
have the meaning specified in subsection 4.09(a) of the Agreement.
"BASE RATE" shall mean the sum of (a) the weighted average of
the Class A Certificate Rate, the Class B Certificate Rate and the Class C
Certificate Rate PLUS (b) the Series Servicing Fee Percentage per annum.
"CARRYOVER CLASS A MONTHLY INTEREST" shall mean on any
Business Day in a Monthly Period (a) any Class A Monthly Interest with respect
to any Interest Accrual Period beginning in a prior Monthly Period which has not
previously been deposited in the Interest Funding Account or paid on any
previous Distribution Date PLUS (b) any Class A Additional Interest.
"CARRYOVER CLASS B MONTHLY INTEREST" shall mean on any
Business Day in a Monthly Period (a) any Class B Monthly Interest with respect
to any Interest Accrual Period beginning in a prior Monthly Period which has not
previously been deposited in the Interest Funding Account or paid on any
previous Distribution Date PLUS (b) any Class B Additional Interest.
"CARRYOVER CLASS C MONTHLY INTEREST" shall mean on any
Business Day in a Monthly Period (a) any Class C Monthly Interest with respect
to any Interest Accrual Period beginning in a prior Monthly Period which has not
previously been deposited in the Interest Funding Account or paid on any
previous Distribution Date PLUS (b) any Class C Additional Interest.
"CARRYOVER DISCOUNT AMOUNT" means for Series 1996-1 for any
Business Day the excess, if any, of (a) the sum of (i) the product of the
Discount Allocation Percentage and the Discount Amount and (ii) the Carryover
Discount Amount for Series 1996-1 for the preceding Business Day over (b) the
amount of Principal Collections added to Total Finance Charge Collections for
Series 1996-1 on such preceding Business Day.
"CLASS A ADDITIONAL INTEREST" shall have the meaning specified
in subsection 4.06(a) of the Agreement.
3
<PAGE> 7
"CLASS A ADJUSTED INVESTED AMOUNT" shall mean for any Business
Day an amount equal to the Class A Invested Amount MINUS the aggregate principal
amount on deposit in the Principal Funding Account on such Business Day.
"CLASS A CERTIFICATEHOLDER" shall mean the Person in whose
name a Class A Certificate is registered in the Certificate Register.
"CLASS A CERTIFICATEHOLDERS' INTEREST" shall mean the portion
of the Series 1996-1 Certificateholders' Interest evidenced by the Class A
Certificates.
"CLASS A CERTIFICATE RATE" shall mean 6.70% per annum,
calculated on the basis of a 360-day year of twelve 30-day months.
"CLASS A CERTIFICATES" shall mean any of the certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-1 hereto.
"CLASS A EXPECTED FINAL PAYMENT DATE" shall mean the May 2001
Distribution Date.
"CLASS A FLOATING ALLOCATION PERCENTAGE" shall mean, with
respect to any Business Day, the percentage equivalent of a fraction, the
numerator of which is the Class A Adjusted Invested Amount as of the end of the
preceding Business Day and the denominator of which is the greater of (a) the
sum of the amount of Principal Receivables in the Trust and the amounts on
deposit in the Excess Funding Account as of the end of the preceding Business
Day and (b) the sum of the numerators used to calculate investor percentages
with respect to all Classes of all Series then outstanding on such Business Day.
"CLASS A INITIAL INVESTED AMOUNT" shall mean the aggregate
initial principal amount of the Class A Certificates, which is $218,000,000.
"CLASS A INTEREST SHORTFALL" shall have the meaning specified
in subsection 4.06(a) of the Agreement.
"CLASS A INVESTED AMOUNT" shall mean, when used with respect
to any Business Day, an amount (not less
4
<PAGE> 8
than zero) 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 Business Day, and MINUS (c) the excess, if any, of the aggregate amount
of Class A Investor Charge-Offs for all prior Business Days over Class A
Investor Charge-Offs reimbursed pursuant to subsection 4.09(a)(v) of the
Agreement prior to such Business Day and, with respect to such subsection,
pursuant to subsections 4.10(a) and (b) and subsections 4.15 (a) and (b).
"CLASS A INVESTOR CHARGE-OFF" shall have the meaning specified
in subsection 4.13(d) of the Agreement.
"CLASS A MONTHLY INTEREST" shall mean the monthly interest
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.06(a) of the Agreement.
"CLASS A MONTHLY PRINCIPAL" shall mean the monthly principal
distributable in respect of the Class A Certificates as calculated in accordance
with subsection 4.07(a) of the Agreement.
"CLASS A PERCENTAGE" shall mean a fraction the numerator of
which is the Class A Invested Amount and the denominator of which is the sum of
the Class A Invested Amount and the Class B Invested Amount.
"CLASS A POOL FACTOR" shall mean, with respect to any Record
Date, a number carried out to seven decimal places representing the ratio of the
Class A Invested Amount as of such Record Date (determined after taking into
account any increases or decreases in the Class A Invested Amount which will
occur on the following Distribution Date) to the Class A Initial Invested
Amount.
"CLASS A REQUIRED AMOUNT" shall mean, with respect to any
Distribution Date, the amount, if any, by which the aggregate amount to be paid
pursuant to subsections 4.09(a)(i) and (v) of the Agreement, and the Class A
Required Amount Percentage of the amounts described in subsections
4.09(a)(iii)(y) and (iv)(y) of the Agreement, for each Business Day during the
related Monthly Period, exceeds the sum of Available Series 1996-1 Finance
Charge Collections, Transferor Finance Charge Collections and Excess Finance
Charge Collections on each Business Day
5
<PAGE> 9
during the related Monthly Period applied with respect thereto.
"CLASS A REQUIRED AMOUNT PERCENTAGE" shall mean, with respect
to any Distribution Date, the percentage equivalent of a fraction the numerator
of which is the weighted average Class A Invested Amount for each day in the
preceding Monthly Period and the denominator of which is the weighted average
Invested Amount for each day in the preceding Monthly Period.
"CLASS B ADDITIONAL INTEREST" shall have the meaning specified
in subsection 4.06(b) of the Agreement.
"CLASS B CERTIFICATE RATE" shall mean 6.85% per annum,
calculated on the basis of a 360-day year of twelve 30-day months.
"CLASS B CERTIFICATEHOLDER" shall mean the Person in whose
name a Class B Certificate is registered in the Certificate Register.
"CLASS B CERTIFICATEHOLDERS' INTEREST" shall mean the portion
of the Series 1996-1 Certificateholders' Interest evidenced by the Class B
Certificates.
"CLASS B EXPECTED FINAL PAYMENT DATE" shall mean the June
2001 Distribution Date.
"CLASS B CERTIFICATES" shall mean any of the certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-2 hereto.
"CLASS B FIXED/FLOATING ALLOCATION PERCENTAGE" shall mean for
any Business Day the percentage equivalent of a fraction, the numerator of which
is the Class B Invested Amount at the end of the last day of the Revolving
Period and the denominator of which is the greater of (a) the sum of the
aggregate amount of Principal Receivables and the amount on deposit in the
Excess Funding Account as of the end of the preceding Business Day and (b) the
sum of the numerators used to calculate the allocation percentages with respect
to Principal Receivables for all Classes of all Series outstanding on such
Business Day; PROVIDED, HOWEVER, that, because the Certificates are subject to
being paired with a future
6
<PAGE> 10
prefunded Series, if a Pay Out Event occurs with respect to the Certificates
during the Accumulation Period, and if at such time the Certificates are paired
with a prefunded Series, the numerator will be reset to equal the Class B
Invested Amount at the end of the last day prior to the occurrence of such Pay
Out Event.
"CLASS B FLOATING ALLOCATION PERCENTAGE" shall mean, with
respect to any Business Day, the percentage equivalent of a fraction, the
numerator of which is the Class B Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater of (a) the sum of the
amount of Principal Receivables in the Trust and the amount on deposit in the
Excess Funding Account as of the end of the preceding Business Day and (b) the
sum of the numerators used to calculate investor percentages with respect to all
Classes of all Series then outstanding on such Business Day.
"CLASS B INITIAL INVESTED AMOUNT" shall mean the aggregate
initial principal amount of the Class B Certificates, which is $20,800,000.
"CLASS B INTEREST SHORTFALL" shall have the meaning specified
in subsection 4.06(b) of the Agreement.
"CLASS B INVESTED AMOUNT" shall mean, when used with respect
to any Business Day, an amount (not less than zero) 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 Business Day, MINUS (c) the
aggregate amount of Class B Investor Charge-Offs for all prior Business Days,
MINUS (d) the aggregate amount of Reallocated Class B Principal Collections for
which the Class C Invested Amount has not been reduced for all prior
Distribution Dates, and PLUS (e) the sum of the aggregate amount allocated to
the Class B Certificates and applied on all prior Business Days pursuant to
subsection 4.09(a)(vii) of the Agreement and, with respect to such subsection,
pursuant to subsections 4.10(a), (b) and (c) and 4.15(a) for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d).
"CLASS B INVESTOR CHARGE-OFFS" shall have the meaning
specified in subsection 4.13(c) of the Agreement.
7
<PAGE> 11
"CLASS B MONTHLY INTEREST" shall mean the monthly interest
distributable in respect of the Class B Certificates as calculated in accordance
with subsection 4.06(b) of the Agreement.
"CLASS B MONTHLY PRINCIPAL" shall mean the monthly principal
distributable in respect of the Class B Certificates as calculated in accordance
with subsection 4.07(b) of the Agreement.
"CLASS B PERCENTAGE" shall mean a fraction the numerator of
which is the Class B Invested Amount and the denominator of which is the sum of
the Class A Invested Amount and the Class B Invested Amount.
"CLASS B POOL FACTOR" shall mean, with respect to any Record
Date, a number carried out to seven decimal places representing the ratio of the
Class B Invested Amount as of such Record Date (determined after taking into
account any increases or decreases in the Class B Invested Amount which will
occur on the following Distribution Date) to the Class B Initial Invested
Amount.
"CLASS B PRINCIPAL PAYMENT COMMENCEMENT DATE" shall mean the
earlier of (a) (i) during the Accumulation Period, the Class B Expected Final
Payment Date or (ii) during any Early Amortization Period, the Distribution Date
on which the Class A Invested Amount is paid in full or, if there are no
Principal Collections allocable to the Series 1996-1 Investor Certificates
remaining after payments have been made to the Class A Certificates on such
Distribution Date, the Distribution Date following the Distribution Date on
which the Class A Invested Amount is paid in full and (b) the Distribution Date
following a sale or repurchase of the Receivables as set forth in Sections
2.04(d), 9.02, 10.02, 12.01 or 12.02 of the Agreement and Section 1.3(a) of this
Series Supplement.
"CLASS B REQUIRED AMOUNT" shall mean with respect to any
Distribution Date the amount, if any, by which the aggregate amount to be paid
pursuant to subsections 4.09(a)(ii), (vi), and (vii) of the Agreement and the
Class B Required Amount Percentage of the amounts described in subsections
4.09(a)(iii)(y) and (iv)(y) of the Agreement, for each Business Day during the
related Monthly Period, exceeds the sum of Available Series 1996-
8
<PAGE> 12
1 Finance Charge Collections, Transferor Finance Charge Collections, Excess
Finance Charge Collections and the Transferor Subordination Amount on each
Business Day during the related Monthly Period applied with respect thereto.
"CLASS B REQUIRED AMOUNT PERCENTAGE" shall mean, with respect
to any Distribution Date, the percentage equivalent of a fraction the numerator
of which is the weighted average Class B Invested Amount for each day in the
preceding Monthly Period and the denominator of which is the weighted average
Invested Amount for each day in the preceding Monthly Period.
"CLASS C ADDITIONAL INTEREST" shall have the meaning specified
in subsection 4.06(c) of the Agreement.
"CLASS C CERTIFICATEHOLDER" shall mean the Person in whose
name a Class C Certificate is registered in the Certificate Register.
"CLASS C CERTIFICATEHOLDERS' INTEREST" shall mean the portion
of the Series 1996-1 Certificateholders' Interest evidenced by the Class C
Certificates.
"CLASS C CERTIFICATE RATE" shall mean 9.00% per annum,
calculated on the basis of a 360-day year of twelve 30-day months.
"CLASS C CERTIFICATES" shall mean any of the certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A-3 hereto.
"CLASS C FIXED/FLOATING ALLOCATION PERCENTAGE" shall mean for
any Business Day the percentage equivalent of a fraction, the numerator of which
is the Class C Invested Amount at the end of the last day of the Revolving
Period and the denominator of which is the greater of (a) the sum of the
aggregate amount of Principal Receivables and the amount on deposit in the
Excess Funding Account as of the end of the preceding Business Day and (b) the
sum of the numerators used to calculate the allocation percentages with respect
to Principal Receivables for all Classes of all Series outstanding on such
Business Day; PROVIDED, HOWEVER, that, because the Certificates are subject to
being paired with a future
9
<PAGE> 13
prefunded Series, if a Pay Out Event occurs with respect to the Certificates
during the Accumulation Period, and if at such time the Certificates are paired
with a prefunded Series, the numerator will be reset to equal the Class C
Invested Amount at the end of the last day prior to the occurrence of such Pay
Out Event.
"CLASS C FLOATING ALLOCATION PERCENTAGE" shall mean with
respect to any Business Day the percentage equivalent of a fraction, the
numerator of which is the Class C Invested Amount as of the end of the preceding
Business Day and the denominator of which is the greater of (a) the sum of
amount of Principal Receivables in the Trust and the amount on deposit in the
Excess Funding Account at the end of the preceding Business Day and (b) the sum
of the numerators used to calculate investor percentages with respect to all
Classes of all Series then outstanding on such Business Day.
"CLASS C INITIAL INVESTED AMOUNT" shall mean the aggregate
initial principal amount of the Class C Certificates, which is $20,800,000.
"CLASS C INTEREST SHORTFALL" shall have the meaning specified
in subsection 4.06(c) of the Agreement.
"CLASS C INVESTED AMOUNT" shall mean, when used with respect
to any Business Day, an amount (not less than zero) equal to (a) the Class C
Initial Invested Amount, MINUS (b) the aggregate amount of principal payments
made to Class C Certificateholders prior to such Business Day, MINUS (c) the
aggregate amount of Class C Investor Charge-Offs for all prior Business Days,
MINUS (d) the aggregate amount of Reallocated Principal Collections for all
prior Distribution Dates, and PLUS (e) the sum of the aggregate amount allocated
and available on all prior Business Days pursuant to subsection 4.09(a)(ix) of
the Agreement and, with respect to such subsection, pursuant to subsections
4.10(a) and (b), for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c) and (d).
"CLASS C INVESTOR CHARGE-OFFS" shall have the meaning
specified in subsection 4.13(a) of the Agreement.
"CLASS C MONTHLY INTEREST" shall mean the
monthly interest distributable in respect of the Class C
10
<PAGE> 14
Certificates as calculated in accordance with subsection 4.06(c) of the
Agreement.
"CLASS C MONTHLY PRINCIPAL" shall mean the monthly principal
distributable in respect of the Class C Certificates as calculated in accordance
with subsection 4.07(c) of the Agreement.
"CLASS C POOL FACTOR" shall mean, with respect to any Record
Date, a number carried out to seven decimal places representing the ratio of the
Class C Invested Amount as of such Record Date (determined after taking into
account any increases or decreases in the Class C Invested Amount which will
occur on the following Distribution Date) to the Class C Initial Invested
Amount.
"CLASS C PRINCIPAL PAYMENT COMMENCEMENT DATE" shall mean the
earlier of (a) the Distribution Date on which the Class B Invested Amount is
paid in full or, if there are no Principal Collections allocable to the Series
1996-1 Investor Certificates remaining after payments have been made to the
Class B Certificates on such Distribution Date, the Distribution Date following
the Distribution Date on which the Class B Invested Amount is paid in full and
(b) the Distribution Date following a sale or repurchase of the Receivables as
set forth in Sections 2.04(d), 9.02, 10.02, 12.01 and 12.02 of the Agreement and
Section 3 of this Series Supplement.
"CLOSING DATE" shall mean May 14, 1996.
"CONTROLLED ACCUMULATION AMOUNT" shall mean $24,222,222.22;
PROVIDED, HOWEVER, that, if the Accumulation Period is modified pursuant to
Section 4.16 of the Agreement, (i) the Controlled Accumulation Amount for each
Distribution Date with respect to the Accumulation Period shall mean the amount
determined in accordance with Section 4.16 of the Agreement on the date on which
the Accumulation Period has most recently been modified and (ii) the sum of the
Controlled Accumulation Amounts for all Distribution Dates with respect to the
modified Accumulation Period shall not be less than the Class A Invested Amount.
"CONTROLLED DEPOSIT AMOUNT" shall mean, with respect to any
Distribution Date with respect to the Accumulation Period, the sum of the
Controlled Accumula-
11
<PAGE> 15
tion Amount and any Deficit Controlled Accumulation Amount for the preceding
Distribution Date.
"DEFICIT CONTROLLED ACCUMULATION AMOUNT" shall initially mean
zero and with respect to any Distribution Date thereafter shall mean the excess,
if any, of the Controlled Deposit Amount for such Distribution Date over the Net
Principal Collections received during the related Monthly Period, together with
the aggregate amount of Shared Principal Collections received during the related
Monthly Period and allocable to the Class A Certificates, each to the extent
available to be distributed to Class A Certificateholders on such Distribution
Date.
"DISCOUNT ALLOCATION PERCENTAGE" shall mean, with respect to
Series 1996-1 and any Business Day, the percentage equivalent of a fraction the
numerator of which is the Series Discount Factor with respect to Series 1996-1
and the denominator of which is the Discount Factor on such Business Day.
"DISCOUNT AMOUNT" shall mean for any Business Day the Discount
Factor multiplied by the Outstanding Balance of all Receivables transferred to
the Trust on such Business Day.
"DISCOUNT FACTOR" shall mean for any Business Day an amount
equal to the sum of each Series Discount Factor for all Series then outstanding
on such Business Day.
"DISCOUNT TRIGGER EVENT" shall mean for any Business Day the
Discount Factor for the second preceding Monthly Period being in excess of zero
and the Rating Agencies having consented in writing (a copy of which is
delivered to the Trustee) to the discounting of purchases of Receivables on or
prior to such Business Day and having not revoked such consent.
DISTRIBUTION DATE" shall mean June 17, 1996 and the fifteenth
day of each calendar month thereafter, or if such fifteenth day is not a
Business Day, the next succeeding Business Day.
"EARLY AMORTIZATION PERIOD" shall mean the period commencing
on the earlier of (a) the Pay Out Commencement Date and (b) the Class A Expected
Final Payment
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<PAGE> 16
Date if the Class A Invested Amount has not been paid in full on such date, or
the Class B Expected Final Payment Date if the Class B Invested Amount has not
been paid in full on such date, and ending on the earlier to occur of (i) the
date of termination of the Trust pursuant to Section 12.01 of the Agreement and
(ii) the Series 1996-1 Termination Date.
"ENHANCEMENT" shall mean, with respect to the Class A
Certificates, the subordination of the Class B Invested Amount and the Class C
Invested Amount and with respect to the Class B Certificates, the subordination
of the Class C Invested Amount and the Transferor Subordination Amount, in each
case, to the extent provided in Article IV of the Agreement.
"EXCESS FINANCE CHARGE COLLECTIONS" shall mean, with respect
to any Business Day, as the context requires, either (x) the amount described in
subsection 4.09(a)(x) of the Agreement allocated to the Series 1996-1
Certificates but available to cover shortfalls in amounts paid from Total
Finance Charge Collections for other Series, if any, or (y) the aggregate amount
of Total Finance Charge Collections allocable to other Series in excess of the
amounts necessary to make required payments with respect to such Series, if any,
and available to cover shortfalls with respect to the Series 1996-1
Certificates.
"FINANCE CHARGE COLLECTIONS" shall have the meaning specified
in subsection 4.05(b) of the Agreement.
"FIXED/FLOATING ALLOCATION PERCENTAGE" shall mean for any
Business Day (i) with respect to Principal Collections, the percentage
equivalent of a fraction, the numerator of which is the Invested Amount at the
end of the last day of the Revolving Period and the denominator of which is the
greater of (a) the sum of the aggregate amount of Principal Receivables in the
Trust and the amount on deposit in the Excess Funding Account as of the end of
the preceding Business Day and (b) the sum of the numerators used to calculate
the investor percentages with respect to Principal Receivables with respect to
all Classes of all Series then outstanding on such Business Day; PROVIDED,
HOWEVER, that if the Series 1996-1 Certificates are paired with a prefunded
Series during or prior to the Accumulation Period for the Series 1996-1 Certifi-
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<PAGE> 17
cates and a Pay Out Event occurs with respect to either Series, the numerator
for the Series 1996-1 Certificates shall be equal to the Invested Amount at the
end of the last day prior to such Pay Out Event; and (ii) with respect to
Finance Charge Collections on and after the Pay Out Commencement Date, the
percentage equivalent of a fraction, the numerator of which is the Invested
Amount at the end of the Business Day preceding the Pay Out Commencement Date
and the denominator of which is the greater of (a) the sum of the aggregate
amount of Principal Receivables in the Trust and the amount on deposit in the
Excess Funding Account as of the end of the preceding Business Day and (b) the
sum of the numerators used to calculate the investor percentages with respect to
Finance Charge Collections with respect to all Classes of all Series then
outstanding on such Business Day.
"FLOATING ALLOCATION PERCENTAGE" shall mean for any Business
Day the sum of the applicable Class A Floating Allocation Percentage, Class B
Floating Allocation Percentage and Class C Floating Allocation Percentage for
such Business Day.
"INITIAL INVESTED AMOUNT" shall mean an amount equal to the
sum of the Class A Initial Invested Amount, the Class B Initial Invested Amount
and the Class C Initial Invested Amount.
"INTEREST ACCRUAL PERIOD" shall mean, with respect to a
Distribution Date, the period from and including the preceding Distribution Date
(or, with respect to the initial Interest Accrual Period, from and including the
Closing Date) to and excluding such Distribution Date, which shall be deemed to
be a 30-day period (or, with respect to the initial Interest Accrual Period, a
31-day period).
"INVESTED AMOUNT" shall mean, when used with respect to any
Business Day, an amount equal to the sum of (a) the Class A Invested Amount as
of such Business Day, (b) the Class B Invested Amount as of such Business Day,
and (c) the Class C Invested Amount as of such Business Day.
"INVESTOR CERTIFICATEHOLDER" shall mean the Holder of record
of an Investor Certificate of Series 1996-1.
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<PAGE> 18
"INVESTOR CERTIFICATES" shall mean the Class A Certificates,
the Class B Certificates, and the Class C Certificates.
"INVESTOR CHARGE-OFFS" shall mean the sum of Class A
Investor Charge-Offs, Class B Investor Charge-Offs, and Class C Investor
Charge-Offs.
"INVESTOR DEFAULT AMOUNT" shall mean, with respect to each
Business Day, an amount equal to the product of the Default Amount for such
Business Day and the Floating Allocation Percentage applicable for such Business
Day.
"INVESTOR PERCENTAGE" shall mean for any Business Day, (a)
with respect to Receivables in Defaulted Accounts at any time, Finance Charge
Collections prior to the Pay Out Commencement Date or Principal Receivables
during the Revolving Period, the Floating Allocation Percentage and (b) with
respect to Finance Charge Collections on and after the Pay Out Commencement Date
or Principal Receivables during the Amortization Period, the Fixed/Floating
Allocation Percentage.
"ISSUANCE DATE" shall mean the Closing Date.
"MINIMUM TRANSFEROR PERCENTAGE" shall mean (i) for the period
from the January Monthly Period to and including the October Monthly Period,
10.5%; (ii) for the November Monthly Period, 11.5%; and (iii) for the December
Monthly Period, 13.5%; PROVIDED, HOWEVER, that such percentage may be adjusted
from time to time upon written notice from the Transferor to the Trustee if each
Rating Agency initially contracted to rate the Class A Certificates, the Class B
Certificates, and, if applicable, the Class C Certificates shall have been
notified of such amendment and shall have provided notice to the Trustee or the
Servicer that such action would not result in a reduction or withdrawal of its
rating of the Class A Certificates, the Class B Certificates, or, if applicable,
the Class C Certificates, and such action shall not, as evidenced by an Opinion
of Counsel, cause the Trust to be characterized for Federal income tax purposes
as an association taxable as a corporation or otherwise have any material
adverse effect on the Federal income taxation of any outstanding Series of
Investor Certificates or any Certificate Owner.
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<PAGE> 19
"MONTHLY PERIOD" shall have the meaning specified in the
Agreement, except that the first Monthly Period with respect to the Series
1996-1 Certificates shall begin on and include the Closing Date and shall end on
and include June 1, 1996.
"MONTHLY SERVICING FEE" shall mean for any Monthly Period, an
amount equal to the product of (i) one-twelfth, (ii) the Series Servicing Fee
Percentage, and (iii) the Invested Amount as of the preceding Record Date, or,
in the case of the first Distribution Date, the Initial Invested Amount.
"NET FINANCE CHARGE PORTFOLIO YIELD" shall mean, for any
Series with respect to any Monthly Period, the annualized percentage equivalent
of a fraction, the numerator of which is the amount of Finance Charge
Collections allocable to such Series for such Monthly Period, calculated on a
cash basis after subtracting the Investor Default Amount applicable to such
Series for such Monthly Period, and the denominator of which is the average
daily Invested Amount of such Series during the preceding Monthly Period.
"NET PRINCIPAL COLLECTIONS" shall mean, for any Series on any
Business Day, (i) the product, during the Revolving Period, of the Floating
Allocation Percentage for such Series and, during the Accumulation Period or the
Early Amortization Period, the Fixed/Floating Allocation Percentage for such
Series and the amount of Principal Collections on such Business Day MINUS on or
after the occurrence and during the continuance of a Discount Trigger Event (ii)
the lesser of (a) the sum of (x) the product of the Discount Allocation
Percentage for such Series and the Discount Amount for such Business Day and (y)
the Carryover Discount Amount for such Series for such Business Day and (b) the
amount determined in clause (i).
"PAY OUT COMMENCEMENT DATE" shall mean the earlier of the date
on which (i) a Trust Pay Out Event is deemed to occur pursuant to Section 9.01
of the Agreement or (ii) a Series 1996-1 Pay Out Event is deemed to occur
pursuant to Section 1.8 of this Series Supplement.
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<PAGE> 20
"PAY OUT EVENT" shall mean either (i) a Trust Pay Out Event
pursuant to Section 9.01 of the Agreement or (ii) a Series 1996-1 Pay Out Event.
"PORTFOLIO YIELD" shall mean for the Series 1996-1
Certificates, with respect to any Monthly Period, the annualized percentage
equivalent of a fraction, the numerator of which is an amount equal to (i) the
aggregate Available Series 1996-1 Finance Charge Collections for such Monthly
Period, calculated on a cash basis, MINUS (ii) the aggregate Investor Default
Amount for such Monthly Period, and the denominator of which is the average
daily Invested Amount for such Monthly Period.
"PRINCIPAL FUNDING ACCOUNT" shall have the meaning specified
in subsection 4.08(a) of the Agreement.
"PRINCIPAL SHORTFALLS" shall mean, as the context requires,
either (x) (i) on any Business Day during the Accumulation Period the amount by
which the Controlled Deposit Amount for the then current Monthly Period exceeds
the amount deposited in the Principal Funding Account from the Fixed/Floating
Allocation Percentage of Principal Collections on such Business Day and the
amount deposited in the Principal Funding Account on all previous Business Days
during such Monthly Period pursuant to subsection 4.09(c)(i) of the Agreement or
(ii) on any Business Day during the Early Amortization Period and on and after
the Class B Principal Payment Commencement Date the Invested Amount of the class
then receiving principal payments or (y) the amounts specified as such in the
Supplement for any other Series.
"RATING AGENCY" shall mean each of Moody's Investors Service,
Inc. and Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies, Inc.
"REALLOCATED CLASS B PRINCIPAL COLLECTIONS" shall have the
meaning specified in subsection 4.15(b) of the Agreement.
"REALLOCATED CLASS C PRINCIPAL COLLECTIONS" shall have the
meaning specified in subsection 4.15(a) of the Agreement.
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<PAGE> 21
"REALLOCATED PRINCIPAL COLLECTIONS" shall mean the sum of
Reallocated Class B Principal Collections and Reallocated Class C Principal
Collections.
"REQUIRED AMOUNT" shall have the meaning specified in Section
4.10(b) of the Agreement.
"REVOLVING PERIOD" shall mean the period from and including
the Closing Date to, but not including, the Amortization Period Commencement
Date.
"SCHEDULED SERIES 1996-1 TERMINATION DATE" shall mean the
July 2004 Distribution Date.
"SERIES 1996-1" shall mean the Series of the Prime Credit
Card Master Trust represented by the Series 1996-1 Certificates.
"SERIES 1996-1 CERTIFICATEHOLDER" shall mean the holder of
record of any Series 1996-1 Investor Certificate.
"SERIES 1996-1 CERTIFICATEHOLDERS' INTEREST" shall have the
meaning specified in Section 4.04 of the Agreement.
"SERIES 1996-1 PAY OUT EVENT" shall have the meaning specified
in Section 1.8 of this Series Supplement.
"SERIES 1996-1 TERMINATION DATE" shall mean the earlier to
occur of (i) the day after the Distribution Date on which the Series 1996-1
Certificates are paid in full, or (ii) the Scheduled Series 1996-1 Termination
Date.
"SERIES DISCOUNT FACTOR" shall mean with respect to Series
1996-1 for any Business Day the amount for Series 1996-1, if any, calculated as
of the second preceding Monthly Period, by which either (x) (a) the product of
(i) the Base Rate plus one-half of one percent MINUS the Net Finance Charge
Portfolio Yield divided by the Annual Portfolio Turnover Rate and (ii) the
Floating Allocation Percentage exceeds (b) zero or, (y) solely at the option of
the Transferor, the amount by which (a) the product of (i) the Base Rate plus
one percent MINUS the Net Finance Charge Portfolio Yield divided by the Annual
18
<PAGE> 22
Portfolio Turnover Rate and (ii) the Floating Allocation Percentage exceeds (b)
zero; PROVIDED, HOWEVER, that the Series Discount Factor shall not exceed 4.0%.
"SERIES SERVICING FEE PERCENTAGE" shall mean 2.00%.
"SHARED PRINCIPAL COLLECTIONS" shall mean, as the context
requires, either (a) the amount allocated to the Series 1996-1 Investor
Certificates which, in accordance with subsection 4.09(c)(v) of the Agreement,
may be applied to Principal Shortfalls with respect to other outstanding Series
or (b) the amounts allocated to the investor certificates of other Series which
the applicable Supplements for such Series specify are to be treated as "Shared
Principal Collections" and which may be applied to cover Principal Shortfalls
with respect to the Series 1996-1 Investor Certificates.
"SPECIAL PAYMENT DATE" shall mean each Distribution Date
following the Monthly Period in which a Pay Out Event occurs with respect to an
Early Amortization Period and each Distribution Date following the Class A
Expected Final Payment Date.
"TOTAL FINANCE CHARGE COLLECTIONS" shall mean with respect to
a Series and any Business Day the sum of (i)(a) prior to the Pay Out
Commencement Date, the product of the Floating Allocation Percentage for such
Series and the amount of Finance Charge Collections for such Business Day or (b)
on and after the Pay Out Commencement Date, the product of the Fixed/Floating
Allocation Percentage for such Series and the amount of Finance Charge
Collections for such Business Day, PLUS on and after the occurrence of and
during the continuance of a Discount Trigger Event (ii) the lesser of (a) the
sum of (x) the product of the Discount Allocation Percentage for such Series and
the Discount Amount for such Business Day and (y) the Carryover Discount Amount
for such Series for such Business Day and (b) the product of, during the
Revolving Period, the Floating Allocation Percentage for such Series and, during
the Accumulation Period or Early Amortization Period, the Fixed/Floating
Allocation Percentage for such Series and the amount of Principal Collections
for such Business Day.
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<PAGE> 23
"TRANSFEROR FINANCE CHARGE COLLECTIONS" shall mean on any
Business Day the product of (i) the Finance Charge Collections, (ii) the
Transferor Percentage and (iii) the Series Allocation Percentage in each case
for such Business Day.
"TRANSFEROR SUBORDINATION AMOUNT" shall mean $3,900,000, less
the aggregate amount of Collections applied pursuant to subsection 4.10(c) of
the Agreement or any portion of the Transferor Interest reduced pursuant to
subsection 4.13(c) of the Agreement.
SECTION 1.3. REASSIGNMENT AND TRANSFER TERMS. (a) The Series
1996-1 Certificates shall be subject to termination by the Transferor at its
option, in accordance with the terms specified in subsection 12.02(a) of the
Agreement, in the following circumstances: (i) on any Distribution Date on or
after the Distribution Date on which the Invested Amount is reduced to an amount
less than or equal to 10% of the Initial Invested Amount or (ii) on the second
Distribution Date following the Class A Expected Final Payment Date. The deposit
required in connection with any such termination and final distribution shall be
equal to the Invested Amount plus accrued and unpaid interest on the Series
1996-1 Certificates through the day prior to the Distribution Date on which the
final distribution occurs.
(b) In no event shall the Class C Certificates or any interest
therein be transferred, sold, exchanged, pledged, participated or otherwise
assigned hereunder, in whole or in part, unless the Transferor shall have
consented in writing to such transfer and unless the Trustee shall have received
(1) confirmation in writing from each Rating Agency that such transfer will not
result in a lowering or withdrawal of its then-existing rating of any Series of
Investor Certificates, and (2) an Opinion of Counsel that such transfer does not
(i) adversely affect the conclusions reached in any of the federal income tax
opinions dated the applicable Closing Date issued in connection with the
original issuance of any Series of Investor Certificates or (ii) result in a
taxable event to the holders of any such Series.
(c) Each Class B Certificateholder, by accepting and holding
such Class B Certificate or interest therein, will be deemed to have represented
and warranted
20
<PAGE> 24
that it is not (i) an employee benefit plan (as defined in Section 3(3) of
ERISA) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Code, or (iii) any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity.
SECTION 1.4. DELIVERY AND PAYMENT FOR THE SERIES 1996-1
CERTIFICATES. The Transferor shall execute and deliver the Series 1996-1
Certificates to the Trustee for authentication in accordance with Section 6.01
of the Agreement. The Trustee shall deliver the Series 1996-1 Certificates to or
upon the order of the Transferor when authenticated in accordance with Section
6.02 of the Agreement.
SECTION 1.5. DEPOSITARY; FORM OF DELIVERY OF SERIES 1996-1
CERTIFICATES. (a) The Class A Certificates and the Class B Certificates shall be
delivered as Book-Entry Certificates as provided in Sections 6.01 and 6.10 of
the Agreement.
(b) The Depositary for the Class A Certificates and the Class
B Certificates shall be The Depository Trust Company, and the Class A
Certificates and the Class B Certificates shall be initially registered in the
name of Cede & Co., its nominee.
(c) The Class C Certificates shall be delivered as Definitive
Certificates as provided in Section 6.01 of the Agreement.
SECTION 1.6. ARTICLE IV OF AGREEMENT. Sections 4.01, 4.02 and
4.03 of the Agreement shall read in their entirety as provided in the Agreement.
The remainder of Article IV of the Agreement shall read in its entirety as
follows and shall be applicable only to the Series 1996-1 Certificates:
ARTICLE IV.
RIGHTS OF CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.04. RIGHTS OF CERTIFICATEHOLDERS. The Series
1996-1 Certificates shall represent undivided
21
<PAGE> 25
interests in the Trust, consisting of the right to receive, to the extent
necessary to make the required payments with respect to such Series 1996-1
Certificates at the times and in the amounts specified in this Agreement, (a)
the Floating Allocation Percentage and Fixed/Floating Allocation Percentage (as
applicable from time to time) of Collections received with respect to the
Receivables and (b) funds allocable to the Series 1996-1 Certificates on deposit
in the Collection Account, the Excess Funding Account, the Principal Funding
Account, the Interest Funding Account, the Principal Account and the
Distribution Account (for such Series, the "Series 1996-1 Certificateholders'
Interest"). The Class B Invested Amount and the Class C Invested Amount shall be
subordinated to the Class A Certificates and the Class C Invested Amount shall
be subordinated to the Class B Certificates, in each case to the extent provided
in this Article IV. The Class B Certificates will not have the right to receive
payments of principal until the Class A Invested Amount has been paid in full.
The Class C Certificates will not have right to receive payments of principal
until the Class B Invested Amount has been paid in full. The Exchangeable
Transferor Certificate shall not represent any interest in the Collection
Account, the Excess Funding Account, the Principal Funding Account, the Interest
Funding Account, the Principal Account or the Distribution Account, except as
specifically provided in this Article IV.
SECTION 4.05. COLLECTIONS AND ALLOCATION.
(a) COLLECTIONS. The Servicer will apply or will instruct the
Trustee to apply all funds on deposit in the Collection Account, the Excess
Funding Account, the Principal Funding Account, the Interest Funding Account,
the Principal Account or the Distribution Account allocable to the Series 1996-1
Certificates as described in this Article IV.
(b) ALLOCATION OF COLLECTIONS. The Servicer shall apply all
Collections allocated to the Series 1996- 1 Certificates on the basis of the
allocation of Total Finance Charge Collections and Net Principal Collections
specified in the Agreement.
(c) PAYMENTS TO THE HOLDER OF THE EXCHANGEABLE TRANSFEROR
CERTIFICATE. On each Business Day, the
22
<PAGE> 26
Servicer shall determine whether a Pay Out Event is deemed to have occurred with
respect to the Series 1996-1 Certificates, and the Servicer shall allocate
Collections in accordance with the Daily Report with respect to such Business
Day to the Holder of the Exchangeable Transferor Certificate as follows:
(i) For each Business Day (unless otherwise specified herein)
with respect to the Revolving Period, in addition to amounts allocated to the
Holder of the Exchangeable Transferor Certificate pursuant to subsection 4.03(b)
of the Agreement, an amount equal to (x) Net Principal Collections, MINUS (y) to
the extent that any other Series is outstanding and in its Amortization Period,
an amount not to exceed the Net Principal Collections required to be applied as
Shared Principal Collections with respect to the related Distribution Date;
PROVIDED, HOWEVER, that such amounts will be paid to the Holder of the
Exchangeable Transferor Certificate subject to the obligation of the Transferor
to cause to be deposited in the Collection Account on each Transfer Date an
amount equal to the Reallocated Principal Collections for the preceding Monthly
Period for application in accordance with Section 4.15 of the Agreement.
(ii) For each Business Day with respect to the Accumulation
Period on which the amount on deposit in the Principal Funding Account exceeds
the Controlled Deposit Amount for the related Distribution Date, in addition to
amounts allocated to the Holder of the Exchangeable Transferor Certificate
pursuant to subsection 4.03(b) of the Agreement on or prior to the Class B
Principal Payment Commencement Date, an amount equal to (x) the Net Principal
Collections, MINUS (y) to the extent that any other Series is outstanding and in
its Amortization Period, an amount not to exceed the Net Principal Collections
required to be applied as Shared Principal Collections with respect to the
related Distribution Date; PROVIDED, HOWEVER, that such amounts will be paid to
the Holder of the Exchangeable Transferor Certificate subject to the obligation
of the Transferor to cause to be deposited in the Collection Account on each
Transfer Date an amount equal to the Reallocated Principal Collections for the
preceding Monthly Period for application in accordance with Section 4.15 of the
Agreement.
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<PAGE> 27
(iii) For each Business Day and each Determination Date on and
after the Class B Principal Payment Commencement Date and with respect to the
Early Amortization Period, the amount of payments made to the Holder of the
Exchangeable Transferor Certificate shall be determined only as provided in
subsection 4.03(b) of the Agreement.
Notwithstanding the foregoing and subsection 4.03(b) of the
Agreement, on each Business Day to the extent of any shortfall in the amount of
Total Finance Charge Collections allocable to each Series due to the
accumulation of cash in the Principal Funding Account and the Excess Funding
Account, the Servicer shall apply Transferor Finance Charge Collections in
accordance with Section 4.10 of the Agreement.
Notwithstanding the foregoing, amounts payable to the Holder
of the Exchangeable Transferor Certificate pursuant to subsection 4.05(c)(i) or
(ii) of the Agreement shall instead be deposited in the Excess Funding Account
to the extent necessary to prevent the Transferor Interest from being less than
the Minimum Transferor Interest.
The allocations to be made pursuant to this subsection 4.05(c)
also apply to deposits into the Collection Account that are treated as
Collections, including Adjustment Payments, payment of the reassignment price
pursuant to Section 2.04(d) of the Agreement and proceeds from the sale,
disposition or liquidation of the Receivables pursuant to Section 9.02, 10.02,
12.01 or 12.02 of the Agreement and Section 1.3 of this Series Supplement. Such
deposits to be treated as Collections will be allocated as Finance Charge
Receivables or Principal Receivables as provided in the Agreement.
SECTION 4.06. DETERMINATION OF MONTHLY INTEREST FOR THE SERIES
1996-1 CERTIFICATES. (a) The amount of monthly interest (for the Series 1996-1
Certificates, the "Class A Monthly Interest") allocable to the Class A
Certificates of the Series 1996-1 Certificates with respect to any Interest
Accrual Period shall be an amount equal to one-twelfth of the product of (i) the
Class A Certificate Rate and (ii) the principal balance of the Class A
Certificates as of the close of business on the last day of the preceding
Monthly Period; PROVIDED,
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<PAGE> 28
HOWEVER, that interest for the first Distribution Date will include interest at
the Class A Certificate Rate from the Closing Date through June 14, 1996
(calculated as though there were only 30 days in May).
On the Determination Date preceding each Distribution Date,
the Servicer shall determine an amount (the "Class A Interest Shortfall") equal
to the excess, if any, of (x) the aggregate Class A Monthly Interest for the
Interest Accrual Period applicable to the Distribution Date OVER (y) the amount
available to be paid to the Class A Certificateholders in respect of interest on
such Distribution Date. If there is a Class A Interest Shortfall with respect to
any Distribution Date, an additional amount ("Class A Additional Interest")
shall be payable as provided herein with respect to the Class A Certificates on
each Distribution Date following such Distribution Date to and including the
Distribution Date on which such Class A Interest Shortfall is paid to Class A
Certificateholders equal to one-twelfth of the product of (i) the Class A
Certificate Rate plus 2% per annum and (ii) such Class A Interest Shortfall.
Notwithstanding anything to the contrary herein, Class A Additional Interest
shall be payable or distributed to Class A Certificateholders only to the
extent permitted by applicable law.
(b) The amount of monthly interest (for the Series 1996-1
Certificates, the "Class B Monthly Interest") allocable to the Class B
Certificates of the Series 1996-1 Certificates with respect to any Monthly
Period shall be 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 close of
business on the last day of the preceding Monthly Period; PROVIDED, HOWEVER,
that interest for the first Distribution Date will include interest at the Class
B Certificate Rate from the Closing Date through June 14, 1996 (calculated as
though there were only 30 days in May).
On the Determination Date preceding each Distribution Date,
the Servicer shall determine an amount (the "Class B Interest Shortfall") equal
to the excess, if any, of (x) the aggregate Class B Monthly Interest for the
Interest Accrual Period applicable to the Distribution Date OVER (y) the amount
available to be paid to the Class B Certificateholders in respect of interest on
such Distribution Date. If there is a Class B Interest Short-
25
<PAGE> 29
fall with respect to any Distribution Date, an additional amount ("Class B
Additional Interest") shall be payable as provided herein with respect to the
Class B Certificates on each Distribution Date following such Distribution Date
to and including the Distribution Date on which such Class B Interest Shortfall
is paid to Class B Certificateholders equal to one-twelfth of the product of (i)
the Class B Certificate Rate plus 2% per annum and (ii) such Class B Interest
Shortfall. Notwithstanding anything to the contrary herein, Class B Additional
Interest shall be payable or distributed to Class B Certificateholders only to
the extent permitted by applicable law.
(c) The amount of monthly interest (for the Series 1996-1
Certificates, the "Class C Monthly Interest") allocable to the Class C
Certificates of the Series 1996-1 Certificates with respect to any Monthly
Period shall be an amount equal to one-twelfth of the product of (i) the Class C
Certificate Rate and (ii) the principal balance of the Class C Certificates as
of the close of business on the last day of the preceding Monthly Period;
PROVIDED, HOWEVER, that interest for the first Distribution Date will include
interest at the Class C Certificate Rate from the Closing Date through June 14,
1996 (calculated as though there were only 30 days in May).
On the Determination Date preceding each Distribution Date,
the Servicer shall determine an amount (the "Class C Interest Shortfall") equal
to the excess, if any, of (x) the aggregate Class C Monthly Interest for the
Interest Accrual Period applicable to the Distribution Date OVER (y) the amount
available to be paid to the Class C Certificateholders in respect of interest on
such Distribution Date. If there is a Class C Interest Shortfall with respect to
any Distribution Date, an additional amount ("Class C Additional Interest")
shall be payable as provided herein with respect to the Class C Certificates on
each Distribution Date following such Distribution Date to and including the
Distribution Date on which such Class C Interest Shortfall is paid to Class C
Certificateholders equal to one-twelfth of the product of (i) the Class C
Certificate Rate and (ii) such Class C Interest Shortfall. Notwithstanding
anything to the contrary herein, Class C Additional Interest shall be payable or
distributed to Class C Certificateholders only to the extent permitted by
applicable law.
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<PAGE> 30
SECTION 4.07. DETERMINATION OF MONTHLY PRINCIPAL. (a) The
amount of monthly principal (for the Series 1996-1 Certificates, the "Class A
Monthly Principal") allocable to the Class A Certificates on each Distribution
Date following the Amortization Period Commencement Date shall be equal to an
amount calculated as follows: the sum of (i) an amount equal to the aggregate
Net Principal Collections with respect to the related Monthly Period minus the
aggregate amount of Reallocated Principal Collections for the related Monthly
Period, (ii) any amount on deposit in the Excess Funding Account allocated to
the Investor Certificates on such Distribution Date, and (iii) the amount
allocated to the Class A Certificateholders pursuant to subsections 4.09(a)(iv),
(v), (vii) and (ix) of the Agreement with respect to such Distribution Date;
PROVIDED, HOWEVER, that for each Distribution Date with respect to the
Accumulation Period (unless and until a Pay Out Event shall have occurred),
Class A Monthly Principal shall not exceed the Controlled Deposit Amount for
such Distribution Date; and PROVIDED, FURTHER, that with respect to any
Distribution Date, Class A Monthly Principal may not exceed the Class A Adjusted
Invested Amount; PROVIDED, FURTHER, that with respect to the Scheduled Series
1996-1 Termination Date, the Class A Monthly Principal shall be an amount equal
to the Class A Invested Amount.
(b) The amount of monthly principal (for the Series 1996-1
Certificates, the "Class B Monthly Principal") distributable from the
Distribution Account with respect to the Class B Certificates on each
Distribution Date, beginning with the Class B Principal Payment Commencement
Date, shall be an amount equal to and calculated as follows: the sum of (i) an
amount equal to the aggregate Net Principal Collections with respect to the
related Monthly Period MINUS the amount thereof paid to the Class A
Certificateholders pursuant to Section 4.12(a) of the Agreement, if any and
MINUS the aggregate amount of Reallocated Principal Collections for the related
Monthly Period, (ii) any amount on deposit in the Excess Funding Account
allocated to the Class B Certificates on such Distribution Date, and (iii) the
amount, if any, allocated to the Class B Certificates pursuant to subsections
4.09(a)(iv), (vii) and (ix) of the Agreement with respect to such Distribution
Date; PROVIDED, HOWEVER, that with respect to the Scheduled Series 1996-1
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Termination Date, the Class B Monthly Principal shall be an amount equal to the
Class B Invested Amount.
(c) The amount of monthly principal (for the Series 1996-1
Certificates, the "Class C Monthly Principal") distributable from the
Distribution Account with respect to the Class C Certificates on each
Distribution Date, beginning with the Class C Principal Payment Commencement
Date, shall be an amount equal to and calculated as follows: the sum of (i) an
amount equal to the aggregate Net Principal Collections with respect to the
related Monthly Period MINUS the amount thereof paid to the Class B
Certificateholders pursuant to Section 4.12(b) of the Agreement, if any, and
MINUS the aggregate amount of Reallocated Principal Collections for the related
Monthly Period, (ii) any amount on deposit in the Excess Funding Account
allocated to the Class C Certificates on such Distribution Date, and (iii) the
amount, if any, allocated to the Class C Certificates pursuant to subsections
4.09(a)(iv) and (ix) of the Agreement with respect to such Distribution Date;
PROVIDED, HOWEVER, that with respect to the Scheduled Series 1996-1 Termination
Date, the Class C Monthly Principal shall be an amount equal to the Class C
Invested Amount.
SECTION 4.08. ESTABLISHMENT OF THE PRINCIPAL FUNDING ACCOUNT
FOR THE CERTIFICATES. (a) The Trustee, for the benefit of the holders of the
Series 1996-1 Certificates, shall establish and maintain or cause to be
established and maintained in the name of the Trustee, on behalf of the Trust,
with a Qualified Institution (which initially shall be Chemical Bank) a
segregated trust account (the "PRINCIPAL FUNDING ACCOUNT"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the holders of the Series 1996-1 Certificates. The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Principal Funding Account and in all proceeds thereof. Except as provided
in subsection 4.08(b) of the Agreement, the Principal Funding Account shall be
under the sole dominion and control of the Trustee for the benefit of the
holders of the Series 1996-1 Certificates. If, at any time, the institution
holding the Principal Funding Account ceases to be a Qualified Institution, the
Trustee (or the Servicer on its behalf) shall within five Business Days
establish a new Principal Funding Account meeting the conditions
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specified above with a Qualified Institution, transfer any cash and/or any
investments to such new Principal Funding Account and from the date such new
Principal Funding Account is established, it shall be, for the Certificates, the
"Principal Funding Account."
(b) On each Distribution Date with respect to the Accumulation
Period and any Special Payment Date, the Servicer shall withdraw from the
Principal Funding Account and deposit in the Collection Account all interest and
other investment income (net of losses and investment expenses) on funds then on
deposit in the Principal Funding Account. Investment income (including
reinvested interest) on funds deposited in the Principal Funding Account and
invested pursuant to subsection 4.08(c) of the Agreement shall not be considered
to be principal amounts on deposit in the Principal Funding Account for purposes
hereof. Funds on deposit in the Principal Funding Account prior to the Class A
Expected Final Payment Date shall be invested by the Transferor (or, at the
direction of the Transferor, by the Servicer or the Trustee on behalf of the
Transferor) in Cash Equivalents. Any such investment shall (i) mature and such
funds shall be made available for withdrawal on or prior to the next
Distribution Date and (ii) shall be held until maturity; PROVIDED, HOWEVER, that
the Transferor (or, at the direction of the Transferor, the Servicer or the
Trustee on behalf of the Transferor) may sell an investment that is no longer a
Cash Equivalent prior to its maturity. Any request to the Trustee from either
the Transferor or the Servicer to invest funds on deposit in the Principal
Funding Account shall be in writing and shall certify that the requested
investment is a Cash Equivalent which matures at or prior to the time required
hereby.
(c) Pursuant to the authority granted to the Servicer in
subsection 3.01(b) of the Agreement, the Servicer shall have the power,
revocable by the Trustee, to make withdrawals and payments or to instruct the
Trustee to make withdrawals and payments from the Principal Funding Account for
the purposes of carrying out of the Servicer's or Trustee's duties hereunder.
Pursuant to the authority granted to the Paying Agent in Sections 5.01 and 6.06
of the Agreement, the Paying Agent shall have the power, revocable by the
Trustee, to withdraw funds from the Principal Funding Account for the purpose of
making distributions to the Certificateholders.
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SECTION 4.09 APPLICATION OF FUNDS ON DEPOSIT IN THE COLLECTION
ACCOUNT FOR THE CERTIFICATES. (a) On each Business Day, the Servicer shall
deliver to the Trustee a Daily Report in which it shall instruct the Trustee to
withdraw, and the Trustee, acting in accordance with such instructions, shall
withdraw, to the extent of Total Finance Charge Collections plus any investment
earnings on amounts on deposit in the Principal Funding Account deposited in the
Collection Account pursuant to subsection 4.08(b) of the Agreement (the
"Available Series 1996-1 Finance Charge Collections"), the amounts required to
be withdrawn from the Collection Account pursuant to subsections 4.09(a)(i)
through 4.09(a)(x) of the Agreement.
(i) CLASS A MONTHLY INTEREST. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from the
Servicer, shall withdraw from the Collection Account and deposit into the
Interest Funding Account for distribution on the next Distribution Date to the
Class A Certificateholders, to the extent of the Available Series 1996-1 Finance
Charge Collections for such Business Day, an amount equal to the lesser of (x)
the Available Series 1996-1 Finance Charge Collections and (y) the excess of (1)
the sum of (A) the Class A Monthly Interest and (B) Carryover Class A Monthly
Interest over (2) any amounts with respect thereto previously deposited into the
Interest Funding Account on any prior Business Day during such Monthly Period.
Notwithstanding anything to the contrary herein, Carryover Class A Monthly
Interest shall be payable or distributable to Class A Certificateholders only to
the extent permitted by applicable law.
(ii) CLASS B MONTHLY INTEREST. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from the
Servicer, shall withdraw from the Collection Account and deposit into the
Interest Funding Account for distribution on the next Distribution Date to the
Class B Certificateholders, to the extent of any Available Series 1996-1 Finance
Charge Collections remaining after giving effect to the withdrawal pursuant to
subsection 4.09(a)(i) of the Agreement, an amount equal to the lesser of (x) any
such remaining Available Series 1996-1 Finance Charge Collections and (y) the
excess of (1) the sum of (A) the Class B Monthly Interest and (B) Carryover
Class B Monthly
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Interest over (2) any amounts with respect thereto previously deposited into the
Interest Funding Account on any prior Business Day during such Monthly Period.
Notwithstanding anything to the contrary herein, Carryover Class B Monthly
Interest shall be payable or distributable to Class B Certificateholders only to
the extent permitted by applicable law.
(iii) INVESTOR MONTHLY SERVICING FEE. On each Business Day,
the Trustee, acting in accordance with instructions from the Servicer, shall
withdraw from the Collection Account and distribute to the Servicer, to the
extent of any Available Series 1996-1 Finance Charge Collections remaining after
giving effect to the withdrawals pursuant to subsections 4.09(a)(i) and (ii) of
the Agreement, an amount equal to the lesser of (x) any such remaining Available
Series 1996-1 Finance Charge Collections and (y) the excess of (i) the Monthly
Servicing Fee for such Monthly Period over (ii) any amounts with respect thereto
previously distributed to the Servicer during such Monthly Period.
(iv) INVESTOR DEFAULT AMOUNT. On each Business Day, the
Trustee, acting in accordance with instructions from the Servicer, shall
withdraw from the Collection Account, to the extent of any Available Series
1996-1 Finance Charge Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.09(a)(i) through (iii) of the Agreement,
an amount equal to the lesser of (x) any such remaining Available Series 1996-1
Finance Charge Collections and (y) the sum of (1) the aggregate Investor Default
Amount for such Business Day PLUS (2) the unpaid Investor Default Amount for any
previous Business Day during such Monthly Period, which amount will (i) during
the Revolving Period, be treated as Shared Principal Collections, (ii) during
the Accumulation Period or Early Amortization Period, on or prior to the Class B
Principal Payment Commencement Date, be deposited in the Principal Funding
Account for payment to the Class A Certificateholders, (iii) during the
Accumulation Period or Early Amortization Period, on and after the Class B
Principal Payment Commencement Date and on or prior to the Class C Principal
Payment Commencement Date, be deposited in the Principal Account for payment to
the Class B Certificateholders, and (iv) during the Accumulation Period or Early
Amortization Period, on and after the Class C Principal Payment Commencement
Date, be
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deposited in the Principal Account for payment to the Class C Certificate-
holders.
(v) REIMBURSEMENT OF CLASS A INVESTOR CHARGE-OFFS. On each
Business Day, the Trustee, acting in accordance with instructions from the
Servicer, shall withdraw from the Collection Account, to the extent of any
Available Series 1996-1 Finance Charge Collections remaining after giving effect
to the withdrawals pursuant to subsections 4.09(a)(i) through (iv) of the
Agreement, an amount equal to the lesser of (x) any such remaining Available
Series 1996-1 Finance Charge Collections and (y) the unreimbursed Class A
Investor Charge-Offs, such amount to be treated as Shared Principal Collections
during the Revolving Period, and to the extent included in Class A Monthly
Principal, deposited in the Principal Funding Account during the Accumulation
Period and in the Principal Account during any Early Amortization Period for
distribution to the Class A Certificateholders on the next Distribution Date.
(vi) UNPAID CLASS B INTEREST. On each Business Day, the
Trustee, acting in accordance with the instructions from the Servicer, shall
withdraw from the Collection Account and deposit in the Interest Funding Account
for distribution to the Class B Certificateholders on the next Distribution
Date, to the extent of any Available Series 1996-1 Finance Charge Collections
remaining after giving effect to the withdrawals pursuant to subsections
4.09(a)(i) through (v) of the Agreement, an amount equal to the lesser of (x)
any such remaining Available Series 1996-1 Finance Charge Collections and (y)
the sum of (1) the amount of interest which has accrued with respect to the
outstanding aggregate principal amount of the Class B Certificates at the Class
B Certificate Rate but which has not been deposited into the Interest Funding
Account or paid to the Class B Certificateholders and (2) any additional
interest at the Class B Certificate Rate plus 2% with respect to such interest
amounts that were due but not paid to Class B Certificateholders in any previous
Monthly Period.
(vii) REIMBURSEMENT OF CLASS B INVESTOR CHARGE-OFFS AND
REALLOCATED CLASS B PRINCIPAL COLLECTIONS. On each Business Day, the Trustee,
acting in accordance with instructions from the Servicer, shall withdraw from
the Collection Account, to the extent of
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any Available Series 1996-1 Finance Charge Collections remaining after giving
effect to the withdrawals pursuant to subsections 4.09(a)(i) through (vi) of the
Agreement, an amount equal to the lesser of (x) any such remaining Available
Series 1996-1 Finance Charge Collections and (y) the unreimbursed Class B
Investor Charge-Offs and reductions of the Class B Invested Amount due to
Reallocated Class B Principal Collections, if any, such amount to be treated as
Shared Principal Collections during the Revolving Period, and deposited (i) in
the Principal Funding Account during the Accumulation Period and in the
Principal Account during any Early Amortization Period, in each case for
distribution to the Class A Certificateholders, and (ii) on and after the
Class B Principal Payment Commencement Date, in the Principal Account for
payment to the Class B Certificateholders.
(viii) CLASS C MONTHLY INTEREST. On each Business Day during a
Monthly Period, the Trustee, acting in accordance with instructions from the
Servicer, shall withdraw from the Collection Account and pay to the Class C
Certificateholders, to the extent of any Available Series 1996-1 Finance Charge
Collections remaining after giving effect to the withdrawal pursuant to
subsections 4.09(a)(i) through (vii) of the Agreement, an amount equal to the
lesser of (x) any such remaining Available Series 1996-1 Finance Charge
Collections and (y) the excess of (1) the sum of (A) the Class C Monthly
Interest and (B) Carryover Class C Monthly Interest over (2) any amounts with
respect thereto previously paid to the Class C Certificateholders on any prior
Business Day during such Monthly Period. Notwithstanding anything to the
contrary herein, Carryover Class C Monthly Interest shall be payable or
distributable to Class C Certificateholders only to the extent permitted by
applicable law.
(ix) REIMBURSEMENT OF CLASS C INVESTOR CHARGE-OFFS AND
REALLOCATED PRINCIPAL COLLECTIONS. On each Business Day, the Trustee, acting in
accordance with instructions from the Servicer, shall withdraw from the
Collection Account, to the extent of any Available Series 1996-1 Finance Charge
Collections remaining after giving effect to the withdrawals pursuant to
subsections 4.09(a)(i) through (viii) of the Agreement, an amount equal to the
lesser of (x) any such remaining Available Series 1996-1 Finance Charge
Collections and (y) the unreimbursed Class C Investor Charge-Offs and reductions
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of the Class C Invested Amount due to Reallocated Principal Collections, if any,
such amount to be treated as Shared Principal Collections during the Revolving
Period, and (i) deposited in the Principal Funding Account during the
Accumulation Period and in the Principal Account during any Early Amortization
Period, in each case for distribution to the Class A Certificateholders, (ii) on
and after the Class B Principal Payment Commencement Date and on or prior to the
Class C Principal Payment Commencement Date, deposited in the Principal Account
for payment to the Class B Certificateholders, and (iii) on and after the Class
C Principal Payment Commencement Date, deposited in the Principal Account for
payment to the Class C Certificateholders.
(x) EXCESS FINANCE CHARGE COLLECTIONS. Any amounts remaining
in the Collection Account to the extent of any Available Series 1996-1 Finance
Charge Collections remaining after giving effect to the withdrawals pursuant to
subsections 4.09(a)(i) through (ix) of the Agreement, shall be treated as Excess
Finance Charge Collections, and the Servicer shall direct the Trustee in writing
on each Business Day to withdraw such amounts from the Collection Account and to
first make such amounts available to pay to Certificateholders of other Series
to the extent of shortfalls, if any, in amounts payable to such
certificateholders from Finance Charge Collections allocated to such other
Series, then to pay any unpaid commercially reasonable costs and expenses of a
Successor Servicer, if any, and then pay any remaining Excess Finance Charge
Collections to the Transferor; PROVIDED, HOWEVER, that on any Business Day
during any Early Amortization Period, the Trustee shall deposit any such
remaining Available Series 1996-1 Finance Charge Collections into the Interest
Funding Account and shall add such funds to the Available Series 1996-1 Finance
Charge Collections on each subsequent Business Day in such Monthly Period until
the last Business Day of the related Monthly Period, when the aggregate amount
of such remaining Available Series 1996-1 Finance Charge Collections shall be
distributed as Excess Finance Charge Collections in accordance with this Section
4.09(a)(x) of the Agreement.
(b) For each Business Day during the Revolving Period the
funds on deposit in the Collection Account in an amount equal to the amount
described in subsection
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4.05(c)(i)(y) of the Agreement with respect to such Business Day will be treated
as Shared Principal Collections and applied, pursuant to the written direction
of the Servicer in the Daily Report for such Business Day, as provided in
Section 4.03(e) of the Agreement.
(c) For each Business Day on and after the Amortization Period
Commencement Date, the remaining funds on deposit in the Collection Account with
respect to such Business Day will be distributed pursuant to the written
direction of the Servicer in the Daily Report for such Business Day in the
following priority:
(i) prior to the commencement of the Early Amortization Period
and the Class B Principal Payment Commencement Date, (x) an amount equal to the
lesser of (1) the sum of (A) an amount equal to the Net Principal Collections in
the Collection Account at the end of the preceding Business Day, (B) any amount
on deposit in the Excess Funding Account allocated to the Investor Certificates
on such Business Day, and (C) amounts to be paid pursuant to subsections
4.09(a)(iv), (v), (vii) and (ix) of the Agreement on such Business Day, PLUS the
amount of Shared Principal Collections allocated to the Series 1996-1
Certificates in accordance with Section 4.14 of the Agreement, and (2) the
excess of the Controlled Deposit Amount for the related Distribution Date over
the amount on deposit in the Principal Funding Account, will be deposited into
the Principal Funding Account; (y) on any Business Day when the amount on
deposit in the Principal Funding Account equals or exceeds the Controlled
Deposit Amount for the related Distribution Date, the balance of any such
remaining funds on deposit in the Collection Account will be treated as Shared
Principal Collections and applied as provided in subsection 4.03(e) of the
Agreement;
(ii) after the commencement of the Early Amortization Period,
an amount equal to the sum of (w) an amount equal to the Net Principal
Collections in the Collection Account at the end of the preceding Business Day,
(x) any amount on deposit in the Excess Funding Account allocated to the
Investor Certificates on such Business Day, (y) amounts to be paid pursuant to
subsections 4.09(a)(iv), (v), (vii) and (ix) of the Agreement on such Business
Day and (z) the amount of Shared Principal Collections allocated to the Series
1996-1 Certifi-
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cates in accordance with Section 4.14 of the Agreement on such Business Day,
will be deposited into the Principal Account;
(iii) on and after the Class B Principal Payment Commencement
Date, an amount equal to the sum of (w) an amount equal to the Net Principal
Collections in the Collection Account at the end of the preceding Business Day
(MINUS the amount thereof paid to the Class A Certificateholders pursuant to
Section 4.12(a) of the Agreement, if any), (x) any amount on deposit in the
Excess Funding Account allocated to the Class B Certificates on such Business
Day, (y) the amount, if any, allocated to be paid to the Class B Certificates
pursuant to subsections 4.09(a)(iv), (vii) and (ix) of the Agreement with
respect to such Business Day and (z) the amount of Shared Principal Collections
allocated to the Series 1996-1 Certificates in accordance with Section 4.14 of
the Agreement on such Business Day (such sum, the "Class B Daily Principal
Amount") will be deposited into the Principal Account;
(iv) on and after the Class C Principal Payment Commencement
Date, an amount equal to the sum of (w) an amount equal to the Net Principal
Collections in the Collection Account at the end of the preceding Business Day
(MINUS the amount thereof paid to the Class B Certificateholders pursuant to
Section 4.12(b) of the Agreement), (x) any amount on deposit in the Excess
Funding Account allocated to the Class C Certificates on such Business Day, (y)
the amount, if any, allocated to be paid to the Class C Certificates pursuant to
subsections 4.09(a)(iv) and (ix) of the Agreement with respect to such Business
Day and (z) the amount of Shared Principal Collections allocated to the Series
1996-1 Certificates in accordance with Section 4.14 of the Agreement on such
Business Day (such sum, the "Class C Daily Principal Amount") will be
distributed to the Class C Certificateholders; and
(v) an amount equal to the balance of any such remaining funds
on deposit in the Collection Account will be treated as Shared Principal
Collections and applied as provided in subsection 4.03(e) of the Agreement;
provided that with respect to the amount distributable pursuant to clauses (i),
(iii) and (iv) above, Shared
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Principal Collections shall be available to make such distributions only to the
extent of the Shared Principal Collections allocated to the Series 1996-1
Certificates.
SECTION 4.10. COVERAGE OF REQUIRED AMOUNT FOR THE SERIES
1996-1 CERTIFICATES.
(a) To the extent that any amounts are on deposit in the
Principal Funding Account or the Excess Funding Account on any Business Day, the
Servicer shall apply Transferor Finance Charge Collections in an amount equal to
the excess of (x) the product of (a) the Base Rate and (b) the product of (i)
the respective amounts on deposit in the Excess Funding Account and the
Principal Funding Account and (ii) the number of days elapsed since the previous
Business Day DIVIDED by the actual number of days in such year over (y) the
aggregate amount of all earnings since the previous Business Day available from
the Cash Equivalents in which funds on deposit in the Excess Funding Account and
the Principal Funding Account are invested in the manner specified for
application of Available Series 1996-1 Finance Charge Collections in subsection
4.09(a)(i) through (ix) of the Agreement.
(b) To the extent that on any Business Day payments are being
made pursuant to any of subsections 4.09(a)(i) through (ix) of the Agreement,
respectively, and the full amount to be paid pursuant to any such subsection
receiving payments on such Business Day is not paid in full on such Business
Day, the Servicer shall apply all or a portion of the Excess Finance Charge
Collections of other Series with respect to such Business Day allocable to the
Series 1996-1 Certificates in an amount equal to the excess of the full amount
to be paid pursuant to the applicable subsection and the amount applied with
respect thereto from Available Series 1996-1 Finance Charge Collections and
Transferor Finance Charge Collections on such Business Day (the "Required
Amount"). Excess Finance Collections allocated to the Series 1996-1 Certificates
for any Business Day shall mean an amount equal to the product of (x) Excess
Finance Charge Collections available from all other Series for such Business Day
and (y) a fraction, the numerator of which is the Required Amount for such
Business Day and the denominator of which is the aggregate amount of shortfalls
in required amounts or other amounts to be paid from Total
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Finance Charge Collections for all Series for such Business Day.
(c) On and after the Class B Principal Payment Commencement
Date, on each Determination Date, after the application of Transferor Finance
Charge Collections pursuant to subsection 4.10(a) of the Agreement and Excess
Finance Charge Collections pursuant to subsection 4.10(b) of the Agreement, to
the extent of any remaining shortfall in the aggregate amount allocated (1)
pursuant to subsections 4.09(a)(ii) and (vi) of the Agreement to pay interest
accrued with respect to the outstanding aggregate principal amount of the Class
B Certificates, (2) pursuant to subsection 4.09(a)(iv) of the Agreement to
Investor Default Amounts, or (3) pursuant to subsection 4.09(a)(vii) of the
Agreement to the reimbursement of Class B Investor Charge-Offs, Principal
Collections allocated to the holder of the Exchangeable Transferor Certificate
pursuant to subsections 4.03(b) and (e) of the Agreement and subsection 4.05(c)
of the Agreement and Finance Charge Collections allocated to the holder of the
Exchangeable Transferor Certificate pursuant to subsection 4.03(b) of the
Agreement, in an amount not to exceed the least of the Transferor Subordination
Amount, the Transferor Interest and the amount of such shortfall on such
Determination Date, shall be treated as Available Series 1996-1 Finance Charge
Collections and shall (x) to the extent of any shortfall pursuant to subsections
4.09(a)(ii) and (vi) of the Agreement, be deposited in the Distribution Account
for payment to the Class B Certificateholders on the related Distribution Date
and (y) to the extent of any shortfall pursuant to subsections 4.09(a)(iv) and
(vii) of the Agreement, be applied as described in such subsections.
SECTION 4.11. PAYMENT OF CERTIFICATE INTEREST. On each
Transfer Date, the Trustee, acting in accordance with instructions from the
Servicer set forth in the Daily Report for such day, shall withdraw the amount
on deposit in the Interest Funding Account with respect to the prior Monthly
Period allocable to the Series 1996-1 Certificates and deposit such amount in
the Distribution Account. On each Distribution Date, the Paying Agent shall pay
in accordance with Section 5.01 of the Agreement to (x) the Class A
Certificateholders from the Distribution Account such amount deposited into the
Distribution Account on the related Transfer Date alloca-
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ble thereto pursuant to subsection 4.09(a)(i) of the Agreement and (y) the Class
B Certificateholders from the Distribution Account the amount deposited into the
Distribution Account allocable thereto pursuant to subsections 4.09(a)(ii) and
(vi) of the Agreement.
SECTION 4.12. PAYMENT OF CERTIFICATE PRINCIPAL. (a) On the
Transfer Date preceding each Special Payment Date and the Class A Expected Final
Payment Date, the Trustee, acting in accordance with instructions from the
Servicer set forth in the Daily Report for such day, shall withdraw from the
Principal Funding Account or, after the occurrence of a Pay Out Event, the
Principal Account and deposit in the Distribution Account an amount equal to the
lesser of (i) the Class A Invested Amount and (ii) the amount on deposit in the
Principal Funding Account (other than any investment earnings on such amounts)
or the amount on deposit in the Principal Account allocable to the Series 1996-1
Certificates. On the Class A Expected Final Payment Date and each Special
Payment Date, the Paying Agent shall pay in accordance with Section 5.01 of the
Agreement to the Class A Certificateholders from the Distribution Account such
amount deposited into the Distribution Account on the related Transfer Date.
(b) On the Transfer Date preceding the Class B Principal
Payment Commencement Date and each Distribution Date thereafter, the Trustee,
acting in accordance with instructions from the Servicer set forth in the Daily
Report for such day, shall withdraw from the Principal Account and deposit in
the Distribution Account an amount equal to the lesser of the Class B Invested
Amount and the amount on deposit in the Principal Account allocable to the
Series 1996-1 Certificates. On the Class B Principal Payment Commencement Date,
after the payment of any principal amounts to the Class A Certificates on such
day, and on each Distribution Date thereafter until the Class B Invested Amount
is paid in full, the Paying Agent shall pay in accordance with Section 5.01 of
the Agreement to the Class B Certificateholders from the Distribution Account
such amount deposited into the Distribution Account on the related Transfer
Date.
(c) On the Transfer Date preceding the Class C Principal
Payment Commencement Date and each Distribution Date thereafter, the Trustee,
acting in accordance with
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instructions from the Servicer set forth in the Daily Report for such day, shall
make payments of principal to the Class C Certificateholder in accordance with
Subsection 4.09(c)(iv) of the Agreement.
Any amounts remaining in the Principal Account and allocable
to the Series 1996-1 Certificates, after the Class C Invested Amount has been
paid in full, will be treated as Shared Principal Collections and applied in
accordance with Section 4.03(e) of the Agreement.
SECTION 4.13. INVESTOR CHARGE-OFFS. (a) If, on any
Determination Date, the aggregate Investor Default Amount, if any, for each
Business Day in the preceding Monthly Period exceeded the Available Series
1996-1 Finance Charge Collections applied to the payment thereof pursuant to
subsection 4.09(a)(iv) of the Agreement and the amount of Transferor Finance
Charge Collections applied to the payment thereof and Excess Finance Charge
Collections and, on and after the Class B Principal Payment Commencement Date,
Transferor Subordination Amount allocated thereto pursuant to subsection 4.10 of
the Agreement, the Class C Invested Amount will be reduced by the amount by
which such aggregate Investor Default Amount exceeds the amount applied with
respect thereto during such preceding Monthly Period (the "Class C Investor
Charge-Offs").
(b) In the event that the amount of such excess is greater
than the Class C Invested Amount, the Class C Invested Amount will be reduced to
zero, and, prior to the Class B Principal Payment Commencement Date, the Class B
Invested Amount will be reduced by the amount of the remaining excess, but not
more than the aggregate Investor Default Amount for such Monthly Period.
(c) On and after the Class B Principal Payment Commencement
Date in the event that the amount of the excess described in subsection 4.13(a)
above is greater than the Class C Invested Amount, the Class C Invested Amount
will be reduced to zero, and the Transferor Subordination Amount will be reduced
by the amount of the remaining excess, but not more than the aggregate Investor
Default Amount for such Monthly Period. In the event that the amount of such
excess is greater than the Transferor Subordination Amount, the Transferor
Subordination Amount shall be reduced to zero, and the Class B Invested
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Amount will be reduced by the amount of the remaining excess, but not more than
the aggregate Investor Default Amount for such Monthly Period (such reduction
and any reduction pursuant to subsection 4.13(b) above, a "Class B Investor
Charge-Off").
(d) In the event that the amount of such excess applied
against the Class B Invested Amount is greater than the Class B Invested Amount,
the Class B Invested Amount will be reduced to zero, and the Class A Invested
Amount will be reduced by the amount or the remaining excess, but not more than
the aggregate Investor Default Amount for such Monthly Period (a "Class A
Investor Charge-Off"). To the extent that on any subsequent Business Day there
is a positive balance of Available Series 1996-1 Finance Charge Collections
after giving effect to subsections 4.09(a)(i) through (iv) of the Agreement, the
Servicer will apply such excess Finance Charge Collections as provided in
subsection 4.09(a)(v) of the Agreement to reimburse the aggregate amount of
Class A Investor Charge-Offs not previously reimbursed, up to the amount so
available.
(e) To the extent that on any Determination Date there is a
positive balance of the Available Series 1996-1 Finance Charge Collections after
giving effect to allocations and distributions pursuant to subsections
4.09(a)(i) through (vi) of the Agreement, the Servicer will apply such excess
Finance Charge Collections as provided in subsection 4.09(a)(vii) of the
Agreement to reimburse the aggregate amount of Class B Investor Charge-Offs not
previously reimbursed, up to the amount so available.
(f) To the extent that on any Determination Date there is a
positive balance of the Available Series 1996-1 Finance Charge Collections after
giving effect to allocations and distributions pursuant to subsections
4.09(a)(i) through (viii) of the Agreement, the Servicer will apply such excess
Finance Charge Collections as provided in subsection 4.09(a)(ix) of the
Agreement to reimburse the aggregate amount of Class C Investor Charge-Offs not
previously reimbursed, up to the amount so available.
SECTION 4.14. SHARED PRINCIPAL COLLECTIONS. Shared Principal
Collections allocated to the Series
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<PAGE> 45
1996-1 Certificates for any Business Day with respect to the Accumulation Period
shall mean an amount equal to the product of (x) Shared Principal Collections
for all Series for such Business Day and (y) a fraction, the numerator of which
is the Principal Shortfall for the Series 1996-1 Certificates for such Business
Day and the denominator of which is the aggregate amount of Principal Shortfalls
for all Series for such Business Day. For any Business Day with respect to the
Revolving Period, Shared Principal Collections allocated to the Series 1996-1
Certificates shall be zero.
SECTION 4.15. REALLOCATED PRINCIPAL COLLECTIONS FOR THE SERIES
1996-1 CERTIFICATES. (a) On each Determination Date, the Servicer will determine
the Class A Required Amount and the Class B Required Amount. On each
Determination Date on which there is a positive Class A Required Amount or Class
B Required Amount, the Servicer will determine an amount equal to the lesser of
(i) the Class C Invested Amount, (ii) the product of (x)(I) during the Revolving
Period, the Class C Floating Allocation Percentage and (II) during an
Amortization Period, the Class C Fixed/Floating Allocation Percentage and (y)
the amount of Principal Collections with respect to the preceding Monthly Period
and (iii) an amount equal to the sum of (a) the Class A Required Amount for the
preceding Monthly Period and (b) the Class B Required Amount for the preceding
Monthly Period (such amount being "Reallocated Class C Principal Collections")
and on each Transfer Date the Servicer shall apply Principal Collections in an
amount equal to such amount from amounts available therefor in the Principal
Account or made available by the Transferor pursuant to Section 4.05(c) of the
Agreement first to the components of the Class A Required Amount and then to the
components of the Class B Required Amount in the same priority as amounts are
applied to such components from Available Series 1996-1 Finance Charge
Collections pursuant to subsection 4.09(a) of the Agreement.
(b) On each Determination Date on which there is a positive
Class A Required Amount or Class B Required Amount, the Servicer will apply or
cause the Trustee to apply an amount equal to the lesser of (i) the Class B
Invested Amount, (ii) the product of (x)(I) during the Revolving Period, the
Class B Floating Allocation Percentage and (II) during an Amortization Period,
the Class
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<PAGE> 46
B Fixed/Floating Allocation Percentage and (y) the amount of Principal
Collections with respect to the preceding Monthly Period and (iii) an amount
equal to the excess, if any, of the Class A Required Amount for the preceding
Monthly Period over the amount of Reallocated Class C Principal Collections
applied with respect thereto for such Monthly Period (such amount being
"Reallocated Class B Principal Collections") and on each Transfer Date the
Servicer shall apply Principal Collections equal to such amount from amounts
available therefor in the Principal Account or made available by the Transferor
pursuant to Section 4.05(c) of the Agreement to the remaining components of the
Class A Required Amount in the same priority as amounts are applied to such
components from Available Series 1996-1 Finance Charge Collections pursuant to
subsection 4.09(a) of the Agreement.
SECTION 4.16. ACCUMULATION PERIOD. The Accumulation Period is
scheduled to commence on the Accumulation Date; PROVIDED, HOWEVER, that if the
Accumulation Period Length (determined as described below) on any Determination
Date on or after the July 2000 Determination Date is less than eight months,
upon written notice to the Trustee, the Transferor and each Rating Agency, the
Servicer, at its option, may elect to modify the date on which the Accumulation
Period actually commences to the first day of the month that is a number of
months prior to the month in which the Class A Expected Final Payment Date
occurs at least equal to the Accumulation Period Length (so that, as a result of
such election, the number of Monthly Periods in the Accumulation Period will at
least equal the Accumulation Period Length); PROVIDED, HOWEVER, that (i) the
length of the Accumulation Period will not be less than one month; (ii) such
determination of the Accumulation Period Length shall be made on each
Determination Date on and after the July 2000 Determination Date but prior to
the Commencement of the Accumulation Period, and any election to shorten the
Accumulation Period shall be subject to the subsequent lengthening of the
Accumulation Period to the Accumulation Period Length determined on any
subsequent Determination Date, but the Accumulation Period shall in no event
commence prior to the Accumulation Date, and (iii) notwithstanding any other
provision of the Series 1996-1 Supplement to the contrary, no election to
postpone the commencement of the Accumulation Period shall be made after a Pay
Out Event (as defined in the related
43
<PAGE> 47
Supplement) shall have occurred and be continuing with respect to any other
Series. The "Accumulation Period Length," will mean a number of months such that
the amount available for distribution of principal on the Class A Certificates
on the Class A Expected Final Payment Date is expected to equal or exceed the
Class A Invested Amount, assuming for this purpose that (1) the payment rate
with respect to Collections of Principal Receivables remains constant at the
lowest level of such payment rate during the twelve preceding Monthly Periods
(or such lower payment rate as the Servicer may select), (2) the total amount of
Principal Receivables in the Trust (and the principal amount on deposit in the
Excess Funding Account, if any) remains constant at the level on such date of
determination, (3) no Pay Out Event with respect to any Series will subsequently
occur and (4) no additional Series (other than any Series being issued on such
date of determination) will be subsequently issued. Any notice by the Servicer
electing to modify the commencement of the Accumulation Period pursuant to this
Section 4.16 shall specify (i) the Accumulation Period Length, (ii) the
commencement date of the Accumulation Period and (iii) the Controlled
Accumulation Amount with respect to each Monthly Period during the Accumulation
Period.
SECTION 1.7. ARTICLE V OF THE AGREEMENT. Article V of the
Agreement shall read in its entirety as follows and shall be applicable only to
the Series 1996-1 Certificates:
ARTICLE V.
DISTRIBUTIONS AND REPORTS TO INVESTOR
CERTIFICATEHOLDERS
SECTION 5.01 DISTRIBUTIONS. (a) On each Distribution Date, the
Paying Agent shall distribute (in accordance with the Settlement Statement
delivered by the Servicer to the Trustee pursuant to subsection 3.04(c) of the
Agreement) to each Class A Certificateholder of record on the preceding Record
Date (other than as provided in subsection 2.04(d) or Section 12.03 of the
Agreement respecting a final distribution) such Certificateholder's PRO RATA
share (based on the aggregate Undivided Interests represented by Class A
Certificates held by such Certificateholder) of amounts on deposit in
44
<PAGE> 48
the Distribution Account as are payable to the Class A Certificateholders
pursuant to Sections 4.11 and 4.12 of the Agreement by check mailed to each
Class A Certificateholder at such Certificateholder's address as it appears on
the Certificate Register or, in the case of Class A Certificateholders holding
Class A Certificates evidencing fractional Undivided Interests aggregating not
less than 80% of the Invested Amount, by wire transfer, at the expense of such
Class A Certificateholder, to an account or accounts designated by such Class A
Certificateholder by written notice given to the Paying Agent not less than five
days prior to the related Distribution Date; PROVIDED, HOWEVER, that the final
payment in retirement of the Class A Certificates will be made only upon
presentation and surrender of the Class A Certificates at the office or offices
specified in the notice of such final distribution delivered by the Trustee
pursuant to Section 12.03 of the Agreement.
(b) On each Distribution Date, the Paying Agent shall
distribute (in accordance with the Settlement Statement delivered by the
Servicer to the Trustee pursuant to subsection 3.04(c) of the Agreement) to each
Class B Certificateholder of record on the preceding Record Date (other than as
provided in subsection 2.04(d) or Section 12.03 of the Agreement respecting a
final distribution) such Certificateholder's PRO RATA share (based on the
aggregate Undivided Interests represented by Class B Certificates held by such
Certificateholder) of amounts on deposit in the Distribution Account as are
payable to the Class B Certificateholders pursuant to Sections 4.11 and 4.12 of
the Agreement by check mailed to each Class B Certificateholder at such
Certificateholder's address as it appears on the Certificate Register or, in the
case of Class B Certificateholders holding Class B Certificates evidencing
Undivided Interest aggregating not less than 80% of the Invested Amount, by wire
transfer, at the expense of such Class B Certificateholder, to an account or
accounts designated by such Class B Certificateholder by written notice given to
the Paying Agent not less than five days prior to the related Distribution Date;
PROVIDED, HOWEVER, that the final payment in retirement of the Class B
Certificate will be made only upon presentation and surrender of the Class B
Certificates at the office or offices specified in the notice of such final
distribution delivered by the Trustee pursuant to Section 12.03 of the
Agreement.
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<PAGE> 49
SECTION 5.02. MONTHLY CERTIFICATEHOLDERS' STATEMENT. (a) On
each Distribution Date, the Paying Agent shall forward to each
Certificateholder, Moody's, and Standard & Poor's a statement substantially in
the form of Exhibit C prepared by the Servicer and delivered to the Trustee and
the Paying Agent on the preceding Determination Date setting forth the following
information (which, in the case of (i), (ii) and (iii) below, shall be stated on
the basis of an original principal amount of $1,000 per Certificate and, in the
case of (ix) and (x), shall be stated on an aggregate basis and on the basis of
an original principal amount of $1,000 per Certificate):
(i) the total amount distributed;
(ii) the amount of such distribution allocable to
Certificate Principal;
(iii) the amount of such distribution allocable to
Certificate Interest;
(iv) the amount of Net Principal Collections
received in the Collection Account during the related Monthly Period and
allocated in respect of the Class A Certificates, the Class B Certificates and
the Class C Certificates, respectively;
(v) the amount of Total Finance Charge Collections
processed during the related Monthly Period and allocated in respect of the
Class A Certificates, the Class B Certificates and the Class C Certificates,
respectively;
(vi) the aggregate amount of Principal Receivables,
the Invested Amount, the Class A Invested Amount, the Class B Invested Amount,
the Class C Invested Amount, the Floating Allocation Percentage and, during
the Amortization Period, the Fixed/Floating Allocation Percentage with respect
to Principal Receivables and, on and after the Pay Out Commencement Date,
Finance Charge Receivables in the Trust as of the end of the day on the Record
Date;
(vii) the aggregate outstanding balance of Accounts
which are 30, 60, 90, 120, 150 and 180 days delinquent as of the end of the day
on the Record Date;
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<PAGE> 50
(viii) the Aggregate Investor Default Amount for the
related Monthly Period;
(ix) the aggregate amount of Class A Investor
Charge-Offs, Class B Investor Charge-Offs and Class C Investor Charge-Offs for
the related Monthly Period;
(x) the aggregate amount of the Monthly Servicing Fee
for the related Monthly Period;
(xi) the Class A Pool Factor, the Class B Pool Factor
and the Class C Pool Factor as of the end of the last day of the related Monthly
Period;
(xii) the amount of Reallocated Class B Principal
Collections and Reallocated Class C Principal Collections as of the last day of
the preceding Monthly Period; and
(xiii) the Accumulation Date and the Accumulation
Period Length.
(b) ANNUAL CERTIFICATEHOLDERS' TAX STATEMENT. On or before
January 31 of each calendar year, beginning with calendar year 1997, the Trustee
shall distribute to each Person who at any time during the preceding calendar
year was a Series 1996-1 Certificateholder, a statement prepared by the Servicer
containing the information required to be contained in the regular monthly
report to Series 1996-1 Certificateholders, as set forth in subclauses (i), (ii)
and (iii) above, aggregated for such calendar year or the applicable portion
thereof during which such Person was a Series 1996-1 Certificateholder, together
with such other customary information (consistent with the treatment of the
Certificates as debt) as the Trustee or the Servicer deems necessary or
desirable to enable the Series 1996-1 Certificateholders to prepare their tax
returns. Such obligations of the Trustee shall be deemed to have been satisfied
to the extent that substantially comparable information shall be provided by the
Trustee pursuant to any requirements of the Internal Revenue Code as from time
to time in effect.
47
<PAGE> 51
SECTION 1.8 SERIES 1996-1 PAY OUT EVENTS. If any one of the
following events shall occur with respect to the Series 1996-1 Certificates:
(a) failure on the part of the Transferor (i) to make any
payment or deposit required to be made by the Transferor by the terms of the
Agreement, on or before the date occurring five days after the date such payment
or deposit is required to be made or (ii) duly to observe or perform in any
material respect any covenants or agreements of the Transferor set forth in the
Agreement (including, without limitation, the covenant of the Transferor
contained in Section 11 of this Series Supplement), which failure has a material
adverse effect on the Series 1996-1 Certificateholders and which continues
unremedied for a period of 60 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by the Holders
of Series 1996-1 Certificates evidencing Undivided Interests aggregating not
less than 50% of the Invested Amount of this Series 1996-1, and continues to
affect materially and adversely the interests of the Series 1996-1
Certificateholders for such period;
(b) any representation or warranty made by the Transferor in
the Agreement, or any information contained in a computer file or microfiche
list required to be delivered by the Transferor pursuant to Section 2.01 or 2.06
of the Agreement, (i) shall prove to have been incorrect in any material respect
when made or when delivered, which continues to be incorrect in any material
respect for a period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by the Holders
of the Series 1996-1 Certificates evidencing Undivided Interests aggregating
more than 50% of the Invested Amount of this Series 1996-1, and (ii) as a result
of which the interests of the Series 1996-1 Certificateholders are materially
and adversely affected and continue to be materially and adversely affected for
such period; PROVIDED, HOWEVER, that a Series 1996-1 Pay Out Event pursuant to
this subsection 1.8(b) shall not be deemed to have occurred hereunder if the
Transferor has accepted reassignment of the related Receivable, or all
48
<PAGE> 52
of such Receivables, if applicable, during such period in accordance with the
provisions of the Agreement;
(c) the average of the Portfolio Yields for any three
consecutive Monthly Periods is reduced to a rate which is less than the average
of the Base Rates for such period;
(d) (i) the Transferor Interest shall be less than the Minimum
Transferor Interest or (ii) the amount of Principal Receivables in the Trust and
the amount on deposit in the Excess Funding Account shall be less than the
Minimum Aggregate Principal Receivables, in each case for 15 consecutive days;
or
(e) any Servicer Default shall occur which would have a
material adverse effect on the Series 1996-1 Certificateholders;
then, in the case of any event described in subparagraph (a), (b), or (e), after
the applicable grace period set forth in such subparagraphs, either the Trustee
or the Holders of Series 1996-1 Certificates evidencing Undivided Interests
aggregating more than 50% of the Invested Amount of any class of this Series
1996-1 by notice then given in writing to the Transferor and the Servicer (and
to the Trustee if given by the Certificateholders) may declare that a pay out
event (a "Series 1996-1 Pay Out Event") has occurred as of the date of such
notice, and in the case of any event described in subparagraphs (c) or (d), a
Series 1996-1 Pay Out Event shall occur without any notice or other action on
the part of the Trustee or the Series 1996-1 Certificateholders immediately upon
the occurrence of such event.
SECTION 1.9. SERIES 1996-1 TERMINATION. The right of the
Series 1996-1 Certificateholders to receive payments from the Trust will
terminate on the first Business Day following the Series 1996-1 Termination
Date.
SECTION 1.10. PERIODIC FINANCE CHARGES AND OTHER FEES. The
Transferor hereby agrees that, except as otherwise required by any Requirement
of Law, or as is deemed by the Transferor to be necessary in order for the
Transferor to maintain its credit card business, based upon a good faith
assessment by the Transferor, in its
49
<PAGE> 53
sole discretion, of the nature of the competition in the credit card business,
it shall not at any time reduce the Periodic Finance Charges assessed on any
Receivable or other fees on any Account if, as a result of such reduction, the
Transferor's reasonable expectation of the Portfolio Yield as of such date would
be less than the Base Rate.
SECTION 1.11. RATIFICATION OF AGREEMENT. As supplemented by
this Series Supplement, the Agreement is in all respects ratified and confirmed
and the Agreement as so supplemented by this Series Supplement shall be read,
taken, and construed as one and the same instrument.
SECTION 1.12. COUNTERPARTS. This Series Supplement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 1.13. GOVERNING LAW. THIS SERIES SUPPLEMENT SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 1.14. THE TRUSTEE. The Trustee shall not be
responsible in any manner whatsoever for or in respect of the sufficiency of
this Series Supplement or for or in respect of the Preliminary Statement
contained herein, all of which recitals are made solely by the Transferor.
SECTION 1.15. INSTRUCTIONS IN WRITING. All instructions given
by the Servicer to the Trustee pursuant to this Series Supplement shall be in
writing, and may be included in a Daily Report or Settlement Statement.
50
<PAGE> 54
IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Series 1996-1 Supplement to be duly executed by their
respective officers as of the day and year first above written.
PRIME RECEIVABLES CORPORATION
Transferor
By:_________________________
Name:
Title:
FDS NATIONAL BANK
Servicer
By:_________________________
Name:
Title:
CHEMICAL BANK
Trustee
By:_________________________
Name:
Title:
51
<PAGE> 55
Exhibit A-1
[FORM OF CLASS A INVESTOR CERTIFICATE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
No. $_____________
CUSIP NO. _____________
PRIME CREDIT CARD MASTER TRUST
6.70% CLASS A ASSET BACKED CERTIFICATE, SERIES 1996-1
Evidencing an undivided interest in a trust, the corpus of which consists of
receivables generated from time to time in the ordinary course of business from
a portfolio of consumer revolving credit card accounts generated or to be
generated by FDS National Bank ("FDS" or the "Servicer") and certain other
subsidiaries of Federated Department Stores, Inc. ("Federated") and certain
other assets and interests contemplated by the Pooling and Servicing Agreement
described below.
(Not an interest in or a recourse obligation of Prime
Receivables Corporation, FDS National Bank, Federated Department Stores, Inc.,
or any affiliate of any of them.)
This certifies that CEDE & Co. (the "Certificateholder") is
the registered owner of a fractional undivided interest in the Prime Credit Card
Master Trust (the "Trust") issued pursuant to the Amended and Restated Pooling
and Servicing Agreement, dated as of December 15, 1992 (the "Agreement"; such
term to include any amendment
A-1-1
<PAGE> 56
or Supplement thereto) by and between Prime Receivables Corporation, as
Transferor (the "Transferor"), FDS as Servicer, and Chemical Bank as Trustee
(the "Trustee"), and the Series 1996-1 Supplement, dated as of May 14, 1996 (the
"Supplement"), among the Transferor, FDS as Servicer, and the Trustee. The
corpus of the Trust consists of all of the Transferor's right, title, and
interest in, to, and under the Trust Property (as defined in the Agreement).
This Certificate does not purport to summarize the Agreement
and reference is made to the Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties, and obligations of the Trustee. A copy of the Agreement
may be requested from the Trustee by writing to the Trustee at Chemical Bank,
450 West 33rd St., 15th Floor, New York, New York 10001, Attention: Structured
Finance Administration -- ABS. To the extent not defined herein, the capitalized
terms used herein have the meanings ascribed to them in the Agreement. This
certificate is one of a series of Certificates entitled "Prime Credit Card
Master Trust 6.70% Class A Asset Backed Certificates, Series 1996-1" (the "Class
A Certificates"), each of which represents a fractional undivided interest in
the Trust, and is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement, as amended from time to time,
the Certificateholder by virtue of the acceptance hereof assents and by which
the Certificateholder is bound.
The Transferor has structured the Agreement, the Class A
Certificates, the Prime Credit Card Master Trust 6.85% Class B Asset Backed
Certificates, Series 1996-1 (the "Class B Certificates") and the Prime Credit
Card Master Trust 9.00% Class C Asset Backed Certificates, Series 1996-1 (the
"Class C Certificates," and collectively with the Class A Certificates and the
Class B Certificates, the "Investor Certificates") with the intention that the
Investor Certificates will qualify under applicable tax law as indebtedness of
the Transferor, and both the Transferor and each holder of a Class A Certificate
(a "Class A Certificateholder") or any interest therein by acceptance of its
Certificate or any interest therein, agrees to treat the Class A Certificates
for purposes of federal, state and local income or
A-1-2
<PAGE> 57
franchise taxes and any other tax imposed on or measured by income, as
indebtedness.
No principal will be payable to the Class A Certificateholders
until the Class A Expected Final Payment Date except upon the occurrence of a
Pay Out Event, as described in the Agreement, or on the first Special Payment
Date. No principal will be payable to the Class B Certificateholders or Class C
Certificateholders until all principal payments have been made to the Class A
Certificateholders. For each Business Day during the period beginning on the
Closing Date and ending on the day prior to the day on which the Accumulation
Period or the Early Amortization Period commences (the "Revolving Period"), all
Collections of Principal Receivable allocable to the Investor Interest will be
treated as Shared Principal Collections.
Interest will accrue on the unpaid principal amount of the
Class A Certificates at a per annum rate equal to 6.70% per annum (the "Class A
Certificate Rate") and, except as otherwise provided in the Agreement, will be
distributed to Certificateholders on the 15th day of each month (or, if such day
is not a Business Day, on the next succeeding Business Day) (each a
"Distribution Date"), commencing June 17, 1996.
Interest for any Distribution Date will include accrued
interest at the Class A Certificate Rate from and including the preceding
Distribution Date or, in the case of the first Distribution Date from and
including the Closing Date, to but excluding such Distribution Date. Interest
for any Distribution Date or Special Payment Date due but not paid on any
Distribution Date or Special Payment Date will be due on the next succeeding
Distribution Date or Special Payment Date together with, to the extent permitted
by applicable law, additional interest on such amount at the Class A Certificate
Rate plus 2% per annum. Interest will be calculated on the basis of a 360-day
year comprised of twelve 30-day months.
"Class A Invested Amount" for any day means an amount (not
less than zero) equal to (a) the initial principal balance of the Class A
Certificates minus (b) the aggregate amount of principal payments made to Class
A Certificateholders prior to such date, and minus (c) the excess, if any, of
the aggregate amount of Class A
A-1-3
<PAGE> 58
Investor Charge-Offs for all Business Days preceding such date over the
aggregate amount of any reimbursements of Class A Investor Charge-Offs for all
Business Days preceding such date.
Subject to the Agreement, payments of principal on the Class A
Certificates are limited to the unpaid Class A Invested Amount, which may be
less than the unpaid balance of the Class A Certificates pursuant to the terms
of the Agreement. All principal of and interest on the Class A Certificates is
due and payable no later than the July 2004 Distribution Date (or if such day is
not a Business Day, the next succeeding Business Day) (the "Scheduled Series
1996-1 Termination Date"). After the Scheduled Series 1996-1 Termination Date
neither the Trust nor the Transferor will have any further obligation to
distribute principal or interest on the Class A Certificates. In the event that
the Class A Invested Amount is greater than zero on the Scheduled Series 1996-1
Termination Date, the Trustee will sell or cause to be sold, to the extent
necessary, an amount of interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, and the Class C Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allocable to the Investor
Certificates), and shall pay the proceeds to the Class A Certificateholders in
final payment of the Class A Certificates, then to the Class B
Certificateholders in final payment of the Class B Certificates, and finally to
the Class C Certificateholders in final payment of the Class C Certificates.
A-1-4
<PAGE> 59
IN WITNESS WHEREOF, the Transferor has caused this Certificate
to be duly executed under its official seal.
PRIME RECEIVABLES CORPORATION
By:______________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates referred to in the
within-mentioned Pooling and Servicing Agreement.
CHEMICAL BANK,
as Trustee
By:______________________________
Authorized Signatory
Dated:
A-1-5
<PAGE> 60
Exhibit A-2
[FORM OF CLASS B INVESTOR CERTIFICATE]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
EACH HOLDER OF THIS CLASS B CERTIFICATE OR AN INTEREST
THEREIN, BY ACCEPTING AND HOLDING THIS CERTIFICATE, IS DEEMED TO HAVE
REPRESENTED AND WARRANTED THAT IT IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS
DEFINED IN SECTION 3(3) OF ERISA) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I
OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE CODE, OR (III) ANY
ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S
INVESTMENT IN THE ENTITY.
No. $_____________
CUSIP NO. _____________
PRIME CREDIT CARD MASTER TRUST
6.85% CLASS B ASSET BACKED CERTIFICATE,
SERIES 1996-1
Evidencing an undivided interest in a trust, the corpus of
which consists of receivables generated from time to time in the ordinary course
of business from a portfolio of consumer revolving credit card accounts
generated or to be generated by FDS National Bank ("FDS" or the "Servicer") and
certain other subsidiaries of Federated Department Stores, Inc. ("Federated")
and certain other assets and interests contemplated by the Pooling and Servicing
Agreement described below.
<PAGE> 61
(Not an interest in or a recourse obligation of Prime
Receivables Corporation, FDS National Bank, Federated Department Stores, Inc.,
or any affiliate of any of them.)
This certifies that CEDE & Co. (the "Certificateholder") is
the registered owner of a fractional undivided interest in the Prime Credit Card
Master Trust (the "Trust") issued pursuant to the Amended and Restated Pooling
and Servicing Agreement, dated as of December 15, 1992 (the "Agreement"; such
term to include any amendment or Supplement thereto) by and between Prime
Receivables Corporation, as Transferor (the "Transferor"), FDS as Servicer, and
Chemical Bank as Trustee (the "Trustee"), and the Series 1996-1 Supplement,
dated as of May 14, 1996 (the "Supplement"), among the Transferor, FDS as
Servicer, and the Trustee. The corpus of the Trust consists of all of the
Transferor's right, title, and interest in, to, and under the Trust Property (as
defined in the Agreement).
This Certificate does not purport to summarize the Agreement
and reference is made to the Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties, and obligations of the Trustee. A copy of the Agreement
may be requested from the Trustee by writing to the Trustee at Chemical Bank,
450 West 33rd Street, 15th Floor, New York, New York 10001, Attention:
Structured Finance Administration -- ABS. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed to them in the
Agreement. This Certificate is one of a series of Certificates entitled "Prime
Credit Card Master Trust 6.85% Class B Asset Backed Certificates, Series 1996-1"
(the "Class B Certificates"), each of which represents a fractional undivided
interest in the Trust, and is issued under and is subject to the terms,
provisions, and conditions of the Agreement, to which Agreement, as amended from
time to time, the Certificateholder by virtue of the acceptance hereof assents
and by which the Certificateholder is bound.
The Transferor has structured the Agreement, the Class B
Certificates, the Prime Credit Card Master Trust 6.70% Class A Asset Backed
Certificates, Series 1996-1 (the "Class A Certificates") and the Prime Credit
A-2-2
<PAGE> 62
Card Master Trust 9.00% Class C Asset Backed Certificates, Series 1996-1 (the
"Class C Certificates," and collectively with the Class A Certificates and the
Class B Certificates, the "Investor Certificates") with the intention that the
Investor Certificates will qualify under applicable tax law as indebtedness of
the Transferor, and both the Transferor and each holder of a Class B Certificate
(a "Class B Certificateholder") or any interest therein by acceptance of its
Certificate or any interest therein, agrees to treat the Class B Certificates
for purposes of federal, state, and local income or franchise taxes and any
other tax imposed on or measured by income, as indebtedness.
No principal will be payable to the Class B Certificateholders
until the Class B Payment Commencement Date, which is the Distribution Date
either on or following the Distribution Date on which the Class A Invested
Amount had been paid in full. No principal payments will be made to the Class C
Certificateholder until the Distribution Date either on or following the
Distribution Date on which the Class B Invested Amount has been paid in full.
Interest will accrue on the unpaid principal amount of the
Class B Certificates at a per annum rate equal to 6.85% per annum (the "Class B
Certificate Rate") and, except as otherwise provided in the Agreement, will be
distributed to Certificateholders on the 15th day of each month (or, if such day
is not a Business Day, on the next succeeding Business Day) (each a
"Distribution Date"), commencing June 17, 1996.
Interest for any Distribution Date will include accrued
interest at the Class B Certificate Rate from and including the preceding
Distribution Date or, in the case of the first Distribution Date from and
including the Closing Date, to but excluding such Distribution Date. Interest
for any Distribution Date due but not paid on any Distribution Date will be due
on the next succeeding Distribution Date together with, to the extent permitted
by applicable law, additional interest on such amount at the Class B Certificate
Rate plus 2% per annum. Interest will be calculated on the basis of a 360-day
year comprised of twelve 30-day months.
A-2-3
<PAGE> 63
"Class B Invested Amount" for any date means an amount (not
less than zero) equal to (a) the initial principal balance of the Class B
Certificates, minus (b) the aggregate amount of principal payments made to Class
B Certificateholders prior to such date, minus (c) the aggregate amount of Class
B Investor Charge-Offs for all prior Business Days, including the amount by
which the Class B Invested Amount has been reduced to fund the Investor Default
Amount on all prior Business Days, minus (d) the aggregate amount of Reallocated
Class B Principal Collections for which the Class C Invested Amount has not been
reduced for all prior Distribution Dates, and plus (e) the aggregate amount of
Available Series 1996-1 Finance Charge Collections, Transferor Finance Charge
Collections, Excess Finance Charge Collections, and Transferor Subordination
Amount applied on all prior Business Days for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c) and (d).
Subject to the Agreement, payments of principal on the Class B
Certificates are limited to the unpaid Class B Invested Amount, which may be
less than the unpaid balance of the Class B Certificates pursuant to the terms
of the Agreement. All principal of and interest on the Class B Certificates is
due and payable no later than the July 2004 Distribution Date (or if such day is
not a Business Day, the next succeeding Business Day) (the "Scheduled Series
1996-1 Termination Date"). After the Scheduled Series 1996-1 Termination Date
neither the Trust nor the Transferor will have any further obligation to
distribute principal or interest on the Class B Certificates. In the event that
the Class B Invested Amount is greater than zero on the Scheduled Series 1996-1
Termination Date, the Trustee will sell or cause to be sold, to the extent
necessary, an amount of interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, and the Class C Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allocable to the Investor
Certificates), and shall pay the proceeds to the Class A Certificateholders in
final payment of the Class A Certificates, then to the Class B
Certificateholders in final payment of the Class B Certificates, and finally to
the Class C Certificateholders in final payment of the Class C Certificates.
A-2-4
<PAGE> 64
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement, or be valid for any
purpose.
A-2-5
<PAGE> 65
IN WITNESS WHEREOF, the Transferor has caused this Certificate
to be duly executed under its official seal.
PRIME RECEIVABLES CORPORATION
By:______________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred to in the
within-mentioned Pooling and Servicing Agreement.
CHEMICAL BANK,
as Trustee
By:______________________________
Authorized Signatory
Dated:
A-2-6
<PAGE> 66
Exhibit A-3
[FORM OF CLASS C INVESTOR CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN RELIANCE UPON EXEMPTIONS
PROVIDED BY THE SECURITIES ACT. NO RESALE OR OTHER TRANSFER OF THIS CERTIFICATE
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, (B) IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS, (C) TO
THE TRANSFEROR, (D) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING THEREOF IN RULE 144A UNDER THE
SECURITIES ACT AND THAT IS AWARE THAT THE RESALE OR OTHER TRANSFER IS BEING MADE
IN RELIANCE ON RULE 144A, OR (E) PURSUANT TO REGULATION S UNDER THE SECURITIES
ACT. NEITHER THE TRANSFEROR NOR THE TRUSTEE IS OBLIGATED TO REGISTER THE
CERTIFICATES UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES OR "BLUE SKY" LAW.
NO RESALE OR TRANSFER OF THIS CERTIFICATE MAY BE MADE EXCEPT
WITH THE EXPRESS CONSENT OF PRIME RECEIVABLES CORPORATION.
No. ___ $_____________
PRIME CREDIT CARD MASTER TRUST
9.00% CLASS C ASSET BACKED CERTIFICATE, SERIES 1996-1
Evidencing an undivided interest in a trust, the corpus of
which consists of receivables generated from time to time in the ordinary course
of business from a portfolio of consumer revolving credit card accounts
generated or to be generated by FDS National Bank ("FDS" or the "Servicer") and
certain other subsidiaries of Federated Department Stores, Inc. ("Federated")
and certain other assets and interests contemplated by the Pooling and Servicing
Agreement described below.
(Not an interest in or a recourse obligation of Prime
Receivables Corporation, FDS National Bank, Federated Department Stores, Inc.,
or any affiliate of any of them.)
This certifies that Prime Receivables Corporation (the
"Certificateholder") is the registered owner of a fractional undivided interest
in the Prime Credit
A-3-1
<PAGE> 67
Card Master Trust (the "Trust") issued pursuant to the Pooling and Servicing
Agreement, dated as of December 15, 1992 (the "Agreement"; such term to include
any amendment or Supplement thereto) by and between Prime Receivables
Corporation, as Transferor (the "Transferor"), FDS as Servicer, and Chemical
Bank as Trustee (the "Trustee"), and the Series 1996-1 Supplement, dated as of
May 14, 1996 (the "Supplement"), among the Transferor, FDS as Servicer, and the
Trustee. The corpus of the Trust consists of all of the Transferor's right,
title and interest in, to, and under the Trust Property (as defined in the
Agreement).
This Certificate does not purport to summarize the Agreement
and reference is made to the Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds, and duties evidenced hereby
and the rights, duties, and obligations of the Trustee. A copy of the Agreement
may be requested from the Trustee by writing to the Trustee at Chemical Bank,
450 West 33rd Street, 15th Floor, New York, New York 10001, Attention:
Structured Finance Administration -- ABS. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed to them in the
Agreement. This Certificate is one of a series of Certificates entitled "Prime
Credit Card Master Trust 9.00% Class C Asset Backed Certificates, Series 1996-1"
(the "Class C Certificates"), each of which represents a fractional undivided
interest in the Trust, and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement, as amended from
time to time, the Certificateholder by virtue of the acceptance hereof assents
and by which the Certificateholder is bound.
The Transferor has structured the Agreement, the Class C
Certificates, the Prime Credit Card Master Trust 6.70% Class A Asset Backed
Certificates, Series 1996-1 (the "Class A Certificates") and the Prime Credit
Card Master Trust 6.85% Class B Asset Backed Certificates, Series 1996-1 (the
"Class B Certificates," and collectively with the Class A Certificates and the
Class C Certificates, the "Investor Certificates") with the intention that the
Investor Certificates will qualify under applicable tax law as indebtedness of
the Transferor, and both the Transferor and each holder of a Class C Certificate
(a "Class C Certificateholder") or any interest therein by acceptance of its
Certificate or any interest therein, agrees to treat the Class C Certificates
for purposes of federal, state, and local income or franchise taxes and any
other tax imposed on or measured by income, as indebtedness.
A-3-2
<PAGE> 68
No principal will be payable to the Class C Certificateholders
until the Class C Payment Commencement Date, which is the Distribution Date
either on or following the Distribution Date on which the Class B Invested
Amount had been paid in full. No principal will be payable to the Class C
Certificateholders until all principal payments have first been made to the
Class A Certificateholders and then on and after the Class B Payment
Commencement Date, after all principal payments have been made to the Class B
Certificateholders. For each Business Day during the period beginning on the
Closing Date and ending on the day prior to the day on which the Accumulation
Period or the Early Amortization Period commences (the "Revolving Period"), all
Collections of Principal Receivables allocable to the Investor Interest will be
treated as Shared Principal Collections.
Interest will accrue on the unpaid principal amount of the
Class C Certificates at a per annum rate equal to 9.00% per annum (the "Class C
Certificate Rate") and, except as otherwise provided in the Agreement, will be
distributed to Certificateholders on the 15th day of each month (or, if such day
is not a Business Day, on the next succeeding Business Day) (each a
"Distribution Date"), commencing June 17, 1996.
Interest for any Distribution Date will include accrued
interest at the Class C Certificate Rate from and including the preceding
Distribution Date or, in the case of the first Distribution Date from and
including the Closing Date, to but excluding such Distribution Date. Interest
for any Distribution Date due but not paid on any Distribution Date will be due
on the next succeeding Distribution Date together with, to the extent permitted
by applicable law, additional interest on such amount at the Class C Certificate
Rate. Interest will be calculated on the basis of a 360-day year comprised of
twelve 30-day months.
"Class C Invested Amount" means an amount (not less than zero)
equal to (a) the initial principal balance of the Class C Certificates, minus
(b) the aggregate amount of principal payments made to Class C
Certificateholders prior to such date, minus (c) the aggregate amount of Class C
Investor Charge-Offs for all prior Business Days, equal to the amount by which
the Class C Invested Amount has been reduced to fund the Investor Default Amount
on all prior Business Days, minus (d) the aggregate amount of Reallocated
Principal Collections for all prior Distribution Dates, and plus (e) the
aggregate amount of Available Series 1996-1 Finance Charge Collections,
Transferor Finance Charge Collections, and Excess
A-3-3
<PAGE> 69
Finance Charge Collections applied on all prior Business Days for the purpose of
reimbursing amounts deducted pursuant to the foregoing clauses (c) and (d).
Subject to the Agreement, payments of principal on the Class C
Certificates are limited to the unpaid Class C Invested Amount, which may be
less than the unpaid balance of the Class C Certificates pursuant to the terms
of the Agreement. All principal of and interest on the Class C Certificates is
due and payable no later than the July 2004 Distribution Date (or if such day is
not a Business Day, the next succeeding Business Day) (the "Scheduled Series
1996-1 Termination Date"). After the Scheduled Series 1996-1 Termination Date
neither the Trust nor the Transferor will have any further obligation to
distribute principal or interest on the Class C Certificates. In the event that
the Class C Invested Amount is greater than zero on the Scheduled Series 1996-1
Termination Date, the Trustee will sell or cause to be sold, to the extent
necessary, an amount of interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount, the Class B Invested
Amount, and the Class C Invested Amount at the close of business on such date
(but not more than the total amount of Receivables allocable to the Investor
Certificates), and shall pay the proceeds to the Class A Certificateholders in
final payment of the Class A Certificates, then to the Class B
Certificateholders in final payment of the Class B Certificates, and finally to
the Class C Certificateholders in final payment of the Class C Certificates.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Certificate
shall not be entitled to any benefit under the Agreement, or be valid for any
purpose.
A-3-4
<PAGE> 70
IN WITNESS WHEREOF, the Transferor has caused this Certificate
to be duly executed under its official seal.
PRIME RECEIVABLES CORPORATION
By:_________________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Class C Certificates referred to in the
within-mentioned Pooling and Servicing Agreement.
CHEMICAL BANK,
as Trustee
By:______________________
Authorized Signatory
Dated:
A-3-5
<PAGE> 71
EXHIBIT B
---------
[DTC LOGO]
Letter of Representations
[To be Completed by Issuer and Trustee]
PRIME CREDIT CARD MASTER TRUST
-----------------------------------------------
[Name of Issuer]
CHEMICAL BANK
-----------------------------------------------
[Name of Trustee]
May 14, 1996
------------
[Date]
Attention: General Counsel's Office
THE DEPOSITORY TRUST COMPANY
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: Prime Credit Card Master Trust
------------------------------------------------------------------
$218,000,000 6.70% Class A Asset-Backed Certificates, Series 1996-1
---------------------------------------------------------------------
$ 20,800,000 6.85% Class B Asset-Backed Certificates, Series 1996-1
---------------------------------------------------------------------
[Issue Description]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-references issue (the "Securities"). Trustee will
act as trustee with respect to the Securities pursuant to a trust indenture
dated December 15 , 1992 (the "Document"). CS First Boston Corporation* is
distributing the Securities through The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trustee make the following representations to DTC:
1. Prior to closing on the Securities on May 14 , 1996, there shall be
deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., for each stated maturity of the Securities in the face
amounts set forth on Schedule A hereto, the total of
- ------------
* As representative for itself and Goldman, Sachs & Co.
1
<PAGE> 72
which represents 100% of the principal amount of such Securities. If,
however, the aggregate principal amount of any maturity exceeds $200 million,
one certificate will be issued with respect to each $200 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount. Each Security certificate shall bear the following
legend:
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer or Trustee shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall, to the extent possible, send notice of such record date to
DTC not less than 15 calendar days in advance of such record date. Notices to
DTC pursuant to this Paragraph by telecopy shall be sent to DTC's Reorganization
Department at (212) 709-6896 or (212) 709-6897, and receipt of such notices
shall be confirmed by telephoning (212) 709-6870. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to DTC's
Reorganization Department as indicated in Paragraph 4.
3. In the event of a full or partial redemption, Issuer or Trustee shall
send a notice to DTC specifying: (a) the amount of the redemption or refunding;
(b) in the case of a refunding, the maturity date(s) established under the
refunding; and (c) the date such notice is to be mailed to Security holders or
published (the "Publication Date"). Such notice shall be sent to DTC by a secure
means (e.g., legible telecopy, registered or certified mail, overnight delivery)
in a timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Trustee shall forward such
notice either in a separate secure transmission for each CUSIP number or in a
secure transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be not less
than 30 days nor more than 60 days prior to the redemption date or, in the case
of an advance refunding, the date that the proceeds are deposited in escrow.
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to DTC's
Call Notification Department at (516) 227-4039 or (516) 227-4190. If the party
sending the notice does not receive a telecopy receipt from DTC confirming that
the notice has been received, such party shall telephone (516) 227-4070. Notices
to DTC pursuant to this Paragraph by mail or by any other means shall be sent
to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trustee
to Security holders specifying the terms of the tender and the Publication Date
of such notice shall be sent to DTC by a secure means in the manner set forth in
the preceding Paragraph. Notices to DTC pursuant to this Paragraph and notices
of other corporate actions by telecopy shall be sent to DTC's Reorganization
Department at (212) 709-1093
-2-
<PAGE> 73
or (212) 709-1094, and receipt of such notices shall be confirmed by
telephoning (212) 709-6884. Notices to DTC pursuant to the above by mail or by
any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004-2695
5. All notices and payment advises sent to DTC shall contain the CUSIP
number of the Securities.
6. Trustee shall send DTC written notice with respect to the dollar amount
per $1,000 original face value (or other minimum authorized denomination if less
than $1,000 face value) payable on each payment date allocated as to the
interest and principal portions thereof preferably 5, but not less than 2,
business days prior to such payment date. Such notices, which shall also contain
the current pool factor, any special adjustments to principal/interest rates
(e.g., adjustments due to deferred interest or shortfall), and Trustee contact's
name and telephone number, shall be sent by telecopy to DTC's Dividend
Department at (212) 709-1723, or if by mail or by any other means to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
7. [NOTE: ISSUER MUST REPRESENT ONE OF THE FOLLOWING, AND CROSS OUT THE
OTHER:] [The interest accrual period is payment date to payment date.]
8. Trustee must provide DTC, no later than noon (Eastern Time) on the
payment date, CUSIP numbers for each issue for which payment is being sent, as
well as the dollar amount of the payment for each issue. Notification of payment
details should be sent using automated communications.
9. Interest payments and principal payments that are part of periodic
principal-and-interest payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds, no later than 2:30 p.m.
(Eastern Time) in each payment date (in accordance with existing arrangements
between Issuer or Trustee and DTC). Absent any other arrangements between Issuer
or Trustee and DTC, such funds shall be wired as follows:
Chemical Bank
ABA 021000128
For credit to A/C The Depository Trust Company
Dividend Deposit Account 066-026776
Issuer or Trustee shall provide interest payment information to a standard
announcement service subscribed to by DTC. In the unlikely event that no such
service exists, Issuer or Trustee shall provide interest payment information
directly to DTC in advance of the interest payment date as soon as the
information is available. This information should be conveyed directly to DTC
electronically. If electronic transmission is not available, absent any other
arrangements between Trustee and DTC, such information should be sent by
telecopy to DTC's Dividend Department at (212) 709-1723 or
-3-
<PAGE> 74
(212) 709-1686, and receipt of such notices shall be confirmed by
telephoning (212) 709-1270. Notices to DTC pursuant to the above by mail or by
any other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
10. DTC shall receive maturity and redemption payments allocated with
respect to each CUSIP number on the payable date in same-day funds by 2:30 p.m.
(Eastern Time). Absent any other arrangements between Trustee and DTC, such
payments shall be wired as follows:
Chemical Bank
ABA 021000128
For credit to A/C The Depository Trust Company
Redemption Account 066-027306
in accordance with existing SDFS payment procedures in the manner set forth in
DTC's SDFS Paying Agent Operating Procedures, a copy of which has previously
been furnished to Trustee.
11. DTC shall receive all reorganization payments and CUSIP-level detail
resulting from corporate actions (such as tender offers, remarketings, or
mergers) in the first payable date in same-day funds by 2:30 p.m. (Eastern
Time). Absent any other arrangements between Trustee and DTC, such payments
shall be wired as follows:
Chemical Bank
ABA 021000128
For credit to A/C The Depository Trust Company
Reorganization Account 066-027608
12. DTC may direct Issuer or Trustee to use any other number or address as
the number or address to which notices or payments of interest or principal may
be sent.
13. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Trustee's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Trustee to issue
and authenticate a new Security Certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in principal except in the case of final maturity, in which case the
certificate will be presented to Issuer or Trustee prior to payment, if
required.
14. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificates Securities, Issuer or Trustee
shall notify DTC of the availability of certificates. In such event, Issuer or
Trustee shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
15. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trustee (at which time DTC will confirm with Issuer or Trustee the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request Issuer and Trustee shall cooperate fully with DTC by taking
-4-
<PAGE> 75
appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
16. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificates by virtue of submission of such certificate(s) to DTC.
17. Nothing herein shall be deemed to require Trustee to advance funds on
behalf of Issuer.
18. Each of Rider 4A and the Representations for Deposit/Withdrawal at
Custodian attached hereto are incorporated herein by reference.
Very truly yours,
<TABLE>
<S> <C>
NOTES:
- -----
A. IF THERE IS A TRUSTEE (AS DEFINED IN THIS LETTER OF
REPRESENTATIONS), TRUSTEE AS WELL AS ISSUER MUST SIGN
THIS LETTER. IF THERE IS NO TRUSTEE, IN SIGNING THIS Prime Receivables Corporation*
LETTER ISSUER ITSELF UNDERTAKES TO PERFORM ALL OF THE ---------------------------------------
OBLIGATIONS SET FORTH HEREIN. (Issuer)
B. SCHEDULE B CONTAINS STATEMENTS THAT DTC By: /s/ Susan R. Robinson
BELIEVED ACCURATELY DESCRIBE DTC, THE METHOD -------------------------------------
OF EFFECTING BOOK-ENTRY TRANSFERS OF SECURITIES (Authorized Officer's Signature)
DISTRIBUTED THROUGH DTC, AND CERTAIN RELATED
MATTERS. Chemical Bank
---------------------------------------
(Trustee)
By: /s/ Dennis Kildea
------------------------------------
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: /s/
-------------------------- ---------------------------------
*Originator of Prime Credit Card
Master Trust.
</TABLE>
cc: Underwriter
Underwriter's Counsel
-5-
<PAGE> 76
SCHEDULE A
----------
Prime Credit Card Master Trust, $218,000,000 6.70% Class A Asset-Backed
------------------------------------------------------------
Certificates
Series 1996-1, $20,800,000 6.85% Class B Asset-Backed Certificates,
---------------------------------------------------------------
Series 1996-1
- ------
(Describe Issue)
<TABLE>
<CAPTION>
CUSIP NUMBER PRINCIPAL AMOUNT MATURITY DATE INTEREST RATE
------------ ---------------- ------------- -------------
<S> <C> <C> <C>
74155Q AG5 Class A $218,000,000 May 15, 2001 6.70%
74155Q AH3 Class B $ 20,800,000 June 15, 2001 6.85%
</TABLE>
<PAGE> 77
SCHEDULE B
----------
SAMPLE OFFICIAL STATEMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(PREPARED BY DTC -- BRACKETED MATERIAL MAY BE APPLICABLE ONLY TO CERTAIN ISSUES)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6.Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
-i-
<PAGE> 78
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Principal and interest payments on the Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trustee, or Issuer, subject
to any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal and interest to DTC is the responsibility of Issuer
or Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
[9.A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to Trustee [or
Tender/Remarketing Agent], and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to Trustee [or Tender/Remarketing Agent]. The
requirement for physical delivery of Securities in connection with an optional
tender or a mandatory purchase will be deemed satisfied when the ownership
rights in the Securities are transferred by Direct Participants on DTC's records
and followed by a book-entry credit of tendered Securities to Trustee [or
Tender/Remarketing Agent's] DTC account.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
-ii-
<PAGE> 79
Rider 4A
The terms "trust indenture dated December 15, 1992" and "Document" are hereby
replaced whenever they appear in the Letter of Representations with the term
"Amended and Restated Pooling and Servicing Agreement, dated as of December 15,
1992, as supplemented by the Series 1996-1 Supplement thereto."
<PAGE> 80
[DTC LOGO]
REPRESENTATIONS FOR DEPOSIT/WITHDRAWAL AT CUSTODIAN ("DWAC") --
TO BE INCLUDED IN DTC LETTER OF REPRESENTATIONS
-----------------------------------------------
The Security certificate(s) shall remain in Agent's custody as a
"Balance Certificate" subject to the provisions of the Balance Certificate
Agreement between Agent and DTC currently in effect.
On each day on which Agent is open for business and on which it
receives an instruction originated by a Participant through DTC's
Deposit/Withdrawal at Custodian ("DWAC") system to increase the Participant's
account by a specified number of shares, units, or obligations (a "Deposit
Instruction"), Agent shall, before 6:30 p.m. (Eastern Time) that day, either
approve or cancel the Deposit Instruction through the DWAC system.
On each day on which Agent is open for business and on which it
receives an instruction originated by a Participant through the DWAC system to
decrease the Participant's account by a specified number of shares, units, or
obligations (a "Withdrawal Instruction"), Agent shall, before 6:30 p.m. (Eastern
Time) that day, either approve or cancel the Withdrawal Instruction through the
DWAC system.
Agent agrees that its approval of a Deposit or Withdrawal Instruction
shall be deemed to be the receipt by DTC of a new, reissued or reregistered
certificated security on registration of transfer to the name of Cede & Co. for
the quantity of Securities evidenced by the Balance Certificate after the
Deposit or Withdrawal Instruction is effected.
<PAGE> 81
EXHIBIT C
---------
FORM OF MONTHLY CERTIFICATEHOLDERS' STATEMENT
Prime Credit Card Master Trust
Series 1996-1 Monthly Certificateholders' Statement
- ---------------------------------------------------
Distribution Date:
Monthly Period:
(i) Total Amount Distributed per $1,000
A
B
(ii) Principal Distributed per $1,000
A
B
(iii) Interest Distributed per $1,000
A
B
(iv) Net Principal Collections Allocated
Applied:
A
B
C
(v) Total Finance Charge Collections Allocated
Applied:
A
B
C
(vi) Other Information
Principal Receivables
Invested Amount
A
B
Floating Allocation Percentage
A
B
Fixed/Floating Allocation Percentage
A
B
<PAGE> 82
(vii) Delinquency
Current
30 days
60 day
90 days
120 days
150 days
180 days+
Total
(viii) Aggregate Investor Default Amount
(ix) Investor Charge-Offs Per $1,000 Aggregate
A
B
C
(x) Monthly Servicing Fee Per $1,000 Aggregate
(xi) Pool Factor
A
B
C
(xii) Reallocated Principal Collections
B
C
(xiii) Accumulation Date
Accumulation Period Length
<PAGE> 1
$238,800,000
Prime Credit Card Master Trust
$218,000,000 6.70% Class A Asset Backed Certificates, Series 1996-1
$20,800,000 6.85% Class B Asset Backed Certificates, Series 1996-1
Prime Receivables Corporation
Transferor
FDS National Bank
Servicer
------------------
Each of the 6.70% Class A Asset Backed Certificates, Series 1996-1 (the "Class A
Certificates"), and each of the 6.85% Class B Asset Backed Certificates, Series
1996-1 (the "Class B Certificates," and, together with the Class A
Certificates, the "Offered Certificates"), will represent an undivided
interest in the Prime Credit Card Master Trust (the "Trust") created
pursuant to a Pooling and Servicing Agreement among Prime Receivables
Corporation, as transferor (the "Transferor"), FDS National Bank
("FDS"), as servicer (the "Servicer"), and Chemical Bank, as
trustee. The fractional undivided interests in the Trust
represented by the Class B Certificates will be subordinated to
fund certain payments with respect to the Class A Certificates as
described in "Description of the Offered
Certificates--Allocation Percentages," "--Reallocated Principal
Collections," "--Application of Collections," and
"--Investor Charge-Offs." The property of the Trust includes
receivables (the "Receivables") generated from time to
time in a portfolio of revolving consumer credit card
accounts, and all monies due or to become due in
payment of the Receivables.
(Continued on next page)
------------------
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" ON PAGES 20 THROUGH 27 HEREOF.
THE OFFERED CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF PRIME RECEIVABLES
CORPORATION, FDS NATIONAL BANK, FEDERATED DEPARTMENT STORES, INC.,
OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES
NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts the Transferor
Public and Commissions (1)
------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate......................... 99.953125% 0.325000% 99.628125%
Per Class B Certificate......................... 99.843750% 0.325000% 99.518750%
Total........................................... $238,665,312.50 $776,100.00 $237,889,212.50
<FN>
(1) Before deduction of expenses estimated to be $622,345.
</TABLE>
------------------
The Offered Certificates are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters. The
Underwriters reserve the right to reject orders in whole or in part. It is
expected that the Offered Certificates will be offered globally and delivered in
book-entry form on or about May 14, 1996, through the facilities of The
Depository Trust Company, Cedel Bank, societe anonyme, and the Euroclear System.
Underwriters of the Class A Certificates
CS First Boston Goldman, Sachs & Co.
Underwriter of the Class B Certificates
CS First Boston
The date of this Prospectus is May 1, 1996
<PAGE> 2
(Continued from previous page)
Concurrently with the issuance of the Offered Certificates, the Trust will issue
the Class C Asset Backed Certificates, Series 1996-1 (the "Class C
Certificates," and, together with the Offered Certificates, the
"Certificates"), to the Transferor. The Offered Certificates and the Class C
Certificates constitute "Series 1996-1." The fractional undivided
interests in the Trust represented by the Class C Certificates will be
subordinated to fund certain payments with respect to the Offered
Certificates as described in "Description of the Offered
Certificates--Allocation Percentages," "--Reallocated Principal
Collections," "--Application of Collections," and "--Investor
Charge-Offs." On and after the Class B Principal Payment
Commencement Date, a portion of the fractional undivided
interests in the Trust represented by the Exchangeable
Transferor Certificate will be subordinated to fund certain
payments with respect to the Class B Certificates as
described in "Description of the Offered
Certificates--Reallocation of Cash Flows," "--Coverage of
Interest Shortfalls," and "--Investor Charge-Offs."
The Class C Certificates, which may be held by the Transferor or transferred in
whole or in part to other persons, are not being offered hereby. The
Transferor will own the remaining undivided interest in the Trust not
represented by the Certificates and any other investor certificates
issued by the Trust, which retained interest will be represented
by the Exchangeable Transferor Certificate (as defined
herein). The Transferor from time to time may cause other
series of certificates that evidence undivided interests
in certain assets of the Trust to be issued by
exchanging a portion of its interest in the
Trust therefor.
Interest will accrue on the Class A Certificates at the rate of 6.70% per annum
(the "Class A Certificate Rate"). Interest will accrue on the Class B
Certificates at the rate of 6.85% per annum (the "Class B Certificate
Rate"). Interest with respect to the Certificates will be paid on June 17,
1996 and on the 15th day of each month thereafter (or, if any such 15th
day is not a business day, the next succeeding business day) (each a
"Distribution Date"). Principal on the Class A Certificates is
expected to be paid on the May 2001 Distribution Date (the "Class A
Expected Final Payment Date") but may be paid earlier or later
under certain limited circumstances described in "Maturity
Assumptions" and "Description of the Offered Certificates--Pay
Out Events." Principal on the Class B Certificates is expected
to be paid on the June 2001 Distribution Date (the "Class B
Expected Final Payment Date") but may be paid earlier or
later under certain limited circumstances. See "Maturity
Assumptions" and "Description of the Offered
Certificates--Pay Out Events."
The Offered Certificates initially will be represented by certificates which
will be registered in the name of Cede & Co., the nominee of The Depository
Trust Company. The interests of holders of beneficial interests in the
Offered Certificates (the "Offered Certificate Owners") will be
represented by book entries on the records of The Depository Trust
Company and participating members thereof. Definitive Certificates
will be available to Offered Certificate Owners only under the
limited circumstances described in "Description of the Offered
Certificates--Definitive Certificates."
There currently is no secondary market for the Offered Certificates, and there
is no assurance that one will develop or, if one does develop, that it will
continue until the Offered Certificates are paid in full.
2
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein) are issued,
monthly and annual reports, containing information concerning the Trust and
prepared by the Servicer, will be sent on behalf of the Trust to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Offered Certificates, pursuant to the Pooling and Servicing
Agreement (as defined herein). See "Description of the Offered
Certificates--Book-Entry Registration," "--Definitive Certificates," "--Reports
to Certificateholders," and "--Evidence as to Compliance." Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles and will not be sent by the Servicer or the Trustee to the
Offered Certificate Owners. The Transferor does not intend to send any of its
financial reports to Certificateholders or to the Offered Certificate Owners.
The Transferor, as originator of the Trust, will cause to be filed with the
Securities and Exchange Commission (the "Commission") certain periodic reports
with respect to the Trust under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the Commission
thereunder.
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission on behalf of the Trust with respect to the Certificates
offered pursuant to this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, to which
reference is hereby made. The Registration Statement and amendments thereof and
exhibits thereto are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of the Registration Statement and amendments thereof and
exhibits thereto may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
3
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms used herein are defined in the "Glossary of Terms" or elsewhere in this
Prospectus. Unless the context requires otherwise, certain capitalized terms,
when used in this Prospectus, relate only to the Certificates.
Offered Certificates.......... $218,000,000 Class A Certificates and
$20,800,000 Class B Certificates.
The Offered Certificates will be available for
purchase in minimum denominations of $1,000
and in integral multiples thereof. The
Offered Certificates initially will be
represented by one or more certificates
registered in the name of Cede, as the
nominee of DTC. No Offered Certificate Owner
will be entitled to receive a definitive
certificate representing such person's
interest, except in the event that Definitive
Certificates are issued under the limited
circumstances described in "Description of
the Offered Certificates--Definitive
Certificates."
The Offered Certificates represent interests
in the Trust only and do not represent
interests in or recourse obligations of the
Transferor, FDS, Federated, or any of their
affiliates.
Neither the Offered Certificates nor the
underlying accounts or receivables are
insured or guaranteed by the Federal Deposit
Insurance Corporation or any other
governmental agency.
The Class B Certificates will be subordinated
to fund certain payments with respect to the
Class A Certificates as described herein, and
therefore will bear more directly the credit
and other risks associated with an investment
in the Trust.
Other Certificates............ $20,800,000 aggregate principal amount of Class
C Certificates. The Class C Certificates are
not being offered hereby.
Other Series.................. The Trust has previously issued four other
Series. See "Annex I: Other Series" for a
summary of certain terms of these other
Series. Additional Series may be issued from
time to time by the Trust. See "Description
of the Offered Certificates--Exchanges."
Transferor.................... Prime Receivables Corporation, a Delaware
corporation, is the Transferor. The principal
executive offices of the Transferor are
located at 9111 Duke Boulevard, Mason, Ohio
45040-8999, telephone number (513) 573-2037.
Servicer...................... FDS National Bank, a federally chartered
credit card bank, is the Servicer. The
principal executive offices of the Servicer
are located at 9111 Duke Boulevard, Mason,
Ohio 45040-8999, telephone number (513)
573-2265.
Trustee....................... Chemical Bank, a New York banking corporation,
is the Trustee.
Trust......................... The Trust was formed on December 15, 1992 (the
"Initial Closing Date") pursuant to the
Pooling and Servicing Agreement, which has
been supplemented by the Supplements thereto
relating to previously issued Series and
which will be supplemented by the Series
1996-1 Supplement relating to the
Certificates and the Supplements applicable
to any other Series that may be issued in the
future.
4
<PAGE> 5
As more fully described below and elsewhere
herein, the Trust's assets include the
Receivables and the proceeds thereof.
Collections on the Receivables are deposited
into the Collection Account which is
maintained in the name of the Trust and
allocated on each business day between
Finance Charge Collections and Principal
Collections. Finance Charge Collections and
Principal Collections are allocated on each
business day among the Transferor Interest
and the respective interests of the
certificateholders of each Series issued and
outstanding from time to time in accordance
with the Pooling and Servicing Agreement and
applicable Supplements. In general, in
accordance with such allocations and the
provisions of the Pooling and Servicing
Agreement and the applicable Supplements, (i)
Finance Charge Collections and certain other
amounts are applied on each business day to
fund interest on the certificates of any
Series then outstanding (including through
deposits made to the Interest Funding
Account), to pay certain fees and expenses,
to cover investor default amounts, to
reimburse investor charge-offs, and to make
required payments to the Transferor, and (ii)
Principal Collections and certain other
amounts are applied on each business day to
fund principal on the certificates of any
Series then outstanding (including through
deposits made to the Principal Funding
Account or the Principal Account) and to make
required payments to the Transferor, except
that (x) during any revolving period
applicable to a Series, except as described
below, Principal Collections otherwise
allocable to the certificateholders of such
Series are paid to the holder of the
Exchangeable Transferor Certificate or to the
certificateholders of any other Series then
outstanding and (y) Principal Collections
allocated to the Class B Certificates and
Class C Certificates are subject to being
reallocated on each Distribution Date to
cover shortfalls in amounts payable from
Finance Charge Collections.
Trust Assets.................. The Trust assets include (i) all Receivables
existing from time to time in the Accounts,
(ii) all funds collected from cardholders in
respect of the Receivables, (iii) all right,
title, and interest of the Transferor in, to,
and under the Purchase Agreement, and (iv)
proceeds of the foregoing. The Class C
Certificates will be subordinated to fund
payments of principal and interest on the
Class A Certificates and the Class B
Certificates, and the Class B Certificates
will be subordinated to fund payments of
principal and interest on the Class A
Certificates, in each case as described in
"Description of the Offered
Certificates--Allocation Percentages,"
"--Reallocated Principal Collections,"
"--Application of Collections," and
"--Investor Charge-Offs." On and after the
Class B Principal Payment Commencement Date,
a portion of the fractional undivided
interests in the Trust represented by the
Exchangeable Transferor Certificate will be
subordinated to fund payments of principal
and interest on the Class B Certificates as
described in "Description of the Offered
Certificates--Reallocation of Cash Flows,"
"--Coverage of Interest Shortfalls," and
"--Investor Charge-Offs." Although other
Series may have the benefit of Enhancement,
the Series 1996-1 Certificates will not have
the benefit of any Enhancement.
5
<PAGE> 6
In September 1993, FDS was organized as a
federally chartered credit card bank,
replaced Federated as the Servicer under the
Pooling and Servicing Agreement, and became
an Originator under the Purchase Agreement.
Pursuant to the Purchase Agreement, the
Transferor purchases all of the Receivables
arising from time to time in the Accounts
(including Automatic Additional Accounts and
any Supplemental Accounts). Substantially all
of the Accounts (other than the Broadway
Accounts, substantially all of which are
expected to be transferred to FDS during
fiscal 1996) are owned by FDS. However,
certain Accounts are owned by the other
Originators. See "Federated's Credit Card
Business" and "Description of the Receivables
Purchase Agreement--Purchases of
Receivables."
Pursuant to the Pooling and Servicing
Agreement, the Transferor automatically
transfers to the Trust all of its right,
title, and interest in and to the Receivables
purchased by it pursuant to the Purchase
Agreement. See "Risk Factors--Transfer of the
Receivables; Insolvency Risk Considerations"
for a discussion of certain legal
considerations relating to such transfer.
Pursuant to the Pooling and Servicing
Agreement, the Transferor has the right under
certain circumstances to cause the
Receivables in any Removed Accounts to no
longer be transferred to the Trust and to
accept the transfer from the Trust of all of
the Receivables in any Removed Accounts,
whether such Receivables are then existing or
thereafter created.
Receivables................... The Receivables consist of amounts charged to
the Accounts by holders of Federated Cards
for goods and services, and all related
monthly finance charges, late charges,
returned check fees, proceeds allocable to
finance charges, recoveries (net of
collection expenses) on Receivables which
were previously charged off as uncollectible,
and all other fees billed to cardholders on
the Accounts for a Monthly Period. All new
Receivables arising in the Accounts are
purchased by the Transferor pursuant to the
Purchase Agreement and thereafter are
automatically transferred to the Trust.
Accordingly, the amount of Receivables
fluctuates from day to day as new Receivables
are generated and as existing Receivables are
collected, written off as uncollectible, or
otherwise adjusted. As of the Closing Date, a
significant portion of the Receivables in the
Trust will consist of amounts charged to the
Broadway Accounts and the FDS/Broadway
Accounts. See "Risk Factors--Effects of
Certain Transactions," "Federated's Credit
Card Business," and "The Accounts."
The Receivables in the Trust are divided into
two components: Principal Receivables and
Finance Charge Receivables. At any time,
Finance Charge Receivables will equal the
product of the Finance Charge Receivable
Factor and the aggregate amount of Eligible
Receivables as of the date of determination
and Principal Receivables will equal the
remainder of such Eligible Receivables.
Collections................... The Servicer deposits all collections of
Receivables in the Collection Account. All
amounts deposited in the Collection Account
are
6
<PAGE> 7
allocated by the Servicer in the manner
provided in the Pooling and Servicing
Agreement between Principal Collections and
Finance Charge Receivable Collections in
accordance with the definitions thereof. All
such amounts are then allocated in accordance
with the respective interests of the
Certificateholders, the certificateholders of
each other Series, and the holder of the
Exchangeable Transferor Certificate in the
Principal Receivables and in the Finance
Charge Receivables in the Trust. See
"Description of the Offered
Certificates--Allocation Percentages."
Allocation of Trust Assets.... The Trust's assets will be allocated among the
Class A Certificateholders' Interest, the
Class B Certificateholders' Interest, the
Class C Certificateholders' Interest, the
interest of the certificateholders of each
other Series, and the Transferor Interest.
The interest of the certificateholders of any
class of any Series in the assets of the
Trust will be limited to the
certificateholders' interest for such class
and Series, and such certificateholders will
not have any recourse against any assets of
the Trust other than those allocated to such
certificateholders' interest pursuant to the
Pooling and Servicing Agreement and any
applicable Supplement. The principal amount
of the Transferor Interest fluctuates as the
amount of Receivables in the Trust and the
amount on deposit in the Excess Funding
Account changes from time to time. The
Transferor Interest represents the right to
the assets of the Trust not allocated to the
Certificateholders' Interest or the interest
of the certificateholders of any other
Series.
The Class A Certificates will evidence
undivided interests in the assets of the
Trust allocated to the Class A
Certificateholders' Interest and will
represent the right to receive from such
assets funds up to (but not in excess of) the
amounts required to make payments of interest
on the Class A Certificates at the Class A
Certificate Rate, the payment of principal to
the extent of the Class A Invested Amount
(which may be less than the aggregate unpaid
principal amount of the Class A Certificates,
in certain circumstances, if the Investor
Default Amount exceeds funds allocable
thereto and the Class B Invested Amount and
the Class C Invested Amount are reduced to
zero). See "Description of the Offered
Certificates--Subordination of the Class B
Certificates," "--Allocation Percentages,"
and "--Investor Charge-Offs."
The Class B Certificates will evidence
undivided interests in the assets of the
Trust allocated to the Class B
Certificateholders' Interest and will
represent the right to receive from such
assets funds up to (but not in excess of) the
amounts required to make payments of interest
on the Class B Certificates at the Class B
Certificate Rate, the payment of principal to
the extent of the Class B Invested Amount
(which may be less than the aggregate unpaid
principal amount of the Class B Certificates,
in certain circumstances, if the Investor
Default Amount exceeds funds allocable
thereto and the Class C Invested Amount and,
on and after the Class B Principal Payment
Commencement Date, the Transferor
Subordination Amount are reduced to zero).
See "Description of the Offered
Certificates--Subordination of the
7
<PAGE> 8
Class B Certificates," "--Allocation
Percentages," and "--Investor Charge-Offs."
The Class C Certificates will evidence
undivided interests in the assets of the
Trust allocated to the Class C
Certificateholders' Interest and will
represent the right to receive from such
assets funds up to (but not in excess of) the
amounts required to make payments of interest
on the Class C Certificates at the Class C
Certificate Rate, the payment of principal to
the extent of the Class C Invested Amount
(which may be less than the aggregate unpaid
principal amount of the Class C Certificates,
in certain circumstances, if the Investor
Default Amount exceeds funds allocable
thereto and, on and after the Class B
Principal Payment Commencement Date, the
Transferor Subordination Amount is reduced to
zero). See "Description of the Offered
Certificates--Allocation Percentages," and
"--Investor Charge-Offs." The Class C
Certificates are not being offered hereby.
The aggregate principal amount of the
Certificates, except as otherwise described
herein, will remain fixed at the initial
amount thereof during the Revolving Period.
No payment of principal with respect to the
Class B Certificates may be made until the
final principal payment of the Class A
Invested Amount with respect to the Class A
Certificates has been made. No payment of
principal with respect to the Class C
Certificates may be made until the final
principal payment of the Class A Invested
Amount with respect to the Class A
Certificates and the final principal payment
of the Class B Invested Amount with respect
to the Class B Certificates have been made.
See "Description of the Offered
Certificates--Principal Payments."
The Class A Certificateholders' Interest, the
Class B Certificateholders' Interest, and the
Class C Certificateholders' Interest will
each include the right to receive (but only
to the extent needed to make required
payments under the Pooling and Servicing
Agreement) varying percentages of Total
Finance Charge Collections and Net Principal
Collections during each Monthly Period.
Finance Charge Collections prior to the
occurrence of a Pay Out Event, and the amount
of Receivables in Defaulted Accounts at all
times, will be allocated on each business day
to the Class A Certificateholders' Interest,
the Class B Certificateholders' Interest, and
the Class C Certificateholders' Interest
based on the Class A Floating Allocation
Percentage, the Class B Floating Allocation
Percentage, and the Class C Floating
Allocation Percentage, respectively. On and
after the occurrence of a Pay Out Event,
Finance Charge Collections will generally be
allocated on each business day to the
Certificateholders' Interest based on the
Fixed/Floating Allocation Percentage. During
the Revolving Period, except as described
below under "--Reallocation of Principal
Collections," all Net Principal Collections
that would otherwise be allocated to the
Certificateholders will be allocated on each
business day and paid to the holder of the
Exchangeable Transferor Certificate (except
for Shared Principal Collections used to make
payments to other Series). All Principal
Collections allocated to
8
<PAGE> 9
the Certificateholders will generally be
allocated on each business day on and prior
to the Class B Principal Payment Commencement
Date to the Class A Certificateholders'
Interest based on the Fixed/Floating
Allocation Percentage; provided, however,
that during the Accumulation Period only, if
the amount on deposit in the Principal
Funding Account exceeds the Controlled
Distribution Amount for the related
Distribution Date, such excess will be
treated as Shared Principal Collections. On
and after the Class B Principal Payment
Commencement Date, all Principal Collections
allocated to the Certificateholders will
generally be allocated on each business day
to the Class B Certificateholders' Interest
based on the Fixed/Floating Allocation
Percentage. See "Description of the Offered
Certificates--Allocation Percentages."
Exchanges..................... The Pooling and Servicing Agreement provides
that the Trustee may issue two types of
certificates: (i) investor certificates in
one or more Series, each of which may have
multiple classes of certificates, of which
one or more of such classes may be
transferable, and (ii) the Exchangeable
Transferor Certificate. The Exchangeable
Transferor Certificate will evidence the
Transferor Interest, will be held by the
Transferor and will be transferable only as
provided in the Pooling and Servicing
Agreement. The Pooling and Servicing
Agreement also provides that, pursuant to any
one or more Supplements, the holder of the
Exchangeable Transferor Certificate may
tender the Exchangeable Transferor
Certificate or, if provided in the relevant
Supplement, certificates comprising any
Series and the Exchangeable Transferor
Certificate, to the Trustee in exchange for
certificates comprising one or more new
Series and a reissued Exchangeable Transferor
Certificate. However, at all times, the
interest in the Principal Receivables in the
Trust and amounts on deposit in the Excess
Funding Account represented by the Transferor
Interest must equal or exceed the Minimum
Transferor Interest. Under the Pooling and
Servicing Agreement, the Transferor may
define, with respect to any Series, the
Principal Terms of the Series. See
"Description of the Offered
Certificates--Exchanges." The Transferor may
offer any Series, or any class of any Series,
for sale in transactions either registered
under the Securities Act or exempt from
registration thereunder, directly or through
the Underwriters or one or more other
underwriters or placement agents, in
fixed-price offerings or in negotiated
transactions or otherwise. The Trust has
previously issued four Series: Series 1992-1;
Series 1992-2; Series 1992-3; and Series
1995-1. The Transferor may from time to time
cause the Trust to issue additional Series.
Under the Pooling and Servicing Agreement, an
Exchange of the Exchangeable Transferor
Certificate for certificates comprising one
or more Series and a reissued Exchangeable
Transferor Certificate may occur only upon
delivery to the Trustee of the following: (i)
a Supplement specifying the Principal Terms
of each Series to be issued in connection
therewith, (ii) an opinion of counsel to the
effect that the certificates of such Series
will be characterized as indebtedness or as
partnership interests for federal income tax
purposes under existing law, and that the
issuance of such Series
9
<PAGE> 10
will not have a material adverse effect on
the federal income tax characterization of
any outstanding Series, (iii) if required by
such Supplement, the form of Enhancement and
an appropriate Enhancement agreement with
respect thereto, (iv) written confirmation
from each Rating Agency that the Exchange
will not result in such Rating Agency
reducing or withdrawing its rating on any
then outstanding Series rated by it, (v) an
officer's certificate of the Transferor
stating that, after giving effect to such
Exchange, the Transferor Interest would be at
least equal to the Minimum Transferor
Interest, and (vi) the existing Exchangeable
Transferor Certificate and, if applicable,
the certificates representing the Series to
be exchanged. See "Description of the Offered
Certificates--Exchanges."
Interest...................... Interest on the Offered Certificates will be
payable on June 17, 1996 and on each
Distribution Date thereafter, in an amount
equal to (i) with respect to the Class A
Certificates, one-twelfth of the product of
the Class A Certificate Rate and the
outstanding principal balance of the Class A
Certificates as of the preceding Record Date
(or in the case of the first Distribution
Date, the initial principal amount of the
Class A Certificates) and (ii) with respect
to the Class B Certificates, one-twelfth of
the product of the Class B Certificate Rate
and the outstanding principal balance of the
Class B Certificates as of the preceding
Record Date (or in the case of the first
Distribution Date, the initial principal
amount of the Class B Certificates). Interest
for the first Distribution Date will include
accrued interest at the applicable
Certificate Rate from the Closing Date
through June 14, 1996 (calculated as though
there were only 30 days in May). Interest
will be calculated on the basis of a 360-day
year of twelve 30-day months.
Interest payments on the Class A Certificates
on each Distribution Date will be funded from
the portion of Total Finance Charge
Collections during the preceding Monthly
Period and from certain other funds allocated
as set forth in the Pooling and Servicing
Agreement to the respective classes of the
Certificates and deposited on each business
day during such Monthly Period in the
Interest Funding Account. See "Description of
the Offered Certificates--Interest Payments."
Subject to the prior payment of interest on
the Class A Certificates (and, as to a
portion thereof, to the prior payment of
certain other amounts), interest payments on
the Class B Certificates on each Distribution
Date will be funded from the portion of Total
Finance Charge Collections during the
preceding Monthly Period and from certain
other funds allocated as set forth in the
Pooling and Servicing Agreement to the
respective classes of the Certificates and
deposited on each business day during such
Monthly Period in the Interest Funding
Account. See "Description of the Offered
Certificates--Interest Payments" and
"--Application of Collections."
Expected Principal Payment
Date.......................... Principal is scheduled to be paid in full on
the May 2001 Distribution Date (the "Class A
Expected Final Payment Date") for the Class A
Certificates, and on the June 2001
Distribution Date (the
10
<PAGE> 11
"Class B Expected Final Payment Date") for
the Class B Certificates, but may be paid
earlier in certain circumstances described in
"Description of the Offered Certificates--Pay
Out Events." However, no payment of principal
to the Class B Certificateholders will be
made until the Class A Invested Amount has
been paid in full. Unpaid principal, together
with interest, will be payable monthly to
Class A Certificateholders following the
Class A Expected Final Payment Date to the
extent principal has not been paid in full on
the Class A Expected Final Payment Date, and
unpaid principal, together with interest,
will be payable monthly to Class B
Certificateholders following the Class B
Expected Final Payment Date to the extent
principal has not been paid in full on the
Class B Expected Final Payment Date. However,
no payments of principal or interest will be
made on the Certificates after the Series
1996-1 Termination Date, regardless of
whether principal and interest have been paid
in full with respect thereto. See
"Description of the Offered
Certificates--Final Payment of Principal;
Termination."
Revolving Period.............. During the Revolving Period, collections of
Principal Receivables otherwise allocable to
the Certificateholders' Interest (other than
any Shared Principal Collections allocated to
the certificateholders' interests of other
Series) will, subject to certain limitations,
be paid from the Trust to the holder of the
Exchangeable Transferor Certificate. See
"Description of the Offered Certificates--Pay
Out Events" for a discussion of the events
which might lead to the termination of the
Revolving Period for the Series 1996-1
Certificates prior to the end of the July
2000 Monthly Period. The Accumulation Period
is scheduled to begin with the August 2000
Monthly Period. Subject to the conditions set
forth herein under "Description of the
Offered Certificates--Postponement of
Accumulation Period," the day on which the
Revolving Period ends and the Accumulation
Period begins may be delayed to no later than
the close of business on the last day of the
March 2001 Monthly Period.
Principal Payments;
Accumulation Period......... Unless a Pay Out Event shall have occurred
with respect to the Series 1996-1
Certificates, on each business day during the
Accumulation Period an amount equal to the
lesser of (i) Net Principal Collections
allocable to the Class A Certificateholders'
Interest plus Shared Principal Collections,
if any, from other Series allocable to the
Class A Certificates, plus certain other
amounts comprising Class A Monthly Principal,
and (ii) the Controlled Amortization Amount
for such Monthly Period plus any Accumulation
Shortfall arising from prior Monthly Periods,
will be deposited in the Principal Funding
Account. On any business day when the amount
on deposit in the Principal Funding Account
equals or exceeds the Class A Controlled
Distribution Amount for the related
Distribution Date, the balance of all such
funds remaining on deposit in the Collection
Account will be treated as Shared Principal
Collections and may be used to make payments
on other Series or classes of such Series
which may be accumulating or amortizing. The
funds then on deposit in the Principal
Funding Account will be paid to the Class A
Certificate-
11
<PAGE> 12
holders on the Class A Expected Final Payment
Date. If the funds available for distribution
to the Class A Certificateholders on the
Class A Expected Final Payment Date are
insufficient to pay the Class A Invested
Amount in full, all such funds will be
distributed to the Class A Certificateholders
at such time. Thereafter, until the Class A
Invested Amount has been paid in full or the
Series 1996-1 Termination Date has occurred,
principal and interest will be payable to
Class A Certificateholders monthly on each
Special Payment Date.
Upon the payment in full of the Class A
Invested Amount and on each business day
thereafter, an amount equal to the lesser of
(i) Net Principal Collections allocable to
the Class B Certificateholders' Interest plus
Shared Principal Collections, if any, from
other Series allocable to the Class B
Certificates, plus certain other amounts
comprising Class B Monthly Principal, and
(ii) the Class B Invested Amount, will be
deposited in the Principal Account. On any
business day when the amount on deposit in
the Principal Account equals or exceeds the
Class B Invested Amount, the balance of all
such funds remaining on deposit in the
Collection Account will be treated as Shared
Principal Collections and may be used to make
payments on other Series or classes of such
Series which may be accumulating or
amortizing. The funds then on deposit in the
Principal Account will be paid to the Class B
Certificateholders on the Class B Expected
Final Payment Date. If the funds available
for distribution to the Class B
Certificateholders on the Class B Expected
Final Payment Date are insufficient to pay
the Class B Invested Amount in full, all such
funds will be distributed to the Class B
Certificateholders at such time. Thereafter,
until the Class B Invested Amount has been
paid in full or the Series 1996-1 Termination
Date has occurred, principal and interest
will be payable to Class B Certificateholders
monthly on each Special Payment Date.
Principal will be distributable to the Class B
Certificateholders only after the Class A
Invested Amount has been paid in full, and
principal will be distributed to the Class C
Certificateholders only after the Class A
Invested Amount and the Class B Invested
Amount have been paid in full. See
"Description of the Offered
Certificates--Application of
Collections--Payments of Principal."
Three of the four other Series previously
issued by the Trust have accumulation or
amortization periods that are scheduled to
begin prior to the date on which the
Accumulation Period is scheduled to begin,
and all four of such other Series are subject
to early amortization periods similar to the
Early Amortization Period. Other Series which
may be offered by the Trust in the future may
or may not have amortization periods like the
Accumulation Period or the Early Amortization
Period, and such periods may have different
lengths and begin on different dates than the
Accumulation Period or the Early Amortization
Period. Thus, certain Series may be in their
revolving periods, while others are in
periods during which collections of Principal
Receivables are distributed to such other
Series. In addition, other Series may
allocate Principal Receivables based upon
different investor per-
12
<PAGE> 13
centages. See "Description of the Offered
Certificates--Exchanges" for a discussion of
the potential terms of other Series and
"Annex I: Other Series" for a summary of
certain terms of each previously issued
Series.
Early Amortization Period..... During any Early Amortization Period, Net
Principal Collections allocable to the
Certificateholders' Interest and certain
other amounts (including Shared Principal
Collections from any other Series) will no
longer be reinvested in the Trust or
otherwise used to maintain the
Certificateholders' Interest, but instead
will be distributed monthly on each
Distribution Date beginning with the first
Special Payment Date (which will be the first
Distribution Date following the Monthly
Period in which a Pay Out Event occurs or is
deemed to have occurred) as principal
payments to the Class A Certificateholders in
respect of the Class A Invested Amount and,
following the payment in full of the Class A
Invested Amount, to the Class B
Certificateholders in respect of the Class B
Invested Amount and, following the payment in
full of the Class B Invested Amount, to the
Class C Certificateholders in respect of the
Class C Invested Amount until the Class C
Invested Amount is paid in full. See
"Description of the Offered Certificates--Pay
Out Events."
Shared Principal
Collections................... To the extent that Principal Collections and
other amounts that are allocated to the
certificateholders' interest of any class of
any Series are not needed to make payments to
the certificateholders of such class or
required to be deposited in the principal
funding account for a Series, they may be
applied to cover principal payments due to or
for the benefit of certificateholders of
another Series, including principal payments
which the Transferor elects to make with
respect to the Variable Funding Certificate.
Any such reallocation will not result in a
reduction in the certificateholders' interest
of the Series to which such Principal
Collections were initially allocated. See
"Description of the Offered
Certificates--Application of Collections."
Excess Funding Account........ At any time during which no Series is in an
accumulation or amortization period
(including any early amortization period), or
the principal funding account for a Series is
fully funded for an applicable period, and
the Transferor Interest is less than the
Minimum Transferor Interest, funds (to the
extent available therefor as described
herein) otherwise payable to the Transferor
will be deposited in the Excess Funding
Account on each business day until the
Transferor Interest is equal to the Minimum
Transferor Interest. Funds on deposit in the
Excess Funding Account will be withdrawn and
paid to the Transferor to the extent that on
any day the Transferor Interest exceeds the
Minimum Transferor Interest as a result of
the addition of new Receivables to the Trust
or allocated to one or more Series when they
are in accumulation or amortization periods
(including any early amortization period).
The Transferor may, at its option on any
business day, deposit funds in the Excess
Funding Account to the extent necessary to
maintain the Minimum Transferor Interest or
the Minimum
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<PAGE> 14
Aggregate Principal Receivables or to permit
the designation of Removed Accounts.
Any funds on deposit in the Excess Funding
Account at the beginning of the Accumulation
Period will be deposited in the Principal
Funding Account to the extent of Class A
Monthly Principal, Class B Monthly Principal,
or Class C Monthly Principal, as applicable,
with respect to any Distribution Date. No
funds will be deposited in the Excess Funding
Account during any accumulation period,
amortization period, or early amortization
period for any Series until the principal
funding account for such Series has been
fully funded with respect to any Distribution
Date or the investor certificates of such
Series have been paid in full. See
"Description of the Offered
Certificates--Excess Funding Account."
Distribution of Finance Charge
Collections Allocable to
Certificateholders.......... Available Series Finance Charge Collections
allocable to the Certificateholders' Interest
on each business day will be applied in the
following order of priority: (i) an amount
equal to the amount of Class A Monthly
Interest and any overdue Class A Monthly
Interest not previously deposited in the
Interest Funding Account for such Monthly
Period, together with interest on any overdue
interest amounts, will be deposited in the
Interest Funding Account for distribution to
the Class A Certificateholders; (ii) an
amount equal to the amount of Class B Monthly
Interest and any overdue Class B Monthly
Interest not previously deposited in the
Interest Funding Account for such Monthly
Period, together with interest on any overdue
interest amounts, will be deposited in the
Interest Funding Account for distribution to
the Class B Certificateholders; (iii) an
amount equal to the Monthly Servicing Fee
plus any Monthly Servicing Fee that was due
but not paid on any prior business day will
be paid to the Servicer; (iv) an amount equal
to the Investor Default Amount on such
business day and, to the extent not
previously paid, the Investor Default Amount
for each prior business day in such Monthly
Period, will be (a) during the Revolving
Period, treated as Shared Principal
Collections, (b) during the Amortization
Period, on or prior to the Class B Principal
Payment Commencement Date, deposited for
distribution to the Class A
Certificateholders, (c) during the
Amortization Period, on and after the Class B
Principal Payment Commencement Date,
deposited for distribution to the Class B
Certificateholders, or (d) during the
Amortization Period, on and after the Class C
Principal Payment Commencement Date,
deposited for distribution to the Class C
Certificateholders; (v) an amount equal to
unreimbursed Class A Investor Charge-Offs on
such business day will be (a) treated as
Shared Principal Collections during the
Revolving Period, (b) deposited for
distribution to Class A Certificateholders to
the extent included in Class A Monthly
Principal during the Accumulation Period, (c)
deposited for distribution to the Class A
Certificateholders during any Early
Amortization Period, or (d) deposited for
distribution to the Class B
Certificateholders on and after the Class B
Principal Payment Commence-
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<PAGE> 15
ment Date; (vi) an amount equal to the
accrued and unpaid interest on the
outstanding aggregate principal amount of the
Class B Certificates not previously deposited
in the Interest Funding Account for such
Monthly Period will be deposited in the
Interest Funding Account for distribution to
the Class B Certificateholders; (vii) an
amount equal to unreimbursed Class B Investor
Charge-Offs on such business day and any
reductions of the Class B Invested Amount due
to Reallocated Class B Principal Collections
will be (a) during the Revolving Period,
treated as Shared Principal Collections, (b)
during the Amortization Period, on or prior
to the Class B Principal Payment Commencement
Date, deposited for distribution to Class A
Certificateholders, or (c) during the
Amortization Period, on and after the Class B
Principal Payment Commencement Date,
deposited for distribution to Class B
Certificateholders; (viii) an amount equal to
the accrued and unpaid interest on the
outstanding aggregate principal amount of the
Class C Certificates not previously paid to
the Class C Certificateholders will be
deposited for distribution to the Class C
Certificateholders; (ix) an amount equal to
unreimbursed Class C Investor Charge-Offs on
such business day and any reductions of the
Class C Invested Amount due to Reallocated
Class C Principal Collections will be (a)
during the Revolving Period, treated as
Shared Principal Collections, (b) during the
Amortization Period, on or prior to the Class
B Principal Payment Commencement Date,
deposited for distribution to Class A
Certificateholders, (c) during the
Amortization Period, on and after the Class B
Principal Payment Commencement Date and on or
prior to the Class C Principal Payment
Commencement Date, deposited for distribution
to Class B Certificateholders, or (d) during
the Amortization Period, on and after the
Class C Principal Payment Commencement Date,
deposited for distribution to the Class C
Certificateholders; and (x) the remainder
will be treated as Excess Finance Charge
Collections. See "Description of the Offered
Certificates--Application of
Collections--Payment of Fees, Interest, and
Other Items."
Coverage of Interest Shortfalls
From Transferor Finance Charge
Collections................. To the extent of any shortfall in the amount
of Total Finance Charge Collections allocable
to the Certificateholders' Interest due to
the accumulation of principal in the
Principal Funding Account or cash in the
Excess Funding Account, on each business day
the Servicer will apply Transferor Finance
Charge Collections in an amount equal to the
excess of (i) the product of (a) the Base
Rate and (b) the product of (x) the sum of
the amounts on deposit in the Excess Funding
Account and the Principal Funding Account and
(y) the number of days elapsed since the
previous business day divided by the actual
number of days in such year over (ii) the
aggregate amount of all earnings since the
previous business day available from the Cash
Equivalents in which funds on deposit in the
Excess Funding Account and the Principal
Funding Account are invested in the manner
specified for application of Total Finance
Charge Collections.
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<PAGE> 16
Sharing of Excess
Finance Charge
Collections................. Total Finance Charge Collections allocable to
any Series on any business day in excess of
the amounts necessary to make required
payments with respect to such Series on such
business day will be applied to cover any
shortfalls with respect to amounts payable
from Finance Charge Collections allocable to
any other Series then outstanding, pro rata
based upon the amount of the shortfall, if
any, with respect to such other Series. Any
Excess Finance Charge Collections remaining
after covering shortfalls with respect to all
outstanding Series will be paid to the holder
of the Exchangeable Transferor Certificate;
provided, however, that on any business day
during any early amortization period relating
to any Series, the Trustee will deposit any
such remaining Excess Finance Charge
Collections from such Series into the
Collection Account and will add such funds to
the amounts allocated to Finance Charge
Collections for such Series on each
subsequent business day in such Monthly
Period until the last business day of the
related Monthly Period, when the aggregate
amount of such remaining Finance Charge
Collections will be distributed as Excess
Finance Charge Collections.
Reallocation of
Principal Collections........ On each Determination Date, to the extent that
(i) the aggregate amount to be paid for the
related Monthly Period in respect of interest
on the Class A Certificates, reimbursements
of Class A Investor Charge-Offs, and certain
other items, or (ii) the aggregate amount to
be paid in respect of interest on the Class B
Certificates, reimbursements of Class B
Investor Charge-Offs and reductions in the
Class B Invested Amount due to Reallocated
Class B Principal Collections, and certain
other items, exceeds the amount of Available
Series Finance Charge Collections applied
with respect thereto, Principal Collections
otherwise allocable to the Class C
Certificateholders' Interest with respect to
the related Monthly Period and, if necessary,
Principal Collections otherwise allocable to
the Class B Certificateholders' Interest with
respect to the related Monthly Period will be
applied to the payment of such items in
accordance with the priorities set forth in
the Pooling and Servicing Agreement. The
Class C Invested Amount will be reduced (but
not below zero) by the amount of such
Reallocated Principal Collections. If the
Class C Invested Amount is reduced to zero,
the Class B Invested Amount will be reduced
(but not below zero) by the amount by which
such Reallocated Principal Collections
exceeded the Class C Invested Amount. See
"Description of the Offered
Certificates--Reallocated Principal
Collections." The Class B Invested Amount and
the Class C Invested Amount will thereafter
be increased (but not in excess of the
respective unpaid principal balances thereof)
on any business day by the amount of
Available Series Finance Charge Collections
allocated and available for such purposes as
described in clauses (vii) and (ix),
respectively, of "--Distribution of Finance
Charge Collections Allocable to
Certificateholders."
Transferor Subordination
Amount...................... On and after the Class B Principal Payment
Commencement Date, to the extent of any
shortfall in the amount available to make
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<PAGE> 17
required payments of interest accrued with
respect to the outstanding aggregate
principal amount of the Class B Certificates
or to cover the Investor Default Amount or
any Class B Investor Charge-Offs which remain
unpaid after the application of Transferor
Finance Charge Collections and Excess Finance
Charge Collections, Principal Collections and
any remaining Finance Charge Collections
allocated to the holder of the Exchangeable
Transferor Certificate in an amount not to
exceed the least of the Transferor
Subordination Amount, the Transferor Interest
on such day, and the amount of such
shortfall, will be treated as Finance Charge
Collections allocable to the payment of such
shortfall on the Class B Certificates.
Investor Default Amount;
Investor Charge-Offs........ If on any Determination Date the aggregate
Investor Default Amount, if any, for each
business day in the preceding Monthly Period
exceeded the sum of (i) the aggregate amount
of Available Series Finance Charge
Collections applied to the payment thereof as
described in clause (iv) of "--Distribution
of Finance Charge Collections Allocable to
Certificateholders," (ii) the aggregate
amount of Transferor Finance Charge
Collections, Excess Finance Charge
Collections, and on and after the Class B
Principal Payment Commencement Date,
collections allocated to the holder of the
Exchangeable Transferor Certificate to the
extent of the Transferor Subordination
Amount, in each case to the extent applied to
the payment thereof as described in
"--Coverage of Interest Shortfalls from
Transferor Finance Charge Collections,"
"--Sharing of Excess Finance Charge
Collections," and "--Transferor Subordination
Amount," respectively, and (iii) any
Reallocated Principal Collections applied
with respect thereto, then a portion of the
Class C Invested Amount equal to such
insufficiency (but not in excess of the
aggregate Investor Default Amount for such
Monthly Period) will be deducted from the
Class C Invested Amount to avoid a charge-off
with respect to the Class A Certificates and
the Class B Certificates. The Class C
Invested Amount will thereafter be increased
(but not in excess of the unpaid principal
balance of the Class C Certificates) on any
business day by the amount of Available
Series Finance Charge Collections allocated
and available for such purpose as described
in clause (ix) of "--Distribution of Finance
Charge Collections Allocable to
Certificateholders."
If the Class C Invested Amount is reduced to
zero, prior to the Class B Principal Payment
Commencement Date, a portion of the Class B
Invested Amount equal to the remaining
insufficiency (but not in excess of the
aggregate Investor Default Amount for such
Monthly Period) will be deducted from the
Class B Invested Amount to avoid a charge-off
with respect to the Class A Certificates. The
Class B Invested Amount will thereafter be
increased (but not in excess of the unpaid
principal balance of the Class B
Certificates) on any business day by the
amount of Available Series Finance Charge
Collections allocated and available for that
purpose as described in clause (vii) of
"--Distribution of Finance Charge Collections
Allocable to Certificateholders."
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On and after the Class B Principal Payment
Commencement Date, if the Class C Invested
Amount is reduced to zero, a portion of the
Transferor Subordination Amount equal to the
remaining insufficiency (but not in excess of
the aggregate Investor Default Amount for
such Series for such Monthly Period) will be
deducted from the Transferor Subordination
Amount to avoid a charge-off with respect to
the Class B Certificates. If the Class B
Invested Amount is reduced to zero prior to
the Class B Principal Payment Commencement
Date, a portion of the Class A Invested
Amount equal to the remaining insufficiency
(but not in excess of the aggregate Investor
Default Amount for such Monthly Period) will
be deducted from the Class A Invested Amount.
The Class A Invested Amount will thereafter
be increased (but not in excess of the unpaid
principal balance of the Class A
Certificates) on any business day by the
amount of Available Series Finance Charge
Collections allocated and available for that
purpose as described in clause (v) of
"--Distribution of Finance Charge Collections
Allocable to Certificateholders." See
"Description of the Offered
Certificates--Investor Charge-Offs."
Subordination of the Class B
Certificates and the Class C
Certificates................ The Class B Certificates will be subordinated
to fund payments of principal and interest on
the Class A Certificates. The Class C
Certificates will be subordinated to fund
payments of principal and interest on the
Class A Certificates and the Class B
Certificates. To the extent the Class B
Invested Amount or the Class C Invested
Amount is reduced, the percentage of
collections of Finance Charge Receivables
allocated to the Class B Certificateholders
or the Class C Certificateholders, as
applicable, in subsequent Monthly Periods
will be reduced. Moreover, to the extent the
amount of such reduction in the Class B
Invested Amount or the Class C Invested
Amount is not reimbursed, the amount of
principal distributable to the Class B
Certificateholders or the Class C
Certificateholders, as applicable, will be
reduced. Principal payments with respect to
the Class B Certificates will not be made
until the final payment of the Class A
Invested Amount has been made to the Class A
Certificateholders. Principal payments with
respect to the Class C Certificates will not
be made until the final payment of the Class
A Invested Amount has been made to the Class
A Certificateholders and the final payment of
the Class B Invested Amount has been made to
the Class B Certificateholders. See
"Description of the Offered
Certificates--Subordination of the Class B
Certificates," "--Allocation Percentages,"
"--Reallocated Principal Collections,"
"--Application of Collections," and
"--Investor Charge-Offs."
Optional Repurchase........... The Class A Certificates, the Class B
Certificates, and the Class C Certificates
will be subject to optional repurchase by the
Transferor on any Distribution Date after the
Invested Amount is reduced to an amount less
than or equal to 10% of the initial Invested
Amount, if certain conditions set forth in
the Pooling and Servicing Agreement are met.
The Certificates are also subject to optional
repurchase by the Transferor on the second
Distribution
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<PAGE> 19
Date following the Class A Expected Final
Payment Date. The repurchase price will be
equal to the Invested Amount plus accrued and
unpaid interest on the Class A Certificates,
the Class B Certificates, and the Class C
Certificates through the day preceding the
Distribution Date on which the repurchase
occurs.
Tax Status.................... In the opinion of Tax Counsel, the Class A
Certificates and the Class B Certificates
will be characterized as debt of the
Transferor for federal income tax purposes.
Under the Pooling and Servicing Agreement,
the Transferor, the Servicer, the Class A
Certificateholders, and the Class B
Certificateholders will agree to treat the
Class A Certificates and the Class B
Certificates as debt of the Transferor for
federal, state, and other tax purposes. See
"Certain Federal Income Tax Consequences" for
additional information concerning the
application of federal income tax laws.
ERISA Considerations.......... Under regulations issued by the Department of
Labor, if the Trust's assets were deemed to
be "plan assets" of an employee benefit plan,
there is uncertainty as to whether existing
exemptions from the "prohibited transaction"
rules of ERISA and the Code would apply to
all transactions involving the Trust's
assets. The Trust's assets would not be
deemed "plan assets" of an employee benefit
plan holding interests in the Class A
Certificates if certain conditions are met,
including that interests in the Class A
Certificates be held by at least 100 persons
independent of the Transferor and each other.
The Class A Underwriters expect, although no
assurance can be given, that the Class A
Certificates will be held by at least 100
such persons, and the Transferor anticipates
that the other conditions of the "publicly
offered security" exemption contained in the
regulations will be met. However, no
monitoring or other measures will be taken to
ensure that any such conditions will be met.
Accordingly, employee benefit plans
contemplating purchasing the Class A
Certificates should consult their counsel
before making a purchase. See "Employee
Benefit Plan Considerations."
The Class B Certificates may not be acquired
directly or indirectly by any employee
benefit plan subject to ERISA, by any
individual retirement account, or by certain
other employee benefit accounts. The Pooling
and Servicing Agreement and each Class B
Certificate will provide that by accepting
and holding a Class B Certificate, each Class
B Certificateholder will be deemed to have
represented and warranted that it is not (i)
an employee benefit plan (as defined in
Section 3(3) of ERISA) that is subject to the
provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Code,
or (iii) an entity whose underlying assets
include plan assets by reason of a plan's
investment in the entity.
Offered Certificate Rating.... It is a condition to the issuance of the Class
A Certificates that they have an initial
rating of "AAA" or its equivalent from the
Rating Agencies.
It is a condition to the issuance of the Class
B Certificates that they have an initial
rating of at least "A" or its equivalent from
the Rating Agencies. See "Risk
Factors--Certificate Rating."
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<PAGE> 20
RISK FACTORS
LIMITED LIQUIDITY
There is currently no market for the Offered Certificates. The Underwriters
intend to make a market in each class of the Offered Certificates purchased by
them from the Transferor, but are not obligated to do so. There is no assurance
that a secondary market will develop or, if it does develop, that it will
provide Offered Certificate Owners with liquidity of investment or that it will
continue until the Offered Certificates are paid in full.
TRANSFER OF THE RECEIVABLES; INSOLVENCY RISK CONSIDERATIONS
The Purchase Agreement provides that the Originators transfer all of their
respective right, title, and interest in and to the Receivables owned by each of
them from time to time to the Transferor. However, a court could treat such
transactions as an assignment of collateral as security for the benefit of the
Transferor. Accordingly, each of the Originators has granted a security interest
in the Receivables to the Transferor pursuant to the Purchase Agreement and has
taken certain actions required to perfect the Transferor's security interest in
the Receivables. In addition, each of the Originators has warranted that if the
transfer to the Transferor is deemed to be a grant of a security interest in the
Receivables, the Transferor will have a perfected security interest therein,
subject only to Permitted Liens. If the transfer of the Receivables to the
Transferor is deemed to create a security interest therein under the UCC, a tax
or government lien on the property of any of the Originators arising before the
subject Receivables came into existence may have priority over the Transferor's
interest in the Receivables. In the event of the insolvency of any of the
Originators, certain administrative expenses may also have priority over the
Transferor's interest in such Receivables.
Although the Transferor has transferred and will transfer interests in the
Receivables to the Trust, a court could treat such transactions as an assignment
of collateral as security for the benefit of holders of certificates issued by
the Trust. It is possible that the risk of such treatment may be increased by
the retention by the Transferor of the Exchangeable Transferor Certificate and
any class of certificates of any Series that the Transferor may hold from time
to time. The Transferor has represented and warranted in the Pooling and
Servicing Agreement that the transfer of the Receivables to the Trust is either
a valid transfer and assignment of the Receivables to the Trust or the grant to
the Trust of a security interest in the Receivables. The Transferor has taken
certain actions required to perfect the Trust's security interest in the
Receivables, and has warranted that if the transfer to the Trust is deemed to be
a grant to the Trust of a security interest in the Receivables, the Trustee will
have a perfected security interest therein, subject only to Permitted Liens. If
the transfer of the Receivables to the Trust is deemed to create a security
interest therein under the UCC, a tax or government lien on property of the
Transferor arising before Receivables come into existence may have priority over
the Trust's interest in such Receivables. In the event of the insolvency of the
Transferor, certain administrative expenses may also have priority over the
Trust's interest in such Receivables. See "Certain Legal Aspects of the
Receivables--Transfer of Receivables."
To the extent that the Originators and the Transferor have granted security
interests in the Receivables to the Transferor and the Trust, respectively, and
such security interests were validly perfected before any bankruptcy,
insolvency, receivership, or conservatorship of the Originators or the
Transferor and were not granted or taken in contemplation of bankruptcy,
insolvency, receivership, or conservatorship or with the intent to hinder,
delay, or defraud the Originators or the Transferor or their respective
creditors, such security interests should not be subject to avoidance in the
event of bankruptcy, insolvency, receivership, or conservatorship of the
Originators or the Transferor, and payments to the Trust with respect to the
Receivables should not be subject to recovery by a bankruptcy trustee,
conservator, or receiver for the Transferor. If, however, such a bankruptcy
trustee, conservator, or receiver were to assert a contrary position (or, in the
case of a conservator or receiver for FDS, were to require the Trustee to
establish its right to those payments by submitting to and completing the
administrative claims procedure established under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), or were to request a
stay of proceedings with respect to FDS as provided under FIRREA), delays in
payments on the Offered Certificates and possible reductions in the amount of
those payments could occur.
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<PAGE> 21
In Octagon Gas System, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993), cert.
denied, 114 S. Ct. 554 (1993), the court determined that the interest acquired
by a purchaser of "accounts," which as defined under the UCC would likely
include the Receivables, is treated as a security interest under the UCC. As
described above, the treatment of the transfers of the Receivables to the
Transferor or the Trust as grants of security interests could have consequences
to the Offered Certificate Owners that would be less advantageous than the
treatment of such transfers as outright sales. The circumstances under which the
Octagon ruling would apply are not fully known and the extent to which the
Octagon decision will be followed in other courts or outside of the Tenth
Circuit is not certain. Although most of the Originators' and the Transferor's
respective business activities are conducted outside the geographic area subject
to the jurisdiction of the Tenth Circuit, a portion of such business activities
are conducted within such geographic area. See "Certain Legal Aspects of the
Receivables--Certain Matters Relating to Bankruptcy or Insolvency."
If a conservator or receiver were appointed for the Servicer, and no
Servicer Default other than such receivership or insolvency of the Servicer
exists, the conservator or receiver may have the power to prevent either the
Trustee or the majority of the Certificateholders from effecting a transfer of
servicing to a successor Servicer. If a bankruptcy trustee or receiver were
appointed for the Transferor, causing a Pay Out Event with respect to all Series
then outstanding, new Principal Receivables would not be transferred to the
Trust pursuant to the Pooling and Servicing Agreement and the Trustee would sell
the portion of the Receivables allocable in accordance with the Pooling and
Servicing Agreement to each Series (unless holders of more than 50% of the
principal amount of each class of each Series instruct otherwise), thereby
causing early termination of the Trust and a loss to the Certificateholders if
the net proceeds allocable to the Certificateholders from such sale, if any,
were insufficient to pay the Certificateholders in full. The net proceeds of any
such sale of the portion of the Receivables allocated in accordance with the
Pooling and Servicing Agreement to each Series will first be used to pay amounts
due to the Class A Certificateholders, will thereafter be used to pay amounts
due to the Class B Certificateholders, and will thereafter be used to pay
amounts due to the Class C Certificateholders. If the only Pay Out Event to
occur is either the insolvency of the Transferor or the appointment of a
bankruptcy trustee or receiver for the Transferor, the bankruptcy trustee or
receiver may have the power to continue to require the Transferor to transfer
new Receivables to the Trust and to prevent the early sale, liquidation, or
disposition of the Receivables and the commencement of the Early Amortization
Period. In addition, a bankruptcy trustee or receiver for the Transferor may
have the power to cause early payment of the Certificates. See "Certain Legal
Aspects of the Receivables--Certain Matters Relating to Bankruptcy or
Insolvency."
EFFECTS OF CERTAIN TRANSACTIONS
Federated acquired Broadway Stores, Inc. ("Broadway") in October 1995 and
is in the process of integrating Broadway's businesses with the businesses of
Federated's other subsidiaries. Of the 82 department stores operated by Broadway
at the time of such acquisition under the names "Broadway," "Emporium," and
"Weinstocks," five are expected to be converted to Bloomingdale's stores, 49
have been or are expected to be converted to Macy's stores, three are being
operated as clearance centers, and 20 have been or are expected to be sold or
otherwise disposed of. (The Transferor has been advised by Federated that it has
yet to make a decision with respect to the other five stores.) Historically,
Broadway has established and owned credit card accounts for its customers and
sold the receivables arising in such accounts to a wholly owned subsidiary
("Broadway Receivables, Inc."), which financed its purchases of such receivables
through borrowings secured by such receivables. In February 1996, FDS began
establishing and continues to establish new credit card accounts (the
"FDS/Broadway Accounts") for qualified applicants who were or become customers
of the department stores operated by Broadway following the conversion of such
stores to other Federated nameplates. Until the Closing Date, the receivables
arising in the FDS/Broadway Accounts will continue to be sold by FDS to Broadway
Receivables, Inc. On the Closing Date, Broadway will be added as a party to the
Purchase Agreement and, concurrently therewith, will cause the receivables then
outstanding under substantially all of the credit card accounts owned by
Broadway (the "Broadway Accounts") and the FDS/Broadway Accounts to be
transferred to the Transferor for inclusion in the Trust. The Broadway Accounts
had aggregate outstanding balances of approximately $491,940,717 as of the
Cut-Off Date, representing approximately 21.4% of the aggregate outstanding
balances of all of the accounts included in the Federated Portfolio as of the
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Cut-Off Date. It is contemplated that substantially all of the Broadway Accounts
will be transferred to FDS during fiscal 1996. Although the cards issued to
customers under the FDS/Broadway Accounts are accepted at all Macy's stores,
thereby broadening the base of department stores at which the use of Federated
Cards will generate Receivables, the conversions and dispositions of department
stores operated by Broadway described above are likely to result, at least in
the near term, in a decrease in the rate at which Receivables are generated in
the Broadway Accounts and the FDS/Broadway Accounts and may otherwise adversely
affect the future performance of the Federated Portfolio. Moreover, although the
Transferor believes that the Broadway Accounts were and will continue to be
originated using criteria generally similar to the criteria used in originating
the other Accounts included in the Federated Portfolio and have characteristics
generally similar to the characteristics of such other Accounts, the Broadway
Accounts are geographically concentrated in California (as are the FDS/Broadway
Accounts) and may have certain other dissimilar characteristics. As a result of
the foregoing and various other factors, there can be no assurance that the
Broadway Accounts and the FDS/Broadway Accounts will have the same revenue,
yield, loss or delinquency experience as the other Accounts in the Federated
Portfolio.
Subsequent to its acquisition of R.H. Macy & Co., Inc. ("Macy's") in
December 1994, Federated consolidated its Abraham & Straus/Jordan Marsh division
with its Macy's East division. Consequently, as described in "The Accounts,"
accounts bearing the "Abraham & Straus" and "Jordan Marsh" tradenames have been
closed or converted into accounts bearing the "Macy's" tradename. As a result of
the foregoing matters and various other factors, the historical performance of
the Federated Portfolio may not be comparable to or indicative of the current or
future performance of the Federated Portfolio.
DEPENDENCE ON CERTAIN AFFILIATES OF THE TRANSFEROR
The Federated Cards currently can be used to purchase merchandise and
services only from department stores and a mail-order catalog business operated
by the Federated Subsidiaries. The Federated Subsidiaries, including Broadway,
currently operate such stores and catalog business under the names
"Bloomingdale's," "Bloomingdale's By Mail," "Burdines," "Goldsmith's,"
"Lazarus," "Rich's," "Stern's," "The Bon Marche," and, in the case of certain
stores formerly operated under other nameplates, "Macy's." In addition, Broadway
currently operates department stores under the names "Broadway," "Emporium," and
"Weinstocks" pending the conversion of such stores to other Federated
nameplates. See "Federated's Credit Card Business" and "The Accounts."
Accordingly, although cards issued by FDS under the "Macy's" name are accepted
by all Macy's stores (including Macy's stores that are not Federated Stores),
the Trust is almost entirely dependent upon the Federated Stores and
Bloomingdale's By Mail for the generation of Receivables. The retailing
industry, in general, and the department store business, in particular, are and
will continue to be intensely competitive. The Federated Stores and
Bloomingdale's By Mail will face increasing competition not only with other
department stores in the geographic areas in which they operate, but also with
numerous other types of retail formats, including specialty stores, general
merchandise stores, off-price and discount stores, new and established forms of
home shopping (including mail order catalogs, television, and computer
services), and manufacturer outlets. Moreover, the Pooling and Servicing
Agreement does not prohibit Federated from transferring all or any portion of
the business or assets of the Federated Subsidiaries. Accordingly, there can be
no assurance that the Federated Subsidiaries will continue to generate
Receivables at the same rate as in prior years.
The competitors of the Federated Stores and Bloomingdale's By Mail include
department stores operated by subsidiaries of Federated under the name "Macy's"
and specialty stores operated by subsidiaries of Federated under the names
"Aeropostale" and "Charter Club." Pursuant to a proprietary credit card program
established prior to Federated's acquisition of Macy's in December 1994, a
third-party financial institution owns and establishes most of the revolving
credit card accounts of customers of such stores. To the extent that Federated
may from time to time deem it desirable to cause the stores or businesses
included in or conducted through the Federated Stores and Bloomingdale's By Mail
to be operated under such other names, the receivables generated in the
revolving credit card accounts of the customers of such stores or businesses may
no longer be available for purchase by the Transferor and transfer to the Trust.
Similar consequences could result from such stores or businesses being sold to
third parties. The Transferor has been advised by Federated
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<PAGE> 23
that decisions with respect to the foregoing and other aspects of Federated's
business operations will be based upon the best interests of Federated and its
stockholders from time to time, which interests may differ from those of the
Offered Certificate Owners.
USE OF OTHER CREDIT CARDS
The Federated Stores and Bloomingdale's By Mail accept, in addition to the
Federated Cards, other cards, including American Express charge cards,
MasterCard and Visa credit cards, and, in the case of former Abraham & Straus
and Jordan Marsh stores currently operated under the "Macy's" nameplate, Macy's
cards issued by a third-party financial institution. Following the conversion of
certain Broadway, Emporium and Weinstocks stores into Macy's stores, such stores
will also accept Macy's cards issued by a third-party financial institution.
Accordingly, not all credit sales of merchandise and services by the Federated
Stores and Bloomingdale's By Mail generate Receivables. See "Federated's Credit
Card Business--Creation of Account Balances" and "The Accounts." There can be no
assurance that the Federated Cards will continue to maintain their historic
percentage of retail sales against competition from such other credit and charge
cards.
SOCIAL, LEGAL, AND ECONOMIC FACTORS
Changes in card use and payment patterns by cardholders may result from a
variety of social, legal, and economic factors. The Transferor, however, is
unable to determine and has no basis to predict whether, or to what extent,
social, legal, or economic factors will affect future card use or repayment
patterns.
POSSIBLE CHANGES TO THE TERMS OF THE RECEIVABLES
Pursuant to the Purchase Agreement, the Originators do not transfer the
Accounts to the Transferor, but only the Receivables arising in the Accounts.
Pursuant to the Pooling and Servicing Agreement, the Transferor does not
transfer the Accounts to the Trust, but only such Receivables. The Originators
have the right to determine the monthly periodic finance charges and other fees
that will be applicable from time to time to the Accounts, to alter the minimum
monthly payment required on the Accounts, and to change various other terms with
respect to the Accounts. Among other factors, competitive conditions in the
retailing and consumer credit card industries could cause the Originators to
consider from time to time reducing periodic finance charges and other fees or
changing other terms with respect to the Accounts. A decrease in the monthly
periodic finance charge and other fees would decrease the effective yield on the
Accounts and could result in the occurrence of a Pay Out Event and the
commencement of the Early Amortization Period. Under the Purchase Agreement, any
Originator may change the terms of the contracts relating to the Accounts or its
policies and procedures with respect to the servicing thereof (including without
limitation the reduction of the required minimum monthly payment and the
calculation of the amount or the timing of finance charges, fees and
charge-offs), if such change would not, in the reasonable belief of such
Originator, cause a Pay Out Event to occur and (i) if such Originator owns a
comparable segment of credit card accounts, such change is made applicable to
the comparable segment of the revolving credit card accounts owned by such
Originator, if any, which have characteristics the same as, or substantially
similar to, the Accounts that are the subject of such change and (ii) if such
Originator does not own such a comparable segment, it will not make any such
change with the intent to materially benefit such Originator over the
Certificateholders, except as otherwise restricted by an endorsement,
sponsorship, or other agreement between such Originator and an unrelated third
party or by the terms of the Charge Account Agreements. There can be no
assurance that changes in applicable law, changes in the marketplace, or prudent
business practice might not result in a determination by any Originator to take
actions which would change the terms of the Accounts.
CHANGES IN DISCOUNT FACTOR
During the continuance of a Discount Trigger Event (which will not occur
without the consent of the Rating Agencies) with respect to Series 1996-1,
certain collections allocable to Series 1996-1 which would otherwise have been
treated as Principal Collections will be subtracted from Principal Collections
to determine Net Principal Collections and will be added to Finance Charge
Collections to determine Total Finance Charge Collections. Any increase in the
Discount Factor would result in the allocation to Series
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<PAGE> 24
1996-1 of a higher yield on the Receivables originated under the Accounts and a
slower payment rate of Net Principal Collections than otherwise would occur.
Conversely, any decrease in the Discount Factor would result in the allocation
to Series 1996-1 of a lower yield on such Receivables and a faster payment rate
of Net Principal Collections than otherwise would occur. The Discount Factor
will change from month to month as a result of changes in the Base Rate for any
Series, the Net Finance Charge Portfolio Yield for any Series, or the Annual
Portfolio Turnover Rate.
CONSUMER AND DEBTOR PROTECTION LAWS
The Accounts and the Receivables are subject to numerous federal and state
consumer protection laws which impose requirements on the making and collection
of consumer loans. Such laws, as well as any new laws or rulings which may be
adopted, may adversely affect the Servicer's ability to collect on the
Receivables or maintain previous levels of finance charges, late fees, and other
fees. Any failure by the Servicer to comply with such legal requirements also
could adversely affect the Servicer's ability to collect on the Receivables.
Although the Transferor has made certain representations and warranties relating
to the validity and enforceability of the Accounts and the Receivables, the
Trustee has not made and will not make any examination of the Receivables or the
records relating thereto for the purpose of establishing the presence or absence
of defects or compliance with such representations and warranties, or for any
other purpose. In the event of a breach of certain representations and
warranties, the Transferor may be obligated to accept the reassignment and
transfer of all Receivables in the Accounts. See "Description of the Offered
Certificates--Representations and Warranties" and "Certain Legal Aspects of the
Receivables--Consumer and Debtor Protection Laws."
Application of federal and state bankruptcy and debtor relief laws to the
obligations represented by the Receivables could adversely affect the interests
of the Class A Certificateholders and Class B Certificateholders in the
Receivables, if such laws result in any Receivables being written off as
uncollectible. See "Description of the Offered Certificates--Defaulted
Receivables; Rebates and Fraudulent Charges."
LEGAL MATTERS AND LITIGATION
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 chartered banks) that issue credit cards.
These actions challenge various fees and charges (such as late payment fees,
over-the-limit fees, and returned payment check 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 out-of-state
credit card issuers. One such lawsuit has been filed against FDS in the Superior
Court of New Jersey Law Division: Passaic County, and there can be no assurance
that FDS will not also be named as a defendant in further lawsuits or
administrative actions challenging the fees and charges which it assesses
residents of other states. In October 1991 a federal district court upheld a
Massachusetts law that bars banks from assessing late payment fees on credit
card accounts of residents of that state in a lawsuit involving Greenwood Trust
(the issuer of the Discover Card). However, in August 1992 the federal Court of
Appeals for the First Circuit reversed the federal district court on the grounds
that the Massachusetts law was preempted by applicable federal law, and in
December 1995 the federal Court of Appeals for the Third Circuit reached a
similar result in a lawsuit involving Meridian Bank. The Supreme Courts of
California and Colorado have recently reached similar results. However, other
courts, including the Supreme Court of New Jersey, have ruled in favor of
challenges to the assessment of late payment and other fees. The United States
Supreme Court is expected to rule on the issue this year in an appeal from the
California Supreme Court decision referred to above. If the United States
Supreme Court determines that the term "interest" as defined in Section 85 of
the National Bank Act does not include late payment fees or other similar
charges assessed by federally chartered banks such as FDS, lawsuits such as
those referred to above could have the effect of limiting certain charges, other
than periodic finance charges, that could be assessed on credit card accounts of
residents of various states and could require credit card issuers to pay refunds
and civil penalties with respect to charges previously imposed on cardholders in
such states. Consequently, such actions could have an adverse impact on FDS'
credit card operations, and could reduce the Portfolio Yield for a Series.
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PAYMENTS AND MATURITY
The Receivables may be paid at any time and there is no assurance that
there will be additional Receivables created in the Accounts (or that new
Accounts will be created) or that any particular pattern of cardholder
repayments will occur. The commencement and continuation of the Accumulation
Period and the collection of the Controlled Amortization Amount with respect to
the Class A Certificates, and the occurrence of the Class B Principal Payment
Commencement Date, will be dependent upon the continued generation of new
Receivables to be conveyed to the Trust. A significant decline in the amount of
Receivables generated could result in the occurrence of a Pay Out Event and the
commencement of the Early Amortization Period. In addition, changes in periodic
finance charges can alter cardholder monthly payment rates. A significant
decrease in the cardholder monthly payment rate could slow the return of
principal during the Early Amortization Period, the collection of the Controlled
Amortization Amount with respect to the Class A Certificates during the
Accumulation Period, or the occurrence of the Class B Principal Payment
Commencement Date. See "Maturity Assumptions." See "Description of the Offered
Certificates--Pay Out Events" for a discussion of other Pay Out Events. If a Pay
Out Event occurs, the Early Amortization Period will commence and the average
life and maturity of the Offered Certificates may be significantly reduced.
There can be no assurance in that event that the Class A Certificateholders and
the Class B Certificateholders would be able to reinvest any accelerated
distributions on account of such Offered Certificates in other suitable
investments having a comparable yield.
EFFECT OF SUBORDINATION OF CLASS B CERTIFICATES; PRINCIPAL PAYMENTS
The Class B Certificates will be subordinated in right of payment of
principal to the Class A Certificates. Payments of principal in respect of the
Class B Certificates will not commence until after the final principal payment
with respect to the Class A Certificates has been made and the Class A Invested
Amount has been paid in full. Moreover, the Class B Invested Amount is subject
to reduction on any Determination Date if (i) the Class A Required Amount or the
Class B Required Amount, if any, cannot be fully funded through Reallocated
Principal Collections assessed solely against the Class C Invested Amount or
(ii) the aggregate Investor Default Amount, if any, for each business day in the
preceding Monthly Period exceeds the aggregate Available Series Finance Charge
Collections applied to the payment thereof and is not funded from Excess Finance
Charge Collections, Transferor Finance Charge Collections, or Reallocated
Principal Collections and is not assessed solely against the Class C Invested
Amount or, on and after the Class B Principal Payment Commencement Date, the
Transferor Interest to the extent of the Transferor Subordination Amount. If the
Class B Invested Amount suffers such a reduction, collections of Finance Charge
Receivables allocable to the Class B Certificateholders' Interest in future
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Invested Amount is not reimbursed, the amount of
principal distributable to the Class B Certificateholders will be reduced. See
"Description of the Offered Certificates--Subordination of the Class B
Certificates," "--Allocation Percentages," "--Reallocated Principal
Collections," "--Application of Collections," and "--Investor Charge-Offs."
CONTROL
Subject to certain exceptions, the investor certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the Pooling and Servicing Agreement or the related Supplement. In determining
whether the required percentage of certificateholders have given their approval
or consent, except as otherwise specified, the Class A Certificateholders and
the Class B Certificateholders will be treated as a single Series. So long as
the Class C Certificates are retained by the Transferor or an affiliate of the
Transferor, the interest represented by the Class C Certificates will be
disregarded in the giving of any request, demand, authorization, direction,
notice, consent, or waiver under the Pooling and Servicing Agreement. As a
result of the greater aggregate principal amount of the Class A Certificates,
the Class A Certificateholders will have the power to determine whether any such
action is taken without regard to the position or interests of the Class B
Certificateholders relating to such action. The Class B Certificateholders will
not have similar power. In order to make such determinations, the Class B
Certificateholders will need the approval or consent of Class A
Certificateholders owning a substantial portion of the Class A
Certificateholders' Interest. However, under
25
<PAGE> 26
certain circumstances the consent or approval of a specified percentage of the
aggregate invested amount of all Series outstanding or of the invested amount of
each class of each Series will be required to direct certain actions, including
requiring the appointment of a successor Servicer following a Servicer Default,
amending the Pooling and Servicing Agreement in certain circumstances, and
directing a repurchase of all outstanding Series upon the breach of certain
representations and warranties by the Transferor.
MASTER TRUST CONSIDERATIONS
The Trust, as a master trust, in addition to Series 1996-1, has issued
other Series (see "Annex I: Other Series") and may issue additional Series from
time to time in the future. While the Principal Terms of any additional Series
will be specified in a Supplement, the provisions of such Supplement and,
therefore, the terms of any additional Series, are not subject to the prior
review or consent of holders of the certificates of any previously issued
Series. Such Principal Terms may include methods for determining applicable
investor percentages and allocating collections, whether such new Series will be
paired with an existing Series, provisions creating security or Enhancements,
different classes of certificates (including subordinated classes of
certificates), provisions subordinating such Series to another Series (if the
Supplement relating to such Series so permits) or another Series to such Series
(if the Supplement for such other Series so permits), and any other amendment or
supplement to the Pooling and Servicing Agreement which is made applicable only
to such Series. See "Description of the Offered Certificates--Exchanges" and
"--Paired Series." In addition, the provisions of any Supplement may give the
holders of the certificates issued pursuant thereto consent, approval, or other
rights that could result in such holders having the power to cause the
Transferor, the Servicer, or the Trustee to take or refrain from taking certain
actions, including without limitation actions with respect to the exercise of
certain rights and remedies under the Pooling and Servicing Agreement, without
regard to the position or interest of the certificateholders of any other
Series. Similar rights may also be given to the provider of any Enhancement for
any Series. It is a condition precedent to issuance of any additional Series
that each Rating Agency that has rated any outstanding Series deliver written
confirmation to the Trustee that the Exchange will not result in such Rating
Agency reducing or withdrawing its rating on any outstanding Series. There can
be no assurance, however, that the Principal Terms of any other Series,
including any Series previously issued or issued from time to time hereafter,
might not have an adverse impact on the timing and amount of payments received
by a Certificateholder or the value of Certificates even if there is no change
in the rating of any outstanding Series. See "Description of the Offered
Certificates--Exchanges" and "Annex I: Other Series."
CERTIFICATE RATING
It is a condition to the issuance of the Class A Certificates that they
have an initial rating of "AAA" or its equivalent from each Rating Agency. It is
a condition to the issuance of the Class B Certificates that they have an
initial rating of "A" or its equivalent from each Rating Agency. The Rating
Agencies do not evaluate, and the ratings of the Offered Certificates do not
address, the likelihood that the principal of the Class A Certificates will be
paid by the Class A Expected Final Payment Date or that the principal of the
Class B Certificates will be paid by the Class B Expected Final Payment Date.
The Class C Certificates initially will not be rated. The ratings are not a
recommendation to purchase, hold, or sell the Class A Certificates or the Class
B Certificates, inasmuch as such ratings do not comment as to the market price
or suitability for a particular investor. There can be no assurance that the
ratings will remain in effect for any given period of time or that either rating
will not be lowered or withdrawn by either Rating Agency if in its judgment
circumstances so warrant.
BOOK-ENTRY REGISTRATION
The Offered Certificates 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 Class A Certificate Owners or the Class B
Certificate Owners or their nominees. Unless and until Definitive Certificates
are issued, Class A Certificate Owners and Class B Certificate Owners will not
be recognized by the Trustee as Certificateholders, as that term is used in the
Pooling and Servicing Agreement. Hence, until such time, Class A Certificate
26
<PAGE> 27
Owners and Class B Certificate Owners will be able to exercise the rights of
Certificateholders only indirectly through DTC and its participating
organizations. In addition, the holders of beneficial interests in the Class A
Certificates and the Class B Certificates may experience delays between
distributions of interest and principal to the record holder of such
Certificates and the redistribution of such amounts to the holders of such
beneficial interests. See "Description of the Offered Certificates--Book-Entry
Registration" and "--Definitive Certificates."
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent on behalf of the Trust to Cede, as nominee for DTC and
the registered holder of the Offered Certificates. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles and will not be sent by the Servicer or the Trustee to the
Class A Certificate Owners and Class B Certificate Owners. See "Description of
the Offered Certificates--Book-Entry Registration," "--Definitive Certificates,"
and "--Reports to Certificateholders."
THE TRUST
The Trust was formed, in accordance with the laws of the State of New York,
pursuant to the Pooling and Servicing Agreement. The Trust was formed for the
transactions relating to the issuance of Series 1992-1, Series 1992-2, Series
1992-3, Series 1995-1, the transaction described herein, and similar
transactions, as contemplated by the Pooling and Servicing Agreement, and prior
to formation had no assets or obligations. See "Annex I: Other Series." The
Trust will not engage in any business activity, other than as described herein,
but rather will only acquire and hold the Receivables, issue (or cause to be
issued) the Certificates, the Exchangeable Transferor Certificate, and
certificates representing additional Series and related activities (including,
with respect to any Series, entering into any Enhancement and Enhancement
agreement relating thereto) and make payments thereon. As a consequence, the
Trust is not expected to have any need for additional capital resources.
FEDERATED'S CREDIT CARD BUSINESS
GENERAL
FDS is a federally chartered credit card bank and an indirect wholly owned
subsidiary of Federated. Following its formation in September 1993, FDS was
added as a party to the Purchase Agreement and Federated caused substantially
all of the then-existing Accounts (other than the Broadway Accounts) to be
transferred from the other Federated Subsidiaries to FDS. Although substantially
all of the Accounts (other than the Broadway Accounts) established subsequent to
such transfer have been established by FDS, the other Federated Subsidiaries
remain parties to the Purchase Agreement and may from time to time establish
Accounts and sell Receivables to the Transferor pursuant thereto. In February
1996, FDS began establishing and continues to establish the FDS/Broadway
Accounts for qualified applicants who were or become customers of the department
stores operated by Broadway following the conversion of such stores to other
Federated nameplates. Until the Closing Date, the receivables arising in the
FDS/Broadway Accounts will continue to be sold by FDS to Broadway Receivables,
Inc. On the Closing Date, Broadway will be added as a party to the Purchase
Agreement and, concurrently therewith, will cause the receivables then
outstanding under substantially all of the Broadway Accounts and the
FDS/Broadway Accounts to be transferred to the Transferor for inclusion in the
Trusts. It is contemplated that substantially all of the Broadway Accounts will
be transferred to FDS during fiscal 1996 and that, following such transfer, the
terms thereof will be conformed to the terms of the Accounts established by FDS.
See "Risk Factors--Effects of Certain Transactions." The historical data
regarding the Federated Portfolio contained in this Prospectus includes Broadway
Accounts and, except as otherwise noted, FDS/Broadway Accounts. However, none of
such accounts will be included in the Accounts until the Closing Date.
27
<PAGE> 28
Pursuant to the Purchase Agreement, the Originators sell Receivables to the
Transferor; those Receivables are, upon purchase by the Transferor,
automatically transferred to the Trust pursuant to the Pooling and Servicing
Agreement. The Accounts under which the Receivables arise are created by the
respective Originators (currently FDS in substantially all cases except in
respect of the Broadway Accounts) and enable the holders of the credit cards
issued by the Originators under department store tradenames (the "Federated
Cards") to purchase virtually all of the various types of merchandise and
services offered by the Federated Stores. Cards bearing the Bloomingdale's
tradename may be used to purchase merchandise from Bloomingdale's By Mail,
Federated's nationwide catalog business, and cards bearing the Goldsmith's or
Rich's tradename may be used to purchase merchandise at both Goldsmith's and
Rich's stores. Although subject to change, all other Federated Cards may be used
only to make purchases at stores bearing the same nameplate as the tradename on
the card.
Financial and Credit Services Group ("FACS"), a subsidiary of Federated
located in Mason, Ohio, Tampa, Florida, and Tempe, Arizona, monitors credit
policies and provides credit services for FDS pursuant to a servicing agreement.
These services currently include credit authorizations, new account development
and processing, customer service, collections, statement processing and mailing,
and remittance processing. FACS may from time to time subcontract with other
parties for the performance of such functions by such other parties.
In addition to the Federated Stores (which include a limited number of
Macy's stores which were formerly operated under other nameplates) and
Bloomingdale's By Mail, subsidiaries of Federated currently operate other
department stores under the name "Macy's" and specialty stores under the names
"Aeropostale" and "Charter Club." Pursuant to a proprietary credit card program
(the "Macy's Credit Card Program") established by Macy's prior to Federated's
acquisition of Macy's in December 1994, a third-party financial institution owns
and establishes most of the revolving credit card accounts of customers of such
other stores. Such third-party financial institution also owns the revolving
credit card accounts of customers of certain former Abraham & Straus and Jordan
Marsh stores that also held credit cards bearing the "Macy's" tradename prior to
the conversion of such stores to Macy's stores. See "The Accounts." The initial
term of the Macy's Credit Card Program expires in 2006, and is subject to
automatic one-year renewal periods and certain termination rights. The
receivables arising in accounts subject to the Macy's Credit Card Program are
not (and, absent modifications to such program, will not be) purchased by the
Transferor or transferred to the Trust.
NEW ACCOUNT UNDERWRITING
New accounts have been, and are anticipated to be, generated both by
account applications made at the stores currently operated by the Originators,
including Broadway, under the names "Bloomingdale's," "Burdines," "Goldsmith's,"
"Lazarus," "Rich's," "Stern's," "The Bon Marche" (and in the case of certain
stores formerly operated under other nameplates, "Macy's") and by Broadway under
the names "Broadway," "Emporium," and "Weinstocks" (collectively, the "Federated
Stores"), and as a result of direct mail solicitations on a preapproved credit
basis to a prescreened group of individuals based on information obtained from
credit services and other entities in the business of selling customer lists.
See "The Accounts." At the present time, FDS does not use non-prescreened or
"blind" mailings to solicit new accounts. Before an account is opened in
response to an unsolicited application, the prospective cardholder's application
is reviewed for completeness and creditworthiness. A credit report issued by an
independent credit reporting agency is generally obtained. In the case of
prescreened mailings, consumer credit records are reviewed by the credit
reporting agency maintaining such records to identify the individuals that meet
the standards for receiving a preapproved account solicitation.
Prospective cardholders, whether unsolicited or preapproved, generally are
evaluated through the use of computerized credit scoring systems. These systems
assign point values to the credit bureau information of potential preapproved
solicitation recipients or the application information and credit bureau records
of unsolicited applicants. Point values, in turn, are based on statistical
analyses of empirical data concerning the performance of sample populations of
applicants in various geographic regions served by the Originators. The total of
the values obtained for a prospective cardholder determines both the decision
whether to offer or open
28
<PAGE> 29
an account and the initial credit guideline. FDS has also found that it can open
accounts for applicants for whom no credit service information is available at a
level of risk deemed acceptable by FDS by independently verifying the
information contained in the application and establishing low initial credit
guidelines. FDS may change its credit evaluation policies or screening methods
at any time.
Each cardholder is subject to an agreement governing the terms and
conditions of such cardholder's account. Pursuant to each such agreement, FDS
reserves the right, subject to applicable law, to change or terminate any terms,
conditions, services, or features of the related account (including increasing
or decreasing finance charges, other charges, or minimum payments). Credit
guidelines are maintained by FDS and are revised upward or downward based on
changes in credit scoring formulas and on cardholders' purchase and payment
histories. Each charge to an account is entered and approved at the time the
charge is made through direct communication with the central processing system
maintained by FACS for the purpose of monitoring credit guidelines and possible
fraudulent activity.
The Transferor believes that the Broadway Accounts were and are generated
using procedures and criteria generally similar to those described above, and
that the Broadway Accounts have characteristics generally similar to the
characteristics of the other Accounts included in the Federated Portfolio.
However, the Broadway Accounts are geographically concentrated in California (as
are the FDS/Broadway Accounts) and may have other dissimilar characteristics. As
a result of the foregoing and various other factors, there can be no assurance
that the Broadway Accounts and the FDS/Broadway Accounts will have the same
revenue, yield, loss, or delinquency experience as the other Accounts in the
Federated Portfolio. See "Risk Factors-- Effects of Certain Transactions."
CREATION OF ACCOUNT BALANCES
Account balances are created through the use of the Federated Cards to
charge purchases of merchandise and services from the Federated Stores and
Bloomingdale's By Mail, and ancillary services such as credit life insurance and
travel services. Consequently, the Trust will depend on the continued ability of
the Federated Stores and Bloomingdale's By Mail to generate credit sales. See
"Risk Factors--Dependence on Certain Affiliates of the Transferor." In addition,
because the Federated Stores and Bloomingdale's By Mail accept, in addition to
the Federated Cards, other cards, including American Express charge cards and
MasterCard and Visa credit cards (and, in the case of Federated Stores operated
under the "Macy's" nameplate, Macy's cards issued by a third-party financial
institution), the Trust also will depend upon decisions of customers purchasing
merchandise and services to use the Federated Cards rather than such other cards
or cash. See "Risk Factors--Use of Other Credit Cards."
Federated Cards may be used to make both major purchase plan charges and
regular plan charges. Major purchase plan charges are charges of certain
categories of merchandise, including furniture and fine jewelry, generally over
$100 per purchase. Regular plan charges consist of all other charges except for
charges to a small number of accounts opened under a discontinued credit program
under which the entire outstanding balance is due monthly.
The regular plan payment schedule is the greater of $5.00 (currently $15.00
in the case of the Broadway Accounts) or 5% of the new balance rounded up to the
next whole dollar amount, not to exceed the entire new balance.
29
<PAGE> 30
The following payments schedule is typical for major purchase plan charges
under the Accounts (other than the Broadway Accounts):
MAJOR PURCHASE PLAN CHARGES
<TABLE>
<CAPTION>
HIGHEST NEW BALANCE MINIMUM PAYMENT
------------------- ---------------
<S> <C> <C> <C>
$ 0.01 -- $ 4.99 New Balance
$ 5.00 -- $ 100.99 $ 5.00
$ 101.00 -- $ 300.99 $ 5.00 plus $1.00 for each $20.00 increment or portion thereof over $100.99
$ 301.00 -- $ 340.99 $17.00
$ 341.00 -- $ 350.99 $18.00
$ 351.00 -- $ 380.99 $19.00
$ 381.00 -- $ 400.99 $20.00
$ 401.00 -- $ 420.99 $21.00
$ 421.00 -- $ 450.99 $22.00
$ 451.00 -- $ 460.99 $23.00
$ 461.00 -- $ 480.99 $24.00
$ 481.00 -- $ 600.99 $25.00
$ 601.00 -- $1,000.99 $25.00 plus $5.00 for each $120.00 increment or portion thereof over $600.99
$1,001.00 and over $30.00 plus $2.50 for each $75.00 increment or portion thereof over $1,000.99
</TABLE>
The minimum payment required for major purchase plan charges under the
Broadway Accounts is the amount equal to one-twelfth of the highest balance in
such account during the month, rounded up to the next integral multiple of
$5.00, but not less than $20.00.
From time to time, both FDS and Broadway offer promotional incentives to
solicit new accounts and to encourage the use of previously issued Federated
Cards, including the waiver of finance charges for a specified initial period
(typically ranging from three to twelve months) on major purchase plan charges
made during the course of the promotion.
Balances due with respect to both regular plan charges and major purchase
plan charges are and will be included in the Receivables. Federated may change
the terms applicable to, or may eliminate, either category of charges at any
time.
REVENUE AND YIELD EXPERIENCE
The following table shows average receivables outstanding, finance charges
and other fees billed, and the yield therefrom for the portfolio of accounts
owned by the Originators, including Broadway (the "Federated Portfolio") for
each of the periods shown. The fiscal year of the current Federated Subsidiaries
ends on the Saturday nearest January 31. Because the FDS/Broadway Accounts were
first established subsequent to February 3, 1996, no information concerning the
Receivables therein is reflected in the following table.
REVENUE AND YIELD EXPERIENCE FOR THE FEDERATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)...... $ 2,650,114 $ 2,381,081 $ 1,986,511 $ 1,944,833
Finance Charges and Fees Billed(2)...... 587,869 521,884 396,282 368,877
Yield from Finance Charges and
Fees(3)............................... 22.18% 21.92% 19.95% 18.97%
<FN>
- ---------------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding at the beginning of each fiscal month during the period
indicated.
(2) Finance Charges and Fees Billed are based on beginning of the month
balances.
(3) Yield from Finance Charges and Fees is the result of dividing Finance
Charges and Fees Billed by Average Receivables Outstanding.
</TABLE>
30
<PAGE> 31
Revenue figures are calculated on an as-billed basis and represent amounts
billed to obligors before deductions for charge-offs, reductions due to fraud,
returned goods, consumer disputes, or other expenses. The revenue figures in the
foregoing table are presented on a sum of cycles basis pursuant to which each
billing cycle is included once in each fiscal month, regardless of the length of
the fiscal month.
At its inception, and upon acquiring substantially all of the Accounts from
the other Originators (other than Broadway), FDS established terms for its
various credit card programs which differed from those of the other Originators
and which had a significant effect on the yield of the Federated Portfolio. The
principal differences included (i) the assessment of late fees of up to $15.00
per month on past due accounts and (ii) a reduction in the amount of minimum
required payments. As a result of these factors and others, the revenue and
yield information set forth above is not necessarily comparable from period to
period. Moreover, the terms of the Broadway Accounts differ in certain respects
from the terms established by FDS, including with respect to the limitation of
late fees on past due Broadway Accounts to the greater of $5.00 and 5% of the
amount past due for any particular month. It is contemplated that the terms of
the Broadway Accounts will be conformed to the terms established by FDS
following the contemplated transfer thereof to FDS during fiscal 1996. Although
such changes to the terms of the Broadway Accounts are expected to result in an
increase in the fees billed in respect of the Broadway Accounts, they may also
have the effect of increasing charge-offs in respect of such fees. See "Risk
Factors--Effects of Certain Transactions."
Cash collections on the Receivables may not reflect the historical
experience shown in the table. See "Risk Factors--Effects of Certain
Transactions." During periods of increasing delinquencies, billings of monthly
finance charges and fees may exceed cash receipts as amounts collected on credit
card receivables lag behind amounts billed to obligors. Conversely, as
delinquencies decrease, cash receipts may exceed billings of monthly finance
charges and fees as amounts collected in a current period may include amounts
billed during prior periods. However, the Transferor believes that during the
periods shown, revenues on an as-billed basis closely approximated revenues on a
cash basis. Revenues from monthly finance charges and fees on both an as-billed
and a cash basis will be affected by numerous factors, including the monthly
finance charges and fees on principal receivables, the fluctuation of the
principal receivables portfolio, the amount of other fees paid by obligors, the
percentage of obligors who pay off their balances in full each month and do not
incur monthly finance charges on purchases, promotional programs at the
Federated Stores and Bloomingdale's By Mail, and changes in the delinquency rate
on the Receivables. Revenue from monthly finance charges and fees also varies
somewhat within a fiscal year due to the seasonal nature of the Federated
Subsidiaries' businesses.
LOSS AND DELINQUENCY EXPERIENCE
All of the Receivables in a particular Account are considered to become
delinquent immediately upon the failure of any payment due thereon to be made in
full on or prior to the date due. Efforts to collect delinquent credit card
receivables are made by FACS personnel and collection agencies and attorneys
retained by FACS. Under current procedures, FACS automatically prints a
statement message on all customer statements after a scheduled payment has been
missed. If payment has not been made 14 days after the billing date, a reminder
letter is sent to the cardholder. If payment still has not been received by the
next billing date, the account is eligible for assignment to a FACS collector,
who may send additional letters and initiate telephone contact with the
cardholder in an effort to make payment arrangements. The current policy of the
Originators is generally to recognize losses no later than the eighth month of
delinquency (or, in the case of certain major purchase plan accounts, no later
than the ninth month of delinquency), although charge-offs may be made earlier
in certain circumstances. The charge-off policies and collection practices with
respect to the Broadway Accounts were conformed to those of the other
Originators in February 1996. The Originators may change their charge-off
policies and collection practices at any time in accordance with their business
judgment and applicable law. Under the terms of the Pooling and Servicing
Agreement, any Recoveries received in respect of Receivables in charged-off
Accounts, net of the estimated expenses of collection, will be paid to the
Trust.
The following table sets forth the loss experience with respect to payments
by cardholders for each of the periods shown for the Federated Portfolio.
Because losses are affected by a number of factors, including competitive and
general economic conditions and consumer debt levels, there can be no assurance
that the loss experience for the Receivables in the future will be similar to
the historical experience set forth below. See
31
<PAGE> 32
"Risk Factors--Effects of Certain Transactions." Because the FDS/Broadway
Accounts were first established subsequent to February 3, 1996, no information
concerning the Receivables therein is reflected in the following table.
LOSS EXPERIENCE FOR THE FEDERATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)...... $ 2,650,114 $ 2,381,081 $ 1,986,511 $ 1,944,833
Net Charge-offs(2)...................... 152,538 95,916 92,709 119,161
Net Charge-offs as a Percentage of
Average Receivables Outstanding....... 5.76% 4.03% 4.67% 6.13%
<FN>
- ---------------
(1) Average Receivables Outstanding is the arithmetic average of receivables
outstanding as of the beginning of each fiscal month during the period
indicated.
(2) Net Charge-offs are the sum of merchandise, finance charge, and late fee
charge-offs minus recoveries, and do not include the amount of any
reductions in Average Receivables Outstanding due to fraud or customer
disputes.
</TABLE>
The following table sets forth the delinquency experience with respect to
payments by cardholders that were more than 29 days past due for each of the
periods shown for the Federated Portfolio. Because delinquencies are affected by
a number of factors, including competitive and general economic conditions and
consumer debt levels, there can be no assurance that the delinquency experience
for the Receivables in the future will be similar to the historical experience
set forth below. See "Risk Factors--Effects of Certain Transactions." Because
the FDS/Broadway Accounts were first established subsequent to February 3, 1996,
no information concerning the Receivables therein is reflected in the following
table.
AVERAGE DELINQUENCIES FOR THE FEDERATED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE OF FISCAL YEAR ENDED
------------------------------------------------------------------------------------------------------
FEBRUARY 3, 1996 JANUARY 28, 1995 JANUARY 29, 1994 JANUARY 30, 1993
------------------------ ------------------------ ------------------------ ------------------------
AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1)
-------- ------------- -------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Age 2
(30-59 days
past due)...... $ 98,648 3.55% $ 80,225 2.95% $ 57,981 2.49% $ 76,109 3.63%
Retail Age 3
(60-89 days
past due)...... 38,760 1.39 28,498 1.05 17,026 0.73 26,097 1.25
Retail Age 4 and
higher
(90 days or
more past
due)........... 80,872 2.91 47,573 1.75 35,592 1.53 41,876 2.00
-------- ---- -------- ---- -------- ---- -------- ----
Total........ $218,280 7.85% $156,296 5.75% $110,599 4.75% $144,082 6.88%
======== ==== ======== ==== ======== ===== ======== ====
<FN>
- ---------------
(1) The percentages are the quotients obtained by dividing the delinquent Amount
by Average Receivables Outstanding as of the billing date for each billing
cycle during the applicable period. For purposes of this table, the Average
Receivables Outstanding balance includes closed accounts.
</TABLE>
THE ACCOUNTS
The Accounts consist of substantially all of the Federated Card accounts
existing at the close of business on the Initial Cut-Off Date, plus Federated
Card accounts thereafter originated in accordance with the Originators' credit
and collection policies or acquired in connection with certain business
acquisitions (including, from and after the Closing Date, the Broadway Accounts
acquired in connection with the
32
<PAGE> 33
acquisition of Broadway). Because the Accounts include substantially all of the
Federated Card accounts, some of the accounts are recently solicited, unseasoned
accounts and the Receivables include delinquent Receivables and may include
obligations of cardholders who are or are about to become bankrupt or insolvent,
as well as Accounts already charged off (although the Receivables in such
charged-off Accounts are considered to have a zero balance). Additional accounts
originated in the normal operation of the credit card business of the
Originators are generally added on a daily basis as Automatic Additional
Accounts. In addition, subject to the provisions of the Pooling and Servicing
Agreement, certain accounts relating to acquired businesses have been and may in
the future be added as Automatic Additional Accounts. See "Risk Factors--Effects
of Certain Transactions" and "Description of the Offered Certificates--Automatic
Addition of Accounts."
Federated acquired Broadway in October 1995 and is in the process of
integrating Broadway's businesses with the businesses of Federated's other
subsidiaries. Of the 82 department stores operated by Broadway at the time of
such acquisition under the names "Broadway," "Emporium," and "Weinstocks," five
are expected to be converted to Bloomingdale's stores, 49 have been or are
expected to be converted to Macy's stores, three are being operated as clearance
centers, and 20 have been or are expected to be sold or otherwise disposed of.
(The Transferor has been advised by Federated that it has yet to make a decision
with respect to the other five stores.) Historically, Broadway has established
and owned credit card accounts for its customers and sold the receivables
arising in such accounts to Broadway Receivables, Inc., which financed its
purchases of such receivables through borrowings secured by such receivables. In
February 1996, FDS began establishing and continues to establish the
FDS/Broadway Accounts for qualified applicants who were or become customers of
the department stores operated by Broadway following the conversion of such
stores to other Federated nameplates. Until the Closing Date, the receivables
arising in the FDS/Broadway Accounts will continue to be sold by FDS to Broadway
Receivables, Inc. On the Closing Date, Broadway will be added as a party to the
Purchase Agreement and, concurrently therewith, will cause the receivables then
outstanding under substantially all of the Broadway Accounts and the
FDS/Broadway Accounts to be transferred to the Transferor for inclusion in the
Trust. The Broadway Accounts had aggregate outstanding balances of approximately
$491,940,717 as of the Cut-Off Date, representing approximately 19.8% of the
aggregate outstanding balance of all of the accounts included in the Federated
Portfolio as of the Cut-Off Date. It is contemplated that substantially all of
the Broadway Accounts will be transferred to FDS during fiscal 1996. In
connection with the conversion of certain Broadway, Emporium, and Weinstocks
stores to Macy's stores, it is contemplated that the issuance by FDS of cards
bearing the Macy's tradename to customers of such stores and the closure of
certain Broadway Accounts will be effected on the same basis as described below
with respect to the conversion of A&S stores to Macy's stores.
In April 1995, the operations of Federated's Abraham & Straus ("A&S") and
Jordan Marsh subsidiaries were consolidated with those of Federated's Macy's
East subsidiary, with nine A&S stores being converted to Macy's stores, six A&S
stores being converted to Stern's stores, and the remaining A&S store being
converted to a Bloomingdale's store. In connection with such conversions, FDS
issued cards bearing the "Macy's" tradename to holders of Accounts in good
standing bearing the "A&S" tradename who did not already hold a Macy's card. All
other Accounts bearing the "A&S" tradename were closed to further purchasing
activity. Pursuant to an agreement with the third-party financial institution
that owns the Macy's Credit Card Program (the "Macy's Program Owner"), FDS
establishes new accounts for qualified applicants who are customers of the
former A&S stores that were converted to Macy's stores and issues cards bearing
the "Macy's" tradename to the holders of such new accounts. Under certain
circumstances, the Macy's Program Owner may become entitled to establish such
new accounts or, conversely, FDS may become entitled to establish new accounts
at other Macy's stores. During the first quarter of 1996, all 16 Jordan Marsh
stores were converted to Macy's stores. The issuance by FDS of cards bearing the
"Macy's" tradename to the holders of certain Accounts, the closure by FDS of
other Accounts, and the establishment by FDS of new accounts for customers of
the Jordan Marsh stores so converted was effected on the same basis as described
above with respect to the conversion of A&S stores to Macy's stores (although a
substantially smaller percentage of Accounts were closed in connection with the
conversion of the Jordan Marsh stores due to the substantially smaller
percentage of Jordan Marsh customers who already held Macy's cards). Further
realignment of the operations, corporate structure, and/or assets of Federated's
subsidiaries may be effected from time to time, and the names under
33
<PAGE> 34
which the stores or businesses included in or conducted through the Federated
Stores and Bloomingdale's By Mail are operated may be changed from time to time.
See "Risk Factors--Dependence on Certain Affiliates of the Transferor." See
"Federated, the Transferor, and FDS--Federated" for additional information
regarding the current business operations of Federated and its subsidiaries.
The Receivables arising from the Accounts as of the Cut-Off Date totaled
$2,487,573,533.11. As of the Cut-Off Date, the Accounts had an average credit
guideline of $1,180.31, and the percentage of the aggregate total Receivable
balance to the aggregate total credit guideline was approximately 12.15%. As of
the Cut-Off Date, approximately 84.4% of the Accounts had been opened prior to
April 1, 1995. Billing addresses for the Accounts include 50 states and the
District of Columbia.
The following tables summarize the Federated Portfolio by various criteria
as of the Cut-Off Date. Because the composition of the Federated Portfolio
changes from time to time, these tables are not necessarily indicative of the
character of the Trust at any time after the Cut-Off Date. See "Risk
Factors--Effects of Certain Transactions," "The Accounts," and "Description of
the Offered Certificates--Automatic Addition of Accounts" and "--Removal of
Accounts."
COMPOSITION OF ACCOUNTS BY ACCOUNT BALANCE
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF TOTAL
NUMBER OF OF RECEIVABLES RECEIVABLES
ACCOUNTS(1)(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
-------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Credit Balance(3)................... 403,507 2.33% $ (27,094,627.58) (1.09)%
No Balance(4)....................... 10,595,335 61.08 0.00 0.00
$ 0.01 to $ 500.00.............. 4,838,053 27.89 835,813,075.76 33.60
$ 500.01 to $1,000.00............... 951,315 5.49 663,160,061.44 26.66
$1,000.01 to $2,000.00.............. 412,516 2.38 561,332,415.83 22.57
$2,000.01 to $3,000.00.............. 91,456 0.53 219,602,313.18 8.83
$3,000.01 to $4,000.00.............. 30,131 0.17 103,074,351.42 4.14
More than $4,000.00................. 23,222 0.13 131,685,943.06 5.29
---------- ------ ----------------- ------
Total..................... 17,345,535 100.00% $2,487,573,533.11 100.00%
========== ====== ================= ======
<FN>
- ---------------
(1) Inactive revolving accounts are purged after five years (two if never used),
and inactive installment accounts are purged after three years (one if never
used). Purging began in 1994.
(2) The figures for Number of Accounts and Receivables Outstanding are compiled
from data as of the last cycle billing date of each Federated Subsidiary
preceding the Cut-Off Date.
(3) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of an Account's unpaid balance. Accounts currently having
a credit balance are included, as Receivables may be generated with respect
thereto in the future.
(4) Accounts currently having no balance are included, as Receivables may be
generated with respect thereto in the future.
</TABLE>
34
<PAGE> 35
COMPOSITION OF ACCOUNTS BY CREDIT GUIDELINE
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF TOTAL
NUMBER OF OF RECEIVABLES RECEIVABLES
ACCOUNTS(1)(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
-------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Under $500.00....................... 5,094,204 29.37% $ 559,007,085.62 22.47%
$ 500.00 to $1,000.00............... 5,712,865 32.93 497,036,775.36 19.98
$1,000.01 to $2,000.00.............. 3,721,446 21.45 637,086,619.87 25.61
$2,000.01 to $3,000.00.............. 1,564,266 9.02 376,881,254.52 15.15
$3,000.01 to $4,000.00.............. 603,242 3.48 184,749,511.70 7.43
$4,000.01 to $5,000.00.............. 380,953 2.20 100,898,694.36 4.06
$5,000.01 to $6,000.00.............. 220,832 1.27 84,085,936.18 3.38
More than $6,000.00................. 47,727 0.28 47,827,655.50 1.92
---------- ------ ----------------- ------
Total..................... 17,345,535 100.00% $2,487,573,533.11 100.00%
========== ====== ================= ======
<FN>
- ---------------
(1) Inactive revolving accounts are purged after five years (two if never used),
and inactive installment accounts are purged after three years (one if never
used). Purging began in 1994.
(2) The figures for Number of Accounts and Receivables Outstanding are compiled
from data as of the last cycle billing date of each Federated Subsidiary
preceding the Cut-Off Date.
</TABLE>
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF TOTAL
NUMBER OF OF RECEIVABLES RECEIVABLES
ACCOUNTS(1)(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
-------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Current and Retail Age 1(3)......... 5,920,107 93.28% $2,291,800,918.73 91.13%
Retail Age 2
(30-59 days past due)............. 203,799 3.21 99,346,315.31 3.95
Retail Age 3
(60-89 days past due)............. 90,455 1.42 44,975,449.41 1.79
Retail Age 4
(90-119 days past due)............ 50,570 0.80 28,174,435.93 1.12
Retail Age 5
(120-149 days past due)........... 36,562 0.58 21,798,321.48 0.87
Retail Age 6
(150-179 days past due)........... 27,677 0.43 17,302,861.95 0.69
Retail Age 7 and higher
(180 or more days past due)....... 17,523 0.28 11,269,858.88 0.45
---------- ------ ----------------- ------
Total.......................... 6,346,693 100.00% $2,514,668,161.69 100.00%
========== ====== ================= ======
<FN>
- ---------------
(1) Inactive revolving accounts are purged after five years (two if never used),
and inactive installment accounts are purged after three years (one if never
used). Purging began in 1994.
(2) The figures for Number of Accounts and Receivables Outstanding are compiled
from data as of each cycle billing date during the month of March 1996 and
exclude accounts with zero or credit balances.
(3) Includes both current accounts and accounts that are less than 30 days past
due. Accounts that were 1-29 days past due constituted 11.9% of the Total
Number of Accounts and the receivables therein constituted 15.6% of the
Total Receivables Outstanding.
</TABLE>
35
<PAGE> 36
COMPOSITION OF ACCOUNTS BY AGE
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF TOTAL
NUMBER OF OF RECEIVABLES RECEIVABLES
ACCOUNTS(1)(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
-------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Under 6 months...................... 1,329,068 7.66% $ 109,094,157.97 4.38%
6 months to 1 year.................. 1,380,010 7.96 117,385,639.58 4.72
1-2 years........................... 2,395,768 13.81 234,758,626.33 9.44
2-3 years........................... 1,371,634 7.91 192,412,501.84 7.73
3-4 years........................... 1,214,075 7.00 191,668,896.88 7.71
4 years and older................... 9,654,980 55.66 1,642,253,710.51 66.02
------------ -------- ----------------- ---------
Total.......................... 17,345,535 100.00% $2,487,573,533.11 100.00%
=========== ======== ================= =========
<FN>
- ---------------
(1) Inactive revolving accounts are purged after five years (two if never used),
and inactive installment accounts are purged after three years (one if never
used). Purging began in 1994.
(2) The figures for Number of Accounts and Receivables Outstanding are compiled
from data as of the last cycle billing date of each Federated Subsidiary
preceding the Cut-Off Date.
</TABLE>
COMPOSITION OF ACCOUNTS BY GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF CURRENT OF TOTAL
NUMBER OF TOTAL NUMBER RECEIVABLES RECEIVABLES
STATE ACCOUNTS(1) OF ACCOUNTS OUTSTANDING OUTSTANDING
- -------------------------------- -------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C>
California...................... 2,801,107 16.15% $ 436,179,622.89 17.53%
Florida......................... 2,211,865 12.75 357,710,894.83 14.38
New York........................ 2,778,100 16.02 348,429,019.62 14.01
Washington...................... 1,035,747 5.97 202,877,656.02 8.16
Georgia......................... 927,693 5.35 181,697,936.16 7.30
Ohio............................ 1,009,865 5.82 159,027,721.32 6.39
Massachusetts................... 1,342,751 7.74 138,498,632.68 5.57
New Jersey...................... 902,652 5.20 110,478,351.31 4.44
Tennessee....................... 302,256 1.74 69,331,545.12 2.79
Pennsylvania.................... 605,677 3.49 66,336,041.81 2.67
Indiana......................... 442,835 2.55 54,895,318.81 2.21
Kentucky........................ 311,995 1.80 46,961,163.58 1.89
Alabama......................... 208,678 1.20 33,450,641.31 1.34
Arizona......................... 241,224 1.39 31,194,660.41 1.25
Idaho........................... 159,064 0.92 23,559,651.07 0.95
South Carolina.................. 165,798 0.96 23,109,016.50 0.93
Oregon.......................... 164,615 0.95 18,069,569.30 0.73
Rhode Island.................... 204,027 1.18 17,521,953.61 0.70
Connecticut..................... 127,438 0.73 15,254,708.53 0.61
New Mexico...................... 51,346 0.30 6,063,801.20 0.24
Texas........................... 44,503 0.26 4,383,501.68 0.18
------------ --------- ----------------- ---------
Subtotal........................ 16,039,236 92.47% $2,345,031,407.76 94.27%
Other........................... 1,306,299 7.53 142,542,125.35 5.73
------------ --------- ----------------- ---------
Total...................... 17,345,535 100.00% $2,487,573,533.11 100.00%
=========== ========== =============== ========
<FN>
- ---------------
(1) Inactive revolving accounts are purged after five years (two if never used),
and inactive installment accounts are purged after three years (one if never
used). Purging began in 1994.
</TABLE>
36
<PAGE> 37
BILLING AND PAYMENTS
The accounts are grouped into billing cycles for purposes of administrative
convenience for each Federated Subsidiary. Each billing cycle has a separate
monthly billing date (which may vary slightly from month to month) at which time
the activity in the related accounts during the month ending on such billing
date is processed and billed to cardholders. New accounts are assigned to
billing cycles in a manner which is intended, for purposes of administrative
convenience, to equalize the number of accounts in the billing cycles.
Monthly billing statements are sent to holders of the Federated Cards who
have positive or negative balances. The billing statements present the total
amount due and show the allocation between principal, current fees, current
finance charges, and the minimum payment due. Subject to applicable law, late
fees and returned check fees are also added to a cardholder's outstanding
balance. No issuance, annual, over credit limit, or transaction fees are
currently charged to obligors on the Accounts. FDS may change its billing
practices, including the minimum monthly payment amounts, at any time. See
"Description of the Offered Certificates--Collection and Other Servicing
Procedures."
A monthly finance charge is assessed on the Accounts. The charge is based
on the average daily balance outstanding on an Account during a monthly billing
period and is calculated by multiplying the average daily balance by the
applicable finance charge rate. Current purchase transactions are included in
the average daily balance where permitted by applicable law. Finance charges are
assessed from date of purchase, although a grace period is available to avoid
the finance charge if the account is paid in full. Payments by obligors
generally are applied in the following order (pursuant to applicable law): (i)
to finance charges, (ii) to other charges or fees, and (iii) to the unpaid
principal balance of purchases allocated first to the longest outstanding
receivable. The annual finance charge rate is 21.6% per annum, generally subject
(where permitted) to a minimum monthly charge of $0.50, except where a lower
rate is established by law and in those states in which a lower rate is chosen
by FDS in consultation with the applicable Federated Subsidiary for competitive
reasons. Under the terms of the account agreements governing the Accounts, FDS
may change its finance charge rates at any time. There can be no assurance that
finance charges, fees, and other charges will remain at current levels in the
future. See "Risk Factors--Possible Changes to the Terms of the Receivables" and
"Description of the Offered Certificates--Collection and Other Servicing
Procedures."
37
<PAGE> 38
FEDERATED, THE TRANSFEROR, AND FDS
FEDERATED
General. Federated is one of the leading operators of full-line department
stores in the United States, with 412 department stores in 33 states as of
February 3, 1996 (of which 291 stores in 30 states were Federated Stores,
including 57 Broadway, Emporium and Weinstocks stores contemplated to be
converted into Bloomingdale's or Macy's stores or operated as clearance centers
as described in "Risk Factors--Effects of Certain Transactions"). As of February
3, 1996, Federated also operated more than 150 specialty stores under the names
"Aeropostale" and "Charter Club," and a mail order catalog business under the
name "Bloomingdale's By Mail."
The following table sets forth certain information with respect to each of
Federated's retail operating divisions as of February 3, 1996:
<TABLE>
<CAPTION>
FISCAL GROSS
1995 SQUARE
NUMBER OF SALES FEET(1)
STORES (IN MILLIONS) (IN THOUSANDS)
--------- ------------- --------------
<S> <C> <C> <C>
Bloomingdale's....................................... 17 $ 1,408.7(2) 4,689
The Bon Marche....................................... 41 896.9 4,960
Broadway............................................. 57 1,050.3(3) 10,068
Burdines............................................. 47 1,332.2 7,884
Macy's East(4)....................................... 89 4,637.9 23,355
Macy's West/Bullock's................................ 59 2,499.7 12,450
Rich's/Lazarus/Goldsmith's........................... 75 2,148.8 14,672
Stern's.............................................. 27 845.0 5,425
Macy's Specialty..................................... 153 162.9 555
Macy's Close-Out (5)................................. -- 66.1 --
--- ------------- -------
Total................................................ 565 $ 15,048.5 84,058
======== ========= ===========
<FN>
- ---------------
(1) Reflects total square footage of store locations, including office, storage,
service and other support space that is not dedicated to direct merchandise
sales, but excluding warehouses and distribution terminals not located at
store sites.
(2) Includes $114.0 million of sales of Federated's Bloomingdale's By Mail
subsidiary.
(3) Consists of sales at Broadway, Emporium, and Weinstocks stores subsequent to
July 29, 1995.
(4) Includes nine former A&S stores and 18 former Jordan Marsh stores.
(5) Federated closed all of its Macy's-Close Out stores during fiscal 1995.
</TABLE>
In general, each of Federated's retail operating divisions is a separate
subsidiary of Federated. However, (i) the Macy's West division comprises two
separate subsidiaries of Federated and, following its consolidation with the
Broadway division, will comprise three separate subsidiaries of Federated and
(ii) the consolidated Rich's/Lazarus division comprises three separate
subsidiaries of Federated. Further realignment of the operations, corporate
structure, and/or assets of Federated's subsidiaries may be effected from time
to time, and the names under which the stores or businesses included in or
conducted through the Federated Stores and Bloomingdale's By Mail are operated
may be changed from time to time. See "Risk Factors--Dependence on Certain
Affiliates of the Transferor."
Federated has advised the Transferor that Federated believes the department
store business will continue to consolidate, and that it intends from time to
time to consider the possible acquisition of department store assets and
companies. In the event any such acquisitions are consummated, subject to
compliance with the applicable provisions of the Pooling and Servicing
Agreement, the Transferor may (but will not be obligated to) designate such
accounts as Automatic Additional Accounts and cause the receivables therein to
be transferred to the Trust. See "Description of the Offered
Certificates--Automatic Addition of Accounts."
38
<PAGE> 39
THE TRANSFEROR
The Transferor was incorporated in Delaware on September 23, 1992, and is
an indirect wholly owned subsidiary of Federated. The Transferor was organized
for the limited purpose of purchasing the Receivables in the Accounts and any
Automatic Additional Accounts or Supplemental Accounts from the Originators,
forming trusts such as the Trust, and transferring the Receivables to such
trusts, causing such trusts to issue securities from time to time of the type
comprising the Series 1996-1 Certificates and certificates of other Series. The
principal executive offices of the Transferor are located at 9111 Duke
Boulevard, Mason, Ohio 45040-8999. Its telephone number is (513) 573-2037.
FDS
FDS received its charter on September 8, 1993, and is an indirect wholly
owned subsidiary of Federated. Pursuant to an Assumption Agreement dated
September 15, 1993, FDS replaced Federated as Servicer under the Pooling and
Servicing Agreement. In addition, FDS was added as a party to the Purchase
Agreement and substantially all of the Accounts of the other Originators (other
than Broadway) were transferred to FDS. FDS issues cards bearing the various
tradenames of the Federated Stores and maintains separate credit card programs
for each of them. Because the credit and collection policies of FDS with respect
to its various programs are substantially similar, FDS is able to achieve
significant economies of scale in credit servicing. At the present time, FDS is
the owner of substantially all of the Accounts (other than the Broadway
Accounts, substantially all of which are expected to be transferred to FDS in
fiscal 1996), although the other Originators may from time to time establish
Accounts and sell the Receivables arising therein to the Transferor for transfer
to the Trust pursuant to the Pooling and Servicing Agreement. The principal
executive offices of FDS are located at 9111 Duke Boulevard, Mason, Ohio
45040-8999. The telephone number is (513) 573-2265.
MATURITY ASSUMPTIONS
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
the Class A Expected Final Payment Date, which is the May 2001 Distribution Date
(the "Class A Expected Final Payment Date"), or earlier in the event of a Pay
Out Event which results in the commencement of the 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 being a "Special Payment Date") until the Class A
Invested Amount has been paid in full or the Series 1996-1 Termination Date has
occurred. The Class B Certificateholders will receive payments of principal on
the Class B Expected Final Payment Date, which is the June 2001 Distribution
Date (the "Class B Expected Final Payment Date"), or earlier or later in certain
circumstances, and each Distribution Date thereafter until the Class B Invested
Amount is paid in full or the Series 1996-1 Termination Date has occurred.
During the Accumulation Period, monthly collections of principal with
respect to the Class A Certificates will be deposited in the Principal Funding
Account until the amount deposited in the Principal Funding Account is equal to
the Class A Invested Amount. The Class A Certificateholders will receive the
amount on deposit in the Principal Funding Account on the Class A Expected Final
Payment Date.
During the Accumulation Period or any Early Amortization Period, as the
case may be, the Class A Certificateholders will have deposited in the Principal
Funding Account or will receive, as the case may be, on each Distribution Date,
an amount equal to the lesser of (a) the product of the Fixed/Floating
Allocation Percentage and the aggregate amount of Principal Collections
collected during the related Monthly Period and (b) the aggregate amount of Net
Principal Collections for such Monthly Period. During the Accumulation Period,
the monthly amount deposited in the Principal Funding Account for payment on the
Class A Expected Final Payment Date to the Class A Certificateholders will be
equal to the lesser of (a) the sum of (i) the lesser of (x) the product of the
Fixed/Floating Allocation Percentage and the aggregate amount of Principal
Collections received during the related Monthly Period and (y) the Net Principal
Collections and (ii) Shared Principal Collections allocable to the Class A
Certificates, if any, and (b) the Controlled Deposit Amount, which is equal to
the sum of the applicable Controlled Amortization Amount and any existing
Accumulation
39
<PAGE> 40
Shortfall. Although it is anticipated that Principal Collections will be
sufficient in each Monthly Period to fund the deposit of the Controlled
Amortization 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. The Transferor cannot predict, and no assurance can be
given, as to the cardholder monthly payment rates that will actually occur in
any future period, as to whether any of the above assumptions will prove to have
been correct, or as to whether the actual rate of payment of principal of the
Class A Certificates or the Class B Certificates will be as anticipated.
Should a Pay Out Event occur and the Early Amortization Period commence,
the Class A Certificateholders will be entitled to receive on each Distribution
Date payments of principal equal to the lesser of (i) the product of the
Fixed/Floating Allocation Percentage and the aggregate amount of Principal
Collections received during the related Monthly Period and (ii) the aggregate
amount of Net Principal Collections for such Monthly Period, until the Class A
Invested Amount is paid in full or until the Series 1996-1 Termination Date.
Thereafter, on and after the Class B Principal Payment Commencement Date, the
Class B Certificateholders will be entitled to receive on each Distribution Date
payments of principal equal to the lesser of (i) the product of the applicable
Fixed/Floating Allocation Percentage and Principal Collections received during
the related Monthly Period and (ii) the aggregate amount of Net Principal
Collections for such Monthly Period, until the Class B Invested Amount is paid
in full or until the Series 1996-1 Termination Date. A "Pay Out Event" would
occur, either automatically or after specified notice, upon (a) the failure of
the Transferor to make certain payments or transfers of funds for the benefit of
the Certificateholders within the time periods stated in the Pooling and
Servicing Agreement, (b) material breaches of certain representations,
warranties or covenants of the Transferor, (c) certain insolvency events
relating to the Transferor, FDS, or Federated, (d) the occurrence of a Servicer
Default that would have a material adverse effect on the Certificateholders, (e)
(x) the Transferor Interest being less than the Minimum Transferor Interest or
(y) the total amount of Principal Receivables and the amount on deposit in the
Excess Funding Account being less than the Minimum Aggregate Principal
Receivables, in each case for 15 consecutive days, (f) the Trust becoming an
"investment company" within the meaning of the Investment Company Act, or (g) a
reduction in the average of the Portfolio Yields for any three consecutive
Monthly Periods to a rate which is less than the Base Rate. See "Description of
the Offered Certificates--Pay Out Events."
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Federated Portfolio during any month in the period shown
and the average cardholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening monthly
account balances during the periods shown. Payment rates shown in the table are
based on amounts which would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts.
CARDHOLDER MONTHLY PAYMENT RATES
FEDERATED PORTFOLIO
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Lowest Month.................................. 15.99% 17.38% 20.29% 21.62%
Highest Month................................. 18.04% 20.29% 23.72% 25.59%
Monthly Average............................... 17.32% 18.72% 22.24% 22.72%
</TABLE>
A reduction in the amount of minimum required payments effected in fall of
1993 resulted in reduced payment rates for subsequent periods. In addition, the
amount of collections of Receivables may vary from month to month due to
seasonal variations, general economic conditions, payment habits of individual
cardholders, and other factors. There can be no assurance that collections of
Principal Receivables with respect to the Trust Portfolio, and thus the rate at
which the Principal Funding Account could be funded during the Accumulation
Period or the rate at which Certificateholders could expect to receive payments
of principal on their Certificates during an Early Amortization Period, will be
similar to the historical experience
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<PAGE> 41
set forth above. If a Pay Out Event occurs, the average life and maturity of the
Offered Certificates could be significantly reduced. See "Risk Factors--Payments
and Maturity."
POOL FACTOR AND RELATED INFORMATION
The "Class A Pool Factor" and the "Class B Pool Factor" are each a
seven-digit decimal, which the Servicer will compute monthly, expressing as of
each Record Date the Class A Invested Amount as a proportion of the Class A
Invested Amount as of the date of initial issuance of the Offered Certificates
(the "Closing Date") and the Class B Invested Amount as a proportion of the
Class B Invested Amount as of the Closing Date, respectively. On the Closing
Date, the Class A Pool Factor and the Class B Pool Factor will be 1.0000000 and
will remain unchanged during the Revolving Period, except in certain limited
circumstances. Thereafter, on and after the Class A Expected Final Payment Date
or the beginning of the Early Amortization Period, the Class A Pool Factor will
decline to reflect reductions in the Class A Invested Amount and on and after
the Class B Principal Payment Commencement Date, the Class B Pool Factor will
decline to reflect reductions in the Class B Invested Amount. A
Certificateholder's pro rata interest in the Principal Receivables in the Trust
for a given month can be determined by multiplying the denomination of the
holder's Certificate by the applicable Pool Factor for that month.
Pursuant to the Pooling and Servicing Agreement, monthly reports
concerning, among other things, the Class A Invested Amount and the Class A Pool
Factor and the Class B Invested Amount and the Class B Pool Factor will be made
available to the Class A Certificateholders and the Class B Certificateholders,
respectively. In addition, on or before January 31 of each year, beginning in
1997, information for tax reporting purposes will be made available to the Class
A Certificateholders and the Class B Certificateholders, respectively. See
"Description of the Offered Certificates--Book-Entry Registration" and
"--Reports to Certificateholders."
USE OF PROCEEDS
The Trustee, on behalf of the Trust, will receive the Exchangeable
Transferor Certificate from the Transferor and, in exchange therefor, will issue
the Class A Certificates, the Class B Certificates, and the Class C
Certificates, together with a new Exchangeable Transferor Certificate, to or
upon the order of the Transferor. The Transferor will apply the entire net
proceeds (i.e., the price to the public, as set forth on the cover page of this
Prospectus, less underwriting discounts and commissions and offering expenses)
received from the sale of the Offered Certificates to pay the purchase price of
Receivables purchased from the Originators and to make certain payments to
Federated and its subsidiaries. Federated has informed the Transferor that
Federated and its subsidiaries will use such proceeds for general corporate
purposes.
DESCRIPTION OF THE OFFERED CERTIFICATES
The Offered Certificates will be issued pursuant to the Pooling and
Servicing Agreement and the Series 1996-1 Supplement. Pursuant to the Pooling
and Servicing Agreement, the Transferor and the Trustee may from time to time
execute additional Supplements in order to issue additional Series.
GENERAL
The Offered Certificates will represent undivided interests in certain
assets of the Trust, including the right to the investor allocation percentage
of all cardholder payments on the Receivables in the Trust. Each Class A
Certificate and Class B Certificate will represent the right to receive payments
of interest at the Class A Certificate Rate or the Class B Certificate Rate, as
the case may be, funded from collections of Finance Charge Receivables and
payments of principal on and after the earlier of the Class A Expected Final
Payment Date and the Distribution Date in the Monthly Period following the
commencement of the Early Amortization Period, with respect to the Class A
Certificates, and on and after the Class B Principal Payment Commencement Date,
with respect to the Class B Certificates, in each case funded from collections
of
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<PAGE> 42
Principal Receivables allocated to the Class A Certificateholders' Interest or
the Class B Certificateholders' Interest, as the case may be.
The Transferor will own the Exchangeable Transferor Certificate and may
from time to time own certificates of any Series or class, including without
limitation the Class C Certificates. The Exchangeable Transferor Certificate
will represent an undivided interest in the Trust, including the right to a
percentage (the "Transferor Percentage") of all cardholder payments on the
Receivables in the Trust equal to 100% minus the sum of the applicable investor
allocation percentages for all Series of certificates then outstanding. The
Exchangeable Transferor Certificate may be transferred in part, subject to
certain limitations and conditions set forth in the Pooling and Servicing
Agreement. See "--Certain Matters Regarding the Transferor and the Servicer."
During the Revolving Period, the amount of the Invested Amount in the Trust
will remain constant except under certain limited circumstances. See
"--Allocation Percentages," "--Reallocated Principal Collections,"
"--Application of Collections," "--Coverage of Interest Shortfalls," "--Investor
Charge-Offs," and "--Defaulted Receivables; Rebates and Fraudulent Charges." The
amount of Principal Receivables in the Trust, however, will vary each day as new
Principal Receivables are created and others are paid. The amount of the
Transferor Interest (or the amount in the Excess Funding Account) will fluctuate
each day to reflect the changes in the amount of the Principal Receivables in
the Trust. During the Amortization Period, the invested amount will decline as
cardholder payments of Principal Receivables are collected and accumulated for
distribution or distributed to the Certificateholders. As a result, unless
additional Series are issued or the invested amount of the Variable Funding
Certificates previously issued is increased, the Transferor Interest during any
Accumulation Period or Early Amortization Period, and on and after the Class B
Principal Payment Commencement Date, will generally increase each month to
reflect the reductions in the Invested Amount of such Series and will also
change to reflect the variations in the amount of the Principal Receivables in
the Trust. The Transferor Interest may be reduced as the result of an Exchange.
See "--Exchanges."
Each class of Offered Certificates initially will be represented by
certificates registered in the name of the nominee of DTC (together with any
successor depository selected by the Transferor, the "Depository"), except as
set forth below. Beneficial interests in each class of Offered Certificates will
be available for purchase in minimum denominations of $1,000 and integral
multiples thereof in book-entry form only. The Transferor has been informed by
DTC that DTC's nominee will be Cede. Accordingly, Cede is expected to be the
holder of record of the Offered Certificates. No Offered Certificate Owner
acquiring an interest in the Offered Certificates will be entitled to receive a
certificate representing such Offered Certificate Owner's interest in such
Certificates. Unless and until Definitive Certificates are issued under the
limited circumstances described herein, all references herein to actions by
Certificateholders of any class of Offered Certificates will refer to actions
taken by the Depository upon instructions from its participating organizations
("Participants"), and all references herein to distributions, notices, reports,
and statements to Certificateholders of any class of Offered Certificates will
refer to distributions, notices, reports, and statements to the Depository or
its nominee, as the registered holder of the Offered Certificates of such class,
for distribution to Offered Certificate Owners of such class in accordance with
the Depository's procedures. See "--Book-Entry Registration" and "--Definitive
Certificates."
BOOK-ENTRY REGISTRATION
Holders of the Offered Certificates may hold their Certificates through DTC
(in the United States) or Cedel or Euroclear (in Europe), which in turn hold
through DTC, if they are participants of such systems, or indirectly through
organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Certificates. Cedel and
Euroclear will hold omnibus positions on behalf of the Cedel Participants and
the Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective depositaries
(collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
For additional information regarding clearance and settlement procedures for the
Offered Certificates, see Annex II hereto.
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<PAGE> 43
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York UCC, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers, and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (the "Indirect Participants").
Class A Certificate Owners and Class B Certificate Owners that are not
Participants or Indirect Participants but desire to purchase, sell, or otherwise
transfer ownership of, or other interest in, Certificates may do so only through
Participants and Indirect Participants. In addition, Class A Certificate Owners
and Class B Certificate Owners will receive all distributions of principal of
and interest on the Class A Certificates and Class B Certificates, respectively,
through the Participants who in turn will receive them from the Depository.
Under a book-entry format, Class A Certificate Owners and Class B Certificate
Owners may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to the Depository or its nominee. The
Depository will forward such payments to its Participants which thereafter will
forward them to Indirect Participants, or Class A Certificate Owners or Class B
Certificate Owners, as the case may be. It is anticipated that the only "Class A
Certificateholder" and "Class B Certificateholder" will be Cede, as nominee of
DTC. Class A Certificate Owners and Class B Certificate Owners will not be
recognized by the Trustee as Certificateholders, as such term is used in the
Pooling and Servicing Agreement, and Class A Certificate Owners and Class B
Certificate Owners will be permitted to exercise the rights of
Certificateholders only indirectly through the Participants, who in turn will
exercise the rights of Certificateholders through the Depository.
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 Offered Certificates and is required
to receive and transmit distributions of principal and interest on the Offered
Certificates. Participants and Indirect Participants with which Class A
Certificate Owners and Class B Certificate Owners have accounts with respect to
the Class A Certificates and the Class B Certificates, respectively, similarly
are required to make book-entry transfers and receive and transmit such payments
on behalf of their respective Class A Certificate Owners and Class B Certificate
Owners. Accordingly, although Class A Certificate Owners and Class B Certificate
Owners will not possess Class A Certificates and Class B Certificates,
respectively, Class A Certificate Owners and Class B Certificate Owners will
receive payments and will be able to transfer their respective interests.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Class A
Certificate Owner or a Class B Certificate Owner to pledge Offered Certificates
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such Offered Certificates, may be limited due to the
lack of a physical certificate for such Offered Certificates.
DTC has advised the Transferor that it will take any action permitted to be
taken by a Class A Certificateholder or a Class B Certificateholder under the
Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account with DTC the Offered Certificates are credited.
Additionally, DTC has advised the Transferor that it will take such actions with
respect to specified percentages of the Invested Amount 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.
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<PAGE> 44
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly to
the Depositaries.
Because of time-zone differences, credits or securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by 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.
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 by Cedel in any of 28 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance, and settlement of internationally traded
securities, and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulations by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations and may include the Underwriters of the Offered
Certificates. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers, and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System (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 the
underwriters of the Offered Certificates. Indirect access to the Euroclear
System is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
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<PAGE> 45
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions governing use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Offered 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. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a holder of an Offered Certificate under
the Pooling and Servicing Agreement on behalf of a Cedel Participant or a
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 Offered 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 Offered Certificates of each Class will be issued in fully registered,
certificated form to the Offered Certificate Owners of such Class or their
nominees ("Definitive Certificates"), rather than to the Depository or its
nominee, only if (i) the Transferor advises the Trustee in writing that the
Depository is no longer willing or able to discharge properly its
responsibilities as Depository with respect to the Certificates of such Class,
and the Trustee or the Transferor is unable to locate a qualified successor,
(ii) the Transferor, at its option, advises the Trustee in writing that it
elects to terminate the book-entry system through the Depository, or (iii) after
the occurrence of a Servicer Default, Offered Certificate Owners representing
not less than 50% of such Class advise the Trustee and the Depository through
Participants in writing that the continuation of a book-entry system through the
Depository is no longer in the best interest of the Offered Certificate Owners
of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Depository is required to notify all Participants of
the availability through the Depository of Definitive Certificates. Upon
surrender by the Depository of the definitive certificate representing the
Certificates of the affected Class and instructions for registration, the
Trustee will issue the Certificates of such Class as Definitive Certificates,
and thereafter the Trustee will recognize the holders of such Definitive
Certificates as holders under the Pooling and Servicing Agreement ("Holders").
Distribution of principal and interest on the Offered Certificates will be
made by the Trustee directly to Holders of Definitive Certificates in accordance
with the procedures set forth herein and in the Pooling and Servicing Agreement.
Interest payments and any principal payments on each Distribution Date will be
made to Holders in whose names the Definitive Certificates were registered at
the close of business on the related Record Date. Distributions will be made by
check mailed to the address of such Holder as it appears on the register
maintained by the Trustee. The final payment on any Offered Certificate,
however, will be made only upon presentation and surrender of such Certificate
at the office or agency specified in the notice of final
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<PAGE> 46
distribution to Certificateholders. The Trustee will provide such notice to
registered Holders mailed not later than the fifth day of the month of such
final distributions.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which initially will 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 Transfer Agent and Registrar will not be required to register the
transfer or exchange of Definitive Certificates for a period of fifteen days
preceding the due date for any payment with respect to such Definitive
Certificates.
INTEREST PAYMENTS
Interest will accrue on the outstanding principal balance of the Class A
Certificates at the Class A Certificate Rate and on the outstanding principal
balance of the Class B Certificates at the Class B Certificate Rate, in each
case from the Closing Date. Interest will be distributed on June 17, 1996, and
on each Distribution Date thereafter to Certificateholders of each Class in an
amount equal to one-twelfth of the product of the applicable Certificate Rate
and the applicable outstanding principal balance as of the preceding Record
Date, except that interest for the first Distribution Date will include accrued
interest at the applicable Certificate Rate from the Closing Date through June
14, 1996 (calculated as though there were only 30 days in May). Interest will be
calculated on the basis of a 360-day year of twelve 30-day months. Interest
payments on the Class A Certificates on any Distribution Date will be funded
from Available Series Finance Charge Collections allocated to the
Certificateholders' Interest during the preceding Monthly Period. Subject to the
prior payment of interest on the Class A Certificates (and, as to a portion
thereof, to the prior payment of certain other amounts), interest payments on
the Class B Certificates on any Distribution Date will be funded from Available
Series Finance Charge Collections allocated to the Certificateholders' Interest
during the preceding Monthly Period, and, on and after the Class B Principal
Payment Commencement Date, from the Transferor Interest to the extent of the
Transferor Subordination Amount.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Closing Date and ends on
the day before either the Accumulation Period or the Early Amortization Period
begins), no principal payments will be made to the Certificateholders. On each
business day during the Accumulation Period, principal will be deposited in the
Principal Funding Account for distribution to Class A Certificateholders on the
Class A Expected Final Payment Date. During any Early Amortization Period,
principal will be paid monthly on each Distribution Date starting on the next
Distribution Date following the Monthly Period in which the applicable Pay Out
Event occurred, first to the Class A Certificateholders until the Class A
Invested Amount is paid in full, then to the Class B Certificateholders monthly
on each Distribution Date until the Class B Invested Amount is paid in full, and
then to the Class C Certificateholders monthly on each Distribution Date until
the Class C Invested Amount is paid in full. If a Pay Out Event occurs during
the Accumulation Period, the amount in the Principal Funding Account will be
paid to the Class A Certificateholders on the first Special Payment Date. See
"--Pay Out Events" for a discussion of events which might lead to the
commencement of an Early Amortization Period. See "--Application of Collections"
for a discussion of the method by which collections of Principal Receivables are
allocated during either an Accumulation Period or an Early Amortization Period.
Net Principal Collections for any Monthly Period allocated to the Class A
Invested Amount will first be used to cover, with respect to any Monthly Period
during either the Accumulation Period or any Early Amortization Period, required
deposits into the Principal Funding Account for the benefit of the Class A
Certificateholders, or required payments of principal to the Class A
Certificateholders, as the case may be. On and after the Class B Principal
Payment Commencement Date, Net Principal Collections for any Monthly Period
allocated to the Class B Invested Amount will first be used to cover required
deposits into the Principal Account for the benefit of the Class B
Certificateholders. On and after the Class C Principal Payment Commencement
Date, Principal Collections for any Monthly Period allocated to the Class C
Invested Amount will first be used to cover required deposits into the Principal
Account for the benefit of the Class C Certificateholders. The Servicer will
determine the amount of collections of Principal Receivables for any
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<PAGE> 47
business day allocated to the Invested Amount for Series 1996-1 remaining after
covering required deposits or payments of principal to the Certificateholders
and any similar amount remaining for any other Series ("Shared Principal
Collections"). The Servicer will allocate the Shared Principal Collections to
cover any scheduled or permitted principal distributions to Certificateholders
(including principal distributions which the Transferor may elect to make to the
holders of the Variable Funding Certificates) and deposits to principal funding
accounts, if any, for any Series that have not been covered out of the
collections of Principal Receivables allocable to such Series and certain other
amounts for such Series ("Principal Shortfalls"). Shared Principal Collections
will not be used to cover investor charge-offs for any Series. If Principal
Shortfalls exceed Shared Principal Collections on any business day, Shared
Principal Collections will be allocated pro rata among the applicable Series
based on the relative amounts of Principal Shortfalls. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will, subject to
certain limitations, be paid to the holder of the Exchangeable Transferor
Certificate.
POSTPONEMENT OF ACCUMULATION PERIOD
Upon written notice to the Trustee, and subject to certain conditions, the
Servicer may elect to postpone the commencement of the Accumulation Period,
thereby extending the length of the Revolving Period. The Servicer may make such
election only if the Accumulation Period Length (determined as described below)
is less than eight months. On each Determination Date on and after the July 2000
Determination Date but prior to the commencement of the Accumulation Period, the
Servicer will determine the "Accumulation Period Length," which is the number of
months expected to be required to fully fund the Principal Funding Account in an
amount sufficient to pay the entire Class A Invested Amount no later than the
Class A Expected Final Payment Date, based on the assumptions that (a) the
payment rate with respect to Principal Collections remains constant at the
lowest level of such payment rate during the twelve preceding Monthly Periods
(or such lower payment rate as the Servicer may select), (b) the total amount of
Principal Receivables in the Trust (and the principal amount on deposit in the
Excess Funding Account, if any) remains constant at the level on such date of
determination, (c) no Pay Out Event with respect to any Series will subsequently
occur, and (d) no additional Series (other than any Series being issued on such
date of determination) will be subsequently issued. If the Accumulation Period
Length is less than eight months, the Servicer may, at its option, postpone the
commencement of the Accumulation Period such that the number of months included
in the Accumulation Period will equal or exceed the Accumulation Period Length.
The effect of the foregoing calculation is to permit the reduction of the length
of the Accumulation Period based on the certificateholders' interest of certain
other Series, if any, which are scheduled to be in their revolving periods
during the Accumulation Period and on increases in the principal payment rate,
if any, occurring after the Closing Date. The length of the Accumulation Period
will not be less than one month and any election to shorten the Accumulation
Period will be subject to subsequent lengthening of the Accumulation Period on
any subsequent Determination Date. If the commencement of the Accumulation
Period is postponed, and if a Pay Out Event occurs after the date originally
scheduled as the commencement of the Accumulation Period, it is probable that
holders of Certificates would receive some of their principal later than if the
Accumulation Period had not been postponed.
SUBORDINATION OF THE CLASS B CERTIFICATES
The Class B Certificates will be subordinated to the extent necessary to
fund certain payments with respect to the Class A Certificates. To the extent
the Class B Invested Amount is reduced, the percentage of Total Finance Charge
Collections allocated to the Class B Certificateholders in subsequent Monthly
Periods will be reduced. Moreover, to the extent the amount of such reduction in
the Class B Invested Amount is not reimbursed, the amount of principal
distributable to the Class B Certificateholders will be reduced.
The Class C Certificates will be subordinated to the extent necessary to
fund certain payments with respect to the Class A Certificates and the Class B
Certificates. To the extent the Class C Invested Amount is reduced, the
percentage of Total Finance Charge Collections allocated to the Class C
Certificateholders in subsequent Monthly Periods will be reduced. Moreover, to
the extent the amount of such reduction in the
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<PAGE> 48
Class C Invested Amount is not reimbursed, the amount of principal distributable
to the Class C Certificateholders will be reduced.
If, on any Determination Date, the aggregate Investor Default Amount, if
any, for each business day in the preceding Monthly Period exceeded the sum of
(w) the aggregate amount of Available Series Finance Charge Collections applied
with respect thereto as described in clause (iv) of "Payment of Fees, Interest,
and Other Items," (x) the amount of Transferor Finance Charge Collections and
Excess Finance Charge Collections allocated thereto as described in
"--Reallocation of Cash Flows," (y) the amount of Reallocated Principal
Collections allocated with respect thereto as described in "--Reallocated
Principal Collections," and (z) on and after the Class B Principal Payment
Commencement Date, the remaining amount of collections allocable to the holder
of the Exchangeable Transferor Certificate to the extent of the Transferor
Subordination Amount, the Class C Invested Amount will be reduced by the amount
by which such aggregate Investor Default Amount exceeds the amount applied with
respect thereto during the preceding Monthly Period.
In the event that the Class C Invested Amount is reduced to zero prior to
the Class B Principal Payment Commencement Date, the Class B Invested Amount
will be reduced by the amount of the remaining shortfall, but not more than the
aggregate Investor Default Amount for such Monthly Period. If the Class C
Invested Amount is reduced to zero, on or after the Class B Principal Payment
Commencement Date, a portion of the Transferor Subordination Amount equal to
such insufficiency (but not in excess of the aggregate Investor Default Amount
for such Monthly Period) will be deducted from the Transferor Interest and
allocated to avoid a charge-off with respect to the Class B Certificates. If the
Transferor Subordination Amount is reduced to zero, the Class B Invested Amount
will be reduced by the amount by which the Transferor Subordination Amount would
have been reduced below zero, but not more than the aggregate Investor Default
Amount for such Monthly Period. Such reductions of the Class B Invested Amount
will thereafter be reimbursed and the Class B Invested Amount increased on each
Distribution Date by the amount, if any, of Total Finance Charge Collections,
Excess Finance Charge Collections, and Transferor Finance Charge Collections for
such Distribution Date allocated and available for that purpose. See
"--Reallocation of Cash Flows," "--Reallocated Principal Collections," and "--
Investor Charge-Offs."
TRANSFER AND ASSIGNMENT OF RECEIVABLES
The Transferor has transferred and assigned to the Trust all of its right,
title, and interest in and to the Receivables in the Accounts and all
Receivables existing on the Initial Closing Date and thereafter created in the
Accounts and purchased by the Transferor.
In connection with the transfer of the Receivables to the Trust, the
Transferor has indicated in its computer files that the Receivables have been
conveyed to the Trust. In addition, the Transferor has provided to the Trustee
or its bailee computer files or microfiche lists containing a true and complete
list showing each Account, identified by account number and by total outstanding
balance on the Initial Cut-Off Date. The Transferor has not delivered to the
Trustee any other records or agreements relating to the Accounts or the
Receivables, except in connection with additions or removals of Accounts. Except
as stated above, the records and agreements relating to the Accounts and the
Receivables maintained by the Transferor or the Servicer are not segregated by
the Transferor or the Servicer from other documents and agreements relating to
other credit card accounts and receivables and are not stamped or marked to
reflect the transfer of the Receivables to the Trust, but the computer records
of the Transferor are required to be marked to evidence such transfer. The
Transferor has filed a UCC financing statement with respect to the Receivables
meeting the requirements of applicable state law. See "Risk Factors--Transfer of
the Receivables; Insolvency Risk Considerations" and "Certain Legal Aspects of
the Receivables."
EXCHANGES
The Pooling and Servicing Agreement provides that the Trustee may issue two
types of certificates: (i) one or more Series of certificates, each of which may
have multiple classes, of which one or more of such classes may be transferable,
and (ii) the Exchangeable Transferor Certificate. The Exchangeable Transferor
Certificate which evidences the Transferor Interest, is currently held by the
Transferor and is transferable only
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as provided in the Pooling and Servicing Agreement. The Pooling and Servicing
Agreement also provides that, pursuant to any one or more Supplements, the
holder of the Exchangeable Transferor Certificate may tender the Exchangeable
Transferor Certificate and the certificates evidencing any Series of
certificates, to the Trustee in exchange for one or more new Series and a
reissued Exchangeable Transferor Certificate. Pursuant to the Pooling and
Servicing Agreement, the holder of the Exchangeable Transferor Certificate may
define, with respect to any newly issued Series, certain terms including: (i)
its name or designation; (ii) its initial invested amount (or method for
calculating such amount); (iii) its certificate rate (or the method of
allocating interest payments or other cash flows to such Series); (iv) the
closing date; (v) the rating agency or agencies, if any, rating the Series; (vi)
the interest payment date or dates and the date or dates from which interest
shall accrue; (vii) the name of the clearing agency, if any; (viii) the method
for allocating collections to certificateholders of such Series with respect to
Principal Receivables, Finance Charge Receivables, and Receivables in Defaulted
Accounts and the method by which the principal amount of such Series will
amortize or accrete; (ix) the names of any accounts to be used by such Series
and the terms governing the operation of any such accounts; (x) the percentage
used to calculate monthly servicing fees; (xi) the Minimum Transferor Interest;
(xii) the Enhancement provider, if applicable, and the terms of any Enhancement
with respect to such Series; (xiii) the base rate applicable to such Series;
(xiv) the terms on which the certificates of such Series may be repurchased or
remarketed to other investors; (xv) the termination date of such Series; (xvi)
any deposit into any account provided for such Series; (xvii) the number of
classes of such Series and, if more than one class, the rights and priorities of
each such class; (xviii) the fees, if any, to be included in funds available to
certificateholders in such Series; (xix) the subordination, if any, of such
Series with respect to any other Series; (xx) the rights, if any, of the holder
of the Exchangeable Transferor Certificate that have been transferred to the
holders of such Series; (xxi) the pool factor (consisting of a seven-digit
decimal expressing the ratio of the invested amount to the initial invested
amount for such Series); (xxii) the Minimum Aggregate Principal Receivables for
such Series; (xxiii) whether such Series will be part of a group or subject to
being paired with any other Series; (xxiv) whether such Series will be prefunded
or paired with any other Series; and (xxv) any other relevant terms, including
whether or not such Series will be pledged as collateral for an issuance of any
other securities, including commercial paper (all such terms, the "Principal
Terms" of such Series). None of the Transferor, the Servicer, the Trustee, or
the Trust is required or intends to obtain the consent of any Certificateholder
to issue any additional Series or in connection with the determination of the
Principal Terms thereof. However, as a condition of an Exchange, the holder of
the Exchangeable Transferor Certificate will deliver to the Trustee written
confirmation that the Exchange will not result in either Rating Agency reducing
or withdrawing its rating of any outstanding Series, including the Certificates.
The Transferor may offer any Series to the public or other investors in
transactions either registered under the Securities Act or exempt from
registration thereunder, directly, through the Underwriters or one or more other
underwriters or placement agents, in fixed-price offerings, in negotiated
transactions, or otherwise. Any such Series may be issued in fully registered or
book-entry form in minimum denominations determined by the Transferor.
The Pooling and Servicing Agreement provides that the holder of the
Exchangeable Transferor Certificate may perform Exchanges and define the
Principal Terms of each Series, including the period during which amortization
of the principal amount thereof is intended to occur, which period may have a
different length and begin on a different date than such period for any other
Series. Accordingly, one or more Series may be in their amortization periods
while other Series are not. Thus, certain Series may not be amortizing while
other Series are amortizing. Moreover, any Series may have the benefit of an
Enhancement that is available only to such Series. Under the Pooling and
Servicing Agreement, the Trustee will hold any such form of Enhancement only on
behalf of the Series with respect to which it relates. Likewise, with respect to
each such form of Enhancement, the holder of the Exchangeable Transferor
Certificate may deliver a different form of Enhancement agreement. The Pooling
and Servicing Agreement also provides that the holder of the Exchangeable
Transferor Certificate may specify different coupon rates and monthly servicing
fees with respect to each Series (or a particular class within such Series).
Collections allocated to Finance Charge Receivables not used to pay interest on
the certificates, the monthly servicing fee, the investor default amount, or
investor charge-offs with respect to any Series will be allocated as provided in
such Enhancement agreement, if applicable. The holder of the Exchangeable
Transferor Certificate also has the option under the
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Pooling and Servicing Agreement to vary between Series the terms upon which a
Series (or a particular class within such Series) may be repurchased by the
Transferor or remarketed to other investors. Additionally, certain Series may be
subordinated to other Series, and classes within a Series may have different
priorities. The Series 1996-1 Supplement does not permit the subordination of
the Certificates to any other Series that may be issued by the Trust (except to
the limited extent described herein with respect to Shared Principal Collections
and Excess Finance Charge Collections). There is no limit to the number of
Exchanges that may be performed under the Pooling and Servicing Agreement. The
Trust will terminate only as provided in the Pooling and Servicing Agreement.
Under the Pooling and Servicing Agreement and pursuant to a Supplement, an
Exchange may occur only upon the satisfaction of certain conditions provided in
the Pooling and Servicing Agreement. Under the Pooling and Servicing Agreement,
the holder of the Exchangeable Transferor Certificate may perform an Exchange by
notifying the Trustee at least five business days in advance of the date upon
which the Exchange is to occur. Under the Pooling and Servicing Agreement, the
notice will state the designation of any Series to be issued on the date of the
Exchange and, with respect to each such Series: (i) its initial principal amount
(or method for calculating such amount), (ii) its certificate rate (or the
method of allocating interest payments or other cash flows to such Series), and
(iii) the provider of the Enhancement, if any, which is expected to provide
credit support with respect to it. The Pooling and Servicing Agreement provides
that on the date of the Exchange the Trustee will authenticate any such Series
only upon delivery to the Trustee of the following: (i) a Supplement specifying
the Principal Terms of such Series, (ii) an opinion of counsel to the effect
that the certificates of such Series will be characterized as indebtedness or as
partnership interests under existing law for federal income tax purposes and
that the issuance of such Series will not adversely affect the federal income
tax characterization of any outstanding Series, (iii) if required by such
Supplement, the form of Enhancement and an appropriate Enhancement agreement
with respect thereto executed by the Transferor and the issuer of the
Enhancement, (iv) written confirmation from each Rating Agency that the Exchange
will not result in such Rating Agency's reducing or withdrawing its rating on
any then-outstanding Series rated by it, (v) the existing Exchangeable
Transferor Certificate and, if applicable, the certificates representing the
Series to be exchanged, and (vi) an officer's certificate of the Transferor
stating that, after giving effect to such Exchange, the Transferor Interest
would be at least equal to the Minimum Transferor Interest. Upon satisfaction of
such conditions, the Trustee will cancel the existing Exchangeable Transferor
Certificate and the certificates of the exchanged Series, if applicable, and
authenticate the new Series and a new Exchangeable Transferor Certificate.
PAIRED SERIES
Series 1996-1 is subject to being paired with another Series. The Series
with which Series 1996-1 may be paired either will be prefunded 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 sale of such Paired
Series or 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 1996-1 Certificateholders. As principal is paid or deposited in the
Principal Funding Account with respect to the Series 1996-1 Certificates, either
(i) in the case of a prefunded Paired Series, an equal amount of funds on
deposit in any prefunding account for such prefunded Paired Series will be
released (which funds will be distributed to the Transferor) 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 the Transferor) and, in either
case, the invested amount in the Trust of such Paired Series will increase by up
to a corresponding amount. Upon payment in full of the Series 1996-1
Certificates, assuming that there have been no unreimbursed charge-offs with
respect to any related Paired Series, the aggregate invested amount of such
related Paired Series will have been increased by an amount up to an aggregate
amount equal to the portion of the Series 1996-1 Invested Amount paid to the
Series 1996-1 Certificateholders since the issuance of such Paired Series. The
issuance of a Paired Series will be subject to the conditions described under
"--Exchanges." 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 Series 1996-1 Certificateholder. If a Pay Out Event occurs with respect to
Series 1996-1, if paired, or any related Paired Series during the Accumulation
Period for Series 1996-1, either (i) the numerator used in the
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Fixed/Floating Allocation Percentage for Series 1996-1 and such related Paired
Series will be reset to be equal to the respective invested amount of each such
Series at the end of the last day prior to the occurrence of such Pay Out Event
or (ii) the denominator of the Fixed/Floating Allocation Percentage for Series
1996-1 may be increased upon the occurrence of a Pay Out Event with respect to a
Paired Series, in either case resulting in a possible reduction of the
percentage of Principal Collections allocated to Series 1996-1 if such event
allowed the payment of principal at such time to the Paired Series and required
reliance by Series 1996-1 on clause (b) of the denominator of the Fixed/Floating
Allocation Percentage for Series 1996-1. See "Risk Factors--Master Trust
Considerations" and "Description of the Offered Certificates--Allocation
Percentages."
REPRESENTATIONS AND WARRANTIES
Pursuant to the Pooling and Servicing Agreement, the Transferor represents
and warrants that, among other things, subject to specified exceptions and
limitations (i) the Transferor is duly organized, validly existing, and in good
standing under the laws of the state of Delaware and has the corporate power and
authority to execute, deliver, and perform its obligations under the Pooling and
Servicing Agreement, any Supplement, and the Purchase Agreement, (ii) the
execution and delivery of the Pooling and Servicing Agreement, any Supplement,
and the Purchase Agreement, and the consummation of the transactions provided
for therein, have been duly authorized by the Transferor by all necessary
corporate action on its part, (iii) each of the Pooling and Servicing Agreement,
any Supplement, and the Purchase Agreement constitutes a legal, valid, and
binding obligation of the Transferor, and (iv) the transfer of Receivables by it
to the Trust under the Pooling and Servicing Agreement constitutes either a
valid transfer and assignment to the Trust of all right, title, and interest of
the Transferor in and to the Receivables and the proceeds thereof (including
amounts in any of the accounts established for the benefit of
certificateholders) or the grant of a first priority security interest (except
for Permitted Liens) in such Receivables and the proceeds thereof (including
amounts in any of the accounts established for the benefit of
certificateholders). In the event of a breach of any of the representations and
warranties described in this paragraph with respect to any Series, either the
Trustee or the holders of certificates evidencing undivided interests in the
Trust aggregating more than 50% of the invested amount of such Series, by
written notice to the Transferor (and to the Trustee and the Servicer if given
by the certificateholders of such Series), may direct the Transferor to accept
reassignment of an amount of Principal Receivables equal to the invested amount
to be repurchased (as described below) within 60 days of such notice, or within
such longer period specified in such notice. The Transferor will thereupon be
obligated to accept reassignment of such Receivables on a Distribution Date
occurring within such applicable period. Such reassignment will not be required
to be made, however, if at any time during such applicable period, or such
longer period, the representations and warranties shall then be true and correct
in all material respects or such reassignment would cause either a Pay Out Event
to occur or either Rating Agency to reduce or withdraw its then-current rating
on the certificates of any class of any Series. The amount to be deposited by
the Transferor for distribution to certificateholders in connection with such
reassignment will be equal to the invested amount for all Series of certificates
other than the Variable Funding Certificates required to be repurchased on the
last day of the Monthly Period preceding the Distribution Date on which the
reassignment is scheduled to be made, and, with respect to the Variable Funding
Certificates, the invested amount as of the Distribution Date on which the
reassignment is scheduled to be made, less the amount, if any, previously
allocated for payment of principal to such certificateholders on such
Distribution Date, plus an amount equal to all interest accrued but unpaid on
such certificates at the applicable certificate rate through such last day of
such Monthly Period, less the amount transferred to the Distribution Account
from the Interest Funding Account in respect of interest on such certificates
for the month ending on such last day of the Monthly Period. The payment of the
reassignment deposit amount and the transfer of all other amounts deposited for
the preceding month in the Distribution Account will be considered a payment in
full of the investor interest for all Series of certificates required to be
repurchased and will be distributed upon presentation and surrender of the
certificates for each such Series. If the Trustee or certificateholders give a
notice as provided above, the obligation of the Transferor to make any such
deposit will constitute the sole remedy available to the Trustee and the
certificateholders with respect to any breach of the Transferor's
representations and warranties.
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Pursuant to the Pooling and Servicing Agreement, the Transferor also
represents and warrants that, among other things, subject to specified
exceptions and limitations, (i) the execution and delivery of the Pooling and
Servicing Agreement, any Supplement, and the Purchase Agreement, and the
performance of the transactions contemplated thereby, do not contravene the
Transferor's charter or by-laws, violate any provision of law applicable to it
or require any filing (except for filing under the UCC), registration, consent,
or approval under any such law except for such filings, registrations, consents,
or approvals as have already been obtained and are in full force and effect,
(ii) the Transferor has filed all tax returns required to be filed and has paid
or made adequate provision for the payment of all taxes, assessments, and other
governmental charges due from the Transferor, (iii) there are no proceedings or
investigations pending or, to the best knowledge of the Transferor, threatened
against the Transferor, before any court, regulatory body, administrative
agency, or other tribunal or governmental instrumentality asserting the
invalidity of the Pooling and Servicing Agreement, any Supplement, and the
Purchase Agreement, seeking to prevent the consummation of any of the
transactions contemplated thereby, seeking any determination or ruling that
would materially and adversely affect the performance by the Transferor of its
obligations thereunder, or seeking any determination or ruling that would
materially and adversely affect the validity or enforceability thereof or of the
tax attributes of the Trust, (iv) each Receivable is or will be an account
receivable arising out of the Transferor's performance in accordance with the
terms of the Charge Account Agreement giving rise to such Receivable, the
Transferor has no knowledge of any fact which should have led it to expect at
the time of the classification of any Receivable as an Eligible Receivable that
such Eligible Receivable would not be paid in full when due, and each Receivable
classified as an "Eligible Receivable" by the Transferor in any document or
report delivered under the Pooling and Servicing Agreement satisfies the
requirements of eligibility contained in the definition of Eligible Receivable
set forth on the Pooling and Servicing Agreement, and (v) the Transferor is not
an "investment company" within the meaning of the Investment Company Act. If any
representation or warranty made by the Transferor in the Pooling and Servicing
Agreement or the Supplement proves to have been incorrect in any material
respect when made, and continues to be incorrect for 60 days after notice to the
Transferor by the Trustee or to the Transferor and the Trustee by more than 50%
of the certificateholders' interest and as a result the interest of the
certificateholders are materially adversely affected, and continue to be
materially adversely affected during such period, then the Trustee or 50% of the
certificateholders' interest of any class may give notice to the Transferor (and
to the Trustee in the latter instance) declaring that a Pay Out Event has
occurred, thereby commencing the Early Amortization Period; provided, however,
that a Pay Out Event will not be deemed to have occurred as aforesaid if the
Transferor has accepted a reassignment of the affected Receivables during such
period in accordance with the Pooling and Servicing Agreement. See "--Pay Out
Events."
The Trustee has not made, and it is not anticipated that the Trustee will
make, any general examination of the Receivables or any records relating to the
Receivables for the purpose of establishing the presence or absence of defects
or compliance with the Transferor's representations and warranties or for any
other purpose. The Servicer, however, is required to deliver to the Trustee on
or before March 31 of each year an opinion of counsel with respect to the
validity of the security interest of the Trust in and to the Receivables and
certain other components of the Trust.
CERTAIN COVENANTS
Pursuant to the Pooling and Servicing Agreement, the Transferor covenants
that, among other things, subject to specified exceptions and limitations, (i)
it will take no action to cause any Receivable to be evidenced by any
instruments or to be anything other than an account, general intangible, or
chattel paper, (ii) except for the conveyances under the Pooling and Servicing
Agreement, it will not sell any Receivable or grant a lien (other than a
Permitted Lien) on any Receivable, (iii) it will comply with and perform its
obligations under, and will cause each Originator to comply with and perform its
obligations under, any Charge Account Agreement to which it is a party and its
credit and collection policies and it will not change the terms of such
agreements or policies except as provided in the Pooling and Servicing
Agreement, (iv) in the event it is unable for any reason to transfer Receivables
to the Trust, it will nevertheless continue to allocate and pay all collections
from all Receivables to the Trust, (v) in the event it receives a collection on
any Receivables, it will pay such collection to the Servicer as soon as
practicable, (vi) it will notify the Trust promptly after
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becoming aware of any lien on any Receivable other than Permitted Liens, (vii)
it will engage in no other business other than the business contemplated under
the Pooling and Servicing Agreement and the Purchase Agreement, (viii) it will
take all actions necessary to enforce its rights and claims under the Purchase
Agreement, (ix) other than with respect to In-Store Payments, it will not
commingle its assets with those of Federated or any affiliate of Federated, and
(x) it will not acquire receivables from any person other than an Originator.
ELIGIBLE ACCOUNTS; ELIGIBLE RECEIVABLES
An "Eligible Account" means, as of the Closing Date (or, with respect to
Automatic Additional Accounts and Supplemental Accounts, as of the date the
Receivables arising in such Accounts are designated for inclusion in the Trust),
each Account owned by an Originator (a) which is payable in United States
dollars, (b) which has not been identified by such Originator in its computer
files as an account as to which such Originator or the Servicer has any
confirmed record of any fraud-related activity by the Obligor on such account,
(c) which has not been sold or pledged to any other party and which does not
have Receivables which have been sold or pledged to any other party, (d) which
was created in accordance with the credit and collection policies of such
Originator at the time of creation of such account or the Receivables of which
each Rating Agency permits to be added automatically to the Trust, (e) the
Receivables in which such Originator has not charged off in its customary and
usual manner for charging off Receivables in such Accounts as of the Closing
Date (or, with respect to Supplemental Accounts and Automatic Additional
Accounts, as of the date the Receivables of such Accounts are designated for
inclusion in the Trust unless such Account is subsequently reinstated), and (f)
is not an Automatic Additional Account designated by the Transferor to be
included as an Account after the occurrence of certain events or in excess of
certain limitations specified below (unless the Rating Agencies shall have
consented to the inclusion of such Automatic Additional Account as an Eligible
Account). The limitations referred to in the immediately preceding sentence are
designed, in general, to limit the number of Automatic Additional Accounts to be
added as Eligible Accounts on any day without Rating Agency consent to a number
that does not exceed the lesser of (i) 20% of the sum of (a) the number of
Active Accounts as of the later of the Closing Date and the last day of the
twelfth preceding Monthly Period, (b) the number of Automatic Additional
Accounts that were thereafter added with Rating Agency consent, and (c) the
number of Supplemental Accounts that were thereafter added, minus the number of
Removed Accounts that were thereafter removed, and (ii) 15% of the sum of (a)
the number of Active Accounts as of the later of the Closing Date and the last
day of the third preceding Monthly Period, (b) the number of Automatic
Additional Accounts that were thereafter added with Rating Agency consent, and
(c) the number of Supplemental Accounts that were thereafter added, minus the
number of Removed Accounts that were thereafter removed. The term "Active
Account" means, as of any particular day, any Account in which there has been
either purchase or merchandise return activity during the preceding 12 Monthly
Periods.
An "Eligible Receivable" means each Receivable that satisfies the following
criteria: (a) it arises under an Eligible Account, (b) it constitutes an
"account," a "general intangible," or "chattel paper" as defined in Article 9 of
the UCC as then in effect in the Relevant UCC State, (c) it is the legal, valid,
and binding obligation of a person who (i) is living, (ii) is not a minor under
the laws of his/her state of residence, and (iii) is competent to enter into a
contract and incur debt, (d) it and the underlying Charge Account Agreement do
not contravene in any material respect any laws, rules, or regulations
applicable thereto (including, without limitation, rules and regulations
relating to truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices, and privacy) that could
reasonably be expected to have an adverse impact on the amount of collections
thereunder, and the Originator of such Receivable is not in violation of any
such laws, rules, or regulations in any respect material to such Charge Account
Agreement, (e) all material consents, licenses, or authorizations of, or
registrations with, any governmental authority required to be obtained or given
in connection with the creation of such Receivable or the execution, delivery,
creation, and performance of the underlying Charge Account Agreement have been
duly obtained or given and are in full force and effect as of the date of the
creation of such Receivables, (f) at the time of its transfer to the Trust, the
Transferor or the Trust will have good and marketable title free and clear of
all liens and security interests arising under or through the Transferor (other
than Permitted Liens),
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(g) it is not, at the time of its transfer to the Trust, a Receivable in a
Defaulted Account, and (h) it arises under a Charge Account Agreement that has
been duly authorized and which, together with such Receivable, is in full force
and effect and constitutes the legal, valid, and binding obligation of the
Obligor of such Receivable enforceable against such Obligor in accordance with
its terms and is not subject to any dispute, offset, counterclaim, or defense
whatsoever (except the discharge in bankruptcy of such Obligor).
AUTOMATIC ADDITION OF ACCOUNTS
All Accounts created by the Originators that meet the definition of
"Automatic Additional Accounts" will be included as Accounts from and after the
date upon which such Automatic Additional Accounts are created and all
Receivables in such Automatic Additional Accounts, whether such Receivables are
then existing or thereafter created will be transferred automatically to the
Trust upon purchase by the Transferor. An "Automatic Additional Account" is a
consumer revolving credit card account (i) which is originated by an Originator
during the normal operation of such Originator's credit card business and is not
acquired by the Transferor or such Originator from another credit card issuer,
(ii) which was in existence and owned by such Originator and the Receivable of
which had been transferred to the Transferor pursuant to the Receivables
Purchase Agreement on the date on which Receivables generated in such account
are to be added to the Trust and is in existence at the close of business on the
date that Receivables generated therein are designated for inclusion in the
Trust, (iii) which is payable in United States dollars, and (iv) the Receivables
in which have not been charged off prior to the date of their designation for
inclusion in the Trust. Automatic Additional Accounts will also consist of any
other consumer credit card accounts, the Receivables from which each Rating
Agency permits to be added automatically to the Trust. The Transferor may also
designate from time to time additional accounts purchased by the Originators or
generated by persons that have become additional Originators in accordance with
the terms of the Pooling and Servicing Agreement to be included as Automatic
Additional Accounts if the Transferor has notified the Rating Agencies of such
proposed designation and has received confirmation that such designation will
not result in a downgrading of the then current rating of any outstanding
Series. The Transferor, at its option, may terminate or suspend the inclusion of
Automatic Additional Accounts at any time. If the Transferor has terminated or
suspended the inclusion of Automatic Additional Accounts, the Transferor may,
and in certain circumstances will be required to, add additional accounts
("Supplemental Accounts") the Receivables of which will be designated for
transfer to the Trust. For all purposes of the Pooling and Servicing Agreement,
all Receivables arising under such Automatic Additional Accounts will be treated
as Receivables upon their creation. In connection with the sale of any such
Receivables to the Transferor, the Originator will satisfy all applicable
requirements of the Purchase Agreement.
REMOVAL OF ACCOUNTS
Subject to the conditions set forth in the next sentence, on each
Determination Date on which the Transferor Interest exceeds 17% of aggregate
Principal Receivables with respect to such Determination Date, the Transferor
may, but will not be obligated to, (i) cause the Receivables in certain Accounts
designated by the Transferor to no longer be transferred to the Trust and (ii)
accept the transfer from the Trust of all Receivables and proceeds thereof from
certain Accounts (the "Removed Accounts"), without notice to the
Certificateholders, subject in each case to the maintenance of at least the
amount of aggregate Principal Receivables required to be maintained pursuant to
the Pooling and Servicing Agreement and any Supplement. There may be no more
than one such removal with respect to any Monthly Period.
The Transferor is permitted to designate and require reassignment to it of
the Receivables from Removed Accounts only upon satisfaction of the following
conditions: (i) the Trustee shall have executed and delivered to the Transferor
a written reassignment and the Transferor shall have delivered a computer file
or microfiche list containing a true and complete list of all Accounts the
Receivables under which will continue to be transferred to the Trust after such
removal, such Accounts to be identified by, among other things, account number
and aggregate amount of Principal Receivables, (ii) the Transferor shall
represent and warrant that no selection procedure used by the Transferor which
is adverse to the interests of the Certificateholders was utilized in selecting
the Removed Accounts, (iii) the removal of any Receivables of any Removed
Accounts
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shall not, in the reasonable belief of the Transferor, cause a Pay Out Event to
occur, (iv) the Transferor shall have delivered twenty days' prior written
notice of the removal to each Rating Agency which has rated any outstanding
Series and, prior to the date on which such Receivables are to be removed, shall
have received confirmation from any Rating Agency of its intention not to reduce
or withdraw the rating of any Series of certificates as a result of such
removal, and (v) the Transferor shall have delivered to the Trustee an officer's
certificate confirming the items set forth in clauses (i) through (iv) above.
Notwithstanding the foregoing, the Transferor will be permitted to designate
Removed Accounts in connection with the sale by Federated or any affiliate of
Federated of all or substantially all of the capital stock or assets of any
Originator if the conditions in clauses (i), (iii), and (iv) above shall have
been met and the Transferor shall have delivered to the Trustee an officer's
certificate confirming such items. Under these circumstances, subject to the
terms and conditions of the Pooling and Servicing Agreement, the Transferor will
have the option either to accept the transfer from the Trust of all Receivables
and proceeds thereof in such Removed Accounts or to leave such Receivables and
the proceeds thereof in the Trust. In addition, the Transferor will be permitted
to deposit funds in the Excess Funding Account in connection with any such
designation of Removed Accounts to the extent necessary to permit such
designation.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling and Servicing Agreement, the Servicer will be
responsible for servicing, enforcing, and administering the Receivables and
collecting payment due thereunder in accordance with its usual and customary
servicing procedures and credit and collection policies. Servicing functions to
be performed by the Servicer with respect to the Receivables include statement
processing and mailing, collecting and recording payments, investigating payment
delinquencies, and communicating with cardholders. Managerial functions to be
performed by the Servicer on behalf of the Trust include maintaining books and
records with respect to the foregoing and other matters pertinent to the
Receivables, assisting the Trustee with any inspections of such books and
records by the Trustee pursuant to the Pooling and Servicing Agreement,
preparing and delivering the monthly and annual statements described in
"--Reports to Certificateholders," and causing a firm of independent public
accountants to prepare and deliver the annual reports described in "--Evidence
as to Compliance."
TRUST ACCOUNTS
The Servicer maintains, in the name of the Trust for the benefit of
certificateholders of all Series, a "Collection Account," which is a
non-interest bearing segregated account established and maintained with the
Servicer or with a "Qualified Institution." The Trustee maintains, for the
benefit of the Certificateholders, an "Interest Funding Account," a "Principal
Account," and a "Principal Funding Account," each of which is a segregated trust
account with the Trustee. The Trustee also maintains, for the benefit of the
Certificateholders, a "Distribution Account," which is a non-interest bearing
segregated demand deposit account established with a Qualified Institution. A
Qualified Institution is a depository institution, which may include the
Trustee, which is acceptable to the Rating Agencies. Funds in the Principal
Account, Principal Funding Account, and the Interest Funding Account will be
invested, at the direction of the Servicer, in (i) obligations fully guaranteed
by the United States of America, (ii) time deposits, promissory notes, or
certificates of deposit of depository institutions or trust companies, the
certificates of deposit of which are rated P-1 by Moody's and A-1+ by Standard &
Poor's, (iii) commercial paper having, at the time of the Trust's investment, a
rating of P-1 by Moody's and A-1+ by Standard & Poor's, (iv) bankers acceptances
issued by any depository institution or trust company described in clause (ii)
above, (v) money market funds rated P-1 by Moody's and AAA-m or AAA-mg by
Standard & Poor's or otherwise approved in writing by each Rating Agency, (vi)
certain open end diversified investment companies which the Rating Agency
designates in writing will not result in a withdrawal or downgrading of its then
current rating of any Series then rated by it, (vii) Eurodollar time deposits
that have been rated P-1 by Moody's and A-1+ by Standard & Poor's, and (viii)
any other investment that the Rating Agencies confirm in writing will not
adversely affect their respective then current ratings of any outstanding Series
of certificates (such investments, "Cash Equivalents"). Any earnings (net of
losses and investment expenses) on funds in the Interest Funding Account or the
Principal Account will be paid to the Servicer. Investment earnings relating to
amounts and deposits in the Principal Funding Account
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will be treated as Available Series Finance Charge Collections. The Servicer has
the revocable power to withdraw funds from the Collection Account, and to
instruct the Trustee to make withdrawals and payments from the Interest Funding
Account and the Principal Account, in each case for the purpose of making
deposits and distributions required under the Pooling and Servicing Agreement,
including the deposits and distributions described in "--Application of
Collections." The paying agent appointed pursuant to the Pooling and Servicing
Agreement (the "Paying Agent") has the revocable power to withdraw funds from
the Distribution Account for the purpose of making distributions to
Certificateholders. The Paying Agent initially will be the Trustee.
EXCESS FUNDING ACCOUNT
At any time during which no Series is in an accumulation or amortization
period (including any early amortization period), or for a Series in
amortization, the principal funding account, if any, is fully funded for an
applicable period, and the Transferor Interest does not exceed the Minimum
Transferor Interest, funds (to the extent available therefor as described
herein) otherwise payable to the Transferor will be deposited in the Excess
Funding Account on any business day until the Transferor Interest is at least
equal to the Minimum Transferor Interest. Funds on deposit in the Excess Funding
Account will be withdrawn and paid to the Transferor to the extent that on any
day the Transferor Interest exceeds the Minimum Transferor Interest as a result
of an increase in the aggregate amount of Principal Receivables in the Trust or
allocated to one or more Series when they are in accumulation or amortization
periods (including any early amortization period). Such deposits in and
withdrawals from the Excess Funding Account may be made on a daily basis. In
addition to the foregoing, the Transferor may, at its option on any business
day, deposit funds in the Excess Funding Account to the extent necessary to
maintain the Minimum Transferor Interest or the Minimum Aggregate Principal
Receivables or to permit the designation of Removed Accounts as described in
"--Removal of Accounts."
Any funds on deposit in the Excess Funding Account at the beginning of the
Accumulation Period will be deposited in the Principal Funding Account to the
extent of Class A Monthly Principal, Class B Monthly Principal, or Class C
Monthly Principal, as applicable, for any Distribution Date. In addition, no
funds will be deposited in the Excess Funding Account during any accumulation
period, amortization period, or early amortization period for any Series until
the Principal Funding Account for such Series for such Distribution Date has
been fully funded or the investor certificates of such Series have been paid in
full.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee at the direction of the Transferor in Cash Equivalents maturing on the
next business day. On each Distribution Date, all net investment income earned
on amounts in the Excess Funding Account since the preceding Distribution Date
will be withdrawn from the Excess Funding Account and applied as described
herein.
ALLOCATION OF COLLECTIONS
The Receivables in the Trust are divided into two components: Principal
Receivables and Finance Charge Receivables. At any time, Finance Charge
Receivables will be equal to the product of the Finance Charge Receivable Factor
and the aggregate amount of Eligible Receivables as of the date of determination
and Principal Receivables will be equal to the remainder of such Eligible
Receivables.
The Servicer will allocate collections on the Receivables on each business
day between Finance Charge Collections and Principal Collections in the manner
described in the definitions thereof.
ALLOCATION PERCENTAGES
Pursuant to the Pooling and Servicing Agreement, during each Monthly Period
the Servicer will allocate among the Class A Certificateholders' Interest, the
Class B Certificateholders' Interest, the Class C Certificateholders' Interest,
the Transferor Interest, and interests of the holders of the other Series issued
and outstanding from time to time pursuant to the Pooling and Servicing
Agreement and applicable Supplements all collections on Finance Charge
Receivables and all collections on Principal Receivables and the amount of all
Receivables in Defaulted Accounts. Collections on Finance Charge Receivables
prior to the date on which
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a Pay Out Event is deemed to have occurred, Collections of Principal Receivables
prior to the Amortization Period Commencement Date, and the amount of
Receivables in Defaulted Accounts at all times, will be allocated to the Class A
Certificateholders' Interest, the Class B Certificateholders' Interest, and the
Class C Certificateholders' Interest based on the percentage equivalent of the
ratio that the amount of the Class A Adjusted Invested Amount, the Class B
Invested Amount, or the Class C Invested Amount, respectively, as of the end of
the preceding business day bears to the greater of (a) the total amount of
Principal Receivables and amounts on deposit in the Excess Funding Account as of
the end of the preceding business day and (b) the sum of the numerators used to
calculate the applicable allocation percentages for all classes of all Series
then outstanding (the "Class A Floating Allocation Percentage," the "Class B
Floating Allocation Percentage," and the "Class C Floating Allocation
Percentage," respectively; the sum of such percentages being the "Floating
Allocation Percentage"). On any business day during the initial Monthly Period,
each of the Class A Floating Allocation Percentage, the Class B Floating
Allocation Percentage, and the Class C Floating Allocation Percentage will be
equal to the percentage equivalent of the ratio which each of the initial Class
A Invested Amount, the initial Class B Invested Amount, and the initial Class C
Invested Amount, respectively, bears to the total amount of Principal
Receivables as of the end of the preceding business day. During the Revolving
Period, all Net Principal Collections allocable to the Certificates will be
allocated and paid to the Transferor (except for Shared Principal Collections
paid to the holders of certificates of other Series, if any). On any business
day the "Fixed/Floating Allocation Percentage" shall mean: (i) with respect to
Principal Collections on and after the Amortization Period Commencement Date,
the percentage equivalent of the ratio which the Invested Amount at the end of
the last day of the Revolving Period bears to the greater of (a) the sum of the
aggregate amount of Principal Receivables and the amount on deposit in the
Excess Funding Account as of the end of the preceding business day and (b) the
sum of the numerators used to calculate the allocation percentages with respect
to Principal Receivables for all classes of all Series outstanding on such
business day; provided, however, that, because the Certificates are subject to
being paired with a future prefunded Series, if a Pay Out Event occurs with
respect to the Certificates during the Accumulation Period, and if at such time
the Certificates are paired with a prefunded Series, the numerator will be reset
to be equal to the Invested Amount at the end of the last day prior to the
occurrence of such Pay Out Event; or (ii) with respect to Finance Charge
Collections on and after the occurrence of a Pay Out Event, the percentage
equivalent of a fraction, the numerator of which is the Invested Amount at the
end of the business day preceding the occurrence of the Pay Out Event and the
denominator of which is the greater of (a) the sum of the aggregate amount of
Principal Receivables in the Trust and the amount on deposit in the Excess
Funding Account as of the end of the preceding business day and (b) the sum of
the numerators used to calculate the allocation percentages with respect to
Finance Charge Collections with respect to all classes of all Series then
outstanding on such business day.
As used herein: (i) the term "Class A Invested Amount" for any day means an
amount (not less than zero) equal to (a) the initial principal balance of the
Class A Certificates, minus (b) the aggregate amount of principal payments made
to Class A Certificateholders prior to such date, and minus (c) the excess, if
any, of the aggregate amount of Class A Investor Charge-Offs for all business
days preceding such date over the aggregate amount of any reimbursements of
Class A Investor Charge-Offs for all business days preceding such date; (ii) the
term "Class A Adjusted Invested Amount" for any date means an amount (not less
than zero) equal to the Class A Invested Amount minus the aggregate principal
amount on deposit in the Principal Funding Account; (iii) the term "Class B
Invested Amount" for any date means an amount (not less than zero) equal to (a)
the initial principal balance of the Class B Certificates, minus (b) the
aggregate amount of principal payments made to Class B Certificateholders prior
to such date, minus (c) the aggregate amount of Class B Investor Charge-Offs for
all prior business days, including the amount by which the Class B Invested
Amount has been reduced to fund the Investor Default Amount on all prior
business days as described under "--Investor Charge-Offs," minus (d) the
aggregate amount of Reallocated Class B Principal Collections for which the
Class C Invested Amount has not been reduced for all prior Distribution Dates,
and plus (e) the aggregate amount of Available Series Finance Charge
Collections, Transferor Finance Charge Collections, Excess Finance Charge
Collections, and Transferor Subordination Amount applied on all prior business
days for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (c) and (d); (iv) the term "Class C Invested Amount" means an amount
(not less than zero) equal to (a) the initial principal balance of
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the Class C Certificates, minus (b) the aggregate amount of principal payments
made to Class C Certificateholders prior to such date, minus (c) the aggregate
amount of Class C Investor Charge-Offs for all prior business days, equal to the
amount by which the Class C Invested Amount has been reduced to fund the
Investor Default Amount on all prior Distribution Dates as described under
"--Investor Charge-Offs," minus (d) the aggregate amount of Reallocated
Principal Collections for all prior Distribution Dates, and plus (e) the
aggregate amount of Available Series Finance Charge Collections, Transferor
Finance Charge Collections, and Excess Finance Charge Collections applied on all
prior business days for the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (c) and (d); (v) the term "Invested Amount" means the sum
of the Class A Invested Amount, the Class B Invested Amount, and the Class C
Invested Amount; and (vi) the term "Transferor Percentage" means (a) when used
with respect to Principal Collections during the Revolving Period and Finance
Charge Collections and the amount of Receivables in Defaulted Accounts at all
times, 100% minus the sum of the Floating Allocation Percentage and the floating
allocation percentages for all other Series and (b) when used with respect to
Principal Collections during the Accumulation Period or any Early Amortization
Period, 100% minus the sum of the Fixed/Floating Allocation Percentage and the
allocation percentages used with respect to Principal Collections for all other
Series.
As a result of the Floating Allocation Percentage, Finance Charge
Collections and the portion of Defaulted Receivables allocated to the
Certificateholders will change each business day based on the relationship of
the Class A Adjusted Invested Amount, the Class B Invested Amount, and the Class
C Invested Amount to the total amount of Principal Receivables on the preceding
business day. The numerator of the percentages of Principal Collections
allocable to the Certificateholders, however, will remain fixed during the
Amortization Period. Principal Collections allocable to the Class B Certificates
and the Class C Certificates are subject to possible reallocation for the
benefit of the Class A Certificateholders as described under "--Reallocated
Principal Collections."
REALLOCATION OF CASH FLOWS
On each business day the Servicer will determine the Required Amount, if
any. To the extent that any amounts are on deposit in the Principal Funding
Account or the Excess Funding Account on any business day, the Servicer will
determine the amount, if any, equal to the excess of (x) the product of (a) the
Base Rate and (b) the product of (i) the aggregate amounts on deposit in the
Excess Funding Account and the Principal Funding Account and (ii) the number of
days elapsed since the previous business day divided by the actual number of
days in such year over (y) the aggregate amount of all earnings since the
previous business day available from the Cash Equivalents in which funds on
deposit in the Excess Funding Account and the Principal Funding Account are
invested (the "Negative Carry Amount"). The Servicer will apply an amount of
Finance Charge Collections otherwise allocable to the Exchangeable Transferor
Certificate equal to the least of (i) the Required Amount, (ii) the product of
the Transferor Percentage, the Finance Charge Collections, and the Series
Allocation Percentage ("Transferor Finance Charge Collections") on such business
day, and (iii) the Negative Carry Amount for such business day in the manner
specified for application of Finance Charge Collections.
To the extent of any remaining Required Amount, the Servicer will apply all
or a portion of the Excess Finance Charge Collections of other Series with
respect to such business day allocable to the Certificates in an amount equal to
the Required Amount. Excess Finance Charge Collections allocated to the
Certificates for any business day will be equal to the product of (x) Excess
Finance Charge Collections available from all other Series for such business day
and (y) a fraction, the numerator of which is the Required Amount for such
business day (as reduced by amount applied pursuant to the preceding paragraph)
and the denominator of which is the aggregate amount of shortfalls in required
amounts or other amounts to be paid from Finance Charge Collections for all
Series for such business day.
On and after the Class B Principal Payment Commencement Date, to the extent
of any shortfall in the amount available to make required payments of interest
accrued with respect to the outstanding aggregate principal amount of the Class
B Certificates and to cover the Investor Default Amount or any Class B Investor
Charge-Offs which remain unpaid after the application of Transferor Finance
Charge Collections and Excess Finance Charge Collections, Principal Collections
and any remaining Finance Charge Collections allocated to
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the holder of the Exchangeable Transferor Certificate in an amount not to exceed
the least of (i) the Transferor Subordination Amount, (ii) the Transferor
Interest on such day, and (iii) the amount of such shortfall will be treated as
Finance Charge Collections allocable to the payment of such shortfall on the
Class B Certificates.
To the extent of the lesser of (i) any remaining Required Amount and (ii)
the Negative Carry Amount minus the amount applied with respect thereto from
Finance Charge Collections allocable to the Exchangeable Transferor Certificate,
the Transferor may, at its option, contribute to the Trust such amount to be
applied in the manner specified for application of Finance Charge Collections.
REALLOCATED PRINCIPAL COLLECTIONS
On each Distribution Date the Servicer will apply or cause the Trustee to
apply an amount, not to exceed the Class C Invested Amount, equal to the product
of (a)(i) during the Revolving Period, the Class C Floating Allocation
Percentage or (ii) during an Amortization Period, the Class C Fixed/Floating
Allocation Percentage, and (b) the amount of Principal Collections with respect
to the related Monthly Period in the following priority (the collections applied
in accordance with clause (a) below being "Reallocated Class C Principal
Collections"):
(a) an amount equal to the sum of (i) the Class A Required Amount with
respect to the related Monthly Period and (ii) the Class B Required Amount
with respect to the related Monthly Period will be applied first to the
components of the Class A Required Amount and then to the components of the
Class B Required Amount in the same priority as such components are applied
from Available Series Finance Charge Collections as described in
"--Application of Collections--Payment of Fees, Interest, and Other Items;"
and
(b) any remaining amount will, on each Distribution Date with respect
to the Revolving Period, be applied as Shared Principal Collections, and on
each Distribution Date with respect to an Amortization Period, be included
in the funds available to make principal payments 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 and then to the Class C Certificateholders until the Class C
Invested Amount is paid in full.
On each Distribution Date, the Servicer will apply or cause the Trustee to
apply an amount, not to exceed the Class B Invested Amount, equal to the product
of (a)(i) during the Revolving Period, the Class B Floating Allocation
Percentage or (ii) during an Amortization Period, the Class B Fixed/Floating
Allocation Percentage, and (b) the amount of Principal Collections with respect
to the related Monthly Period in the following priority (the collections applied
in accordance with clause (a) below being "Reallocated Class B Principal
Collections" and the sum of Reallocated Class C Principal Collections and
Reallocated Class B Principal Collections being "Reallocated Principal
Collections"):
(a) an amount equal to the excess, if any, of the Class A Required
Amount with respect to the related Monthly Period over the amount of
Reallocated Class C Principal Collections applied with respect thereto for
the related Monthly Period will be applied first to the remaining
components of the Class A Required Amount in the same priority as such
components are applied from Available Series Finance Charge Collections as
described in "--Application of Collections--Payment of Fees, Interest, and
Other Items;" and
(b) any remaining amount not applied in the foregoing manner will, on
each Distribution Date with respect to the Revolving Period, be applied as
Shared Principal Collections, and on each Distribution Date with respect to
an Amortization Period, be included in the funds available to make
principal payments 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.
On each Transfer Date the Class C Invested Amount will be reduced by the
amount of Reallocated Principal Collections for the related Monthly Period. In
the event that such reduction would cause the Class C Invested Amount to be a
negative number, the Class C Invested Amount will be reduced to zero and the
Class
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B Invested Amount will be reduced by the amount by which the Class C Invested
Amount would have been reduced below zero. In the event that the reallocation of
Principal Collections would cause the Class B Invested Amount to be a negative
number on any business day, the amount of Class B Reallocated Principal
Collections on such business day will be an amount not to exceed the amount
which would cause the Class B Invested Amount to be reduced to zero.
APPLICATION OF COLLECTIONS
Allocations. Obligors make payments on the Receivables (i) to Lock-Box
Accounts maintained by Lock-Box Banks pursuant to Lock-Box Agreements, (ii) to
the Servicer, who deposits all such payments in Lock-Box Accounts no later than
the second business day following receipt, or (iii) as In-Store Payments. All
collections on Receivables of amounts due and owing to the Trustee represented
by the Receivables deposited in the Lock-Box Accounts will, pending remittance
to the Collection Account, be held for the benefit of the Trust and will be
deposited into the Collection Account as promptly as possible after the date of
processing of such collections. In-Store Payments will be deposited in the
Collection Account as promptly as possible after the date of processing of such
collections, but in no event later than the second business day following such
date of processing. On the same day as any such deposit to the Collection
Account is made, the Servicer makes the deposits and payments to the accounts
and parties as indicated below; provided, however, that for as long as FDS or
any affiliate of FDS remains the Servicer under the Pooling and Servicing
Agreement, and (a)(i) the Servicer provides to the Trustee a letter of credit or
other form of Enhancement covering the risk of collection of the Servicer
acceptable to the Rating Agency and (ii) the Transferor shall not have received
a notice from the Rating Agency that such letter of credit or other form of
Enhancement would result in the lowering of such Rating Agency's then-existing
rating of any Series of certificates then outstanding, (b) the Servicer has and
maintains a short-term credit rating of at least P-1 by Moody's and of at least
A-1 by Standard & Poor's, or (c) each Rating Agency confirms that such action
will not result in a downgrading or withdrawal of the then current rating of any
outstanding Series, then (x) the Servicer may make such deposits and payments on
the business day immediately prior to the Distribution Date (the "Transfer
Date") in an aggregate amount equal to the net amount of such deposits and
payments which would have been made had the conditions of this proviso not
applied and (y) certain payments and allocations described herein may be made on
a monthly, rather than a daily, basis.
If any of the criteria set forth in the proviso to the immediately
preceding paragraph are satisfied, payments on the Receivables collected by the
Servicer will not be segregated from the assets of the Servicer. Until such
payments on the Receivables collected by the Servicer are deposited into the
Collection Account, such funds may be used by the Servicer for its own benefit,
and the proceeds of any short-term investment of such funds will accrue to the
Servicer. During such times as the Servicer holds funds representing payments on
the Receivables collected by the Servicer and is permitted to use such funds for
its own benefit, the Certificateholders are subject to risk of loss, including
risk resulting from the bankruptcy or insolvency of the Servicer. The Servicer
will pay no fee to the Trust or any Certificateholder for any use by the
Servicer of funds representing collections on the Receivables.
The Servicer will withdraw the following amounts from the Collection
Account for application on each business day as indicated:
(a) an amount equal to the Transferor Percentage of the aggregate
amount of Principal Collections will be paid to the holder of the
Exchangeable Transferor Certificate to the extent such funds are not
allocated to any Series pursuant to a Supplement;
(b) an amount equal to the Transferor Percentage of the aggregate
amount of Finance Charge Collections will be paid to the holder of the
Exchangeable Transferor Certificate to the extent such funds are not
allocated to any Series pursuant to a Supplement;
(c) an amount equal to the Floating Allocation Percentage of the
aggregate amount of Finance Charge Collections, Transferor Finance Charge
Collections, investment earnings on amounts on deposit in the Principal
Funding Account to the extent on deposit in the Collection Account on such
business day, and Excess Finance Charge Collections of other Series
allocable to Series 1996-1, and, during the
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continuance of a Discount Trigger Event, certain Principal Collections
allocable to Series 1996-1 will be allocated and paid as described below in
"--Payment of Fees, Interest, and Other Items;"
(d) during the Revolving Period, an amount equal to the Floating
Allocation Percentage of Principal Collections (less the amount thereof
which may be applied as Reallocated Class B Principal Collections or
Reallocated Class C Principal Collections) will be applied as Shared
Principal Collections; provided, however, that during the continuance of a
Discount Trigger Event, certain Principal Collections are subject to
reallocation as Finance Charge Collections;
(e) during the Accumulation Period, an amount equal to the
Fixed/Floating Allocation Percentage of Principal Collections (less the
amount thereof which may be applied as Reallocated Principal Collections),
any amount on deposit in the Excess Funding Account allocated to
Certificateholders, any amounts to be paid in respect of Investor Default
Amount, Class A Investor Charge-Offs, Class B Investor Charge-Offs, and
Class C Investor Charge-Offs, and any amount of Shared Principal
Collections on such business day will be deposited in the Principal Funding
Account; provided, however, that during the continuance of a Discount
Trigger Event, certain Principal Collections are subject to reallocation as
Finance Charge Collections. On any business day on which the amount on
deposit in the Principal Funding Account exceeds the sum of the Controlled
Amortization Amount and any existing Accumulation Shortfall (such sum, the
"Controlled Distribution Amount"), such excess will be treated as Shared
Principal Collections and applied as such;
(f) during any Early Amortization Period or on or after the Class B
Principal Payment Commencement Date, an amount equal to the Fixed/Floating
Allocation Percentage of such Principal Collections (less the amount
thereof which is applied as Reallocated Principal Collections), any amount
on deposit in the Excess Funding Account allocated to Certificateholders,
any amounts to be paid in respect of the Investor Default Amount, Class A
Investor Charge-Offs, Class B Investor Charge-Offs, and Class C Investor
Charge-Offs, and any amount of Shared Principal Collections on such
business day, up to the amount of the Invested Amount, will be deposited
into the Principal Account; provided, however, that during the continuance
of a Discount Trigger Event, certain Principal Collections are subject to
reallocation as Finance Charge Collections;
(g) Shared Principal Collections will be allocated to each outstanding
Series pro rata based on the investor allocation percentage for Principal
Receivables applicable to any Series, first to be applied to any shortfalls
with respect to the controlled distribution amount for each such Series,
and then to accelerate principal payments with respect to any Series which
is in its amortization period but not subject to a controlled distribution
amount, and then, at the option of the Transferor, to make payments of
principal with respect to the Variable Funding Certificates. The Servicer
will pay any remaining Shared Principal Collections on such business day to
the holder of the Exchangeable Transferor Certificate; and
(h) Excess Finance Charge Collections will be allocated as set forth
below in clause (x) of "--Payment of Fees, Interest, and Other Items."
Any Shared Principal Collections and other amounts not paid to the
Transferor because the Transferor Interest on any date, after giving effect to
the inclusion in the Trust of all Receivables on or prior to such date and the
application of all prior payments to the Transferor, does not exceed the Minimum
Transferor Interest, together with any adjustment payments, as described below,
will be deposited into and held in the Excess Funding Account, and on the
Amortization Period Commencement Date with respect to any Series, such amounts
will be deposited in the principal account or principal funding account of such
Series to the extent specified in the related Supplement until the principal
funding account of such Series has been funded in full or the holders of
certificates of such Series have been paid in full.
Payment of Fees, Interest, and Other Items. On each business day during a
Monthly Period, the Servicer will apply an amount equal to the sum of the Total
Finance Charge Collections on deposit in the Collection Account and any
investment earnings relating to amounts on deposit in the Principal Funding
Account deposited in the Collection Account (collectively, the "Available Series
Finance Charge Collections") in the following priority:
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(i) an amount equal to the lesser of (A) the Available Series Finance
Charge Collections and (B) the excess of (a) the sum of (1) the Class A
Monthly Interest, (2) any Class A Monthly Interest with respect to any
Interest Accrual Period beginning in a prior Monthly Period which has not
previously been deposited in the Interest Funding Account or paid on any
previous Distribution Date, and (3) any additional interest at the Class A
Certificate Rate plus 2% with respect to interest amounts that were due but
not paid in a prior Monthly Period over (b) the amount which has already
been deposited in the Interest Funding Account with respect thereto in the
current Monthly Period, will be deposited in the Interest Funding Account
for distribution on the next succeeding Distribution Date to the Class A
Certificateholders;
(ii) an amount equal to the lesser of (A) any Available Series Finance
Charge Collections remaining after application of such collections in
clause (i) above and (B) the excess of (a) the sum of (1) the Class B
Monthly Interest, (2) any Class B Monthly Interest with respect to any
Interest Accrual Period beginning in a prior Monthly Period which has not
previously been deposited in the Interest Funding Account or paid on any
previous Distribution Date, and (3) any additional interest at the Class B
Certificate Rate plus 2% with respect to interest amounts that were due but
not paid in a prior Monthly Period over (b) the amount which has already
been deposited in the Interest Funding Account with respect thereto in the
current Monthly Period, will be deposited in the Interest Funding Account
for distribution on the next succeeding Distribution Date to the Class B
Certificateholders;
(iii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining after application of such collections
in clauses (i) and (ii) above and (B) the portion of the Monthly Servicing
Fee for the current month that has not been previously paid to the Servicer
plus any prior Monthly Servicing Fee allocated to such Series that was due
but not previously paid to the Servicer will be distributed to the
Servicer;
(iv) an amount equal to the lesser of (A) any Available Series Finance
Charge Collections remaining after application of such collections in
clauses (i) through (iii) above and (B) the sum of (1) the aggregate
Investor Default Amount for such business day and (2) the unpaid Investor
Default Amount for any prior business day during the then-current Monthly
Period, will (v) during the Revolving Period, be treated as Shared
Principal Collections, (w) during any Amortization Period on and prior to
the Class B Principal Payment Commencement Date, be deposited in the
Principal Funding Account for payment to the Class A Certificateholders,
(x) during any Amortization Period on and after the Class B Principal
Payment Commencement Date, be deposited in the Principal Account for
payment to the Class B Certificateholders, and (y) during any Amortization
Period on and after the Class C Principal Payment Commencement Date, be
deposited in the Principal Account for payment to the Class C
Certificateholders;
(v) an amount equal to the lesser of (A) any Available Series Finance
Charge Collections remaining after application of such collections in
clauses (i) through (iv) above and (B) unreimbursed Class A Investor
Charge-Offs, if any, will be treated as Shared Principal Collections during
the Revolving Period, and will be deposited in the Principal Funding
Account to the extent included in Class A Monthly Principal during the
Accumulation Period or deposited in the Principal Account for payment to
the Class A Certificateholders during any Early Amortization Period and, on
and after the Class B Principal Payment Commencement Date, deposited in the
Principal Account for payment to the Class B Certificateholders;
(vi) an amount equal to the lesser of (A) any Available Series Finance
Charge Collections remaining after application of such collections in
clauses (i) through (v) above and (B) the sum of (1) the amount of interest
which has accrued with respect to the outstanding aggregate principal
amount of the Class B Certificates at the Class B Certificate Rate but has
not been deposited in the Interest Funding Account or paid to the Class B
Certificateholders either on such business day or on a prior business day,
and (2) any additional interest at the Class B Certificate Rate plus 2%
with respect to such interest amounts that were due but not paid to Class B
Certificateholders in any previous Monthly Period, will be
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deposited in the Interest Funding Account for distribution on the next
succeeding Distribution Date to the Class B Certificateholders;
(vii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining after application of such collections
in clauses (i) through (vi) above and (B) unreimbursed Class B Investor
Charge-Offs and reductions of the Class B Invested Amount due to
Reallocated Class B Principal Collections, if any, will be treated as
Shared Principal Collections during the Revolving Period, and first will be
deposited in the Principal Funding Account during the Accumulation Period
or deposited in the Principal Account for payments to the Class A
Certificateholders during any Early Amortization Period and then, on and
after the Class B Principal Payment Commencement Date, deposited in the
Principal Account for payment to the Class B Certificateholders;
(viii) an amount equal to the lesser of (A) any Available Series
Finance Charge Collections remaining after application of such collections
in clauses (i) through (vii) above and (B) the excess of (a) the sum of (1)
the Class C Monthly Interest, (2) the amount of interest which has accrued
with respect to the outstanding principal amount of the Class C
Certificates at the Class C Certificate Rate but has not been paid to the
Class C Certificateholders either on such business day or on a prior
business day, and (3) any additional interest at the Class C Certificate
Rate with respect to interest amounts that were due but not paid in a prior
Monthly Period over (b) the amount which has already been paid to the Class
C Certificateholders with respect thereto in the current Monthly Period,
will be paid on each business day to the Class C Certificateholders;
(ix) an amount equal to the lesser of (A) any Available Series Finance
Charge Collections remaining after application of such collections in
clauses (i) through (viii) above and (B) unreimbursed Class C Investor
Charge-Offs and reductions of the Class C Invested Amount due to
Reallocated Principal Collections, if any, will (w) during the Revolving
Period, be treated as Shared Principal Collections, (x) during the
Amortization Period but on or prior to the Class B Principal Payment
Commencement Date, be deposited in the Principal Funding Account for
payment to the Class A Certificateholders, (y) on and after the Class B
Principal Payment Commencement Date, be deposited in the Principal Account
for payment to the Class B Certificateholders, and (z) on and after the
Class C Principal Payment Commencement Date, be deposited in the Principal
Account for payment to the Class C Certificateholders; and
(x) any Available Series Finance Charge Collections remaining after
making the above described distributions will be treated as Excess Finance
Charge Collections which will be available to cover shortfalls, if any, in
amounts payable from Finance Charge Collections to certificateholders of
other Series and then to pay any unpaid commercially reasonable costs and
expenses of a successor Servicer, if any. Excess Finance Charge Collections
which are not so used will be paid to the Transferor; provided, however,
that on any business day during any Early Amortization Period, the Trustee
will deposit any such Excess Finance Charge Collections into the Interest
Funding Account and will add such funds to the Available Series Finance
Charge Collections on each subsequent business day in such Monthly Period
until the last business day of the related Monthly Period, when the
aggregate amount of such remaining Available Series Finance Charge
Collections will be distributed as Excess Finance Charge Collections as set
forth in this clause (x).
"Class A Monthly Interest" on any Distribution Date will equal one-twelfth
of the product of (i) the Class A Certificate Rate and (ii) the outstanding
principal balance of the Class A Certificates as of the close of business on the
last day of the preceding Monthly Period (after subtracting therefrom the
aggregate amount of any Class A Monthly Principal distributed to holders of
Class A Certificates during any Early Amortization Period), except that interest
for the first Distribution Date will include accrued interest at the Class A
Certificate Rate from the Closing Date through June 14, 1996 (calculated as
though there were only 30 days in May).
"Class B Monthly Interest" on any Distribution Date will equal one-twelfth
of the product of (i) the Class B Certificate Rate and (ii) the Class B Invested
Amount as of the close of business on the last day of
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the preceding Monthly Period, except that interest for the first Distribution
Date will include accrued interest at the Class B Certificate Rate from the
Closing Date through June 14, 1996 (calculated as though there were only 30 days
in May).
"Class C Monthly Interest" on any Distribution Date will equal one-twelfth
of the product of (i) the Class C Certificate Rate and (ii) the Class C Invested
Amount for such Series as of the close of business on the last day of the
preceding Monthly Period, except that interest for the first Distribution Date
will include accrued interest at the Class C Certificate Rate from the Closing
Date through June 14, 1996 (calculated as though there were only 30 days in
May).
"Required Amount" means on any business day the amount, if any, by which
the aggregate amount to be paid pursuant to clauses (i)-(ix) above exceeds the
portion of the Finance Charge Collections and Transferor Finance Charge
Collections on any business day applied to the payment of the amounts described
in such clauses.
Payments of Principal. On each business day during the Revolving Period,
the Trustee, acting in accordance with instructions from the Servicer, will
withdraw all amounts on deposit in the Principal Account and treat such amounts
as Shared Principal Collections as described in clause (g) of "--Allocations."
On each business day during the Accumulation Period, principal will be deposited
in the Principal Funding Account for distribution to the Class A
Certificateholders on the Class A Expected Final Payment Date and, following the
payment in full of the Class A Invested Amount, paid to the Class B
Certificateholders on the Class B Expected Final Payment Date and, following the
payment in full of the Class B Invested Amount, paid to the Class C
Certificateholders on each Distribution Date thereafter until the Class C
Invested Amount is paid in full. On the Transfer Date occurring in the month
following the month in which any Early Amortization Period begins, and on each
Transfer Date thereafter until the Series 1996-1 Termination Date or until the
Class A Invested Amount is paid in full, the Trustee, acting in accordance with
instructions from the Servicer, will withdraw all amounts on deposit in the
Principal Account or the Principal Funding Account and, to the extent of Class A
Monthly Principal, deposit such amounts in the Distribution Account for
distribution to the Class A Certificateholders on the next succeeding
Distribution Date.
On the Transfer Date preceding the Class B Principal Payment Commencement
Date (which is expected to be the Class B Expected Final Payment Date), and, if
the Class B Invested Amount is not paid in full on such date, on each Transfer
Date thereafter until the Series 1996-1 Termination Date or until the Class B
Invested Amount is paid in full, the Trustee, acting in accordance with
instructions from the Servicer, will withdraw amounts deposited into the
Principal Account in respect of collections processed during the related Monthly
Period and any amounts then on deposit in the Excess Funding Account and in each
case allocable to such Class B Certificates and deposit such amounts in the
Distribution Account for distribution to the Class B Certificateholders on the
next succeeding Distribution Date. The Class B Certificateholders will be
entitled to receive principal payments to the extent of Class B Monthly
Principal until the Class B Invested Amount is paid in full.
On the Transfer Date preceding the Class C Principal Payment Commencement
Date, and on each Transfer Date thereafter until the Series 1996-1 Termination
Date or until the Class C Invested Amount is paid in full, the Trustee, acting
in accordance with instructions from the Servicer, will withdraw amounts
deposited into the Principal Account in respect of collections processed during
the related Monthly Period and any amounts then on deposit in the Excess Funding
Account and in each case allocable to such Class C Certificates and deposit such
amounts in the Distribution Account for distribution to the Class C
Certificateholders on the next succeeding Distribution Date. The Class C
Certificateholders will be entitled to receive principal payments to the extent
of Class C Monthly Principal until the Class C Invested Amount is paid in full.
At the end of each month, all interest and earnings (net of losses and
investment expenses) on funds on deposit in the Principal Account and the
Interest Funding Account shall be deposited by the Trustee in a separate deposit
account with a Qualified Institution in the name of the Servicer, or a person
designated in writing by the Servicer, which shall not constitute part of the
Trust, or shall otherwise be turned over by the
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Trustee to the Servicer not less frequently than monthly. Any investment
earnings with respect to amounts on deposit in the Excess Funding Account shall
be deposited in the Collection Account and shall be treated as Finance Charge
Collections. On each Distribution Date with respect to the Accumulation Period
and any Special Payment Date, the Servicer shall withdraw from the Principal
Funding Account and deposit in the Collection Account all interest and other
investment income (net of losses and investment expenses) on funds then on
deposit in the Principal Funding Account, and such funds shall not be considered
to be principal amounts on deposit in the Principal Funding Account. Because
funds are withdrawn from the Collection Account on each business day, amounts on
deposit in the Collection Account are not invested.
"Class A Monthly Principal" with respect to any Distribution Date relating
to the Accumulation Period or any Early Amortization Period will equal the sum
of (i) an amount equal to the aggregate Net Principal Collections received
during the Monthly Period immediately preceding such Distribution Date, minus
the aggregate amount of Reallocated Principal Collections for such Monthly
Period, (ii) any amount on deposit in the Excess Funding Account allocated to
the Certificates on such Distribution Date, and (iii) the amount allocated to
the Class A Certificates with respect to such Distribution Date on account of
the Investor Default Amount and any reimbursements of unreimbursed Class A
Investor Charge-Offs, Class B Investor Charge-Offs, and Class C Investor
Charge-Offs; provided, however, that for each Distribution Date with respect to
the Accumulation Period (unless and until a Pay Out Event shall have occurred),
Class A Monthly Principal may not exceed the Controlled Distribution Amount for
such Distribution Date; provided further, that with respect to any Distribution
Date, Class A Monthly Principal will not exceed the Class A Adjusted Invested
Amount; provided, further, that with respect to the Series 1996-1 Termination
Date, Class A Monthly Principal will be an amount equal to the Class A Invested
Amount.
"Class B Monthly Principal" with respect to any Distribution Date on or
after the Class B Principal Payment Commencement Date will equal the sum of (i)
an amount equal to the aggregate Net Principal Collections received during the
Monthly Period immediately preceding such Distribution Date (less any payments
to be made to Class A Certificateholders to the extent of any remaining Class A
Invested Amount on such Distribution Date), minus the aggregate amount of
Reallocated Principal Collections for such Monthly Period, (ii) any amount on
deposit in the Excess Funding Account allocated to the Class B Certificates on
such Distribution Date, and (iii) the amount allocated to the Class B
Certificates with respect to such Distribution Date on account of the Investor
Default Amount and any reimbursements of unreimbursed Class B Investor
Charge-Offs and Class C Investor Charge-Offs; provided, however, that with
respect to the Series 1996-1 Termination Date, Class B Monthly Principal will be
an amount equal to the Class B Invested Amount.
"Class C Monthly Principal" with respect to any Distribution Date on or
after the Class C Principal Payment Commencement Date will equal the sum of (i)
an amount equal to the aggregate Net Principal Collections received during the
Monthly Period immediately preceding such Distribution Date (less any payments
to be made to Class B Certificateholders to the extent of any remaining Class B
Invested Amount on such Distribution Date), minus the aggregate amount of
Reallocated Principal Collections for such Monthly Period, (ii) any amount on
deposit in the Excess Funding Account allocated to the Class C Certificates on
such Distribution Date, and (iii) the amount allocated to the Class C
Certificates with respect to such Distribution Date on account of the Investor
Default Amount and any reimbursements of unreimbursed Class C Investor
Charge-Offs; provided, however, that with respect to the Series 1996-1
Termination Date, Class C Monthly Principal will be an amount equal to the Class
C Invested Amount.
COVERAGE OF INTEREST SHORTFALLS
To the extent of any shortfall in the amount of Available Series Finance
Charge Collections due to the accumulation of principal in the Principal Funding
Account or the Excess Funding Account, a portion of the Finance Charge
Collections allocable to the Exchangeable Transferor Certificate will be made
available as described in "--Reallocation of Cash Flows" to cover the Negative
Carry Amount. Thereafter, the Transferor may, at its option, contribute to the
Trust an amount not in excess of the lesser of any remaining shortfall or
remaining Negative Carry Amount for such purpose.
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Available Series Finance Charge Collections allocable to the Certificates
in excess of the amounts necessary to make required payments with respect to the
Certificates described above in "--Payment of Fees, Interest, and Other Items"
("Excess Finance Charge Collections") will be applied to cover any shortfalls
with respect to amounts payable from Finance Charge Collections allocable to any
other Series, pro rata based upon the amount of the shortfall, if any, with
respect to such other Series. Any Excess Finance Charge Collections remaining
after covering shortfalls with respect to all outstanding Series during a
Monthly Period will be paid to the Servicer to cover certain costs and expenses
and then to the holder of the Exchangeable Transferor Certificate.
On and after the Class B Principal Payment Commencement Date, to the extent
of any shortfall in the amount available to make required payments of interest
accrued with respect to the outstanding aggregate principal amount of the Class
B Certificates and to cover the Investor Default Amount or any Class B Investor
Charge-Offs which remain unpaid after the application of Transferor Finance
Charge Collections and Excess Finance Charge Collections, Principal Collections,
and any remaining Finance Charge Collections allocated to the holder of the
Exchangeable Transferor Certificate in an amount not to exceed the least of the
Transferor Subordination Amount, the Transferor Interest on such day, and the
amount of such shortfall, will be treated as Finance Charge Collections
allocable to the payment of such shortfall on the Class B Certificates.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
On each business day, the Servicer will calculate the Investor Default
Amount for such business day. Receivables in any Account will be charged off as
uncollectible in accordance with the Servicer's customary and usual policies and
credit and collection policies, which, in general, currently provide that
Receivables in any Account will be charged off when the Account becomes Retail
Age 8 (210 days past due) or, in the case of certain major purchase plan
accounts, when the Account becomes Retail Age 9 (240 days past due), unless the
cardholder cures such default by making payments which qualify under the
standards customarily applied by the Servicer. The Investor Default Amount will
be allocated to the Certificateholders on each business day in an amount
generally equal to the product of the Floating Allocation Percentage applicable
on such business day and the amount of Principal Receivables in Defaulted
Accounts for such business day.
If on any business day the Servicer adjusts the amount of any Principal
Receivable because of transactions occurring in respect of a rebate or refund to
a cardholder, or because such Principal Receivable was created in respect of
merchandise which was refused or returned by a cardholder, then the amount of
the Transferor Interest in the Trust will be reduced, on a net basis, by the
amount of the adjustment on such business day. In addition, the Transferor
Interest in the Trust will be reduced, on a net basis, as a result of
transactions in respect of any Principal Receivable which was discovered as
having been created through a fraudulent or counterfeit charge. In the event the
Transferor Interest would be reduced below the Minimum Transferor Interest as a
result of any of the foregoing, the Transferor will be required to pay to the
Trust the amount of such reduction (an "Adjustment Payment") out of its own
funds.
INVESTOR CHARGE-OFFS
If on the second business day preceding each Distribution Date (the
"Determination Date") the aggregate Investor Default Amount, if any, for each
business day in the preceding Monthly Period exceeded the aggregate amount of
Total Finance Charge Collections applied to the payment thereof and the amount
of Transferor Finance Charge Collections, Excess Finance Charge Collections,
and, on and after the Class B Principal Payment Commencement Date, collections
allocated to the holder of the Exchangeable Transferor Certificate to the extent
of the Transferor Subordination Amount applied to the payment thereof during the
preceding Monthly Period, then a portion of the Class C Invested Amount equal to
such insufficiency, but not more than the aggregate Investor Default Amount for
such Monthly Period (a "Class C Investor Charge-Off"), will be deducted from the
Class C Invested Amount to avoid a charge-off with respect to the Class A
Certificates. The Class C Invested Amount thereafter will be increased (but not
in excess of the unpaid principal balance of the Class C Certificates of such
Series) on any business day by the amount of Total Finance Charge Collections
allocated and available for that purpose as described under clause (ix) of
"--Application of Collections--Payment of Fees, Interest, and Other Items."
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In the event that prior to the Class B Principal Payment Commencement Date
any such reduction of the Class C Invested Amount would cause the Class C
Invested Amount to be a negative number, the Class C Invested Amount will be
reduced to zero, and the Class B Invested Amount will be reduced by the
aggregate amount of such excess, but not more than the aggregate Investor
Default Amount for such Monthly Period (a "Class B Investor Charge-Off"), which
will have the effect of slowing or reducing the return of principal to the Class
B Certificateholders. The Class B Invested Amount will thereafter be increased
(but not in excess of the unpaid principal balance of the Class B Certificates)
on any Monthly Period by the amount of Finance Charge Collections allocated and
available for that purpose as described under clause (vii) of "--Application of
Collections--Payment of Fees, Interest, and Other Items."
In the event that, on or after the Class B Principal Payment Commencement
Date, any such reduction of the Class C Invested Amount would cause the Class C
Invested Amount to be a negative number, the Class C Invested Amount will be
reduced to zero, and the Transferor Subordination Amount will be reduced by the
aggregate amount of such excess, but not by more than the aggregate Investor
Default Amount for such Monthly Period. If the Transferor Subordination Amount
is reduced to zero, the Class B Invested Amount will be reduced by the amount by
which the Transferor Subordination Amount would have been reduced below zero,
but not more than the aggregate Investor Default Amount for such Monthly Period.
In the event that any such reduction of the Class B Invested Amount would
cause the Class B Invested Amount to be a negative number, the Class B Invested
Amount will be reduced to zero, and the Class A Invested Amount will be reduced
by the amount by which the Class B Invested Amount would have been reduced below
zero, but not more than the aggregate Investor Default Amount for such Monthly
Period (a "Class A Investor Charge-Off"), which will have the effect of slowing
or reducing the return of principal to the Class A Certificateholders. If the
Class A Invested Amount has been reduced by the amount of any Class A Investor
Charge-Offs, it will be increased on any business day (but not by an amount in
excess of the aggregate Class A Investor Charge-Offs) by the amount of Available
Series Finance Charge Collections allocated and available for such purpose as
described under clause (v) of "--Application of Collections--Payment of Fees,
Interest, and Other Items."
FINAL PAYMENT OF PRINCIPAL; TERMINATION
The Class A Certificates, the Class B Certificates, and the Class C
Certificates will be subject to optional repurchase by the Transferor on any
Distribution Date after the Invested Amount is reduced to an amount less than or
equal to 10% of the initial Invested Amount, if certain conditions set forth in
the Pooling and Servicing Agreement are satisfied. The Certificates are also
subject to optional repurchase by the Transferor on the second Distribution Date
following the Class A Expected Final Payment Date. The repurchase price will be
equal to (i) the Class A Invested Amount plus accrued and unpaid interest on the
Class A Certificates, (ii) the Class B Invested Amount plus accrued and unpaid
interest on the Class B Certificates, and (iii) the Class C Invested Amount plus
accrued and unpaid interest on the Class C Certificates. In each case interest
will accrue through the day preceding the Distribution Date on which the
repurchase occurs.
The Certificates will be retired on the day following the Distribution Date
on which the final payment of principal is scheduled to be made to the
Certificateholders, whether as a result of optional reassignment to the
Transferor or otherwise. Subject to prior termination as provided above, the
Pooling and Servicing Agreement provides that the final distribution of
principal and interest on the Offered Certificates will be made on the July 2004
Distribution Date (the "Series 1996-1 Termination Date"). In the event that the
Invested Amount is greater than zero on the Series 1996-1 Termination Date, the
Trustee will sell or cause to be sold (and apply the proceeds first to the Class
A Certificates until paid in full, then to the Class B Certificates, and finally
to the Class C Certificates to the extent necessary to pay such remaining
amounts to all Certificateholders pro rata within each class as final payment of
the Certificates) interests in the Receivables or certain Receivables, as
specified in the Pooling and Servicing Agreement and the Series 1996-1
Supplement, in an amount equal to up to 110% of the Invested Amount at the close
of business on such date (but not more than the total amount of Receivables
allocable to the Certificates). The net proceeds of such sale and any
collections on the Receivables, up to an amount equal to the Invested Amount
plus accrued interest due on the Certificates, will be paid on the Series 1996-1
Termination Date, first to the Class A Certificateholders until the Class A
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Invested Amount is paid in full, then to the Class B Certificateholders until
the Class B Invested Amount is paid in full, and then to the Class C
Certificateholders until the Class C Invested Amount is paid in full.
Unless the Servicer and the holder of the Exchangeable Transferor
Certificate instruct the Trustee otherwise, the Trust will terminate on the
earlier of (a) the day after the Distribution Date following the date on which
funds shall have been deposited in the Distribution Account for the payment to
certificateholders in an aggregate amount sufficient to pay in full the
aggregate investor interest of all Series outstanding plus interest thereon at
the applicable certificate rates to the next Distribution Date and (b) a date
which shall not be later than the expiration of 21 years from the death of the
last survivor of the descendants of a specified person living on the date of the
Pooling and Servicing Agreement. Upon the termination of the Trust and the
surrender of the Exchangeable Transferor Certificate, the Trustee will convey to
the holder of the Exchangeable Transferor Certificate all right, title, and
interest of the Trust in and to the Receivables and other funds of the Trust
(other than funds on deposit in the Distribution Account and other similar bank
accounts of the Trust with respect to any Series).
PAY OUT EVENTS
As described above, the Revolving Period will continue until the
commencement of the Accumulation Period, unless a Pay Out Event occurs prior to
such date. A "Pay Out Event" refers to any of the following events:
(i) failure on the part of the Transferor (a) to make any payment or
deposit on the date required under the Pooling and Servicing Agreement (or
within the applicable grace period which will not exceed five business
days); (b) to perform in all material respects the Transferor's covenant
not to sell, pledge, assign, or transfer to any person, or grant any
unpermitted lien on, any Receivable; or (c) to observe or perform in any
material respect any other covenants or agreements of the Transferor set
forth in the Pooling and Servicing Agreement, the Purchase Agreement, or
the Series 1996-1 Supplement, which failure has a material adverse effect
on the Certificateholders and which continues unremedied for a period of 60
days after written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee, or to the
Transferor and the Trustee by the holders of 50% of the Invested Amount and
continues to materially and adversely affect the interests of the
Certificateholders for such period;
(ii) any representation or warranty made by the Transferor in the
Pooling and Servicing Agreement or any information required to be given by
the Transferor to the Trustee to identify the Accounts proves to have been
incorrect in any material respect when made and which continues to be
incorrect in any material respect for a period of 60 days after written
notice to the Transferor from the Trustee, or to the Transferor and the
Trustee by certificateholders representing more than 50% of the invested
amount of any class of any Series outstanding, and as a result of which the
interests of the Certificateholders are materially and adversely affected
and continue to be materially and adversely affected for such period;
provided, however, that a Pay Out Event pursuant to this subparagraph (ii)
will not be deemed to occur thereunder if the Transferor has accepted
reassignment of the related Receivable or all such Receivables, if
applicable, during such period (or such longer period as the Trustee may
specify) in accordance with the provisions thereof;
(iii) certain events of insolvency or receivership relating to the
Transferor, Federated, or FDS;
(iv) any reduction of the average of the Portfolio Yields for any
three consecutive Monthly Periods to a rate which is less than the Base
Rate;
(v) the Trust becomes an "investment company" within the meaning of
the Investment Company Act;
(vi) (a) the Transferor Interest shall be less than the Minimum
Transferor Interest or (b) the total amount of Principal Receivables and
the amount on deposit in the Excess Funding Account shall be less than the
Minimum Aggregate Principal Receivables, in each case for 15 consecutive
days; or
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(vii) any Servicer Default (as defined below) which would have a
material adverse effect on the Certificateholders occurs.
In the case of any event described in clause (i), (ii), or (vii) above, a
Pay Out Event will be deemed to have occurred with respect to the Certificates
only if, after any applicable grace period, either the Trustee or
Certificateholders evidencing undivided interests aggregating more than 50% of
the Invested Amount, by written notice to the Transferor and the Servicer (and
to the Trustee if given by the Certificateholders) declare that a Pay Out Event
has occurred with respect to the Certificates as of the date of such notice. In
the case of any event described in clause (iii) or (v) above, a Pay Out Event
with respect to all Series then outstanding, and in the case of any event
described in clause (iv) or (vi), a Pay Out Event with respect only to the
Certificates, will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Certificateholders or all certificateholders,
as appropriate, immediately upon the occurrence of such event. On the date on
which a Pay Out Event is deemed to have occurred, the Early Amortization Period
will commence. In such event, distributions of principal to the
Certificateholders will begin on the first Distribution Date following the month
in which such Pay Out Event occurred. If, because of the occurrence of a Pay Out
Event, the Early Amortization Period begins, Certificateholders will begin
receiving distributions of principal earlier than they otherwise would have,
which may shorten the average life of the Certificates.
In addition to the consequences of a Pay Out Event discussed above, if,
pursuant to certain provisions of federal law, the Transferor voluntarily enters
liquidation or a receiver is appointed for the Transferor, on the day of such
event the Transferor will immediately cease to transfer Principal Receivables to
the Trust and promptly give notice to the Trustee of such event. Within 15 days,
the Trustee will publish a notice of the liquidation or the appointment stating
that the Trustee intends to sell, dispose of, or otherwise liquidate the
Receivables in a commercially reasonable manner. Unless otherwise instructed
within a specified period by certificateholders representing undivided interests
aggregating more than 50% of the invested amount of each Series outstanding at
such time (or, if any such Series has more than one class, of each class of such
Series), the Trustee will sell, dispose of, or otherwise liquidate the portion
of the Receivables allocable to the Series that did not vote to continue the
Trust in accordance with the Pooling and Servicing Agreement in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from the
sale, disposition, or liquidation of the Receivables will be treated as
collections of the Receivables and applied as provided above in "--Application
of Collections."
If the only Pay Out Event to occur is either the bankruptcy or insolvency
of the Transferor or the appointment of a bankruptcy trustee or receiver for the
Transferor, the bankruptcy trustee or receiver may have the power to prevent the
early sale, liquidation, or disposition of the Receivables and the commencement
of the Early Amortization Period. In addition, a bankruptcy trustee or receiver
may have the power to cause the early sale of the Receivables and the early
retirement of the Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses will take the form of the payment to it of a monthly servicing
fee in an amount equal to the sum of, with respect to all Series, one-twelfth of
the product of the applicable servicing fee percentages with respect to each
Series and the allocable portion of the Transferor Interest and the average
amount of the Principal Receivables during each month. The monthly servicing fee
will be allocated between the Transferor Interest, the Certificateholders'
Interest and the investor interest for all other Series. The portion of the
servicing fee allocable to the Certificateholders' Interest during each Monthly
Period (the "Monthly Servicing Fee") will be equal to the product of 2.00% per
annum and the sum of the Class A Adjusted Invested Amount, the Class B Invested
Amount, and the Class C Invested Amount on the preceding Record Date or, in the
case of the first Distribution Date, the initial principal amount of the
Certificates. The Monthly Servicing Fee will be funded from collections of
Finance Charge Receivables allocated to the Certificateholders' Interest, and
will be paid each month from the amount so allocated and on deposit in the
Collection Account. See "--Application of Collections--Payment of Fees,
Interest, and Other Items" above. The remainder of the servicing fee will be
allocable to the Transferor Interest and the investor interests of other Series.
Neither the Trust nor the Certificateholders will have any obligation to pay
such portion of the servicing fee.
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The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables, including without
limitation payment of the fees and disbursements of the Trustee and independent
certified public accountants and other fees which are not expressly stated in
the Pooling and Servicing Agreement to be payable by the Trust or the
Certificateholders other than federal, state, and local income and franchise
taxes, if any, of the Trust.
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling and Servicing Agreement, except upon determination that performance of
its duties is no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor to the Servicer has
assumed the Servicer's responsibilities and obligations under the Pooling and
Servicing Agreement. FDS, as Servicer, has delegated or will delegate some of
its servicing duties to one or more of its affiliates or other persons; however,
such delegation will not relieve it of its obligation to perform such duties in
accordance with the Pooling and Servicing Agreement. In addition, any affiliate
of FDS may be substituted in all respects for FDS as Servicer, provided that
such affiliate expressly assumes the performance of every covenant and
obligation of the Servicer under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that, subject to the
limitations on the Servicer's liability described below, the Servicer will
indemnify the Transferor and the Trust from and against any loss, liability,
reasonable expense, damage, or injury suffered or sustained by reason of any
acts or omissions or alleged acts or omissions of the Servicer with respect to
the activities of the Trust or the Trustee for which the Servicer is responsible
pursuant to the Pooling and Servicing Agreement; provided, however, that the
Servicer will not indemnify (a) the Transferor or the Trust if such acts,
omissions, or alleged acts or omissions constitute or are caused by fraud,
negligence, or willful misconduct by the Transferor, the Trustee (or any of its
officers, directors, employees, or agents), or the Certificateholders, (b) the
Trust, the Certificateholders, or the Offered Certificate Owners for losses,
liabilities, expenses, damages, or injuries arising from actions taken by the
Trustee at the request of Certificateholders, (c) the Trust, the
Certificateholders, or the Offered Certificate Owners for any losses,
liabilities, expenses, damages, or injuries incurred by any of them in their
capacities as investors, including without limitation losses incurred as a
result of defaulted Receivables or Receivables which are written off as
uncollectible, or (d) the Transferor, the Trust, the Certificateholders, or the
Offered Certificate Owners for any losses, liabilities, expenses, damages, or
injuries suffered or sustained by the Trust, the Certificateholders, or the
Offered Certificate Owners arising under any tax law, including without
limitation any federal, state, local, or foreign income or franchise tax or any
other tax imposed on or measured by income (or any interest or penalties with
respect thereto or arising from a failure to comply therewith) required to be
paid by the Trust, the Certificateholders, or the Offered Certificate Owners in
connection with the Pooling and Servicing Agreement to any taxing authority. The
Pooling and Servicing Agreement also provides that the Servicer will indemnify
the Trustee and its officers, directors, employees, or agents from and against
any loss, liability, reasonable expense, damage, or injury suffered or sustained
by reason of the acceptance of the Trust by the Trustee, the issuance by the
Trust of certificates, or any of the other matters contemplated in the Pooling
and Servicing Agreement; provided, however, that the Servicer will not indemnify
the Trustee or its officers, directors, employees, or agents for any loss,
liability, expense, damage, or injury caused by the fraud, negligence, or
willful misconduct of any of them.
In addition, the Pooling and Servicing Agreement provides that, subject to
certain exceptions, the Transferor will indemnify the Trust and the Trustee from
and against any reasonable loss, liability, expense, damage, or injury (other
than to the extent that any of the foregoing relate to any tax law or any
failure to comply therewith) suffered or sustained by reason of any acts or
omissions or alleged acts or omissions arising out of or based upon the
arrangement created by the Pooling and Servicing Agreement as though the Pooling
and Servicing Agreement created a partnership under the Delaware Uniform
Partnership Law in which the Transferor is a general partner.
The Pooling and Servicing Agreement provides that, except for obligations
specifically undertaken by the Transferor and the Servicer pursuant to the
Pooling and Servicing Agreement, neither the Transferor nor the Servicer nor any
of their respective directors, officers, employees, or agents will be under any
liability to the
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Trust, the Trustee, its officers, directors, employees, or agents, the
Certificateholders, or any other person for any action taken, or for refraining
from taking any action pursuant to the Pooling and Servicing Agreement provided
that neither the Transferor nor the Servicer nor any of their respective
directors, officers, employees, or agents will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith, or gross negligence of the Transferor, the Servicer, or any such person
in the performance of its duties thereunder or by reason of reckless disregard
of obligations and duties thereunder. In addition, the Pooling and Servicing
Agreement provides that the Servicer is not under any obligation to appear in,
prosecute, or defend any legal action which is not incidental to its servicing
responsibilities under the Pooling and Servicing Agreement and which in its
opinion may expose it to any expense or liability.
The Pooling and Servicing Agreement provides that, in addition to
Exchanges, the Transferor may transfer its interest in all or a portion of the
Exchangeable Transferor Certificate, provided that prior to any such transfer
(a) the Trustee receives written notification from each Rating Agency that such
transfer will not result in a lowering of its then-existing rating of the
certificates of each outstanding Series then rated by it and (b) the Trustee
receives a written opinion of counsel confirming that such transfer would not
adversely affect the federal income tax treatment of the certificates of any
outstanding Series or result in a taxable event to the certificateholders of any
such Series.
Any person into which, in accordance with the Pooling and Servicing
Agreement, the Transferor or the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which the Transferor or the
Servicer is a party, or any person succeeding to the business of the Transferor
or the Servicer, upon execution of a Supplement and delivery of an opinion of
counsel with respect to the compliance of the transaction with the applicable
provisions of the Pooling and Servicing Agreement, will be the successor to the
Transferor or the Servicer, as the case may be, under the Pooling and Servicing
Agreement.
SERVICER DEFAULT
In the event of any Servicer Default (as defined below), either the Trustee
or certificateholders representing undivided interests aggregating more than 50%
of the aggregate investor interests for all outstanding Series, by written
notice to the Servicer (and to the Trustee if given by the certificateholders),
may terminate all of the rights and obligations of the Servicer as servicer
under the Pooling and Servicing Agreement and in and to the Receivables and the
proceeds thereof and the Trustee may appoint a new Servicer (a "Service
Transfer"). The rights and interest of the Transferor under the Pooling and
Servicing Agreement and in the Transferor Interest will not be affected by such
termination. Upon such termination, the Trustee will as promptly as possible
appoint a successor Servicer. If no such Servicer has been appointed and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all authority, power, and obligations of the Servicer under the Pooling and
Servicing Agreement will pass to and be vested in the Trustee. If the Trustee is
unable to obtain any bids from eligible servicers and the Servicer delivers an
officer's certificate to the effect that it cannot in good faith cure the
applicable Servicer Default, and if the Trustee is legally unable to act as a
successor Servicer, then the Trustee will give the Transferor the right of first
refusal to purchase the Receivables on terms equivalent to the best purchase
offer as determined by the Trustee.
A "Servicer Default" refers to any of the following events:
(i) failure by the Servicer to make any payment, transfer, or deposit,
or to give instructions to the Trustee to make certain payments, transfers,
or deposits within five business days after the date the Servicer is
required to do so under the Pooling and Servicing Agreement or any
Supplement;
(ii) failure on the part of the Servicer duly to observe or perform in
any respect any other covenants or agreements of the Servicer which has a
material adverse effect on the certificateholders of any Series then
outstanding and which continues unremedied for a period of 60 days after
written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by holders of certificates evidencing undivided interests
aggregating not less than 50% of the invested amount of any Series
materially adversely affected thereby and continues to have a material
adverse effect on the certificateholders of any Series then outstanding for
such period; or the
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delegation by the Servicer of its duties under the Pooling and Servicing
Agreement, except as specifically permitted thereunder;
(iii) any representation, warranty, or certification made by the
Servicer in the Pooling and Servicing Agreement, or in any certificate
delivered pursuant to the Pooling and Servicing Agreement, proves to have
been incorrect when made which has a material adverse effect on the
certificateholders of any Series then outstanding, and which continues to
be incorrect in any material respect for a period of 60 days after written
notice of such failure, requiring the same to be remedied, shall have been
given to the Servicer by the Trustee, or to the Servicer and Trustee by the
holders of certificates evidencing undivided interests aggregating not less
than 50% of the invested amount of any Series materially adversely affected
thereby and continues to have a material adverse effect on such
certificateholders for such period; or
(iv) the occurrence of certain events of bankruptcy, insolvency, or
receivership of the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in clause (i) above for a period of five business days, or referred
to under clause (ii) or (iii) for a period of 60 business days, will not
constitute a Servicer Default if such delay or failure could not be prevented by
the exercise of reasonable diligence by the Servicer and such delay or failure
was caused by an act of God or other similar occurrence. Upon the occurrence of
any such event, the Servicer will not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of the
Pooling and Servicing Agreement, and the Servicer will provide the Trustee, any
provider of Enhancement, the Transferor, and the holders of certificates of all
Series outstanding prompt notice of such failure or delay by it, together with a
description of the cause of such failure or delay and its efforts to perform its
obligations.
In the event of a Servicer Default, if a bankruptcy trustee or receiver
were appointed for the Servicer and no Servicer Default other than such
bankruptcy or receivership or the insolvency of the Servicer exists, the
bankruptcy trustee or receiver may have the power to prevent either the Trustee
or the majority of the certificateholders from effecting a Service Transfer.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Paying Agent will forward to each
Certificateholder of record a statement prepared by the Servicer setting forth
with respect to such Series: (a) the total amount distributed, (b) the amount of
the distribution allocable to principal on the Class A Certificates, the Class B
Certificates, and the Class C Certificates, (c) the amount of such distribution
allocable to interest on the Class A Certificates, the Class B Certificates, and
the Class C Certificates, (d) the amount of collections of Principal Receivables
processed during the related Monthly Period and allocated in respect of the
Class A Certificates, the Class B Certificates, and the Class C Certificates,
respectively, (e) the amount of collections of Finance Charge Receivables
processed during the related Monthly Period and allocated in respect of the
Class A Certificates, the Class B Certificates, and the Class C Certificates,
respectively, (f) the aggregate amount of Principal Receivables, the Invested
Amount, the Class A Invested Amount, the Class B Invested Amount, the Class C
Invested Amount, the Floating Allocation Percentage, and during the Amortization
Period, the Fixed/Floating Allocation Percentage with respect to the Principal
Receivables in the Trust as of the close of business on the Record Date, (g) the
aggregate outstanding balance of Accounts which are 30, 60, 90, 120, 150, and
180 days delinquent as of the end of the day on the Record Date, (h) the
Aggregate Investor Default Amount for the related Monthly Period, (i) the
aggregate amount of Class A Investor Charge-Offs, Class B Investor Charge-Offs,
and Class C Investor Charge-Offs for the related Monthly Period, (j) the
aggregate amount of the Investor Servicing Fee for the related Monthly Period,
and (k) the Class A Pool Factor, the Class B Pool Factor, and the Class C Pool
Factor as of the end of the last day of the related Monthly Period.
On or before January 31 of each calendar year, beginning with 1997, the
Paying Agent will furnish to each person who at any time during the preceding
calendar year was a Certificateholder of record a statement prepared by the
Servicer containing the information required to be contained in the regular
monthly report to Certificateholders, as set forth in clauses (a), (b), and (c)
above aggregated for such calendar year or the applicable portion thereof during
which such person was a Certificateholder, together with such other customary
information (consistent with the treatment of the Certificates as debt) as the
Trustee or the
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Servicer deems necessary or desirable to enable the Certificateholders to
prepare their United States tax returns.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement provides that the Servicer will cause a
firm of independent public accountants to furnish to the Trustee on an annual
basis a report to the effect that such firm has compared the mathematical
calculations set forth in the monthly statements described in the first
paragraph under "--Reports to Certificateholders" for the Monthly Periods
covered by such report with the Transferor's computer reports regarding the
Receivables and that such reports are in agreement, except for such exceptions
as such firm shall believe to be immaterial and such other exceptions as shall
be set forth in such report. A copy of such report will be sent to each
Certificateholder.
The Pooling and Servicing Agreement provides that the Servicer will cause a
firm of independent public accountants to furnish to the Trustee on an annual
basis a report to the effect that such firm has made a study and evaluation in
accordance with generally accepted auditing standards of the Servicer's internal
accounting controls relative to the servicing of the Accounts and that, on the
basis of such examination, such firm is of the opinion (assuming the accuracy of
reports by the Servicer's third party agents) that the system of internal
controls in effect at the end of the reporting period relating to servicing
procedures performed by the Servicer, taken as a whole, provided reasonable
assurance that the internal control system was sufficient for the prevention and
detection of errors and irregularities and that such servicing was conducted in
compliance with such provisions of the Pooling and Servicing Agreement with
which such accountants can reasonably be expected to possess adequate knowledge
of the subject matter, which are susceptible of positive assurance by such
accountants, and for which their professional competence is relevant, except for
such exceptions as such firm shall believe to be immaterial and such other
exceptions as shall be set forth in such report. A copy of such report will be
sent to each Certificateholder.
The Pooling and Servicing Agreement also provides for delivery to the
Trustee, on or before a certain date each year, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
under the Pooling and Servicing Agreement throughout the preceding twelve months
or, if there has been a default in the fulfillment of any such obligations,
describing each such default. A copy of such certificate may be obtained by any
Certificateholder upon the submission of a written request therefor addressed to
the Trustee.
AMENDMENTS
The Pooling and Servicing Agreement and any Supplement may be amended by
the Transferor, the Servicer, and the Trustee, without the consent of
certificateholders, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of such Pooling and Servicing
Agreement and Supplements or of modifying in any manner the rights of such
certificateholders; provided, however, that (i) the Servicer shall have provided
an officer's certificate to the effect that such action will not adversely
affect in any material respect the interests of such certificateholders, (ii)
except in the case of any amendment for the sole purpose of curing any ambiguity
or correcting or supplementing any inconsistent provision of the Pooling and
Servicing Agreement or revising any schedule thereto (other than the list of
Receivables), each Rating Agency initially contracted to rate the Class A
Certificates, the Class B Certificates, and, if applicable, the Class C
Certificates shall have been notified of such amendment and shall have provided
notice to the Trustee or the Servicer that such action would not result in a
reduction or withdrawal of its rating of the Class A Certificates, the Class B
Certificates, or the Class C Certificates, and (iii) such action will not, in
the opinion of counsel satisfactory to the Trustee, result in certain adverse
tax consequences. In addition, the Pooling and Servicing Agreement and any
Supplement may be amended from time to time by the Transferor, the Servicer, and
the Trustee, without the consent of certificateholders, to add to or change any
of the provisions of the Pooling and Servicing Agreement to provide that bearer
certificates issued with respect to any other Series may be registrable as to
principal, to change or eliminate any restrictions on the payment of principal
of or any interest on such bearer certificates, to permit such bearer
certificates to be issued in exchange for registered certificates or bearer
certificates of other authorized denominations or to permit the issuance of
uncertificated
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certificates. Moreover, any Supplement and any amendments regarding the addition
or removal of Receivables from the Trust will not be considered amendments
requiring the consent of certificateholders under the provisions of the Pooling
and Servicing Agreement or any Supplement.
The Pooling and Servicing Agreement and the Supplement may be amended by
the Transferor, the Servicer, and the Trustee with the consent of the holders of
certificates evidencing undivided interests aggregating not less than 66 2/3% of
the investor interests of each and every Series adversely affected (and with
respect to Series 1996-1, the holders of not less than 66 2/3% of each class of
Certificates), for the purpose of adding any provisions to, changing in any
manner or eliminating any of the provisions of the Pooling and Servicing
Agreement, or any Supplement or of modifying in any manner the rights of
certificateholders of any then outstanding Series. No such amendment, however,
may (a) reduce in any manner the amount of, or delay the timing of,
distributions required to be made on any such Series, (b) change the definition
of or the manner of calculating the interest of any certificateholder of such
Series, or (c) reduce the aforesaid percentage of undivided interests the
holders of which are required to consent to any such amendment, in each case
without the consent of all certificateholders of all Series adversely affected.
Promptly following the execution of any amendment to the Pooling and Servicing
Agreement, the Trustee will furnish written notice of the substance of such
amendment to each certificateholder. Any Supplement and any amendments regarding
the addition or removal of Receivables from the Trust will not be considered an
amendment requiring certificateholder consent under the provisions of the
Pooling and Servicing Agreement and any Supplement.
LIST OF CERTIFICATEHOLDERS
Upon written request of certificateholders of record representing undivided
interests in the Trust aggregating not less than 10% of the Invested Amount, the
Trustee after having been adequately indemnified by such certificateholders for
its costs and expenses, and having given the Servicer notice that such request
has been made, will afford such certificateholders access during business hours
to the current list of certificateholders of the Trust for purposes of
communicating with other certificateholders with respect to their rights under
the Pooling and Servicing Agreement. See "--Book-Entry Registration" and
"--Definitive Certificates" above.
THE TRUSTEE
Chemical Bank is the Trustee under the Pooling and Servicing Agreement. The
Transferor, the Servicer, and their respective affiliates may from time to time
enter into normal banking and trustee relationships with the Trustee and its
affiliates. The Trustee, the Transferor, the Servicer, and any of their
respective affiliates may hold Certificates in their own names. In addition, for
purposes of meeting the legal requirements of certain local jurisdictions, the
Trustee will have the power to appoint a co-trustee or separate trustees of all
or any part of the Trust. In the event of such appointment, all rights, powers,
duties, and obligations conferred or imposed upon the Trustee by the Pooling and
Servicing Agreement will 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 will exercise and perform such rights,
powers, duties, and obligations solely at the direction of the Trustee.
The Trustee may resign at any time. The Transferor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling and Servicing Agreement or if the Trustee becomes insolvent. In such
circumstances, the Transferor will be obligated to appoint a successor Trustee.
Any resignation or removal of the Trustee and appointment of a successor Trustee
does not become effective until acceptance of the appointment by the successor
Trustee.
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DESCRIPTION OF THE RECEIVABLES PURCHASE AGREEMENT
PURCHASES OF RECEIVABLES
The Receivables transferred to the Trust pursuant to the Pooling and
Servicing Agreement are purchased by the Transferor pursuant to a Receivables
Purchase Agreement (the "Purchase Agreement") among the Transferor, as purchaser
of such Receivables, and the Originators, as sellers of such Receivables.
Pursuant to the Purchase Agreement, the Transferor purchases from the
Originators Receivables arising in the Accounts from time to time until the
Purchase Termination Date (as defined below in "--Purchase Termination Date")
applicable to such Originator. On each business day prior to the Purchase
Termination Date applicable to such Originator, each Originator is required to
deliver all of its Receivables to the Transferor. The purchase price of such
Receivables is equal to the outstanding balance of such Receivables, as adjusted
pursuant to the Purchase Agreement, and is payable by the Transferor in cash, by
a promissory note, or by any combination thereof, at the Originator's option.
Pursuant to the Pooling and Servicing Agreement, such Receivables are thereafter
transferred immediately by the Transferor to the Trust. Pursuant to the Pooling
and Servicing Agreement, the Transferor assigned its rights in, to, and under
the Purchase Agreement with respect to such Receivables to the Trust.
In September 1993, the Purchase Agreement was supplemented to add FDS as an
Originator and substantially all of the then-existing Accounts were transferred
from the other Originators (other than Broadway) to FDS. Substantially all of
the Accounts (other than the Broadway Accounts) established subsequent to such
transfer have been established by FDS. However, the other Originators remain
parties to the Purchase Agreement and may from time to time establish Accounts
and sell Receivables to the Transferor pursuant thereto. In February 1996, FDS
began establishing and continues to establish the FDS/Broadway Accounts for
qualified applicants who were or become customers of the department stores
operated by Broadway following the conversion of such stores to other Federated
nameplates. Until the Closing Date, the receivables arising in the FDS/Broadway
Accounts will continue to be sold by FDS to Broadway Receivables, Inc. On the
Closing Date, Broadway will be added as a party to the Purchase Agreement and,
concurrently therewith, will cause the receivables then outstanding under
substantially all of the Broadway Accounts and the FDS/Broadway Accounts to be
transferred to the Transferor for inclusion in the Trust. It is contemplated
that substantially all of the Broadway Accounts will be transferred to FDS
during fiscal 1996. See "Risk Factors--Effects of Certain Transactions."
REPRESENTATIONS AND WARRANTIES
Pursuant to the Purchase Agreement, each of the Originators represents and
warrants to the Transferor that, among other things, as of the Initial Closing
Date (or, in the case of certain Originators, the date upon which they first
became Originators) and subject to specified exceptions and limitations, such
Originator is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, such Originator is duly qualified to
do business and in good standing (or is exempt from such requirement) in any
state required in order to conduct its business and has obtained all necessary
licenses and approvals required under applicable law, and such Originator has
the requisite corporate power and authority to conduct its business and to
perform its obligations under the Purchase Agreement.
Pursuant to the Purchase Agreement, each of the Originators additionally
represents and warrants to the Transferor that, among other things, as of the
Initial Closing Date (or, in the case of certain Originators, the date upon
which they first became Originators), and, as to matters involving Supplemental
Accounts or Automatic Additional Accounts, as of the date that the Receivables
therein are designated for inclusion in the Trust) and subject to specified
exceptions and limitations, (i) the execution and delivery of the Purchase
Agreement and the consummation of the transactions provided for in the Purchase
Agreement have been duly authorized by such Originator by all necessary
corporate action on its part, (ii) the execution, delivery, and performance of
the Purchase Agreement and the performance of the transactions contemplated
thereby do not contravene such Originator's charter or by-laws, violate any
provision of law applicable to it, require any filing (except for filings under
the UCC), registration, consent, or approval under any such law except for such
filings, registrations, consents, or approvals as have already been obtained and
are in full force and effect, (iii)
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such Originator has filed all tax returns required to be filed and has paid or
made adequate provision for the payment of all taxes, assessments, and other
governmental charges due from such Originator, (iv) there are no proceedings or
investigations pending or, to the best knowledge of such Originator, threatened
against such Originator before any court, regulatory body, administrative
agency, or other tribunal or governmental instrumentality asserting the
invalidity of the Purchase Agreement or seeking to prevent the consummation of
any of the transactions contemplated by the Purchase Agreement, (v) each
Receivable of such Originator is or will be an account receivable arising out of
such Originator's performance in accordance with the terms of the Charge Account
Agreement giving rise to such Receivable, (vi) such Originator has no knowledge
of any fact which should have led it to expect at the time of the classification
of such Receivable as an Eligible Receivable that such Eligible Receivable would
not be paid in full when due, and each Receivable classified as an "Eligible
Receivable" by such Originator in any document or report delivered under the
Purchase Agreement satisfies the requirements of eligibility contained in the
definition of Eligible Receivable set forth in the Purchase Agreement, (vii) the
Purchase Agreement constitutes the legal, valid, and binding obligation of such
Originator, enforceable against such Originator in accordance with its terms,
(viii) such Originator is not insolvent, (ix) such Originator is the legal and
beneficial owner of all right, title, and interest in and to each Receivable
conveyed to the Transferor by such Originator pursuant to the Purchase
Agreement, and each such Receivable has been or will be transferred to the
Transferor free and clear of any lien other than Permitted Liens, (x) the
Purchase Agreement constitutes a valid transfer, assignment, and conveyance to
the Transferor of all of such Originator's right, title, and interest in and to
the Receivables conveyed to the Transferor pursuant thereto, (xi) all material
information with respect to the Accounts and the Receivables provided to the
Transferor by such Originator was true and correct as of the Closing Date or as
of the day Receivables arising under each such Account are created, and (xii)
each of such Originator's Receivables has been conveyed to the Transferor free
and clear of any lien of any person claiming through or under such Originator or
any of its affiliates (other than Permitted Liens) and in compliance in all
material respects with all requirements of law applicable to such Originator.
Pursuant to the Purchase Agreement, each of the Originators additionally
represents and warrants that, among other things, (i) each such Receivable of
such Originator is an account receivable arising out of such Originator's
performance in accordance with the terms of the Charge Account Agreement giving
rise to such Receivable, (ii) such Originator has no knowledge of any fact which
should have led it to expect at the time of the classification of such
Receivable as an Eligible Receivable that such Eligible Receivable would not be
paid in full when due, and each such Receivable classified as an "Eligible
Receivable" by such Originator in any document or report under the Purchase
Agreement satisfies the requirements of eligibility contained in the definition
of Eligible Receivable set forth in the Purchase Agreement, (iii) each such
Receivable of such Originator has been conveyed to the Transferor free and clear
of any lien of any person claiming through or under such Originator or any of
its affiliates (other than Permitted Liens), (iv) all consents, licenses,
approvals or authorizations of or any declarations with any governmental
authority required to be obtained by such Originator in connection with the
transfer of such Receivable to the Transferor have been duly obtained and remain
in full force and effect, and (v) all material information with respect to such
Receivable provided to the Transferor by such Originator is true and correct as
of the Initial Closing Date.
If any of the representations or warranties of any Originator as to matters
described in the three immediately preceding paragraphs are not true with
respect to such Originator or any Receivable, as applicable, at the time such
representation or warranty was made and as a result thereof (i) the Transferor
is required to repurchase any Receivable from the Trust pursuant to the Pooling
and Servicing Agreement or (ii) any Receivable is designated an "Ineligible
Receivable" pursuant to the Pooling and Servicing Agreement, then such
Originator will be obligated to pay to the Transferor immediately upon the
Transferor's demand therefor an amount equal to the amount of all losses,
damages, and liabilities of the Transferor that result from such breach,
including but not limited to the cost of any of the Transferor's repurchase
obligations pursuant to the Pooling and Servicing Agreement.
In addition, upon any exercise by the Transferor of its right to designate
Removed Accounts in connection with the sale by Federated or any affiliate of
Federated of all or substantially all of the capital stock or assets of any
Originator and to remove Receivables arising in such Removed Account from the
Trust, the
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Originator of the removed Receivables is required to immediately repurchase each
Receivables from the Transferor by tendering to the Transferor an amount in
immediately available funds equal to the amount the Transferor remitted to the
Trust in consideration of the transfer of the removed Receivables from the Trust
to the Transferor.
CERTAIN COVENANTS
Pursuant to the Purchase Agreement, each Originator covenants that, among
other things, subject to specified exceptions and limitations, (i) it will take
no action to cause any Receivable to be anything other than an account, general
intangible, or chattel paper, (ii) except for the conveyances under the Purchase
Agreement, it will not sell any Receivable or grant a lien (other than a
Permitted Lien) on any Receivable, (iii) it will comply with and perform its
obligations under any Charge Account Agreement to which it is a party and its
credit and collection policies and that it will not change the terms of such
agreements or policies except as provided in the Purchase Agreement, (iv) in the
event it receives a collection on any Receivable, it will pay such collection to
the Servicer as soon as practicable, (v) it will not convey or transfer any
Accounts, except for transfers to FDS and as otherwise provided in the Purchase
Agreement, (vi) it will comply with all laws, rules, and regulations applicable
to the Receivables, (vii) it will maintain in all material respects its
corporate existence and corporate franchises, (viii) it will permit the
Transferor or its agents to examine the records relating to the Receivables,
(ix) it will maintain and implement any administrative or operating procedure
reasonably necessary for the collection of Receivables, (x) if the Transferor
purchases a Receivable that does not satisfy the eligibility requirements set
forth in the Purchase Agreement, such Originator will give prompt notice thereof
to the Transferor, and will furnish to the Transferor such information,
documents, records, or reports as the Transferor may reasonably request, (xi) it
will take all actions reasonably necessary to maintain its rights under all
Charge Account Agreements to which it is a party, (xii) it will record each sale
of a Receivable as a sale on its books and records, reflect each sale in its
financial statements and tax returns as a sale, and recognize gain or loss on
such sale, (xiii) it will maintain the Transferor's valid and properly perfected
title to each Receivable and will execute and deliver such other documents or
take all such further action to protect the Transferor's rights in the
Receivables and enable the Transferor to exercise such rights, including without
limitation, by filing UCC financing statements in each relevant jurisdiction,
(xiv) it will cause any Receivable that constitutes chattel paper to bear a
legend stating that such Receivable has been conveyed to the Trust, and (xv) it
will not effect any change in the nature of its business that could reasonably
be expected to have a material adverse effect on the value or collectibility of
the Receivables.
PURCHASE TERMINATION DATE
If any of the Originators becomes insolvent, the Transferor's obligations
under the Purchase Agreement to such Originator will automatically be
terminated. In addition, if a Pay Out Event occurs as to all Series of
certificates, the Transferor's obligations under the Purchase Agreement as to
all of the Originators will automatically be terminated. The date of any such
termination will be the "Purchase Termination Date" as to each Originator
affected thereby.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Purchase Agreement provides that the Originators transfer all of their
respective right, title, and interest in and to the Receivables owned by each of
them from time to time to the Transferor. However, a court could treat such
transactions as an assignment of collateral as security for the benefit of the
Transferor. Accordingly, each of the Originators has granted a security interest
in the Receivables to the Transferor pursuant to the Purchase Agreement, and has
taken certain actions required to perfect the Transferor's security interest in
the Receivables. In addition, each of the Originators has warranted that if the
transfer to the Transferor is deemed to be a grant of a security interest in the
Receivables, the Transferor will have a perfected security interest therein,
subject only to Permitted Liens.
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The Transferor has represented and warranted in the Pooling and Servicing
Agreement 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 Transferor in and to the Receivables, except for the interest of the
Transferor as holder of the Exchangeable Transferor Certificate and any investor
certificate of any Series then held by it, or the grant to the Trust of a
security interest in the Receivables. The Transferor has taken certain actions
required to perfect the Trust's security interest in the Receivables, and has
warranted that if the transfer to the Trust is deemed to be a grant to the Trust
of a security interest in the Receivables, the Trustee will have a perfected
security interest therein, subject only to Permitted Liens. For a discussion of
the Trust's rights arising from a breach of these warranties, see "Description
of the Offered Certificates--Representations and Warranties."
Each of the Originators and the Transferor has covenanted that it will take
no action to cause any Receivable to be anything other than an "account,"
"general intangible," or "chattel paper" for purposes of the UCC. Both the
transfer and assignment of accounts, general intangibles, and chattel paper and
the transfer of accounts, general intangibles, and chattel paper as security for
an obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and the filing of an
appropriate financing statement will perfect a security interest therein. In
order to protect the interests of the Trust in the Receivables, financing
statements covering the Receivables have been and will be filed with the
appropriate governmental authorities and the charge slips pursuant to which
Receivables that constitute "chattel paper" for purposes of the UCC were
generated will generally be marked with legends stating that such Receivables
have been conveyed to the Trust.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the Initial
Closing Date could have an interest in such Receivables with priority over the
respective interests of the Transferor and the Trust therein. However, each of
the Originators and the Transferor has represented and warranted that it
transferred the Receivables free and clear of the lien of any third party. In
addition, each of the Originators and the Transferor has covenanted that it will
not sell, pledge, assign, transfer, or grant any lien on any Receivable (or any
interest therein) other than to the Transferor and the Trust, respectively. A
tax or other government lien on property of an Originator or the Transferor
arising prior to the time a Receivable comes into existence may also have
priority over the respective interests of the Transferor and the Trust in such
Receivable. See "Risk Factors--Transfer of the Receivables; Insolvency Risk
Considerations."
CERTAIN MATTERS RELATING TO BANKRUPTCY OR INSOLVENCY
The ability of the Trustee timely and fully to make the payments to which
Certificateholders are entitled could potentially be affected by the bankruptcy
or insolvency of one or more of the Originators or the Transferor. Under the
United States Bankruptcy Code and similar state law applicable to the
Originators other than FDS, and, in the case of FDS, under FIRREA (which became
effective August 9, 1989 and sets forth certain powers that the FDIC could
exercise if it were appointed as receiver for FDS), to the extent that the
Originators or the Transferor have granted security interests in the Receivables
to the Transferor or the Trust, respectively, and such security interests were
validly perfected before any insolvency of the Originators or the Transferor and
were not granted or taken in contemplation of insolvency or with the intent to
hinder, delay, or defraud the Originators or the Transferor or their respective
creditors, such security interests should not be subject to avoidance in the
event of bankruptcy, insolvency, or receivership of the Originators of the
Transferor, and payments to the Trust with respect to the Receivables should not
be subject to recovery by a bankruptcy trustee, conservator, or receiver for the
Originators or the Transferor. If, however, such a bankruptcy trustee,
conservator, or receiver were to assert a contrary position (or, in the case of
a conservator or receiver for FDS, were to require the Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure established under FIRREA, or were to request a stay of
proceedings with respect to FDS as provided under FIRREA), delays in payments on
the Offered Certificates and possible reductions in the amount of those payments
could occur. In addition, certain administrative expenses may also have priority
over the Transferor's or the Trust's interest in such Receivables.
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In Octagon Gas System, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993), cert.
denied, 114 S. Ct. 554 (1993), the court determined that the interest acquired
by a purchaser of "accounts," which as defined under the UCC would likely
include the Receivables, is treated as a security interest under the UCC. As
described above, the treatment of the transfers of the Receivables to the
Transferor or the Trust as grants of security interests could have consequences
to the Offered Certificate Owners that would be less advantageous than the
treatment of such transfers as outright sales. The circumstances under which the
Octagon ruling would apply are not fully known and the extent to which the
Octagon decision will be followed in other courts or outside of the Tenth
Circuit is not certain. Although most of the Originators' and the Transferor's
respective business activities are conducted outside the geographic area subject
to the jurisdiction of the Tenth Circuit, a portion of such business activities
are conducted within such geographic area.
The Transferor has not engaged in any activities except purchasing accounts
receivable from the Originators, forming trusts, transferring such accounts
receivable to such trusts and engaging in activities incident to, or necessary
or convenient to accomplish, the foregoing. The Transferor has no intention of
filing a voluntary petition under the United States Bankruptcy Code or any
similar applicable state law so long as the Transferor is solvent and does not
reasonably foresee becoming insolvent. However, if one or more of the
Originators were to become subject to bankruptcy, insolvency, or receivership or
similar proceedings and a bankruptcy trustee, conservator, receiver, or other
party in interest were to request a court to order that the Transferor should be
substantively consolidated with such Originator or Originators, delays in
payments on the Offered Certificates and, if such request were granted, possible
reductions in the amount of those payments, could occur.
The Pooling and Servicing Agreement provides that, upon the bankruptcy or
appointment of a receiver for the Transferor, the Transferor will promptly give
notice thereof to the Trustee, and a Pay Out Event with respect to all Series
will occur. Under the Pooling and Servicing Agreement, no new Principal
Receivables will be transferred to the Trust and, unless otherwise instructed
within a specified period by the certificateholders representing undivided
interests aggregating more than 50% of the aggregate invested amount of each
Series (and, with respect to Series 1996-1, the holders of more than 50% of each
of the Class A, Class B, and Class C Certificates), 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. If the only Pay Out Event to occur is either the insolvency of
the Transferor or the appointment of a bankruptcy trustee or receiver for the
Transferor, the receiver or bankruptcy trustee for the Transferor may have the
power to continue to require the Transferor 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 Offered Certificates--Pay Out Events."
The occurrence of certain events of insolvency, conservatorship, or
receivership with respect to the Servicer would result in a Servicer Default. If
a conservator or receiver were appointed for the Servicer, and no Servicer
Default other than such insolvency, conservatorship, or receivership of the
Servicer exists, the conservator or receiver may have the power to prevent
either the Trustee or the majority of the Certificateholders from effecting a
transfer of servicing to a successor Servicer.
CONSUMER AND DEBTOR PROTECTION LAWS
The relationship of the cardholder and credit card issuer is extensively
regulated by federal and state consumer protection laws. With respect to credit
cards issued by the Originators, the most significant of these laws include the
federal Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit
Reporting Act, and Fair Debt Collection Practices Act, as well as comparable
statutes in the states in which cardholders reside. These statutes impose
disclosure requirements when a credit card account is advertised, when it is
opened, at the end of monthly billing cycles, upon account renewal for accounts
on which annual fees are assessed, and at year end. In addition, these statutes
limit cardholder liability for unauthorized use, prohibit certain discriminatory
practices in extending credit, impose certain limitations on the type of
account-related charges that may be assessed, and regulate collection practices.
Federal legislation requires credit card issuers to disclose to consumers the
interest rates, annual cardholder fees, grace periods, and balance calculation
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methods associated with their credit card accounts. Cardholders are entitled
under current law to have payments and credits applied to the credit card
account promptly, to receive prescribed notices, and to have billing errors
resolved promptly. Congress and the states may from time to time enact new laws
and amendments to existing laws to further regulate the extension and collection
of consumer credit loans or to reduce the finance charges or other charges or
fees that may be assessed in connection therewith.
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables, either as assignee of the Transferor with respect
to obligations arising before transfer of the Receivables to the Trust or as a
party directly responsible for obligations arising after such transfer. In
addition, a cardholder may be entitled to assert such violations by way of
set-off against his obligation to pay the amount of Receivables owing. The
Transferor covenants in the Pooling and Servicing Agreement to accept the
transfer of all Receivables in an Account if any Receivable in such Account has
not been created in compliance with the requirements of such laws. The
Transferor has also agreed in the Pooling and Servicing Agreement to indemnify
the Trust for, among other things, any liability arising from such violations.
See "Description of the Offered Certificates--Representations and Warranties."
Application of federal and state bankruptcy and debtor relief laws to the
obligations represented by the Receivables could adversely affect the interests
of the Certificateholders if such laws result in any Receivables being written
off as uncollectible "Description of the Offered Certificates--Defaulted
Receivables; Rebates and Fraudulent Charges."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. Set forth below is a discussion of certain federal income tax
consequences to Offered Certificate Owners who are original owners of the
Offered Certificates and hold the Offered Certificates as capital assets under
the Code. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to Offered Certificate
Owners in light of their particular circumstances, nor to certain types of
Offered Certificate Owners subject to special treatment under the federal income
tax laws (for example, banks and life insurance companies). This discussion is
based upon present provisions of the Code, the regulations promulgated
thereunder, and judicial and ruling authorities, all of which are subject to
change, which change may be retroactive. PROSPECTIVE INVESTORS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN THE OFFERED
CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, FOREIGN COUNTRY, OR OTHER TAXING JURISDICTION.
Characterization of the Certificates as Indebtedness. Pursuant to the
Pooling and Servicing Agreement, the Transferor, the Trustee, the Offered
Certificateholder, and each Offered Certificate Owner express their intent that,
for tax purposes, the Offered Certificates will be indebtedness of the
Transferor secured by the Receivables. The Transferor, the Offered
Certificateholder, and each Offered Certificate Owner, by acquiring an interest
in a Certificate, agree to treat the Offered Certificates as indebtedness of the
Transferor for federal, state, and local tax purposes.
Based upon the application of existing law to the facts of the transaction
as set forth in the Pooling and Servicing Agreement and other relevant
documents, Tax Counsel has advised the Transferor that, in the opinion of Tax
Counsel, the Offered Certificates will be treated for federal income tax
purposes as indebtedness of the Transferor. However, opinions of counsel are not
binding on the IRS, and there can be no assurance that the IRS could not
successfully challenge this conclusion.
In general, the characterization of a transaction for federal income tax
purposes is based upon economic substance, and the substance of the transaction
in which the Offered Certificates are issued is consistent with the treatment of
the Offered Certificates as debt of the Transferor for federal income tax
purposes. Although there are certain judicial precedents holding that under the
appropriate circumstances a taxpayer should be required to treat a transaction
in accordance with the form chosen by the taxpayer, regardless of the
transaction's substance, the operative provisions of the transaction and the
Pooling and Servicing Agreement
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are not inconsistent with treating the Offered Certificates as debt and
accordingly, these authorities would not be applied to require characterization
of the transaction as a sale of the Receivables to the Trust or the Offered
Certificate Owners. Based on the foregoing, Tax Counsel has concluded that the
characterization of the Offered Certificates, for federal income tax purposes,
would be governed by the substance of the transaction, which is the issuance of
debt.
Other Characterizations of Offered Certificates. If the Pooling and
Servicing Agreement does not create a debt obligation for federal income tax
purposes, the arrangement among the Transferor, the Offered Certificateholder,
and the Offered Certificate Owners could be classified, for federal income tax
purposes, alternatively as a partnership, a publicly traded partnership taxable
as a corporation, or as an association taxable as a corporation. Because, in the
opinion of Tax Counsel, the Offered Certificates will be characterized as debt
for federal income tax purposes, no attempt will be made to comply with any
reporting or tax payment requirements which might be applicable if the
arrangement between the Transferor and the Offered Certificate Owners were
treated as creating a partnership or a corporation. No IRS ruling on the federal
income tax characterization of the Offered Certificates or the arrangement among
the Transferor, the Offered Certificateholder, and Offered Certificate Owners
will be sought.
If the arrangement created by the Pooling and Servicing Agreement were
characterized as a partnership among the Transferor, the Offered
Certificateholder, and the Offered Certificate Owners, such a partnership would
not be subject to federal income tax, but each item of income, gain, loss,
deduction, and credit generated through the ownership of the Receivables by such
a partnership would generally be passed through to the Transferor and the
Offered Certificate Owners as partners in such a partnership according to their
respective interests therein. The amount, timing, and character of income
reportable by the Offered Certificate Owners as partners could differ materially
from the income reportable by the Offered Certificate Owners if the Offered
Certificates are characterized as debt. In addition, if the Pooling and
Servicing Agreement were to create a partnership, the partnership might be
required to withhold federal income tax at a rate of up to 39.6% on the income
allocable to Foreign Investors. See "--Federal Income Tax Consequences to
Foreign Investors."
If the arrangement were treated as a publicly traded partnership taxable as
an association or as an association taxable as a corporation, it would be
subject to federal income tax at corporate tax rates on its taxable income
generated by ownership of the Receivables. Such a tax could result in reduced
distributions to Offered Certificate Owners. Distributions to the Transferor
and, unless the Offered Certificates were treated as debt of such corporation,
to the Offered Certificate Owners, would not be deductible in computing the
taxable income of the corporation. In addition, if the Offered Certificates were
not treated as debt of the corporation, all or a portion of any such
distributions would, to the extent of the current and accumulated earnings and
profits of such corporation, be treated as dividend income to the Offered
Certificate Owners, and in the case of Offered Certificate Owners that are
non-United States persons, would be subject to withholding tax.
In addition, if the arrangement were treated as a publicly traded
partnership, any income allocated to an Offered Certificate Owner that is a
tax-exempt entity will constitute "unrelated business taxable income," at least
where the publicly traded partnership is taxed as a partnership.
TAXATION OF INTEREST AND DISCOUNT INCOME OF OFFERED CERTIFICATE OWNERS
Assuming that the Offered Certificate Owners are owners of debt obligations
for federal income tax purposes, interest generally will be taxable as ordinary
income for federal income tax purposes when received by Offered Certificate
Owners utilizing the cash method of accounting and when accrued by Offered
Certificate Owners utilizing the accrual method of accounting. Interest received
on the Offered Certificates may also constitute "investment income" for purposes
of certain limitations of the Code concerning the deductibility of investment
interest expense.
While it is not anticipated that the Offered Certificates will be issued at
a greater than de minimis discount, under current treasury regulations (the
"Regulations"), it is possible that the Offered Certificates could nevertheless
be deemed to have been issued with OID. This could be the case, for example, if
interest
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payments were not deemed to be "qualified stated interest payments" because, for
example, the initial interest period was longer than subsequent interest periods
and a proper adjustment was not made to the value of the rate on which the
initial interest payment was based. If the Regulations were to apply, in
general, all of the taxable income to be recognized with respect to the Offered
Certificates would be includible in income of Offered Certificate Owners as OID,
but would not be includible again when the interest is actually received. If the
Offered Certificates are in fact issued at a greater than de minimis discount or
are treated as having been issued with OID under the Regulations, the following
general rules will apply.
The excess of the "stated redemption price at maturity" of the Offered
Certificates (generally equal to their principal amount as of the date of
original issuance plus all interest other than "qualified stated interest
payments" payable prior to or at maturity) over their original issue price (in
this case, the initial offering price at which a substantial amount of the
Offered Certificates are sold to the public) will constitute OID. An Offered
Certificate Owner must include OID in income over the term of the Offered
Certificate under a constant yield method. In general, OID must be included in
income in advance of the receipt of cash representing that income. In the case
of debt instruments as to which the repayment of principal may be accelerated as
a result of the prepayment of other obligations securing the debt instrument,
the periodic accrual of OID is determined by taking into account both the
prepayment assumptions used in pricing the debt instrument and the prepayment
experience. If this provision applies to the Offered Certificates, the amount of
OID which will accrue in any given "accrual period" may either increase or
decrease depending upon the accrual prepayment rate.
Offered Certificate Owners should be aware that the resale of a Certificate
may be affected by the market discount rules of the Code. These rules generally
provide that, subject to a de minimis exception, if a holder of an Offered
Certificate acquires it at market discount (i.e., at a price below its stated
redemption price at maturity or its "revised issue price" if it was issued with
OID) and thereafter recognizes gain upon a disposition of the Offered
Certificate, the lesser of such gain or the portion of the market discount that
accrued while the Offered Certificate was held by such holder will be treated as
ordinary interest income realized at the time of the disposition.
Each Offered Certificate Owner should consult his own tax advisor regarding
the impact of the original issue discount rules.
SALES OF CERTIFICATES
In general, an Offered Certificate Owner will recognize gain or loss upon
the sale, exchange, redemption, or other taxable disposition of an Offered
Certificate measured by the difference between (i) the amount of cash and the
fair market value of any property received (other than amounts attributable to,
and taxable as, accrued stated interest) and (ii) the owner's tax basis in the
Offered Certificate (as increased by any OID or market discount previously
included in income by the holder and decreased by any deductions previously
allowed for amortizable bond premium and by any payments reflecting principal or
OID received with respect to such Offered Certificate). Subject to the market
discount rules discussed above and to the one-year holding requirement for
long-term capital gain treatment, any such gain or loss generally will receive
long-term capital gain treatment. The federal income tax rates applicable to
capital gains for taxpayers other than individuals, estates, and trusts are
currently the same as those applicable to ordinary income; however, the maximum
ordinary income rate for individuals, estates, and trusts generally is 39.6%,
whereas the maximum long-term capital gains rate for such taxpayers is 28%.
Moreover, capital losses generally may be used only to offset capital gains.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
In general, interest (including OID) paid on an Offered Certificate to a
nonresident alien individual, foreign corporation or other non-United States
person (other than a 10% shareholder of the Transferor) is not subject to
federal income tax, provided that such interest is not effectively connected
with a trade or business of the recipient in the United States and the Offered
Certificateholder provides the required foreign person information
certification.
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If the interests of the Offered Certificateholders were deemed to be
partnership interests, such recharacterization could cause a foreign person to
be treated as engaged in a trade or business in the United States. In such event
the Offered Certificateholder would be required to file a federal income tax
return and, in general, would be subject to federal income tax on its net income
from the partnership. Furthermore, the partnership would be required, on a
quarterly basis, to pay withholding tax equal to the sum, for each foreign
partner, of such foreign partner's distributive share of "effectively connected"
income of the partnership multiplied by the highest rate of tax applicable to
that foreign partner. The tax withheld from each foreign partner would be
credited against such foreign partner's U.S. income tax liability. Gain on any
sale or other disposition of a partnership interest by a foreign partner would
also be subject to U.S. income tax.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
income tax treaty.
BACKUP WITHHOLDING
An Offered Certificate Owner may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Offered Certificate Owner, upon issuance, fails to supply the Trustee or his
broker with his taxpayer identification number, fails to report interest,
dividends, or other "reportable payments" (as defined in the Code) properly, or
under certain circumstances, fails to provide the Trustee or his broker with a
certified statement, under penalty of perjury, that he is not subject to backup
withholding. Information returns will be sent annually to the IRS and to each
Offered Certificateholder setting forth the amount of interest paid on Offered
Certificates and the amount of tax withheld thereon.
STATE, LOCAL, AND FOREIGN TAXATION
The discussion above does not address the tax treatment of the Trust, the
Offered Certificates, or the Offered Certificate Owners under state and local
tax laws or foreign tax laws. Issues as to the appropriate characterization of
the arrangement created by the Pooling and Servicing Agreement may arise under
the laws of various states and other jurisdictions. Such issues and the
consequences of such characterization on the tax treatment of the Trust, the
Offered Certificates, or the Offered Certificate Owners may be similar or
dissimilar to those described above with respect to potential federal income tax
consequences. According, prospective investors are urged to consult their own
tax advisors regarding the state and local tax treatment of the Trust and the
Offered Certificates, and the consequences of purchase, ownership, or
disposition of the Offered Certificates under any state or local tax law or any
foreign tax law, if applicable.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan that is subject to such
provisions from engaging in certain transactions involving "plan assets" with
persons that are "parties in interest" under ERISA or "disqualified persons"
under the Code with respect to the plan. ERISA also imposes certain duties on
persons who are fiduciaries of plans subject to ERISA and prohibits certain
transactions between a plan and parties in interest with respect to such plans.
Under ERISA, any person who exercises any authority or control with respect to
the management or disposition of the assets of a plan is considered to be a
fiduciary with respect to such plan (subject to certain exceptions not here
relevant), and any person who provides services to a plan (as well as any
corporation 50% or more of which is owned by such a service provider) is a
"party in interest" under ERISA and a "disqualified person" under the Code with
respect to the plan. A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code for such
persons.
Plan fiduciaries should determine whether the acquisition and holding of
the Class A Certificates and the operations of the Trust would result in direct
or indirect prohibited transactions under ERISA and the Code. The operations of
the Trust could result in prohibited transactions if Benefit Plans that purchase
the Class A Certificates are deemed to own an interest in the underlying assets
of the Trust. There may also be an
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improper delegation of the responsibility to manage Benefit Plan assets if
Benefit Plans that purchase the Class A Certificates are deemed to own an
interest in the underlying assets of the Trust.
Pursuant to a final regulation (the "Final Regulation") issued by the DOL
concerning the definition of what constitutes the "plan assets" of an employee
benefit plan subject to Title I of ERISA or Section 4975 of the Code, or an
individual retirement account ("IRA") (collectively referred to as "Benefit
Plans"), the assets and properties of certain entities in which a Benefit Plan
makes an equity investment could be deemed to be assets of the Benefit Plan in
certain circumstances. Accordingly, if Benefit Plans purchase Class A
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 applies only to the purchase by a Benefit Plan of an
"equity interest" in an entity. The Final Regulation defines "equity interest"
as any interest in an entity other than an instrument that is treated as
indebtedness under applicable local law and has no substantial equity features.
The Final Regulation further provides that an undivided ownership interest in
property or a beneficial interest in a trust is an equity interest. Assuming
that interests in Class A Certificates are equity interests, the Final
Regulation contains two exceptions under which the issuer of an equity interest
to Benefit Plans would not be deemed to hold plan assets. First, the Final
Regulation contains an exception that provides that if a Benefit Plan acquires a
"publicly-offered security," the issuer of the security is not deemed to hold
plan assets. A publicly-offered security is a security that is (i) freely
transferable, (ii) part of a class of securities that is owned by 100 or more
investors independent of the issuer and of one another, and (iii) either is (A)
part of a class of securities registered under Section 12(b) or 12(g) of the
Exchange Act or (B) sold to the plan as part of an offering of securities to the
public pursuant to an effective registration under the Securities Act and the
class of securities of which such security is a part is registered under the
Exchange Act within 120 days (or such later time as may be allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Second, the Final Regulation
provides that if at all times less than 25% of the value of all classes of
equity interests in an entity are held by benefit plan investors (which is
defined as including plans subject to ERISA, government plans, and IRAs), the
investing plan's assets will not be deemed to include any of the underlying
assets of the entity.
It is anticipated that interests in the Class A Certificates will meet the
criteria of publicly-offered securities as set forth above. The Class A
Underwriters expect, although no assurance can be given, that interests in the
Class A Certificates of each Series will be held by at least 100 independent
investors at the conclusion of the offering; there are no restrictions imposed
on the transfer of interests in the Class A Certificates; and interests in the
Class A Certificates will be sold as part of an offering pursuant to an
effective registration statement under the Securities Act and then will be
timely registered under the Exchange Act.
If the Trust's assets are deemed under the Final Regulation to include
assets of Benefit Plans that are Class A Certificateholders, transactions
involving the Trust and "parties in interest" or "disqualified persons" with
respect to such plans might be prohibited under Section 406 of ERISA and Section
4975 of the Code unless an exemption is applicable. In addition, the Servicer,
the Transferor, and any Underwriter may be considered to be a party in interest,
disqualified person, or fiduciary with respect to an investing Benefit Plan.
Accordingly, an investment by a Benefit Plan in Class A Certificates may be a
prohibited transaction under ERISA and the Code unless such investment is
subject to a statutory or administrative exemption. Further, annual reporting
obligations under ERISA with respect to the Trust and assets thereof, including
a required accountant's report, would apply. Thus, for example, if a participant
in any Benefit Plan is a cardholder under one of the Accounts, under DOL
interpretations the purchase of interests in Class A Certificates by such plan
could constitute a prohibited transaction. There are at least four class
exemptions issued by the DOL that might apply, depending in part on who decided
to acquire the Class A Certificates for the Benefit Plan: DOL Prohibited
Transaction Exemption ("PTE") 84-14 (Class Exemption for Plan Asset Transactions
Determined by Independent Qualified Professional Asset Managers), PTE 91-38
(Class Exemption for Certain Transactions Involving Bank Collective Investment
Funds), PTE 90-1 (Class Exemption for Certain Transactions Involving Insurance
Company Pooled Separate Accounts), and PTE 95-60 (Class Exemption for Certain
Transactions Involving Insurance Company General Accounts). There can be no
assurance that
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<PAGE> 85
these exemptions, even if all of the conditions specified therein are satisfied,
or any other exemption will apply to all transactions involving the Trust's
assets.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of interests in Class A Certificates should consult their own counsel
as to whether the assets of the Trust which are represented by such interests
would be considered plan assets, and whether, under the general fiduciary
standards of investment prudence and diversification, an investment in Class A
Certificates is appropriate for the Benefit Plan taking into account the overall
investment policy of the Benefit Plan and the composition of the Benefit Plan's
investment portfolio. In addition, fiduciaries should consider the consequences
that would result if the Trust's assets were considered plan assets, the
applicability of exemptive relief from the prohibited transaction rules, and
whether all conditions for such exemptive relief would be satisfied.
In particular, insurance companies considering the purchase of Class A
Certificates should consult their own benefits or other appropriate counsel with
respect to the United States Supreme Court's decision in John Hancock Mutual
Life Insurance Co. v. Harris Trust & Savings Bank, 114 S. Ct. 517 (1993) ("John
Hancock"), and the applicability of PTE 95-60. In John Hancock, the Supreme
Court held that assets held in an insurance company general account may be
deemed to be "plan assets" under certain circumstances; however, PTE 95-60 may
exempt some or all of the transactions that could occur as the result of the
acquisition and holding of the Class A Certificates by an insurance company
general account from the penalties normally associated with prohibited
transactions. Accordingly, investors should analyze whether John Hancock and PTE
95-60 or any other exemption may have an impact with respect to an investment in
Class A Certificates.
The Class B Certificates may not be acquired directly or indirectly by any
employee benefit plan subject to ERISA, by any IRA or by certain other employee
benefit accounts.
The Pooling and Servicing Agreement and each Class B Certificate will
provide that by accepting and holding a Class B Certificate, each Class B
Certificateholder will be deemed to have represented and warranted that it is
not (i) an employee benefit plan (as defined in Section 3(3) of ERISA) that is
subject to the provisions of Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Code, or (iii) any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity.
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<PAGE> 86
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Transferor and the Underwriters named
below (the "Underwriters"), the Transferor has agreed to sell to the
Underwriters of the Class A Certificates (the "Class A Underwriters") and the
Underwriter of the Class B Certificates (the "Class B Underwriter"), and each of
the Underwriters has severally agreed to purchase, the principal amount of the
Class A Certificates and the Class B Certificates, as applicable, set forth
opposite its name:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS A
CLASS A UNDERWRITERS CERTIFICATES
--------------------------------------------------------------- -------------------
<S> <C>
CS First Boston Corporation.................................... $ 109,000,000
Goldman, Sachs & Co............................................ 109,000,000
----------------
Total..................................................... $ 218,000,000
================
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
CLASS B
CLASS B UNDERWRITER CERTIFICATES
--------------------------------------------------------------- -------------------
<S> <C>
CS First Boston Corporation.................................... $ 20,800,000
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any of the Certificates are purchased.
The Class A Underwriters propose initially to offer 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 concessions not in excess of .200% of the
principal amount of the Class A Certificates. The Class A Underwriters may
allow, and such dealers may reallow, concessions not in excess of .150% of the
principal amount of the Class A Certificates 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.
The Class B Underwriter proposes 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 concessions not in excess of .200% of the
principal amount of the Class B Certificates. The Class B Underwriter may allow,
and such dealers may reallow, concessions not in excess of .150% of the
principal amount of the Class B Certificates 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 Underwriter.
The Transferor will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Offered Certificates
will be passed upon for the Transferor by Jones, Day, Reavis & Pogue, New York,
New York. Certain legal matters relating to the issuance of the Offered
Certificates will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom, New York, New York.
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<PAGE> 87
GLOSSARY OF TERMS
The following terms, which are used in this Prospectus, have the meanings
indicated:
"A&S" is defined at page 33 in "The Accounts."
"Accounts" means all of the consumer revolving credit card accounts owned
by the Originators on the Cut-Off Date, each Automatic Additional Account, and
each Supplemental Account.
"Accumulation Period" means the period scheduled to begin with the August
2000 Monthly Period, but which may be postponed in the manner described in
"Description of the Offered Certificates--Postponement of Accumulation Period,"
and ending on the earliest of (1) the day immediately preceding the first day of
the Early Amortization Period and (2) the date of the termination of the Trust.
"Accumulation Period Length" is defined at page 47 in "Description of the
Offered Certificates--Postponement of Accumulation Period."
"Accumulation Shortfall" initially means zero and with respect to any
Distribution Date thereafter shall mean the excess, if any, of the Controlled
Deposit Amount for such Distribution Date over the Net Principal Collections
received during the related Monthly Period, together with the aggregate amount
of Shared Principal Collections received during the related Monthly Period and
allocable to the Class A Certificates, each to the extent available to be
distributed to Class A Certificateholders on such Distribution Date.
"Active Account" is defined at page 53 in "Description of the Offered
Certificates--Eligible Accounts; Eligible Receivables."
"Adjustment Payment" is defined at page 66 in "Description of the Offered
Certificates--Defaulted Receivables; Rebates and Fraudulent Charges."
"Amortization Period" means any Early Amortization Period or Accumulation
Period.
"Amortization Period Commencement Date" means the earlier of the date on
which the Accumulation Period begins and the date on which a Pay Out Event
occurs or is deemed to have occurred.
"Annual Portfolio Turnover Rate" means with respect to any business day
during a Monthly Period, the aggregate amount of credit sales arising under
Accounts during each of the twelve Monthly Periods ending on the last day of the
second preceding Monthly Period divided by the average of the Outstanding
Balances of Receivables as of the last day of each such Monthly Period.
"Automatic Additional Account" is defined at page 54 in "Description of the
Offered Certificates--Automatic Addition of Accounts."
"Available Series Finance Charge Collections" is defined at page 61 in
"Description of the Offered Certificates--Application of Collections--Payment of
Fees, Interest, and Other Items."
"Base Rate" means the sum of the weighted average of the Class A
Certificate Rate, the Class B Certificate Rate, and the Class C Certificate Rate
plus 2.0%.
"Benefit Plan" is defined at page 84 in "Employee Benefit Plan
Considerations."
"Billed Finance Charges" means with respect to any Monthly Period, the
amount of finance charges, late fees, and other fees and charges billed to
Obligors on the Receivables.
"Broadway" means Broadway Stores, Inc.
"Broadway Accounts" is defined at page 21 in "Risk Factors--Effects of
Certain Transactions."
"Broadway Receivables, Inc." means Broadway Receivables, Inc., a wholly
owned subsidiary of Broadway.
"Carryover Discount Amount" means for any Series for any business day the
excess, if any, of the sum of the product of the Discount Allocation Percentage
and the Discount Amount and the Carryover Discount
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<PAGE> 88
Amount for such Series for the preceding business day over the amount of
Principal Collections added to Total Finance Charge Collections for such Series
on such preceding business day.
"Cash Equivalents" is defined at page 55 in "Description of the Offered
Certificates--Trust Accounts."
"Cede" means Cede & Co.
"Cedel" is defined at page 44 in "Description of the Offered
Certificates--Book-Entry Registration."
"Cedel Participant" is defined at page 44 in "Description of the Offered
Certificates--Book-Entry Registration."
"Certificateholders" means the record holders of the Certificates.
"Certificateholders' Interest" means the interest in the assets of the
Trust allocated to the Certificateholders.
"Certificates" means, collectively, the Class A Certificates, the Class B
Certificates, and the Class C Certificates.
"Charge Account Agreement" means the agreement, which may consist of more
than one document, pursuant to which a person is obligated to pay for purchased
merchandise or services under a credit plan that permits such person to purchase
merchandise and services on credit, together with any finance charges and other
charges related thereto, as such agreement may be amended, modified, or
supplemented from time to time; provided, however, that only agreements between
such person and (i) an Originator or (ii) a creditor approved by each of the
Rating Agencies will be considered a Charge Account Agreement.
"Class A Adjusted Invested Amount" is defined at page 57 in "Description of
the Offered Certificates--Allocation Percentages."
"Class A Certificate Owners" means the owners of beneficial interests in
the Class A Certificates.
"Class A Certificate Rate" means 6.70% per annum.
"Class A Certificateholders" means the record holders of the Class A
Certificates.
"Class A Certificateholders' Interest" means the interest in the assets of
the Trust allocated to the Class A Certificateholders.
"Class A Certificates" means the 6.70% Class A Asset Backed Certificates,
Series 1996-1.
"Class A Expected Final Payment Date" means the May 2001 Distribution Date.
"Class A Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of the
Class A Adjusted Invested Amount as of the end of the preceding business day
bears to the greater of (i) the total amount of Principal Receivables and
amounts on deposit in the Excess Funding Account as of the end of the preceding
business day and (ii) the sum of the numerators used to calculate the allocation
percentages for all classes of all Series then outstanding.
"Class A Invested Amount" is defined at page 57 in "Description of the
Offered Certificates--Allocation Percentages."
"Class A Investor Charge-Off" is defined at page 67 in "Description of the
Offered Certificates--Investor Charge-Offs."
"Class A Monthly Interest" is defined at page 63 in "Description of the
Offered Certificates--Application of Collections--Class A Monthly Interest."
"Class A Monthly Principal" is defined at page 65 in "Description of the
Offered Certificates--Application of Collections--Class A Monthly Principal."
"Class A Percentage" means a fraction the numerator of which is the Class A
Invested Amount and the denominator of which is the sum of the Class A Invested
Amount and the Class B Invested Amount.
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<PAGE> 89
"Class A Required Amount" means, on any Determination Date, the amount, if
any, by which the aggregate amount to be paid on each business day during the
related Monthly Period pursuant to clauses (i) and (v), and the Class A Required
Amount Percentage of the amounts described in clause (B) of clauses (iii) and
(iv), in each case as described in "Description of the Offered
Certificates--Application of Collections--Payment of Fees, Interest, and Other
Items," exceeds the portion of the Available Series Finance Charge Collections,
Transferor Finance Charge Collections, and Excess Finance Charge Collections on
each business day during the related Monthly Period applied to the payment of
the amounts described in such clauses.
"Class A Required Amount Percentage" means, with respect to any
Distribution Date, the percentage equivalent of a fraction the numerator of
which is the weighted average Class A Invested Amount for each day in the
preceding Monthly Period and the denominator of which is the weighted average
Invested Amount for each day in the preceding Monthly Period.
"Class A Underwriters" is defined at page 86 in "Underwriting."
"Class B Certificate Owners" means the owners of beneficial interests in
the Class B Certificates.
"Class B Certificate Rate" means 6.85% per annum.
"Class B Certificateholders" means the record holders of the Class B
Certificates.
"Class B Certificateholders' Interest" means the interest in the assets of
the Trust allocated to the Class B Certificateholders.
"Class B Certificates" means the 6.85% Class B Asset Backed Certificates,
Series 1996-1.
"Class B Expected Final Payment Date" means the June 2001 Distribution
Date.
"Class B Fixed/Floating Allocation Percentage" means the percentage
equivalent of the ratio which the Class B Invested Amount at the end of the last
day of the Revolving Period bears to the greater of (a) the sum of the aggregate
amount of Principal Receivables and the amount on deposit in the Excess Funding
Account as of the end of the preceding business day and (b) the sum of the
numerators used to calculate the allocation percentages with respect to
Principal Receivables for all classes of all Series outstanding on such business
day; provided, however, that, because the Certificates are subject to being
paired with a future prefunded Series, if a Pay Out Event occurs with respect to
the Certificates during the Accumulation Period, and if at such time the
Certificates are paired with a prefunded Series, the numerator will be reset to
be equal to the Class B Invested Amount at the end of the last day prior to the
occurrence of such Pay Out Event.
"Class B Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of the
Class B Invested Amount as of the end of the preceding business day bears to the
greater of (i) the total amount of Principal Receivables and amounts on deposit
in the Excess Funding Account as of the end of the preceding business day and
(ii) the sum of the numerators used to calculate the allocation percentages for
all classes of all Series then outstanding.
"Class B Invested Amount" is defined at page 57 in "Description of the
Offered Certificates--Allocation Percentages."
"Class B Investor Charge-Off" is defined at page 67 in "Description of the
Offered Certificates--Investor Charge-Offs."
"Class B Monthly Interest" is defined at page 63 in "Description of the
Offered Certificates--Application of Collections--Class B Monthly Interest."
"Class B Monthly Principal" is defined at page 65 in "Description of the
Offered Certificates--Application of Collections--Payments of Principal."
"Class B Percentage" means a fraction the numerator of which is the Class B
Invested Amount and the denominator of which is the sum of the Class A Invested
Amount and the Class B Invested Amount.
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<PAGE> 90
"Class B Principal Payment Commencement Date" means the earlier of (a) (i)
during the Accumulation Period, the Class B Expected Final Payment Date or (ii)
during the Early Amortization Period, the Distribution Date on which the Class A
Invested Amount is paid in full or, if there are no Principal Collections
remaining after payments have been made to the Class A Certificates on such
Distribution Date, the next succeeding Distribution Date and (b) the
Distribution Date following a mandatory sale or repurchase of the Receivables
pursuant to the Pooling and Servicing Agreement.
"Class B Required Amount" means, on any Determination Date, the amount, if
any, by which the aggregate amount to be paid on each business day during the
related Monthly Period pursuant to clauses (ii), (vi), and (vii), and the Class
B Required Amount Percentage of the amounts described in clause (B) of clauses
(iii) and (iv), in each case as described in "Description of the Offered
Certificates--Application of Collections--Payment of Fees, Interest, and Other
Items," exceeds the portion of the Finance Charge Collections, Transferor
Finance Charge Collections, Excess Finance Charge Collections, and the
Transferor Subordination Amount on each business day during the related Monthly
Period applied to the payment of the amounts described in such clauses.
"Class B Required Amount Percentage" means, with respect to any
Distribution Date, the percentage equivalent of a fraction the numerator of
which is the weighted average Class B Invested Amount for each day in the
preceding Monthly Period and the denominator of which is the weighted average
Invested Amount for each day in the preceding Monthly Period.
"Class B Underwriters" is defined at page 86 in "Underwriting."
"Class C Certificate Rate" means 9.00% per annum.
"Class C Certificateholders" means the record holders of the Class C
Certificates.
"Class C Certificateholders' Interest" means the interest in the assets of
the Trust allocated to the Class C Certificateholders.
"Class C Certificates" means the Class C Certificates, Series 1996-1.
"Class C Fixed/Floating Allocation Percentage" means the percentage
equivalent of the ratio which the Class C Invested Amount at the end of the last
day of the Revolving Period bears to the greater of (a) the sum of the aggregate
amount of Principal Receivables and the amount on deposit in the Excess Funding
Account as of the end of the preceding business day and (b) the sum of the
numerators used to calculate the allocation percentages with respect to
Principal Receivables for all classes of all Series outstanding on such business
day; provided, however, that, because the Certificates are subject to being
paired with a future prefunded Series, if a Pay Out Event occurs with respect to
the Certificates during the Accumulation Period, and if at such time the
Certificates are paired with a prefunded Series, the numerator will be reset to
be equal to the Class C Invested Amount at the end of the last day prior to the
occurrence of such Pay Out Event.
"Class C Floating Allocation Percentage" means, with respect to any
business day, the percentage equivalent of the ratio that the amount of the
Class C Invested Amount as of the end of the preceding business day bears to the
greater of (i) the total amount of Principal Receivables and amounts on deposit
in the Excess Funding Account as of the end of the preceding business day and
(ii) the sum of the numerators used to calculate the allocation percentages for
all classes of all Series then outstanding.
"Class C Invested Amount" is defined at page 57 in "Description of the
Offered Certificates--Allocation Percentages."
"Class C Investor Charge-Off" is defined at page 66 in "Description of the
Offered Certificates--Investor Charge-Offs."
"Class C Monthly Interest" is defined at page 64 in "Description of the
Offered Certificates--Application of Collections--Class C Monthly Interest."
"Class C Monthly Principal" is defined at page 65 in "Description of the
Offered Certificates--Application of Collections--Payments of Principal."
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<PAGE> 91
"Class C Principal Payment Commencement Date" means the earlier of (a) the
Distribution Date on which the Class B Invested Amount is paid in full or, if
there are no Principal Collections remaining after payments have been made to
the Class B Certificates on such Distribution Date, the next succeeding
Distribution Date and (b) the Distribution Date following a mandatory sale or
repurchase of the Receivables pursuant to the Pooling and Servicing Agreement.
"clearing agency" is defined at page 43 in "Description of the Offered
Certificates--Book-Entry Registration."
"clearing corporation" is defined at page 43 in "Description of the Offered
Certificates--Book-Entry Registration."
"Closing Date" means the date of the initial issuance of the Offered
Certificates.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means an account established by the Servicer for the
purpose of depositing all collections of Receivables.
"Commission" means the Securities and Exchange Commission.
"Controlled Amortization Amount" means $24,222,222.22; provided, however,
that if the commencement of the Accumulation Period is postponed in the manner
described in "Description of the Offered Certificates--Postponement of
Accumulation Period," (i) the Controlled Amortization Amount may be greater than
the amount stated above and will be determined by the Servicer in accordance
with the Pooling and Servicing Agreement and (ii) the sum of the Controlled
Amortization Amounts for all Distribution Dates with respect to such modified
Accumulation Period shall not be less than the Class A Invested Amount.
"Controlled Deposit Amount" means, for any Distribution Date with respect
to the Accumulation Period, the sum of the Controlled Amortization Amount and
any Accumulation Shortfall for the preceding Distribution Date.
"Controlled Distribution Amount" is defined at page 61 in "Description of
the Offered Certificates--Application of Collections."
"Cooperative" is defined at page 44 in "Description of the Offered
Certificates--Book-Entry Registration."
"Cut-Off Date" means for Receivables in Accounts owned by each Originator,
the date on which the last cycle of such Originator was billed in the March 1996
fiscal month.
"Date of Determination" means with respect to the Yield Factor or the
Finance Charge Receivable Factor, respectively, the date on which such factor is
determined, which will in no event be later than the tenth business day after
the end of the preceding Monthly Period.
"Default Amount" means, on any business day, the product of (i) the
aggregate Outstanding Balances of Receivables in Defaulted Accounts on such
business day minus the Ineligible Default Amount and (ii) one minus the Finance
Charge Receivable Factor.
"Defaulted Account" means each account with respect to which, in accordance
with the Servicer's customary and usual servicing procedures, the Servicer has
charged off the Receivables in such account as uncollectible.
"Definitive Certificates" is defined at page 45 in "Description of the
Offered Certificates--Definitive Certificates."
"Delinquency Percentage" means with respect to any business day the
percentage equivalent of an amount determined on the preceding Date of
Determination (or on such business day with respect to each Date of
Determination) equal to (x) the product of (i) 0.5 and (ii) the aggregate
Outstanding Balance of all Receivables Retail Age 2 or greater (30 or more days
past due) divided by (y) the aggregate Outstanding Balance of all Receivables on
such Date of Determination.
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<PAGE> 92
"Depositaries" is defined at page 42 in "Description of the Offered
Certificates--Book-Entry Registration."
"Depository" is defined at page 42 in "Description of the Offered
Certificates--General."
"Determination Date" is defined at page 66 in "Description of the Offered
Certificates--Investor Charge-Offs."
"Discount Allocation Percentage" means with respect to any Series and any
business day the percentage equivalent of a fraction the numerator of which is
the Series Discount Factor for such Series and the denominator of which is the
Discount Factor on such business day.
"Discount Amount" means for any business day the Discount Factor multiplied
by the Outstanding Balance of Receivables transferred to the Trust on such
business day.
"Discount Factor" means for any business day an amount equal to the sum of
each Series Discount Factor for all Series outstanding.
"Discount Trigger Event" means for any business day the Discount Factor for
the second preceding Monthly Period being in excess of zero and the Rating
Agencies having consented to the discounting of purchases of Receivables prior
to such business day and having not revoked such consent.
"Distribution Account" is defined at page 55 in "Description of the Offered
Certificates--Trust Accounts."
"Distribution Date" means June 17, 1996, and the 15th day of each month
thereafter or, if such day is not a business day, on the next succeeding
business day.
"DOL" means the U.S. Department of Labor.
"DTC" means The Depository Trust Company.
"Early Amortization Period" means the period beginning on the earlier of
(a) the day on which a Pay Out Event occurs or is deemed to have occurred and
(b) the Class A Expected Final Payment Date if the Class A Invested Amount has
not been paid in full on such date, or the Class B Expected Final Payment Date
if the Class B Invested Amount has not been paid in full on such date, and
ending on the earlier of (i) the date of the termination of the Trust and (ii)
the Series 1996-1 Termination Date.
"Eligible Account" is defined at page 53 in "Description of the Offered
Certificates--Eligible Accounts; Eligible Receivables."
"Eligible Receivable" is defined at page 53 in "Description of the Offered
Certificates--Eligible Accounts; Eligible Receivables."
"Enhancement" means, with respect to any Series, any letter of credit, cash
collateral account, guaranty, guaranteed rate agreement, maturity guaranty
facility, tax protection agreement, interest rate swap, or other contract or
agreement for the benefit of certificateholders or any class of
certificateholders of such Series.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" is defined at page 44 in "Description of the Offered
Certificates--Book-Entry Registration."
"Euroclear Operator" is defined at page 44 in "Description of the Offered
Certificates--Book-Entry Registration."
"Euroclear Participants" is defined at page 44 in "Description of the
Offered Certificates--Book-Entry Registration."
"Euroclear System" is defined at page 44 in "Description of the Offered
Certificates--Book-Entry Registration."
"Excess Finance Charge Collections" means any finance charge collections
allocable to any Series in excess of the amounts necessary to make required
payments therefrom with respect to such Series.
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<PAGE> 93
"Excess Funding Account" means the account referred to as such at page 56
in "Description of the Offered Certificates--Excess Funding Account."
"Exchange" means any tender by the Transferor to the Trustee of the
Exchangeable Transferor Certificate, pursuant to any one or more Supplements or,
if provided in the relevant Supplement, certificates representing any Series and
the Exchangeable Transferor Certificate, in exchange for one or more new Series
and a reissued Exchangeable Transferor Certificate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Transferor Certificate" means the certificate which evidences
the Transferor Interest.
"FACS" is defined at page 28 in "Federated's Credit Card
Business--Federated's Credit Card Business."
"FDIC" means Federal Deposit Insurance Corporation.
"FDS" means FDS National Bank, a national banking association.
"FDS/Broadway Accounts" is defined at page 21 in "Risk Factors--Effects of
Certain Transactions."
"Federated" means Federated Department Stores, Inc.
"Federated Cards" is defined at page 28 in "Federated's Credit Card
Business--Federated's Credit Card Business."
"Federated Portfolio" is defined at page 30 in "Federated's Credit Card
Business--Revenue and Yield Experience."
"Federated Stores" is defined at page 28 in "Federated's Credit Card
Business--New Account Underwriting."
"Federated Subsidiaries" means Bloomingdale's, Inc.; Bloomingdale's By
Mail, Ltd.; Broadway; Burdines, Inc.; FDS; Lazarus, Inc.; Lazarus PA, Inc.;
Macy's East, Inc.; Rich's Department Stores, Inc.; Stern's Department Stores,
Inc.; and The Bon, Inc.
"Final Regulation" is defined at page 84 in "Employee Benefit Plan
Considerations."
"Finance Charge Collections" means with respect to any Series for any
business day (a) the product of (i) collections received with respect to the
Receivables minus Recoveries and (ii) the Yield Factor plus (b) any investment
earnings on amounts on deposit in the Excess Funding Account plus (c)
Recoveries.
"Finance Charge Receivable Factor" means with respect to any Date of
Determination, the aggregate amount of finance charges, late fees, and other
fees and charges outstanding on the last day of the second preceding Monthly
Period divided by the aggregate Outstanding Balances of the Eligible Receivables
on the last day of such second preceding Monthly Period (determined on the basis
of a calculation performed by the Servicer).
"Finance Charge Receivables" means for any business day the product of the
Finance Charge Receivable Factor determined on the preceding Date of
Determination (or on such business day with respect to each Date of
Determination) and the aggregate amount of Eligible Receivables as of such
business day (determined on the basis of a calculation performed by the
Servicer).
"Fixed/Floating Allocation Percentage" is defined at page 57 in
"Description of the Offered Certificates--Allocation Percentages."
"FIRREA" is defined at page 20 in "Risk Factors--Transfer of the
Receivables; Insolvency Risk Considerations."
"Floating Allocation Percentage" means the sum of the Class A Floating
Allocation Percentage, the Class B Floating Allocation Percentage, and the Class
C Floating Allocation Percentage.
"Holders" is defined at page 45 in "Description of the Offered
Certificates--Definitive Certificates."
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"Indirect Participants" is defined at page 43 in "Description of the
Offered Certificates--Book-Entry Registration."
"Ineligible Default Amount" means, as of any business day, the aggregate
Outstanding Balance of Receivables in Accounts which are identified on the
Servicer's computer records as not being Eligible Accounts and which are
reported in the Servicer's computer records on such business day as becoming
Defaulted Accounts.
"Ineligible Receivable" is defined at page 76 in "Description of the
Receivables Purchase Agreement--Representations and Warranties."
"Initial Closing Date" means December 15, 1992.
"Initial Cut-Off Date" means for Receivables in Accounts owned by each
Originator, the date on which the last cycle of such Originator was billed in
the September 1992 fiscal month.
"In-Store Payments" means any payment made by an Obligor with respect to a
Receivable by delivery of cash, check, money order, or any other form of payment
to a cashier or other employee of any Originator or any merchant which sells
merchandise or services on credit pursuant to a Charge Account Agreement.
"Interest Accrual Period" means, with respect to any Distribution Date, the
period from and including the preceding Distribution Date (or, with respect to
the initial Interest Accrual Period, from and including the Closing Date) to and
excluding such Distribution Date, which shall be deemed to be a 30-day period
(or, with respect to the initial Interest Accrual Period, a 31-day period,
assuming that the Closing Date is May 14, 1996).
"Interest Funding Account" means an account established by the Trustee for
the benefit of Certificateholders.
"Invested Amount" means the sum of the Class A Invested Amount, the Class B
Invested Amount, and the Class C Invested Amount.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time.
"Investor Default Amount" means, with respect to each business day, an
amount equal to the product of the aggregate Default Amount for all Defaulted
Accounts on such business day and the Floating Allocation Percentage applicable
for such business day.
"IRA" is defined at page 84 in "Employee Benefit Plan Considerations."
"IRS" means the Internal Revenue Service.
"John Hancock" is defined at page 85 in "Employee Benefit Plan
Considerations."
"Lock-Box Account" means an account in the name of the Trustee with a
Lock-Box Bank.
"Lock-Box Agreement" means each agreement between the respective
Originator, the Trustee, and the respective Lock-Box Bank, pursuant to which
such Lock-Box Bank receives collections from time to time as provided therein.
"Lock-Box Bank" means any of the banks that holds one or more Lock-Box
Accounts for receiving collections, pursuant to a Lock-Box Agreement.
"Macy's" means R.H. Macy & Co., Inc.
"Macy's Credit Card Program" is defined at page 28 in "Federated's Credit
Card Business--Federated's Credit Card Business."
"Macy's Program Owner" is defined at page 33 in "The Accounts."
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"Merger" means the acquisition by Federated of Macy's on December 19, 1994,
in a reverse acquisition merger, with Macy's, as the surviving corporation in
the merger, changing its name to "Federated Department Stores, Inc."
"Merger Date" means December 19, 1994.
"Minimum Aggregate Principal Receivables" means, as of any date of
determination, an amount equal to the sum of (a) the initial invested amounts
for all outstanding Series on such date (except any Series created pursuant to a
Variable Funding Supplement at any time or a Paired Series during its
amortization period), (b) with respect to any Series created pursuant to a
Variable Funding Supplement, during the revolving period for such Series, the
invested amount on such date of determination or, during the amortization period
for such Series, the invested amount of such Series on the last day of the
revolving period for such Series, and (c) with respect to any Paired Series
during its amortization period, the invested amount of such Series as of the
preceding Distribution Date (after taking into account any payments or
adjustments made on such Distribution Date).
"Minimum Transferor Interest" means the product of (i) the sum of (a) the
aggregate Principal Receivables and (b) the amounts on deposit in the Excess
Funding Account and (ii) the highest Minimum Transferor Percentage for any
Series.
"Minimum Transferor Percentage" means during each fiscal year, for the
Series 1996-1 Certificates (i) 10.5% for the period from the January Monthly
Period to and including the October Monthly Period; (ii) 11.5% for the November
Monthly Period; and (iii) 13.5% for the December Monthly Period; provided,
however, that such percentage may be adjusted from time to time upon written
notice from the Transferor to the Trustee if each Rating Agency initially
contracted to rate the Class A Certificates, the Class B Certificates, and, if
applicable, the Class C Certificates shall have been notified of such amendment
and shall have provided notice to the Trustee or the Servicer that such action
would not result in a reduction or withdrawal of its rating of the Class A
Certificates, the Class B Certificates, or the Class C Certificates, and such
action will not, in the opinion of counsel satisfactory to the Trustee, result
in certain adverse tax consequences.
"Monthly Period" means the period from and including the first day of each
fiscal month of the Transferor to and including the last day of such fiscal
month, except that the first Monthly Period with respect to the Certificates
will begin on and include the Closing Date and will end on and include June 1,
1996.
"Monthly Servicing Fee" is defined at page 69 in "Description of the
Offered Certificates--Servicing Compensation and Payment of Expenses."
"Moody's" means Moody's Investors Service, Inc.
"Negative Carry Amount" is defined at page 58 in "Description of the
Offered Certificates--Reallocation of Cash Flows."
"Net Finance Charge Portfolio Yield" means, with respect to any Monthly
Period, the annualized percentage equivalent of a fraction, the numerator of
which is the amount of Finance Charge Collections for such Monthly Period,
calculated on a cash basis after subtracting the Investor Default Amount for
such Monthly Period, and the denominator of which is the average daily Invested
Amount during the preceding Monthly Period.
"Net Principal Collections" means for any Series on any business day, (i)
the product, during the Revolving Period, of the Floating Allocation Percentage
for such Series and, during the Accumulation Period or any Early Amortization
Period, the Fixed/Floating Allocation Percentage for such Series and the amount
of Principal Collections on such business day minus (ii) on or after the
occurrence and during the continuance of a Discount Trigger Event, the lesser of
(a) the sum of (x) the product of the Discount Allocation Percentage and the
Discount Amount for such business day and (y) the Carryover Discount Amount for
such business day and (b) the amount determined pursuant to clause (i).
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"Obligor" means a person or persons obligated to make payments with respect
to a Receivable arising under an Account pursuant to a Charge Account Agreement.
"Offered Certificate Owners" means the holders of beneficial interests in
the Offered Certificates.
"Offered Certificates" means the Class A Certificates and the Class B
Certificates.
"OID" means original issue discount.
"Originators" means the Federated Subsidiaries and FDS, with Macy's East,
Inc. being an Originator solely in its capacity as the successor to Federated's
former Abraham & Straus, Inc. and Jordan Marsh Stores Corporation subsidiaries,
which were merged with and into Macy's East, Inc. in fiscal 1995.
"Outstanding Balance" means, with respect to a Receivable on any day, the
aggregate amount owed by the Obligor thereunder on such day.
"Paired Series" means each Series which has been paired with a prefunded
Series, and such prefunded Series.
"Participants" is defined at page 42 in "Description of the Offered
Certificates--General."
"Pay Out Event" is defined at page 68 in "Description of the Offered
Certificates--Pay Out Events."
"Paying Agent" is defined at page 56 in "Description of the Offered
Certificates--Trust Accounts."
"Permitted Lien" means with respect to the Receivables: (i) liens in favor
of the Transferor created pursuant to the Purchase Agreement assigned to the
Trustee pursuant to the Pooling and Servicing Agreement; (ii) liens in favor of
the Trustee pursuant to the Pooling and Servicing Agreement; and (iii) liens
which secure the payment of taxes, assessments, and governmental charges or
levies, if such taxes are either (a) not delinquent or (b) being contested in
good faith by appropriate legal or administrative proceedings and as to which
adequate reserves in accordance with generally accepted accounting principles
shall have been established.
"Pooling and Servicing Agreement" means the Amended and Restated Pooling
and Servicing Agreement, dated as of December 15, 1992, among the Transferor,
Federated, and the Trustee, as supplemented or amended in accordance with its
terms. Unless the context requires otherwise, the term "Pooling and Servicing
Agreement" refers to the Pooling and Servicing Agreement as supplemented by the
Series 1996-1 Supplement.
"Portfolio Yield" means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is the amount of
Available Series Finance Charge Collections allocable to the Certificates for
such Monthly Period, calculated on a cash basis after subtracting the Investor
Default Amount for such Monthly Period, and the denominator of which is the
average daily Invested Amount during such Monthly Period.
"Principal Account" is defined at page 55 in "Descriptions of the Offered
Certificates--Trust Accounts."
"Principal Collections" means with respect to any business day for any
Series the product of (i) collections received with respect to the Receivables
minus Recoveries and (ii) one minus the Finance Charge Receivable Factor.
"Principal Funding Account" means a trust account established for the
benefit of the Class A Certificateholders and in which, during the Accumulation
Period, Principal Collections allocable to the Class A Certificateholders'
Interest plus Shared Principal Collections, if any, from other Series allocable
to the Class A Certificates, plus certain other amounts comprising but not
exceeding Class A Monthly Principal, will be deposited.
"Principal Receivables" means for any business day, the aggregate amount of
Eligible Receivables as of such business day (determined on the basis of a
calculation performed by the Servicer) minus the amount of Finance Charge
Receivables on such business day.
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"Principal Shortfalls" is defined at page 47 in "Description of the Offered
Certificates--Principal Payments."
"Principal Terms" is defined at page 49 in "Description of the Offered
Certificates--Exchanges."
"PTE" is defined at page 86 in "Employee Benefit Plan Considerations."
"Purchase Agreement" is defined at page 75 in "Description of the
Receivables Purchase Agreement--Purchases of Receivables."
"Purchase Termination Date" is defined at page 77 in "Description of the
Receivables Purchase Agreement--Purchase Termination Date."
"Qualified Institution" is defined at page 55 in "Description of the
Offered Certificates--Trust Accounts."
"Rating Agencies" means the two nationally recognized rating agencies that
have been requested to rate the Class A Certificates and the Class B
Certificates.
"Reallocated Class B Principal Collections" is defined at page 59 in
"Description of the Offered Certificates--Reallocated Principal Collections."
"Reallocated Class C Principal Collections" is defined at page 59 in
"Description of the Offered Certificates--Reallocated Principal Collections."
"Reallocated Principal Collections" is defined at page 59 in "Description
of the Offered Certificates--Reallocated Principal Collections."
"Receivable" means, with respect to any Obligor, any account, chattel
paper, or general intangible representing the indebtedness of such Obligor under
a Charge Account Agreement arising from a sale of merchandise or services, and
includes the right to payment of any interest or finance charges and other
obligations of such Obligor with respect thereto. Each Receivable includes,
without limitation, (i) all rights of the Originator under the applicable Charge
Account Agreement and (ii) all obligations of the Obligor thereof under the
Charge Account Agreement pursuant to which such Receivable was created.
"Record Date" means, with respect to any Distribution Date, the last
business day of the preceding Monthly Period.
"Recoveries" means any amounts received by the Servicer with respect to
Receivables in accounts that previously became Defaulted Accounts.
"Regulations" is defined at page 81 in "Certain Federal Income Tax
Consequences--Taxation of Interest and Discount Income of Offered Certificate
Owners."
"Relevant UCC State" means each jurisdiction in which the filing of a UCC
financing statement is necessary to evidence the security interest of the
Trustee established under the Pooling and Servicing Agreement.
"Removed Accounts" means accounts that have been designated by the
Transferor, the Receivables of which pursuant to the terms of the Pooling and
Servicing Agreement will no longer be transferred to the Trust.
"Required Amount" is defined at page 64 in "Description of the Offered
Certificates--Application of Collections--Payment of Fees, Interest, and Other
Items."
"Revolving Period" means the period beginning on the Closing Date and
ending with the commencement of the Accumulation Period or an Early Amortization
Period.
"Securities Act" means the Securities Act of 1933, as amended.
"Series" means any series of investor certificates issued by the Trust,
including the Series 1996-1 Certificates.
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"Series Account" means the Principal Account, the Interest Funding Account,
the Principal Funding Account, and any account or accounts established pursuant
to the Series 1996-1 Supplement for the benefit of the Certificateholders.
"Series Allocation Percentage" means, on any date of determination, the
percentage equivalent of a fraction the numerator of which is the Invested
Amount and the denominator of which is the sum of the invested amounts of all
Series then outstanding.
"Series Discount Factor" means for any Series and any business day the
amount for such Series, if any, calculated as of the second preceding Monthly
Period, by which either (x) the product of (i) the Base Rate plus one-half of
one percent minus the Net Finance Charge Portfolio Yield divided by the Annual
Portfolio Turnover Rate and (ii) the Floating Allocation Percentage exceeds (b)
zero or, (y) solely at the option of the Transferor, the amount by which (a) the
product of (i) the Base Rate plus one percent minus the Net Finance Charge
Portfolio Yield divided by the Annual Portfolio Turnover Rate and (ii) the
Floating Allocation Percentage exceeds (b) zero; provided, however, that the
Series Discount Factor will never exceed 4%.
"Series 1996-1 Certificates" or "Series 1996-1" means, collectively, the
Class A Certificates, the Class B Certificates, and the Class C Certificates.
"Series 1996-1 Supplement" means the Supplement, dated as of the Closing
Date, among the Transferor, the Servicer, and the Trustee relating to the Series
1996-1 Certificates.
"Series 1996-1 Termination Date" means the earlier to occur of (i) the day
after the Distribution Date on which the Series 1996-1 Certificates are paid in
full and (ii) the July 2004 Distribution Date.
"Service Transfer" is defined at page 71 in "Description of the Offered
Certificates--Servicer Default."
"Servicer" means FDS in its capacity as Servicer of the Receivables
pursuant to the Pooling and Servicing Agreement.
"Servicer Default" is defined at page 71 in "Description of the Offered
Certificates--Servicer Default."
"Shared Principal Collections" means the amount of collections of Principal
Receivables for any business day allocated by the Servicer to the Invested
Amount for Series 1996-1 remaining after covering required deposits or payments
of principal to the Certificateholders and any similar amount remaining for any
other Series.
"Special Payment Date" means a Distribution Date following the Monthly
Period in which a Pay Out Event has occurred with respect to any Early
Amortization Period and each Distribution Date following the Class A Expected
Final Payment Date.
"Standard & Poor's" means Standard & Poor's Ratings Services, a Division of
The McGraw-Hill Companies, Inc.
"Supplement" means any Supplement to the Pooling and Servicing Agreement.
"Supplemental Accounts" is defined at page 54 in "Description of the
Offered Certificates--Automatic Addition of Accounts."
"Tax Counsel" means Jones, Day, Reavis & Pogue, counsel to the Transferor.
"Terms and Conditions" is defined at page 45 in "Description of the Offered
Certificates--Book-Entry Registration."
"Total Finance Charge Collections" means, with respect to a Series and any
business day, the sum of (i)(a) on any day prior to the occurrence of a Pay Out
Event, the product of the Floating Allocation Percentage for such Series and the
amount of Finance Charge Collections deposited in the Collection Account for
such business day or (b) on and after the occurrence of a Pay Out Event, the
product of the Fixed/Floating Allocation Percentage for such Series and the
amount of Finance Charge Collections for such business day, plus, on and after
the occurrence of and during the continuance of a Discount Trigger Event, (ii)
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the lesser of (a) the sum of (x) the product of the Discount Allocation
Percentage for such Series and the Discount Amount for such business day and (y)
the Carryover Discount Amount for such Series for such business day and (b) the
product of, during the Revolving Period, the Floating Allocation Percentage for
such Series and, during the Accumulation Period or Early Amortization Period,
the Fixed/Floating Allocation Percentage for such Series and the amount of
Principal Collections deposited in the Collection Account for such business day.
"Transfer Date" is defined at page 60 in "Description of the Offered
Certificates--Application of Collections."
"Transferor" means Prime Receivables Corporation, a Delaware corporation.
"Transferor Finance Charge Collections" is defined at page 58 in
"Description of the Offered Certificates--Reallocation of Cash Flows."
"Transferor Interest" means, on any date of determination, the aggregate
amount of Principal Receivables at the end of the day immediately prior to such
date of determination plus all amounts on deposit in the Excess Funding Account
(but not including investment earnings on such amounts), minus the aggregate
invested amount of all Series at the end of such day.
"Transferor Subordination Amount" means with respect to the Series 1996-1
Certificates, $3,900,000, less the aggregate amount of collections allocated to
the holder of the Exchangeable Transferor Certificate or any portion of the
Transferor Interest previously applied to cover any deficiency in the amount
otherwise available, on and after the Class B Principal Payment Commencement
Date, to pay accrued and unpaid interest to the Class B Certificateholders and
to cover any Investor Default Amounts and Class B Investor Charge-Offs.
"Transferor Percentage" is defined at page 42 in "Description of the
Offered Certificates--General" and at page 58 in "Description of the Offered
Certificates--Allocation Percentages."
"Trust" means the Prime Credit Card Master Trust.
"Trustee" means Chemical Bank.
"UCC" means the Uniform Commercial Code.
"Underwriters" is defined at page 86 in "Underwriting."
"Underwriting Agreement" is defined at page 86 in "Underwriting."
"U.S. Person" is defined at page 105 in "Annex II: Global Clearance,
Settlement and Tax Documentation Procedures."
"Variable Funding Certificates" means a series of certificates, in one or
more classes, issued pursuant to the Pooling and Servicing Agreement and a
Variable Funding Supplement.
"Yield Factor" means with respect to any business day the percentage
equivalent of an amount determined on the preceding Date of Determination (or on
such business day with respect to each Date of Determination) equal to (i)(x)
the product of the Billed Finance Charges for the Monthly Period preceding such
Date of Determination and one minus the Delinquency Percentage for the preceding
Date of Determination (or on such business day with respect to each Date of
Determination) plus (y) Recoveries for the Monthly Period preceding such Date of
Determination divided by (ii) the aggregate amount of collections on Receivables
for the Monthly Period preceding such Date of Determination.
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ANNEX I
OTHER SERIES
The table below sets forth the principal characteristics of the four Series
heretofore issued by the Trust: Series 1992-1, Series 1992-2, Series 1992-3, and
Series 1995-1. For more specific information with respect to any Series, any
prospective investor should contact the Servicer at 9111 Duke Boulevard, Mason,
Ohio 45040-8999, telephone number (513) 573-2265. The Servicer will provide,
without charge, to any prospective purchaser of the Certificates, a copy of the
disclosure documents for any previous publicly issued Series.
<TABLE>
<S> <C>
SERIES 1992-1
1. CLASS A CERTIFICATES
Initial Invested Amount.................................. $450,000,000
Certificate Rate......................................... 7.05%
Current Invested Amount.................................. $450,000,000
Controlled Amortization Amount........................... $150,000,000
Annual Servicing Fee Percentage.......................... 2.0%
Credit Support........................................... Subordination of Series 1992-1
Class B and Class C Certificates
Expected Final Payment Date.............................. December 15, 1997
Scheduled Series Termination Date........................ February 15, 2001
Series Issuance Date..................................... December 15, 1992
2. CLASS B CERTIFICATES
Initial Invested Amount.................................. $40,500,000
Certificate Rate......................................... 7.55%
Current Invested Amount.................................. $40,500,000
Controlled Amortization Amount........................... N/A
Annual Servicing Fee Percentage.......................... 2.0%
Credit Support........................................... Subordination of Series 1992-1
Class C Certificates
Expected Final Payment Date.............................. January 15, 1998
Scheduled Series Termination Date........................ February 15, 2001
Series Issuance Date..................................... December 15, 1992
3. CLASS C CERTIFICATES
Initial Invested Amount.................................. $55,000,000
Certificate Rate......................................... 8.05%
Current Invested Amount.................................. $55,000,000
Controlled Amortization Amount........................... N/A
Annual Servicing Fee Percentage.......................... 2.0%
Expected Final Payment Date.............................. February 15, 1998
Scheduled Series Termination Date........................ February 15, 2001
Series Issuance Date..................................... December 15, 1992
SERIES 1992-2
1. CLASS A CERTIFICATES
Initial Invested Amount.................................. $450,000,000
Certificate Rate......................................... 7.45%
Current Invested Amount.................................. $450,000,000
Controlled Amortization Amount........................... $75,000,000
Annual Servicing Fee Percentage.......................... 2.0%
</TABLE>
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<TABLE>
<S> <C>
Credit Support........................................... Subordination of Series 1992-2
Class B and Class C Certificates
Expected Final Payment Date.............................. December 15, 1999
Scheduled Series Termination Date........................ November 15, 2002
Series Issuance Date..................................... December 15, 1992
2. CLASS B CERTIFICATES
Initial Invested Amount.................................. $40,500,000
Certificate Rate......................................... 7.95%
Current Invested Amount.................................. $40,500,000
Controlled Amortization Amount........................... N/A
Annual Servicing Fee Percentage.......................... 2.0%
Credit Support........................................... Subordination of Series 1992-2
Class C Certificates
Expected Final Payment Date.............................. January 18, 2000
Scheduled Series Termination Date........................ November 15, 2002
Series Issuance Date..................................... December 15, 1992
3. CLASS C CERTIFICATES
Initial Invested Amount.................................. $55,000,000
Certificate Rate......................................... 8.45%
Current Invested Amount.................................. $55,000,000
Controlled Amortization Amount........................... N/A
Annual Servicing Fee Percentage.......................... 2.0%
Expected Final Payment Date.............................. February 15, 2000
Scheduled Series Termination Date........................ November 15, 2002
Series Issuance Date..................................... December 15, 1992
SERIES 1992-3 VARIABLE FUNDING CERTIFICATES
Invested Amount as of December 31, 1995.................. $115,078,017
Maximum Permitted Invested Amount........................ $455,000,000
Certificate Rate......................................... Variable
Commencement of Amortization Period...................... January 1, 1998 (subject to
extension)
Annual Servicing Fee Percentage.......................... 2.00%
Scheduled Series Termination Date........................ January 15, 2001 (subject to
extension)
Series Issuance Date..................................... January 5, 1993
SERIES 1995-1
1. CLASS A CERTIFICATES
Initial Invested Amount.................................. $546,000,000
Certificate Rate......................................... 6.75%
Current Invested Amount.................................. $546,000,000
Controlled Amortization Amount........................... $68,250,000
Annual Servicing Fee Percentage.......................... 2.0%
Credit Support........................................... Subordination of Series 1995-1
Class B and Class C Certificates
Expected Final Payment Date.............................. August 15, 2002
Scheduled Series Termination Date........................ November 15, 2005
Series Issuance Date..................................... July 27, 1995
</TABLE>
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<TABLE>
<S> <C>
2. CLASS B CERTIFICATES
Initial Invested Amount.................................. $52,000,000
Certificate Rate......................................... 6.90%
Current Invested Amount.................................. $52,000,000
Controlled Amortization Amount........................... N/A
Annual Servicing Fee Percentage.......................... 2.0%
Credit Support........................................... Subordination of Series 1995-1
Class C Certificates
Expected Final Payment Date.............................. September 16, 2002
Scheduled Series Termination Date........................ November 15, 2005
Series Issuance Date..................................... July 27, 1995
3. CLASS C CERTIFICATES
Initial Invested Amount.................................. $52,000,000
Certificate Rate......................................... 9.00%
Current Invested Amount.................................. $52,000,000
Controlled Amortization Amount........................... N/A
Annual Servicing Fee Percentage.......................... 2.0%
Expected Final Payment Date.............................. October 15, 2002
Scheduled Series Termination Date........................ November 15, 2005
Series Issuance Date..................................... July 27, 1995
</TABLE>
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ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Asset Backed
Certificates, Series 1996-1 will be available only in book-entry form. Investors
in the Offered Certificates may hold such Offered Certificates through any of
DTC, Cedel, or Euroclear. The Offered Certificates will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Offered Certificates
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Offered Certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Offered Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Offered Certificates will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Offered Certificates will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Offered
Certificates will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Offered Certificates through DTC will
follow the settlement practices applicable to conventional credit card
certificate issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Offered Certificates through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Offered Certificates will be credited to
the securities custody accounts on the settlement date against payment in the
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to conventional
credit card certificate issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Offered
Certificates are to be transferred from the account of a DTC Participant to the
accounts of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
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Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear, as the case may be, will instruct the respective Depositary to
receive the Offered Certificates against payment. Payment will include interest
accrued on the Offered Certificates from and including the last coupon payment
date to and excluding the settlement date, on the basis of actual days elapsed
and a 360-day year. Payment will then be made by the Depositary to the DTC
Participant's account against delivery of the Offered Certificates. After
settlement has been completed, the Offered Certificates will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's account.
The Offered Certificates credit will appear the next day (European time) and the
cash debit will be back-valued to, and the interest on the Offered Certificates
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the Cedel or Euroclear cash debit will be
valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Offered
Certificates are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Offered
Certificates would incur overdraft charges for one day, assuming they cleared
the overdraft when the Offered Certificates were credited to their accounts.
However, interest on the Offered Certificates would accrue from the value date.
Therefore, in many cases the investment income on the Offered Certificates
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Offered Certificates
to the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Offered
Certificates are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds to the DTC Participant's account against payment. Payment will include
interest accrued on the Offered Certificates from and including the last coupon
payment date to and excluding the settlement date on the basis of actual days
elapsed and a 360-day year. The payment will then be reflected in the account of
the Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would be back-valued to the value date (which would be the preceding day, when
settlement occurred in New York). Should the Cedel Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date (i.e.,
the trade fails), receipt of the cash proceeds in the Cedel Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Offered
Certificates from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would
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automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Offered Certificates in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give the
Offered Certificates sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase form the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Offered Certificates holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank, or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Offered
Certificates that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Offered Certificate Owners residing in a
country that has a tax treaty with the United States can obtain an exemption or
reduced tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the Offered Certificate
Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Offered Certificate Owner
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Offered Certificates. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Offered Certificates.
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---------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PRIME RECEIVABLES
CORPORATION OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PRIME RECEIVABLES CORPORATION OR THE
RECEIVABLES OR THE ACCOUNTS SINCE THE DATE THEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Certificateholders....... 3
Available Information............... 3
Prospectus Summary.................. 4
Risk Factors........................ 20
The Trust........................... 27
Federated's Credit Card Business.... 27
The Accounts........................ 32
Federated, The Transferor, and
FDS............................... 38
Maturity Assumptions................ 39
Pool Factor and Related
Information....................... 41
Use of Proceeds..................... 41
Description of the Offered
Certificates...................... 41
Description of the Receivables
Purchase Agreement................ 75
Certain Legal Aspects of the
Receivables....................... 77
Certain Federal Income Tax
Consequences...................... 80
Employee Benefit Plan
Considerations.................... 83
Underwriting........................ 86
Legal Matters....................... 86
Glossary of Terms................... 87
</TABLE>
UNTIL JULY 30, 1996 ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------------------------------------
---------------------------------------------------
$238,800,000
Prime Credit Card
Master Trust
$218,000,000
6.70% Class A Asset Backed
Certificates,
Series 1996-1
$20,800,000
6.85% Class B Asset Backed
Certificates,
Series 1996-1
Prime Receivables Corporation
Transferor
FDS National Bank
Servicer
PROSPECTUS
Underwriters of the Class A Certificates
CS First Boston
Goldman, Sachs & Co.
Underwriter of the Class B Certificates
CS First Boston
---------------------------------------------------
