PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 15, 1997)
TIERS{SM} ASSET-BACKED SECURITIES, SERIES CHAMT TRUST 1997-7
$352,980,000 FIXED RATE NOTES, CLASS A
STRUCTURED PRODUCTS CORP.
DEPOSITOR
TIERS{sm} Asset-Backed Securities, Series CHAMT 1997-7 Trust (the "Issuer" or
the "Trust") will be formed pursuant to the trust agreement, dated as of
September 15, 1997, as supplemented by the Series CHAMT 1997-7 Supplement
(together, the "Trust Agreement"), between Structured Products Corp. (the
"Company") and Delaware Trust Capital Management, Inc. as trustee (the "Owner
Trustee"). The Trust will issue the $352,980,000 aggregate principal amount of
Fixed Rate Notes, Class A (the "Notes") offered hereby. The Trust will also
issue $10,920,000 aggregate principal amount of its Floating Rate Certificates,
Class B (the "Certificates"), which are being offered privately and not being
offered hereby. The Notes will be issued pursuant to an Indenture, dated as of
September 15, 1997, as supplemented by a series supplement thereto dated as of
September 15, 1997 (together, the "Indenture"), between the Trust and First
Trust of New York, National Association, as trustee (the "Indenture Trustee").
The net proceeds to the Trust from the sale of the Notes (together with the net
proceeds of the sale of the Certificates) will be applied to the purchase of
$363,900,000 aggregate principal amount of Class A Floating Rate Asset Backed
Certificates, Series 1996-4 (the "Term Assets") issued by the Chase Credit Card
Master Trust (the "Term Assets Issuer") and having the characteristics
described in a prospectus dated November 6, 1996 and a supplement thereto dated
November 6, 1996 (together, the "Term Assets Prospectus"). The Term Assets
were issued and sold as part of an underwritten public offering of
$1,400,000,000 aggregate principal amount of such securities on November 6,
1996. The Term Assets are obligations of the Term Assets Issuer.
The Term Assets will be acquired by the Company and sold to the Trust. The
Trust's rights in, to and under the Term Assets will be pledged to the
Indenture Trustee for the benefit of the Noteholders pursuant to the Indenture.
Distributions of principal and interest on the Certificates will be
subordinated in priority to payments due on the Notes as described herein.
Interest will accrue on the Notes at a fixed rate equal to 6.688% per annum
payable in arrears on the 15th day of each month (or, if such day is not a
Business Day, the next succeeding Business Day) (each, a "Distribution Date"),
commencing October 15, 1997. "Business Day" means any day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) in New York, New York, Wilmington, Delaware and London,
England. The principal of the Notes will be payable (unless earlier paid as
described herein) on November 15, 2003 (or, if such day is not a Business Day,
the next succeeding Business Day) (the "Scheduled Final Distribution Date").
The principal of the Notes will be subject to prepayment as described herein,
in whole or in part, on each Distribution Date, commencing February 15, 1999,
on the basis of the applicable Monthly Amortization Rate set forth in the
Prepayment Calculation Table (each as defined herein). The
(COVER CONTINUED ON NEXT PAGE)
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THE NOTES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO NOT
REPRESENT AN OBLIGATION OF OR INTEREST IN THE COMPANY OR ANY OF ITS AFFILIATES.
THE NOTES DO NOT REPRESENT A DIRECT OBLIGATION OF THE TERM ASSETS ISSUER OR ANY
OF ITS AFFILIATES.
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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AN INVESTMENT IN THE NOTES INVOLVES CERTAIN RISKS THAT EACH PROSPECTIVE
INVESTOR SHOULD CONSIDER PRIOR TO MAKING AN INVESTMENT IN THE NOTES. SEE "RISK
FACTORS" HEREIN AND IN THE PROSPECTUS.
The Underwriter has agreed to purchase the Notes from the Company at 100% of
the Note Principal Amount thereof plus accrued interest, if any, at the Note
Interest Rate calculated from September 15, 1997 (the "Original Issuance
Date"), subject to the terms and conditions set forth in the Underwriting
Agreement referred to herein. The Underwriter proposes to offer the Notes from
time to time for sale in negotiated transactions or otherwise at prices
determined at the time of sale. See "Method of Distribution."
The Notes are offered subject to receipt and acceptance by the Underwriter, to
prior sale and to the Underwriter's right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the Notes will be made in book-entry form through the
facilities of The Depository Trust Company on or about the Original Issuance
Date against payment therefor in same-day funds.
{SM} Salomon Brothers Inc has filed an application with the United States
Patent and Trademark Office for the registration of the "TIERS" service mark.
SALOMON BROTHERS INC
The date of this Prospectus Supplement is September 15, 1997.
Monthly Amortization Rate for any month will be derived from the PSA Index Rate
(as defined herein) for the aggregate outstanding 30-year Federal Home Loan
Mortgage Corporation Gold 8.0% mortgage participation certificates issued in
calendar year 1995. Variations in the rate of payment of the Notes may be
significant. The Notes are also subject to mandatory prepayment under other
circumstances as described herein. See "Mandatory Prepayment of the Notes."
The Issuer will enter into the Swap Agreement with the Swap Counterparty (each
as defined herein) pursuant to which the Issuer will agree to exchange payments
received with respect to the Term Assets and Eligible Investments (as defined
herein) for payments from the Swap Counterparty in an amount equal to the
interest and principal due on the Notes.
Losses realized on the Term Assets and Eligible Investments will be borne by
the holders of the Notes in the manner described herein. As and to the extent
described herein, losses realized on the Term Assets and Eligible Investments
will be borne by the holders of the Certificates before such losses will be
borne by the holders of the Notes. See "Description of the Notes -- Allocation
of Losses; Subordination." The Term Assets Issuer is not participating in, and
will not receive any proceeds in connection with, the offering made hereby.
There is currently no secondary market for the Notes, and there can be no
assurance that a secondary market for the Notes will develop or, if its does
develop, that it will continue. See "Risk Factors" herein and in the
Prospectus.
The Notes initially will be represented by certificates registered in the name
of CEDE & Co., as nominee of The Depository Trust Company ("DTC"). The
interests of beneficial owners of such Notes will be represented by book
entries on the records of participating members of DTC ("Participants").
Definitive certificates will be available for such Notes only in the limited
circumstances described herein. See "Description of the Notes-Definitive
Notes."
(END OF COVER PAGE)
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT WILL CONSTITUTE A SEPARATE
SERIES OF NOTES BEING OFFERED BY THE COMPANY PURSUANT TO ITS PROSPECTUS, DATED
SEPTEMBER 15, 1997, OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT
INFORMATION REGARDING THIS OFFERING WHICH IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. IN PARTICULAR, INVESTORS SHOULD CONSIDER CAREFULLY THE
FACTORS SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS AND IN THIS PROSPECTUS
SUPPLEMENT.
UNTIL DECEMBER 15, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
SUMMARY OF TERMS
The following summary does not purport to be complete and is qualified in
its entirety by reference to the detailed information appearing elsewhere
herein and in the Prospectus. Certain capitalized terms used and not defined
herein have the meanings specified elsewhere in this Prospectus Supplement or,
to the extent not defined herein, have the meanings specified in the
Prospectus.
Securities Offered.......... The TIERS{SM} Asset-Backed Securities, Series
CHAMT 1997-7, offered hereby consist of
$352,980,000 principal amount of the Issuer's
Fixed Rate Notes, Class A (the "Notes"). The
Notes will be denominated and payable in U.S.
dollars (the "Specified Currency") and will be
issued in minimum denominations of $1,000 and
multiples of $1,000 in excess thereof. The
Issuer is also issuing privately $10,920,000
principal amount of its Floating Rate
Certificates, Class B (the "Certificates"). The
Certificates are being issued privately in a
separate offering and are not being offered
hereby.
The Issuer.................. TIERS Asset-Backed Securities, Series CHAMT
Trust 1997-7, a Delaware business trust (the
"Trust" or the "Issuer"). The Trust will be
established pursuant to the trust agreement,
dated as of September 15, 1997, as supplemented
by the Series CHAMT 1997-7 Supplement dated as
of September 15, 1997 (together, the "Trust
Agreement"), between the Company and Delaware
Trust Capital Management, Inc., as trustee (the
"Owner Trustee").
Depositor................... Structured Products Corp. (the "Company"), an
indirect, wholly owned subsidiary of Salomon Inc
and an affiliate of Salomon Brothers Inc, the
underwriter of the Notes (the "Underwriter").
See "The Company" in the Prospectus.
Issuer Assets............... The assets of the Issuer will consist of (i) the
Term Assets (as defined herein), (ii) the
Derivative Assets, consisting of the Issuer's
rights under the Swap Agreement (as defined
herein), (iii) Eligible Investments made from
time to time out of amounts held by the Issuer,
and (iv) all proceeds of the foregoing
(collectively, the "Deposited Assets").
(a) Term Assets........... Chase Credit Card Master Trust Class A Floating
Rate Asset Backed Certificates, Series 1996-4,
in the aggregate principal amount of
$363,900,000 (the "Term Assets"). The Term
Assets have the characteristics described in a
prospectus dated November 6, 1996 and a
supplement thereto dated November 6, 1996
(together, the "Term Assets Prospectus"). The
Term Assets were issued and sold as part of an
underwritten public offering of $1,400,000,000
aggregate principal amount of such securities on
November 6, 1996. Interest on the Term Assets
accrues at the Term Assets Rate (as defined
herein) for each Term Assets Interest Accrual
Period (as defined herein) and is scheduled to
be paid on each Term Assets Distribution Date
(as defined herein). The entire principal
amount of the Term Assets is scheduled to be
paid on the Term Assets Distribution Date in
November 2003 (the "Term Assets Scheduled Final
Distribution Date"). See "Description of the
Term Assets."
(b) Derivative Assets.... An ISDA Master Agreement, together with a
related schedule and confirmations, entered into
by the Issuer with the Swap Counterparty on the
Original Issuance Date (together, the "Swap
Agreement"). Pursuant to the Swap Agreement, on
each Distribution Date the Issuer and the Swap
Counterparty will be obligated to make payments
to one another as described herein. See
"Description of the Swap Agreement."
Swap Counterparty........... Westdeutsche Landesbank Girozentrale, New York
Branch (the "Swap Counterparty").
THE NOTES
Interest.................... Interest will accrue on each Note on the unpaid
principal amount thereof (the "Note Principal
Amount") at the fixed rate of 6.688% per annum
(the "Note Interest Rate"), calculated on the
basis of a 360-day year consisting of twelve 30-
day months, and will be payable monthly on the
15th day of each month (or, if any such date is
not a Business Day, then on the next succeeding
Business Day), commencing October 15, 1997
(each, a "Distribution Date"). Accrued interest
in respect of each Interest Accrual Period will
be payable in arrears on the related
Distribution Date and on the Scheduled Final
Distribution Date (as defined herein).
"Interest Accrual Period" means, with respect to
any Distribution Date, the period from and
including the preceding Distribution Date (or,
in the case of the initial Distribution Date,
from and including the Original Issuance Date)
to but excluding such Distribution Date. If a
Distribution Date as originally scheduled is not
a Business Day and interest is to be paid on the
next succeeding Business Day, no additional
interest shall accrue in the related Interest
Accrual Period for the number of additional days
to such succeeding Business Day.
In certain circumstances described herein under
"Description of the Notes - Deferred Interest,"
interest on the Notes may be deferred.
Noteholders will not be entitled to any
additional payment in respect of any such delay.
Principal................... The outstanding principal amount of the Notes,
consisting of the portion, if any, of the
principal of the Notes that has not been prepaid
as described under "Mandatory Prepayment of the
Notes," will be payable on November 15, 2003
(or, if such day is not a Business Day, the next
succeeding Business Day) (the "Scheduled Final
Distribution Date"). However, all or a portion
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<PAGE>
of the principal of the Notes is subject to
prepayment in the circumstances and in the
manner described herein. See "Mandatory
Prepayment of the Notes." If an Indenture Event
of Default (as defined herein) occurs (in the
absence of any Swap Early Termination (as
defined herein)), the Indenture Trustee may, and
at the written request of the holders of not
less than a majority in Note Principal Amount of
the Notes will, declare the Notes to be
immediately due and payable, subject to the
prior written consent of the Swap Counterparty
under certain circumstances. If a Swap Early
Termination occurs, the entire unpaid principal
amount of the Notes will become automatically
immediately due and payable. In certain
circumstances, principal repayment of the Notes
may be adversely affected by loss experience of
the Term Assets. See "Description of the Notes
-- Principal."
Payments.................... Payments on the Notes will be made on each
Distribution Date and (unless earlier paid) on
the Scheduled Final Distribution Date.
Payments on the Notes will be made to the
Noteholders in whose names the Notes were
registered on the day immediately preceding each
Distribution Date, except in the limited
circumstances in which Definitive Notes are
issued as described herein.
Mandatory Prepayment
of the Notes.............. The Notes will be subject to prepayment, in
whole or in part, on each Distribution Date,
commencing on the Distribution Date in February
1999, as described herein in an amount
determined based on applicable Monthly
Amortization Rate set forth in the Prepayment
Calculation Table (each as defined herein). The
Monthly Amortization Rate for any month will be
derived from the PSA Index Rate (as defined
herein) for the aggregate outstanding 30-year
Federal Home Loan Mortgage Corporation ("FHLMC")
Gold 8.0% mortgage participation certificates
issued in calendar year 1995 (the "Reference
Securities"). See "Mandatory Prepayment of the
Notes." Variations in the rate of prepayment of
the Notes may be significant. See "Risk
Factors."
Optional Redemption......... At its option, the Swap Counterparty may
purchase all of the Term Assets and Eligible
Investments of the Issuer, at a price equal to
the amount that is sufficient to pay 100% of the
principal of and all accrued interest on the
Notes and the Certificates, whereupon the Issuer
shall redeem the Notes in full, on any
Distribution Date on which the aggregate
principal amount of the Term Assets remaining in
the Trust (before giving effect to any
distributions on such date) would be less than
10% of the aggregate principal amount of the
Term Assets as of the Original Issuance Date See
"Description of the Notes-Optional Redemption."
Form of Notes............... Book-entry certificates with The Depository
Trust Company ("DTC"), except in certain limited
circumstances. See "Description of the
Notes-Definitive Notes." Distributions thereon
will be settled in immediately available funds.
See "Description of the Notes - Global Notes."
Security Interests All of the Issuer's right, title and interest in
and to the Term Assets and Eligible Investments
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<PAGE>
will be pledged by the Issuer to the Indenture
Trustee for the holders of the Notes (the
"Noteholders") and for the Swap Counterparty in
order to secure the Issuer's obligations under
the Notes and the Swap Agreement. The Issuer's
rights under the Swap Agreement will be pledged
to the Indenture Trustee for the Noteholders to
secure the Issuer's obligations on the Notes.
Indenture Trustee........... First Trust of New York, National Association
will act as trustee (the "Indenture Trustee")
pursuant to the Indenture.
Rating...................... It is a condition to the issuance of the Notes
that they be rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"). The rating of the
Notes by Moody's addresses the likelihood of the
timely payment of principal and interest on the
Notes. There is no assurance that such rating
will continue for any period of time or that it
will not be revised or withdrawn entirely by the
rating agency if, in its judgment, circumstances
(including, without limitation, the rating of
the Swap Counterparty) so warrant. A revision
or withdrawal of such rating may have an adverse
effect on the market price of the Notes. A
security rating is not a recommendation to buy,
sell or hold securities.
Certain Federal Income
Tax Consequences.......... The Trust will be provided with an opinion of
Federal Tax Counsel (as defined herein) that the
Notes constitute indebtedness for Federal income
tax purposes. Such opinion is subject to the
conditions, qualifications and the assumptions
specified in the opinion and this Prospectus
Supplement. See "Certain Federal Income Tax
Consequences."
ERISA Considerations........ Plans (as defined herein) will generally be
permitted to purchase the Notes. However, any
Plan fiduciary considering whether to purchase
the Notes on behalf of a Plan should consult
with its counsel and other advisors regarding
the applicability of the relevant provisions of
the Employee Retirement Income Security Act of
1974, as amended, and the Internal Revenue Code
of 1986, as amended, and the availability of any
exemptions. See "ERISA Considerations."
THE SWAP AGREEMENT
Calculation Agent........... The Swap Counterparty.
Swap Payments............... Under the Swap Agreement, the Issuer will pay to
the Swap Counterparty amounts equal to the
payments of interest received on the Term Assets
(including any deferred interest), and the Swap
Counterparty will pay to the Issuer on each
Distribution Date amounts equal to the interest
payable on the Notes on such date. If on any
Distribution Date the amount received by the
Issuer on the Term Assets and paid to the Swap
Counterparty is less than the scheduled interest
thereon, the Swap Counterparty shall reduce its
payment to the Issuer by the amount of such
deficiency.
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<PAGE>
In addition, on each Distribution Date on which
a Mandatory Prepayment Amount (as defined
herein) is due, the Issuer will pay to the Swap
Counterparty an amount equal to the proceeds
received from the sale of Term Assets or
Eligible Investments or any combination thereof,
at the direction of the Swap Counterparty,
having an aggregate principal balance equal to
that month's Mandatory Prepayment Amount and the
Swap Counterparty will pay to the Issuer an
amount equal to such Mandatory Prepayment
Amount.
Early Amortization of the
Term Assets; Eligible
Investments............... In the event of a Term Assets Amortization
Event, the Indenture Trustee will reinvest the
principal proceeds, if any, of the Term Assets
in Eligible Investments at the direction of the
Swap Counterparty. Unless there is an Indenture
Event of Default, the proceeds of the Eligible
Investments will not be available to pay
interest on the Notes (including any deferred
interest), but will be retained by the Issuer
until liquidated in connection with a mandatory
prepayment of the Notes. See "Mandatory
Prepayment of the Notes". The Issuer is
required under the Swap Agreement to pay all
earnings on Eligible Investments to the Swap
Counterparty.
Asset Impairment Event...... If an Asset Impairment Event occurs, the
Indenture Trustee will be obligated to sell the
Term Assets and to use the proceeds from such
sale (and the amount of any scheduled payment
received from the Swap Counterparty) to: FIRST,
pay to the Swap Counterparty any scheduled
payment then due under the Swap Agreement;
SECOND, to redeem the Notes, together with any
accrued interest thereon; and THIRD, to remit
the balance, if any, to the Issuer for
application in accordance with the Trust
Agreement. "Asset Impairment Event" will be
defined in the Swap Agreement to mean that on
the Scheduled Final Distribution Date for the
Term Assets, the Note Notional Amount (as
defined herein under "Mandatory Prepayment of
the Notes -- Monthly Prepayment"), less all
losses (if any) on Eligible Investments that
became defaulted investments while owned by the
Issuer, is less than the aggregate Note
Principal Amount of the Notes on such date. If
such an Asset Impairment Event occurs, the
Noteholders will not recover the full principal
amount of their Notes.
THE TERM ASSETS
Term Assets................. Chase Credit Card Master Trust, Class A Floating
Rate Asset Backed Certificates, Series 1996-4
(the "Term Assets"). The Term Assets are
denominated and payable in U.S. dollars (the
"Term Assets Currency") and were issued in
minimum denominations of $1,000 and integral
multiples in excess thereof.
Term Assets Issuer.......... Chase Credit Card Master Trust (the "Term Assets
Issuer"). The Term Assets were issued on
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<PAGE>
November 14, 1996 (the "Term Assets Original
Issue Date") pursuant to a pooling and servicing
agreement, as supplemented by a series
supplement, each dated as of November 6, 1996
(the "Term Assets Agreement"), among Chase
Manhattan Bank USA, National Association (the
"Term Assets Seller"), The Chase Manhattan Bank
(the "Term Assets Servicer") and The Bank of New
York, as trustee (the "Term Assets Trustee").
Term Assets Interest........ The Term Assets will accrue interest at a rate
equal to 0.13% per annum above one-month LIBOR
(the "Term Assets Rate") during each monthly
accrual period (each, a "Term Assets Interest
Accrual Period"). Interest on the Term Assets
is payable on the 15th day of each month (or, if
such 15th day is not a Business Day, the next
succeeding Business Day) (each, a "Term Assets
Distribution Date").
Term Assets Distributions... Principal of the Term Assets is scheduled to be
repaid on the Term Assets Scheduled Final
Distribution Date. Prior to such date,
collections on the underlying Receivables will
be held during the period commencing October 31,
2002 (the "Term Assets Controlled Accumulation
Period") for distribution in respect of
principal in accordance with the Term Assets
Agreement, unless the Term Assets Servicer has
elected to postpone the commencement of the Term
Assets Controlled Accumulation Period in
accordance with the terms of the Term Assets
Agreement. As used herein, the term
"Receivables" has the meaning specified in the
Term Assets Agreement.
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<PAGE>
RISK FACTORS
LIMITED LIQUIDITY. There is currently no secondary market for the Notes.
While the Underwriter intends to make a market in the Notes upon their
issuance, it is under no obligation to do so. There can be no assurance that
any secondary market for the Notes will develop or, if a secondary market does
develop, that it will provide the holders of Notes with liquidity of investment
or that it will continue for the life of the Notes.
LIMITED ASSETS. The Notes are obligations of the Issuer only and are
payable solely from payments made on, or other proceeds of, the Deposited
Assets. None of the Depositor, the Swap Counterparty, the holders of the
Certificates or any of their affiliates or any other person or entity will be
obligated to make payments on the Notes. Consequently, the holders of the
Notes must rely solely on collections in respect of the Deposited Assets for
payments on the Notes. If collections in respect of the Deposited Assets, net
of any amounts owed by the Issuer to the Swap Counterparty, the Indenture
Trustee and the Owner Trustee, are insufficient to make all payments and
distributions due in respect of the Notes, there will be no other assets of the
Issuer available for payment of any shortfall and, following realization on the
Deposited Assets, any obligation of the Issuer to pay such shortfall will be
extinguished.
THE SWAP AGREEMENT. The purchase of the Notes involves risks associated
with the Swap Agreement and the Swap Counterparty. If the Swap Counterparty
fails to make payments due to the Issuer under the Swap Agreement, the Issuer
will be unable to meet its obligations in respect of the Notes. The Swap
Agreement may be terminated early in accordance with its terms upon the
occurrence of certain "Events of Default" or "Termination Events" thereunder
(as described herein) (each, a "Swap Termination Event").
Upon the occurrence of certain Swap Termination Events under the Swap
Agreement, the Issuer or the Swap Counterparty may be liable to make a
termination payment to the other (regardless, if applicable, of which of such
parties may have caused such termination). The amount of any such termination
payment will be based on the market value of the Swap Agreement computed on the
basis of market quotations of the cost of entering into swap transactions with
the same terms and conditions that would have the effect of preserving the
respective full payment obligations of the parties, in accordance with the
procedures set forth in the Swap Agreement. Any such termination payment
could, if interest rates have changed significantly, be substantial.
Upon the occurrence of a Swap Termination Event, the principal of the
Notes will be declared or become automatically due and payable and the
Indenture Trustee will be obligated to sell the Term Assets (and any Eligible
Investments) as described under "Description of the Indenture -- Liquidations
of Term Assets and Eligible Investments." In any such event, the ability of the
Issuer to pay principal and interest on the Notes will depend on (a) the prices
at which the Term Assets and Eligible Investments are liquidated, (b) the
amount of the termination payment (if any) which may be due to the Swap
Counterparty from the Issuer under the Swap Agreement, and (c) the amount of
the termination payment, if any, which may be due to the Issuer from the Swap
Counterparty under the Swap Agreement. If the net proceeds from liquidation of
the Term Assets and Eligible Investments are not sufficient to make all
payments due in respect of the Notes and for the Issuer to meet its
obligations, if any, in respect of the termination of the Swap Agreement, then
such amounts will be applied in accordance with the priority of payments
described herein and the claims of the Swap Counterparty in respect of such net
proceeds will rank higher in priority than the claims of the Noteholders. See
"Description of the Notes-Priority of Payments."
THE TERM ASSETS. The Term Assets represent interests in the Term Assets
Issuer only and do not represent interests in or obligations of the Issuer or
any affiliate of the Issuer. If the Term Assets Issuer fails to pay any
amounts due on the Term Assets, then investors in the Notes could incur losses,
inasmuch as the Deposited Assets of the Issuer available for payment of the
Notes will be limited as described above under "Limited Assets." Prospective
investors should avail themselves of the same information concerning the Term
Assets Seller, the Term Assets Servicer and the Term Assets as they would if
they were purchasing the Term Assets or similar investments backed by or
representing interests in Receivables. Certain factors in respect of the Term
Assets that should be specially considered by prospective investors are
discussed under "Risk Factors" in Appendix A.
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<PAGE>
MATURITY ASSUMPTIONS. The risk of uncertainty in the timing of
prepayment of principal of the Notes is dependent on, among other things, the
rate of principal prepayments of the Base Mortgage Loans (as defined herein)
underlying the Reference Securities. See "The Reference Securities." In
deciding whether to purchase the Notes, investors should satisfy themselves
that they understand the prepayment risks associated with mortgage securities.
In addition, an investor should purchase Notes only after performing an
analysis of the Reference Securities based upon the investor's own assumptions
as to future rates of prepayment and the effect of the Prepayment Calculation
Table. See "The Reference Securities."
EARLY PREPAYMENT RISK. The principal of the Notes will be prepaid as
described herein, in whole or in part, on any Distribution Date on or after
February 15, 1999. The Monthly Amortization Rate for any month will depend on
the rate of prepayment of the Base Mortgage Loans, the effect of the Prepayment
Calculation Table and on other factors described herein. The formula for
calculating prepayments on the Notes may result in a rate of prepayment on the
Notes for any Distribution Date that differs significantly from the prepayment
rate on the Reference Securities. In addition, the Notes are subject to early
redemption in whole at the option of the Swap Counterparty (the "Optional
Redemption") in certain circumstances. See "Description of the Notes --
Optional Redemption."
EFFECT OF PREPAYMENT CALCULATION TABLE. The PSA Index Rate and the
Prepayment Calculation Table will determine the rate of prepayment of the
Notes. As illustrated in the Prepayment Calculation Table, if the PSA Index
Rate for any month is equal to or less than 100%, the Monthly Amortization Rate
for such month will be 0%. At PSA Index Rates above 100%, the corresponding
Monthly Amortization Rates will increase. If the PSA Index Rate for any month
is equal to or greater than 575%, the Monthly Amortization Rate for such month
will be 22.50%.
YIELD CONSIDERATIONS. The yield to maturity for each of the Notes will
depend upon the purchase price thereof, the rate of principal prepayments on
the Base Mortgage Loans, the effect of the Prepayment Calculation Table, the
Optional Redemption and the actual characteristics of the Base Mortgage Loans.
Generally, if the actual rate of prepayments on the Base Mortgage Loans is
slower than the rate anticipated by an investor who purchased Notes at a
discount, the actual yield to such investor may be lower than such investor's
anticipated yield. If the actual rate of prepayments on the Base Mortgage
Loans is faster than the rate anticipated by an investor who purchased Notes at
a premium, the actual yield to such investor also may be lower than such
investor's anticipated yield. As described above, beginning in February 1999,
variations in the rate of prepayment of the Notes may be significant.
The timing of changes in the rate of principal prepayments on the Base
Mortgage Loans (and, thus, the rate of prepayment of the Notes) also may
significantly affect the yield to an investor, even if the average rate of
principal prepayments is consistent with such investor's expectations. In
general, the earlier the payment of principal, the greater the effect on an
investor's yield to maturity. Investors must make their own decisions as to
the appropriate assumptions, including payment assumptions, to be used in
deciding whether to purchase the Notes. See " -- Effect of Prepayment
Calculation Table" above.
PREPAYMENT CONSIDERATIONS AND RISKS RELATING TO THE REFERENCE SECURITIES.
The rate of principal prepayments on the Reference Securities (as reflected in
the PSA Index Rate) will include prepayments and liquidations resulting from
default, casualty or condemnation and payments made pursuant to any guaranty of
payment by, or option to repurchase of, FHLMC. In general, when the level of
prevailing interest rates declines sufficiently relative to the interest rates
on fixed rate mortgage loans, the rate of prepayment is likely to increase,
although the prepayment rate is influenced by a number of other factors,
including general economic conditions and homeowner mobility. Based upon
published information, the rate of prepayments on 30-year single-family
mortgage loans has fluctuated significantly in recent years. Accordingly, the
Issuer cannot estimate what the prepayment experience of the Base Mortgage
Loans will be.
Acceleration of mortgage payments as a result of transfers of the
mortgaged property is another factor affecting prepayment rates. The FHLMC PC
Offering Circular (as defined herein) indicates under "Mortgage Purchase and
Servicing Standards -- Mortgage Servicing -- Assumption and Due-on-Transfer
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Policies" therein that most of the mortgage loans that FHLMC purchases contain
"due-on-transfer" clauses permitting automatic acceleration upon a transfer of
the mortgaged property or an interest therein regardless of the
creditworthiness of the transferee. The FHLMC PC Offering Circular also
indicates that, except in the case of certain as of transfers described
therein, FHLMC generally requires its servicers to enforce such due-on-transfer
clauses and to demand full payment of the remaining principal balance of the
related mortgage to the extent permitted under the securities instrument and
state and federal law.
REINVESTMENT RISK. As described herein, the rate of prepayment of the
Notes depends on a number of factors, including the PSA Index Rate (which in
turn reflects the rate of prepayments on the Reference Securities), the effect
of the Prepayment Calculation Table and the Optional Redemption. Accordingly,
it is not possible to predict the rate at which the principal amount of the
Notes will be redeemed. Moreover, since prevailing interest rates are subject
to fluctuation, there can be no assurance that investors in the Notes will be
able to reinvest the payments thereon at yields equalling or exceeding the
yield on the Notes. It is possible that yields on such reinvestments will be
lower, and may be significantly lower, than the yield on the Notes. Investors
in the Notes should consider the related reinvestment risk in light of other
investments that may be available to such investors.
DESCRIPTION OF THE TERM ASSETS
The Term Assets consist of the Class A Floating Rate Asset Backed
Certificates, Series 1996-4 issued by Chase Manhattan Credit Card Master Trust
(the "Term Assets Issuer"). The table below sets forth certain characteristics
of the Term Assets. The table does not purport to be complete and is subject
to, and qualified in its entirety by reference to, the Term Assets Prospectus
pursuant to which the Term Assets were offered and sold.
<TABLE>
<CAPTION>
<S> <C>
Term Assets Issuer.................................. Chase Credit Card Master Trust
Term Assets Seller.................................. Chase Manhattan Bank USA, National Association
Term Assets Servicer................................ The Chase Manhattan Bank
Term Assets Trustee................................. The Bank of New York
Designation......................................... Series 1996-4, Class A
Percentage of total Term Assets pool................ 100%
Term Assets Scheduled Final Distribution Date....... Term Assets Distribution Date in November 2003
Term Assets Certificate Rate........................ LIBOR + 0.13%
Term Assets Distribution Date....................... 15th day of each month
Commencement of Controlled
Accumulation Period.............................. October 31, 2002
Term Assets Ratings................................. Aaa by Moody's and AAA by Standard & Poor's
</TABLE>
This Prospectus Supplement, together with the accompanying Prospectus,
sets forth certain relevant terms with respect to the Term Assets, but does not
provide detailed information with respect to the Term Assets. Appendix A to
this Prospectus Supplement contains excerpts from the Term Assets prospectus
and supplement thereto, each dated November 6, 1996 (the "Term Assets
Prospectus"), pursuant to which the Term Assets were offered and sold. This
Prospectus Supplement and the accompanying Prospectus relate only to the Notes
offered hereby and do not relate to the Term Assets.
The Term Assets Issuer is subject to the information requirements of the
Exchange Act. Accordingly, the Term Assets Issuer is required to file reports
and other information with respect to the Term Assets Issuer, including monthly
servicer reports ("Term Assets Servicer Reports") regarding the Receivables,
with the Commission. Copies of such reports and other information may be
inspected and copies are available at certain offices of the Commission at the
address listed under "Available Information" in the Term Assets Prospectus.
Neither the Company nor the Underwriter participated in the preparation
of the Term Assets Servicer Reports. Such reports and information will have
been prepared by the Term Assets Issuer and will not be independently verified
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by the Company or the Underwriter. There can be no assurance that events have
not occurred which would affect the accuracy or completeness of any statements
included in the Term Assets Servicer Reports or in the publicly available
documents filed by or on behalf of the Term Assets Issuer.
Although the Company has no reason to believe the information concerning
the Term Assets, the Term Assets Issuer, or the Term Assets Prospectus is not
reliable, the Company has not verified either its accuracy or its completeness.
Such information is as of the date of the Term Assets Prospectus and comparable
information if given as of the date hereof may be different.
Set forth below is certain information excerpted and summarized from the
Term Assets Prospectus relating to the Term Assets.
GENERAL
The Term Assets have been issued pursuant to the master pooling and
servicing agreement, as supplemented by a series supplement, each dated as of
November 6, 1996 (the "Term Assets Agreement"), entered into among Chase
Manhattan Bank USA, National Association (the "Term Assets Seller"), The Chase
Manhattan Bank (the "Term Assets Servicer") and The Bank of New York, as
trustee (the "Term Assets Trustee"). See Appendix A for further description of
the Term Assets Issuer. The following summary describes certain general terms
of such Term Assets Agreement, but investors should refer to the Term Assets
Agreement itself for all the terms governing the Term Assets.
The Term Assets represent an undivided interest in the Term Assets
Issuer, including the right to a percentage of cardholder payments on the
Receivables underlying such issue of the Term Assets. The assets of the Term
Assets Issuer include a pool of credit card Receivables arising under the
Accounts, funds due or to become due in respect of the Receivables, monies on
deposit in certain accounts of the Term Assets Issuer, the right to draw upon
various enhancements and the right to receive certain interchange fees
attributed to cardholder charges for merchandise. The Term Assets represent
the right to receive payments of interest for the related Term Assets Interest
Accrual Period at the applicable Term Assets Certificate Rate (as defined
herein) for each interest period from Finance Charge Receivables and other
amounts available; therefor, and payments of principal on the Term Assets
Scheduled Final Distribution Date (or, under certain limited circumstances,
during the period commencing with a Term Assets Amortization Event) from
principal collections of the Receivables.
The Term Assets Seller holds the interest in the Receivables of the Term
Assets Issuer not represented by the Term Assets and any other series of
securities issued by the Term Assets Issuer. The Term Assets Seller holds an
undivided interest in the Term Assets Issuer (the "Seller's Interest"),
including the right to a percentage of all cardholder payments on the
Receivables.
INTEREST DISTRIBUTIONS
The Term Assets bear interest at a rate (the "Term Assets Certificate
Rate") equal to 0.13% per annum above the London interbank offered quotations
for one-month United States dollar deposits ("LIBOR"). LIBOR is determined
according to Telerate Page 3750 of the Dow Jones Telerate Service (or such
other page as may replace Telerate Page 3750 on that service for the purpose of
displaying London interbank offered rates of major banks). Interest on the Term
Assets is calculated on the basis of the actual number of days in the related
interest period and a 360-day year. Interest at the applicable rate is
required to be distributed to the holders of the Term Assets.
PRINCIPAL DISTRIBUTIONS
Principal distributions due to the holders of the Term Assets are
scheduled to be paid on the Term Assets Distribution Date in November, 2003,
but may be distributed earlier or later than such date under certain
circumstances. If a Pay Out Event (as such term is defined in the Term Assets
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Prospectus) (a "Term Assets Amortization Event") occurs with respect to the
Term Assets, monthly distributions of principal to the holders of the Term
Assets will begin on the first Term Assets Distribution Date following the
occurrence of such Term Assets Amortization Event. See "Term Assets
Amortization Events" below.
OPTIONAL REPURCHASE BY TERM ASSETS SELLER
The Term Assets are subject to optional repurchase by the Term Assets
Seller on or after any Term Assets Distribution Date on which the investor
interest of the holders of the Term Assets is reduced to an amount less than or
equal to 5% of the initial amount of such investor interest.
INVESTOR PERCENTAGE AND SELLER'S PERCENTAGE
Pursuant to the Term Assets Agreement, all amounts collected on the
Receivables will be allocated between the investor interest of the holders of
the Term Assets, the investor interest of any other non-seller interests in the
Term Assets Issuer, the investor interest of any other series, and the seller's
interest by reference to the investor percentage of the holders of the Term
Assets, the investor percentage of such other non-seller interests, the
investor percentage of any other series, and the Seller's Percentage.
The "Seller's Percentage" in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
REDUCTION OF INVESTOR INTEREST
Receivables in defaulted Accounts may result in reductions of the
investor interest of the holders of the Term Assets, depending on the
sufficiency of excess spread, reallocated principal collections and credit
enhancement available therefor. If the investor interest of the holders of the
Term Assets has been so reduced, it will be reimbursed on any Transfer Date by
the amount of excess spread allocated and available for such purpose, as
described in the Term Assets Prospectus.
ALLOCATION OF COLLECTIONS
The Term Assets Servicer will deposit any payments collected by the Term
Assets Servicer with respect to the Receivables and will generally allocate,
deposit and distribute such amounts as follows:
(a) an amount equal to the applicable Seller's Percentage of the
aggregate amount of deposits in respect of Principal
Receivables and Finance Charge Receivables, respectively,
will be paid to the holder of the Seller's Certificate;
(b) an amount equal to the applicable investor percentage of the
aggregate amount of such deposits in respect of Finance
Charge Receivables will be deposited into an account for the
benefit of the holders of the Term Assets and the other
holders of the investor interests in the Term Assets Issuer;
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of collections in respect of
Principal Receivables will be paid to the holder of the
Collateral Interest, with the balance treated as "Shared
Principal Collections" and applied as set forth in the Term
Assets Prospectus;
(d) during the Term Assets Controlled Accumulation Period, an
amount equal to the applicable investor percentage of
collections in respect of Principal Receivables will be
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deposited into the Principal Funding Account (as defined in
the Term Assets Prospectus);
(e) after the occurrence of a Term Assets Amortization Event, an
amount equal to the applicable investor percentage of
collections in respect of Principal Receivables will be
distributed to the holders of the Term Assets.
"Principal Receivables" generally consist of amounts charged by
cardholders for goods and services, cash advances and consolidation or transfer
of balances from other credit cards. "Finance Charge Receivables" generally
consist of monthly periodic charges and amounts charged to Accounts in respect
of certain credit card fees, including cash advance fees, late fees, over-
limit fees, annual membership fees and all other fees billed to cardholders,
including administrative fees.
CREDIT ENHANCEMENT
The Class B Floating Rate Asset Backed Certificates, Series 1996-4 (the
"Class B Certificates") issued by the Term Assets Issuer, and the collateral
interest (the "Collateral Interest") deposited by the Term Assets Seller,
contemporaneously with the issuance of the Term Assets constitute credit
enhancement for the Term Assets. The Class B Certificates and the Collateral
Interest are subordinated to the extent necessary to fund certain payments with
respect to the Term Assets.
TERM ASSETS AMORTIZATION EVENTS
The following is a summary of the Term Assets Amortization Events (all of
which are "Pay-Out Events" as described in the Term Assets Prospectus):
(a) failure on the part of the Term Assets Seller to make any
payment or deposit on the date required under the Term Assets
Agreement (or within five days thereafter), or a material
failure by the Term Assets Seller to perform covenants and
agreements of the Term Assets Seller in the Term Assets
Agreement within the time periods given in the Term Assets
Agreement;
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in a material
respect (after applicable grace periods) any covenant or
agreement under the Term Assets Agreement;
(c) any reduction of the portfolio yield or excess spread
(averaged over any three consecutive months) to a rate below
a certain rate provided in the Term Assets Agreement for such
period;
(d) a failure by the Term Assets Seller to convey Receivables to
the Term Assets Issuer when required by the Term Assets
Agreement;
(e) occurrence of a material default (after applicable grace
periods) by the Term Assets Servicer in connection with its
acting as the Servicer for the Receivables underlying the
Term Assets;
(f) insufficient funds in the account maintained by the Term
Assets Trustee to pay the Term Assets on the Term Assets
Scheduled Final Distribution Date;
(g) certain events of bankruptcy, conservatorship, insolvency or
receivership relating to the Term Assets Seller;
(h) the Term Assets Seller becomes unable for any reason to
transfer Receivables to the Term Assets Issuer in accordance
with the provisions of the Term Assets Agreement; or
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(i) the Term Assets Issuer becomes an "investment company" within
the meaning of the Investment Company Act of 1940, as
amended.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Term Assets Servicer is paid a monthly fee for its servicing
activities and to reimburse to it for its expenses (a "Term Assets Servicing
Fee"). The Term Assets Servicing Fee will be allocated among the Seller's
Interest and the investor interests of all series issued by the Term Assets
Issuer.
The Term Assets 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 Term Assets
Trustee and independent accountants and other fees which are not expressly
stated in the related Term Assets Agreement to be payable by the Term Assets
Issuer or the holders of Term Assets.
TAX CONSIDERATIONS RELATING TO THE TERM ASSETS
The Term Assets evidence an interest in a trust fund created by the Term
Assets Agreement. Prospective investors should be aware that the purchase,
ownership or disposition of the Term Assets or any interest therein involves
certain United States Federal income tax consequences not described herein and
as to which Rogers & Wells, special tax counsel to the Depositor, has not
provided any opinions. In particular, an opinion was rendered by the
respective tax counsel to the underlying transaction that the Term Assets would
be treated as debt instruments for federal income tax purposes and, in the
discussion set forth herein and for purposes of its opinion described below,
Federal Tax Counsel has relied upon the description of such opinions in the
Term Assets Prospectus. Prospective investors are urged to consider the
discussion of Federal income tax consequences in the Term Assets Prospectus
relating to the Term Assets for a discussion of the United States Federal
income tax consequences of the purchase, ownership and disposition of the Term
Assets and of the tax treatment of the Term Assets Issuer.
RATINGS OF THE TERM ASSETS
The Term Assets have been rated "Aaa" by Moody's and "AAA" by Standard &
Poor's. Any rating of the Term Assets is not a recommendation to purchase,
hold or sell the Term Assets or the Notes, and there can be no assurance that a
rating will remain for any given period of time or that a rating will not be
revised or withdrawn entirely by a rating agency if in its judgment
circumstances in the future so warrant.
THE TERM ASSETS SELLER
Chase Manhattan Bank, USA, National Association ("Chase USA"), a wholly-
owned banking subsidiary of The Chase Manhattan Corporation ("Chase"), was
originally incorporated under the laws of Delaware in 1982 and is headquartered
in Wilmington, Delaware. Chase USA is currently chartered as a national bank
and as such is regulated primarily by the Comptroller of the Currency. Chase
USA's activities are predominantly related to credit card lending and other
forms of unsecured consumer lending.
Chase is a bank holding company the principal bank subsidiary of which is
The Chase Manhattan Bank, a New York State bank.
The principal executive office of Chase USA is located at 802 Delaware
Avenue, Wilmington, Delaware 19801, telephone number (302) 575-5000.
SALOMON BROTHERS INC AND THE TERM ASSETS SELLER
From time to time, Salomon Brothers Inc may be engaged by the Term Assets
Seller or affiliates thereof as an underwriter or placement agent, in an
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advisory capacity or in other business arrangements. In addition, Salomon
Brothers Inc or another affiliate of the Company may make a market in other
outstanding securities of the Term Assets Issuer.
THE ISSUER
GENERAL
TIERS Asset-Backed Securities, Series CHAMT Trust 1997-7 will be formed
as a business trust established under the laws of the State of Delaware
pursuant to the Trust Agreement, dated as of September 15, 1997, as
supplemented by the Series CHAMT 1997-7 Supplement dated as of September 15,
1997 (together, the "Trust Agreement"), between the Company and Delaware Trust
Capital Management, Inc. (the "Owner Trustee"). The Issuer is being formed for
the principal purposes of issuing the Notes and the Certificates, purchasing
the Term Assets and Eligible Investments (as defined herein), entering into and
performing the Swap Agreement, collecting and making payments, and activities
incidental to the foregoing. The Trust Agreement (and the Certificates issued
thereunder) will be governed by and construed in accordance with the laws of
the State of Delaware.
Concurrently with the execution and delivery of the Trust Agreement, the
Company will sell the Term Assets to the Issuer. The Issuer will issue the
Notes and the Certificates and apply the net proceeds thereof to purchase such
Term Assets and will pledge the Term Assets to the Indenture Trustee pursuant
to the Indenture.
The Term Assets will have been purchased by the Company in the secondary
market (either directly or through an affiliate of the Company). The Term
Assets will not be acquired from the Term Assets Issuer as part of any
distribution by or pursuant to any agreement with the Term Assets Issuer. The
Term Assets Issuer is not participating in this offering and will not receive
any of the proceeds of the sale of the Term Assets to the Company.
OWNER TRUSTEE
Delaware Trust Capital Management, Inc. is the Owner Trustee under the
Trust Agreement. The address of the Owner Trustee is 900 Market Street, 2nd
Floor, Wilmington, Delaware 19801, Attention: Corporate Trust Administration.
ADMINISTRATION
First Trust of New York, National Association will enter into an
Administration Agreement with the Issuer pursuant to which it will act as
administrator (the "Administrator"). The Administrator will agree, to the
extent provided in such Administration Agreement, to enforce the Swap Agreement
at the direction of the Issuer and to provide and perform other administrative
services for the Issuer. The Administrator will be appointed in lieu of any
other administrative agent or custodian and no Administrative Agent or Sub-
Administrative Agent (each as defined in the Prospectus) will be appointed by
the Issuer. Fees of the Administrator will be paid by the Company and will not
constitute a claim on the Deposited Assets of the Issuer.
DESCRIPTION OF THE NOTES
THE FOLLOWING SUMMARIES DESCRIBING CERTAIN PROVISIONS OF THE NOTES DO NOT
PURPORT TO BE COMPLETE AND ARE SUBJECT TO, AND ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO, THE PROSPECTUS AND TO THE PROVISIONS OF THE INDENTURE.
The Notes will be issued pursuant to an Indenture, to be dated as of
September 15, 1997, as supplemented by a supplemental indenture thereto dated
as of September 15, 1997 (together, the "Indenture"), between the Issuer and
First Bank of New York, National Association, as trustee (the "Indenture
Trustee").
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The Notes will be issued as a single Class of Notes, designated as the
Fixed Rate Notes, Class A, on the Original Issuance Date. The Notes will be
denominated, and distributions with respect thereto will be payable, in U.S.
dollars (the "Specified Currency"). The Notes will be issued, maintained and
transferred on the book-entry records of DTC and its Participants in minimum
denominations of $1,000 and multiples of $1,000 in excess thereof.
INTEREST
Interest will accrue on each Note on the unpaid principal amount thereof
(the "Note Principal Amount") at the fixed rate of 6.688% per annum (the "Note
Interest Rate"), calculated on the basis of a 360-day year consisting of twelve
30-day months and will be payable monthly on the 15th day of each month (or, if
any such date is not a Business Day, then on the next succeeding Business Day),
commencing October 15, 1997 (each, a "Distribution Date"). Accrued interest in
respect of each Interest Accrual Period will be payable in arrears on the
related Distribution Date and on the Scheduled Final Distribution Date (as
defined herein). "Interest Accrual Period" means, with respect to any
Distribution Date, the period from and including the preceding Distribution
Date (or, in the case of the initial Distribution Date, from and including the
Original Issuance Date) to but excluding such Distribution Date. If a
Distribution Date as originally scheduled is not a Business Day and interest is
to be paid on the next succeeding Business Day, no additional interest shall
accrue in the related Interest Accrual Period for the number of additional days
to such succeeding Business Day.
A failure to pay interest due on the Notes on any Distribution Date,
which failure continues for five Business Days, constitutes an Indenture Event
of Default, provided that if interest on the Notes is deferred in accordance
with the provisions described below under "Deferred Interest," such deferred
interest will not be considered to be "due" until the Distribution Date
following the date when the related deferred interest on the Terms Assets is
received by the Issuer.
DEFERRED INTEREST
If any amount of interest which would otherwise be payable on the Term
Assets is deferred under the terms and conditions thereof, an equivalent amount
(determined by the Calculation Agent in accordance with the Swap Agreement) of
interest in respect of the Notes and Certificates will be deferred. Any
deferred interest on the Notes will become payable on the Distribution Date
following the date when the related deferred interest on the Term Assets is
received by the Issuer. Noteholders will not be entitled to any additional
payment in respect of any such delay.
PRINCIPAL
The outstanding principal amount of the Notes, consisting of the portion,
if any, of the principal of the Notes that has not been prepaid as described
under "Mandatory Prepayment of the Notes", will be paid on November 15, 2003
(or, if such day is not a Business Day) the next succeeding Business Day (the
"Scheduled Final Distribution Date"). However, all or a portion of the
principal of the Notes is expected to be prepaid in the circumstances and in
the manner described herein. See "Mandatory Prepayment of the Notes."
Further, if an Indenture Event of Default occurs (in the absence of any Swap
Early Termination (as defined herein)), the Indenture Trustee may, and at the
written request of the holders of a majority of the principal of the Notes
will, declare the Notes to be immediately due and payable, subject to the prior
written consent of the Swap Counterparty under certain circumstances. If a Swap
Early Termination occurs, the entire unpaid principal amount of the Notes will
automatically become immediately due and payable. Notwithstanding the
foregoing, the occurrence of chargeoffs on Receivables underlying the Term
Assets, unless offset by recoveries or other credit support features, would
reduce amounts owed by the Swap Counterparty and could cause ultimate receipt
of principal by the Noteholders to be less certain and, if net chargeoffs were
material, could result in receipt of less than all principal by Noteholders by
the Scheduled Final Distribution Date. See "Risk Factors" and "Mandatory
Prepayment of the Notes."
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PAYMENTS
Payments on the Notes will be made to the Noteholders in whose name the
Notes were registered on the day immediately preceding each Distribution Date,
except in the limited circumstances in which Definitive Notes are issued as
described herein (each, a "Record Date"). See "Definitive Notes."
OPTIONAL REDEMPTION
At its option, the Swap Counterparty may purchase all of the Term Assets
and Eligible Investments of the Issuer, at a price equal to the amount that is
sufficient to pay 100% of the principal and all accrued interest on the Notes
and the Certificates, whereupon the Issuer shall redeem the Notes in full, on
any Distribution Date on which the aggregate principal amount of the Term
Assets remaining in the series of the Trust is less than 10% of the aggregate
principal amount of the Term Assets as of the Original Issuance Date (before
giving effect to distributions to be made on such date).
PRIORITY OF PAYMENTS
Amounts received in respect of the Term Assets (other than payments
received in respect of a Term Assets Amortization Event, which shall be
allocated to Eligible Investments and applied as described herein solely in
respect of payments of principal) and amounts received in respect of the Swap
Agreement will be applied on each Distribution Date to the following
distributions in the following order of priority (the "Priority of Payments"),
solely to the extent of Available Funds (as defined below) on such Distribution
Date:
FIRST, to the Swap Counterparty, any amounts due pursuant to the Swap
Agreement;
SECOND, to the Noteholders, any interest due on the Notes;
THIRD, to the Noteholders, any principal due on the Notes;
FOURTH, to the Issuer, to be distributed to the holders of the
Certificates, any interest due on the Certificates; and
FIFTH, to the Issuer, to be distributed to the holders of the
Certificates, any principal due on the Certificates.
There can be no assurance that the Available Funds on any Distribution
Date will be sufficient to make all required distributions on the Notes. To
the extent Available Funds are not sufficient to make any such distributions
due on the Notes, any shortfall will be carried over and will be distributable
on the next Distribution Date on which sufficient funds exist to pay such
shortfalls. For purposes hereof, "Available Funds" means, for any Distribution
Date, the sum of all amounts received on or with respect to the Term Assets and
the Swap Agreement on such Distribution Date (and on any other day since the
preceding Distribution Date).
ALLOCATION OF LOSSES; SUBORDINATION
The subordination provided by the Certificates is designed to protect
holders of the Notes from certain losses and other shortfalls with respect to
the Deposited Assets. As a result, losses and other shortfalls with respect to
the Deposited Assets will be borne by the Notes only if such losses and other
shortfalls are not so covered or if the coverage in respect thereof has been
exhausted.
GLOBAL NOTES
The Notes will initially be represented by one or more global
certificates registered in the name of the nominee of DTC (together with any
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successor clearing agency selected by the Company, the "Clearing Agency"),
except as provided below. The Company has been informed by DTC that DTC's
nominee will be CEDE & Co. ("CEDE"). No holder of any such Note (a "Note
Owner") will be entitled to receive a certificate representing such persons's
interest, except as set forth below under "Definitive Notes." Unless and until
Definitive Notes are issued under the limited circumstances described herein,
all references to actions by holders with respect to any such Notes shall refer
to actions taken by DTC upon instructions from its Participants. See
"Definitive Notes" below and "Description of Securities-Global Securities" in
the Prospectus.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC will take action permitted to be taken by a "Note
Owner" only at the direction of one or more Participants to whose DTC account
such Notes are credited. Additionally, DTC will take such actions with respect
to specified Voting Rights only at the direction and on behalf of Participants
whose holdings of such Notes evidence such specified Voting Rights. DTC may
take conflicting actions with respect to Voting Rights, to the extent that
Participants whose holdings of Notes evidence such Voting Rights, authorize
divergent action.
DEFINITIVE NOTES
Definitive Notes will be issued to Note Owners or their nominees,
respectively, rather than to DTC or its nominee, only if (i) the Company
advises the Indenture Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as Clearing Agency with respect to a
class of Notes and the Company is unable to locate a qualified successor or
(ii) the Company, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Indenture Trustee is required to notify all Participants of the
availability through DTC of Definitive Notes. Upon surrender by DTC of the
definitive global certificates representing the Notes and receipt of
instructions for re-registration, the Indenture Trustee will reissue such Notes
as Definitive Notes issued in the respective principal amounts owned by the
individual owners of such Notes, and thereafter the Indenture Trustee will
recognize the holders of such Definitive Notes as holders under the Indenture.
If Definitive Notes are issued, payments or distributions of principal
and interest on the Definitive Notes will be made by the Indenture Trustee
directly to the holders in whose names the Definitive Notes were registered on
the related Record Date. For purposes of any Definitive Notes, "Record Date"
means the last Business Day of the month prior to the month in which such
payment occurs (or, with respect to the first Distribution Date, the Original
Issuance Date). Payments or distributions will be made by wire transfer to an
account specified in writing by the holder and reasonably satisfactory to the
Indenture Trustee or by check mailed to the address of each holder as it
appears on the register maintained by the Indenture Trustee, except that the
final payment on any Definitive Note will be made only upon presentation and
surrender of such Definitive Note on the date for such final payment or
distribution at such office or agency as is specified in the notice of final
distribution to holders. The Indenture Trustee will provide such notice to
holders not later than the fifth day of the month of the final distribution.
The holder of such a Definitive Note may transfer such Note by surrendering it
at the office or agency maintained by the Indenture Trustee.
MANDATORY PREPAYMENT OF THE NOTES
MONTHLY PREPAYMENT
Beginning on the February 15, 1999 Distribution Date and on each
Distribution Date thereafter until the principal amount of the Notes is paid in
full, the Issuer will prepay a pro rata portion of the then outstanding
principal amount of each Note (which prepayment may range from 0.00% to 22.50%
of such outstanding principal amount) on the basis of calculations described in
the following paragraph. The principal amount of the Notes to be prepaid on
S-17
<PAGE>
any applicable Distribution Date as described herein (the "Mandatory Prepayment
Amount") will vary based in part on the monthly prepayment rate (the "Monthly
Amortization Rate") specified in the Prepayment Calculation Table that
corresponds to the PSA Index Rate for such month. The PSA Index Rate for any
month reflects the unscheduled rate of reduction in aggregate principal amount
of outstanding 30-year Federal Home Loan Mortgage Corporation ("FHLMC") Gold
8.0% mortgage participation certificates issued in calendar year 1995 (the
"Reference Securities"). The Mandatory Payment Amount may also vary depending
on the amount of the Class A Investor Charge-Offs (as defined in the Term
Assets Prospectus) through such date.
CALCULATION OF PREPAYMENT AMOUNTS. On each Distribution Date beginning
with the February 15, 1999 Distribution Date, the Issuer will prepay Notes in
an amount equal to the Mandatory Prepayment Amount. "Mandatory Prepayment
Amount" means, for any Distribution Date, an amount equal to the product of (i)
the Note Notional Amount on such Distribution Date (before giving effect to any
distributions on such date) multiplied by (ii) the Monthly Amortization Rate
that corresponds to the PSA Index Rate for the month in which such Distribution
Date occurs. "Note Notional Amount" will be defined in the Indenture to mean,
with respect to any Distribution Date, the amount of principal that the
Noteholder of such Note would receive on such date (taking into account the
subordination of the Certificates) if all of the principal of the Receivables
underlying the Term Assets owned by the Issuer were to be paid on such date,
excluding charge-offs, but including recoveries, computed (in each case) as
contemplated by the Term Assets Agreement. See Appendix A hereto and the Term
Assets Prospectus. The Note Principal Amount immediately following any such
Distribution Date will be calculated by multiplying the original principal
amount of the Notes by the Note Current Factor (as defined herein). In
connection with the calculation of prepayment amounts, the determination of the
PSA Index Rate, Monthly Amortization Rate, prepayment amounts, Note Current
Factor, and outstanding principal amount of Notes each month by the Calculation
Agent, the Indenture Trustee or the Administrator, as applicable, on behalf of
the Issuer will, absent manifest error, be final and binding.
As illustrated in the Prepayment Calculation Table below, an increase in
the PSA Index Rate for the month of a particular Distribution Date generally
results in an increase in the Monthly Amortization Rate (and thus an increase
in the percentage of the then outstanding principal amount of the Notes to be
prepaid on such date). Conversely, a decrease in the PSA Index Rate for the
month of a particular Distribution Date generally results in a decrease in the
Monthly Amortization Rate (and thus a decrease in the percentage of the then
outstanding principal amount of the Notes to be prepaid on such date). If on
any Distribution Date the Optional Redemption takes effect, the entire
outstanding principal amount of the Notes will be prepaid on such date. Thus,
variations in the rate of prepayment of the Notes from month to month may be
significant.
S-18
<PAGE>
PREPAYMENT CALCULATION TABLE
<TABLE>
<CAPTION>
Monthly Monthly Monthly
PSA Index Amortization PSA Index Amortization PSA Index Amortization
Rate(%) Rate(%) Rate(%) Rate (%) Rate (%) Rate (%)
--------- ------------ --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
0-100 0.000 157 1.596 214 3.192
101 0.028 158 1.624 215 3.220
102 0.056 159 1.652 216 3.248
103 0.084 160 1.680 217 3.276
104 0.112 161 1.708 218 3.304
105 0.140 162 1.736 219 3.332
106 0.168 163 1.764 220 3.360
107 0.196 164 1.792 221 3.388
108 0.224 165 1.820 222 3.416
109 0.252 166 1.848 223 3.444
110 0.280 167 1.876 224 3.472
111 0.308 168 1.904 225-325 3.500
112 0.336 169 1.932 326 3.570
113 0.364 170 1.960 327 3.640
114 0.392 171 1.988 328 3.710
115 0.420 172 2.016 329 3.780
116 0.448 173 2.044 330 3.850
117 0.476 174 2.072 331 3.920
118 0.504 175 2.100 332 3.990
119 0.532 176 2.128 333 4.060
120 0.560 177 2.156 334 4.130
121 0.588 178 2.184 335 4.200
122 0.616 179 2.212 336 4.270
123 0.644 180 2.240 337 4.340
124 0.672 181 2.268 338 4.410
125 0.700 182 2.296 339 4.480
126 0.728 183 2.324 340 4.550
127 0.756 184 2.352 341 4.620
128 0.784 185 2.380 342 4.690
129 0.812 186 2.408 343 4.760
130 0.840 187 2.436 344 4.830
131 0.868 188 2.464 345 4.900
132 0.896 189 2.492 346 4.970
133 0.924 190 2.520 347 5.040
134 0.952 191 2.548 348 5.110
135 0.980 192 2.576 349 5.180
136 1.008 193 2.604 350 5.250
137 1.036 194 2.632 351 5.320
138 1.064 195 2.660 352 5.390
139 1.092 196 2.688 353 5.460
140 1.120 197 2.716 354 5.530
141 1.148 198 2.744 355 5.600
142 1.176 199 2.772 356 5.670
143 1.204 200 2.800 357 5.740
144 1.232 201 2.828 358 5.810
145 1.260 202 2.856 359 5.880
146 1.288 203 2.884 360 5.950
147 1.316 204 2.912 361 5.020
148 1.344 205 2.940 362 6.090
149 1.372 206 2.968 363 6.160
150 1.400 207 2.996 364 6.230
151 1.428 208 3.024 365 6.300
152 1.456 209 3.052 366 6.370
153 1.484 210 3.080 367 6.440
154 1.512 211 3.108 368 6.510
155 1.540 212 3.136 369 6.580
156 1.568 213 3.164 370 6.650
</TABLE> S-19
<PAGE>
<TABLE>
<CAPTION>
Monthly Monthly Monthly
PSA Index Amortization PSA Index Amortization PSA Index Amortization
Rate(%) Rate(%) Rate(%) Rate (%) Rate (%) Rate (%)
--------- ------------ --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
371 6.720 431 11.200 491 15.780
372 6.790 432 11.275 492 15.860
373 6.860 433 11.350 493 15.940
374 6.930 434 11.425 494 16.020
375 7.000 435 11.500 495 16.100
376 7.075 436 11.575 496 16.180
377 7.150 437 11.650 497 16.260
378 7.225 438 11.725 498 16.340
379 7.300 439 11.800 499 16.420
380 7.375 440 11.875 500 16.500
381 7.450 441 11.950 501 16.580
382 7.525 442 12.025 502 16.660
383 7.600 443 12.100 503 16.740
384 7.675 444 12.175 504 16.820
385 7.750 445 12.250 505 16.900
386 7.825 446 12.325 506 16.980
387 7.900 447 12.400 507 17.060
388 7.975 448 12.475 508 17.140
389 8.050 449 12.550 509 17.220
390 8.125 450 12.625 510 17.300
391 8.200 451 12.700 511 17.380
392 8.275 452 12.775 512 17.460
393 8.350 453 12.850 513 17.540
394 8.425 454 12.925 514 17.620
395 8.500 455 12.000 515 17.700
396 8.575 456 13.075 516 17.780
397 8.650 457 13.150 517 17.880
398 8.725 458 13.225 518 17.940
399 8.800 459 13.300 519 18.020
400 8.875 460 13.375 520 18.100
401 8.950 461 13.450 521 18.180
402 9.025 462 13.525 522 18.260
403 9.100 463 13.800 523 18.340
404 9.175 464 13.675 524 18.420
405 9.250 465 13.750 525 18.500
406 9.325 466 13.825 526 18.580
407 9.400 467 13.900 527 18.660
408 9.475 468 13.975 528 18.740
409 9.550 469 13.050 529 18.820
410 9.625 470 14.125 530 18.900
411 9.700 471 14.200 531 18.980
412 9.775 472 14.275 532 19.060
413 9.860 473 14.350 533 19.140
414 9.925 474 14.425 534 19.220
415 10.000 475 14.500 535 19.300
416 10.075 476 14.580 536 19.380
417 10.150 477 14.660 537 19.460
418 10.225 478 14.740 538 19.540
419 10.300 479 14.820 539 19.620
420 10.375 480 14.900 540 19.700
421 10.450 481 14.980 541 19.780
422 10.525 482 14.060 542 19.860
423 10.600 483 15.140 543 19.940
424 10.675 484 15.220 544 20.020
425 10.750 485 15.300 545 20.100
426 10.825 486 15.380 546 20.180
427 10.900 487 15.460 547 20.260
428 10.975 488 15.540 548 20.340
429 11.050 489 15.620 549 20.420
430 11.125 490 15.700 550 20.500
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
Monthly Monthly Monthly
PSA Index Amortization PSA Index Amortization PSA Index Amortization
Rate(%) Rate(%) Rate(%) Rate (%) Rate (%) Rate (%)
--------- ------------ --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
551 20.580 560 21.300 569 21.020
552 20.660 561 21.380 570 22.100
553 20.740 562 21.460 571 21.180
554 20.820 563 21.540 572 21.260
555 20.900 564 21.620 573 21.340
556 20.980 565 21.700 574 22.420
557 20.060 566 21.780 575 22.500
558 21.140 567 21.860
559 21.220 568 21.940
</TABLE>
The "Note Current Factor" is a number (carried to eight decimal places)
that represents the portion of the aggregate original Note Principal Amount of
the Notes then outstanding. The Note Principal Amount of any Note at any time
will be equal to the denomination of such Note multiplied by the Note Current
Factor. Until any portion of the Note Principal Amount of the Notes has been
prepaid, the Note Current Factor will be 1.00000000. Commencing on the
February 15, 1999 Distribution Date, the Note Current Factor for any
Distribution Date will represent the portion of the aggregate original Note
Principal Amount of the Notes then outstanding after giving effect to the
amount to be prepaid on such Distribution Date. The Indenture Trustee will
maintain the Note Current Factor and will adjust it in connection with each
prepayment of the Notes.
DETERMINATION OF PSA INDEX RATE. The "PSA Index Rate" means, with
respect to any Distribution Date (in the following order of priority):
(i) the rate that appears as of 3:00 p.m. (New York City time) on the
related Prepayment Determination Date (as defined below) on the Reference
Bloomberg Page (as defined below) under the column heading "1 MO" opposite the
row "PSA";
(ii) if such rate does not appear on the Reference Bloomberg Page as of
3:00 p.m. (New York City time) on such Prepayment Determination Date, the
Calculation Agent will request FHMLC to provide a quotation of the monthly
prepayment speed (calculated according to the PSA Standard Prepayment Model (as
defined herein)) for the Reference Securities for the applicable month. If
FHMLC provides such quotation, the PSA Index Rate will be the quotation
provided by FHMLC;
(iii) if the Calculation Agent determines that FHMLC has not provided
such quotation by 5:00 p.m. on the second Business Day following such
Prepayment Determination Date, the Calculation Agent will request five major
securities dealers selected by the Calculation Agent to provide a quotation of
the monthly prepayment speed (calculated according to the PSA Standard
Prepayment Model) for the Reference Securities for the applicable month. If at
least two such quotations are so provided, then the PSA Index Rate will be the
arithmetic mean (rounded to the nearest whole integer and rounding up in the
event the fractional amount is equal to or greater than 0.5) determined by the
Calculation Agent of the quotations so obtained (and, if five such quotations
are provided, eliminating the highest quotation (or, in the event of equality,
one of the highest) and lowest quotation (or, in the event of equality, one of
the lowest)). If only one quotation is so provided, the PSA Index Rate will be
the quotation so provided; and
(iv) If no such quotation is provided as requested in clause (iii)
above, then the PSA Index Rate will be the PSA Index Rate determined with
respect to the Distribution Date preceding the applicable Distribution Date
(or, in the case of the first Distribution Date, the monthly prepayment speed
(calculated according to the PSA Standard Prepayment Model) for the Reference
Securities obtained from the sources specified in clauses (i)-(iii) above, in
that order, with respect to the most recent month for which such information is
available.
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<PAGE>
"Reference Bloomberg Page" means the display designated as page "A013"
and titled "Reference Collateral 30-year Gold 8.00, Issued in 1995" (or such
other page selected by the Calculation Agent as may replace page "A013" for the
purpose of displaying the monthly prepayment speed (calculated based on the PSA
Standard Prepayment Model) for the Reference Securities) on the Bloomberg
Financial Markets Service (or such other service selected by the Calculation
Agent as may replace such service).
"PSA Standard Prepayment Model" or "PSA" means the methodology set forth
under "Mortgage Prepayment Models -- THE PSA STANDARD PREPAYMENT MODEL" in the
"Uniform Practices for the Clearance and Settlement of Mortgage-Backed
Securities and Other Related Securities of the Public Securities Association."
The "Prepayment Determination Date" for any Distribution Date on which a
payment or prepayment of principal on the Notes is due will be the first
Business Day of the month in which such Distribution Date occurs.
The calculation of the PSA Index Rate, which involves numerous mortgage
pools, may differ among dealers and other market participants, which
differences may be significant. The Issuer reserves the right, exercisable by
the Indenture Trustee in its sole discretion on behalf of the Issuer, to
determine whether any modification in PSA methodology or in the timing or
procedures affecting publication or dissemination of the PSA prepayment rate
for the Reference Securities warrants an adjustment to the foregoing
calculation procedures, whereupon such procedures will be deemed to be amended
as so determined by the Indenture Trustee; provided that no change in such
procedures will be effective without the written consent of the Swap
Counterparty.
CERTAIN ADDITIONAL INFORMATION ABOUT THE PSA STANDARD PREPAYMENT MODEL.
Prepayments of mortgage loans commonly are measured relative to a prepayment
standard or model. The model used herein with respect to the Base Mortgage
Loans is the PSA Standard Prepayment Model. 100% PSA assumes prepayment rates
of 0.2% per annum of the then unpaid principal balance of such pool of mortgage
loans in the first month of the life of such mortgage loans and an additional
0.2% per annum in each month thereafter until the 30th month. Beginning in the
30th month and in each month thereafter during the life of such mortgage loans,
100% PSA assumes a constant prepayment rate of 6% per annum. Multiples may be
calculated from this prepayment rate sequence. For example, 150% PSA assumes
prepayment rates will be 0.3% per annum in month one, 0.6% per annum in month
two, and increasing by 0.3% in each succeeding month until reaching a rate of
9% per annum in month 30 and remaining constant at 9% per annum thereafter.
Similarly, 200% PSA assumes prepayment rates will be 0.4% per annum in month
one, 0.8% per annum in month two, and increasing by 0.4% in each succeeding
month until reaching a rate of 12% per annum in month 30 and remaining constant
at 12% per annum thereafter. 0% PSA assumes no prepayments. Having the PSA
Standard Prepayment Model as an industry standard allows actual prepayment
experiences of pools of mortgage loans to be expressed by reference to such
model.
THE PSA STANDARD PREPAYMENT MODEL DOES NOT PURPORT TO BE AN HISTORICAL
DESCRIPTION OF THE PREPAYMENT EXPERIENCE OF ANY POOL OF MORTGAGE LOANS OR A
PREDICTION OF THE ANTICIPATED RATE OF PREPAYMENT OF ANY POOL OF MORTGAGE LOANS,
INCLUDING THE BASE MORTGAGE LOANS. IT IS HIGHLY UNLIKELY THAT THE BASE
MORTGAGE LOANS WILL PREPAY AT ANY CONSTANT PERCENTAGE OF PSA OR AT ANY OTHER
CONSTANT RATE.
LIQUIDATIONS OF TERM ASSETS AND ELIGIBLE INVESTMENTS
In connection with any Distribution Date on which a Mandatory Prepayment
Amount will be due, the Administrator is required to sell in accordance with
the Sale Procedures (as defined herein) Term Assets and Eligible Investments,
or any combination thereof, at the direction of the Swap Counterparty, having
an aggregate principal balance equal to that month's Mandatory Prepayment
Amount. The proceeds of such sale will be paid to the Swap Counterparty and
the Swap Counterparty, pursuant to the Swap Agreement, will pay to the Issuer
an amount equal to the Mandatory Prepayment Amount. See "Description of the
Indenture- Liquidations of Term Assets & Eligible Investments".
S-22
<PAGE>
NOTICE OF PREPAYMENT
No notice of prepayment will be given to the Noteholders in connection
with the payment of any Mandatory Prepayment Amount.
DESCRIPTION OF THE INDENTURE
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE DOES NOT
PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO, THE PROVISIONS OF THE INDENTURE. SEE "DESCRIPTION OF THE NOTES"
HEREIN AND "DESCRIPTION OF THE INDENTURE" IN THE PROSPECTUS.
COLLECTION ACCOUNT
All interest distributions on the Term Assets and each payment received
by the Indenture Trustee under the Swap Agreement will be deposited promptly in
the Collection Account and distributed on each Distribution Date in accordance
with the Priority of Payments.
COLLATERAL ACCOUNT
Any principal distributions on the Term Assets will be deposited promptly
in the Collateral Account and invested by the Indenture Trustee in Eligible
Investments, as identified by the Swap Counterparty. Neither the Term Assets
nor any Eligible Investments held in the Collateral Account will be available
to pay interest due on the Notes if amounts in the Collection Account are at
any time insufficient to make such payments. Rather, such amounts are intended
to be liquidated only in connection with the payment of Mandatory Prepayment
Amounts or upon the occurrence of an Indenture Event of Default.
"Eligible Investments" means any one or more of the following obligations
or securities, provided that the total return specified by the terms of each
such obligation or security is at least equal to the purchase price thereof:
(i) direct obligations of, and obligations fully guaranteed by, the United
States; (ii) demand and time deposits in, certificates of deposit of, or
banker's acceptances issued by any depository institution or trust company
(including the Indenture Trustee or any agent or affiliate of the Indenture
Trustee acting in their respective commercial capacities) incorporated under
the laws of the United States or any State and subject to supervision and
examination by Federal and/or State banking authorities so long as the
commercial paper and/or the short-term debt obligations of such depository
institution or trust company (or, in the case of a depository institution which
is the principal subsidiary of a holding company, the commercial paper or other
short-term debt obligations of such holding company) at the time of such
investment or contractual commitment providing for such investment rated not
less than A-1+ from Standard & Poor and P1 from Moody's; (iii) commercial paper
having at the time of such investment, a rating of not less than A-1+ from
Standard & Poor and P1 from Moody's; (iv) investments in money market funds
having a rating from the Rating Agency in the highest investment category
granted thereby (including funds for which the Indenture Trustee or any of its
Affiliates is investment manager or advisor or otherwise may have an interest)
at the time such investment; and (v) investments in asset-backed securities
issued pursuant to a pooling and servicing agreement, master pooling agreement,
trust agreement or indenture, having at the time of such investment ratings of
AAA from S&P and Aaa from Moody's.
Eligible Investments may include, without limitation, those investments
for which the Indenture Trustee, the Owner Trustee or an affiliate thereof
provides services. All Eligible Investments shall mature no later than the
Scheduled Final Payment Date for the Notes.
LIQUIDATIONS OF TERM ASSETS AND ELIGIBLE INVESTMENTS
In connection with any Distribution Date on which a Mandatory Prepayment
Amount will be due on the Notes, Term Assets or Eligible Investments or a
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<PAGE>
combination thereof, in each case as designated by the Swap Counterparty, will
be liquidated and sold by the Indenture Trustee pursuant to the Sale Procedures
as specified in the Indenture in an aggregate principal amount equal to the
principal amount of the Notes to be prepaid on such date as described under
"Mandatory Prepayment -- Monthly Prepayment." "Sale Procedures" means, in
connection with any sale of Term Assets or Eligible Investments, procedures
pursuant to which the Administrator, on behalf of the Issuer, shall sell such
securities to the highest bidders among not less than three solicited bidders
in the relevant markets for such securities (one of which bidders may (but need
not) be Salomon Brothers Inc, SwapCo. Inc., the Swap Counterparty or any of
their respective affiliates and which bidders need not be limited to recognized
broker dealers). In the sole, good faith judgement of the Administrator, bids
may be evaluated on the basis of bids for all or any portion of the securities
being sold or any other basis selected in good faith by the Administrator.
REPORTS TO NOTEHOLDERS
The Indenture Trustee will mail to each Noteholder, at such Noteholder's
written request, at its address listed on the Note Register maintained with the
Indenture Trustee a monthly report stating (i) the amounts of principal and
interest, respectively, paid on each $1,000 in Note Principal Amount of Notes,
(ii) the aggregate Note Principal Amount, (iii) the Note Current Factor, and
(iv) the outstanding balance of the Term Assets and the Eligible Investments,
if any.
INDENTURE EVENTS OF DEFAULT
With respect to the Notes, an "Event of Default" under the Indenture
(each, an "Indenture Event of Default") will consist of the following: (i) a
default for five Business Days or more in the payment of any interest on any
Note when the same becomes due and payable; provided that if interest on the
Notes is deferred in accordance with the provisions described under
"Description of the Notes -- Deferred Interest," such deferred interest will
not be considered "due and payable" within the meaning of this clause (i) until
the Distribution Date following the date when the related deferred interest on
the Term Assets is received by the Issuer; (ii) a default in the payment of the
principal of or any installment of the principal of any Note when the same
becomes due and payable by reason of mandatory prepayment or otherwise; (iii) a
default in the observance or performance of any covenant or agreement of the
Issuer made in the Indenture and the continuation of any such default for a
period of 30 days after notice thereof is given to the Issuer by the Indenture
Trustee or the Swap Counterparty or to the Issuer, the Swap Counterparty and
the Indenture Trustee by the holders of at least 25% of the Note Principal
Amount of the Notes; (iv) any representation or warranty made by the Issuer in
the Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made, and
the circumstance in respect of which such representation or warranty was
incorrect not having been cured within 30 days after notice thereof is given to
the Issuer by the Indenture Trustee or the Swap Counterparty or to the Issuer,
the Swap Counterparty and the Indenture Trustee by the holders of at least 25%
of the Note Principal Amount of the Notes then outstanding; (v) certain events
of bankruptcy, insolvency, receivership or liquidation of the Issuer, or (vi)
the occurrence of a Swap Early Termination.
RIGHTS UPON INDENTURE EVENT OF DEFAULT
If is an Indenture Event of Default occurs due to late payment or
nonpayment of interest due on the Notes, additional interest will accrue on
such unpaid interest at the interest rate on the Notes (to the extent lawful)
until such interest is paid. Such additional interest on unpaid interest will
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<PAGE>
be due at the time such interest is paid. If there is an Event of Default due
to late payment or nonpayment of principal on the Notes, interest will continue
to accrue on such principal at the interest rate on the Notes until such
principal is paid.
If an Indenture Event of Default occurs and is continuing (other than an
Indenture Event of Default that constitutes a Swap Early Termination), the
Indenture Trustee may and, at the written request of the holders of a majority
of the principal of the Notes then outstanding will, declare the principal of
the Notes to be immediately due and payable, subject to the prior written
consent of the Swap Counterparty. Such declaration may, under certain
circumstances, be rescinded by the holders of a majority of the outstanding
principal of the Notes then outstanding, subject to the prior written consent
of the Swap Counterparty. If a Swap Early Termination occurs, the entire
unpaid principal amount of the Notes will become immediately due and payable
automatically.
If an Indenture Event of Default occurs and is continuing (other than by
reason of a Swap Early Termination), the Indenture Trustee (subject to the next
paragraph) may institute proceedings to collect amounts due or foreclose on
property of the Issuer, exercise remedies as a secured party, sell the Term
Assets or elect to have the Issuer maintain possession of the Term Assets and
continue to apply collections on the Term Assets; provided, however, that (i)
the Indenture Trustee shall not be obligated to act on behalf of any Term
Assets obligor and (ii) if the Swap Counterparty has given instructions to
the Indenture Trustee with respect to such proceedings, remedies or actions,
and no Swap Default as to which the Swap Counterparty is the defaulting
party or Termination Event as to which the Swap Counterparty is the Affected
Party shall have occurred, the Indenture Trustee shall follow such
instructions and shall disregard any contrary instructions. If an
Indenture Event of Default due to a Swap Early Termination occurs and
is continuing or upon an acceleration of the Notes, the Indenture
Trustee is required to liquidate the Term Assets and any Eligible Invest-
ments in compliance with the Indenture. The amount distributed to any
Noteholder upon such liquidation will equal the lesser of (i) its Pro Rata
Share of (A) the proceeds of the liquidation of the Term Assets and the
Eligible Investments minus (B) the sum of (1) any termination payment owed by
the Issuer to the Swap Counterparty under the Swap Agreement and (2) any other
unpaid expenses incurred by the Issuer; and (ii) 100% of the outstanding
principal amount of such Note plus accrued interest thereon (such lesser
amount, the "Liquidation Price"). "Pro Rata Share" means the percentage
obtained by dividing (i) the outstanding principal amount of such Note by (ii)
the outstanding principal amount of all of the Notes plus the aggregate
principal amount of all of the Certificates.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the Notes or the Swap Counterparty, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to certain limitations contained in the Indenture, if a Swap
Default as to which the Swap Counterparty is the defaulting party or a
Termination Event as to which the Swap Counterparty is the Affected Party shall
have occurred. the holders of a majority of the outstanding principal of the
Notes will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to the Indenture Trustee. With the
prior written consent of the Swap Counterparty, the holders of a majority of
the principal of the Notes then outstanding may, in certain cases, waive any
default with respect thereto, except (i) a default in the payment of principal
or interest, (ii) a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all of the
holders of the outstanding principal of the Notes or (iii) the occurrence of a
Swap Early Termination.
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Indenture Event of Default,
(ii) the holders of not less than 25% of the outstanding principal of the Notes
have made written request to the Indenture Trustee to institute such proceeding
in its own name as Indenture Trustee, (iii) such holder or holders have offered
the Indenture Trustee reasonable indemnity satisfactory to the Indenture
Trustee, (iv) the Indenture Trustee has for 60 days failed to institute such
proceeding, (v) no direction inconsistent with such written request has been
given to the Indenture Trustee during the 60-day period by the holders of a
majority of the outstanding principal of the Notes and (vi) the Swap
Counterparty's prior written consent has been obtained (unless a Swap Default
on its part has occurred). Notwithstanding the foregoing, the Swap
Contemporary will agree, and each Noteholder, by its acceptance of its Note,
will be deemed to have agreed, that, prior to the date that is one year and one
day after payment in full of the Notes, it will not institute, nor join in the
institution of, any insolvency proceeding against or affecting the Issuer.
In addition, each of the Indenture Trustee and each Noteholder, by its
acceptance of Notes, will covenant that they will not at any time institute
against the Issuer or the Company any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law in connection
with the Notes, the Swap Agreement, the Indenture, the Trust Agreement or any
related agreement.
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With respect to the Issuer, neither the Indenture Trustee nor the Owner
Trustee in their capacities as trustees, nor any holder of a Certificate
representing an ownership interest in the Issuer, nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will be personally liable for the payment of the
principal of or interest on the Notes or for the agreements of the Issuer
contained in the Indenture.
CERTAIN COVENANTS
The Issuer will not, among other things, (i) except as expressly
permitted by the Indenture, sell, transfer, exchange or otherwise dispose of
any of the assets of the Issuer unless directed to do so by the Indenture
Trustee, (ii) claim any credit on or make any deduction from the principal and
interest payable in respect of the Notes (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or former
holder of Notes because of the payment of taxes levied or assessed upon the
Issuer, (iii) except as contemplated pursuant to the Indenture, dissolve or
liquidate in whole or in part, (iv) permit the validity or effectiveness of the
Indenture to be impaired or permit any person to be released from any covenants
or obligations with respect to the Notes under the Indenture except as may be
expressly permitted thereby or (v) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the Issuer or any part thereof,
or any interest therein or the proceeds thereof, except as permitted by the
Trust Agreement or the Indenture.
The Issuer may not engage in any activity other than as specified under
"The Issuer" herein. The Issuer will not incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the Trust Agreement
and the Indenture.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged (subject to surviving rights of
indemnity) with respect to the collateral securing the Notes upon the delivery
to the Indenture Trustee for cancellation of all the Notes or, with certain
limitations, upon deposit with the Indenture Trustee of funds sufficient for
the payment in full of the Notes, and any amounts due to the Swap Counterparty.
MODIFICATION OF INDENTURE
With the consent of the holders of a majority of the outstanding
principal amount of the Notes and the consent of the Swap Counterparty, the
Trust and the Indenture Trustee may execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the
Indenture, or modify (except as provided below) in any manner the rights of the
Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby and the consent of the Swap Counterparty, however, no supplemental
indenture will: (i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof or the
interest rate thereon, change the provisions of the Indenture relating to the
application of collections on, or the proceeds of the sale of, the Term Assets
to payment of principal of or interest on the Notes, or change any place of
payment where, or the coin or currency in which, any Note or the interest
thereon is payable, or impair the right to institute suit for the enforcement
of the provisions of the Indenture requiring the application of funds available
therefor, as provided in the Indenture, to the payment of any such amount due
on the Notes on or after the respective due dates thereof, (ii) reduce the
percentage of the outstanding principal of the Notes required to direct the
Indenture Trustee to sell or liquidate the Term Assets pursuant to the terms of
the Indenture; (iii) reduce the percentage of the outstanding principal amount
of the Notes, the consent of the holders of which is required for any
supplemental indenture or the consent of the holders of which is required for
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<PAGE>
any waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture;
(iv) modify or alter the provisions of the Indenture regarding the definition
of the term "Outstanding"; (v) decrease the percentage of the aggregate
principal amount of Notes required to amend the sections of the Indenture which
specify the applicable percentage of aggregate principal amount of the Notes
necessary to amend the Indenture or certain other related agreements; (vi)
permit any modification of the provisions of the Indenture in such a manner to
affect the calculation of the amount of any payment of interest or principal
due on any Note on any Distribution Date (including the calculation of any of
the individual components of such calculation) or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise
permitted or contemplated in the Indenture, terminate the lien of the Indenture
on any such collateral or deprive the holder of any Note of the security
afforded by the lien of the Indenture.
The Issuer and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders, for the purpose
of, among other things, adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the Noteholders; provided that such action will not
materially and adversely affect the interest of any Noteholder or the Swap
Counterparty as evidenced by a legal opinion satisfactory to the Swap
Counterparty and the Indenture Trustee.
VOTING RIGHTS
At all times, the voting rights of Noteholders under the Indenture will
be allocated among the Notes pro rata in accordance with their respective Note
Principal Amounts.
GOVERNING LAW
The Notes and the Indenture will be governed by and construed in
accordance with the laws of the state of New York.
THE INDENTURE TRUSTEE
First Trust of New York, National Association, a national banking
corporation, will act as trustee pursuant to the Indenture. The Indenture
Trustee's offices are located at 100 Wall Street, Suite 1600, New York, New
York 10005 and its telephone number is (212) 361-2510.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE COMPANY
Neither the Company, the Indenture Trustee nor any director, officer or
employee of the Company or the Indenture Trustee will be under any liability to
the Issuer or the Noteholders for any action taken or for refraining from the
taking of any action in good faith pursuant to the Indenture or for errors in
judgment; provided, however, that none of the Indenture Trustee, the Company
and any director, officer or employee thereof will be protected against any
liability which would otherwise be imposed by reason of willful misconduct, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties under the Indenture. The Indenture Trustee
and/or its affiliates may receive compensation in connection with the Indenture
Trustee's investment of proceeds of Term Assets in certain Eligible Investments
as provided in the Indenture.
All persons into which the Indenture Trustee may be merged or with which
it may be consolidated, or to whom its assets may be sold substantially as an
entirety, or any person resulting from such merger, consolidation, or sale,
will be the successor of the Indenture Trustee under the Indenture.
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DESCRIPTION OF THE SWAP AGREEMENT
THE FOLLOWING SUMMARY DESCRIBES CERTAIN TERMS OF THE SWAP AGREEMENT. THE
SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO, THE PROVISIONS OF THE SWAP AGREEMENT.
PAYMENTS UNDER THE SWAP AGREEMENT
On the Original Issuance Date, the Issuer will enter into a 1992
International Swaps and Derivatives Association, Inc. ("ISDA") Master Agreement
(Multi Currency-Cross Border) (such agreement, the "1992 Master Agreement")
with the Swap Counterparty, as modified to reflect the transactions described
below and certain terms of the Notes (the 1992 Master Agreement, as so
modified, the "Swap Agreement"). The Swap Agreement will incorporate certain
relevant standard definitions published by ISDA.
Under the Swap Agreement, the Issuer will pay to the Swap Counterparty,
on each Distribution Date, an amount equal to the payments of interest received
on the Term Assets (including any deferred or penalty interest), and the Swap
Counterparty will pay to the Issuer on each Distribution Date amounts equal to
the interest payable on the Notes on such date. If, on any Distribution Date,
the amount received by the Issuer on the Term Assets and paid to the Swap
Counterparty is less than the scheduled interest thereon, the Swap Counterparty
shall reduce its payment to the Issuer by the amount of such deficiency.
In addition, on each Distribution Date on which a Mandatory Prepayment
Amount is due, the Issuer will pay to the Swap Counterparty an amount equal to
the proceeds from the sale of Term Assets or Eligible Investments (as defined
herein) or any combination thereof (at the direction of the Swap Counterparty)
having an aggregate principal balance equal to that month's Mandatory
Prepayment Amount and the Swap Counterparty will pay to the Issuer an amount
equal to the Mandatory Prepayment Amount.
Unless the Swap Agreement is terminated early (a "Swap Early
Termination") as described under "-- Swap Early Termination," the Swap
Agreement will terminate on the earlier of (i) the Scheduled Final Distribution
Date and (ii) the date on which the principal of all of the Notes is prepaid as
described under "Mandatory Prepayment of the Notes -- Monthly Prepayment".
SCHEDULED FINAL DISTRIBUTION DATE; ASSET IMPAIRMENT EVENT
On the Scheduled Final Distribution Date, unless an Asset Impairment
Event has occurred, the Term Assets and Eligible Investments will be sold in
accordance with the Sale Procedures and paid to the Swap Counterparty and the
Swap Counterparty will pay to the Issuer the aggregate Note Principal Amount
and Certificate principal balance, plus accrued interest on the Notes and
Certificates. If, however, an Asset Impairment Event occurs, the Indenture
Trustee will be obligated to sell the Term Assets and to use the proceeds from
such sale (and the amount of any scheduled payment in respect of interest
received from the Swap Counterparty) to: FIRST, pay to the Swap Counterparty
any scheduled payment then due under the Swap Agreement; SECOND, to redeem the
Notes, together with any accrued interest thereon; and THIRD, to remit the
balance, if any, to the Issuer for application in accordance with the Trust
Agreement. "Asset Impairment Event" will be defined in the Swap Agreement to
mean that on the Scheduled Final Distribution Date for the Term Assets, the
Note Notional Amount (as defined herein under "Mandatory Prepayment of the
Notes -- Monthly Prepayment"), less all losses (if any) on Eligible Investments
that became defaulted investments while owned by the Issuer, is less than the
aggregate Note Principal Amount of the Notes on such date. If such an Asset
Impairment Event occurs, the Noteholders will not recover the full principal
amount of their Notes.
CONDITIONS PRECEDENT
The respective obligations of the Swap Counterparty and the Issuer to pay
any amount due under the Swap Agreement will be subject to the following
conditions precedent: (i) no Swap Default (as defined below under "-Swap
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<PAGE>
Defaults") or event that with the giving of notice or lapse of time or both
would become a Swap Default shall have occurred and be continuing and (ii) no
Termination Event (as defined below under "Swap Termination Events") has
occurred.
SWAP DEFAULTS
"Events of Default" under the Swap Agreement (each, a "Swap Default") are
limited to: (i) the failure of the Issuer or the Swap Counterparty to pay any
amount when due under the Swap Agreement after giving effect to the applicable
grace period, if any, (ii) the occurrence of certain events of insolvency or
bankruptcy of the Issuer or the Swap Counterparty and (iii) an acceleration of
the Notes upon an Indenture Event of Default.
SWAP TERMINATION EVENTS
In addition to certain standard early termination events under the 1992
Master Agreement, including "Illegality" as described in Sections 5(b)(i) of
the 1992 Master Agreement, "Termination Events" under the Swap Agreement
consist of the following: (i) the occurrence of an Optional Redemption of the
Notes, (ii) payment in full of the Note Principal Amount and the certificate
principal balance (a "Prepayment Event").
SWAP EARLY TERMINATION
Upon the occurrence of any Swap Default under the Swap Agreement, the
non-defaulting party will have the right to designate an Early Termination Date
(as defined in the Swap Agreement) upon the occurrence and continuance of such
Swap Default. Upon the occurrence of a Swap Termination Event, an "Early
Termination Date" (as defined in the Swap Agreement) may be designated by one
of the parties (as specified in each case in the Swap Agreement) and will occur
only upon notice and, in certain cases, after any Affected Party (as defined in
the Swap Agreement) has used reasonable efforts to transfer its rights and
obligations under the Swap Agreement to a related entity within a limited
period after notice has been given of the Termination Event, all as set forth
in the Swap Agreement. Upon the occurrence of (i) any Swap Default arising
from any action taken, or failure to act, by the Swap Counterparty, or (ii) a
Termination Event with respect to which the Swap Counterparty is the Affected
Party, the Indenture Trustee may by notice to the Swap Counterparty designate
an Early Termination Date with respect to the Swap Agreement.
Upon an Early Termination Date under the Swap Agreement caused by a Swap
Default or an Illegality, the Issuer or the Swap Counterparty may be liable to
make a termination payment to the other (regardless, if applicable, of which of
such parties may have caused such termination). Such termination payment will
be calculated on the basis that the Issuer is the Affected Party (as defined in
the Swap Agreement) except in the case of early termination by reason of
default by the Swap Counterparty or an Illegality with respect to the Swap
Counterparty. The amount of any such termination payment will be based on the
market value of the Swap Agreement computed on the basis of market quotations
of the cost of entering into swap transactions with the same terms and
conditions that would have the effect of preserving the respective full payment
obligations of the parties in accordance with the procedures set forth in the
Swap Agreement. Any such termination payment could, if interest rates have
changed significantly, be substantial. No termination payment will be due if
the Swap Termination Event is an Optional Redemption of the Notes or a
Prepayment Event (as defined above).
If an Early Termination Date occurs or is designated, the principal of
the Notes will be declared or become automatically due and payable and the
Indenture Trustee will be obligated to sell the Term Assets as described under
"Description of the Indenture - Liquidations of Term Assets and Eligible
Investments." In any such event, the ability of the Issuer to pay principal
and interest on the Notes will depend (a) on the price at which the Term Assets
and Eligible Investment are liquidated, (b) on the amount of the termination
payment, if any, which may be due to the Swap Counterparty from the Issuer
under the Swap Agreement, and (c) on the amount of the termination payment, if
any, which may be due to the Issuer from the Swap Counterparty under the Swap
Agreement. If the net proceeds from liquidation of the Term Assets and
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Eligible Investments are not sufficient to make all payments due in respect of
the Notes and for the Issuer to meet its obligations, if any, in respect of the
termination of the Swap Agreement, then such amounts will be applied in
accordance with the priority of payments described herein and the claims of the
Swap Counterparty in respect of such net proceeds will rank higher in priority
than the claims of the Noteholders. See "Description of the Notes -- Priority
of Payments."
TAXATION
Neither the Issuer nor the Swap Counterparty is obligated under the Swap
Agreement to gross up payments if withholding taxes are imposed on payments
made under the Swap Agreement.
In the event that any withholding tax is imposed on payments due to the
Issuer on the Term Assets or payments by the Issuer under the Swap Agreement,
the Swap Counterparty will be entitled to deduct amounts in the same proportion
(as calculated in accordance with the Swap Agreement) from subsequent payments
due from it.
ASSIGNMENT
Neither the Issuer nor the Swap Counterparty is permitted to assign,
novate or transfer as a whole or in part any of its rights, obligations or
interests under the Swap Agreement.
THE SWAP COUNTERPARTY
Westdeutsche Landesbank Girozentrale ("WestLB"), which traces its history
to 1832, was created by the merger of two central banks, or Landesbanks (German
State Banks), in the State of North Rhine-Westphalia, the Federal Republic of
Germany ("Germany") on January 1, 1969. As a German universal bank, WestLB
provides commercial and investment banking services regionally, nationally and
internationally to public, corporate and bank customers. West LB is the
largest of the Landesbanks and, on the basis of total assets at December 31,
1996, was the third largest bank in Germany. At December 31, 1996, WestLB had
total assets of approximately DM349.8 billion (approximately U.S. $225.0
billion).
The New York Branch of WestLB ("West LB New York") is licensed and
subject to supervision and regulation by the Superintendent of Banks of the
State of New York. WestLB New York is examined by the New York State Banking
Department and is subject to banking laws and regulations applicable to a
foreign bank that operates a New York branch.
Upon written request, WestLB will provide without charge to each person
to whom this Prospectus is delivered a copy of its most recent annual report.
Written request for such annual reports or any additional information
concerning WestLB should be directed to Westdeutsche Landesbank Girozentrale,
New York Branch, 1211 Avenue of the Americas, New York, New York 10036,
Attention: Branch Management.
WEIGHTED AVERAGE LIFE OF THE NOTES AND MATURITY CONSIDERATIONS
Weighted average life refers to the average length of time, weighted by
principal, that will elapse from the date of delivery of a security to the date
each dollar of principal is repaid to the investor.
The weighted average life of the Notes will be influenced by, among other
factors, the rate at which principal prepayments (including principal
prepayments, liquidations due to default, casualty and condemnation and
payments made pursuant to any guaranty of payment by, or option to repurchase
of, FHLMC) are made on the Base Mortgage Loans, the effect of the Prepayment
Calculation Table and the Optional Redemption. Prepayments on the Base
Mortgage Loans will be applied to principal distributions on the Reference
Securities and, accordingly, will affect the PSA Index Rate (which, after
giving effect to the Prepayment Calculation Table, will determine the rate of
prepayment of the Notes as described herein). As illustrated in the Prepayment
Calculation Table, if the PSA Index Rate for any month is equal to or less than
100%, the Monthly Amortization Rate for such month will be 0.00%. At PSA Index
Rates above 225%, the corresponding Monthly Amortization Rates will increase.
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If the PSA Index Rate for any month is equal to or greater than 575%, the
Monthly Amortization Rate for such month will be 22.50%. Thus, variations in
the rate of prepayment of the Notes from month to month may be significant.
The effect of the foregoing factors on the Notes may vary at different times
during the lives of the Notes. Accordingly, no assurance can be given as to
the weighted average lives of the Notes.
The Scheduled Final Distribution Date for the Notes is the date not later
than which the principal amount of the Notes is required to be fully paid. As
described above, the actual final payment of the Notes may occur earlier, and
could occur significantly earlier, than the Scheduled Final Distribution Date.
However, there can be no assurance that the final payment of principal of the
Notes will occur prior to the Scheduled Final Distribution Date.
In addition, if the aggregate outstanding principal amount of the Term
Assets immediately after any Distribution Date would be less than 10% of the
aggregate original principal amount of the Term Assets as of the Original
Issuance Date, then the entire remaining principal amount of the Notes,
together with accrued interest thereon, may be prepaid by the Issuer on such
Distribution Date. See "Description of the Notes -- Optional Redemption."
THE REFERENCE SECURITIES
The Offering Circular for FHLMC Mortgage Participation Certificates
relating to the Reference Securities (the "FHLMC PC Offering Circular"), which
sets forth the general characteristics of the Reference Securities, indicates
that the Reference Securities represent undivided interests in pools of
conventional, level payment, first-lien, single-family, fixed-rate residential
mortgage loans having original maturities of up to 30 years (the "Base Mortgage
Loans"). The FHLMC PC Offering Circular further provides that principal and
interest on the Base Mortgage Loans are to be passed through monthly,
commencing on the 15th day of the month following the month of the initial
issuance of the Reference Securities (or, if such 15th day is not a business
day, on the first business day next succeeding such 15th day). A description
of the method for calculating the amount of principal to be passed through in a
particular month in respect of the Reference Securities is set forth in the
FHLMC PC Offering Circular under "PC Security Structure -- Payments on PCs -
Calculation of Payments for Gold PCs."
Based solely on information made available by FHLMC, the Base Mortgage
Loans have the additional characteristics set forth in the table below as of
August 1, 1997. The Issuer has made no independent verification of such
information. Certain other data specific to the Reference Securities currently
are made available by FHLMC through the FHLMC Investor Inquiry Department
(telephone 800-336-3672).
Approximate WAC(1)...................................8.576%
Approximate WALA(2)...............................28 months
Approximate WARM(3)..............................322 months
- ----------------
(1) WAC is the weighted average coupon calculated by FHLMC, which is
the average of the mortgage coupons of the Base Mortgage Loans,
weighted by the corresponding principal balance.
(2) WALA is the weighted average loan age calculated by FHLMC, which is
the average of the number of months since origination of the Base
Mortgage Loans, weighted by the corresponding principal balances.
FHLMC measures the loan age of a mortgage loan by reference to the
due dates of monthly payments. A mortgage loan that has not
reached its first due date has a loan age of zero months (even if a
month or more has elapsed since its actual date of origination); a
mortgage loan that has reached its first due date but not its
second has a loan age of one month; and so forth.
(3) WARM is the weighted average remaining term to maturity calculated
by FHLMC, which is the average of the remaining terms to maturity
of the Base Mortgage Loans, weighted by the corresponding principal
balance.
ALTHOUGH THE PRINCIPAL AMOUNT OF NOTES PREPAYABLE ON A PARTICULAR
DISTRIBUTION DATE IS RELATED TO PRINCIPAL PREPAYMENTS ON THE REFERENCE
SECURITIES (AS REFLECTED IN THE PSA INDEX RATE FOR SUCH MONTH), THE NOTES ARE
NOT SECURED BY THE REFERENCE SECURITIES.
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PREPAYMENT AND ADDITIONAL STRUCTURING ASSUMPTIONS
AND DECREMENT TABLE
The following tables indicate the percentages of original principal
amount of the Notes, respectively, that would be outstanding after each of the
dates shown at various PSA Index Rates after application of the Prepayment
Table and the corresponding weighted average lives of the Notes. The tables
have been prepared on the basis of the Additional Structuring Assumptions (as
defined below). However, the Base Mortgage Loans will not necessarily have the
characteristics assumed, nor are the Base Mortgage Loans likely to prepay at a
constant percentage of PSA. Moreover, diverse remaining terms to maturity of
the Base Mortgage Loans could produce slower or faster principal payments than
indicated in the table at the specified PSA Index Rates, even if the weighted
average maturity of the Base Mortgage Loans is identical to the weighted
average maturity specified in the Additional Structuring Assumptions.
Unless otherwise specified, the information in the following tables has
been prepared on the basis of the following assumptions (such assumptions, the
"Additional Structuring Assumptions"):
<circle> the Base Mortgage Loans prepay at the PSA Index Rates specified in the
related table;
<circle> the Original Issuance Date for the Notes is September 15, 1997;
<circle> the first payment of principal on the Notes occurs on February 15,
1999; and
<circle> the Optional Redemption occurs upon the earliest permitted
Distribution Date.
PERCENT OF ORIGINAL PRINCIPAL AMOUNT OF NOTES OUTSTANDING
<TABLE>
<CAPTION>
PRINCIPAL
PAYMENT PSA Index Rate
Date
100% 135% 175% 225% 325% 375% 475% 575%
--------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100 100 100
September 15, 1998.. 100 100 100 100 100 100 100 100
September 15, 1999.. 100 92 84 75 75 56 29 13
September 15, 2000.. 100 82 65 49 49 23 4 1
September 15, 2001.. 100 73 51 32 32 10 1 0
September 15, 2002.. 100 65 39 21 21 4 0 0
September 15, 2003.. 100 58 30 14 14 2 0 0
September 15, 2004.. 0 0 0 0 0 0 0 0
Weighted Average
Life (years)*..... 6.2 5.0 4.1 3.4 3.4 2.5 1.9 1.7
</TABLE>
____________
* Determined as specified under "Weighted Average Life of the Notes and
Maturity Considerations" herein.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain Federal income tax
consequences of the purchase, ownership, and disposition of the Notes by an
initial Noteholder. This summary is based upon laws, regulations, rulings and
decisions currently in effect, all of which are subject to change. The
discussion does not deal with all Federal tax consequences applicable to all
categories of investors, some of which may be subject to special rules. In
addition, this summary is generally limited to investors who will hold the
Notes as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code") and who do not hold their Notes as part of a "straddle," "hedging" or
"conversion transaction." Investors should consult their own tax advisors to
determine the Federal, state, local and other tax consequences of the purchase,
ownership and disposition of the Notes.
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The Issuer will be provided with an opinion of Rogers & Wells ("Federal
Tax Counsel") regarding certain Federal income tax matters discussed below. An
opinion of Federal Tax Counsel, however, is not binding on the Internal Revenue
Service (the "Service") or the courts. Prospective investors should note that
no rulings have been or will be sought from the Service with respect to any of
the Federal income tax consequences discussed below, and no assurance con be
given that the Service will not take contrary positions.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. Each Noteholder, by its
acceptance of a Note, and the Indenture Trustee, in executing the Indenture,
have agreed to treat the Notes as indebtedness for Federal and state income
tax, franchise tax and transfer and similar tax purposes. Federal Tax Counsel
will deliver its opinion that the Notes constitute indebtedness for Federal
income tax purposes. The discussion below assumes that such characterization
of the Notes is correct.
GENERAL. The discussion below assumes that all payments on the Notes are
denominated in U.S. dollars, and that the interest formula for the Notes meets
the requirements for "qualified stated interest" under Treasury regulations
(the "OID regulations") relating to original issue discount ("OID"), and that
any OID on the Notes (I.E., any excess of the principal amount of the Notes
over their issue price) is DE MINIMIS (I.E., less than 1/4% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of
a Note issued with a DE MINIMIS amount of OID must include such OID in income,
as principal payments are made on the Note.
It is possible, however, that interest on the Notes (together with any
discount at the time of issuance) should be treated as OID because such
interest is subject to deferral in certain limited circumstances. (See
"Description of the Notes- Interest Deferral".) A Noteholder must include OID
in income over the term of the Note under a constant interest method that takes
into account the compounding of interest. Under the Code, OID is calculated
and accrued using prepayment assumptions where payments on a debt instrument
may be accelerated by reason of prepayments of other obligations securing such
debt instrument (or, to the extent provided in regulations, by reason of other
events). The legislative history to the provision of the Code provides that
the same prepayment assumptions used to price a debt instrument be used to
calculate OID, as well as to accrue market discount and amortize premium.
Here, the Notes do not technically fit within the provisions of the Code that
require the use of a prepayment assumption but there are no regulations
extending this special OID rule to debt instruments similar to the Notes.
Nevertheless, since the Notes' rate of prepayment is based upon the paydown of
the Reference Securities and the rate of prepayment of the Reference Securities
will be used in pricing the Notes, the Indenture Trustee intends to report
income to Noteholders on the basis that the Notes have no OID, it will use that
prepayment assumption in accordance with the PSA Standard Prepayment Model if
required to do so. See "Certain Additional Information About the PSA Standard
Prepayment Model" herein.
SALE OR DISPOSITION. If a Noteholder sells a Note, the Noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Noteholder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the
Noteholder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of principal payments
previously received by such Noteholder with respect to such Note and the amount
of interest payments representing OID previously included by such Noteholder.
Any such gain or loss will be capital gain or loss, except for gain
S-33
<PAGE>
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used only to offset
capital gains. Such capital gain or loss will be long-term capital gain or
loss if the Noteholder is considered to have held a Note for more than eighteen
months at the time of disposition. Individual Noteholders also may be subject
to tax at a reduced rate on capital gain attributable Notes held for more than
one year at the time of the disposition.
FOREIGN NOTEHOLDERS. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio interest,"
and generally will not be subject to United States Federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Indenture Trustee or other person who is otherwise required
to withhold U.S. Federal income tax with respect to the Notes with an
appropriate statement (on Form W-8 or a similar form), signed under penalties
of perjury, certifying that the beneficial owner of the Note is a foreign
person and providing the foreign person's name and address. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed statement
must be accompanied by a Form W-8 or substitute form provided by the foreign
person that owns the Note. If such interest is not portfolio interest, then it
will be subject to United States Federal income and withholding tax at a rate
of 30 percent, unless reduced or eliminated pursuant to an applicable tax
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States Federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
BACKUP WITHHOLDING. Each Noteholder (other than an exempt holder such as
a corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident) will be required to provide, under
penalties of perjury, a certificate containing the Noteholder's name, address,
correct Federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the Service as a credit against the holder's federal income tax
liability.
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES. If, contrary to the opinion
of Federal Tax Counsel, the Service successfully asserted that one or more of
the Notes did not represent debt for Federal income tax purposes the Notes may
be treated as equity interests in a partnership. Under such characterization,
the Issuer should not be subject to Federal income tax and should not be
treated as a publicly traded partnership that is taxable as a corporation
because the Trust would meet certain qualifying income tests. Nonetheless,
treatment of the Notes as equity interests in such a partnership could have
adverse tax consequences to certain holders. For example, income to certain
tax-exempt organizations (including pension funds) might be "unrelated debt
financed income" (if the Trust had other indebtedness) or "unrelated business
income." In addition, income to foreign Noteholders generally would be subject
to Federal income tax and Federal income tax return filing and withholding
requirements, and individual holders might be subject to certain limitations on
their ability to deduct their share of Issuer expenses.
STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "Certain
Federal Income Tax Consequences" herein, potential investors should consider
the state income tax consequences of the acquisition, ownership, and
disposition of the Notes offered hereunder. State income law may differ
substantially from the corresponding Federal tax law, and this discussion does
not purport to describe any aspect of the income tax laws of any state.
Therefore, potential investors should consult their own advisors with respect
to the various tax consequences of investments in the Notes offered hereunder.
S-34
<PAGE>
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code, as applicable, impose certain requirements on (i) an
employee benefit plan (as defined in Section 3(3) of ERISA), (ii) a plan
described in Section 4975(e)(l) of the Code or (iii) any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity (each, a "Plan"). Before investing in Notes, a Plan fiduciary should
determine whether such an investment is permitted under the governing Plan
instruments and is appropriate for the Plan in view of, among other things, its
overall investment policy and the composition and diversification of its
portfolio. Any Plan fiduciary considering whether to purchase the Notes on
behalf of a Plan should consult with its counsel and other advisors regarding
the applicability of the provisions of ERISA and the Code. Based on the
reasoning of the United States Supreme Court's decision in JOHN HANCOCK LIFE
INS. CO. V. HARRIS TRUST AND SAVINGS BANK, 510 U.S. 86 (1993), an insurance
company investing assets held in its general account might be treated as a
Plan.
Certain provisions of ERISA and the Code prohibit certain transactions
involving the assets of a Plan and persons who have certain specified
relationships to the Plan ("parties in interest") within the meaning of ERISA
or "disqualified persons" within the meaning of the Code). Thus, a Plan
fiduciary considering an investment in a Note should specifically consider
whether such an investment might constitute or give rise to a prohibited
transaction under ERISA or the Code, and whether any relevant exception from
the prohibited transaction provisions of ERISA and the Code might apply.
The United States Department of Labor has issued final regulations
concerning the definition of what constitutes the assets of Plan for purposes
of ERISA and the prohibited transaction provisions of the Code (the "Plan Asset
Regulation"). The Plan Asset Regulation describes the circumstances under
which the assets of an entity in which a Plan invests will be considered to be
"plan assets" such that any person who exercises control over such assets would
be subject to ERISA's fiduciary standards. Under the Plan Asset Regulation,
generally when a Plan invests in another entity, the Plan's assets do not
include, solely by reason of such investment, any of the underlying assets of
the entity. However, the Plan Asset Regulation provides that, if a Plan
acquires an "equity interest" in an entity that is neither a "publicly-offered
security" (as defined therein) nor a security issued by an investment company
registered under the Investment Company Act of 1940, the assets of the entity
will be treated as assets of the Plan investor unless certain exceptions apply.
If the Notes were deemed to be equity interests and no statutory, regulatory or
administrative exemption apply, the Trust could be considered to hold plan
assets by reason of a Plan's investment in the Notes. Such plan assets would
include an undivided interest in any assets held by the Trust. In such an
event, the obligations and other responsibilities of Plan sponsors, Plan
fiduciaries, Plan administrators, and parties in interest and disqualified
persons under Parts 1 and 4 of Subtitle B of Title I of ERISA and Section 4975
of the Code, as applicable, may be expanded, and there may be an increase in
their liability under these and other provisions of ERISA and the Code (except
to the extent (if any) that a favorable statutory or administrative exemption
or exception applies). In addition, various providers of fiduciary or other
services to the Trust, and any other parties with authority or control with
respect to the Trust, could be deemed to be Plan fiduciaries or otherwise
parties in interest or disqualified persons by virtue of their provision of
such services. For example, the Owner Trustee and the Indenture Trustee and
other persons, in providing services with respect to the Trust's subject to the
fiduciary assets, may be parties in interest and disqualified persons with
respect to such Plans. Under the Plan Asset Regulation, the term "equity
interest" is defined as any interest in an entity other than an instrument that
is treated as indebtedness under "applicable local law" and which has no
"substantial equity features." Although the Plan Assets Regulation is silent
with respect to the question of which law constitutes "applicable local law"
and which has no "substantial equity features." No assurance is given as to
whether the assets of the Trust would be deemed to be the assets of Plans that
become Note holders.
ANY PLAN (AS WELL AS ANY EMPLOYEE BENEFIT PLAN NOT SUBJECT TO ERISA OR
SECTION 4975 OF THE CODE) PROPOSING TO ACQUIRE NOTES SHOULD CONSULT WITH ITS
OWN COUNSEL AND OTHER ADVISORS REGARDING ERISA AND SECTION 4975 OF THE CODE
S-35
<PAGE>
(AND, IN THE CASE OF EMPLOYEE BENEFIT PLANS NOT SUBJECT TO ERISA, ANY
ADDITIONAL CONSIDERATION ACTIVITY UNDER THE CODE AND UNDER STATE, LOCAL AND
FOREIGN LAWS), AND ALL OTHER APPROPRIATE CONSIDERATIONS.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, dated as of September 15, 1997 (the "Underwriting Agreement"), the
Company has agreed to sell, and Salomon Brothers Inc (an affiliate of the
Company) (the "Underwriter") has agreed to purchase, the Notes.
Salomon Brothers Inc has agreed, subject to the terms and conditions set
forth in the Underwriting Agreement, to purchase all Notes offered hereby if
any of such Notes are purchased.
The Company has been advised by the Underwriter that it proposes to offer
the Notes from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. The Underwriter may effect such
transactions by selling Notes through dealers and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter and any dealers that participate with the Underwriter in
the distribution of Notes may be deemed to be underwriters, and any profit on
the resale of Notes by them may be deemed to be underwriting discounts or
commissions under the Securities Act.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriter may be required
to make in respect thereof.
Salomon Brothers Inc is an affiliate of the Company, and the
participation by Salomon Brothers Inc in the offering of the Notes complies
with Schedule E of the By-Laws of the National Association of Securities
Dealers, Inc. regarding underwriting securities of an affiliate.
RATING OF THE NOTES
It is a condition to the issuance of the Notes that the Notes be rated
Aaa by Moody's (the "Rating Agency"). The rating addresses the likelihood of
the receipt by Noteholders of payments required under the Indenture, as
applicable, and are based primarily on the credit quality of the Deposited
Assets and of the Swap Counterparty, as well as on the rights of holders of the
Notes with respect to collections and losses with respect to the Deposited
Assets. The rating of the Notes does not, however, constitute a statement
regarding the occurrence or frequency of redemptions or prepayments on, or
extensions of the maturity of, the Term Assets, the corresponding effect on
yield to investors, or whether investors in the Notes may fail to recover fully
their initial investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning
Rating Agency. Each security rating should be evaluated independently of any
other security rating.
The Company has not requested a rating on the Notes by any rating agency
other than the Rating Agency. However, there can be no assurance as to whether
any other rating agency will rate the Notes, or, if does, what rating would be
assigned by any such other rating agency. A rating on the Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to
the Notes by the Rating Agency.
S-36
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for
the Company and the Underwriter by Rogers & Wells, New York, New York.
S-37
<PAGE>
INDEX OF DEFINED TERMS
1992 Master Agreement ....................................................S-28
Additional Structuring Assumptions .......................................S-32
Asset Impairment Event ....................................................S-5
Available Funds ..........................................................S-16
Base Mortgage Loans .......................................................S-8
Business Day ..............................................................S-1
CEDE ..............................................................S-17
Certificates ..............................................................S-1
Chase ..............................................................S-13
Chase USA ..............................................................S-13
Class B Certificates .....................................................S-12
Clearing Agency ..........................................................S-16
Code ..............................................................S-32
Collateral Interest ......................................................S-11
Company ...............................................................S-1
Controlled foreign corporation ...........................................S-34
Deposited Assets ..........................................................S-1
Distribution Date ...................................................S-2, S-15
DTC ..........................................................S-2, S-3
Early Termination Date ...................................................S-29
Eligible Investments .....................................................S-23
ERISA ..............................................................S-35
Events of Default ........................................................S-29
Federal Tax Counsel ......................................................S-33
FHLMC .........................................................S-3, S-18
FHLMC PC Offering Circular ...............................................S-31
Finance Charge Receivables ...............................................S-12
Foreign person ...........................................................S-34
Germany ..............................................................S-30
Indenture ...............................................................S-1
Indenture Event of Default ...............................................S-24
Indenture Trustee ...............................................S-1, S-4, S-5
Interest Accrual Period ...................................................S-2
ISDA ..............................................................S-28
Issuer ...............................................................S-1
Liquidation Price ........................................................S-25
Mandatory Prepayment Amount ..............................................S-18
Monthly Amortization Rate ................................................S-17
Moody's .........................................................S-4, S-36
Note Current Factor ......................................................S-21
Note Interest Rate ..................................................S-2, S-15
Note Notional Amount .....................................................S-18
Note Owner ..............................................................S-17
Note Principal Amount ...............................................S-2, S-15
Noteholders ...............................................................S-3
Notes ...............................................................S-1
OID ..............................................................S-33
OID regulations ..........................................................S-33
Optional Redemption .......................................................S-8
Original Issuance Date ....................................................S-1
S-38
<PAGE>
Original Issue Date .......................................................S-3
Owner Trustee .............................................................S-1
Participants ..............................................................S-2
Parties in interest ......................................................S-35
Pay-Out Events ...........................................................S-12
Plan ..............................................................S-35
Plan Asset Regulation ....................................................S-35
Plan assets ..............................................................S-35
Portfolio interest .......................................................S-34
Prepayment Determination Date ............................................S-22
Prepayment Event .........................................................S-29
Principal Funding Account ................................................S-11
Principal Receivables ....................................................S-12
Priority of Payments .....................................................S-16
Pro Rata Share ...........................................................S-25
PSA Index Rate ...........................................................S-21
PSA Standard Prepayment Model ............................................S-22
Rating Agency ............................................................S-36
Receivables ...............................................................S-6
Record Date ..............................................................S-16
Reference Bloomberg Page .................................................S-22
Reference Securities ................................................S-3, S-18
Sale Procedures ..........................................................S-22
Scheduled Final Distribution Date ..............................S-1, S-2, S-15
Securities ...............................................................S-1
Seller's Interest ........................................................S-10
Seller's Percentage ................................................S-10, S-11
Service ..............................................................S-33
Specified Currency ........................................................S-1
Swap Agreement ......................................................S-2, S-28
Swap Counterparty .........................................................S-2
Swap Default .............................................................S-29
Swap Early Termination ...................................................S-28
Swap Termination Event ....................................................S-7
Term Asset Prospectus .....................................................S-1
Term Assets ..........................................................S-1, S-5
Term Assets Agreement ...............................................S-6, S-10
Term Assets Amortization Event ...........................................S-10
Term Assets Certificate Rate .............................................S-10
Term Assets Controlled Accumulation Period ................................S-6
Term Assets Currency ......................................................S-5
Term Assets Distribution Dates ............................................S-6
Term Assets Interest Accrual Period .......................................S-6
Term Assets Issuer ...................................................S-1, S-5
Term Assets Original Issue Date ...........................................S-5
Term Assets Prospectus ....................................................S-1
Term Assets Rate ..........................................................S-6
Term Assets Scheduled Final Distribution Date .............................S-2
Term Assets Seller ..................................................S-6, S-10
Term Assets Servicer ................................................S-6, S-10
Term Assets Servicer Reports ..............................................S-9
Term Assets Trustee .................................................S-6, S-10
Termination Events .......................................................S-29
S-39
<PAGE>
Trust ...............................................................S-1
Trust Agreement ...........................................................S-1
Underwriter .........................................................S-1, S-36
Underwriting Agreement ...................................................S-36
Unrelated business income ................................................S-34
Unrelated debt financed income ...........................................S-34
West LB New York .........................................................S-30
WestLB ..............................................................S-30
S-40
<PAGE>
APPENDIX A
Excerpt from Prospectus and Prospectus Supplement
each dated November 6, 1996
CHASE CREDIT CARD MASTER TRUST
CLASS A FLOATING RATE ASSET BACKED CERTIFICATES,
SERIES 1996-4
<PAGE>
RISK FACTORS
Potential investors should consider, among other things, the risk factors
discussed under "Risk Factors" beginning on page 22 in the Prospectus and the
following risk factors in connection with the purchase of the Certificates.
FLOATING RATE RISK. Certain of the Accounts in the Trust have finance
charges set at a variable rate above a designated prime rate or other
designated index. The Class A Certificate Rate and the Class B Certificate
Rate are each based upon LIBOR. If there is a decline in such prime rate or
other designated index which does not coincide with a decline in LIBOR, the
amount of collections of Finance Charge Receivables on such Accounts may be
reduced, whereas the amounts payable as Class A Monthly Interest and Class B
Monthly Interest and other amounts required to be funded out of collections of
Finance Charge Receivables will not be similarly reduced.
Certain of the Accounts in the Trust have finance charges set at a fixed
rate. If LIBOR increases, the amounts payable as Class A Monthly Interest and
Class B Monthly Interest and other amounts required to be funded out of
collections of Finance Charge Receivables will increase, whereas the amount of
collections of Finance Charge Receivables on such Accounts will remain the same
unless and until the rates on such Accounts are reset.
CERTIFICATE RATING. Any rating assigned to the Class A Certificates or
the Class B Certificates by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders of such Class will receive
the payments of interest and principal required to be made under the Agreement,
in the case of principal on or prior to the Series 1996-4 Termination Date, and
in the case of interest, on each Distribution Date. The ratings will be based
primarily on an assessment of the Receivables in the Trust (including the
eligibility criteria for the transfer of Receivables in Additional Accounts to
the Trust), of the amounts held in any trust account for the benefit of Class A
Certificateholders or Class B Certificateholders, as the case may be, of the
terms of the Collateral Interests and, with respect to the Class A
Certificates, the subordination of the Class B Certificates. However, any such
rating will not address the possibility of the occurrence of a Pay Out Event
with respect to such Class, the possibility of the imposition of United States
withholding tax with respect to non-U.S. Certificateholders or the likelihood
of payment of principal on the Class A Scheduled Payment Date or the Class B
Scheduled Payment Date. The rating will not be a recommendation to purchase,
hold or sell Class A Certificates or Class B Certificates, and such rating will
not comment as to the marketability of such Certificates, any market price or
suitability for a particular investor. There is no assurance that any rating
will remain for any given period of time or that any rating will not be lowered
or withdrawn entirely by a Rating Agency if in such Rating Agency's judgment
circumstances so warrant.
The Bank will request a rating for the Class A Certificates of AAA or its
equivalent and a rating for the Class B Certificates of at least A or its
equivalent by at least one Rating Agency. There can be no assurance as to
whether any rating agency not requested to rate the Certificates will
nonetheless issue a rating with respect to either the Class A Certificates or
the Class B Certificates, and, if so, what such rating would be. A rating
assigned to either the Class A Certificates or the Class B Certificates by a
rating agency that has not been requested by the Bank to do so may be lower
than the rating assigned by a Rating Agency pursuant to the Bank's request.
Only a rating agency that has been requested to rate either the Class A
Certificates or the Class B Certificates will be a "Rating Agency" for purposes
of such Certificates.
A-1
<PAGE>
[FROM PAGE 22 IN THE PROSPECTUS]
Potential investors should consider, among other things, the following
risk factors in connection with the purchase of the Certificates.
LIMITED LIQUIDITY. It is anticipated that, to the extent permitted, the
underwriters of any Series of Certificates offered hereby will make a market in
such Certificates, but in no event will any such underwriter be under an
obligation to do so. There is no assurance that a secondary market will
develop with respect to the Certificates of any Series offered hereby, or if it
does develop, that it will provide Certificateholders with liquidity of
investment or that it will continue for the life of such Certificates.
TRANSFER OF RECEIVABLES. A court could treat the transfer of Receivables
to each Trust as the grant of a security interest in such Receivables for the
benefit of holders of Certificates issued by such Trust. The Transferor will
represent and warrant in each Agreement that the transfer of the Receivables to
the related Trust is either a valid assignment of the related Receivables to
such Trust or the grant to the related Trust of a security interest in such
Receivables. The Transferor will take, with respect to each Trust, certain
actions as are required under Delaware or New York law, as the case may be, to
perfect each such Trust's security interest in the related Receivables, and the
Transferor will warrant that, if the transfer to such Trust is deemed to be a
grant to such Trust of a security interest in the related Receivables, the
Trustee will have a first priority perfected security interest therein, and,
subject to the limitations described in the penultimate sentence of this
paragraph, in the proceeds thereof (subject, in each case, to certain potential
tax liens referred to under "Description of the Certificates-Representations
and Warranties"). Nevertheless, if the transfer of Receivables to a Trust is
deemed to create a security interest therein, a tax or government lien or other
nonconsensual lien on property of the Transferor arising before Receivables
come into existence may have priority over the Trust's interest in such
Receivables, and if the FDIC were appointed receiver of the Transferor, the
receiver's administrative expenses may also have priority over the Trust's
interest in such Receivables. In addition, while CMB or Chase USA is the
Servicer, collections will be commingled with such bank's general funds and
used for its benefit prior to each Distribution Date. Accordingly, in the
event of the insolvency of Chase USA or CMB, as the case may be, the Trust may
not have a perfected security interest in such collections. If the short-term
deposit rating of Chase USA or CMB, as the case may be, is reduced below A-1 or
P-1 by the applicable Rating Agency, such bank will be obligated to cease
commingling collections and commence depositing collections into the Collection
Account within two business days after the date of processing. See "Certain
Legal Aspects of the Receivables-Transfer of Receivables."
CERTAIN MATTERS RELATING TO RECEIVERSHIP. Chase USA is chartered as a
national bank and is primarily subject to regulation and supervision by the
United States Comptroller of the Currency (the "Comptroller"). If Chase USA
becomes insolvent or is in an unsound condition or if certain other
circumstances occur, the Comptroller is authorized to appoint the FDIC as
receiver. The Federal Deposit Insurance Act ("FDIA"), as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"),
sets forth certain powers that the FDIC may exercise as receiver for the
Transferor. With respect to the appointment of a receiver or conservator for
the Transferor, subject to certain qualifications, a valid perfected security
interest of the Trustee in the Receivables should be enforceable (to the extent
of the Trust's "actual direct compensatory damages" as described below) and
payments to the Trust with respect to the Receivables (up to the amount of such
damages) should not be subject to an automatic stay of payment or to recovery
by such a conservator or receiver. If, however, the conservator or receiver
were to assert that the security interest was unperfected or unenforceable. or
A-2
<PAGE>
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 the conservator or receiver were to request a stay of judicial
proceedings with respect to the Transferor as provided under FIRREA, delays in
payments on the Certificates and possible reductions in the amount of those
payments could occur. In the event of a repudiation of obligations by a
conservator or receiver, FIRREA provides that a claim for the repudiated
obligation is limited to "actual direct compensatory damages" determined as of
the date of the appointment of the conservator or receiver (which in most cases
are expected to include the outstanding principal on the Certificates plus
interest accrued thereon to the date of payment). The FDIC has not adopted a
formal policy statement on payment of principal and interest on collateralized
borrowings of banks which are repudiated. The Transferor believes that the
general practice of the FDIC in such circumstances is to permit the collateral
to be applied to pay the principal owed plus interest at the contract rate up
to the date of payment, together with the costs of liquidation of the
collateral if provided for in the contract. In one case, however, involving
the repudiation by the Resolution Trust Corporation (the "RTC") of certain
secured zero-coupon bonds issued by a savings association, a United States
federal district court held that "actual direct compensatory damages" in the
case of a marketable security meant the market value of the repudiated bonds as
of the date of repudiation. If that court's view were applied to determine the
Trust's "actual direct compensatory damages" in the event a conservator or
receiver of the Transferor repudiated its obligations under the Pooling and
Servicing Agreement, the amount paid to Certificateholders could, depending
upon circumstances existing on the date of the repudiation, be less than the
principal of the Certificates and the interest accrued thereon to the date of
payment. See "Certain Legal Aspects of the Receivables-Certain Matters
Relating to Receivership."
If a conservator or receiver were appointed for the Transferor, then a
Pay Out Event would occur with respect to all Series then outstanding and,
pursuant to the related Agreement, new Principal Receivables would not be
transferred to the related Trust, and the Trustee would sell the Receivables
(unless otherwise instructed by holders of more than 50% of the Investor
Interest of each Series of Certificates, or with respect to any Series with
more than one Class, of each Class, and any other Person specified in the
related Agreement or a Series Supplement), thereby causing early termination of
the Trust and a loss to Certificateholders of a Series if the net proceeds of
such sale allocable to such Series were insufficient to pay the
Certificateholders of such Series in full. If the only Pay Out Event to occur
is either the insolvency of the Transferor or the appointment of a conservator
or receiver for the Transferor, the conservator or receiver may have the power
to prevent the early sale, liquidation or disposition of the Receivables and
the commencement of the Rapid Amortization Period. A conservator or receiver
may also have the power to cause the early sale of the Receivables and the
early retirement of the Certificates of each Series or to prohibit the
continued transfer of Principal Receivables to a Trust. If no Servicer Default
other than the conservatorship or receivership of the Servicer exists, the
conservator or receiver for the Servicer may have the power to prevent either
the Trustee or the Certificateholders from appointing a successor Servicer
under the related Agreement. See "Certain Legal Aspects of the
Receivables-Certain Matters Relating to Receivership."
CONSUMER PROTECTION LAWS; LITIGATION. The Accounts and the Receivables
are subject to numerous federal, state and local consumer protection laws that
impose requirements on the making and collection of consumer loans. Congress
and the states may enact new laws and amendments to existing laws to regulate
further the credit card and consumer credit industry or to reduce finance
charges or other fees or charges applicable to credit card accounts. Such
laws, as well as any new laws or rulings which may be adopted, may adversely
affect the Servicer's ability to collect on the Receivables or maintain
previous levels of monthly periodic finance charges and other credit card fees.
In addition, during recent years, there has been increased consumer awareness
with respect to the level of finance charges and fees and other practices of
credit card issuers and other consumer revolving loan providers. Federal or
state legislation could be enacted which would impose additional limitations on
the monthly periodic finance charges or other fees or charges relating to the
Accounts. One potential effect of any legislation which regulates the amount
of interest and other charges that may be assessed on credit card account
balances would be to reduce the Portfolio Yield on the Accounts. If such
legislation were to result in a significant reduction in the Portfolio Yield, a
Pay Out Event could occur, in which case the Rapid Amortization Period would
commence. See "Description of the Certificates-Pay Out Events."
Pursuant to each Agreement, the Transferor will covenant to accept
reassignment, subject to certain conditions described under "Description of the
Certificates-Representations and Warranties," of each Receivable that does not
comply in all material respects with all requirements of applicable law. The
Transferor will make certain other representations and warranties relating to
the validity and enforceability of the Receivables. However, it is not
anticipated that the Trustee will make any examination of the related
Receivables or the records relating thereto for the purpose of establishing the
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<PAGE>
presence or absence of defects, compliance with such representations and
warranties, or for any other purpose. The sole remedy if any such
representation or warranty is breached and such breach continues beyond the
applicable cure period is that the Transferor will be obligated to accept
reassignment, subject to certain conditions described under "Description of the
Certificates-Representations and Warranties," of the Receivables affected
thereby. See "Description of the Certificates-Representations and Warranties"
and "Certain Legal Aspects of the Receivables-Consumer Protection Laws."
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders in the Receivables if such laws
result in any Receivables being written off as uncollectible when there are no
funds available from any Credit Enhancement or other source. See "Description
of the Certificates-Defaulted Receivables; Rebates and Fraudulent Charges;
Investor Charge-Offs."
COMPETITION IN THE CREDIT CARD INDUSTRY. The credit card industry is
highly competitive. As new credit card issuers enter the market and issuers
seek to expand their share of the market, there is increased use of
advertising, target marketing and pricing competition. Each Trust will be
dependent upon the Transferor's continued ability to generate new Receivables.
If the rate at which new Receivables are generated declines significantly and
the Transferor is unable to designate Additional Accounts with respect to a
Trust, a Pay Out Event could occur with respect to each Series relating to such
Trust, in which case the Rapid Amortization Period with respect to each such
Series would commence.
PAYMENTS AND MATURITY. The Receivables may be paid at any time and there
is no assurance that there will be additional Receivables created in the
Accounts or that any particular pattern of cardholder repayments will occur.
The commencement and continuation of a Controlled Amortization Period, a
Principal Amortization Period or an Accumulation Period for a Series or Class
thereof with respect to a Trust will be dependent upon the continued generation
of new Receivables to be conveyed to such Trust. A significant decline in the
amount of Receivables generated could result in the occurrence of a Pay Out
Event for one or more Series and the commencement of the Rapid Amortization
Period for each such Series. Certificateholders should be aware that the
Transferor's ability to continue to compete in the current industry environment
will affect the Transferor's ability to generate new receivables to be conveyed
to each Trust and may also affect payment patterns. In addition, increased
convenience use (which occurs when cardholders pay their balances in full every
month and thus avoid all finance charges on their purchase balances) would
decrease the effective yield on the Accounts. In addition, changes in periodic
finance charges can alter the monthly payment rates of cardholders. A
significant decrease in such monthly payment rate could slow the return or
accumulation of principal during an Amortization Period or Accumulation Period.
See "Maturity Assumptions."
SOCIAL, TECHNOLOGICAL AND ECONOMIC FACTORS. Changes in use of credit and
payment patterns by customers may result from a variety of social,
technological and economic factors. Social factors include potential changes
in consumers' attitudes toward financing purchases with debt. Technological
factors include new methods of payment, such as debit cards. Economic factors
include the rate of inflation, unemployment levels and relative interest rates.
Cardholders whose accounts are included in the Bank Portfolio have billing
addresses in all 50 states and the District of Columbia. The Bank, however, is
unable to determine and has no basis to predict whether, or to what extent,
social, technological or economic factors will affect future use of credit or
repayment patterns.
EFFECT OF SUBORDINATION. With respect to Certificates of a Series having
a Class or Classes of Subordinated Certificates, unless otherwise specified in
the related Prospectus Supplement, payments of principal in respect of the
Subordinated Certificates of a Series will not commence until after the final
principal payment with respect to the Senior Certificates of such Series. In
addition, if so specified in the related Prospectus Supplement, if collections
of Finance Charge Receivables allocable to the Certificates of a Series are
insufficient to cover required amounts due with respect to the Senior
Certificates of such Series, the Investor Interest with respect to the
Subordinated Certificates will be reduced, resulting in a reduction of the
portion of collections of Finance Charge Receivables allocable to the
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Subordinated Certificates in future periods and a possible delay or reduction
in principal and interest payments on the Subordinated Certificates. Moreover,
if so specified in the related Prospectus Supplement, in the event of a sale of
Receivables in a Trust due to the insolvency of the Transferor or the
appointment of a conservator or receiver for the Transferor, or due to the
inability of the Trustee to act as or find a successor Servicer after a
Servicer Default, the portion of the net proceeds of such sale allocable to pay
principal to the Certificates of a Series will be used first to pay amounts due
to the Senior Certificateholders and any remainder will be used to pay amounts
due to the Subordinated Certificateholders.
EFFECTS OF PREPAYMENT DISTINCTIONS AMONG CLASSES. Classes of
Certificates may be issued to which may be allocated the risk of early
repayment within a Series. With respect to such a Class, a Holder of a
Certificate of such Class will be more likely to receive prepayment of his
Certificate than would otherwise be the case. In such event such Holder will
not receive the benefit of the Certificate Rate for the period of time
originally expected on the amount of any such repayment. There can be no
assurance that the Holder will be able to reinvest the proceeds at a similar
rate of return and at a similar risk level. Assuming that a Holder could
identify an identical reinvestment opportunity, an early repayment could
benefit a Holder who acquired a Certificate of such Class at a discount and
harm a Holder who acquired a Certificate of such Class at a premium.
EFFECT ON CERTAIN PRE-FUNDED SERIES OF ABILITY TO GENERATE ADDITIONAL
RECEIVABLES. With respect to Certificates of a Series having a Class that
employs a Pre-Funding Account in anticipation of the Transferor transferring
additional Receivables to the related Trust, if, and to the extent that, the
requisite amount of such Receivables are not created during the Pre-Funding
Period specified in the related Prospectus Supplement, the Certificateholders
of such Class will receive the balance remaining in the Pre-Funding Account at
the end of the Pre-Funding Period as an early repayment of Certificate
principal. See "Risk Factors-Competition in the Credit Card Industry" and
"-Payments and Maturity" and "Description of Certificates-Funding Period." In
such event the Holder of such a Certificate will not receive the benefit of the
Certificate Rate for the period of time originally expected on the amount of
such early repayment. See "Risk Factors-Effects of Prepayment Distinctions
among Classes."
ABILITY TO CHANGE TERMS OF THE ACCOUNTS. Pursuant to each Agreement, the
Transferor does not transfer to the related Trust the Accounts but only the
Receivables arising in the Accounts. As owner of the Accounts, the Transferor
retains the right to determine the monthly periodic finance charges and other
fees which 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, including changing the annual percentage
rate from a fixed rate to a variable rate. The Bank offers cardholders the
option of having finance charges accrue based on a fixed or variable periodic
rate. The Bank currently allows its cardholders to switch from one rate option
to the other, but expects to discontinue this option by January 1997. To the
extent that there is an increase in the proportion of Receivables in variable
rate Accounts, the effective yield on such Accounts will be affected by
fluctuations in the prime rate, and decreases in the prime rate could reduce
the yield on such Accounts. A decrease in the monthly periodic finance charge
and a reduction in credit card or other fees would decrease the effective yield
on the Accounts with respect to a Trust and could result in the occurrence of a
Pay Out Event with respect to each Series relating to such Trust and the
commencement of the Rapid Amortization Period with respect to each such Series.
Unless otherwise specified in the related Prospectus Supplement, under each
Agreement the Transferor will agree that, except as otherwise required by law
or as is deemed by the Transferor to be necessary in order to maintain its
credit card business, based upon a good faith assessment by it, in its sole
discretion, of the nature of the competition in that business, the Transferor
will not reduce the annual percentage rate of the monthly periodic finance
charges assessed on the related Receivables or other fees on the related
Accounts if, as a result of such reduction, the Portfolio Yield for any Series
as of such date would be less than the Base Rate for such Series. The terms
"Portfolio Yield" and "Base Rate" for each Series will have the meanings set
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<PAGE>
forth in the Prospectus Supplement relating to each such Series. In addition,
unless otherwise specified in the related Prospectus Supplement, each Agreement
will provide that the Bank may change the terms specified in the related
Prospectus Supplement, each Agreement will provide that the Bank may change the
terms of the contracts relating to the related 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, credit card fees, and charge
offs), if such change (i) would not, in the reasonable belief of the
Transferor, cause a Pay Out Event for any related Series to occur, and (ii) is
made applicable to the comparable segment of revolving credit card accounts
owned and serviced by the Transferor which have characteristics the same as or
substantially similar to the related Accounts which are subject to such change.
In servicing the Accounts, the Servicer will be required to exercise the same
care and apply the same policies that it exercises in handling similar matters
for its own comparable accounts. Except as specified above or in any
Prospectus Supplement, there will be no restrictions on the Transferor's
ability to change the terms of the Accounts. 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 the Transferor to take actions
which would change the Account terms.
BASIS RISK. A portion of the Accounts in a Trust will have finance
charges set at a variable rate above a designated prime rate or other
designated index. The Certificate Rate applicable to a Series of Certificates
issued by such Trust may be based upon an index other than such prime rate or
other designated index. If there is a decline in such prime rate or other
designated index which does not coincide with a decline in the index upon which
the Certificate Rate is based, the amount of collections of Finance Charge
Receivables on such Accounts may be reduced, whereas the amounts payable as
Monthly Interest on such Series of Certificates and other amounts required to
be funded out of collections of Finance Charge Receivables with respect to such
Series will not be similarly reduced.
MASTER TRUST CONSIDERATIONS. Each Trust, as a master trust, may issue
Series from time to time. While the Principal Terms of any Series will be
specified in a Series Supplement, the provisions of a Series Supplement and,
therefore, the terms of any additional Series, will not be subject to the prior
review by 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, provisions creating different
or additional security or other Credit Enhancement, provisions subordinating
such Series to another Series or other Series (if the Series Supplement
relating to such Series so permits) to such Series, and any other amendment or
supplement to the related Agreement which is made applicable only to such
Series. It is a condition precedent to the issuance of any additional Series
by a Trust that each Rating Agency that has rated any outstanding Series issued
by such Trust deliver written confirmation to the Trustee that such additional
issuance 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 issued from time to
time hereafter, might not have an impact on the timing and amount of payments
received by a Certificateholder of any other Series. See "Description of the
Certificates-Exchanges."
ADDITION OF TRUST ASSETS. The Transferor expects, and in some cases will
be obligated, to designate Additional Accounts, the Receivables in which will
be conveyed to a Trust. Such Additional Accounts are expected to include
accounts originated using criteria different from those which were applied to
the Accounts designated on the Cut-Off Date related to such Trust or to
previously-designated Additional Accounts, because such accounts were
originated at a different date, under different underwriting criteria or by
different institutions, or represent a separate segment of the Bank's credit
card business. Consequently, there can be no assurance that Additional
Accounts designated in the future will be of the same credit quality as
previously-designated Accounts. In addition, each Agreement provides that the
Bank may add Participations to a Trust. The designation of Additional Accounts
and Participations will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates-Addition of Trust
Assets."
CONTROL. Subject to certain exceptions, the Certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the related Agreement or the related Series Supplement. However, the related
Agreement or related Series Supplement may provide that under certain
circumstances the consent or approval of a specified percentage of the
aggregate Investor Interest of other Series or of the Investor Interest of a
specified Class of such other Series will be required to direct certain
actions, including requiring the appointment of a successor Servicer following
a Servicer Default, amending the related Agreement in certain circumstances and
directing a repurchase of all outstanding Series upon the breach of certain
representations and warranties by the Transferor. Certificateholders of such
other Series may have interests which do not coincide in any way with the
interests of Certificateholders of the subject Series. In such instances, it
may be difficult for the Certificateholders of such Series to achieve the
results from the vote that they desire.
CERTIFICATE RATING. Any rating assigned to the Certificates of a Series
or a Class by a Rating Agency will reflect such Rating Agency's assessment of
the likelihood that Certificateholders of such Series or Class (including each
Series that includes a Pre-Funding Account) will receive the payments of
interest and principal required to be made under the Agreement, in the case of
principal on or prior to the scheduled maturity date set forth in the related
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Prospectus Supplement, and in the case of interest, on the applicable interest
payment dates. The ratings will be based primarily on an assessment of the
Receivables in the Trust (including the eligibility criteria for the transfer
of Receivables in Additional Accounts to the Trust), of the amounts held in any
trust account for the benefit of any Series or Class (including in any Pre-
Funding Account) and the availability of any Enhancement with respect to such
Series or Class. However, any such rating will not address the possibility of
the occurrence of a Pay Out Event with respect to such Class or Series or the
possibility of the imposition of United States withholding tax with respect to
non-U.S. Certificateholders. The rating will not be a recommendation to
purchase, hold or sell Certificates of such Series or Class, and such rating
will not comment as to the marketability of such Certificates, any market price
or suitability for a particular investor. There is no assurance that any
rating will remain for any given period of time or that any rating will not be
lowered or withdrawn entirely by a Rating Agency if in such Rating Agency's
judgment circumstances so warrant.
The Transferor will request a rating of each Class of Certificates
offered hereby by at least one Rating Agency. There can be no assurance as to
whether any rating agency not requested to rate the Certificates will
nonetheless issue a rating with respect to any Series of Certificates or Class
thereof, and, if so, what such rating would be. A rating assigned to any
Series of Certificates or Class thereof by a rating agency that has not been
requested by the Transferor to do so may be lower than the rating assigned by a
Rating Agency pursuant to the Transferor's request. Only rating agencies that
have been requested to rate a particular Series will be a "Rating Agency" for
purposes of such Series.
CREDIT ENHANCEMENT. Although Credit Enhancement may be provided with
respect to a Series of Certificates or any Class thereof, the amount available
will be limited and will be subject to certain reductions. If the amount
available under any Credit Enhancement is reduced to zero, Certificateholders
of the Series or Class thereof covered by such Credit Enhancement will bear
directly the credit and other risks associated with their undivided interest in
the Trust. Unless otherwise specified in the related Prospectus Supplement,
Credit Enhancement available to one Series issued under a Trust will not be
available to any other Series under such Trust. See "Credit Enhancement."
BOOK-ENTRY REGISTRATION. Unless otherwise specified in the related
Prospectus Supplement, the Certificates of each Series 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 Certificate
Owners or their nominee. Unless and until Definitive Certificates are issued
for a Series, Certificate Owners relating to such Series will not be recognized
by the Trustee as Certificateholders, as that term will be used in each
Agreement. Hence, until such time, Certificate Owners will only be able to
exercise the rights of Certificateholders indirectly through DTC, Cedel or
Euroclear and their participating organizations. See "Description of the
Certificates-Book-Entry Registration" and "-Definitive Certificates."
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<PAGE>
CHASE USA'S CREDIT CARD PORTFOLIO
GENERAL
The Receivables to be conveyed to the Trust by the Transferor pursuant to
the Agreement have been or will be generated from transactions made by holders
of MasterCard and VISA credit card accounts selected by the Transferor,
including premium accounts and standard accounts, from the Bank Portfolio.
DELINQUENCY AND LOSS EXPERIENCE
The Bank considers an account delinquent if a payment due thereunder is
not received by the Bank by the date of the statement following the statement
on which the amount is first stated to be due.
Efforts to collect delinquent credit card receivables are made by the
Bank's account management department, collection agencies and attorneys
retained by the Bank. For a description of the Bank's collection practices and
policies, see "Chase USA's Credit Card Activities-Collection of Delinquent
Accounts" in the Prospectus.
The Bank's policy is to charge off an account during the billing cycle
immediately following the cycle in which such account became one hundred fifty
(150) days delinquent. If the Bank receives notice that a cardholder is the
subject of a bankruptcy proceeding, the Bank charges off such account upon the
earlier of seventy-five (75) days after receipt of such notice and the time
period set forth in the previous sentence.
Effective June 1, 1996, Chase USA acquired the credit card business of
Chemical Bank. In anticipation of such acquisition, Chase USA eliminated, as
of April 1, 1996, certain exceptions to its charge-off policy and expects to
eliminate certain other exceptions in the fourth quarter of 1996. The Bank's
current charge-off policy represents a change from Chemical Bank's prior policy
pursuant to which Chemical Bank would charge off an account during the billing
cycle immediately following the cycle in which such account became one hundred
eighty (180) days delinquent. As a result of this change in policy (the
"Charge-Off Policy Change"), approximately two months of contractual charge-
offs were recorded in the April 1996 Monthly Period with respect to the
Chemical Bank Portfolio. Net charge-offs as a percentage of average
receivables outstanding for the Chemical Bank Portfolio for such Monthly Period
were 10.28%. If the Charge-Off Policy Change had not occurred, net charge-offs
as a percentage of average receivables outstanding for the Chemical Bank
Portfolio for such Monthly Period would have been 5.79%. See "Risk
Factors-Ability to Change Terms of Accounts."
The following tables set forth the delinquency and loss experience for
each of the periods shown for the Chemical Bank Portfolio and the Chase
Portfolio. As of the beginning of the day on October 21, 1996, the Receivables
in the Trust Portfolio represented approximately 56.95% of the Bank Portfolio.
77.42% of the Principal Receivables in the Trust Portfolio arose from the
Chemical Bank Portfolio and 22.58% of the Principal Receivables in the Trust
Portfolio arose from the Chase Portfolio. Because the Trust Portfolio is
comprised of substantially all of the Chemical Bank Portfolio and a portion of
the Chase Portfolio, actual delinquency and loss experience with respect to the
Receivables may be different from that set forth below.
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<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE
CHEMICAL BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
December 31,
-----------------------------------------------------------------------------
September 30, 1996 1995 1994 1993
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
DELINQUENT OF TOTAL DELINQUENT OF TOTAL DELINQUENT OF TOTAL DELINQUENT OF TOTAL
AMOUNT RECEIVABLES(2) AMOUNT RECEIVABLES(2) AMOUNT RECEIVABLES(2) AMOUNT RECEIVABLES(2)
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF DAYS
Delinquent(1)
- ---------------
30 to 59 Days $191,722 1.75% $166,346 1.55% $127,705 1.43% $105,645 1.53%
60 to 89 Days 137,757 1.26 115,538 1.07 81,811 0.92 67,605 0.98
90 Days or More 266,443 2.44 268,404 2.50 172,760 1.94 158,978 2.30
---------- ------ ---------- ------ --------- ------ --------- ------
TOTAL $595,922 5.45% $550,288 5.12% $382,276 4.28% $332,228 4.81%
========== ====== ========== ====== ========= ====== ========= ======
__________________
(1) Number of days delinquent means the number of days after the first billing date following the original billing date.
For example, 30 days delinquent means that no payment was received within 60 days after the original billing date. If
the Delinquent Amount had been calculated based on the arithmetic average of the amount of delinquent receivables as
of the last day of each month during the period indicated, the Delinquent Amount and Delinquent Amount as a Percentage
of Total Receivables for each of the years ended December 31, 1995, 1994 and 1993 would have been $446,169,000 and
4.54%, $339,333,000 and 4.46%, and $320,561,000 and 5.25%, respectively.
(2) Delinquencies are calculated as a percentage of outstanding receivables as of the end of the month.
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE
CHASE PORTFOLIO
(DOLLARS IN THOUSANDS)
December 31,
------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993
-------------------------- ------------------------- -------------------------- ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
DELINQUENT OF TOTAL DELINQUENT OF TOTAL DELINQUENT OF TOTAL DELINQUENT OF TOTAL
AMOUNT RECEIVABLES(2) AMOUNT RECEIVABLES(2) AMOUNT RECEIVABLES(2) AMOUNT RECEIVABLES(2)
---------- -------------- ---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER OF DAYS
Delinquent(1)
- -----------------
30 to 59 Days $195,077 1.45% $209,412 1.63% $176,616 1.70% $173,686 1.71%
60 to 89 Days 122,755 0.91 126,115 0.98 114,950 1.10 110,962 1.09
90 Days or
Greater 202,463 1.51 237,500 1.85 209,606 2.01 237,557 2.34
---------- ------ ---------- ------ --------- ------ --------- ------
TOTAL $520,295 3.87% $573,027 4.46% $501,172 4.81% $522,205 5.14%
========== ====== ========== ====== ========= ====== ========= ======
_______________
(1) Number of days delinquent means the number of days after the first billing date following the original billing date.
For example, 30 days delinquent means that no payment was received within 60 days after the original billing date.
(2) Delinquencies are calculated as a percentage of outstanding receivables as of the end of the month.
</TABLE>
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<TABLE>
<CAPTION>
LOSS EXPERIENCE
CHEMICAL BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED Year Ended December 31,
SEPTEMBER 30, ---------------------------------------------------
1996 1995 1994 1993
-------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)................ $10,642,593 $9,780,301 $7,540,565 $6,075,287
Gross Losses(2)(3)................................ 569,002 462,038 366,104 349,522
Recoveries........................................ 48,490 46,858 44,479 35,525
Net Losses........................................ 520,512 415,180 321,625 313,997
Net Losses as a Percentage of Average Receivables
Outstanding(4).................................. 6.52% 4.25% 4.27% 5.17%
___________________________
(1) Average Receivables Outstanding is the average of the daily receivable balance during the period indicated.
(2) Gross Losses shown include only the principal portion of charged-off receivables.
(3) Gross Losses do not include the amount of any reductions in Average Receivables Outstanding due to fraud, returned
goods or customer disputes. Gross Losses do not include certain reserves established against future charge-offs of
accounts affected by changes in Chase USA's charge-off policy.
(4) The percentage reflected for the nine months ended September 30, 1996 is an annualized figure.
</TABLE>
<TABLE>
<CAPTION>
LOSS EXPERIENCE
CHASE PORTFOLIO
(DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED Year Ended December 31,
SEPTEMBER 30, -----------------------------------------------
1996 1995 1994 1993
------------- -----------------------------------------------
<S> <C> <C> <C> <C>
Average Receivables Outstanding(1)................ $12,833,263 $11,223,195 $9,766,339 $9,590,435
Gross Losses(2)(3)................................ 441,205 469,306 456,622 501,301
Recoveries........................................ 41,936 43,766 41,060 44,168
Net Losses........................................ 399,269 425,540 415,562 457,133
Net Losses as a Percentage of Average Receivables
Outstanding(4) 4.15% 3.79% 4.26% 4.77%
___________________________
(1) Average Receivables Outstanding is the average of the daily receivable balance during the period indicated.
(2) Gross Losses shown include only the principal portion of charged-off receivables.
(3) Gross Losses do not include the amount of any reductions in Average Receivables Outstanding due to fraud, returned
goods or customer disputes. Gross Losses do not include certain reserves established against future charge-offs of
accounts affected by changes in Chase USA's charge-off policy.
(4) The percentage reflected for the nine months ended September 30, 1996 is an annualized figure.
</TABLE>
INTERCHANGE
The Transferor will be required, pursuant to the terms of the Agreement,
to transfer to the Trust a percentage of Interchange (as defined in the
Prospectus). Interchange arising from the Bank Portfolio will be allocated to
the Trust based upon the same ratio which the aggregate amount of purchases of
merchandise and services relating to the Accounts made during such Monthly
Period bears to the aggregate amount of purchases of merchandise and services
relating to the Bank Portfolio with respect to such Monthly Period.
Interchange allocated to the Trust will be treated as collections of Finance
Charge Receivables. MasterCard and VISA may from time to time change the
amount of Interchange reimbursed to banks issuing their credit cards. Under
the circumstances described herein, Interchange will be used to pay a portion
of the Investor Servicing Fee required to be paid on each Transfer Date. See
"Description of the Certificates-Servicing Compensation and Payment of
Expenses" herein and "Chase USA's Credit Card Activities-Interchange" in the
Prospectus.
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RECOVERIES
The Transferor will be required, pursuant to the terms of the Agreement,
to transfer to the Trust a percentage of the recoveries on charged-off accounts
in the Bank Portfolio ("Recoveries"). Recoveries will be allocated to the
Certificates on the basis of the percentage equivalent of the ratio which the
amount of the aggregate principal amount of Principal Receivables (prior to
giving effect to any reduction thereof for Finance Charge Receivables which are
Discount Option Receivables) bears to the aggregate principal balance of the
Bank Portfolio. Recoveries allocated to the Trust will be treated as
collections of Finance Charge Receivables. See "Chase USA's Credit Card
Portfolio-Delinquency and Loss Experience" herein and "Chase USA's Credit Card
Activities-Collection of Delinquent Accounts" in the Prospectus.
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<PAGE>
THE RECEIVABLES
The Receivables conveyed to the Trust arise in Accounts selected by the
Bank from the Chemical Bank Portfolio on the basis of criteria set forth in the
Agreement as applied on the Cut-Off Date and, with respect to Additional
Accounts, is of the related date of their designation (the "Trust Portfolio").
Pursuant to the Agreement, the Transferor has the right, subject to certain
limitations and conditions set forth therein, to designate from time to time
Additional Accounts and to transfer to the Trust all Receivables of such
Additional Accounts, whether such Receivables are then existing or thereafter
created. Any Additional Accounts designated pursuant to the Agreement must be
Eligible Accounts as of the date the Transferor designates such accounts as
Additional Accounts. The Transferor will be required to designate Additional
Accounts, to the extent available, (a) to maintain the Transferor Interest so
that during any period of 30 consecutive days, the Transferor Interest averaged
over that period equals or exceeds the Minimum Transferor Interest for the same
period and (b) to maintain, for so long as certificates of any Series
(including the Certificates) remain outstanding, the sum of (i) the aggregate
amount of Principal Receivables and (ii) the principal amount on deposit in the
Excess Funding Account equal to or greater than the Minimum Aggregate Principal
Receivables. "Minimum Transferor Interest" for any period means 7% of the sum
of (i) the average Principal Receivables for such period and (ii) the average
principal amount on deposit in the Excess Funding Account, the Principal
Funding Account and any other account specified from time to time pursuant to
the Agreement or any Series Supplement for such period; PROVIDED, HOWEVER, that
the Transferor may reduce the Minimum Transferor Interest to not less than 2%
of the sum of the amounts specified in clauses (i) and (ii) above upon
satisfaction of the Rating Agency Condition and certain other conditions to be
set forth in the Agreement. "Minimum Aggregate Principal Receivables" means an
amount equal to the sum of the numerators used to calculate the Investor
Percentages with respect to the allocation of Collections of Principal
Receivables for each Series then outstanding minus the amount on deposit in the
Excess Funding Account as of the date of determination; provided, that the
Minimum Aggregate Principal Receivables may be reduced to a lesser amount at
any time if the Rating Agency Condition is satisfied. The Transferor will
convey the Receivables then existing or thereafter created under such
Additional Accounts to the Trust. Further, pursuant to the Agreement, the
Transferor will have the right (subject to certain limitations and conditions)
to designate certain Removed Accounts and to require the Trustee to reconvey
all Receivables in such Removed Accounts to the Transferor, whether such
Receivables are then existing or thereafter created. Throughout the term of
the Trust, the Accounts from which the Receivables arise will be the Accounts
designated by the Transferor on the Cut-Off Date plus any Additional Accounts
minus any Removed Accounts. As of the Cut-Off Date and, with respect to
Receivables in Additional Accounts, as of the related date of their conveyance
to the Trust, and on the date any new Receivables are created, the Transferor
will represent and warrant to the Trust that the Receivables meet the
eligibility requirements specified in the Agreement. See "Description of the
Certificates-Representations and Warranties" in the Prospectus.
The Receivables in the Trust Portfolio, as of the beginning of the day on
October 21, 1996, included $13,529,958,576.60 of Principal Receivables and
$267,806,952.11 of Finance Charge Receivables, consisting of $10,474,378,415.57
of Principal Receivables from the Chemical Bank Portfolio and $3,055,580,161.03
of Principal Receivables from the Chase Portfolio. The Accounts had an average
Principal Receivable balance of $1,650.34 and an average credit limit of
$5,796.69. The percentage of the aggregate total Receivable balance to the
aggregate total credit limit was 29.03%. The average age of the Accounts was
approximately 60.43 months. As of the beginning of the day on October 21,
1996, cardholders whose Accounts are included in the Trust Portfolio had
billing addresses in all 50 States and the District of Columbia. As of the
beginning of the day on October 21, 1996, 76.94% of the Accounts were standard
accounts and 23.06% were premium accounts, and the aggregate Principal
Receivable balances of standard accounts and premium accounts, as a percentage
of the total aggregate Principal Receivables, were 66.53% and 33.47%,
respectively.
The following tables summarize the Trust Portfolio by various criteria as
of the beginning of the day on October 21, 1996. Because the future
composition of the Trust Portfolio may change over time, these tables are not
necessarily indicative of the composition of the Trust Portfolio at any
subsequent time.
A-12
<PAGE>
<TABLE>
<CAPTION>
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER RECEIVABLES TOTAL
ACCOUNTS OF ACCOUNTS OUTSTANDING RECEIVABLES
---------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Account Balance
- ---------------
Credit Balance 96,059 1.17% $(10,461,072.43) (0.08)%
No Balance 2,365,163 28.85 0.00 0.00
$0.01 to $1,500.00 2,983,746 36.39 1,485,357,813.18 10.77
$1,500.01 to $5,000.00 1,834,154 22.37 5,400,775,096.51 39.14
$5,000.01 to $10,000.00 819,537 10.00 5,754,457,269.01 41.71
$10,000.01 to $20,000.00 99,010 1.21 1,151,053,516.85 8.34
Over $20,000.00 639 0.01 16,582,905.59 0.12
---------------- --------------- ----------------- ----------------
TOTAL 8,198,308 100.00% $13,797,765,528.71 100.00%
================ =============== ================== ================
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER RECEIVABLES TOTAL
ACCOUNTS OF ACCOUNTS OUTSTANDING RECEIVABLES
---------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Credit Limit
- ------------
$0.00 6,804 0.08% $233,664.95 0.00%
$0.01 to $1,500.00 1,153,776 14.07 600,273,613.10 4.35
$1,500.01 to $5,000.00 2,879,089 35.12 3,585,217,863.55 25.99
$5,000.01 to $10,000.00 3,438,175 41.94 6,973,828,399.59 50.54
Over $10,000.00 720,464 8.79 2,638,211,987.52 19.12
---------------- --------------- ----------------- ---------------
TOTAL 8,198,308 100.00% $13,797,765,528.71 100.00%
================ =============== ================== ================
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER RECEIVABLES TOTAL
ACCOUNTS OF ACCOUNTS OUTSTANDING RECEIVABLES
---------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Payment Status
- ---------------
Current to 29 days delinquent 7,701,405 93.94% $12,357,457,808.77 89.56%
30 to 59 days delinquent 280,055 3.42 772,269,477.54 5.60
60 to 89 days delinquent 81,303 0.99 225,219,752.02 1.63
90 to 119 days delinquent 48,319 0.59 151,094,636.52 1.10
120 days delinquent or more 87,226 1.06 291,723,853.86 2.11
---------------- --------------- ----------------- ---------------
TOTAL 8,198,308 100.00% $13,797,765,528.71 100.00%
================ =============== ================== ================
</TABLE>
<TABLE>
<CAPTION>
COMPOSITION BY ACCOUNT SEASONING (1)
TRUST PORTFOLIO
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER RECEIVABLES TOTAL
ACCOUNTS OF ACCOUNTS OUTSTANDING RECEIVABLES
---------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Account Age
- -----------
Not More than 6 Months 449,725 5.49% $618,450,426.24 4.48%
Over 6 Months to 12 Months 612,935 7.47 862,532,753.69 6.25
Over 12 Months to 24 Months 1,851,373 22.58 2,904,801,831.20 21.05
Over 24 Months to 36 Months 2,098,205 25.59 2,935,168,250.74 21.27
Over 36 Months to 48 Months 494,864 6.04 928,105,905.56 6.73
Over 48 Months to 60 Months 284,421 3.47 505,645,018.98 3.67
Over 60 Months to 120 Months 1,013,083 12.36 2,365,421,790.89 17.14
Over 120 Months 1,393,702 17.00 2,677,639,551.41 19.41
---------------- --------------- ----------------- ---------------
TOTAL 8,198,308 100.00% $13,797,765,528.71 100.00%
================ =============== ================== ================
_______________
(1) Account age is determined by the number of months elapsed since the account was originally opened, except that with
respect to Chemical Bank Portfolio accounts which were converted from standard to premium accounts, account age is
determined by the number of months since the account was converted.
</TABLE>
A-13
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER RECEIVABLES TOTAL
State Accounts of Accounts Outstanding Receivables
- ----- ------------- -------------- ------------------ ----------------
<S> <C> <C> <C> <C>
New York......................... 1,243,862 15.17% $2,100,613,760.63 15.22%
California....................... 1,137,339 13.87 2,093,628,467.60 15.17
Texas............................ 536,652 6.55 913,410,762.19 6.62
Florida.......................... 537,997 6.56 848,788,004.02 6.15
New Jersey....................... 498,221 6.08 832,983,068.86 6.04
Illinois......................... 488,955 5.96 799,963,224.07 5.80
Massachusetts.................... 296,110 3.61 507,156,752.30 3.67
Ohio............................. 305,115 3.72 478,239,069.83 3.46
Pennsylvania..................... 253,017 3.09 403,851,982.42 2.92
Michigan......................... 220,123 2.69 367,075,235.65 2.66
Virginia......................... 175,124 2.14 302,277,244.03 2.19
Indiana.......................... 175,583 2.14 277,435,432.70 2.01
Maryland......................... 165,377 2.02 271,796,191.60 1.97
Connecticut...................... 145,883 1.78 256,971,929.08 1.86
Georgia.......................... 124,762 1.52 214,761,560.55 1.56
North Carolina................... 129,740 1.58 203,163,774.32 1.47
Minnesota........................ 111,090 1.36 185,676,657.64 1.35
Washington....................... 98,524 1.20 175,530,308.56 1.27
Missouri......................... 102,349 1.25 167,966,499.79 1.22
Tennessee........................ 103,158 1.26 163,780,963.86 1.19
Wisconsin........................ 96,277 1.17 152,768,031.58 1.11
Arizona.......................... 84,431 1.03 152,082,848.07 1.10
Louisiana........................ 108,741 1.33 149,516,018.95 1.08
Colorado......................... 82,607 1.01 148,967,557.64 1.08
Alabama.......................... 88,370 1.08 134,262,744.28 0.97
Oregon........................... 65,157 0.80 113,841,319.51 0.83
Kentucky......................... 77,257 0.94 112,187,227.42 0.81
Oklahoma......................... 57,700 0.70 97,935,470.93 0.71
Nevada........................... 45,960 0.56 96,027,161.65 0.70
South Carolina................... 59,254 0.72 94,799,228.43 0.69
Rhode Island..................... 57,785 0.70 94,740,826.97 0.69
Kansas........................... 42,802 0.52 78,015,423.10 0.57
Arkansas......................... 48,922 0.60 73,990,260.52 0.54
New Hampshire.................... 35,466 0.43 70,306,380.20 0.51
Mississippi...................... 48,242 0.59 67,572,950.75 0.49
Iowa............................. 41,333 0.50 62,446,359.78 0.45
Hawaii........................... 33,459 0.41 57,703,586.51 0.42
New Mexico....................... 36,351 0.44 57,663,098.10 0.42
Maine............................ 26,148 0.32 47,319,483.00 0.34
Nebraska......................... 25,666 0.31 43,196,580.56 0.31
Utah............................. 25,572 0.31 43,062,835.19 0.31
West Virginia.................... 24,864 0.30 38,139,594.04 0.28
Vermont.......................... 18,189 0.22 33,949,565.32 0.25
Idaho............................ 18,746 0.23 33,941,555.41 0.25
Delaware......................... 16,512 0.20 31,030,848.80 0.22
District of Columbia............. 16,150 0.20 27,465,020.78 0.20
Alaska........................... 12,199 0.15 26,762,833.11 0.19
Montana.......................... 14,653 0.18 24,465,691.02 0.18
Wyoming.......................... 9,810 0.12 18,086,375.48 0.13
North Dakota..................... 9,540 0.12 15,066,551.64 0.11
South Dakota..................... 9,594 0.12 14,695,397.27 0.11
Other............................ 11,570 0.14 20,685,813.00 0.15
---------- ------- ------------------ -------
TOTAL 8,198,308 100.00% $13,797,765,528.71 100.00%
</TABLE>
A-14
<PAGE>
MATURITY CONSIDERATIONS
The Agreement provides that Class A Certificateholders will not receive
payments of principal until the Class A Scheduled Payment Date, or earlier in
the event of a Pay Out Event which results in the commencement of the Rapid
Amortization Period. The Agreement also provides that Class B
Certificateholders will not receive payments of principal until the Class B
Scheduled Payment Date, or earlier in the event of a Pay Out Event which
results in the commencement of the Rapid Amortization Period (in either case.
only after the Class A Investor Interest has been paid in full). The Class B
Certificateholders will not begin to receive payments of principal until the
final principal payment on the Class A Certificates has been made.
CONTROLLED ACCUMULATION PERIOD. On each Transfer Date during the
Controlled Accumulation Period prior to the payment of the Class A Investor
Interest in full, an amount equal to, for each Monthly Period, the least of (a)
the Available Investor Principal Collections, (b) the "Controlled Deposit
Amount" for such Monthly Period, which is equal to the sum of the Controlled
Accumulation Amount for such Monthly Period and the Accumulation Shortfall, if
any, for such Monthly Period and (c) the Class A Adjusted Investor Interest
prior to any deposits on such day, will be deposited in the Principal Funding
Account (the "Principal Funding Account") established by the Servicer until the
principal amount on deposit in the Principal Funding Account (the "Principal
Funding Account Balance") equals the Class A Investor Interest. After the
Class A Investor Interest has been paid in full, or following the first
Transfer Date upon which the Principal Funding Account Balance has increased to
the amount of the Class A Investor Interest, Available Investor Principal
Collections, to the extent required, will be distributed to the Class B
Certificateholders on each Distribution Date beginning, during the Controlled
Accumulation Period, on the Class B Scheduled Payment Date, until the earlier
of the date the Class B Investor Interest has been paid in full and the Series
1996-4 Termination Date. After the Class A Investor Interest and the Class B
Investor Interest have each been paid in full, Available Investor Principal
Collections, to the extent required, will be distributed to the Collateral
Interest Holder on each Transfer Date until the earlier of the date the
Collateral Interest has been paid in full and the Series 1996-4 Termination
Date. Amounts in the Principal Funding Account are expected to be available to
pay the Class A Investor Interest on the Class A Scheduled Payment Date. After
the payment of the Class A Investor Interest in full, Available Investor
Principal Collections are expected to be available to pay the Class B Investor
Interest on the Class B Scheduled Payment Date. Although it is anticipated
that collections of Principal Receivables will be available on each Transfer
Date during the Controlled Accumulation Period to make a deposit of the
applicable Controlled Deposit Amount and that the Class A Investor Interest
will be paid to the Class A Certificateholders on the Class A Scheduled Payment
Date and the Class B Investor Interest will be paid to the Class B
Certificateholders on the Class B Scheduled Payment Date, respectively, no
assurance can be given in this regard. If the amount required to pay the Class
A Investor Interest or the Class B Investor Interest in full is not available
on the Class A Scheduled Payment Date or the Class B Scheduled Payment Date,
respectively, a Pay Out Event will occur and the Rapid Amortization Period will
commence.
RAPID AMORTIZATION PERIOD. If a Pay Out Event occurs, the Rapid
Amortization Period will commence and any amount on deposit in the Principal
Funding Account will be paid to the Class A Certificateholders on the
Distribution Date in the month following the commencement of the Rapid
Amortization Period. In addition, to the extent that the Class A Investor
Interest has not been paid in full. the Class A Certificateholders will be
entitled to monthly payments of principal equal to the Available Investor
Principal Collections until the earlier of the date on which the Class A
Certificates have been paid in full and the Series 1996-4 Termination Date.
After the Class A Certificates have been paid in full and if the Series 1996-4
Termination Date has not occurred, Available Investor Principal Collections
will be paid to the Class B Certificates on each Distribution Date until the
earlier of the date on which the Class B Certificates have been paid in full
and the Series 1996-4 Termination Date.
PAY OUT EVENTS. A Pay Out Event occurs, either automatically or after
specified notice, upon (a) the failure of the Transferor to make certain
payments or transfers of funds for the benefit of the Certificateholders within
the time periods stated in the Agreement, (b) material breaches of certain
A-15
<PAGE>
representations, warranties or covenants of the Transferor, (c) certain
insolvency events involving the Transferor, (d) a reduction in the average of
the Portfolio Yields for any three consecutive Monthly Periods to a rate that
is less than the average of the Base Rates for such period, (e) the Trust
becoming an "investment company" within the meaning of the Investment Company
Act of 1940, as amended, (f) the failure of the Transferor to convey
Receivables arising under Additional Accounts or Participations to the Trust
when required by the Agreement, (g) the occurrence of a Servicer Default which
would have a material adverse effect on the Certificateholders, (h)
insufficient monies in the Distribution Account to pay the Class A Investor
Interest or the Class B Investor Interest in full on the Class A Scheduled
Payment Date or the Class B Scheduled Payment Date, respectively, or (i) the
Transferor becomes unable for any reason to transfer Receivables to the Trust
in accordance with the provisions of the Agreement. See "Description of the
Certificates-Pay Out Events." The term "Base Rate" means, with respect to any
Monthly Period, the annualized percentage equivalent of a fraction, the
numerator of which is the sum of the Class A Monthly Interest, the Class B
Monthly Interest and the Collateral Monthly Interest, each for the related
Interest Period, and the Investor Servicing Fee for such Monthly Period, and
the denominator of which is the Investor Interest as of the close of business
on the last day of such Monthly Period. The term "Portfolio Yield" means, with
respect to any Monthly Period, the annualized percentage equivalent of a
fraction, the numerator of which is the sum of collections of Finance Charge
Receivables, Principal Funding Investment Proceeds and amounts withdrawn from
the Reserve Account deposited into the Finance Charge Account and allocable to
the Certificates and the Collateral Interest for such Monthly Period,
calculated on a cash basis after subtracting the Investor Default Amount for
such Monthly Period, and the denominator of which is the Investor Interest as
of the close of business on the last day of such Monthly Period.
PAYMENT RATES. The following tables set forth the highest and lowest
cardholder monthly payment rates for the Chemical Bank Portfolio and the Chase
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.
<TABLE>
<CAPTION>
CARDHOLDER MONTHLY PAYMENT RATES
CHEMICAL BANK PORTFOLIO
NINE MONTHS
ENDED Year Ended December 31,
SEPTEMBER 30, ---------------------------------------
1996 1995 1994 1993
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Highest Month 10.99% 11.91% 13.12% 10.89%
Lowest Month 10.11% 10.06% 11.16% 9.30%
Monthly Average(1) 10.54% 11.00% 12.08% 9.97%
__________________________
(1) Monthly Averages shown are expressed as an arithmetic average of the payment rates for each month during the
period indicated.
</TABLE>
<TABLE>
<CAPTION>
CARDHOLDER MONTHLY PAYMENT RATES
CHASE PORTFOLIO
NINE MONTHS
ENDED Year Ended December 31,
SEPTEMBER 30, ------------------------------------
1996 1995 1994 1993
------------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Highest Month 13.19% 12.82% 12.98% 12.40%
Lowest Month 11.01% 10.20% 10.70% 10.53%
Monthly Average(1) 12.07% 11.43% 11.71% 11.43%
___________________________
(1) Monthly Averages shown are expressed as an arithmetic average of the payment rates for each month during the
period indicated.
</TABLE>
A-16
<PAGE>
The Bank determines the minimum monthly payment with respect to each
account by multiplying the combined new balance of purchases and cash advances,
less any disputed amounts, by any of (i) 2.000% (1/50 expressed as a
percentage), (ii) 2.083% (1/48 expressed as a percentage) or (iii) 1.666% (1/60
expressed as a percentage), depending upon the account. Beginning in January
1997, the Bank expects to calculate the minimum monthly payment for the
majority of accounts by multiplying the combined new balance of purchases and
cash advances, less any disputed amounts, by 2.000% (1/50 expressed as a
percentage). If the amount so calculated is less than $10.00 it is increased
to $10.00. The sum of such amount and any past due amounts equals the minimum
payment amount. The minimum payment amount, however, is never more than the
new balance.
There can be no assurance that the cardholder monthly payment rates in
the future will be similar to the historical experience set forth above. In
addition, the amount of collections of Receivables may vary from month to month
due to seasonal variations, general economic conditions and payment habits of
individual cardholders. There can be no assurance that collections of
Principal Receivables with respect to the Trust Portfolio will be similar to
the historical experience set forth above or that deposits into the Principal
Funding Account or the Distribution Account, as applicable, will be made in
accordance with the applicable Controlled Accumulation Amount. If a Pay Out
Event occurs, the average life of the Certificates could be significantly
reduced or increased.
Because there may be a slowdown in the payment rate below the payment
rates used to determine the Controlled Accumulation Amounts, or a Pay Out Event
may occur which would initiate the Rapid Amortization Period, there can be no
assurance that the actual number of months elapsed from the date of issuance of
the Class A Certificates and the Class B Certificates to their respective final
Distribution Dates will equal the expected number of months. As described
under "Description of the Certificates-Postponement of Controlled Accumulation
Period," the Servicer may shorten the Controlled Accumulation Period. There
can be no assurance that there will be sufficient time to accumulate all
amounts necessary to pay the Class A Investor Interest and the Class B Investor
Interest on the Class A Scheduled Payment Date and the Class B Scheduled
Payment Date, respectively. See "Risk Factors-Certificate Rating" and
"Maturity Considerations" herein and "Risk Factors-Payments and Maturity" in
the Prospectus.
RECEIVABLE YIELD CONSIDERATIONS
The gross revenues from finance charges and fees billed to accounts in
the Chemical Bank Portfolio for each of the three calendar years contained in
the period ended December 31, 1995 and for the nine-month period ended
September 30, 1996 are set forth in the following table. The historical yield
figures in the following tables are calculated on an accrual basis.
Collections of Receivables included in the Trust will be on a cash basis and
may not reflect the historical yield experience in the table. During periods
of increasing delinquencies or periodic payment deferral programs, accrual
yields may exceed cash amounts accrued and billed to cardholders. Conversely,
cash yields may exceed accrual yields as amounts collected in a current period
may include amounts accrued during prior periods. However, the Transferor
believes that during the three calendar years contained in the period ended
December 31, 1995 and the nine-month period ended September 30, 1996, the yield
on an accrual basis closely approximated the yield on a cash basis. The yield
on both an accrual and a cash basis will be affected by numerous factors,
including the monthly periodic finance charges on the Receivables, the amount
of the annual membership fees and other fees, changes in the delinquency rate
on the Receivables and the percentage of cardholders who pay their balances in
full each month and do not incur monthly periodic finance charges. See "Risk
Factors" in the Prospectus.
A-17
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO YIELD
CHEMICAL BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED Year Ended December 31,
SEPTEMBER 30, --------------------------------------------
1996 1995 1994 1993
------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed(1)(2) $1,388,552 $1,745,079 $1,388,724 $1,146,379
Average Receivables Outstanding(3) $10,642,593 $9,780,301 $7,540,565 $6,075,287
Yield from Finance Charges and Fees 17.38% 17.84% 18.42% 18.87%
Billed(4)(5)
___________________________
(1) Finance Charges and Fees Billed include periodic and minimum finance charges, annual membership fees, late
charges, cash advance transaction fees, Interchange, overlimit fees and fees for returned checks and cash
advances.
(2) Finance Charges and Fees Billed are presented net of adjustments made pursuant to the Bank's normal servicing
procedures, including removal of incorrect or disputed finance charges and reversal of finance charges accrued on
charged-off accounts.
(3) Average Receivables Outstanding is the average of the daily receivable balance during the period indicated.
(4) Yield from Finance Charges and Fees Billed is calculated as a percentage of Average Receivables Outstanding.
(5) The percentage reflected for the nine months ended September 30, 1996 is an annualized figure.
</TABLE>
A-18
<PAGE>
The gross revenues from finance charges and fees relating to accounts in
the Chase Portfolio for each of the three years contained in the period ended
December 31, 1995 and for the nine-month period ended September 30, 1996 are
set forth in the following table. The historical yield figures in the table
are calculated on an accrual basis. Collections of Receivables included in the
Trust will be on a cash basis. The yield on both an accrual and a cash basis
will be affected by numerous factors, including the monthly periodic finance
charges on the Receivables, the amount of the annual membership fees, cash
advance fees and other fees, Interchange, changes in the delinquency rate on
the Receivables and the percentage of cardholders who pay their balances in
full each month and do not incur monthly periodic finance charges. Due to such
factors and the factors discussed under "-Loss and Delinquency Experience"
above, there can be no assurance that the revenue experience for the
Receivables in the future will be similar to the historical experience of the
Chase Portfolio included in the table set forth below.
<TABLE>
<CAPTION>
PORTFOLIO YIELD
CHASE PORTFOLIO
(DOLLARS IN THOUSANDS)
NINE MONTHS
ENDED Year Ended December 31,
SEPTEMBER 30, --------------------------------------------
1996 1995 1994 1993
------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Finance Charges and Fees Billed(1)(2) $1,531,511 $1,886,803 $1,798,895 $1,895,218
Average Receivables Outstanding(3) $12,833,263 $11,223,195 $9,766,339 $9,590,435
Yield from Finance Charges and Fees
Billed (4)(5) 15.90% 16.81% 18.42% 19.76%
___________________________
(1) Finance Charges and Fees Billed include periodic and minimum finance charges, annual membership fees, late
charges, cash advance transaction fees, Interchange, overlimit fees, insurance commissions and fees for returned
checks and cash advances.
(2) Finance Charges and Fees Billed are presented net of adjustments made pursuant to the Bank's normal servicing
procedures, including removal of incorrect or disputed finance charges and reversal of finance charges accrued on
charged-off accounts.
(3) Average Receivables Outstanding is the average of the daily receivable balance during the period indicated.
(4) Yield from Finance Charges and Fees Billed is calculated as a percentage of Average Receivables Outstanding.
(5) The percentage reflected for the nine months ended September 30, 1996 is an annualized figure.
</TABLE>
A-18
<PAGE>
Revenues vary for each account based on the type and volume of activity
for each account. Because the Trust Portfolio is comprised of substantially
all of the Chemical Bank Portfolio and a portion of the Chase Portfolio, actual
yield with respect to Receivables may be different from that set forth above.
See "Chase USA's Credit Card Portfolio" herein and "Chase USA's Credit Card
Activities" in the Prospectus.
CHASE USA'S CREDIT CARD ACTIVITIES
GENERAL
The Bank Portfolio consists of MasterCard and VISA accounts that were
originated prior to June 1, 1996 (the "Account Transfer Date") by Chemical Bank
(the "Old Chemical Bank Portfolio"), the portfolio of MasterCard and VISA
accounts that have been originated on and after the Account Transfer Date by
Chase USA and that had certain data processing functions performed through a
credit card processor, First Data Resources, Inc. ("FDR") (the "New Chemical
Bank Portfolio," and together with the Old Chemical Bank Portfolio, the
"Chemical Bank Portfolio"), the MasterCard and VISA accounts that were
originated prior to the Account Transfer Date by Chase USA (the "Old Chase
Portfolio") and the portfolio of MasterCard and VISA accounts that have been
originated on and after the Account Transfer Date and that, prior to October
20, 1996, had data processing functions performed on the systems of Chase USA
rather than by FDR (the "New Chase Portfolio" and, together with the Old Chase
Portfolio, the "Chase Portfolio"). On the Account Transfer Date, the
MasterCard and VISA accounts comprising the Chemical Bank Portfolio were
transferred from Chemical Bank to Chase USA. The accounts processed by FDR
during the period from June 1, 1996 through October 20, 1996 were primarily
accounts arising under origination programs initiated by Chemical Bank prior to
the Account Transfer Date; accounts processed by Chase USA during such period
were primarily accounts arising under origination programs initiated by Chase
USA, either prior to or after the Account Transfer Date.
The Receivables which the Bank will convey to each Trust pursuant to the
related Agreement have been and will be generated from transactions made by
holders of certain VISA and MasterCard credit card accounts, which are regular
accounts, and certain Gold VISA and MasterCard and GrandElite Gold VISA and
MasterCard credit card accounts, which are premium accounts, including in each
case cobranded accounts. Premium cards are targeted at individuals with higher
levels of income. The Bank services these accounts at its facilities located
in Hicksville, New York; Brooklyn, New York; Tempe, Arizona and Tampa, Florida.
Certain data processing and administrative functions associated with the
servicing of the Chemical Bank Portfolio have been, and since October 20, 1996,
on behalf of the entire Bank Portfolio are, performed through FDR. See
"-Description of FDR."
Pursuant to a master pooling and servicing agreement dated as of June 1,
1991 between Chase USA, as seller and servicer, and Yasuda Bank and Trust
Company (U.S.A.) as trustee, the Chase Manhattan Credit Card Master Trust (the
"Chase Manhattan Trust") has issued several series of asset backed certificates
(each such series, a "Chase Manhattan Series") evidencing undivided interests
in receivables generated by certain accounts in the Chase Portfolio (the
"Securitized Chase Portfolio"). As long as any Chase Manhattan Series remains
outstanding, receivables in accounts which remain in the Securitized Chase
Portfolio will not be available for addition to the Trusts, although the
Transferor would be permitted to add Participations in the Chase Manhattan
Trust to the assets of the Trusts. See "Description of the
Certificates-Addition of Trust Assets."
Accounts in the Chase Portfolio which are not in the Securitized Chase
Portfolio have been added and are expected to be added in the future and
accounts in the New Chase Portfolio are expected to be added, at some time in
the future, to the Trusts. There can be no assurance, however, that such
accounts will be added or that, if added, the receivables in such accounts will
constitute a material portion of the Receivables in the Trusts.
In addition, accounts in the Chase Portfolio, the Chemical Portfolio and
the New Chase Portfolio were originated under policies and procedures which
differed from each other in certain respects. The Bank does not expect any of
these differences to have a material adverse effect on the credit quality of
the Receivables in the Trusts or on the interests of the Certificateholders.
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<PAGE>
ACQUISITION AND USE OF THE CREDIT CARD ACCOUNTS
The accounts were generated under the VISA U.S.A., Inc. ("VISA") or
MasterCard International Inc. ("MasterCard International") programs and were
originated, purchased by, or otherwise transferred to, the Bank. The Bank is a
member of VISA and of MasterCard International. MasterCard International and
VISA license their respective marks permitting financial institutions to issue
credit cards to their customers. In addition, MasterCard International and
VISA provide clearing services facilitating exchange of payments among member
institutions and networks linking members' credit authorization systems.
The VISA and MasterCard credit cards are issued as part of the worldwide
VISA and MasterCard International systems, and transactions creating the
receivables through the use of the credit cards are processed through the VISA
and MasterCard International authorization and settlement systems.
The VISA and MasterCard credit cards from which the Accounts were
established may be used to purchase goods and services, to obtain cash advances
and to consolidate and transfer account balances from other credit cards.
Cardholders make purchases when using a credit card to buy goods or services.
A cash advance is made when a credit card is used to obtain cash from a
financial institution, from an automated teller machine, by a check drawn on an
Account or through the use of overdraft protection. Amounts due with respect
to purchases, cash advances and transfers of account balances will be included
in the Receivables.
The VISA and MasterCard credit card accounts owned by the Bank were
principally generated through: (a) direct mail and telemarketing solicitation
for accounts on a pre-screened credit basis, (b) applications mailed directly
to prospective cardholders, (c) applications made available to prospective
cardholders at the Bank's branch banking facilities and point of sale outlets,
(d) applications generated by advertising on television, radio and in magazines
and (e) purchases of accounts from other credit card issuers.
In each case where an account is generated through an application, the
Bank reviews the application for completeness and creditworthiness.
Applications provide information to the Bank on the applicant's employment
history, income and residence status. In addition to reviewing the
application, the Bank obtains a credit report issued by an independent credit
reporting agency with respect to the applicant. In the event there are
discrepancies between the application and the credit report, the Bank may
resolve the inconsistency regarding the applicant by contacting employers or
credit references. The Bank generally evaluates the ability of an applicant
for a VISA or MasterCard credit card account to repay credit card balances by
applying a credit scoring system using models developed by independent
consulting firms and proprietary models and data. Credit scoring is intended
to provide a general indication, based on the information available, including
data provided from applications and credit bureaus, of the applicant's
likelihood to repay his or her obligations. Credit scoring assigns values to
the information provided in each applicant's application and credit bureau
report and then estimates the associated credit risk. The score at which an
applicant will be approved correlates to the Bank's credit risk tolerance at
the time of approval. The Bank personnel and outside consultants regularly
review the predictive accuracy of the scoring models.
Once an application to open an account is approved an initial credit limit
is established for the account based on the applicant's credit score and the
applicant's level of income. At least once per year a systematic evaluation of
cardholder payment and behavioral information is used to determine eligibility
for automatic credit line increases. Credit limits may be adjusted at the
request of the applicant, subject to the Bank's independent evaluation of the
applicant's payment and usage history.
The Bank also generates new accounts through direct mail and telemarketing
solicitation campaigns directed at individuals who have been pre-screened by
the Bank. A list of prospects from a variety of sources are screened at one or
more credit bureaus in accordance with the Bank's credit criteria, including
previous payment patterns and longevity of account relationships. Individuals
qualifying for pre-screened direct mail or telemarketing solicitation are
conditionally offered the Bank's credit card without having to complete a
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<PAGE>
detailed application. Various credit limits are offered to members of the
group being solicited, which are based upon the prospective cardholder's credit
profile and the level of existing and potential indebtedness relative to
inferred income based on geographic and demographic characteristics.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreement, the Bank reserves the
right to change or terminate any terms, conditions, services or features of the
accounts (including increasing or decreasing periodic finance charges, other
charges or minimum payments) and to sell or transfer the accounts and any
amounts owed on such accounts to another creditor.
The Bank has added, and may continue to add, accounts to its portfolio by
purchasing credit card accounts from other financial institutions. Credit card
accounts that have been purchased by the Bank were originally opened using
criteria established by the institution from which the accounts were purchased
or by the institution from which the selling institution originally purchased
the accounts and may not have been subject to the same level of credit review
as accounts established by the Bank. Following acquisition, purchased accounts
are evaluated against the same criteria utilized by the Bank to maintain Bank-
originated accounts to determine whether any of the purchased accounts should
be closed immediately. Any of the purchased accounts failing the criteria are
closed and no further purchases or cash advances are authorized. All other
such accounts remain open, subject to the same criteria the Bank uses to
evaluate Bank-originated accounts. The credit limits on such accounts are
based initially on the limits established or maintained by the selling
institution. Following acquisition, credit limits on purchased accounts will
be adjusted based on the criteria applied to Bank-originated accounts.
BILLING AND PAYMENTS
The Accounts have various billing and payment structures, including
varying minimum payment levels and fees. Monthly billing statements are sent
by the Bank, using FDR as its service bureau, to cardholders. The following
information reflects the current billing and payment characteristics of the
Accounts. When an account is established, it is randomly assigned to a billing
cycle. Currently. there are 20 billing cycles. Each billing cycle has a
separate monthly billing date at which time the activity in the related
accounts during the month ending on such billing date are processed and billed
to cardholders.
The Bank determines the minimum monthly payment with respect to each
account by multiplying the combined new balance of purchases and cash advances,
less any disputed amounts, by any of (i) 2.000% (1/50 expressed as a
percentage), (ii) 2.083% (1/48 expressed as a percentage) or (iii) 1.666% (1/60
expressed as a percentage), depending upon the account. Beginning in January
1997, the Bank expects to calculate the minimum monthly payment for the
majority of accounts by multiplying the combined new balance of purchases and
cash advances, less any disputed amounts, by 2.000% (1/50 expressed as a
percentage). If the amount so calculated is less than $10.00 it is increased
to $10.00. The sum of such amount and any past due amounts equals the minimum
payment amount. The minimum payment, however, is never more than the new
balance.
A daily periodic finance charge is assessed on certain Principal
Receivables for each billing cycle. Daily periodic finance charges for a
billing cycle are not assessed on Principal Receivables which arise from new
purchases made during such billing cycle if either on the first day of such
billing cycle there was no purchase balance outstanding or if the purchase
balance outstanding on the first day of such billing cycle is paid in full
during such billing cycle or if on the last day of such billing cycle there is
no purchase balance outstanding. The daily periodic finance charge assessed on
cash advances and applicable purchase balances is calculated by multiplying (i)
the average daily cash advance and applicable purchase balance during the
billing cycle by (ii) the applicable daily periodic finance charge by (iii) the
number of days in the billing cycle. A monthly periodic finance charge is
assessed for certain Principal Receivables. This monthly periodic finance
charge assessed on cash advances and applicable purchase balances is calculated
by multiplying (i) the average daily cash advance and applicable purchase
balance during the billing cycle by (ii) the applicable monthly periodic
finance charge. Cash advances are included in the average daily cash advance
balance and purchases are included in the average daily purchase balance from
the date such advance or purchase occurs or, in certain circumstances, on the
first day of the billing cycle following the billing cycle in which such
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<PAGE>
advance or purchase occurs. The annual percentage rate for fixed rate accounts
ranges from 14.5% per annum to 18.8% per annum. The current annual percentage
rate for variable rate accounts is based on the Wall Street Journal prime rate
plus a spread generally ranging from 8.4% to 11.4%. To the extent that the
amount of any finance charge applicable to an account balance is less than
$0.50, the Bank increases such amount to $0.50.
The Bank may change the periodic finance charge rate at any time. In
addition, cardholders currently have the option of electing to switch the
applicable rate from fixed to variable and vice versa, effective for
transactions on or after the date the election is processed, although such
option is expected to be discontinued by January 1997.
The Bank generally assesses an annual membership fee of $20.00 for regular
accounts, $40.00 for premium fixed rate accounts and $45.00 for premium
variable rate accounts. The Bank currently allows cardholders to request a
refund of the unused portion of the annual fee if the account is closed within
the first six months after it is opened and it is not delinquent and the
account balance does not exceed the credit limit, but expects to discontinue
this option by January 1997. The Bank may waive the annual membership fees, or
a portion thereof, in connection with solicitations of new accounts (and has
done so for portions of recent solicitations) or when the Bank determines a
waiver to be necessary to operate its credit card business on a competitive
basis. In addition to the annual membership fee, the Bank may charge accounts
certain other fees including (i) a late fee of $18.00 with respect to any
unpaid monthly payment if the Bank does not receive the required minimum
monthly payment by the payment due date set forth on the monthly billing
statement and the amount of the past due payment is $2.00 or more (provided
that no late fee is assessed if the minimum payment is paid prior to the first
day of the following billing cycle, including any minimum payment due with
respect to cash advances); (ii) a cash advance fee of 2% of the amount of each
cash advance, but such cash advance fee shall not be less than $2.00 nor
greater than $20.00; (iii) a fee of $15.00 for each check written on an account
(a cash advance) which is returned to the Bank as a result of the account being
delinquent or overdrawn; (iv) a fee of $18.00 with respect to each check
submitted by a cardholder in payment of an account which is dishonored; and (v)
an overlimit charge of $18.00 if, at the end of the billing cycle, the total
amount owed for principal, or on and after January 1, 1997 the total amount
owed for principal and finance charges, in respect of purchases and cash
advances exceeds the cardholder's credit line.
Payments by cardholders to the Bank on the Accounts are processed and
applied first to any billed fees and other amounts not subject to finance
charges, next to billed and unpaid finance charges and then to billed and
unpaid transactions in the order determined by the Bank. Any excess is applied
to unbilled transactions in the order determined by the Bank and then to
unbilled finance charges. There can be no assurance that daily periodic
finance charges, fees and other charges will remain at current levels in the
future. See "Description of the Certificates-Collection and Other Servicing
Procedures."
COLLECTION OF DELINQUENT ACCOUNTS
The Bank considers an account delinquent if a payment due thereunder is
not received by the Bank by the date of the statement following the statement
on which the amount is first stated to be due. The Bank classifies an account
as "over limit" if its posted balance exceeds its credit limit.
Efforts to collect delinquent credit card receivables are made by the
Bank's personnel and collection agencies and attorneys retained by the Bank.
Collection procedures are determined by an adaptive control system that uses
statistical models and basic account financial information to determine the
steps to be followed at various stages of delinquency. Generally, the Bank
includes a request for payment of overdue amounts on billing statements issued
after the account becomes delinquent. In addition, after a period determined
by the control system, the Bank mails a separate notice to the cardholder
notifying him or her of the delinquency and possible revocation of the credit
card and requesting payment of the delinquent amount. Collection personnel
generally initiate telephone contact with cardholders whose credit card
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<PAGE>
accounts have become 30 days or more delinquent. In the event that initial
telephone contact fails to resolve the delinquency, the Bank continues to
contact the cardholder by telephone and by mail. Based upon the control
system, the Bank may suspend an account as early as the date on which such
account becomes 30 days or more delinquent and generally does so by the time
the account becomes 50 days delinquent. 100 days after an account becomes
delinquent the credit card is automatically canceled. Based on the Bank's
analysis of a cardholder's behavior through the control system, the Bank may
take any or all of the above actions at an earlier point in time. In some
cases, depending on the financial profile of the cardholder and the stated
reason for and magnitude of a delinquency, the Bank may enter into arrangements
with a delinquent cardholder to extend or otherwise change the payment
schedule.
The Bank's policy is to charge off an account during the billing cycle
immediately following the cycle in which such account became one hundred fifty
(150) days delinquent. If the Bank receives notice that a cardholder is the
subject of a bankruptcy proceeding, the Bank charges off such cardholder's
account upon the earlier of seventy-five (75) days after receipt of such notice
and the time period set forth in the previous sentence.
Under the terms of an Agreement, Recoveries may be included in the assets
of the Trust to the extent, if any, specified in the applicable Supplement for
any Series.
DESCRIPTION OF FDR
FDR is located in Omaha, Nebraska and provides computer data processing
services primarily to the bankcard industry. FDR is a subsidiary of First Data
Corp.
INTERCHANGE
Creditors participating in the VISA and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a limited period prior to
initial billing. Under the VISA and MasterCard systems, a portion of
Interchange in connection with cardholder charges for goods and services is
passed from banks which clear the transactions for merchants to credit card
issuing banks. Interchange fees are set annually by MasterCard and VISA and
are based on the number of credit card transactions and the amount charged per
transaction. MasterCard and VISA may from time to time change the amount of
Interchange reimbursed to banks issuing their credit cards. The Transferor
will be required, pursuant to the terms of the Agreement, to transfer to the
Trust a percentage of Interchange. Interchange will be allocated to the Trust,
on the basis of the percentage equivalent of the ratio which the amount of
purchases of merchandise and services relating to the Accounts made during such
Monthly Period bears to the total amount of purchases of merchandise and
services relating to the Bank Portfolio with respect to such Monthly Period.
Interchange allocated to the Trust will be treated as collections of Finance
Charge Receivables.
RECOVERIES
The Transferor will be required, pursuant to the terms of the Agreement,
to transfer to the Trust a percentage of the Recoveries. Recoveries will be
allocated to the Trust on the basis of the percentage equivalent of the ratio
which the amount of the aggregate principal amount of Principal Receivables
(prior to giving effect to any reduction thereof for Finance Charge Receivables
which are Discount Option Receivables) bears to the aggregate principal balance
of the Bank Portfolio. Recoveries allocated to the Trust will be treated as
collections of Finance Charge Receivables.
A-23
<PAGE>
PROSPECTUS
Notes
Trust Certificates
Trust Shares
(Issuable in Series)
Structured Products Corp.
The Notes (the "Notes") and Trust Certificates or Shares (either, the
"Certificates" and, collectively with the Notes, the "Securities") offered
hereby and by supplements (each a "Prospectus Supplement") to this Prospectus
will be offered from time to time in one or more series (each a "Series") and
in one or more classes within each such Series (each a "Class") with an
aggregate initial public offering price or purchase price of up to
$1,000,000,000 or the equivalent thereof in one or more foreign or composite
currencies, including the European Currency Unit ("ECU"). Securities of each
respective Series and Class will be offered on terms to be determined at the
time of sale as described in the related Prospectus Supplement accompanying the
delivery of this Prospectus. Securities may be sold for United States dollars
or for one or more foreign or composite currencies, and the principal of,
premium, if any, and any interest to be distributed in respect of Securities
may be payable in United States dollars or in one or more foreign or composite
currencies. Each Series and Class of Securities may be issuable as individual
securities in registered form without coupons ("Registered Securities") or in
bearer form with or without coupons attached ("Bearer Securities") or as one or
more global securities in registered or bearer form (each a "Global Security").
Each Series of Notes or Certificates will be secured by or represent beneficial
ownership interests in a pool of credit card, charge card or debit card
receivables or one or more securities representing an interest in or secured by
a pool of such receivables (the "Term Assets"), together with certain other
assets described herein and in the related Prospectus Supplement (such assets,
together with the Term Assets, the "Deposited Assets") to be (i) sold by
Structured Products Corp. (the "Company") to a business trust, owner trust or
other special purposes, bankruptcy-remote entity established by the Company
(any such entity, an "SPV"), and pledged to the trustee (the "Trustee") named
in the related Prospectus Supplement for the benefit of holders of the Notes of
such Series pursuant to an indenture and a series supplement thereto with
respect to a given Series (collectively, the "Indenture") between the SPV, as
issuer, and the Trustee, (ii) deposited in or transferred to a trust (the
"Trust") for the benefit of holders of Certificates of such Series by the
Company pursuant to a trust agreement or pooling and servicing agreement and a
series supplement thereto with respect to a given Series (collectively, the
Trust Agreement") among the Company, as depositor or transferor, the
administrative agent, if any (the "Administrative Agent"), the servicer, if any
(the "Servicer") and the Trustee. If so specified in the related Prospectus
Supplement, Certificates representing beneficial interests in the applicable
SPV will also be offered hereby. The Term Assets may consist of one or more of
the following: (i) one or more pools of revolving credit card, charge card or
debit card receivables (collectively, the "Receivables") generated or to be
generated in the ordinary course of business in a portfolio of revolving credit
card, charge card or debit card accounts (collectively, the "Accounts"), or
(ii) a publicly issued asset backed security or pool of asset backed securities
("Credit Card Securities") representing an interest in or secured by
Receivables. The Term Assets consisting of Credit Card Securities will be
purchased by the Company, the SPV or the Trust in the secondary market (either
directly or through an affiliate of the Company), and will not be acquired from
the issuer thereof as part of any distribution by or pursuant to any agreement
with such issuer. If so specified in the related Prospectus Supplement, a
Series of Securities may also include or be secured by, or the holders of such
Securities (the "Securityholders") may have the benefit of, any combination of
insurance policies, letters of credit, reserve accounts and other types of
rights or assets designed to support or ensure the servicing and distribution
of amounts due in respect of the Deposited Assets (collectively, "Credit
Support"). See "Description of Securities" and "Description of Deposited
Assets and Credit Support."
Each Class of Securities of any Series will represent the right, which might be
senior to those of one or more of the other Classes of such Series, to receive
specified portions of payments of principal, interest and certain other amounts
on the Deposited Assets in the manner described herein and in the related
Prospectus Supplement. A Series may include two or more Classes differing as
to the timing, sequential order or amount of distributions of principal,
interest or premium and one or more Classes within such Series may be
subordinated in certain respects to the Classes of such Series.
Except as otherwise provided herein and in the applicable Prospectus
Supplement, the Company's only recourse obligations with respect to each Series
of Securities will be, pursuant to certain representations and warranties
concerning the Deposited Assets, to assign and deliver the Deposited Assets and
Certain related documents to the applicable SPV or Trustee and, in certain
cases, to provide for the Credit Support, if any. The principal obligations of
an Administrative Agent, if any is named in the applicable Prospectus
Supplement, with respect to a Series of Securities will be pursuant to its
contractual administrative obligations and, only as and to the extent provided
in the related Prospectus Supplement, its obligation to make certain cash
advances in the event of payment delinquencies on the Deposited Assets. See
"Description of the Securities - Advances in Respect of Delinquencies."
The Securities of each Series will not represent a recourse obligation of or
interest in the Company, any SPV, any Administrative Agent or any of their
respective affiliates, except to the limited extent described herein and in the
related Prospectus Supplement. Neither the Securities nor the Deposited
Assets (unless otherwise specified in such Prospectus Supplement) will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Company, any SPV, any Administrative Agent or their respective affiliates.
Prospective investors should consider the factors set forth under "Risk
Factors" on pages 3 through 8.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------
The Securities may be offered and sold to or through underwriters, through
dealers or agents or directly to purchasers, as more fully described under
"Plan of Distribution" and in the related Prospectus Supplement. This
Prospectus may not be used to consummate sales of Securities offered hereby
unless accompanied by a Prospectus Supplement.
- --------------
Salomon Brothers Inc
- -------------------------------------------------------------------------------
The date of this Prospectus is September 15, 1997
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered thereby and hereby will set forth, among other things, the following
with respect to such Series: (a) the specific designation and aggregate
principal amount, (b) the currency or currencies in which the principal (the
"Specified Principal Currency"), premium, if any (the "Specified Premium
Currency"), and any interest (the "Specified Interest Currency") are
distributable (the Specified Principal Currency, the Specified Premium Currency
and the Specified Interest Currency being collectively referred to as the
"Specified Currency"), (c) the number of Classes of such Series and, with
respect to each Class of such Series, its designation, aggregate principal
amount or, if applicable, notional amount and authorized denominations,
(d) certain information concerning the type, characteristics and specifications
of the Deposited Assets and any Credit Support for such Series or Class,
(e) the relative rights and priorities of each such Class (including the method
for allocating collections from the Deposited Assets to the Securityholders of
each Class and the relative ranking of the claims of the Securityholders of
each Class to such Deposited Assets), (f) the name of the Trustee and the
Administrative Agent, if any, for such Series, (g) the Note Interest Rate or
Pass-Through Rate (each as defined below) or the terms relating to the
applicable method of calculation thereof, (h) the time and place of
distribution (each such date a "Distribution Date") of any interest, premium
(if any) and/or principal, (i) the date of issue, (j) the scheduled final
Distribution Date, if applicable, (k) the offering price, (l) any exchange,
whether mandatory or optional, the redemption terms and any other specific
terms of Securities of each such Series or Class. See "Description of
Securities-General" for a listing of other items that may be specified in the
applicable Prospectus Supplement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports and other information
concerning the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company does not intend to send any financial reports to
Securityholders.
The Company has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the Securities. 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. For
further information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated by reference in this Prospectus. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by reference,
except the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Secretary of Structured Products Corp., in care of
Salomon Inc, Seven World Trade Center, New York, New York 10048. Telephone
<PAGE>
requests for such copies should be directed to the Secretary of Structured
Products Corp. at (212) 783-7000.
REPORTS TO SECURITYHOLDERS
The Trustee will mail (or cause to be mailed) reports concerning each
Series of the Trust to all Securityholders of the related Series on or about
each Distribution Date. See "Description of the Trust Agreement - Reports to
Securityholders; Notice" and "Description of the Indenture - Reports to
Noteholders; Notice."
IMPORTANT CURRENCY INFORMATION
Purchasers are required to pay for each Security in the Specified
Principal Currency for such Security. Currently, there are limited facilities
in the United States for conversion of U.S. dollars into foreign currencies and
vice versa, and banks do not currently offer non-U.S. dollar checking or
savings account facilities in the United States. However, if requested by a
prospective purchaser of a Security having a Specified Principal Currency other
than U.S. dollars, Salomon Brothers Inc (the "Offering Agent") will arrange for
the exchange of U.S. dollars into such Specified Principal Currency to enable
the purchaser to pay for such Security. Such request must be made on or before
the fifth Business Day (as defined below) preceding the date of delivery of
such Security or by such later date as is determined by the Offering Agent.
Each such exchange will be made by the Offering Agent on such terms and subject
to such conditions, limitations and charges as the Offering Agent may from time
to time establish in accordance with its regular foreign exchange practice.
All costs of exchange will be borne by the purchaser.
References herein to "U.S. dollars," "U.S.$," "USD," "dollar" or "$" are
to the lawful currency of the United States.
RISK FACTORS
LIMITED LIQUIDITY. There will be no market for any Series (or Class
within such Series) of Securities prior to the issuance thereof, and there can
be no assurance that a secondary market will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or will
continue for the life of such Securities.
LIMITED OBLIGATIONS AND INTERESTS. The Securities will not represent a
recourse obligation of or interest in the Company, any SPV or any of their
respective affiliates. The Securities of each Series will not be insured or
guaranteed by any government agency or instrumentality, the Company, any SPV,
any Person affiliated with the Company or any SPV, or any other Person. The
obligations, if any, of the Company with respect to the Securities of any
Series will only be pursuant to certain limited representations and warranties.
The Company does not have, and is not expected in the future to have, any
significant assets with which to satisfy any claims arising from a breach of
any representation or warranty. If, for example, the Company were required to
repurchase a Term Assets with respect to which the Company has breached a
representation or warranty, its only sources of funds to make such repurchase
would be from funds obtained from the enforcement of a corresponding
obligation, if any, on the part of the seller of such Term Assets to the
Company, or from a reserve fund established to provide funds for such
repurchases. The Company has no obligation to establish or maintain any such
reserve fund.
CREDIT SUPPORT; LIMITED ASSETS. Although any Series (or Class of such
Series) of Securities may include or be secured by, or the Securityholders of
such Securities may have the benefit of, certain assets which are designed to
support the payment upon, or otherwise ensure the servicing or distribution
with respect to, the Deposited Assets related to such Series or Class as
described in the related Prospectus Supplement, the Securities do not represent
recourse obligations of the Company, any SPV, any Administrative Agent, any
Servicer or any of their respective affiliates and, unless otherwise specified
in the applicable Prospectus Supplement, are not insured or guaranteed by the
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Company, any SPV, any Administrative Agent, any Servicer, any of their
affiliates or any other person or entity. Accordingly, Securityholders'
receipt of distributions in respect of the Securities will depend entirely on
the performance of an receipt of payments with respect to the Deposited Assets
and any Credit Support identified in the related Prospectus Supplement. See
"Description of Deposited Assets and Credit Support."
PAYMENTS AND MATURITY. The timing of distributions of interest, premium
(if any) and principal of any Series (or of any Class within such Series) of
Securities may be affected by a number of factors, including the performance of
the related Deposited Assets, the extent of any early amortization,
acceleration of payment rate, slow down of payment rate or extension of
maturity or amortization with respect to the related Deposited Assets (or
portion thereof) and the manner and priority in which the collections from the
Term Assets and any other Deposited Assets are allocated to each Class of such
Series. Certain of these factors may be influenced by a variety of accounting,
tax, economic, social and other factors. The Receivables may be paid at any
time and there can be no assurance that there will be new Receivables created
in the Accounts, that additional Receivables will be available or that any
particular pattern of accountholder repayments will occur. The actual
principal payment rate on the Receivables will depend on, among other factors,
the rate of accountholder repayments, the timing of the receipt of repayment
and the rate of default by accountholders. Accountholder monthly payment rates
with respect to the Accounts are dependent upon a variety of factors, including
seasonal purchasing and payment habits of accountholders, the availability of
other sources of credit, general economic conditions, tax laws and the terms of
the Accounts (which are subject to change by the owner of such Accounts). No
assurance can be given as to the accountholder payment rates which will
actually occur in any future period. The actual principal payment rate on the
Credit Card Securities will, similarly, depend on the payment and default
performance with respect to the Receivables underlying such Credit Card
Securities. As a result of the foregoing, no assurance can be given that a
Security will receive its final principal payment when expected or that
principal payments with respect to a Security will follow any expected pattern.
A decline in the amount of Receivables in the Accounts for any reason
(including the decision by accountholders to use competing sources of credit,
an economic downturn or other factors) could result in the occurrence of an
early amortization event with respect to a Security (such an event, an "Early
Amortization Event") and the commencement of the principal repayment of such
Security earlier than expected (an "Early Amortization Period"). A decline in
the amount of Receivables in the Accounts relating to a Credit Card Security
for any reason (including the decision by accountholders to use competing
sources of credit, an economic downturn or other factors) could result in the
occurrence of an early amortization event, pay out event or liquidation event
with respect to a Credit Card Security (such an event, a "Term Assets Early
Amortization Event") and the commencement of the principal repayment of such
Credit Card Security earlier than expected (a "Term Assets Early Amortization
Period"). See the related Prospectus Supplement for a discussion of other
events, including events relating to portfolio yield, breaches of
representations and warranties, insolvency or bankruptcy and investment company
status, which might lead to the commencement of the Early Amortization Period
with respect to a Security or the Term Assets Early Amortization Period with
respect to a Credit Card Security.
CERTAIN LEGAL ASPECTS. Each seller of Receivables (each, a "Seller") to
the Company will warrant in its pooling and servicing agreement, master pooling
and servicing agreement, sale and servicing agreement or trust agreement
(collectively, an "Agreement") that the transfer of the Receivables by it is
and will be either a valid transfer and assignment of all right, title and
interest in the Receivables by it is and will be either a valid transfer and
assignment of all right, title and interest in the Receivables and all proceeds
thereof or the grant of a security interest in the Receivables. The Seller
will take certain actions required to perfect the interest in the Receivables.
The Seller will warrant that if the transfer by it of the Receivables is deemed
to be a grant of security interest in the Receivables, there will be a first
priority perfected security interest therein. If the transfer of the
Receivables and all proceeds thereof is deemed to created a security interest
therein, a tax or government lien on property of the Seller arising before
Receivables come into existence may have priority over the Trust's or the
SPV's interest in such Receivables.
If any Seller is a regulated financial institution, to the extent that a
Seller grants a security interest in the Receivables and that security interest
is validly perfected before any insolvency of the Seller and is not granted or
taken in contemplation of insolvency or with the intent to hinder, delay or
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defraud the Seller or its creditors, that security interest should not be
subject to avoidance in the event of insolvency and receivership, and payments
to the Trust or the SPV with respect to the Receivables should not be subject
to recovery by a conservator or receiver for the Seller. If, however, the
conservator or receiver were to assert a contrary position, or were to require
the Company, the Trust or the SPV to establish its right to those payments by
submitting to and completing the administrative claims procedure established
under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), or the conservator or receiver were to request a stay of
proceedings with respect to the Seller as provided under FIRREA, delays in
payments on the Securities and possible reductions in the amount of this
payments could occur. In the event of a servicer default under the Agreement,
if a conservator or receiver is appointed for the servicer of the Receivables
(the "Servicer"), and no servicer default other than such conservatorship or
receivership or insolvency of the Servicer exists, the conservator or receiver
may have the power to prevent the transfer of servicing to a successor
Servicer. If a conservator or receiver were appointed for the Seller pursuant
to the Agreement, new principal receivables would not be transferred under the
Agreement and the Receivables (or a portion thereof) allocated in accordance
with the Agreement would be sold, thereby causing early termination of the
Agreement and a loss to Securityholders if the net proceeds of such sale were
insufficient to pay such Securities in full. Upon the occurrence of an Early
Amortization Event, if a conservator or receiver was appointed for the Seller
and no Early Amortization Event other than such conservatorship, receivership
or insolvency of the Seller existed, the conservator or receiver may have the
power to prevent the early sale, liquidation or disposition of the Receivables
and the commencement of the Early Amortization Period. In addition, a
conservator or receiver for the Seller may have the power to cause early
payment of the Securities.
If any Seller acquired the Receivables from the originator thereof or
other entity subject to the U.S. Bankruptcy Code (any such entity, an
"Originator"), the Originator will have warranted that the sale of Receivables
by it to the Seller is a valid sale. Notwithstanding the foregoing, if the
Originator were to become a debtor in a bankruptcy case and a creditor or
trustee in bankruptcy of the Originator or the Originator were to take the
position that the sale of the Receivables to the Seller should be
recharacterized as a pledge, then delays in payments of collections on the
Receivables could occur or (should a court rule in favor of such creditor,
trustee or the Originator) reductions in the amount of such payments could
result.
Assuming the transaction between an Originator and a Seller is treated as
a sale, the assets of the Seller would not generally be part of the
Originator's bankruptcy estate and would not be available to the Originator's
creditors. Thee can be no assurance, however, that a creditor or trustee in
bankruptcy of the Originator might not seek a court order consolidating the
assets and liabilities of the Seller with those of the Originator. If
successfully sought, such an order might make a Seller's assets (including the
Receivables) available to the Originator's creditors in bankruptcy. In
addition, the U.S. Court of Appeals for the Tenth Circuit has concluded that
accounts receivable sold by a debtor prior to a filing for bankruptcy remain
property of the debtor's bankruptcy estate.
The foregoing considerations regarding the insolvency or bankruptcy of a
Seller or Originator of Receivables will also be applicable to the issuer (the
"Term Assets Issuer") of a Credit Card Security or the person or persons from
which such Term Assets Issuer acquired the Receivable underlying such Credit
Card Security.
CONSUMER PROTECTION LAWS. The relationship of cardholder and card issuer
is extensively regulated by Federal and state consumer protection laws. The
most significant of these laws include the Federal Truth-in-Lending Act, Equal
Credit Opportunity Act, Fair Credit Reporting Act, Electronic Funds Transfer
Act and, to the extent that a Seller is a bank, the National Bank Act, as well
as the banking statutes of the state in which the bank is located, and
comparable statutes in the states in which cardholders reside. These statutes
impose disclosure requirements when an account is advertised, when it is
opened, at the end of monthly billing cycles, upon account renewal for accounts
on which annual fees are assessed, and at year end and, in addition, limit
cardholder liability for unauthorized use, prohibit certain discriminatory
practice in extending credit, and impose certain limitations on the type of
account-related charges that may be assessed. Federal legislation requires
card issuers to disclose to consumers the interest rates, annual cardholder
fees, grace periods, and balance calculation methods associated with their
accounts. Cardholders are entitled under current law to have payments and
credits applied to the account promptly to receive prescribed notices and to
have billing errors resolved promptly.
Various proposed laws and amendments to existing laws have been
introduced in Congress and certain state and local legislatures that, if
enacted, would further regulate the credit card industry.
The Company or the SPV may be liable for certain violations of consumer
protection laws that apply to the Receivables, either as assignee of the Seller
with respect to obligations arising before transfer of the Receivables or as a
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party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert such violations by way of
setoff against his obligation to pay the amount of Receivables owing. A Seller
will covenant in the Agreement to accept the transfer of all Receivables in an
Account if any Receivable in such account has not been created in compliance in
all material respects with the requirements of such laws, if such noncompliance
has a material adverse effect on the interest of securityholders under such
Agreement. Each Agreement will also provide for the Trust to be indemnified by
the Seller or Servicer, among other things, for any liability arising from such
violations.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interest of the Securityholders in the Receivables, if such laws
result in any Receivables being written off as uncollectible.
CERTAIN LEGAL CONCERNS APPLICABLE TO ACCOUNTS. In October 1991, the
United States District Court for the State of Massachusetts held that Greenwood
Trust Company (a federally-insured, Delaware-chartered bank that issues the
Discover credit card) was prohibited by Massachusetts law from assessing late
charges on credit card accounts of Massachusetts residents. On August 6, 1992,
that decision was reversed by the United States Court of Appeals for the First
Circuit, which held that the Massachusetts law was preempted by federal law
permitting the charges in question. In November 1992, the Commonwealth of
Massachusetts petitioned the United States Supreme Court to accept the case.
On January 11, 1993, the U.S. Supreme court denied the petition of the
Commonwealth to review the decision of the First Circuit. Since October 1991,
a number of lawsuits and administrative actions have been filed in several
states against out-of-state banks (both federally insured state-chartered banks
and federally insured national banks) which issue cards. These actions
challenge various fees and charges (such as late fees, over-the-limit fees,
returned payment check fees and annual membership fees) assessed against
residents of the states in which such suites were filed, based on restrictions
or prohibitions under such states' laws alleged to be applicable to the out-of-
state cards issuers. There can be no assurance that one of the Sellers will
not be named as a defendant in future lawsuits or administrative actions
challenging the fees and charges which it assesses residents of other states.
The California Supreme Court in March 1992 refused to review a lower court's
determination that the practice by Wells Fargo Bank of charging its cardholder
over-the-limit and late payment fees violated California laws that require
banks to limit such charges to their costs. Such actions and similar actions
which may be brought in other states as a result of such actions, if resolved
adversely to card issuers, could have the effect of limiting certain charges,
other than periodic finance charges, that could be assessed on accounts of
residents of such states and could require card issuers to pay refunds and
civil penalties with respect to charges previously imposed on cardholders in
such states. Consequently, such actions could have an adverse impact on a
Seller's card operations. One potential effect of any such litigation
involving a Seller, if successful, would be to reduce the portfolio yield on
the affected Receivables. If such a reduction occurs, an Early Amortization
Event or Term Assets Early Amortization Event may occur.
COMPETITION. The credit card and charge card industries are highly
competitive. There is increased competitive use of advertising, target
marketing and pricing competition in interest rates and annual cardholder fees
as both traditional and new credit card and charge card issuers seek to expand
or to enter the market. As a result of this competition, certain major credit
card and charge card issuers may assess finance charges for selected portions
of their portfolios at rates lower than the rates currently being assessed on
the Accounts. A Seller's ability to compete in the credit card and charge card
industry will affect its ability to generate new Receivables. In addition, the
generation of Receivables by a Seller may be partly or completely dependent
upon sales at one or more retail stores. In such a case, competition in the
retail industry will also affect the Seller's ability to generate new
Receivables.
BASIC RISK. If so specified in the related Prospectus Supplement, a
portion of the Accounts will have finance charges set at a variable rate above
a designated prime rate or other designated index. A Series offered pursuant
hereto may bear interest at a fixed rate or at a floating rate based on an
index other than the prime rate or other designated index. If there is a
decline in the prime rate or other designated index, the amount of collections
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of finance charge Receivables on such Accounts may be reduced, whereas the
amounts payable as interest on such Series and other amounts required to be
funded out of finance charge Receivables with respect to such Series may not be
similarly reduced. In such a case, an Early Amortization Event with respect to
such Series or a Term Assets Early Amortization Event with respect to a Credit
Card Security underlying such Series may occur.
SOCIAL, GEOGRAPHIC AND ECONOMIC FACTORS. Changes in card use, payment
patters and the rate of defaults by cardholder may result from a variety of
social, economic and geographic factors. Economic factors include the rate of
inflation and relative interest rates offered for various types of loans.
Adverse changes in economic conditions in any states where cardholders are
located could have a direct impact on the timing and amount of payments on a
Series. The Company is unable to determine and has no basis to predict
whether, or to what extent, economic, social or geographic factors will affect
future card use or repayment patters or payments on the Securities of a Series.
New credit card issuers have been entering the market while other issuers have
been seeking to expand market share through increased advertising, target
marketing and pricing competition. Additionally, the use of incentive or
affinity programs (e.g., gift awards for card usage) may affect card usage
patters.
A SELLER'S ABILITY TO CHANGE TERMS OF THE RECEIVABLES. Any Seller may
have the right to determine the finance charges and the other fees and charges
which will be applicable from time to time on its Accounts, to alter the
minimum monthly payment required under the Accounts and to change various other
terms of its agreements with cardholders with respect to the Accounts. A
decrease in the finance charges and the other fees and charges assessed on the
Accounts would decrease the effective yield on the Accounts and could result in
the occurrence of an Early Amortization Event with respect to a Series offered
pursuant hereto or a Term Assets Early Amortization Event with respect to a
Credit Card Security underlying such Series and commencement of an Early
Amortization Period or Term Assets Early Amortization Period, as applicable.
Under an Agreement, a Seller may agree that, unless required by law or as
is otherwise necessary, in its good faith judgment, to maintain its credit card
business on a competitive basis, it will not reduce the annual percentage rate
at which finance charges are assessed on the Receivables or the other fees and
changes assessed on the Accounts, if, as a result of such reduction, the Net
Portfolio Yield as of such date would be less than the Base Rate. The terms
"Base Rate" and "Net Portfolio Yield" have the meanings set forth in the
Prospectus Supplement reacting to each Series. The Seller may also covenant
that it will change the terms relating to the Accounts only if the change is
made applicable to the comparable segment of the accounts owned and serviced by
the Seller with characteristics the same as or substantially similar to the
Account, except as otherwise restricted by the terms of the applicable
cardholder agreement. In servicing Accounts, a Servicer will generally be
required to exercise the same care and apply the same policies that it
exercises in handling similar matters for its own comparable accounts. Except
as set forth above, there are generally no restrictions on the ability of a
Seller to change the terms of the Accounts or the Receivables. There can be no
assurance that changes in applicable law, changes in the marketplace or prudent
business practice might not result in a determination by a Seller to decrease
finance charges or other fees and charges for existing accounts, or take
actions which would otherwise change the terms of the Accounts. The foregoing
considerations are also generally applicable to the Receivables and Accounts
relating to a Credit Card Security.
IMPACT OF ADDITIONAL ACCOUNTS. A Seller may be permitted to designate
additional Accounts ("Additional Accounts") the Receivables of which will be
conveyed to the Company, a SPV or Trust on a discrete basis or automatically as
such Additional Accounts are created. There can be no assurance that
Receivables in such Additional Accounts will be of the same credit quality as
those Receivables previously conveyed to an SPV or a Trust. In particular, the
Receivables in the Additional Accounts may be originated using different
criteria, be originated by a different Originator and be of a different type
than those in the previously designated Accounts. The foregoing considerations
are also generally applicable to the Receivables and Accounts relating to a
Credit Card Security.
TAX CONSIDERATIONS. The Federal income tax consequences of the purchase,
ownership and disposition of the Securities and the tax treatment of any Trust
will depend on the specific terms of the Securities, any Trust, any Credit
Support and the Deposited Assets. See the description under "Certain Federal
Income Tax Considerations" in the related Prospectus Supplement.
RATING OF THE SECURITIES. At the time of issue, the Securities of any
given Series (or each Class of such Series that is offered hereby) will be
rated in one of the investment grade categories by one or more nationally
recognized rating agencies (a "Rating Agency"). Unless otherwise specified in
the applicable Prospectus Supplement, the rating of any Series or Class of
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Securities is based primarily on the related Deposited Assets and any Credit
Support and the relative priorities of the Securityholders of such Series or
Class to receive collections from, and to assert claims against, such Deposited
Assets and any Credit Support. The rating is not a recommendation to purchase,
hold or sell Securities, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. In addition, the rating does
not address the likelihood that the principal amount of any Series or Class
will be paid prior to any final legal maturity date. There can be no assurance
that the rating will remain for any given period of time or that the rating
will not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. Any Class or Classes of a
given Series of Securities may not be offered pursuant to this Prospectus, in
which case such Class or Classes may or may not be rated in an investment grade
category by a Rating Agency.
GLOBAL SECURITIES. Unless otherwise specified in the related Prospectus
Supplement, the Securities of each Series (or, if more than one Class exists,
each Class of such Series) will initially be represented by one or more Global
Securities deposited with, or on behalf of, a Depositary (as defined below) and
will not be issued as individual definitive Securities to the purchasers of
such Securities. Consequently, unless and until such individual definitive
Securities of a particular Series or Class are issued, such purchasers will not
be recognized as Securityholders under the applicable Indenture or Trust
Agreement. Hence, until such time, such purchasers will only be able to
exercise the rights of Securityholders indirectly through the Depositary and
its respective participating organizations and, as a result, the ability of any
such purchaser to pledge that Security to persons or entities that do not
participate in the Depositary's system, or to otherwise act with respect to
such Security, may be limited. See "Description of Securities Global
Securities" and "Limitations on Issuance of Bearer Securities" and any further
description contained in the related Prospectus Supplement.
CURRENCY RISKS. The Securities of any given Series (or Class within such
Series) may be denominated in a currency other than U.S. dollars to the extent
specified in the applicable Prospectus Supplement. The Prospectus Supplement
relating to such a Series or Class will describe the currency risks of an
investment in such Securities; however, prospective purchasers of such
Securities should also consult their own financial and legal advisors as to the
risks entailed by an investment in such Securities denominated in a currency
other than U.S. dollars. Such Securities are not an appropriate investment for
persons who are unsophisticated with respect to foreign currency transactions.
See "Currency Risks."
PASSIVE NATURE OF HOLDING OF DEPOSITED ASSETS. Unless otherwise
specified in the applicable Prospectus Supplement, the Trustee with respect to
any Series of Notes (an "Indenture Trustee") will hold the Deposited Assets (or
interest therein) pledged to the Noteholders pursuant to the applicable
Indenture. The Trustee with respect to any Series of Certificates (a
"Certificate Trustee") will hold the Deposited Assets for the benefit of the
Certificate holders pursuant to the applicable Trust Agreement. The related
Deposited Assets will generally be held to maturity and not disposed of,
regardless of adverse events, financial or otherwise, which may affect any
Seller any Term Assets Issuer or the value of the Deposited Assets. Under
certain circumstances the holders of the Securities may direct the Trustee to
dispose of all or a portion of the Deposited Assets or take certain other
actions in respect of the Deposited Assets.
The Prospectus Supplement for each Series of Securities will set forth
information regarding additional risk factors, if any, applicable to such
Series (and each Class within such Series).
THE COMPANY
The Company was incorporated in the State of Delaware on November 23,
1992, as an indirect, wholly-owned, limited-purpose finance subsidiary of
Salomon Inc. The Company will not engage in any business or other activities
other than issuing and selling securities from time to time and acquiring,
owning, holding, pledging and transferring assets (including Deposited Assets
and Credit Support) in connection therewith or with the creation of a SPV or a
Trust and in activities related or incidental thereto. The Company does not
have, nor is it expected to have, any significant unencumbered assets. The
Company's principal executive offices are c/o Salomon Inc. Seven World Trade
Center, New York, New York 10048 (telephone (212) 783-7000).
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In the event that the Company establishes an SPV for purposes of the
issuance of Securities, the SPV applicable to any Series will be described in
the related Prospectus Supplement. Each SPV will be a special purpose,
bankruptcy-remote entity and may take the form of a business trust, an owner
trust or a limited liability company. If so specified in the related
Prospectus Supplement, equity interests in the applicable SPV will be offered
hereby. The Company may also sell equity interests in an SPV to affiliates of
the Company or third parties in negotiated private transactions.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
net proceeds to be received from the sale of each Series or Class of Securities
(whether or not offered hereby) will be used by the Company or an SPV to
purchase the related Deposited Assets (or provide a Trust with funds to
purchase such Deposited Assets) and arrange certain Credit Support including,
if specified in the related prospectus Supplement, making required deposits
into any reserve account or other account for the benefit of the
Securityholders of such Series or Class. Any remaining net proceeds, if
any,will be used by the Company for general corporate purposes.
ASSIGNMENT OF DEPOSITED ASSETS;
FORMATION OF TRUST
An SPV will pledge the Deposited Assets for each Series of Notes to the
Indenture Trustee named in the applicable Prospectus Supplement, in its
capacity as trustee for the benefit of the Noteholders of such Series. The
Company or an SPV will assign or transfer the Deposited Assets for each Series
of Certificates to the Trust, for the benefit of the Certificateholders of such
Series. The term "Trustee," as used herein, refers to the Indenture Trustee or
the Certificate Trustee, as applicable. The Trustee named in the applicable
Prospectus Supplement will administer the Deposited Assets pursuant to the
Indenture or the Trust Agreement and will receive a fee for such services (the
"Trustee's Fee"). Any Administrative Agent named in the applicable Prospectus
Supplement will perform such tasks as are specified therein and in the
Indenture or the Trust Agreement and will receive a fee for such services (the
"Administration Fee") as specified in the Prospectus Supplement.
Unless otherwise stated in the Prospectus Supplement, the pledge,
transfer or assignment of the Deposited Assets to the Trustee will be without
recourse. To the extent provided in the applicable Prospectus Supplement, the
obligations of an Administrative Agent, if any, so named therein with respect
to the Deposited Assets will consist primarily of its contractual
administrative obligations, if any, under the Indenture or the Trust Agreement,
its obligation, if any, to make certain cash advances in the event of
delinquencies in payments on or with respect to any Deposited Assets and its
obligations, if any, to purchase Deposited Assets as to which there has been a
breach of certain representations and warranties or as to which the
documentation is materially defective. The obligations of an Administrative
Agent, if any, named in the applicable Prospectus Supplement to make advances
will be limited to amounts which any such Administrative Agent believes
ultimately would be recoverable under any Credit Support, insurance coverage,
the proceeds of liquidation of the Deposited Assets or from other sources
available for such purposes.
Unless otherwise provided in the related Prospectus Supplement, each
Series of Notes will be secured by, and each Series of Certificates will
represent a beneficial interest in, (i) such Deposited Assets, or interests
therein, exclusive of any interest in such assets (the "Retained Interest")
retained by the Company, any SPV or any previous owner thereof, as from time to
time are specified in the applicable Indenture or Trust Agreement; (ii) such
assets as from time to time are identified as deposited in the related
Certificate Account; (iii) property, if any, acquired on behalf of
Securityholders by foreclosure or repossession and any revenues received
thereon; (iv) those elements of Credit Support, if any, provided with respect
to any Class within such Series that are specified as such in the applicable
Prospectus Supplement, as described therein and under "Description of Deposited
Assets and Credit Support - Credit Support": (v) the rights of the Company or
an SPV under the agreement or agreements entered into by the Trustee on behalf
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of the Securityholders which constitute, or pursuant to which the Trustee has
acquired, such Deposited Assets; and (vi) the rights of the Trustee in any cash
advance, reserve fund or surety bond, if any.
In addition, to the extent provided in the applicable Prospectus
Supplement, the Company will obtain Credit Support for the benefit of the
Securityholders of any related Series (or Class within such Series) of
Securities.
MATURITY AND YIELD CONSIDERATIONS
Each Prospectus Supplement will, to the extent applicable, contain
information with respect to the type and, if applicable, maturities of the
related Term Assets and the terms, if any, upon which such Term Assets may be
subject to early redemption (either by the applicable obligor or pursuant to a
third-party call option), repayment (at the option of the holders thereof),
amortization or extension of maturity or amortization. The provisions of the
Term Assets with respect to the foregoing will, unless otherwise specified in
the applicable Prospectus Supplement, affect the weighted average life of the
related Series of Securities.
The effective yield to holders of the Securities of any Series (and Class
within such Series) may be affected by various features of the Deposited Assets
or any Credit Support or the manner and priorities of allocations of
collections with respect to such Deposited Assets between the Classes of a
given Series. The yield to maturity of any Series (or Class within such
Series) may be affected by any optional or mandatory redemption, repayment,
amortization or extension of maturity of the related Term Assets. A variety of
tax, accounting, economic, and other factors will influence the rate of payment
on the Receivables and whether any applicable party exercises any right of
redemption, repurchase or extension in respect of Receivables or Credit Card
Securities.
Collections on the underlying Receivables may vary because among other
things, borrowers may make payments during any month as low as the minimum
monthly payment for such month or as high as the entire outstanding principal
balance plus accrued interest and the fees and charges thereon. It is possible
that borrowers may fail to make the minimum payments. Collections on the
Receivables may also vary due to seasonal purchasing and payment habits of
borrowers. All else remaining equal, if prevailing interest rates fall
significantly below the interest rates on the related Accounts, the likelihood
of repayment of the Receivables would be expected to increase.
Unless otherwise specified in the related Prospectus Supplement, each
Credit Card Security will be subject to repayment upon the occurrence of a Term
Assets Early Amortization Event. The maturity and yield on the Securities will
be affected by any early repayment of the Term Assets as a result of the
occurrence of a Term Assets Early Amortization Event. See "Description of the
Deposited Assets - Term Assets Early Amortization Events."
The extent to which the yield to maturity of such Securities may vary
from the anticipated yield due to the rate and timing of payments on the
Deposited Assets will depend upon the degree to which they are purchased at a
discount or premium and the degree to which the timing of payments thereon is
sensitive to the rate and timing of payments on the Deposited Assets.
The yield to maturity of any Series (or Class) of Securities will also be
affected by variations in the interest rates applicable to, and the
corresponding payments in respect of, such Securities, to the extent that the
applicable Note Interest Rate or Pass-Through Rate for such Series (or Class)
is based on variable or adjustable interest rates. With respect to any Series
of Securities, disproportionate principal payments (whether resulting from
differences in amortization schedules, payments due on scheduled maturity or
upon early redemption or amortization) on the related Term Assets having
interest rates higher or lower than the then applicable Note Interest Rates or
Pass-Through Rates applicable to such Securities may affect the yield thereon.
The Prospectus Supplement for each Series of Securities will set forth
additional information regarding yield and maturity considerations applicable
to such Series (and each Class within such Series) and the related Deposited
Assets, including the applicable Term Assets.
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DESCRIPTION OF SECURITIES
Each Series (or, if more than one Class exists, the Classes within such
Series) of Notes will be issued pursuant to an Indenture. A form of Indenture
is attached as an exhibit to the Registration Statement. The provisions of the
applicable Indenture may vary depending upon the nature of the Notes to be
issued thereunder and the nature of the Deposited Assets and the Credit Support
of a Series.
Each Series (or, if more than one Class exists, the Classes within such
Series) of Certificates representing beneficial interests in a Trust will be
issued pursuant to a Trust Agreement. A form of Trust Agreement is attached as
an exhibit to the Registration Statement. The provisions of the applicable
Trust Agreement may vary depending on the nature of the Deposited Assets and
the Credit Support of a Series.
The following summaries describe certain provisions of the Indenture or
Trust Agreement which may be applicable to each Series of Securities. The
applicable Prospectus Supplement for a Series of Securities will describe any
provision of the Indenture or Trust Agreement that materially differs from the
description thereof contained in this Prospectus. The following summaries do
not purport to be complete and are subject to the detailed provisions of the
forms of Indenture and Trust Agreement to which reference is hereby made for a
full description of such provisions, including the definition of certain terms
used, and for other information regarding the Securities. As used herein with
respect to any Series, the term "Security" refers to all the Securities of that
Series, whether or not offered hereby and by the related Prospectus Supplement,
unless the context otherwise requires.
A copy of the applicable series supplement to the Indenture or Trust
Agreement relating to each Series of Securities issued from time to time will
be filed by the Company as an exhibit to a Current Report on Form 8-K to be
filed with the Commission following the issuance of such Series.
GENERAL
There is no limit on the amount of Securities that may be issued under
the Indenture or the Trust Agreement, and the Indenture and the Trust Agreement
will provide that Securities of the applicable Series may be issued in multiple
Classes. The Series (or Classes within such Series) of Certificates to be
issued under the Trust Agreement will represent the entire beneficial ownership
interest in the Trust for such Series created pursuant to the Trust Agreement
and each such Class will be entitled to certain relative priorities to receive
specified collections from, and a certain percentage ownership interest of the
assets deposited in, such Trust, all as identified and described in the
applicable Prospectus Supplement. The Series (or Classes within such Series)
of Notes to be issued under the Indenture will represent the entire
indebtedness of the applicable SPV secured by the Deposited Assets with respect
to such Series and each such Class will be entitled to certain relative
priorities to receive specified collections from the assets securing the Notes,
as described in the applicable Prospectus Supplement. If specified in the
related Prospectus Supplement, equity interests in such an SPV will also be
offered hereby. Such equity interest will represent rights to the Deposited
Assets and the proceeds thereof not required to be applied toward the Notes of
such SPV, as well as such other rights as may be specified in the related
Prospectus Supplement. See "Description of Deposited Assets and Credit Support
- - Collections."
Reference is made to the related Prospectus Supplement for a description
of the following terms of the Series (and if applicable, Classes within such
Series) of Securities in respect of which this Prospectus and such Prospectus
Supplement are being delivered: (i) the title of such Securities; (ii) the
Series of such Securities and, if applicable, the number and designation of
Classes of such Series; (iii) certain information concerning the type,
characteristics and specifications of the Deposited Assets being conveyed
pursuant to the related Indenture or deposited into or transferred to the
related Trust by the Company or the applicable SPV (and, with respect to any
Term Assets which at the time of such deposit represents a significant portion
of all such Deposited Assets and any related Credit Support, certain
information concerning the terms of each such Term Assets, the identity of the
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issuer or seller thereof and where publicly available information regarding
such issuer or seller may be obtained); (iv) the limit, if any, upon the
aggregate principal amount or notional amount, as applicable, of each Class
thereof; (v) the dates on which or periods during which such Series or Classes
within such Series may be issued (each, an "Original Issue Date"), the offering
price thereof and the applicable Distribution Dates on which the principal, if
any, of (and premium, if any, on) such Series or Classes within such Series
will be distributable; (vi) if applicable, the relative rights and priorities
of each such Class (including the method for allocating collections from and
defaults or losses on the Deposited Assets to the Securityholders of each such
Class); (vii) whether the Securities of such Series or each Class within such
Series are Fixed Rate Securities or Floating Rate Securities (each as defined
below) and the applicable interest rate (the "Note Interest Rate," in the case
of Notes, or the "Pass-Through Rate," in the case of Certificates) for each
such Class, including the applicable rate, if fixed (a "Fixed Rate"), or the
terms relating to the particular method of calculation thereof applicable to
such Series or each Class within such Series, if variable (a "Variable Rate");
the date or dates from which such interest will accrue; the applicable
Distribution Dates on which interest, principal and premium, in each case as
applicable, on such Series or Class will be distributable and the related
Record Dates, if any; (viii) the option, if any, of any Securityholder of such
Series or Class to withdraw a portion of the secured assets in exchange for
surrendering such Securityholder's Security or to put such Security to the
Company, an SPV or a third party or of the Company, an SPV or Administrative
Agent, if any, or another third party to purchase or repurchase any Deposited
Assets or Securities (in each case to the extent not inconsistent with the
Company's continued satisfaction of the applicable requirements for exemption
under Rule 3a-7 under the Investment Company Act of 1940 and all applicable
rules, regulations and interpretations thereunder) and the periods within which
or the dates on which, and the terms and conditions upon which any such option
may be exercised, in whole or in part; (ix) the rating of such Series or each
Class within such Series offered hereby (PROVIDED, HOWEVER, that one or more
Classes within such Series not offered hereunder may be unrated or may be rated
below investment grade); (x) if other than denominations of $1,000 and any
integral multiple thereof, the denominations in which such Series or Class
within such Series will be issuable; (xi) whether the Securities of any Class
within a given Series are to be entitled to (1) principal distributions, with
disproportionate, nominal or no interest distributions, or (2) interest
distributions, with disproportionate, nominal or no principal distributions
("Strip Securities"), and the applicable terms thereof; (xii) whether the
Securities of such Series or of any Class within such Series are to be issued
as Registered Securities or Bearer Securities or both and, if Bearer Securities
are to be issued, whether coupons ("Coupons") will be attached thereto; whether
Bearer Securities of such Series or Class may be exchanged for Registered
Securities of such Series or Class and the circumstances under which and the
place or places at which any such exchanges, if permitted, may be made;
(xiii) whether the Securities of such Series or of any Class within such Series
are to be issued in the form of one or more Global Securities and, if so, the
identity of the Depositary (as defined below), if other than The Depository
Trust Company, for such Global Security or Securities; (xiv) if a temporary
Security is to be issued with respect to such series or any Class within such
Series, whether any interest thereon distributable on a Distribution Date prior
to the issuance of a definitive Security of such Series or Class will be
credited to the account of the Persons entitled thereto on such Distribution
Date; (xv) if a temporary Global Security is to be issued with respect to such
Series or Class, the terms upon which beneficial interests in such temporary
Global Security may be exchanged in whole or in part for beneficial interests
in a definitive Global Security or for individual Definitive Securities (as
defined below) of such Series or Class and the terms upon which beneficial
interests in a definitive Global Security, if any, may be exchanged for
individual Definitive Securities of such Series or Class; (xvi) if other than
U.S. dollars, the Specified Currency applicable to the Securities of such
Series or Class for purposes of denominations and distributions on such Series
or each Class within such Series and the circumstances and conditions, if any,
when such Specified Currency may be changed, at the election of the Company, an
SPV or a Securityholder and the currency or currencies in which any principal
of or any premium or any interest on such Series or Class are to be distributed
pursuant to such election; (xvii) any additional Administrative Agent
Termination Events (as defined below), if applicable, provided for with respect
to such Class; (xviii) all applicable Required Percentages and Voting Rights
(each as defined below) relating to the manner and percentage of votes of
Securityholders of such Series and each Class within such Series required with
respect to certain actions by the Company, an SPV or the applicable
Administrative Agent, if any, or the Trustee; and (xix) any other terms of such
Series or Class within such Series of Securities not inconsistent with the
provisions of the Indenture or the Trust Agreement relating to such Series.
Unless otherwise indicated in the applicable Prospectus Supplement,
Securities of each Series (including any Class of Securities not offered
hereby) will be issued only as Registered Securities in denominations of $1,000
and any integral multiple thereof and will be payable only in U.S. dollars.
The authorized denominations of Registered Securities of a given Series or
Class within such Series having a Specified Currency other than U.S. dollars
will be set forth in the applicable Prospectus Supplement.
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The United States Federal income tax consequences and ERISA consequences
relating to any Series or any Class within such Series of Securities will be
described in the applicable Prospectus Supplement. In addition, any risk
factors, the specific terms and other information with respect to the issuance
of any Series or Class within such Series of Bearer Securities or Securities on
which the principal of and any premium and interest are distributable in a
Specified Currency other than U.S. dollars will be described in the applicable
Prospectus Supplement relating to such Series or Class. Unless otherwise
specified in the applicable Prospectus Supplement, the U.S. dollar equivalent
of the public offering price or purchase price of a Security having a Specified
Principal Currency other than U.S. dollars will be determined on the basis of
the noon buying rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York (the
"Market Exchange Rate") for such Specified Principal Currency on the applicable
issue date. As specified in the applicable prospectus Supplement, such
determination will be made by the Company, the applicable SPV, the Trustee, the
Administrative Agent, if any, or an agent thereof as exchange rate agent for
each Series of Securities (the "Exchange Rate Agent").
Unless otherwise provided in the applicable Prospectus Supplement,
Registered Securities may be transferred or exchanged for like Securities of
the same Series and Class at the corporate trust office or agency of the
applicable Trustee in Wilmington, Delaware or the State of New York, as
applicable, subject to the limitations provided in the Indenture or the Trust
Agreement, without the payment of any service charge, other than any tax or
governmental charge payable in connection therewith. Bearer Securities will be
transferable by delivery. Provisions with respect to the exchange of Bearer
Securities will be described in the applicable Prospectus Supplement. Unless
otherwise specified in the applicable Prospectus Supplement, Registered
Securities may not be exchanged for Bearer Securities. The Company or the
applicable SPV may at any time purchase Securities at any price in the open
market or otherwise. Securities so purchased by the Company or the applicable
SPV may, at the discretion of the Company or the applicable SPV, be held or
resold or surrendered to the Trustee for cancellation of such Securities.
DISTRIBUTIONS
Distributions allocable to principal, premium (if any) and interest on
the Securities of each Series (and Class within such Series) will be made in
the Specified Currency for such Securities by or on behalf of the Trustee on
each Distribution Date as specified in the related Prospectus Supplement and
the amount of each distribution will be determined as of the close of business
on the date specified in the related Prospectus Supplement (the "Determination
Date"). If the Specified Currency for a given Series or Class within such
Series is other than U.S. dollars, the Administrative Agent, if any, or
otherwise the Trustee will (unless otherwise specified in the applicable
Prospectus Supplement) arrange to convert all payments in respect of each
Security of such Series or Class into U.S. dollars in the manner described in
the following paragraph. The Securityholder of a Registered Security of a
given Series or Class within such Series denominated in a Specified Currency
other than U.S. dollars may (if the applicable Prospectus Supplement and such
Security so indicate) elect to receive all distributions in respect of such
Security in the Specified Currency by delivery of a written notice to the
Trustee and Administrative Agent, if any, for such Series not later than
fifteen calendar days prior to the applicable Distribution Date, except under
the circumstances described under "Currency Risks - Payment Currency" below.
Such election will remain in effect until revoked by written notice to such
Trustee and Administrative Agent, if any, received by each of them not later
than fifteen calendar days prior to the applicable Distribution Date.
Unless otherwise specified in the applicable Prospectus Supplement, in
the case of Registered Security of a given Series or Class within such Series
having a Specified Currency other than U.S. dollars, the amount of any U.S.
dollar distribution in respect of such Registered Security will be determined
by the Exchange Rate Agent based on the highest firm bid quotation expressed in
U.S. dollars received by the Exchange Rate Agent at approximately 11:00 a.m.,
New York City time, on the second Business Day preceding the applicable
Distribution Date (or, if no such rate is quoted on such date, the last date on
which such rate was quoted), from three (or, if three are not available, then
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two) recognized foreign exchange dealers in The City of New York (one of which
may be the Offering Agent and another of which may be the Exchange Rate Agent)
selected by the Exchange Rate Agent, for the purchase by the quoting dealer,
for settlement on such Distribution Date, of the aggregate amount payable in
such Specified Currency on such payments date in respect of all Registered
Securities. All currency exchange costs will be borne by the Securityholders
of such Registered Securities by deductions from such distributions. If no
such bid quotations are available, such distributions will be made in such
Specified Currency, unless such Specified Currency is unavailable due to the
imposition of exchange controls or to other circumstances beyond the Company's
control, in which case such distributions will be made as described under
"Currency Risks - Payment Currency" below. The applicable Prospectus
Supplement will specify such information with respect to Bearer Securities.
Unless otherwise provided in the applicable Prospectus Supplement and
except as provided in the succeeding paragraph, distributions with respect to
Securities will be made (in the case of Registered Securities) at the corporate
trust office or agency of the Trustee specified in the applicable Prospectus
Supplement; PROVIDED, HOWEVER, that any such amounts distributable on the final
Distribution Date of a Security will be distributed only upon surrender of
such Security at the applicable location set forth above. Except as otherwise
provided in the applicable Prospectus Supplement, no distribution on a Bearer
Security will be made by mail to an address in the United States or by wire
transfer to an account maintained by the Securityholder thereof in the United
States.
Unless otherwise specified in the applicable Prospectus Supplement,
distributions on Registered Securities in U.S. dollars will be made, except as
provided below, by check mailed to the Registered Securityholders of such
Securities (which, in the case of Global Securities, will be a nominee of the
Depositary); PROVIDED, HOWEVER, that, in the case of a Series or Class of
Registered Securities issued between a Record Date (as defined below) and the
related Distribution Date, interest for the period beginning on the issue date
for such Series or Class and ending on the last day of the interest accrual
period ending immediately prior to or coincident with such Distribution Date
will, unless otherwise specified in the applicable Prospectus Supplement, be
distributed on the next succeeding Distribution Date to the Registered
Securityholders of the Registered Securities of such Series or Class on the
related Record Date. A Securityholder of $10,000,000 (or the equivalent
thereof in a Specified Principal Currency other than U.S. dollars) or more in
aggregate principal amount of Registered Securities of a given Series shall be
entitled to receive such U.S. dollar distributions by wire transfer of
immediately available funds, but only if appropriate wire transfer instructions
have been received in writing by the Trustee for such Series not later than
fifteen calendar days prior to the applicable Distribution Date.
Simultaneously with the election by any Securityholder to receive payments in a
Specified Currency other than U.S. dollars (as provided above), such
Securityholder shall provide appropriate write transfer instructions to the
Trustee for such Series, and all such payments will be made by wire transfer of
immediately available funds to an account maintained by the payee with a bank
located outside the United States.
Except as otherwise specified in the applicable Prospectus Supplement,
"Business Day" with respect to any Security means any day, other than a
Saturday or Sunday, that is (i) not a day on which banking institutions are
authorized or required by law or regulation to be closed in (a) Wilmington,
Delaware, (b) The City of New York or (c) if the Specified Currency for such
Security is other than U.S. dollars, the financial center of the country
issuing such Specified Currency (which, in the case of ECU, shall be Brussels,
Belgium) and (ii) if the Note Interest Rate or Pass-Through Rate for such
Security is based on LIBOR, a London Banking Day. "London Banking Day" with
respect to any Security means any day on which dealings in deposits in the
Specified Currency of such Security are transacted in the London interbank
market. The Record Date with respect to any Distribution Date for a Series or
Class of Registered Securities shall be specified as such in the applicable
Prospectus Supplement.
INTEREST ON THE SECURITIES
GENERAL. Each Class of Securities (other than certain Classes of Strip
Securities) of a given Series may have a different Note Interest Rate or Pass-
Through Rate, which may be a fixed or variable rate, as described below. In
the case of Strip Securities with no or, in certain cases, a nominal Security
Principal Balance, such distributions of interest will be in an amount (as to
any Distribution Date, "Stripped Interest") described in the related Prospectus
Supplement. For purposes hereof, "Notional Amount" means the notional
principal amount specified in the applicable Prospectus Supplement on which
interest on Strip Securities with no or, in certain cases, a nominal Security
Principal Balance will be made on each Distribution Date. Reference to the
Notional Amount of a Class of Strip Securities herein or in a Prospectus
Supplement does not indicate that such Securities represent the right to
receive any distribution in respect of principal in such amount, but rather the
term "Notional Amount" is used solely as a basis for calculating the amount of
required distributions and determining certain relative voting rights, all as
specified in the related Prospectus Supplement.
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FIXED RATE SECURITIES. Each Series (or, if more than one Class exists,
each Class within such Series) of Securities with a fixed Note Interest Rate or
Pass-Through Rate ("Fixed Rate Securities") will bear interest, on the
outstanding Security Principal Balance (or Notional Amount, if applicable),
from its Original Issue Date, or from the last date to which interest has been
paid, at the fixed rate stated on the face thereof and in the applicable
Prospectus Supplement until the principal amount thereof is distributed or made
available for payment (or in the case of Fixed Rate Securities with no or a
nominal principal amount, until the Notional Amount thereof is reduced to
zero), except that, if so specified in the applicable Prospectus Supplement,
the Note Interest Rate or Pass-Through Rate for such Series or any such Class
or Classes may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such Securities by one or more
rating agencies, in accordance with a schedule or otherwise, all as described
in such Prospectus Supplement. Unless otherwise set forth in the applicable
Prospectus Supplement, interest on each Series or Class of Fixed Rate
Securities will be distributable in arrears on each Distribution Date specified
in such Prospectus Supplement. Each such distribution of interest shall
include interest accrued through the day specified in the applicable Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, interest on Fixed Rate Securities will be computed on the basis of
a 360-day year of twelve 30-day months.
FLOATING RATE SECURITIES. Each Series (or, if more than one Class
exists, each Class within such Series) of Securities with a variable Note
Interest Rate or Pass-Through Rate ("Floating Rate Securities") will bear
interest, on the outstanding Security Principal Balance (or Notional Amount, if
applicable), from its Original Issue Date to the first interest Reset Date (as
defined below) for such Series or Class at the Initial Note Interest Rate or
Pass-Through Rate set forth on the face thereof and in the applicable
Prospectus Supplement. Thereafter, the Note Interest Rate or the Pass-Through
Rate on such Series or Class for each Interest Reset period (as defined below)
will be determined by reference to an interest rate basis (the "Base Rate"),
plus or minus the Spread, if any, or multiplied by the Spread Multiplier, if
any. The "Spread" is the number of basis points (one basis point equals one
one-hundredth of a percentage point) that may be specified in the applicable
Prospectus Supplement as being applicable to such Series or Class, and the
"Spread Multiplier" is the percentage that may be specified in the applicable
Prospectus Supplement as being applicable to such Series or Class, except that
if so specified in the applicable Prospectus Supplement, the Spread or Spread
Multiplier on such Series or any such Class or Classes of Floating Rate
Securities may be subject to adjustment from time to time in response to
designated changes in the rating assigned to such Securities by one or more
rating agencies, in accordance with a schedule or otherwise, all as described
in such Prospectus Supplement. The applicable Prospectus Supplement, unless
otherwise specified therein, will designate one of the following Base Rates as
applicable to a Floating Rate Security: (i) LIBOR (a "LIBOR Security"),
(ii) the Commercial Paper Rate (a "Commercial Paper Rate Security"), (iii) the
Treasury Rate (a "Treasury Rate Security"), (iv) the Federal Funds Rate (a
"Federal Funds Rate Security"), (v) the CD Rate (a "CD Rate Security") or
(vi) such other Base Rate (which may be based on, among other things, one or
more market indices or the interest and/or other payments (whether scheduled or
otherwise) paid, accrued or available with respect to a designated asset, pool
of assets or type of asset) as is set forth in such Prospectus Supplement and
in such Security. The "Index Maturity" for any Series or Class of Floating
Rate Securities is the period of maturity of the instrument or obligation from
which the Base Rate is calculated. "H.15(519)" means the publication entitled
"Statistical Release H.15(519), Selected Interest Rates," or any successor
publication, published by the Board of Governors of the Federal Reserve System.
"Composite Quotations" means the daily statistical release entitled "Composite
3:30 p.m. Quotations for U.S. Government Securities" published by the Federal
Reserve Bank of New York.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given Series or Class may also have either or both of the
following (in each case expressed as a rate per annum on a simple interest
basis): (i) a maximum limitation, or ceiling, on the rate at which interest
may accrue during any interest accrual period specified in the applicable
Prospectus Supplement ("Maximum Rate") and (ii) a minimum limitation, or floor,
on the rate at which interest may accrue during any such interest accrual
period ("Minimum Rate"). In addition to any Maximum Rate that may be
applicable to any Series or Class of floating Rate Securities, the Note
Interest Rate or Pass-Through Rate applicable to any Series or Class of
Floating Rate Securities will in no event be higher than the maximum rate
permitted by applicable law, as the same may be modified by United States law
of general application. The Floating Rate Securities will be governed by the
law of the State of New York and, under such law as of the date of this
Prospectus, the maximum rate of interest, with certain exceptions, is 25% per
annum on a simple interest basis.
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The Company will appoint, and enter into agreements with, agents (each a
"Calculation Agent") to calculate Note Interest Rates or Pass-Through Rates on
each Series or Class of Floating Rate Securities. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each Series
or Class of Floating Rate Securities. All determinations of interest by the
Calculation Agent shall, in the absence of manifest error, be conclusive for
all purposes and binding on the holders of Floating Rate Securities of a given
Series or Class.
The Note Interest Rates or Pass-Through Rate on each Class of Floating
Rate Securities will be reset daily, weekly, monthly, quarterly, semiannually
or annually (such period being the "Interest Reset Date"), as specified in the
applicable Prospectus Supplement. Interest Reset Dates with respect to each
Series, and any Class within such Series of Floating Rate Securities will be
specified in the applicable Prospectus Supplement; PROVIDED, HOWEVER, that
unless otherwise specified in such Prospectus Supplement, the Note Interest
Rates or Pass-Through Rate in effect for the ten days immediately prior to the
Scheduled Final Distribution Date will be that in effect on the tenth day
preceding such Scheduled Final Distribution Date. If an Interest Reset Date
for any Class of Floating Rate Securities would otherwise be a day that is not
a Business Day, such Interest Reset Date will occur on a prior or succeeding
Business Day specified in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement,
interest payable in respect of Floating Rate Securities shall be the accrued
interest from and including the Original Issue Date of such Series or Class or
the last Interest Reset Date to which interest has accrued and been
distributed, as the case may be, to but excluding the immediately following
Distribution Date.
With respect to a Floating Rate Security, accrued interest shall be
calculated by multiplying the Security Principal Balance of such Security (or,
in the case of a Strip Security with no or a nominal Security Principal
Balance, the Notional Amount specified in the applicable Prospectus Supplement)
by an accrued interest factor. Such accrued interest factor will be computed
by adding the interest factors calculated for each day in the period for which
accrued interest is being calculated. Unless otherwise specified in the
applicable Prospectus Supplement, the interest factor (expressed as a decimal
calculated to seven decimal places without rounding) for each such day is
computed by dividing the Note Interest Rate or Pass-Through Rate is in effect
on such day by 360, in the case of LIBOR Securities, Commercial Paper Rate
Securities, Federal Funds Rate Securities and CD Rate Securities or by the
actual number of days in the year, in the case of Treasury Rate Securities.
For purposes of making the foregoing calculation, the variable Note Interest
Rate or Pass-Through Rate in effect on any Interest Reset Date will be the
applicable rate as reset on such date.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the Note Interest Rate or Pass-
Through Rate on a Floating Rate Security will be rounded, if necessary, to the
nearest 1/100,000 of 1% (.0000001), with five one-millionths of a percentage
point rounded upward, and all currency amounts used in or resulting from such
calculation on Floating Rate Securities will be rounded to the nearest one-
hundredth of a unit (with .005 of a unit being rounded upward).
Interest on any Series (or Class within such Series) of Floating Rate
Securities will be distributable on the Distribution Dates and for the interest
accrual periods as and to the extent set forth in the applicable Prospectus
Supplement.
Upon the request of the holder of any Floating Rate Security of a given
Series or Class, the Calculation Agent for such Series or Class will provide
the Note Interest Rate or Pass-Through Rate then in effect and, if determined,
the Note Interest Rate or Pass-Through Rate that will become effective on the
next Interest Reset Date with respect to such Floating Rate Security.
(1) CD RATE SECURITIES. Each CD Rate Security will bear interest for
each Interest Reset Period at the Note Interest Rate or Pass-Through Rate
calculated with reference to the CD Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"CD Rate" for each interest Reset Period shall be the rate as of the second
Business Day prior to the Interest Reset Date for such Interest Reset Period (a
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"CD Rate Determination Date") for negotiable certificates of deposit having the
Index Maturity designated in the applicable Prospectus Supplement as published
in H.15(519) under the heading "CDs (Secondary Market)." In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such CD Rate Determination
Date, then the "CD Rate" for such Interest Reset Period will be the rate on
such CD Rate Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Prospectus Supplement as published
in Composite Quotations under the heading "Certificates of Deposit." If by
3:00 p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the "CD Rate" for
such Interest Reset Period will be calculated by the Calculation Agent for such
CD Rate Security and will be the arithmetic mean of the secondary market
offered rates as of 10:00 a.m., New York City time, on such CD Rate
Determination Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Security for negotiable certificates of deposit of major
United States money center banks of the highest credit standing (in the market
for negotiable certificates of deposit) with a remaining maturity closest to
the Index Maturity designated in the related Prospectus Supplement in a
denomination of $5,000,000; PROVIDED, HOWEVER, that if the dealers selected as
aforesaid by such Calculation Agent are not quoting offered rates as mentioned
in this sentence, the "CD Rate" for such Interest Reset Period will be the same
as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the Initial Note Interest Rate or
Pass-Through Rate).
The "Calculation Date" pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a Business Day, the next succeeding
Business Day or (b) the second Business Day preceding the date any distribution
of interest is required to be made following the applicable Interest Reset
Date.
(2) COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate
Security will bear interest for each Interest Reset Period at the Note Interest
Rate or Pass-Through Rate calculated with reference to the Commercial Paper
Rate and the Spread or Spread Multiplier, if any, specified in such Security
and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by
the Calculation Agent for such Commercial Paper Rate Security as of the second
Business Day prior to the Interest Reset Date for such Interest Reset Period (a
"Commercial Paper Rate Determination Date") and shall be the Money Market Yield
(as defined below) on such Commercial Paper Rate Determination Date of the rate
for commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading "Commercial Paper." In the event that such rate is not published prior
to 3:00 p.m., New York City time, on the Calculation Date (as defined below)
pertaining to such Commercial Paper Rate Determination Date, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper of the specified Index Maturity as published in Composite
Quotations under the heading "Commercial Paper." If by 3:00 p.m., New York
City time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "Commercial Paper Rate" for such
Interest Reset Period shall be the Money Market Yield of the arithmetic mean of
the offered rates, as of 11:00 a.m., New York City time, on such Commercial
paper Rate Determination Date of three leading dealers of commercial paper in
The City of New York selected by the Calculation Agent for such Commercial
Paper Rate Security for commercial paper of the specified Index Maturity placed
for an industrial issuer whose bonds are rated "AA" or the equivalent by a
nationally recognized rating agency; PROVIDED, HOWEVER, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting offered rates
as mentioned in this sentence, the "Commercial Paper Rate" for such Interest
Reset Period will be the same as the Commercial Paper Rate for the immediately
preceding Interest Reset Period (or, if there was no such interest Reset
Period, the Initial Note Interest Rate or Pass-Through Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
Money Market Yield = D X 360 X 100
-------
360 - (D X M)
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where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
Business Day, the next succeeding Business Day or (b) the second Business Day
preceding the date any distribution of interest is required to be made
following the applicable Interest Reset Date.
(3) FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate
Security will bear interest for each Interest Reset Period at the Note Interest
Rate or Pass-Through Rate calculated with reference to the Federal Funds Rate
and the Spread or Spread Multiplier, if any, specified in such Security and in
the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective rate
on the Interest Reset Date for such Interest Reset Period (a "Federal Funds
Rate Determination Date") for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)." In the event that such rate is not
published prior to 3:00 p.m. New York City time, on the Calculation Date (as
defined below) pertaining to such Federal Funds Rate Determination Date, the
"Federal Funds Rate" for such Interest Reset Period shall be the rate on such
Federal Funds Rate Determination Date as published in Composite Quotations
under the heading "Federal Funds/Effective Rate." If by 3:00 p.m., New York
City time, on such Calculation Date such rate is not yet published in either
H.15(519) or Composite Quotations, then the "Federal Funds Rate" for such
Interest Reset Period shall be the rate on such Federal Funds Rate
Determination Date made publicly available by the Federal Reserve Bank of New
York which is equivalent to the rate which appears in H.15(519) under the
heading "Federal Funds (Effective"; PROVIDED, HOWEVER, that if such rate is not
made publicly available by the Federal Reserve Bank of New York by 3:00 p.m.,
New York City time, on such Calculation Date, the "Federal Funds Rate" for such
Interest Reset Period will be the same as the Federal Funds Rate in effect for
the immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the Initial Note Interest Rate or Pass-Through Rate).
Unless otherwise specified in the applicable Prospectus Supplement, in the case
of a Federal Funds Rate Security that resets daily, the Note Interest Rate or
Pass-Through Rate on such Security for the period from and including a Monday
to but excluding the succeeding Monday will be reset by the Calculation Agent
for such Security on such second Monday (or, if not a Business Day, on the next
succeeding Business Day) to a rate equal to the average of the Federal Funds
Rates in effect with respect to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding Business Day.
(4) LIBOR SECURITIES. Each LIBOR Security will bear interest for
each Interest Reset Period at the Pass-Through Rate calculated with reference
to LIBOR and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits. Except as may otherwise be set forth in the Prospectus Supplement,
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset
Date for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters
Screen LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. "Reuters Screen LIBO Page" means the display
designated as page "LIBOR" on the Reuters Monitor Money Rates Service (or
such other page may replace the LIBO page on that service for the purpose
of displaying London interbank offered rates of major banks). If at
least two such offered rates appear on the Reuters Screen LIBO Page,
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"LIBOR" for such Interest Reset Period will be the arithmetic mean of
such offered rates as determined by the Calculation Agent for such LIBOR
Security.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page on such LIBOR Determination Date, the Calculation Agent for
such LIBOR Security will request the principal London offices of each of
four major banks in the London interbank market selected by such
Calculation Agent with its offered quotations for deposits in U.S.
dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market
at approximately 11:00 a.m., London time, on such LIBOR Determination
Date and in a principal amount equal to an amount of not less than
$1,000,000 that is representative of a single transaction in such market
at such time. If at least two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of rates quoted by
three major banks in The City of New York selected by the Calculation
Agent for such LIBOR Security at approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date for loans in U.S. dollars to
leading European banks, for the period of the specified Index Maturity,
commencing on such Interest Reset Date, and in a principal amount equal
to an amount of not less than $1,000,000 that is representative of a
single transaction in such market at such time; PROVIDED, HOWEVER, that
if fewer than three banks selected as aforesaid by such Calculation Agent
are quoting rates as mentioned in this sentence, "LIBOR" for such
Interest Reset Period will be the same as LIBOR for the immediately
preceding Interest Reset Period (or, if there was no such Interest Reset
Period, the Initial Note Interest Rate or Pass-Through Rate).
If LIBOR with respect to any LIBOR Security is indexed to the offered
rates for deposits in a currency other than U.S. dollars, the applicable
Prospectus Supplement will set forth the method for determining such rate.
(5) TREASURY RATE SECURITIES. Each Treasury Rate Security will bear
interest for each Interest Reset Period at the Pass-Through Rate calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any, specified in such Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the auction
held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading
"U.S. Government Certificates-Treasury bills-auction average (investment)" or,
in the event that such rate is not published prior to 3:00 p.m., New York City
time, on the Calculation Date (as defined below) pertaining to such Treasury
Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that
the results of the auction of Treasury bills having the specified Index
Maturity are not published or reported as provided above by 3:00 p.m., New York
City time, on such Calculation Date, or if no such auction is held on such
Treasury Rate Determination Date, then the "Treasury Rate" for such Interest
Reset Period shall be calculated by the Calculation Agent for such Treasury
Rate Security and shall be a yield to maturity (expressed as a bond equivalent
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 p.m., New York City time, on such Treasury Rate
Determination Date, of three leading primary United States government
securities dealers selected by such Calculation Agent for the issue of Treasury
bills with a remaining maturity closest to the specified Index Maturity;
PROVIDED, HOWEVER, that if the dealers selected as aforesaid by such
Calculation Agent are not quoting bid rates as mentioned in this sentence, then
the "Treasury Rate" for such Interest Reset Period will be the same as the
Treasury Rate for the immediately preceding Interest Reset Period (or, if there
was no such Interest Reset Period, the Initial Note Interest Rate or Pass-
Through Rate).
The "Treasury Rate Determination Date" for each Interest Reset Period
will be the day of the week in which the Interest Reset Date for such Interest
Reset Period falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
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following Tuesday, except that such auction may be held on the preceding
Friday. If, as the result of a legal holiday, an auction is so held on the
preceding Friday, such Friday will be the Treasury Rate Determination Date
pertaining to the Interest Reset Period commencing in the next succeeding week.
Unless otherwise specified in the applicable Prospectus Supplement, if an
auction date shall fall on any day that would otherwise be an Interest Reset
Date for a Treasury Rate Security, then such Interest Reset Date shall instead
be the Business Day immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a Business Day, the next
succeeding Business Day or (b) the second Business Day preceding the date any
distribution of interest is required to be made following the applicable
Interest Reset Date.
PRINCIPAL OF THE SECURITIES
Unless the related Prospectus Supplement provides otherwise, each
Security (other than certain Classes of Strip Securities) will have a "Security
Principal Balance" which, at any time, will equal the maximum amount that the
holder thereof will be entitled to receive in respect of principal out of the
future cash flow on the Deposited Assets and other assets securing such Note or
included in the series of the Trust related to such Certificate. Unless
otherwise specified in the related Prospectus Supplement, distributions
generally will be applied to undistributed accrued interest on, then to
principal of, and then to premium (if any) on, each such Security of the Class
or Classes entitled thereto (in the manner and priority specified in such
Prospectus Supplement) until the aggregate Security Principal Balance of such
Class or Classes has been reduced to zero. The outstanding Security Principal
Balance of a Security will be reduced to the extent of distributions of
principal thereon, and, if applicable pursuant to the terms of the related
Series, by the amount of any net losses realized on any Deposited Asset
("Realized Losses") allocated thereto. The initial aggregate Security
Principal Balance of a Series and each Class thereof will be specified in the
related Prospectus Supplement. Distributions of principal of any Class of
Securities will be made on a pro rata basis among all the Securities of such
Class. Strip Securities with no Security Principal Balance will not receive
distributions of principal.
OPTIONAL EXCHANGE
If a holder may exchange Securities of any given Series for a pro rata
portion of the Deposited Assets, the applicable Prospectus Supplement will
designate such Series as an "Exchangeable Series". The terms upon which a
holder may exchange Securities of any Exchangeable Series for a pro rata
portion of the Deposited Assets will be specified in the related Prospectus
Supplement; PROVIDED, HOWEVER, that any right of exchange shall be exercisable
only to the extent that such exchange would not be inconsistent with the
Company's and any SPV's or Trust's continued satisfaction of the applicable
requirements for exemption under Rule 3a-7 under the Investment Company Act of
1940 and all applicable rules, regulations and interpretations thereunder.
Such terms may relate to, but are not limited to, the following:
(a) a requirement that the exchanging holder tender to the
Trustee Securities of each Class within such Exchangeable Series;
(b) a minimum Security Principal Balance or Notional Amount, as
applicable, with respect to each Security being tendered for exchange;
(c) a requirement that the Security Principal Balance or Notional
Amount, as applicable, of each Security tendered for exchange be an
integral multiple of an amount specified in the Prospectus Supplement;
(d) specified dates during which a holder may effect such an
exchange (each, an "Optional Exchange Date");
(e) limitations on the right of an exchanging holder to receive
any benefit upon exchange from any Credit Support or other non-Term
Assets; and
(f) adjustments to the value of the proceeds of any exchange
based upon the required prepayment of future expenses allocations and the
establishment of a reserve for any anticipated Extraordinary Trust
Expenses.
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Unless otherwise specified in the related Prospectus Supplement, in order
for a Security of a given Exchangeable Series (or Class within such
Exchangeable Series) to be exchanged by the applicable Securityholder, the
Trustee for such Security must receive, at least 30 (or such shorter period
acceptable to the Trustee) but not more than 45 days prior to an Optional
Exchange Date (i) such Security with the form entitled "Option to Elect
Exchange" on the reverse thereof duly completed, or (ii) in the case of
Registered Securities, a telegram, telex, facsimile transmission or letter from
a member of a national securities exchange or the National Association of
Securities Dealers, Inc., the Depositary (in accordance with its normal
procedures) or a commercial bank or trust company in the United States setting
forth the name of the holder of such Registered Security, the Security
Principal Balance or Notional Amount of such Registered Security to be
exchanged, the certified number or a description of the tenor and terms of such
Registered Security, a statement that the option to elect exchange is being
exercised thereby and a guarantee that the Registered Security to be exchanged
with the form entitled "Option to Elect Exchange" on the reverse of the
Registered Security duly completed will be received by such Trustee not later
than five Business Days after the date of such telegram, telex, facsimile
transmission or letter. If the procedure described in clause (ii) of the
preceding sentence is followed, then such Registered Security and form duly
completed must be received by such Trustee by such fifth Business Day. Any
tender of Security by the holder for exchange shall be irrevocable. The
exchange option may be exercised by the holder of a Security for less than the
entire Security Principal Balance of such Security provided that the Security
Principal Balance or Notional Amount, as applicable, of such Security remaining
outstanding after redemption is an authorized denomination and all other
exchange requirements set forth in the related Prospectus Supplement are
satisfied. Upon such partial exchange, such Security shall be cancelled and a
new Security or Securities for the remaining Security Principal Balance thereof
shall be issued (which, in the case of any Registered Security, shall be in the
name of the holder of such exchanged Security).
Unless otherwise specified in the applicable Prospectus Supplement,
because initially and until Definitive Securities are issued each Security will
be represented by a Global Security, the Depositary's nominee will be the
Securityholder of such Security and therefore will be the only entity that can
exercise a right of exchange. In order to ensure that the Depositary's nominee
will timely exercise a right of exchange with respect to a particular Security,
the beneficial owner of such Security must instruct the broker or other direct
or indirect participant through which it holds an interest in such Security to
notify the Depositary of its desire to exercise a right of exchange. Different
firms have different cut-off times for accepting instructions from their
customers, and, accordingly, each beneficial owner should consult the broker or
other direct or indirect participant through which it holds an interest in a
Security in order to ascertain the cut-off time by which such an instruction
must be given in order for timely notice to be delivered to the Depositary.
Unless otherwise provided in the applicable Prospectus Supplement, upon
the satisfaction of the foregoing conditions and any applicable conditions with
respect to the related Deposited Assets, as described in such Prospectus
Supplement, the applicable Securityholder will be entitled to receive a
distribution of a pro rata share of the Deposited Assets related to the
Exchangeable Series (and Class within such Exchangeable Series) of the Security
being exchanged, in the manner and to the extent described in such Prospectus
Supplement. Alternatively, to the extent so specified in the applicable
Prospectus Supplement, the applicable Securityholder, upon satisfaction of such
conditions, may direct the related Trustee to sell, on behalf of such
Securityholder, such pro rata share of the Deposited Assets, in which event the
Securityholder shall be entitled to receive the net proceeds of such sale, less
any costs and expenses incurred by such Trustee in facilitating such sale,
subject to any additional adjustments set forth in the Prospectus Supplement.
PUT OPTION
If specified in the applicable Prospectus Supplement, a holder may put
Securities of a given Series to the Company, an SPV or a third party. The
terms upon which a holder may put its Securities (including the price) will be
specified in the related Prospectus Supplement; PROVIDED, HOWEVER, the any put
option shall be exercisable only to the extent that such put would not be
inconsistent with the Company's and any SPV's or Trust's continued satisfaction
of the applicable requirements for exemption under 3a-7 under the Investment
Company act of 1940 and all applicable rules, regulations and interpretations
thereunder.
GLOBAL SECURITIES
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Unless otherwise specified in the applicable Prospectus Supplement, all
Securities of a given Series (or, if more than one Class exists, any given
Class within that Series) will, upon issuance, be represented by one or more
Global Securities that will be deposited with, or on behalf of. The Depositary
Trust Company, New York, New York (for Registered Securities denominated and
payable in U.S. dollars), or such other depositary identified in the related
Prospectus Supplement (the "Depositary"), and registered in the name of a
nominee of the Depositary. Global Securities may be issued in either
registered or bearer form and in either temporary or definitive form. See
"Limitations on Issuance of Bearer Securities" for provisions applicable to
Securities issued in bearer form. Unless and until it is exchanged in whole or
in part for the individual Securities represented thereby (each a "Definitive
Security"), a Global Security may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
The Depository Trust Company has advised the Company as follows: The
Depositary Trust Company is a limited-purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provision s of Section
17A of the Exchange Act. The Depositary Trust Company was created to hold
securities of its participants and to facilitate the clearance and settlement
of securities transactions among the institutions that have accounts with such
Depositary ("participants") in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. Such Depositary's participants
include securities brokers and dealers (including the Offering Agent), banks,
trust companies, clearing corporations, and certain other organizations, some
of whom (and/or their representatives) own such Depositary. Access to such
Depositary's book-entry system is also 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 Depositary
Trust Company has confirmed to the Company that it intends to follow such
procedures.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the individual Securities represented by such
Global Security to the accounts of its participants. The accounts to be
accredited shall be designated by the underwriters of such Securities, or, if
such Securities are offered and sold directly through one or more agents, by
the Company, or such agent or agents. Ownership of beneficial interests in
Global Security will be limited to participants or Persons that may hold
beneficial interests through participants. Ownership of beneficial interests
in a Global Security will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the Depositary for such Global
Security or by participants or Persons that hold through participants. The
laws of some states require that certain purchasers of securities take physical
delivery of such securities. Such limits and such laws may limit the market
for beneficial interests in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
owner of such Global Security, such Depositary or such nominee, as the case may
be, will be considered the sole Securityholder of the individual Securities
represented by such Global Security for all purposes. Except as set forth
below, owners of beneficial interests in a Global Security will not be entitled
to have any of the individual Securities represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Securities and will not be considered the Securityholder
thereof. Because the Depositary can only act on behalf of its participants,
the ability of a holder of any Security to pledge that Security to persons or
entities that do not participate in the Depositary's system, or to otherwise
act with respect to such Security, may be limited due to the lack of a physical
certificate for such Security.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Securities" below, distributions of principal of (and premium, if any)
and any interest on individual Securities represented by a Global Security will
be made to the Depositary or its nominee, as the case may be, as the
Securityholder of such Global Security. None of the Company, the applicable
SPV, the Administrative Agent, if any, the Trustee for such Securities, any
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Paying Agent or the Security Registrar for such Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in such Global Security or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
The Company expects that the Depositary for Securities of a given Class
and Series, upon receipt of any distribution of principal, premium or interest
in respect of a definitive Global Security representing any of such Securities,
will credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of payments by participants to owners of beneficial interests in such Global
Security as shown on the records of such Depositary. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now 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 participants. Receipt by owners of
beneficial interests in a temporary Global Security of payments of principal,
premium or interest in respect thereof will be subject to the restrictions
discussed below under "Limitations on Issuance of Bearer Securities" below.
If the Depositary for Securities of a given Class of any Series is at any
time unwilling or unable to continue as depositary and a successor depositary
is not appointed by the Company within ninety days, the Company will issue
individual Definitive Securities in exchange for the Global Security or
Securities representing such Securities. In addition, the Company may at any
tine and in its sole discretion determine not to have any Securities of a given
Class represented by one or more Global Securities and, in such event, will
issue individual Definitive Securities of such Class in exchange for the Global
Security or Securities representing such Securities. Further, if the Company
so specifies with respect to the Securities of a given Class, an owner of a
beneficial interest in a Global Security representing Securities of such Class
may, on terms acceptable to the Company and the Depositary for such Global
Security, receive individual Definitive Securities in exchange for such
beneficial interest. In any such instance, an owner of a beneficial interest
in a Global Security will be entitled to physical delivery of individual
Definitive Securities of the Class represented by such Global Security equal in
principal amount to such beneficial interest and to have such Definitive
Securities registered in its name (if the Securities of such Class are issuable
as Registered Securities). Individual Definitive Securities of such Class so
issued will be issued (a) as Registered Securities in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof if
the Securities or such Class are issuable as Registered Securities, (b) as
Bearer Securities in the denomination or denominations specified by the Company
if the Securities of such Class are issuable as Bearer Securities or (c) as
either Registered or Bearer Securities, if the Securities of such Class are
issuable in either form. See, however, "Limitations on Issuance of Bearer
Securities" below for a description of certain restrictions on the issuance of
individual Bearer Securities in exchange for beneficial interests in a Global
Security.
The applicable Prospectus Supplement will set forth any specific terms of
the depositary arrangement with respect to any Class or Series of Securities
being offered thereby to the extent not set forth or different from the
description set forth above.
DESCRIPTION OF DEPOSITED ASSETS AND CREDIT SUPPORT
GENERAL
Each Security of each Series (or if more than one Class exists, each
Class (whether or not each such Class is offered hereby) within such Series)
will be secured by or represent an interest specified for such Series (or
Class) or Securities in certain credit card, charge card or debit card
receivables or securities representing an interest in or secured by such
receivables. The property with respect to each Series will be composed of (a)
the Deposited Assets, which may include (i) one or more pools of receivables
(collectively, the "Receivables") generated or to be generated from time to
time in the ordinary course of business in one or more portfolios or revolving
credit card, charge card or debit card accounts (collectively, the "Accounts"),
(ii) a designated, publicly issued, asset backed security or a pool of such
asset backed securities representing an interest in or secured by Receivables
("Credit Card Securities") and (iii) one or more derivative products or such
other assets specified in the related Prospectus Supplement, (b) any Credit
Support, and (c) the amount, if any, initially deposited in any trust account
for a Series as specified in the related Prospectus Supplement (including for
purposes of acquiring the Deposited Assets or Credit Support). The Company (or
an affiliate thereof) will purchase the Term Assets in the secondary market and
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assign or transfer the Term Assets to a trust or an SPV or will direct the
Trustee to purchase the specified Term Assets on behalf of the Trust with a
portion of the proceeds of the offering, as described in the applicable
Prospectus Supplement.
The Deposited Assets included in a Trust for a Series may consist of any
combination of Receivables and Credit Card Securities, to the extent and as
specified in the related Prospectus Supplement.
The following is a general description of the Deposited Assets expected
to be included with respect to a Series. Specific information regarding the
actual Deposited Assets will be provided in the Prospectus Supplement used to
offer a Series of Notes or Certificates and, to the extent not contained in the
related Prospectus Supplement, in a Current Report on Form 8-K to be filed with
the Commission within 15 days after the initial issuance of such Securities.
RECEIVABLES
GENERAL. The Deposited Assets for a Series may consist, in whole or in
part, of Receivables. The following discussion of the Receivables, the related
Accounts and the terms thereof will be generally applicable to Receivables
underlying a Credit Card Security and the Term Assets Agreement relating to
such Credit Card Security. The Accounts will consist of the initial Accounts
sold by a Seller, as well as any Additional Accounts added from time to time,
but will not include any removed Accounts. Each Seller will convey to the
Company or the applicable SPV all Receivables existing on a cut-off date (the
"Cut-off Date") in certain Accounts and all Receivables arising in such
Accounts from time to time thereafter. The Receivables may be payable in U.S.
dollars or in any other foreign currency. After the Cut-off Date, the Seller
may convey to the Company or the applicable SPV the Receivables in certain
Additional Accounts, in accordance with the provisions of the applicable
Agreement. In addition, pursuant to the Agreement, the Seller in some
circumstances will be obligated to designate Additional Accounts the
Receivables in which will be conveyed to the applicable Trust or the applicable
SPV or, in lieu thereof or in addition thereto, to include or transfer
participations in Receivables ("Participants"). The Seller will convey to the
applicable Trust or the applicable SPV all Receivables in Additional Accounts,
whether such Receivables are then existing or thereafter created.
Pursuant to the Agreement, the Seller will have the right (subject to
certain limitations and conditions), but not the obligation, to remove the
Receivables in certain Accounts ("Removed Accounts").
"Credit Card Receivables" generally consist of periodic finance charges,
annual membership fees, cash advance fees and late charges on amounts charged
for merchandise and services and certain other fees designated by the Seller
("Finance Charge Receivables") and all amounts charged by cardholders for
merchandise and services, amounts advanced to cardholders as cash advances and
certain other fees billed to cardholders on the Accounts ("Principal
Receivables"). In addition, certain interchange attributable to cardholder
charges for merchandise and services in the Accounts may be treated as Finance
Charge Receivables. "Interchange" consists of certain fees received by a
credit card-issuing bank from the VISA and MasterCard International
associations as partial compensation for taking risk, absorbing fraud losses
and funding receivables for a limited period prior to initial billing. Under
the VISA and MasterCard International systems, a portion of the Interchange in
connection with cardholder charges for merchandise and services is passed from
banks which clear the transactions for merchants to credit card-issuing banks.
VISA and MasterCard International may from time to time change the amounts of
Interchange reimbursed to banks issuing their credit cards.
"Credit Card Receivables" consist of amounts charged on designated
Accounts for merchandise and services, and all annual membership fees and
certain other administrative fees billed to the designated Accounts.
Receivables originated under charge card Accounts are not subject to a monthly
finance charge.
There are vicious distinctions between credit card Accounts and charge
card Accounts. Credit card Accounts offer revolving credit plans to their
customers. Charge card Accounts generally have no pre-set spending limit and
are designated for use as a convenient method of payment for the purchase of
merchandise and services. Charge card Accounts generally cannot be used as a
means of financing such purchases. Accordingly, the full balance of a month's
purchases is billed to cardmembers and is due upon receipt of the billing
statement. By contrast, revolving credit plans allow customers to make a
minimum monthly payment and to borrow the remaining outstanding balance from
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the credit issuer up to a predetermined limit. As a result of these payment
requirement differences, charge card Accounts generally have a high monthly
payment rate and balances which turn over rapidly relative to their charge
volume when compared to credit card Accounts.
Another distinction between charge card Accounts and credit card Accounts
is that charge card Account balances are generally not subject to monthly
finance charges. As described above, the full account balance is billed
monthly and is due upon receipt of the billing statement. Cardmembers do not
have the option of using their charge card Accounts to extend payment and to
pay a finance charge on the remaining outstanding balance. Credit card
Accounts, by contrast, do allow customers to pay a specified minimum portion of
an outstanding amount and to finance the balance at a finance charge rate
determined by the credit card issuer. (Because charge card Account balances
may not be assessed finance charges, a portion of collections on Receivables in
charge card Accounts received in any specified collection period will generally
be allocated to allow for interest payments or yield payments based on the
product of such collections and a specified yield factor.) Each related
Prospectus Supplement, where applicable, will describe the yield calculation
for a specific portfolio of charge card Accounts.
ADDITIONAL INFORMATION RELATING TO RECEIVABLES
The related prospectus Supplement for each Series will provide
information with respect to the Receivables included as Term Assets as of the
Cut-off Date, including, among other things, the aggregate principal balance of
the Receivables and whether the Receivables are credit card Receivables, charge
card Receivables or debit card Receivables.
The eligibility criteria which shall apply with respect to the Term
Assets will be specified in the related Prospectus Supplement. The related
Prospectus Supplement will provide information, including, among other things,
(a) underwriting criteria; (b) the loss and delinquency experience for the
portfolio of Receivables; (c) the composition of the portfolio by account
balance; and (d) the geographic distribution of Accounts and Receivables. The
related Prospectus Supplement will also specify any other limitations on the
types or characteristics of Receivables for a Series.
If information of the nature described above with respect to the
Receivables is not known to the Seller at the time the Securities are initially
offered, approximate or more general information of the nature described above
will be provided in the related Prospectus Supplement and additional
information will be set forth in a Current Report on Form 8-K to be filed with
the Commission within 15 days after the initial issuance of such Certificates.
CREDIT CARD SECURITIES
The Credit Securities will consist of certain eligible credit or charge
card asset backed securities which may include certificates representing
undivided interests in, or notes or loans secured by Receivables generated in
Accounts (as described above). Such certificates, notes or loans will have
previously been offered and distributed to the public pursuant to an effective
Registration Statement. Based on information contained in the offering
document pursuant to which any of the Credit Card Securities were originally
offered (each a "Term Assets Prospectus"), the applicable Prospectus Supplement
will set forth certain information with respect to the public availability of
information with respect to any Term Assets Issuer whose securities constitute
more than [ten percent] of the Term Assets for any Series as of the date of
such Prospectus Supplement ("Concentrated Term Asset"). More specific terms
and conditions of the Term Assets will be set forth in the related Prospectus
Supplement.
This Prospectus relates only to the Securities offered hereby and does
not relate to the Credit Card Securities. The following description of Credit
Card Securities generally is intended only to summarize certain characteristics
of the Credit Card Securities permitted to be included in a Series and does not
purport to be a complete description of any particular Credit Card Security and
is qualified in its entirety by reference to the applicable Prospectus
Supplement, the Term Assets Prospectus, if any, and the Term Assets Agreement
with respect to any Credit Card Security.
GENERAL. Each of the Term Assets has been issued pursuant to a pooling
and servicing agreement, a master pooling and servicing agreement, a sale and
servicing agreement, a trust agreement, indenture or similar agreement (a "Term
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Assets Agreement"). The seller of the underlying Receivables (the "Term Assets
Seller") will have entered into the Term Assets Agreement with the trustee
under such Term Assets Agreement (the "Term Assets Trustee"). Receivables
underlying a Term Assets will be serviced by a servicer (the "Term Assets
Servicer") directly or by one or more sub-servicers who may be subject to the
supervision of the Term Assets Servicer.
The issuer of the Term (the "Term Assets Issuer") will be a financial
institution, corporation, or other entity engaged generally in the business of
issuing credit or charge cards; any store or merchandiser that issues credit or
charge cards; or a limited purpose corporation or other entity organized for
the purpose of, among other things, establishing trusts and acquiring and
selling receivables to such trusts, and selling beneficial interests in such
trusts; or one of such trusts. If so specified in the related Prospectus
Supplement, the Term Assets Issuer may be an affiliate of the Company. The
obligations of the Term Assets Issuer or Term Assets Seller will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related trust. Unless otherwise specified in the related
Prospectus Supplement, none of the Term Assets Issuer, the Term Assets Seller
or the Term Assets Servicer will have guaranteed any of the Credit Card
Securities issued under the Term Assets Agreement.
Distributions of principal and interest will be made on the Term Assets
on the dates specified in the related Prospectus Supplement. The Term Assets
may be entitled to receive nominal or no principal distributions or nominal or
no interest distributions. Principal and interest distributions will be made
on the Term Assets by the Term Assets Trustee or the Term Assets Servicer form
the proceeds of the underlying Receivables and certain other underlying assets.
The Term Assets Seller or the Term Assets Servicer may have the right to
repurchase assets underlying the Term Assets after a certain date or under
other circumstances specified in the related Prospectus Supplement.
TERM ASSETS EARLY AMORTIZATION EVENTS. As specified in the Prospectus
Supplement with respect to any Series, principal payments due to the holders of
the Term Assets will generally either commence on a specified date prior to the
final payment thereof or be provided for through the accumulation of certain
collections in specified accounts to be distributed on the specified final
payment date, but in each case principal may be paid earlier or later than such
dates. However, if certain economic or non-economic events specified in the
related Term Assets Agreement occur (collectively referred to herein as "Term
Assets Early Amortization Events"), monthly principal distributions to the
holders of the Term Assets may begin on the first payment date following the
occurrence of such Term Assets Early Amortization Event or the month in which
such event occurs (the "Term Assets Early Amortization Period"). Reference is
made to the Prospectus Supplement for a description of the Term Assets Early
Amortization Events relevant to the Concentrated Terms Assets for any Series.
ENHANCEMENT RELATED TO TERM ASSETS. Enhancement in the form of the
reserve funds, subordination or other securities or interests issued under the
Term Assets Agreement, guarantees, letters or credit, cash collateral accounts,
insurance policies or other types of enhancement (collectively, "Term Assets
Enhancement") may be provided with respect to the Receivables underlying the
Credit Card Securities or with respect to the Credit Card Securities
themselves. The type, characteristics and amount of Term Assets Enhancement
will be a function of certain characteristics of the underlying Receivables and
other factors and will have been established for the Credit Card Securities on
a basis consistent with the rating of such securities when they were originally
issued.
UNDERLYING RECEIVABLES. The Credit Card Securities will represent an
undivided beneficial interest in or be accrued by Receivables generated from
time to time in the ordinary course of business in a portfolio of Accounts,
funds collected or to be collected from cardholders in respect of such
Receivables, the right to receive certain other fees and charges attributable
to cardholders charges for merchandise and services in the Accounts and monies
on deposit in certain accounts maintained pursuant to the Term Assets
Agreement. The Receivables underlying the Credit Card Securities may consist
of either credit card Receivables, charge card Receivables or debit card
Receivables. See "-- Receivables" above.
The related Prospectus Supplement for each Series will provide additional
information with respect to the Accounts and Receivables underlying any
Concentrated Term Asset, including, among other things, the aggregate principal
balance of the Receivables, based on information made publicly available with
respect to the related Term Assets Issuer, and whether the Receivables are
credit card receivables, charge card Receivables or debit card Receivables.
PRINCIPAL ECONOMIC TERMS OF TERM ASSETS
The related Prospectus Supplement for a Series will specify, to the
extent relevant and to the extent such information is reasonably available to
the Company and the Company reasonably believes such information to be
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reliable, with respect to any Concentrated Term Asset: (i) the aggregate
approximate principal amount and type of such Term Assets, (ii) certain
characteristics of the Receivables which comprise the underlying assets for the
Concentrated Term Asset including, (A) whether such Receivables are credit card
Receivables, charge card Receivables or debit card Receivables, (B) the fees
and charges associated with such Receivables and (C) the servicing fee or range
or servicing fees with respect to the Receivables; (iii) the expected final
payment date of the Concentrated Term Asset; (iv) the interest rate of the
Concentrated Term Asset manner of calculating such interest rate; (v) the Term
Assets Issuer, the Term Assets Seller and the Term Assets Servicer (if other
than the Term Assets Issuer) and the Term Assets Trustee for such Concentrated
Term Asset; (vi) certain characteristics of Term Assets Enhancement, if any,
such as reserve funds, insurance policies, letters of credit, cash collateral
accounts or guarantees relating to the Receivables underlying the Concentrated
Term Asset or to such Term Assets itself; (vii) the terms on which the
underlying Receivables for such Concentrated Term Asset may, or are required
to, be purchased prior to the expected final payment of such Concentrated Term
Asset; and (viii) the terms on which Receivables may be substituted for those
originally underlying such Concentrated Term Asset.
If information of the nature described above regarding the Term Assets is
not known to the Company at the time the Notes or Certificates are initially
offered, approximate or more general information of the nature described above
will be provided in the related Prospectus Supplement and the additional
information, if available, will be set forth in a Current Report on Form 8-K to
be filed with the Commission within 15 days of the initial issuance of such
Securities.
PUBLICLY AVAILABLE INFORMATION
In addition to the foregoing, with respect to each Concentrated Term
Asset, the applicable Prospectus Supplement will disclose the identity of the
applicable Term Assets Issuer and will describe the existence and type of
certain information that is made publicly available by such Term Assets Issuer
regarding such Term Assets or Term Assets and will disclose where and how
prospective purchasers of the Securities may obtain such publicly available
information with respect to such Term Assets Issuer. Such information will
typically consist of monthly and annual servicer reports regarding the
applicable Term Assets, and can be obtained from the Commission, if so
specified in the applicable Prospectus Supplement, or from the office of such
Term Assets Issuer identified in the related Prospectus Supplement. However,
the precise nature of such publicly available information and where and how it
may be obtained with respect to any given Term Assets Issuer will vary, and, as
described above, will be set forth in the applicable Prospectus Supplement. If
an issuer of Concentrated Term Asset ceases to file reports under the Exchange
Act, the Company will not be relieved of its reporting requirements under the
Exchange Act, but certain information with respect to such issuer will be
unavailable.
OTHER DEPOSITED ASSETS
In addition to the Term Assets, the Company or the applicable SPV may
also pledge to the Trustee or deposit into a given Trust, or the Trustee on
behalf of the Securityholders may enter into an agreement constituting or
providing for the purchase of, to the extent described in the related
Prospectus Supplement, certain assets related or incidental to one or more of
such Term Assets, including hedging contracts and other similar arrangements
(such as puts, calls, interest rate swaps, currency swaps, floors, caps and
collars) ("Derivative Assets"), cash and assets ancillary or incidental to the
foregoing or to the Term Assets (including assets obtained through foreclosure
or in settlement of claims with respect thereto) and direct obligations of the
United States (all such assets for any given Series, together with the related
with the related Term Assets, the "Deposited Assets"). The applicable
Prospectus Supplement will, to the extent appropriate, contain analogous
disclosure with respect to the foregoing assets as referred to above with
respect to the Term Assets.
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Unless otherwise specified in the related Prospectus Supplement, the
Deposited Assets for a given Series of Securities will not constitute Deposited
Assets for any other Series of Securities and the Securities of each Class of a
given Series will possess an equal and ratable interest in such Deposited
Assets. The applicable Prospectus Supplement may, however, specify that
certain assets constituting a part of the Deposited Assets relating to any
given Series may be held or owned solely for the benefit of one Class or a
group of Classes within such Series. In such event, the other Classes of such
Series will not possess any beneficial security or ownership interest in those
specified assets constituting a part of the Deposited Assets.
CREDIT SUPPORT
As specified in the applicable Prospectus Supplement for a given Series
of Securities, such Series may include, or the Securityholders of such Series
(or any Class or group of Classes within such Series) may have the benefit of,
Credit Support for any Class or group of Classes within such Series. Such
Credit Support may be provided by any combination of the following means
described below or any other means described in the applicable Prospectus
Supplement. The applicable Prospectus Supplement will set forth whether any
Class or group of Classes of Securities of a Series includes, or the
Securityholders of such Securities have the benefit of, Credit Support and, if
so, the amount, type and other relevant terms of each element of Credit Support
with respect to any such Class or Classes and certain information with respect
to the obligors of each such element, including financial information with
respect to any such obligor providing Credit Support for 20% or more of the
aggregate principal amount of such Class or Classes.
SUBORDINATION. As discussed below under " -- Collections," the rights of
the Securityholder of any given Class within a Series of Securities to receive
collections payable to such Series and any Credit Support obtained for the
benefit of the Securityholders of such Series (or Classes within such Series)
may be subordinated to the rights of the Securityholders or one or more other
Classes of such Series to the extent described in the related Prospectus
Supplement. Such subordination accordingly provides some additional credit
support to those Securityholders of those other Classes. For example, if
losses are realized during a given period on the Deposited Assets relating to a
Series of Securities such that the collections received thereon are
insufficient to make all distributions on the Securities of such Series, those
realized losses would be allowed to the Securityholders of any Class of such
Series that is subordinated to another Class, to the extent and in the manner
provided in the related Prospectus Supplement. If a Series includes both Notes
and Certificates, the Certificates will generally be subordinated to the Notes
to the extent described in the Prospectus Supplement. In addition, if so
provided in the applicable Prospectus Supplement, certain amounts otherwise
payable to Securityholders of any Class that is subordinated to another class
may be required to be deposited into a reserve account. Amounts held in any
reserve account may be applied as described below under " -- Reserve Accounts"
and in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, the Credit Support
for any Series or Class of Securities may include, in addition to the
subordination of certain Classes of such Series and the establishment of a
reserve account, any of the other forms of Credit Support described below. Any
such other forms of Credit Support that are solely for the benefit of a given
Class will be limited to the extent necessary to make required distributions to
the Securityholders of such Class or as otherwise specified in the related
Prospectus Supplement. In addition, if so provided in the applicable
Prospectus Supplement, the obligor of any other forms of Credit Support may be
reimbursed for amounts paid pursuant to such Credit Support out of amounts
otherwise payable to one or more of the Classes of the Securities of such
Series.
LETTER OF CREDIT; SURETY BOND. The Securityholders of any Series (or
Class or group of Classes of Securities within such Series) may, if specified
in the applicable Prospectus Supplement, have the benefit of a letter or
letters of credit (a "Letter of Credit") issued by a bank (a "Letter of Credit
Bank") or a surety bond or bonds (a "Surety Bond") issued by a surety company
(a "Surety"). In either case, the Trustee or such other person specified in
the applicable Prospectus Supplement will use its reasonable efforts to cause
the Letter of Credit or the Surety Bond, as the case may be, to be obtained,
to be kept in full force and effect (unless coverage thereunder has been
exhausted through payment of claims) and to pay timely the fees or premiums is
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otherwise provided for. The Trustee or such other person specified in the
applicable Prospectus Supplement will make or cause to be made draws under the
Letter of Credit or the Surety Bond, as the case may be, under the
circumstances and to cover the amounts specified in the applicable Prospectus
Supplement. Any amounts otherwise available under the Letter of Credit or the
Surety Bond will be reduced to the extent of any prior unreimbursed draws
thereunder. The applicable Prospectus Supplement will describe the manner,
priority and source of funds by which any such draws are to be repaid.
Unless otherwise specified in the applicable Prospectus Supplement, in
the event that the Letter of Credit Bank or the Surety, as applicable, ceases
to satisfy any credit rating or other applicable requirements specified in the
related Prospectus Supplement, the Trustee or such other person specified in
the applicable Prospectus Supplement will use its reasonable efforts to obtain
or cause to be obtained a substitute Letter of Credit or Surety Bond, as
applicable, or other form or credit enhancement providing similar protection,
that meets such requirements and provides the same coverage to the extent
available for the same cost. There can be no assurance that any Letter of
Credit Bank or any Surety, as applicable, will continue to satisfy such
requirements or that any such substitute Letter of Credit, Surety Bond or
similar credit enhancement will be available providing equivalent coverage for
the same cost. To the extent not so available, the credit support otherwise
provided by the Letter of Credit or the Surety Bond (or similar credit
enhancement) may be reduced to the level otherwise available for the same cost
as the original Letter of Credit or Surety Bond.
RESERVE ACCOUNTS. If so provided in the related Prospectus Supplement,
the Trustee or such other person specified in the Prospectus Supplement will
deposit or cause to be deposited into an account maintained with an eligible
institution (which may be the Trustee) (a "Reserve Account") any combination of
cash or permitted investments in specified amounts, which will be applied and
maintained in the manner and under the conditions specified in such Prospectus
Supplement. In the alternative or in addition to such deposit, a Reserve
Account may be funded through application of a portion of collections received
on the Deposited Assets for a given Series of Securities, in the manner and
priority specified in the applicable Prospectus Supplement. Amounts may be
distributed to Securityholders of such Class or group of Classes within such
Series, or may be used for other purposes, in the manner and to the extent
provided in the related Prospectus Supplement. Amounts deposited in any
Reserve Account will be invested in certain permitted investments by, or at the
direction of, the Trustee, the Company, the applicable SPV or such other person
named in the related Prospectus Supplement.
SERVICING OF RECEIVABLES
GENERAL
The following summaries regarding the servicer (the "Servicer") and the
servicing of the Receivables do not purport to be complete and are qualified in
their entirety by reference to the applicable Agreement. The following
description relates to the servicing of Receivables comprising Deposited
Assets. Though certain of the statements below may be applicable to the
Receivables underlying any Credit Card Security, these summaries do not purport
to summarize the provisions of any Term Assets Agreement and the statements
below are qualified in their entirety by such Term Assets Agreements with
respect to the Receivables underlying any Credit Card Security.
COLLECTION PROCEDURES
The Servicer will make reasonable efforts to collect all payments
required to be made under the Receivables and will, consistent with the terms
of the related Agreement for a Series and any applicable Credit Support, follow
such collection procedures as it follows with respect to comparable receivables
held in its own portfolio or serviced by it.
COLLECTIONS
The Agreement relating to the applicable Receivables or a separate
servicing agreement (a "Servicing Agreement") will establish procedures by
which the Servicer or such other person specified in the Prospectus Supplement
is obligated, for the benefit of the Noteholders and Certificateholders of each
Series of Notes and Certificates, as applicable, to administer the related
Deposited Assets, including making collections of all payments thereon,
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depositing from time to time prior to any applicable distribution date (each, a
"Distribution Date") such collections into a segregated account maintained or
controlled by the applicable Trustee for the benefit of such Series (each, a
"Collection Account").
Unless otherwise indicated in the related Prospectus Supplement, the
Collection Account will be an account maintained (i) at a depositary
institution, the long-term unsecured debt obligations of which at the time of
any deposit therein are rated as described in the related Prospectus Supplement
and as specified by each Rating Agency rating the Securities of such Series or
(ii) in an account or accounts the deposits in which are insured to the maximum
extent available by the FDIC or which are otherwise maintained in a manner
meeting requirements established by each Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, the
funds held in the Collection Account may be invested, pending remittance to the
Trustee, in certain permitted investments. If so specified in the related
Prospectus Supplement, the Servicer or other specified person, as the case may
be, will be entitled to receive as additional compensation any interest or
other income earned on funds in the Collection Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer, the Seller, the Trustee, the Company or an SPV, as appropriate, will
deposit into the Collection Account for each Series, within two business days
after the date of receipt thereof, the following payments and collections
received or made by it:
(i) all payments on account of principal, including prepayments,
on the Deposited Assets;
(ii) all payments on account of interest or finance charges on
such Deposited Assets after deducting therefrom, at the discretion of the
Servicer but only to the extent of the amount permitted to be withdrawn
or withheld from the Collection Account in accordance with the applicable
Agreement, the Trustee's Fee and the Servicer's fee (the "Servicer's
Fee"), if any, in respect of such Deposited Assets;
(iii) all amounts received by the Servicer in connection with the
liquidation of Deposited Assets other than amounts required to be paid or
refunded to the obligor pursuant to the terms of the applicable documents
or otherwise pursuant to law ("Liquidation Proceeds"), exclusive of, in
the discretion of the Servicer, but only to the extent of the amount
permitted to be withdrawn from the Collection Account in accordance with
the related Agreement, the Trustee's Fee and Servicer's Fee, if any, in
respect of the such Deposited Assets;
(iv) all amounts required to be deposited therein from any
applicable Credit Support for such Series pursuant to the related
Agreement;
(v) all repurchase prices of any such Deposited Assets
repurchased by the Company, the SPV, the Seller or the Servicer pursuant
to the related Agreement;
(vi) any amounts payable to the applicable person with respect to
each Deposited Asset acquired that has been repurchased or removed by the
Company, the SPV, the Servicer or the Seller pursuant to the related
Agreement, all amounts received thereon and not distributed as of the
date on which the related repurchase price was determined;
(vii) all amounts payable to the Trustee of such Series for
deposit into the Distribution Account, if any, or for remittance to the
Noteholders or Certificateholders of such Series as provided for in the
related Agreement; and
(viii) all amounts necessary to clear and terminate the Collection
Account pursuant to the related Agreement.
In addition, if the Servicer deposits in the Collection Account for a
Series any amount not required to be deposited therein, it may, at any time,
withdraw such amount from such Collection Account.
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The Servicer or an Administration Agent, if any is appointed, will direct
the Trustee, and otherwise the Trustee will make all determinations, as to the
appropriate application of such collections and other amounts available for
distribution to the payment of any administrative of collection expenses (such
as any administrative fee) and certain Credit Support-related ongoing fees
(such as insurance premiums, letter of credit or any required account deposits)
and to the payment of amounts then due and owing on the Notes and Certificates
of such Series (and Classes within such Series), all in the manner and
priorities described in the related Prospectus Supplement.
The applicable Prospectus Supplement will specify the collection periods,
if applicable, and Distribution Dates for given Series and the particular
requirements relating to the segregation and investment of collections received
on the Deposited Assets during a given collection period or on or by certain
specified dates. There can be no assurance that amounts received from the
Deposited Assets and any Credit Support obtained for the benefit of Noteholders
or Certificateholders for particular Series or Classes of Notes or Certificates
over a specified period will be sufficient, after payment of all prior expenses
and fees for such period, to pay amounts then due and owing to holders of such
Notes and Certificates. The applicable Prospectus Supplement will also set
forth the manner and priority by which any Realized Loss will be allocated
among the Classes of any Series of Certificates, if applicable.
The relative priorities of distributions with respect to collections from
the assets of the Trust assigned to the Notes and Certificates or to Classes of
a given Series of Notes or Certificates may permanently or temporarily change
over time upon the occurrence of certain circumstances specified in the
applicable Prospectus Supplement. Moreover, the applicable Prospectus
Supplement may specify that the relative distribution priority assigned to the
Notes and Certificates or to each Class of a given Series for purposes of
payments of certain amounts, such as principal, may be different from the
relative distribution priority assigned to each such Class for payments of
other amounts, such as interest or premium.
SERVICING FEE AND PAYMENT OF EXPENSES
Except as otherwise described in the related Prospectus Supplement, the
Servicer will be entitled to the Servicer's Fee in an amount to be determined
as specified in the related Prospectus Supplement. The Servicer's Fee may be
fixed or variable, as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay certain expenses incurred in connection with the servicing of
the Receivables including, without limitation, the payment of the fees and
expenses of the Trustee and independent accountants and payment of expenses
incurred in preparation of reports to Securityholders.
The rights of the Servicer to received funds from the Collection Account
for a Series, whether as the Servicer's Fees or other compensation, or for the
reimbursement of expenses or otherwise, may be subordinate to the rights of
Securityholders of such Series.
EVIDENCE AS TO COMPLIANCE
The Trust Agreement or Indenture for a Series may provide that, each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that such firm has examined certain documents and records
relating to the servicing of the Receivables by the Servicer and that, on the
basis of such examination, such firm is of the opinion that the servicing has
been conducted in compliance with the Trust Agreement or Indenture, except for
(i) such exceptions as such firm believes to be immaterial and (ii) such other
exceptions as are set forth in such statement.
The Trust Agreement or Indenture for each Series will provide for
delivery to the Trustee for such Series of an annual statement signed by an
officer of the Servicer to the effect that the Servicer has fulfilled its
obligations thereunder throughout the preceding calendar year.
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CERTAIN MATTERS REGARDING THE SERVICER
The Servicer, if any, for each Series will be identified in the related
Prospectus Supplement. The Servicer may be an affiliate of the Seller and may
have other business relationships with the Company and its affiliates.
If an event of default occurs with respect to the Servicer under an
Agreement, or Servicing Agreement, the Servicer may be replaced by the Trustee
or a successor Servicer. Servicer events of default and the rights of the
Trustee upon such a default will be set forth in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, the
Servicer may not resign from its obligations and duties under an Agreement or
Servicing Agreement, except (a) upon determination that (i) the performance of
its duties thereunder is no longer permissible under applicable law and (ii)
there is no reasonable action which the Servicer could take to make the
performance of its duties thereunder permissible under applicable law, (b) in
connection with a conveyance, consolidation or merger by the Servicer with any
corporation, or conveyance or transfer of its properties or assets
substantially as an entirety to any other person permitted thereunder or (c)
upon the satisfaction of the following conditions: (i) the acceptance and
assumption, by an agreement supplemental thereto, in form satisfactory to the
Trustee, of the obligations and duties of the Servicer thereunder by a proposed
successor Servicer, (ii) the Servicer having given written notice to each
Rating Agency of such transfer and such Rating Agency having notified the
Servicer in Writing to the effect that its then current rating of the Notes and
Certificates of any Series will not be reduced or withdrawn as a result of such
transfer, (iii) the written consent of any provider of Credit Support, if
applicable, and (iv) the proposes successor Servicer being an Eligible Servicer
(as defined below). Notwithstanding anything in an Agreement or Servicing
Agreement to the contrary, any successor Servicer appointed under clause (c)
will be deemed to be a successor Servicer. Any such determination permitting
the resignation of the Servicer will be evidenced as to clause (a) above by an
opinion of counsel to such effect delivered to the Trustee. No such
resignation will become effective until the Trustee or a successor Servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with an Agreement or Servicing Agreement.
"Eligible Servicer" means the Trustee or an entity which, at the time of
its appointment as Servicer, (i) is an established financial institution having
capital or a net worth of not less than $100,000,000, (ii) is servicing a
portfolio of credit card or charge card accounts, (iii) is legal qualified and
has the capacity to service the Accounts, or (iv) has demonstrated the ability
to professionally and completely service a portfolio of similar accounts in
accordance with standards of skill and care customary in the industry.
INDEMNIFICATION
Except to the extent otherwise provided therein, each Agreement or
Servicing Agreement will provide that the Servicer will indemnify the Trust,
the Trustee and the Securityholders from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of any acts,
omissions or alleged acts or omissions arising out of activities of the
Servicer with respect to the Trust or the Trustee or any co-trustee, including
those arising from acts or omissions of the Servicer pursuant to the Agreement
or Servicing Agreement, including but not limited to any judgment, award,
settlement, reasonable attorney's fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided, however, that the Servicer shall not, unless otherwise
specified in the related Prospectus Supplement, indemnify: (i) the Trust or the
Trustee if such acts, omissions or alleged acts or omissions constitute fraud,
negligence, breach or fiduciary duty or misconduct by the Trustee; (ii) the
Trust, the Trustee or the Securityholders for any liability, cost or expense
with respect to any action taken by the Trust or Trustee at the request of the
Securityholders nor with respect to any Federal, state or local income or
franchise taxes (or any interest or penalties with respect thereto) required to
be paid by the Trust or the Securityholders of a Series of any taxing
authority; or (iii) the Trust or Securityholders for any losses incurred by any
of them as a result of defaulted Receivables or Receivables which are written
off as uncollectible unless such writeoff is caused by a breach of the
Agreement or Servicing Agreement by the Servicer.
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DESCRIPTION OF THE INDENTURE
GENERAL
The following summary of certain provisions of the Indenture and the
Notes do not purport to be complete and such summary is qualified in its
entirety by reference to the detailed provisions of the form of Indenture filed
as an exhibit to the Registration Statement. Wherever defined terms of the
Indenture are referred to, such defined terms are incorporated herein by
reference as part of the statement made, and the statement is qualified in its
entirety by such reference.
CERTAIN COVENANTS
The Company or the applicable SPV (the "Issuer") may not liquidate or
dissolve, without the consent of the holders of at least 66 2/3% of the Voting
Rights of each Series of Notes. The Issuer also may not consolidate or merge
with or into any other Person or convey or transfer its properties and assets
substantially as an entirety unless (i) such consolidation or merger shall have
been consented to by holders of at least 66 2/3% of the Voting Rights or each
Series of Notes, (ii) the Person (if other than the Issuer) formed in or
surviving such transaction or acquiring such assets is a Person organized under
the laws of the United States of America or any State and shall have expressly
assumed, by supplemental indenture in form satisfactory to the Trustee, the due
and punctual payment of principal of and interest on all Notes and the
performance of every applicable covenant of the Indenture to be performed by
the Issuer, (iii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing, (iv) the
Trustee shall have received a letter from each Rating Agency rating any
outstanding Notes to the effect that the rating issued with respect to such
Notes is confirmed notwithstanding the consummation of such transaction and (v)
the Trustee shall have received from the Issuer an Officer's Certificate and an
Opinion of Counsel, each to the effect that, among other things, such
transaction complies with the foregoing requirements. "Voting Rights"
evidenced by any Note will be the portion of the voting rights of all the Notes
in the related Series allocated in the manner described in the related
Prospectus Supplement.
The Issuer may not incur, assume, have outstanding or guarantee any
indebtedness except pursuant to the Indenture and subject to the conditions and
limitations set forth therein.
MODIFICATION OF INDENTURE
Except as set forth below, with the consent of the holders of not less
than a majority of the Voting Rights of each Series or Class of such Series of
Notes to be affected, the Trustee and the Issuer may amend the Indenture or
execute a supplemental indenture to add provisions to or change or eliminate
any provisions of the Indenture relating to such Series or modify the rights of
the holders of the Notes of that Series.
Without the consent of the holder of each outstanding Note affected,
except as provided below, no such amendment or supplemental indenture may (i)
change any Distribution Date or the Final Scheduled Distribution Date of any
Note or reduce the principal amount thereof, the Note Interest Rate for any
Note or the Redemption Price with respect thereto, or change the provisions of
the Indenture relating to the application of the Trust Estate to payment of
principal of or interest on the affected Notes, or change any place of payment
where, or the coin or currency in which, any affected Note or any interest
thereon is payable, or impair the right to institute suit for the enforcement
of the provisions of the Indenture regarding payment, (ii) reduce the
percentage of Voting Rights of the Notes of the affected Series (or Class of
such Series), the consent of the holders of which is required for the
authorization of any amendment or supplemental indenture or for any waiver of
compliance with certain provisions of the Indenture or certain defaults
thereunder and their consequences, (iii) modify or alter the provisions of the
Indenture defining the term "Outstanding", (iv) permit the creation of any lien
ranking prior to or on a parity with the lien of the Indenture with respect to
any part of the property subject to the lien of the Indenture or terminate the
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lien of the Indenture on any property at any time subject thereto or deprive
the holder of any Note of the security afforded by the lien of the Indenture,
(v) reduce the percentage of the Voting Rights of the Notes of any Series (or
Class of such Series), the consent of the holders of which is required to
direct the Trustee to liquidate the Deposited Assets for such Series (or Class
of such Series), (vi) modify any of the provisions of the Indenture if such
modification affects the calculation of the amount of any payment of interest
or principal due and payable on any Note on any Distribution Date or to affect
the rights of the holders of Notes of any Series (or Class of such Series) to
the benefit of any provisions for the mandatory redemption of Notes of such
Series (or Class of such Series) to the benefit of any provisions for the
mandatory redemption of Notes of such Series (or Class of such Series)
contained therein, or (vii) modify the provisions of the Indenture regarding
any modifications of such Indenture requiring consent of the holders of Notes,
except to increase the percentage or number of holders required to consent to
such modification of such Indenture or to provide that additional provisions of
the Indenture cannot be modified or waived without the consent of the holder of
each Note affected thereby.
The Issuer and the Trustee may also amend the Indenture or enter into
supplemental indentures, without obtaining the consent of holders of any
Series, to cure any ambiguity or to correct or supplement any provision of the
Indenture or any supplemental indenture which may be defective or inconsistent
with any other provision, or to make or to amend any other provisions with
respect to matters or questions arising under the Indenture or any supplemental
indenture, provided that such action shall not materially adversely affect the
interests of the holders of the Notes. Such amendments may also be made and
such supplemental indenture may also be entered into without the consent of
Noteholders to set forth the terms of and security for additional Series, to
evidence the succession of another person to the Issuer, to add to the
conditions, limitations and restrictions on certain terms of any Series and to
covenants of the Issuer, to surrender any right or power conferred on the
Issuer, to convey, transfer, assign, mortgage or pledge any property to the
Trustee, to correct or amplify the description of any property subject to the
lien of the Indenture, to modify the Indenture to the extent necessary to
effect the Trustee's qualification under the Trust Indenture Act of 1939, as
amended (the "TIA") or comply with the requirements of the TIA, to provide for
the issuance of Notes of any Series, to make any amendment necessary or
desirable to maintain the federal income tax status of the Issuer and to amend
the provisions of the Indenture relating to authentication and delivery of a
Series with respect to which a supplemental indenture has not theretofore been
authorized or to evidence and provide for the acceptance of appointment by a
successor trustee.
EVENTS OF DEFAULT
An "Event of Default" with respect to any Series is defined in the
Indenture as being: (i) a continuing default for five days in the payment of
interest on any Note of such Series; (ii) a continuing default for five days in
the payment of principal when due of any Note of such Series; (iii) the
impairment of the validity or effectiveness of the Indenture or any grant
thereunder, or the subordination, termination or discharge of the lien of the
Indenture with respect to such Series, or the release of any Person from any
covenants or obligations under the Indenture with respect to such Series, or
the release of any Person from any covenants or obligations under the Indenture
with respect to such Series, unless otherwise expressly permitted, or the
creation of any lien, charge, security interest, mortgage or other encumbrance
with respect to any part of the property subject to the lien of the Indenture,
or any interest in or proceeds of such property, unless otherwise expressly
permitted, or the failure of the lien of the Indenture to constitute a valid
first priority security interest in the property subject to the lien of the
Indenture and the continuation of any of such defaults for a period of 30 days
after notice to the Issuer by the Trustee or to the Issuer and the Trustee by
the holders of at least 25% of the Voting Rights of such Series; (iv) a default
in the observance of, or breach of, any covenant or negative covenant of the
Issuer made in the Indenture, or a material breach of any representation or
warranty of the Issuer made in the Indenture or in any certificate or other
document delivered pursuant thereto or in connection therewith as of the time
when the same shall have been made, and the continuation of any such default or
breach for a period of 60 days after notice to the Issuer by the Trustee or to
the Issuer and the Trustee by the holders of at least 25% of the Voting Rights
of such Series (unless the default or breach is with respect to certain
covenants specified in the Indenture not requiring such continuation or
notice); and (v) certain events of bankruptcy, insolvency, receivership or
reorganization of the Issuer. Notwithstanding the foregoing, if a Series
includes a Class of subordinated Notes, the Indenture for such a Series may
provide that certain defaults which relate only to such subordinated Notes will
not constitute an Event of Default with respect to the Notes, under certain
circumstances, and it may limit the rights of holders of subordinated Notes to
direct the Trustee to pursue remedies with respect to such defaults, or other
Events of Default. Such limitations, if any, will be specified in the related
Prospectus Supplement.
If an Event of Default with respect to any Series occurs and is
continuing, the Trustee may, and on the written request of the holders of at
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least 25% of the Voting Rights of such Series shall, declare all Notes of such
Series to be due and payable, together with accrued and unpaid interest
thereon. Such declaration may in certain circumstances be rescinded by the
holders of a majority of the Voting Rights of such Series.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of an Event of Default with respect to a Series, mail to the holders
of such Series of all uncured or unwaived defaults known to it, provided,
however, that (a) except in the case of an Event of Default in the payment of
the principal or purchase price of or interest on any Note, the Trustee shall
be protected in withholding such notice if it determines in good faith that the
withholding of such notice is in the interest of the Noteholders of such
Series, and (b) in the case of default specified in clause (iv) of the first
paragraph of this "Event of Default" subsection, the Trustee is not required to
give such notice until at least 30 days after the occurrence of such default or
breach and that, in the case of any default or breach specified in clause (v)
of the first paragraph of this "Events of Default" subsection, the Trustee is
not required to give notice until at least 60 days after the occurrence of such
default or breach.
An Event of Default with respect to one Series will not necessarily be an
Event of Default with respect to any other Series, but an Event of Default with
respect to one Class of a Series shall be an Event of Default with respect to
all Classes of such Series.
If, following an Event of Default with respect to any Series, the Notes
of such Series have been declared to be due and payable, the Trustee in its
sole discretion may, but shall not be obligated to refrain from liquidating the
related Deposited Assets if (i) the Trustee determines that the amounts
receivable with respect to such Deposited Assets will be sufficient to pay (a)
all principal of and interest on the Notes in accordance with their terms
without regard to the declaration of acceleration and (b) all sums due the
Trustee and any other administrative amounts required to be paid under the
Indenture and (ii) holders of the requisite percentage of the Notes of such
Series have not directed the Trustee to sell the related Deposited Assets as so
specified in the Indenture. In addition, the Trustee is prohibited from
selling the Trust Estate following certain Events of Default unless (a) the
amounts receivable with respect to the Deposited Assets are not sufficient to
pay in full the principal of and accrued interest on the Notes of such Series,
and to pay sums due the Trustee and other administrative expenses specified in
the Indenture and the Trustee obtains the consent of holders of 66-2/3% of the
Voting Rights of such Series or (b) the Trustee obtains the consent of 100% of
the Voting Rights of such Series. The proceeds of a sale of assets will be
applied to the payment of amounts due the Trustee and other administrative
expenses specified in the Indenture and then distributed pro rata among the
Noteholders of such Series (without regard to Class, provided that subordinated
notes will be subordinate to senior Notes of the Series to the extent provided
in the related Prospectus Supplement) according to the amounts due and payable
on the Notes for principal and interest at the time such proceeds are
distributed by the Trustee.
The Trustee will not deemed to have knowledge of any Event of Default or
default described in clauses (iv) through (vi) of the first paragraph of this
"Events of Default" subsection unless an officer in the Trustee's corporate
trust department has actual knowledge thereof. Subject to the provisions of
the Indenture relating to the duties of the Trustee, in case an Event of
Default shall occur and be continuing, the Trustee will be under no obligation
to exercise any of the rights or powers under the Indenture at the request or
direction of any of the Noteholders of a Series, unless such Noteholders shall
have offered to the Trustee reasonable security or indemnity. Subject to such
provisions for indemnification and certain limitations contained in the
Indenture the holders of a majority of the Voting Rights of a Series (or of
such Classes specified in the related Prospectus Supplement) will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Series. In addition, the holders of a majority
of the Voting Rights of a Series (or of such Classes specified in the related
Prospectus Supplement) may, in certain cases, waive any default with respect to
such Series, except a default in payment of principal or interest or in respect
of a covenant or provision which cannot be modified without the consent of all
Noteholders affected.
No holder of Notes of a Series will have the right to institute any
Proceeding with respect to the Indenture, unless (i) such holder previously has
given to the Trustee written notice of a continuing Event of Default with
respect to such Series and has offered the Trustee satisfactory indemnity, (ii)
the holders of not less than 25% of the Voting Rights of such Series have made
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written request on the Trustee to institute such Proceeding and have offered
satisfactory indemnity, (iii) the Trustee has, for 60 days after receipt of
such notice, request and offer of indemnity, failed to institute any such
Proceeding, and (iv) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the holders of a
majority of the Voting Rights of such Series; PROVIDED, HOWEVER, that if the
Trustee receives conflicting requests and indemnities from two or more groups
of Noteholders each representing less than a majority of the Voting Rights of
such Series, the Trustee may in its sole discretion determine what action with
respect to the Proceeding, if any, shall be taken.
REPORTS TO NOTEHOLDERS
The Trustee will prepare and forward to each Noteholder on each
Distribution Date (whether or not such Noteholder receives a payment on such
date), or as soon thereafter as is practicable, a statement setting forth, to
the extent applicable to any Series, among other things:
(i) with respect to a Series, the amount of such distribution
allocable to principal on the Deposited Assets, separately identifying
the aggregate amount of any redemptions or prepayments included therein;
(ii) with respect to a Series, the amount of such distribution
allocable to interest on the Deposited Assets;
(iii) the aggregate outstanding principal balance of the Deposited
Assets as of the opening of business on the immediately following date,
after giving effect to distributions allocated to principal reported
under (i) above;
(iv) the aggregate outstanding principal amount of the Notes of
such Series as of the immediately following date, after giving effect to
distributions allocated to principal reported under (i) above and the
payment on such Distribution Date;
(v) in the case of Floating Rate Securities, the Note Interest
Rate applicable to the distribution being made;
(vi) if applicable, the amount of any shortfall (I.E., the
difference between the aggregate amounts of principal and interest which
Noteholders would have received if there were sufficient available funds
to distribute and the amounts actually distributed);
(vii) in the case of any Credit Support described in the related
Prospectus Supplement, the amount of coverage of such Credit Support as
of the close of business on the applicable Distribution Date;
(viii) in the case of any Series which includes subordinated
Notes, the subordinated amount, if any, determined as of the related
Distribution Date and if the distribution of the holders of senior Notes
is less than their required distribution, the amount of the shortfall;
(ix) the amount of any withdrawal from any applicable Reserve
Account included in amounts actually distributed to Noteholders and the
remaining balance of the Reserve Account, if any, on such Distribution
Date, after giving effect to distributions made on such date; and
(x) such other information as may be specified in the Indenture.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish to each Noteholder of record at any
time during such calendar year: (A) the aggregate of amounts reported pursuant
to (i) through (iii), (vi), and (xi) above for such calendar year and (B) such
information specified in the Indenture to enable Noteholders to prepare their
tax returns, including the amount of original issue discount accrued on the
Notes, if applicable. Information in the Distribution Date reports and annual
reports provided to the Noteholders will not have been examined and reported
upon by an independent public accountant.
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AUTHENTICATION AND DELIVERY OF NOTES
The Issuer may from time to time deliver Notes executed by it to the
Trustee and order that the Trustee authenticate such Notes. On the receipt of
such Notes and such order and subject to the Issuer's compliance with certain
conditions specified in the Indenture, the Trustee will authenticate and
deliver such Notes as the Issuer may direct. The Trustee will be authorized to
appoint an Authenticating Agent for purposes of authenticating and delivering
the Series of Notes.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged as to a Series (except with respect to
certain continuing rights specified in the Indenture), (i)(a) on the delivery
to the Trustee for cancellation of all of the Notes of such Series other than
Notes which have been mutilated, lost or stolen and have been replaced or paid
and Notes for which money has been deposited in trust for the full payment
thereof (and thereafter repaid to the Issuer and discharged from such trust) as
provided in the Indenture, or (b) at such time as all Notes of such Series not
previously cancelled by the Trustee have become, or, within one year will
become, due and payable or called for redemption and the Issuer shall have
deposited with the Trustee an amount sufficient to repay all of the Notes and
(ii) the Issuer shall have paid all other amounts payable under the Indenture
with respect to such Series.
ANNUAL COMPLIANCE STATEMENTS
The Issuer will be required to file annually with the Trustee a written
statement as to fulfillment of its obligations under the Indenture.
The Indenture will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that such firm has examined certain documents and records
relating to the administration of the Deposited Assets during the related
12-month period (or, in the case of the first such report, the period ending on
or before the date specified in the Prospectus Supplement, which date shall not
be more than one year after the related Original Issue Date) and that, on the
basis of accounting and auditing procedures considered appropriate under the
circumstances, such firm is of the opinion that such administration was
conducted in compliance with the terms of the Indenture, except for such
exceptions as such firm shall believe to be immaterial and such other
exceptions as shall be set forth in such report.
The Indenture will also provide for delivery to the Issuer, on or before
a specified date in each year, of an annual statement signed by two officers of
the Trustee to the effect that the Trustee has fulfilled its obligations under
the Indenture throughout the preceding year with respect to any Series of
Notes.
Copies of the annual issuer's statement, accountants' statement and the
statement of officers of the Trustee may be obtained by Noteholders without
charge upon written request to either the Trustee, at the address set forth in
the related Prospectus Supplement.
PASS THROUGH OF VOTING RIGHTS
The Trustee shall seek instructions from Noteholders of a Series in
connection with any vote, consent or waiver required in respect of any related
Deposited Asset. Except as otherwise provided in the Prospectus Supplement,
the Trustee shall direct any action or cast any vote as the holder of such
Deposited Asset in proportion to the aggregate outstanding principal amount of
Notes held by Noteholders of such Series taking the corresponding position.
The Prospectus Supplement will specify whether and under what circumstances
voting in such cases will be by Class.
LIST OF NOTEHOLDERS
Three or more holders of a Series that have each owned the Notes for at
least six months may, by written application to the Trustee, request access to
the list maintained by the Trustee of all holders of the same Series or of all
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Notes, as specified in the request, for the purpose of communicating with other
Noteholders with respect to their rights under the Indenture. The Trustee may
choose not to give such Noteholders access to the list of Noteholders if it
wishes to mail the communication on behalf of the requesting Noteholders, at
their expense, to all Noteholders. If the Trustee objects to the proposed
mailing on the grounds that it would be contrary to the best interests of the
Noteholders or a violation of applicable law, it may request permission from
the Commission not to make the proposed mailing.
MEETINGS OF NOTEHOLDERS
Meetings of Noteholders may be called at any time and from time to time
to (i) give any notice to the Issuer or to the Trustee, give directions to the
Trustee, consent to the waiver of any Default or Event of Default under the
Indenture, or to take any other action authorized to be taken by Noteholders in
connection therewith, (ii) remove the Trustee and to appoint a successor
Trustee, (iii) consent to the execution of supplemental indentures or (iv) take
any other action authorized to be taken by or on behalf of the Noteholders of
any specified percentage of the Voting Rights of the Notes. Such meetings may
be called by the Trustee, the Issuer or by the holders of 10% in Voting Rights
of any such Series.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Noteholders a brief
report relating to its eligibility and qualification to continue as the Trustee
under the Indenture, any amounts advanced by it under the Indenture which
remain unpaid on the date of the report, the amount, interest rate and maturity
date of certain indebtedness owing by the Issuer (or any other obligor on such
Series) to the Trustee in its individual capacity, the property and funds
physically held by the Trustee as such, any release or releases and
substitution of property subject to the lien of the Indenture which has not
been previously reported, any additional issuance of Notes not previously
reported and any action taken by it which materially affects the Notes and
which has not been previously reported.
THE TRUSTEE
The Trustee will be a bank or trust company qualified under the TIA and
named in the Prospectus Supplement related to a Series. The Issuer may
maintain other banking relationships in the ordinary course of business with
the Trustee. The Trustee's "Corporate Trust Office" will be specified in the
Prospectus Supplement, or at such other addresses as the Trustee may designate
from time to time by notice to the Noteholders and the Issuer. With respect to
the presentment and surrender of Notes for final payment of principal in
retirement thereof on any Distribution Date (or any redemption date, special
distribution date or special redemption date) and, with respect to any other
presentment and surrender of such Notes and for all other purposes such Notes
may be presented at the Corporate Trust Office of the Trustee or at the office
of the Issuer's paying agent, which will be specified in the Prospectus
Supplement.
DESCRIPTION OF THE TRUST AGREEMENT
GENERAL
The following summary of certain provisions of the Trust Agreement and
the Certificates do not purport to be complete and such summary is qualified in
its entirety by reference to the detailed provisions of the form of Trust
Agreement filed as an exhibit to the Registration Statement. Wherever defined
terms of the Trust Agreement are referred to, such defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference.
ASSIGNMENT OF DEPOSITED ASSETS
At the time of issuance of any Series of Certificates, the Company will
cause the Term Assets to be included in the related Trust, and any other
Deposited Asset specified in the Prospectus Supplement, to be assigned to the
related Series of the Trust, together with all principal, premium (if any) and
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interest received by or on behalf of the Company on or with respect to such
Deposited Assets after the cut-off date specified in the Prospectus Supplement
(the "Cut-off Date"), other than principal, premium (if any) and interest due
on or before the Cut-off Date, other than Retained Interest, if specified in
the Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver the Certificates to the Company in exchange for certain
assets to be deposited in the Trust (Section 2.6). Each Deposited Asset in
respect of a Series of the Trust will be identified in a schedule appearing as
an exhibit to the Series Supplement to the Trust Agreement for such Series of
the Trust. Such schedule will include certain statistical information with
respect to each of the Term Assets and each other Deposited Asset as of the
Cut-off Date, and in the event any Term Assets represents ten percent or more
of the total Term Assets with respect to any Series of Certificates, such
schedule will include, to the extent applicable, information regarding the
payment terms thereof, the Retained Interest, if any, with respect thereto, the
maturity or term thereof, the rating, if any, thereof and certain other
information with respect thereto.
In addition, the Company will, with respect to each Deposited Asset,
deliver or cause to be delivered to the Trustee (or to the custodian
hereinafter referred to) all documents necessary to transfer ownership of such
Deposited Asset to the Trust. The Trustee (or a custodian or the Administrator
(defined below)) will review (or cause to be reviewed) such documents upon
receipt thereof or within such period as is permitted in the Prospectus
Supplement, and the Trustee (or such custodian) will hold such documents in
trust for the benefit of the Certificateholders.
With respect to certain types of Deposited Assets specified in the
applicable Prospectus Supplement only if and to the extent provided therein, if
any such document is found to be missing or defective in any material respect,
the Trustee (or such custodian or the Administrator) shall immediately notify
the Administrative Agent, if any, and the Company, and the Administrative
Agent, if any, and otherwise the Trustee shall immediately notify the relevant
person who sold the applicable Deposited Asset to the Company (a "Deposited
Asset Provider"). To the extent specified in the applicable Prospectus
Supplement, if the Deposited Asset Provider cannot cure such omission or defect
within 60 days after receipt of such notice, the Deposited Asset Provider will
be obligated, within 90 days of receipt of such notice, to repurchase the
related Deposited Asset from the Trust at the Purchase Price (as defined below)
or provide a substitute for such Deposited Asset. There can be no assurance
that a Deposited Asset Provider will fulfill this repurchase or substitution
obligation. Although the Administrative Agent, if any, or otherwise an
Administrator, on behalf of the Trustee is obligated to use its best efforts to
enforce such obligation, neither such Administrative Agent nor the Company will
be obligated to repurchase or substitute for such Deposited Asset if the
Deposited Asset Provider defaults on its obligation. Unless otherwise
specified in the related Prospectus Supplement, when applicable, this
repurchase or substitution obligation constitutes the sole remedy available to
the Certificateholders or the Trustee for omission of, or a material defect in,
or failure to provide, a constituent document.
Each of the Company and the Administrative Agent, if any, will make
certain representations and warranties regarding its authority to enter into,
and its ability to perform its obligations under, the Trust Agreement. Upon a
breach of any such representation of the Company or any such Administrative
Agent, as the case may be, which materially and adversely affects the interests
of the Certificateholders, the Company or any such Administrative Agent,
respectively, will be obligated to cure the breach in all material respects.
COLLECTION AND OTHER ADMINISTRATIVE PROCEDURES
GENERAL. With respect to any Series of Certificates, the Trustee or such
other person specified in the Prospectus Supplement directly or through an
Administrator, will make reasonable efforts to collect all schedule payments
under the Deposited Assets and will follow or cause to be followed such
collection procedures, if any, as it would follow with respect to comparable
financial assets that it held for its own account, provided that such
procedures are consistent with the Trust Agreement and any related instrument
governing any Credit Support (collectively, the "Credit Support Instruments")
and provided that, except as otherwise expressly set forth in the applicable
Prospectus Supplement, it shall not be required to expend or risk its own funds
or otherwise incur personal financial liability.
SUB-ADMINISTRATION. Any Trustee or Administrative Agent may delegate its
obligations in respect of the Deposited Assets to third parties they deem
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qualified to perform such obligations (each, an "Administrator"), but the
Trustee or Administrative Agent will remain obligated with respect to such
obligations under the Trust Agreement. Each Administrator will be required to
perform the customary functions of an administrator of comparable financial
assets, including, if applicable, collecting payments from obligors and
remitting such collections to the Trustee; maintaining accounting records
relating to the Deposited Assets, attempting to cure defaults and
delinquencies; and enforcing any other remedies with respect thereto all as and
to the extent provided in the applicable Administration Agreement (as defined
below).
The agreement between any Administrative Agent or Trustee and an
Administrator (an "Administration Agreement") will be consistent with the terms
of the Trust Agreement and such assignment to the Administrator by itself will
not result in a withdrawal or downgrading of the rating of any Class of
Certificates issued pursuant to the Trust Agreement. With respect to any
Administration Agreement between an Administrative Agent and an Administrator,
although such Administration Agreement will be a contract solely between such
Administrative Agent and the Administrator, the Trust Agreement pursuant to
which a Series of Certificates is issued will provide that, if for any reason
such Administrative Agent for such Series of Certificates is no longer acting
in such capacity, the Trustee or any successor Administrative Agent must
recognize the Administrator's rights and obligations under each Administration
Agreement.
Except to the extent otherwise set forth in the Prospectus Supplement,
the Administrative Agent or Trustee, as applicable, will be solely liable for
all fees owed by it to any Administrator, irrespective of whether the
compensation of the Administrative Agent or Trustee, as applicable, pursuant to
the Trust Agreement with respect to the particular Series of Certificates is
sufficient to pay such fees. To the extent set forth in the Prospectus
Supplement and the related Administration Agreement, each Administrator will be
reimbursed by the Administrative Agent, if any, or otherwise the Trustee for
certain expenditures which it makes, generally to the same extent the
Administrative Agent or Trustee, as applicable, would be reimbursed under the
terms of the Trust Agreement relating to such Series. See "- Retained
Interest; Administrative Agent Compensation and Payment of Expenses."
The Administrative Agent or Trustee, as applicable, may require any
Administrator to agree to indemnify the Administrative Agent or Trustee, as
applicable, for any liability or obligation sustained by the Administrative
Agent or Trustee, as applicable, in connection with any act or failure to act
by the Administrator.
REALIZATION UPON DEFAULT DEPOSITED ASSETS. Unless otherwise specified in
the applicable Prospectus Supplement, as administrator with respect to the
Deposited Assets, the Trustee (or an Administrator on its behalf) on behalf of
the Certificateholders of a given Series (or any Class or Classes within such
Series), will present claims under each applicable Credit Support Instrument,
and will take such reasonable steps as are necessary to receive payment or to
permit recovery thereunder with respect to defaulted Deposited Assets. Except
as otherwise specified in the applicable Prospectus Supplement, all collections
by or on behalf of the Trustee or Administrative Agent under any Credit Support
Instrument are to be deposited in the Security Account for the related Series
of the Trust, subject to withdrawal as described above.
Unless otherwise provided in the applicable Prospectus Supplement, if
recovery on a defaulted Deposited Asset under any related Credit Support
Instrument is not available, the Trustee (or an Administrator on its behalf)
will be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Deposited Asset, provided that, except as otherwise expressly provided in the
applicable Prospectus Supplement, it shall not be required to expend or risk
its own funds or otherwise incur personal financial liability. If the proceeds
of any liquidation of the defaulted Deposited Asset are less than the sum of
(i) the outstanding principal balance of the defaulted Deposited Asset, (ii)
interest accrued thereon at the applicable interest rate and (iii) the
aggregate amount of expenses incurred by the Administrative Agent and the
Trustee, as applicable, in connection with such proceedings to the extent
reimbursable from the assets of the Trust under the Trust Agreement, the Trust
will realize a loss in the amount of such difference. Only if and to the
extent provided in the applicable Prospectus Supplement, the Administrative
Agent or Trustee, as so provided, will be entitled to withdraw or cause to be
withdrawn from the related Security Account out of the net proceeds recovered
on any defaulted Deposited Asset, prior to the distribution of such proceeds to
Certificateholders, amounts representing its normal administrative compensation
on the Deposited Asset, unreimbursed administrative expenses incurred with
respect to the Deposited Asset and any unreimbursed advances or delinquent
payments made with respect to the Deposited Asset.
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RETAINED INTEREST; ADMINISTRATIVE AGENT COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Deposited Asset, and, if so,
the owner thereof. If so provided, the Retained Interest will be established
on an asset-by-asset basis and will be specified in an exhibit to the
applicable series supplement to the Trust Agreement. A Retained Interest in a
Deposited Asset represents a specified interest therein. Payments in respect
of the Retained Interest will be deducted from payments on the Deposited Assets
as received and, in general, will not be deposited in the applicable Security
Account or become a part of the related Trust. Unless otherwise provided in
the applicable Prospectus Supplement, any partial recovery of interest on a
Deposited Asset, after deduction of all applicable administration fees, will be
allocated between the Retained Interest (if any) and interest distributions to
Certificateholders on a PARI PASSU basis.
The applicable Prospectus Supplement will specify the Administrative
Agent's, if any, and the Trustee's compensation, and the source, manner and
priority of payment thereof, with respect to a given Series of Certificates.
If and to the extent specified in the applicable Prospectus Supplement,
in addition to amounts payable to any Administrator, the Administrative Agent,
if any, will pay from its compensation certain expenses incurred in connection
with its administration of the Deposited Assets, including, without limitation,
payment of the fees and disbursements of the Trustee, if applicable, and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement.
ADVANCES IN RESPECT OF DELINQUENCIES
Unless otherwise specified in the applicable Prospectus Supplement, the
Administrative Agent, if any, specified therein will have no obligation to make
any advances with respect to collections on the Deposited Assets or in favor of
the Certificateholders of the related Series of Certificates. However, to the
extent provided in the applicable Prospectus Supplement, any such
Administrative Agent will advance on or before each Distribution Date its own
funds or funds held in the Security Account for such Series that are not part
of the funds available for distribution for such Distribution Date, in an
amount equal to the aggregate of payments of principal, premium (if any) and
interest (net of related administration fees and any Retained Interest) with
respect to the Deposited Assets that were due during the related Collection
Period and were delinquent on the related Determination Date, subject to (i)
any such Administrative Agent's good faith determination that such advances
will be reimbursable from Related Proceeds (as defined below) and (ii) such
other conditions as may be specified in the Prospectus Supplement.
Advances, if any, are intended to maintain a regular flow of scheduled
interest, premium (if any) and principal payments to holders of the Class or
Classes of Certificates entitled thereto, rather than to guarantee or insure
against losses. Unless otherwise provided in the related Prospectus
Supplement, advances of an Administrative Agent's funds, if any, will be
reimbursable only out of related recoveries on the Deposited Assets (and
amounts received under any form of Credit Support) for such Series with respect
to which such advances were made (as to any Deposited Assets, "Related
Proceeds"); PROVIDED, HOWEVER, that any such Advance will be reimbursable from
any amounts in the Security Account for such Series to the extent that such
Administrative Agent shall determine, in its sole judgment, that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related
Proceeds. If advances have been made by such Administrative Agent from excess
funds in the Security Account for any Series, such Administrative Agent will
replace such funds in such Security Account on any future Distribution Date to
the extent that funds in such Security Account on such Distribution are less
than payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations, if any, of an
Administrative Agent to make advances may be secured by a cash advance reserve
fund on a surety bond. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
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CERTAIN MATTERS REGARDING THE ADMINISTRATIVE AGENT AND THE COMPANY
An Administrative Agent, if any, for each Series of Certificates under
the Trust Agreement will be named in the related Prospectus Supplement. The
entity serving as Administrative Agent for any such Series may be the Trustee,
the Company, an affiliate of either thereof, the Deposited Asset Provider or
any third party and may have other normal business relationships with the
Trustee, the Company, their affiliates or the Deposited Asset Provider.
The Trust Agreement will provide that an Administrative Agent may resign
from its obligations and duties under the Trust Agreement with respect to any
Series of Certificates only if such resignation, and the appointment of a
successor, will not result in a withdrawal or downgrading of the rating of any
Class of Certificates of such Series or upon a determination that its duties
under the Trust Agreement with respect to such Series are no longer permissible
under applicable law. No such resignation will become effective until a
successor has assumed the Administrative Agent's obligations under the Trust
Agreement with respect to such Series.
The Trust Agreement will further provide that neither such an
Administrative Agent, the Company nor any director, officer, employee, or agent
of the Administrative Agent or the Company will incur any liability to the
related Trust or Certificateholders for any action taken, or for refraining
from taking any action, in good faith pursuant to the Trust Agreement or for
errors in judgment; PROVIDED, HOWEVER, that none of the Administrative Agent,
the Company nor any such person will be protected against any liability that
would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. The Trust Agreement will
further provide that, unless otherwise provided in the applicable series
supplement thereto, such an Administrative Agent, the Company and any director,
officer, employee or agent of the Administrative Agent or the Company will be
entitled to the indemnification by the related Trust and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Trust Agreement or the Certificates, other than any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, the Trust
Agreement will provide that neither such an Administrative Agent nor the
Company will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to their respective responsibilities under
the Trust Agreement or which in its opinion may involve it in any expense or
liability. Each of such Administrative Agent or the Company nay, however, in
its discretion undertake any such action which it may deem necessary or
desirable with respect to the Trust Agreement and the rights and duties of the
parties thereto and the interests of the Certificateholders thereunder. The
applicable Prospectus Supplement will describe how such legal expenses and
costs of such action and any liability resulting therefrom will be allocated.
Any person into which an Administrative Agent may be merged or
consolidated, or any person resulting from any merger or consolidation to which
an Administrative Agent is a part, or any person succeeding to the business of
an Administrative Agent, will be the successor of the Administrative Agent
under the Trust Agreement with respect to the Certificates of any given Series.
ADMINISTRATIVE AGENT TERMINATION EVENTS; RIGHTS UPON ADMINISTRATIVE AGENT
TERMINATION EVENT
Unless otherwise provided in the related Prospectus Supplement,
"Administrative Agent Termination Events" under the Trust Agreement with
respect to any given Series of Certificates will consist of the following: (i)
any failure by an Administrative Agent to remit to the Trustee any funds in
respect of collections on the Deposited Assets and Credit Support, if any, as
required under the Trust Agreement, that continues unremedied for five days
after the giving of written notice of such failure to the Administrative Agent
by the Trustee or the Company, or to the Administrative Agent, the Company and
the Trustee by the holders of such Certificates evidencing not less than 25% of
the Voting Rights (as defined below); (ii) any failure by an Administrative
Agent duly to observe or perform in any material respect any of its other
covenants or obligations under the Trust Agreement with respect to such Series
which continues unremedied for thirty days after the giving of written notice
of such failure to the Administrative Agent by the Trustee or the Company, or
the Administrative Agent, the Company and the Trustee by the holders of such
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Certificates evidencing not less than 25% of the Voting Rights; and (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by or on behalf of an
Administrative Agent indicating its insolvency or inability to pay its
obligations (Section 7.01). Any additional Administrative Agent Termination
Events with respect to any given Series of Certificates will be set forth in
the applicable Prospectus Supplement. In addition, the applicable Prospectus
Supplement and the related series supplement to the Trust Agreement will
specify as to each matter requiring the vote of holders of Certificates of a
Class or group of Classes within a given Series, the circumstances and manner
in which the Required Percentage (as defined below) applicable to each such
matter is calculated. "Required Percentage" means, with respect to any matter
requiring a vote of holders of Certificates of a given Series, the specified
percentage (computed on the basis of outstanding Security Principal Balance or
Notional Amount, as applicable) of Certificates of a designated Class or group
of Classes within such Series (either voting as separate classes or as a single
class) applicable to such matter, all as specified in the applicable Prospectus
Supplement and the related series supplement to the Trust Agreement. "Voting
Rights" evidenced by any Certificate will be the portion of the voting rights
of all the Certificates in the related Series allocated in the manner described
in the Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, so
long as an Administrative Agent Termination Event under the Trust Agreement
with respect to a given Series of Certificates remains unremedied, the Company
or the Trustee may, and at the direction of holders of such Certificates
evidencing not less than the "Required Percentage - Administrative Agent
Termination" of the Voting Rights, the Trustee will, terminate all the rights
and obligations of such Administrative Agent under the Trust Agreement relating
to the applicable Trust and in and to the related Deposited Assets (other than
any Retained Interest of such Administrative Agent), whereupon the Trustee, or
the Administrator on its behalf, will succeed to all the responsibilities,
duties and liabilities of such Administrative Agent under the Trust Agreement
with respect to such Series (except that if the Trustee is prohibited by law
from obligating itself to make advances regarding delinquent Deposited Assets,
then the Trustee will not be so obligated) and will be entitled to similar
compensation arrangements. In the event that the Trustee is unwilling or
unable so to act, it may or, at the written request of the holders of such
Certificates evidencing not less than the "Required Percentage - Administrative
Agent Termination" of the Voting Rights, it will appoint, or petition a court
of competent jurisdiction for the appointment of, an administration agent with
a net worth at the time of such appointment of at least $15,000,000 to act as
successor to such Administrative Agent under the Trust Agreement with respect
to such Series. Pending such appointment, the Trustee is obligated to act in
such capacity (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent Deposited Assets, then the Trustee
will not be so obligated). The Trustee and any such successor may agree upon
the compensation to be paid to such successor, which in no event may be greater
than the compensation payable to such Administrative Agent under the Trust
Agreement with respect to such Series.
No Certificateholder will have the right under the Trust Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of breach and unless the holders of
Certificates evidencing not less that the "Required Percentage - Remedies" of
the Voting Rights have made written request upon the Trustee to institute such
proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for fifteen days has neglected or
refused to institute any such proceeding. The Trustee, however, is under no
obligation to exercise any of the trusts or powers vested in it by the Trust
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the holders of Certificates
covered by the Trust Agreement, unless such Certificateholders have offered to
the Trustee reasonable security or indemnity against the costs, expenses, and
liabilities which may be incurred therein or thereby.
MODIFICATION AND WAIVER
Unless otherwise specified in the applicable Prospectus Supplement, the
Trust Agreement for each Series of Certificates may be amended by the Company
and the Trustee with respect to such Series, without notice to or consent of
the Certificateholders, for certain purposes including (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein or in the Prospectus Supplement,
(iii) to add or supplement any Credit Support for the benefit of any
Certificateholders (provided that if any such addition affects any series or
class of Certificateholders differently than any other series or class of
Certificateholders, then such addition will not, as evidenced by an opinion of
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counsel, have a material adverse effect on the interests of any affected series
or class of Certificateholders), (iv) to add to the covenants, restrictions or
obligations of the Company, the Administrative Agent, if any, or the Trustee
for the benefit of the Certificateholders, (iv) to add, change or eliminate any
other provisions with respect to matters or questions arising under such Trust
Agreement so long as (x) any such addition, change or elimination will not, as
evidenced by an opinion of counsel, affect the tax status of the Trust or
result in a sale or exchange of any Certificate for tax purposes and (y) the
Trust has received written confirmation from each Rating Agency rating such
Certificates that such amendment will not cause such Rating Agency to reduce or
withdraw the then current rating thereof, or (vi) to comply with any
requirements imposed by the Code. Without limiting the generality of the
foregoing, unless otherwise specified in the applicable Prospectus Supplement,
the Trust Agreement may also be modified or amended from time to time by the
Company, and the Trustee, with the consent of the holders of Certificates
evidencing not less than the "Required Percentage - Amendment" of the Voting
Rights of those Certificates that are materially adversely affected by such
modification or amendment for the purpose of adding any provision to or
changing in any manner or eliminating any provision of the Trust Agreement or
of modifying in any manner the rights of such Certificateholders; PROVIDED,
HOWEVER, that in the event such modification or amendment would materially
adversely affect the rating of any Series or Class by the Rating Agency, the
"Required Percentage - Amendment" specified in the applicable Prospectus
Supplement and the related series supplement to the Trust Agreement shall
include an additional specified percentage of the Certificates of such Series
or Class.
Except as otherwise set forth in the applicable Prospectus Supplement, no
such modification or amendment may, however, (i) reduce in any manner the
amount of or alter the timing of, distributions or payments which are required
to be made on any Certificate without the consent of the holder of such
Certificate or (ii) reduce the aforesaid Required Percentage of Voting Rights
required for the consent to any such amendment without the consent of the
holders of all Certificates covered by the Trust Agreement then outstanding.
Unless otherwise specified in the applicable Prospectus Supplement,
holders of Certificates evidencing not less than the "Required Percentage -
Waiver" of the Voting Rights of a given Series may, on behalf of all
Certificateholders of that Series, (i) waive, insofar as that Series is
concerned, compliance by the Company, the Trustee or the Administrative Agent,
if any, with certain restrictive provisions, if any, of the Trust Agreement
before the time for such compliance and (ii) waive any past default under the
Trust Agreement with respect to Certificates of that Series, except a default
in the failure to distribute amounts received as principal of (and premium, if
any) or any interest on any such Certificate and except a default in respect of
a covenant or provision the modification or amendment of which would require
the consent of the holder of each outstanding Certificate affected thereby.
REPORTS TO CERTIFICATEHOLDERS; NOTICES
REPORTS TO CERTIFICATEHOLDERS. Unless otherwise provided in the
applicable Prospectus Supplement, with each distribution to Certificateholders
of any Class of Certificates of a given Series, the Administrative Agent or the
Trustee, as provided in the related Prospectus Supplement, will forward or
cause to be forwarded to each such Certificateholder, to the Company and to
such other parties as may be specified in the Trust Agreement, a statement
setting forth:
(i) the amount of such distribution to Certificateholders of such
Class allocable to principal of or interest or premium, if any, on the
Certificates of such Class; and the amount of aggregate unpaid interest
as of such Distribution Date;
(ii) in the case of Certificates with a variable Pass-Through
Rate, the Pass-Through Rate applicable to such Distribution Date, as
calculated in accordance with the method specified herein and in the
related Prospectus Supplement;
(iii) the amount of compensation received by the Administrative
Agent, if any, and the Trustee for the period relating to such
Distribution Date, and such other customary information as the
Administrative Agent, if any, or otherwise the Trustee deems necessary or
desirable to enable Certificateholders to prepare their tax returns;
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(iv) if the Prospectus Supplement provides for advances, the
aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(v) the aggregate stated principal amount or, if applicable,
notional principal amount of the Deposited Assets and the current
interest rate thereon at the close of business on such Distribution Date;
(vi) the aggregate Security Principal Balance or aggregate
Notional Amount, if applicable, of each Class of Certificates (including
any Class of Certificates not offered hereby) at the close of business on
such Distribution Date, separately identifying any reduction in such
aggregate Security Principal Balance or aggregate Notional Amount due to
the allocation of any Realized Losses or otherwise;
(vii) as to any Series (or Class within such Series) for which
Credit Support has been obtained, the amount of coverage of each element
of Credit Support included therein as of the close of business on such
Distribution Date.
In the case of information furnished pursuant to subclauses (i) and (iii)
above, the amounts shall be expressed as a U.S. dollar amount (or equivalent
thereof in any other Specified Currency) per minimum denomination of
Certificates or for such other specified portion thereof. Within a reasonable
period of time after the end of each calendar year, the Administrative Agent or
the Trustee, as provided in the related Prospectus Supplement, shall furnish to
each person who at any time during the calendar year was a Certificateholder a
statement containing the information set forth in subclauses (i) and (iii)
above, aggregated for such calendar year or the applicable portion thereof
during which such person was a Certificateholder. Such obligation of the
Administrative Agent or the Trustee, as applicable, shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Administrative Agent or the Trustee, as applicable, pursuant to
any requirements of the Code as are from time to time in effect.
NOTICES. Unless otherwise provided in the applicable Prospectus
Supplement, any notice required to be given to a holder of a Registered
Security will be mailed to the last address of such holder set forth in the
applicable Security Register. Any notice required to be given to a holder of a
Bearer Security will be published in a daily morning newspaper of general
circulation in the city or cities specified in the Prospectus Supplement
relating to such Bearer Security.
EVIDENCE AS TO COMPLIANCE
The Trust Agreement will provide that on or before a specified date in
each year, a firm of independent public accountants will furnish a statement to
the Trustee to the effect that such firm has examined certain documents and
records relating to the administration of the Deposited Assets during the
related 12-month period (or, in the case of the first such report, the period
ending on or before the date specified in the Prospectus Supplement, which date
shall not be more than one year after the related Original Issue Date) and
that, on the basis of accounting and auditing procedures considered appropriate
under the circumstances, such firm is of the opinion that such administration
was conducted in compliance with the terms of the Trust 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.
The Trust Agreement will also provide for delivery to the Company, the
Administrative Agent, if any, and the Trustee on behalf of the
Certificateholders, on or before a specified date in each year, of an annual
statement signed by two officers of the Trustee to the effect that the Trustee
has fulfilled its obligations under the Trust Agreement throughout the
preceding year with respect to any Series of Certificates.
Copies of the annual accountants' statement and the statement of officers
of the Trustee may be obtained by Certificateholders without charge upon
written request to either the Administrative Agent or the Trustee, as
applicable, at the address set forth in the related Prospectus Supplement.
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REPLACEMENT CERTIFICATES
Unless otherwise provided in the applicable Prospectus Supplement, if a
Certificate is mutilated, destroyed, lost or stolen, it may be replaced at the
corporate trust office or agency of the applicable Trustee in Wilmington,
Delaware or in the City and State of New York (in the case of Registered
Securities) or at the principal London office of the applicable Trustee (in the
case of Bearer Securities), or such other location as may be specified in the
applicable Prospectus Supplement, upon payment by the holder of such expenses
as may be incurred by the applicable Trustee in connection therewith and the
furnishing of such evidence and indemnity as such Trustee may require.
Mutilated Certificates must be surrendered before new Certificates will be
issued.
TERMINATION
The obligations created by the Trust Agreement for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the related Security Account or by an
Administrative Agent, if any, and required to be paid to them pursuant to the
Trust Agreement following the earlier of (i) the final payment or other
liquidation of the last Deposited Asset subject thereto or the disposition of
all property acquired upon foreclosure or liquidation of any Deposited Asset
and (ii) the purchase of all the assets of the Trust by the party entitled to
effect such termination, under the circumstances and in the manner set forth in
the related Prospectus Supplement. In no event, however, will any trust
created by the Trust Agreement continue beyond the respective date specified in
the related Prospectus Supplement. Written notice of termination of the
obligations with respect to the related Series of Certificates under the Trust
Agreement will be provided as set forth above under " - Reports to
Certificateholders; Notices - Notices", and the final distribution will be made
only upon surrender and cancellation of the Certificates at an office or agency
appointed by the Trustee which will be specified in the notice of termination.
Any such purchase of Deposited Assets and property acquired in respect of
Deposited Assets evidenced by a Series of Certificates shall be made at a price
approximately equal to the aggregate fair market value of all the assets in the
Trust (as determined by the Trustee, the Administrative Agent, if any, and, if
different than both such persons, the person entitled to effect such
termination), in each case taking into account accrued interest at the
applicable interest rate to the first day of the month following such purchase
or, to the extent specified in the applicable Prospectus Supplement, a
specified price as determined therein (such price, a "Purchase Price"). The
exercise of such right will effect early retirement of the Certificates of that
Series, but the right of the person entitled to effect such termination is
subject to the outstanding Deposited Assets for such Series at the time of
purchase being less than the percentage of the aggregate principal balance of
the outstanding Deposited Assets for such Series at the time of purchase being
less than the percentage of the aggregate principal balance of the Deposited
Assets at the Cut-off Date for that Series specified in the related Prospectus
Supplement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Trust Agreement, the Certificates of any Series or any Deposited Asset or
related document and is not accountable for the use or application by or on
behalf of any Administrative Agent of any funds paid to such administrative
Agent or its designee in respect of such Certificates or the Deposited Assets,
or deposited into or withdrawn from the related Security Account or any other
account by or on behalf of such Administrative Agent (Section 8.03). The
Trustee is required to perform only those duties specifically required under
the Trust Agreement with respect to such Series. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee is required to examine such documents and to determine whether
they conform to the applicable requirements of the Trust Agreement.
THE TRUSTEE
The Trustee for any given Series of Certificates will be a bank or trust
company and named in the Prospectus Supplement related to a Series. The
Trustee will be qualified under the TIA, if required. The Company and any
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Administrative Agent may maintain other banking relationships in the ordinary
course of business with the Trustee. The Trustee's "Corporate Trust Office"
will be specified in the Prospectus Supplement, or at such other addresses as
the Trustee may designate from time to time by notice to the Certificateholders
and the Company.
LIMITATIONS ON ISSUANCE OF BEARER SECURITIES
In compliance with United States Federal income tax laws and regulations,
the Company and any underwriter, agent or dealer participating in the offering
of any Bearer Security will agree that, in connection with the original
issuance of such Bearer Security and during the period ending 40 days after the
issue date of such Bearer Security, they will not offer, sell or deliver such
Bearer Security, directly or indirectly, to a U.S. Person or to any person
within the United States, except to the extent permitted under U.S. Treasury
regulations.
Bearer Securities will bear a legend to the following effect: "Any
United States Person who holds this obligation will be subject to limitations
under the United States income tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue Code". The sections
referred to in the legend provide that, with certain exceptions, a United
States taxpayer who holds Bearer Securities will not be allowed to deduct any
loss with respect to, and will not be eligible for capital gain treatment with
respect to any gain realized on a sale, exchange, redemption or other
disposition of, such Bearer Securities.
As used herein, "United States" means the United States of America and
its possessions, and "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States, or an estate or trust the income of which
is subject to United States Federal income taxation regardless of its source.
Pending the availability of a definitive Global Security or individual
Bearer Securities, as the case may be, Securities that are issuable as Bearer
Securities may initially be represented by a single temporary Global Security,
without interest coupons, to be deposited with a common depositary in London
for Morgan Guaranty Trust Company of New York, Brussels Office, as operator of
the Euroclear System ("Euroclear"), and Centrale de Livraison de Valeurs
Mobilieres S.A. ("CEDEL") for credit to the accounts designated by or on behalf
of the purchases thereof. Following the availability of a definitive Global
Security in bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in the applicable
Prospectus Supplement, the temporary Global Security will be exchangeable for
interests in such definitive Global Security or for such individual Bearer
Securities, respectively, only upon receipt of a "Certificate of Non-U.S.
Beneficial Ownership." A "Certificate of Non-U.S. Beneficial Ownership" is a
certificate to the effect that a beneficial interest in a temporary Global
Security is owned by a person that is not a U.S. Person or is owned by or
through a financial institution in compliance with applicable U.S. Treasury
regulations. No Bearer Security will be delivered in or to the United States.
If so specified in the applicable Prospectus Supplement, interest on a
temporary Global Security will be distributed to each of Euroclear and CEDEL
with respect to that portion of such temporary Global Security held for its
account, but only upon receipt as of the relevant Distribution Date of a
Certificate of Non-U.S. Beneficial Ownership.
CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a Security having a Specified Currency other than U.S.
dollars entails significant risks that are not associated with a similar
investment in a security denominated in U.S. dollars. Such risks include,
without limitation, the possibility of significant changes in rates of exchange
between the U.S. dollar and such Specified Currency and the possibility of the
imposition or modification of foreign exchange controls with respect to such
Specified Currency. Such risks generally depend on factors over which the
Company has no control, such as economic and political events and the supply of
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and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and certain currencies have been highly volatile, and
such volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any
Security. Depreciation of the Specified Currency for a Security against the
U.S. dollar would result in a decrease in the effective yield of such Security
below its Note Interest Rate or Pass-Through Rate and, in certain
circumstances, could result in a loss to the investor on a U.S. dollar basis.
Governments have from time to time imposed, and may in the future impose,
exchange controls that could affect exchange rates as well as the availability
of a Specified Currency for making distributions in respect of Securities
denominated in such currency. At present, the Company has identified the
following currencies in which distributions of principal, premium and interest
on Securities may be made: Australian dollars, Canadian dollars, Danish
kroner, Italian lire, Japanese yen, New Zealand dollars, U.S. dollars and ECU.
However, Securities distributable with Specified Currencies other than those
listed may be issued at any time. There can be no assurance that exchange
controls will not restrict or prohibit distributions of principal, premium or
interest in any Specified Currency. Even if there are no actual exchange
controls, it is possible that, on a Distribution Date with respect to any
particular Security, the currency in which amounts then due to be distributed
in respect of such Security are distributable would not be available. In that
event, such payments will be made in the manner set forth above under
"Description of Securities - General" or as otherwise specified in the
applicable Prospectus Supplement.
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN SECURITIES DENOMINATED IN
A CURRENCY OTHER THAN U.S. DOLLARS. SUCH SECURITIES ARE NOT AN APPROPRIATE
INVESTMENT FOR PERSONS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
The information set forth in this Prospectus is directed to prospective
purchasers of Securities who are United States residents. The applicable
Prospectus Supplement for certain issuances of Securities may set forth certain
information applicable to prospective purchasers who are residents of countries
other than the United States with respect to matters that may affect the
purchase or holding of, or receipt of distributions of principal, premium or
interest in respect of, such Securities.
Any Prospectus Supplement relating to Securities having a Specified
Currency other than U.S. dollars will contain information concerning historical
exchange rates for such currency against the U.S. dollar, a description of such
currency, any exchange controls affecting such currency and any other required
information concerning such currency.
PAYMENT CURRENCY
Except as set forth below or unless otherwise provided in the applicable
Prospectus Supplement, if distributions in respect of a Security are required
to be made in a Specified Currency other than U.S. dollars and such currency is
unavailable due to the imposition of exchange controls or other circumstances
beyond the Company's control or is no longer used by the government of the
country issuing such currency or for the settlement of transactions by public
institutions of or within the international banking community, then all
distributions in respect of such Security shall be made in U.S. dollars until
such currency is again available or so used. The amounts so payable on any
date in such currency shall be converted into U.S. dollars on the basis of the
most recently available Market Exchange Rate for such currency or as otherwise
indicated in the applicable Prospectus Supplement.
If distribution in respect of a Security is required to be made in ECU
and ECU is no longer used in the European Monetary System, then all
distributions in respect of such Security shall be made in U.S. dollars until
ECU is again so used. The amount of each distribution in U.S. dollars shall be
computed on the basis of the equivalent of the ECU in U.S. dollars, determined
as described below, as of the second Business Day prior to the date on which
such determination is to be made.
The equivalent of the ECU in U.S. dollars as of any date (the "Day of
Valuation") shall be determined for the Securities of any Series and Class by
the applicable Trustee on the following basis. The component currencies of the
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ECU for this purpose (the "Components") shall be the currency amounts that were
components of the ECU as of the last date on which the ECU was used in the
European Monetary System. The equivalent of the ECU in U.S. dollars shall be
calculated by aggregating the U.S. dollar equivalents of the Components. The
U.S. dollar equivalent of each of the Components shall be determined by such
Trustee on the basis of the most recently available Market Exchange Rates for
such Components or as otherwise indicated in the applicable Prospectus
Supplement.
If the official unit of any component currency is altered by way of
combination or subdivision, the number of units of that currency as a Component
shall be divided or multiplied in the same proportion. If two or more
component currencies are consolidated into a single currency, the amounts of
those currencies as Components shall be replaced by an amount in such single
currency equal to the sum of the amounts of the consolidated component
currencies expressed in such single currency. If any component currency id
divided into two or more currencies, the amount of that currency as a Component
shall be replaced by amounts of such two or more currencies, each of which
shall be equal to the amount of the former component currency divided by the
number of currencies into which that currency was divided.
All determinations referred to above made by the applicable Trustee shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the related Securityholders of such
Series.
FOREIGN CURRENCY JUDGMENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
Securities will be governed by and construed in accordance with the law of the
State of New York. Courts in the United States customarily have not rendered
judgments for money damages denominated in any currency other than the U.S.
dollar. A 1987 amendment to the Judiciary Law of the State of New York
provides, however, that an action based upon an obligation denominated in a
currency other than U.S. dollars will be rendered in the foreign currency or
the underlying obligation and converted into U.S. dollars at the rate of
exchange prevailing on the date of the entry of the judgment or decree.
PLAN OF DISTRIBUTION
Securities may be offered in any of three ways: (i) through underwriters
or dealers; (ii) directly to one or more purchasers; or (iii) through agents.
The applicable Prospectus Supplement will set forth the terms of the offering
of any Series of Securities, which may include the names of any underwriters,
or initial purchasers, the purchase price of such Securities and the proceeds
to the Company from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers, any
securities exchanges on which such Securities may be listed, any restrictions
on the sale and delivery of Securities in bearer form and the place and time of
delivery of the Securities to be offered thereby.
If underwriters are used in the sale, Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. Such
Securities may be offered to the public either through underwriting syndicates
represented by managing underwriters or by underwriters without a syndicate.
Such managing underwriters or underwriters in the United States will include
Salomon Brothers Inc., an affiliate of the Company. Unless otherwise set forth
in the applicable Prospectus Supplement, the obligations of the underwriters to
purchase such Securities will be subject to certain conditions precedent, and
the underwriters will be obligated to purchase all such Securities if any of
such Securities are purchased. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
Securities may also be sold through agents designated by the Company from
time to time. Any agent involved in the offer or sale of Securities will be
named, and any commissions payable by the Company to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
the applicable Prospectus Supplement, any such agent will act on a best efforts
basis for the period of its appointment.
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If so indicated in the applicable Prospectus Supplement, the Company will
authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Securities at the public offering price
described in such Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a future date specified in such
Prospectus Supplement. Such contracts will be subject only to those conditions
set forth in the applicable Prospectus Supplement and such Prospectus
Supplement will set forth the commissions payable for solicitation of such
contracts.
Any underwriters, dealers or agents participating in the distribution of
Securities may be deemed to be underwriters and any discounts or commissions
received by them on the sale or resale of Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Agents and
underwriters may be entitled under agreements entered into with the Company to
indemnification by the Company against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the agents or underwriters may be required to make in respect
thereof. Agents and underwriters may be customers of, engage in transactions
with, or perform services for, the Company or its affiliates in the ordinary
course of business.
Salomon Brothers Inc. is an affiliate of the Company and is an indirect
wholly owned subsidiary of Salomon, Inc., the indirect parent corporation of
the Company. Salomon Brothers Inc.'s participation in the offer and sale of
Securities complies with the requirements of Schedule E of the ByLaws of the
National Association of Securities Dealers, Inc. regarding underwriting
securities of an affiliate.
As to each Series of Securities, only those Classes rated in one of the
investment grade rating categories by a Rating Agency will be offered hereby.
Any unrated Classes or Classes rated below investment grade may be retained by
the Company or sold at any time to one or more purchasers.
Affiliates of the Underwriters may act as agents or underwriters in
connection with the sale of the Securities. Any affiliate of the Underwriters
so acting will be named, and its affiliation with the Underwriters described,
in the related Prospectus Supplement. Also, affiliates of the Underwriters may
act as principals or agents in connection with market-making transactions
relating to the Securities. A Prospectus Supplement will be prepared with
respect to the Securities for use by such affiliates in connection with offers
and sales related to market-making transactions in the Securities.
LEGAL OPINIONS
Certain legal matters with respect to the Securities will be passed upon
for the Company by Cravath, Swaine & Moore, New York, New York or other counsel
identified in the applicable Prospectus Supplement. Certain legal matters with
respect to the Securities will be passed upon for the underwriters by Skadden,
Arps, Slate, Meagher & Flom, New York, New York or other counsel identified in
the applicable Prospectus Supplement.
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INDEX OF TERMS
Accounts .............................................................i, 23
Additional Accounts .........................................................6
Administration Fee ..........................................................8
Administrative Agent ........................................................i
Agreement .................................................................3
Base Rate .................................................................6
Bearer Securities ...........................................................i
Business Day ...............................................................13
Calculation Agent ..........................................................15
Calculation Date ...................................................16, 17, 19
CD Rate ................................................................16
CD Rate Determination Date .................................................16
CD Rate Security ...........................................................14
CEDEL ................................................................47
Certificate Trustee .........................................................7
Certificates ................................................................i
Class .................................................................i
Collection Account .........................................................29
Commercial Paper Rate ......................................................16
Commercial Paper Rate Determination Date ...................................16
Commission .................................................................1
Company .................................................................i
Components ................................................................48
Composite Quotations .......................................................15
Concentrated Term Asset ....................................................25
Coupons ................................................................11
Credit Card Receivables ....................................................24
Credit Card Securities ..................................................i, 23
Credit Support ..............................................................i
Credit Support Instruments .................................................39
Cut-off Date ...........................................................23, 38
Day of Valuation ...........................................................48
Depositary ................................................................21
Deposited Asset Provider ...................................................38
Deposited Assets ........................................................i, 27
Derivative Assets ..........................................................27
Determination Date .........................................................12
Distribution Date .......................................................1, 29
Early Amortization Event ....................................................3
Early Amortization Period ...................................................3
Euroclear ................................................................47
Exchange Act ................................................................1
Exchange Rate Agent ........................................................12
Exchangeable Series ........................................................19
Federal Funds (Effective) ..................................................17
Federal Funds Rate .........................................................17
Federal Funds Rate Determination Date ......................................17
Federal Funds Rate Security ................................................14
Federal Funds/Effective Rate ...............................................17
Finance Charge Receivables .................................................24
FIRREA .................................................................4
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Fixed Rate Securities ......................................................14
Floating Rate Securities ...................................................14
Global Security .............................................................i
H.15(519) ................................................................14
Indenture .................................................................i
Indenture Trustee ...........................................................7
Index Maturity .............................................................14
Interchange ................................................................24
Interest Reset Date ........................................................15
Issuer ................................................................32
Letter of Credit ...........................................................28
Letter of Credit Bank ......................................................28
LIBOR ................................................................18
LIBOR Determination Date ...................................................18
LIBOR Security .............................................................14
London Banking Day .........................................................13
Market Exchange Rate .......................................................12
Maximum Rate ...............................................................15
Minimum Rate ...............................................................15
Money Market Yield .........................................................17
Net Portfolio Yield .........................................................6
Nonrecoverable Advance .....................................................41
Note Interest Rate ..................................................11, 13-17
Note Interest Rates ........................................................15
Notes .................................................................i
Notional Amount ............................................................14
Offering Agent ..............................................................2
Optional Exchange Date .....................................................20
Original Issue Date ........................................................11
Originator .................................................................4
Pass-Through Rate .....................................1, 9, 11, 13-19, 44, 47
Pass-Through Rates ........................................................10
Principal Receivables ......................................................24
Prospectus Supplement .......................................................i
Purchase Price .............................................................46
Rating Agency ...............................................................7
Realized Losses ............................................................19
Receivables .............................................................i, 23
Registered Securities .......................................................i
Registration Statement ......................................................1
Related Proceeds ...........................................................41
Removed Accounts ...........................................................24
Required Percentage ........................................................42
Reserve Account ............................................................28
Retained Interest ...........................................................9
Reuters Screen LIBO Page ...................................................18
Securities .................................................................i
Securities Act ..............................................................1
Security ................................................................10
Security Principal Balance .................................................19
Securityholders .............................................................i
Seller .................................................................3
Series ............................i, 1, 2, 5, 7-14, 16, 19, 21-25, 27-32
Servicer ..........................................................i, 4, 29
Servicer's Fee .............................................................29
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Servicing Agreement ........................................................29
Specified Currency ..........................................................1
Specified Interest Currency .................................................1
Specified Premium Currency ..................................................1
Specified Principal Currency ................................................1
Spread ................................................................14
Spread Multiplier ..........................................................14
SPV .................................................................i
Strip Securities ...........................................................11
Stripped Interest ..........................................................14
Surety ................................................................28
Surety Bond ................................................................28
Term Asset Agreement .......................................................25
Term Asset Early Amortization Event ...............................3, 5, 9, 25
Term Asset Early Amortization Period ....................................3, 26
Term Asset Enhancement .....................................................26
Term Asset Issuer ...........................................................4
Term Asset Prospectus ......................................................25
Term Asset Seller ..........................................................25
Term Asset Servicer ........................................................25
Term Asset Trustee .........................................................25
Term Assets .................................................................i
TIA ................................................................33
Treasury bills .............................................................18
Treasury Rate ..............................................................18
Treasury Rate Determination Date ...........................................19
Trust .................................................................i
Trust Agreement .................................i, 2, 7, 8, 10, 12, 31, 38-46
Trustee ..............................................................i, 8
Trustee's Fee ...............................................................8
U.S. Person ................................................................46
United States ..............................................................46
Variable Rate ..............................................................11
Voting Rights ..........................................................33, 42
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