<PAGE> 1
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 33-99276
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 25, 1996)
LOGO
Master Trust
$600,000,000
Floating Rate Class A Asset Backed Certificates, Series 1996-2
CAPITAL ONE BANK,
SELLER AND SERVICER
The Floating Rate Class A Asset Backed Certificates, Series 1996-2 (the "Class A
Certificates") offered hereby represent undivided interests in certain assets of
the Capital One Master Trust (the "Trust") created pursuant to a Pooling and
Servicing Agreement between Capital One Bank, a Virginia banking corporation
(the "Bank"), as seller and servicer, and The Bank of New York, as trustee. The
property of the Trust includes receivables (the "Receivables") generated from
time to time in a portfolio of consumer revolving credit card accounts and other
consumer revolving accounts (the "Accounts"), collections thereon and certain
other property as more fully described herein. Concurrently with the issuance of
the Class A Certificates, the Trust will issue $82,500,000 aggregate initial
principal amount of Floating Rate Class B Asset Backed Certificates, Series
1996-2 not offered hereby (the "Class B Certificates," and, together with the
Class A Certificates, the "Investor Certificates"). The Bank owns the remaining
undivided interest in the Trust not represented by the Investor Certificates,
the other investor certificates issued by the Trust and any uncertificated
interests in the Trust issued as Series Enhancement and will service the
Receivables. The Trust previously has issued fourteen other series of investor
certificates which evidence undivided interests in the Trust. The Bank may offer
from time to time other series of certificates that evidence undivided interests
in certain assets of the Trust, which may have terms significantly different
from the Investor Certificates. The issuance of additional series of
certificates may impact the timing or amount of payments received by the holders
of the Class A Certificates and the Class B Certificates (the "Investor
Certificateholders").
(Continued on next page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CLASS A CERTIFICATES, AND THERE
IS NO ASSURANCE THAT ONE WILL DEVELOP OR, IF ONE DOES DEVELOP, THAT IT WILL
CONTINUE UNTIL THE CLASS A CERTIFICATES ARE PAID IN FULL. POTENTIAL INVESTORS
SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS"
HEREIN ON PAGE S-11 AND IN THE PROSPECTUS ON PAGE 14.
THE CLASS A CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE BANK OR ANY AFFILIATE OF THE BANK.
NEITHER THE CLASS A CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES OR
ANY COLLECTIONS THEREON ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT THE BANK (1)(2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Class A Certificate 100% .275% 99.725%
- ---------------------------------------------------------------------------------------------------------
Total $600,000,000 $1,650,000 $598,350,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the Class A Certificate Rate from December
5, 1996.
(2) Before deduction of expenses payable by the Bank, estimated to be $700,000.
The Class A Certificates are offered by the Underwriters, as specified herein,
subject to receipt and acceptance by them and subject to their respective rights
to reject any order in whole or in part. It is expected that the Class A
Certificates will be offered globally and delivered in book-entry form on or
about December 5, 1996, through the facilities of The Depository Trust Company,
Cedel Bank, societe anonyme, and the Euroclear System.
J.P . MORGAN & CO.
CHASE SECURITIES INC.
DEUTSCHE MORGAN GRENFELL
NATIONSBANC CAPITAL MARKETS, INC.
UBS SECURITIES
NOVEMBER 25, 1996
<PAGE> 2
(Continued from previous page)
Following the completion of the offering made hereby, additional Investor
Certificates may be issued from time to time if certain conditions have been
met. See "Series Provisions -- Issuance of Additional Investor Certificates" in
this Prospectus Supplement.
Interest will accrue on the Class A Certificates from December 5, 1996 at the
rate of 0.10% per annum above the London interbank offered quotations rate
("LIBOR") for one-month United States dollar deposits, provided that the rate
for the initial Interest Period shall equal 0.10% per annum above the greater of
(i) LIBOR for one-month United States dollar deposits, and (ii) the rate
determined by reference to a straight-line interpolation (based on the actual
number of days in the initial Interest Period) between LIBOR for one-month
United States dollar deposits and LIBOR for two-month United States dollar
deposits (the "Class A Certificate Rate"). Interest with respect to the Class A
Certificates will be distributed monthly on the 15th day of each month,
commencing on the January 1997 Distribution Date (or, if any such day is not a
business day, the next succeeding business day). For purposes of this Prospectus
Supplement and the Prospectus, a "business day" shall mean, unless otherwise
indicated, any day other than (a) a Saturday or Sunday or (b) any other day on
which national banking associations or state banking institutions in New York,
New York or Richmond, Virginia are authorized or obligated by law, executive
order or governmental decree to be closed.
Principal with respect to the Class A Certificates is scheduled to be paid on
the December 2001 Distribution Date, but may be paid earlier or later under
certain circumstances described herein. See "Maturity Considerations" and
"Series Provisions -- Pay Out Events" herein and "Description of the
Certificates -- Pay Out Events" in the Prospectus. Principal payments will not
be made to Class B Certificateholders until the final principal payment has been
paid in respect of the Class A Certificates. See "Series Provisions -- Principal
Payments" and "-- Extension of Initial Principal Payment Date".
The fractional undivided interest in the Trust represented by the Class B
Certificates will be subordinated to the extent necessary to fund payments with
respect to the Class A Certificates to the extent described herein. In addition,
the Investor Certificates will have the benefit of the Collateral Indebtedness
Amount in the initial amount of $67,500,000 and the Cash Collateral Account
which will have a beginning balance of zero. See "Summary of Series
Provisions -- The Investor Certificates; the Collateral Indebtedness Interest",
"-- Subordination; Additional Amounts Available to Investor Certificateholders"
and "-- The Cash Collateral Account". Only the Class A Certificates are offered
hereby. Additional credit enhancement will be provided in the event that
additional Investor Certificates are issued. See "Series Provisions -- Issuance
of Additional Investor Certificates" in this Prospectus Supplement.
The Termination Date for the Investor Certificates is the February 2005
Distribution Date.
Series 1996-2 is not an Extendable Series or a Prefunded Series.
The Class A Certificates initially will be represented by certificates which
will be registered in the name of Cede & Co., the nominee of The Depository
Trust Company. The interest of beneficial holders of the Class A Certificates
will be represented by book entries on the records of The Depository Trust
Company and participating members thereof. Definitive certificates will be
available to Class A Certificateholders only under the limited circumstances
described under "Description of the Certificates -- Definitive Certificates" in
the Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CLASS A CERTIFICATES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
S-2
<PAGE> 3
SUMMARY OF SERIES TERMS
The following Summary of Series Terms (the "Summary of Terms") and the
Summary of Series Provisions are qualified in their entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Glossary in each of this
Prospectus Supplement and the Prospectus for the location herein and therein of
the definitions of certain capitalized terms used herein. Certain capitalized
terms used but not defined herein have the meanings assigned to them in the
Prospectus.
Trust...................
Capital One Master Trust (the "Trust").
Title of Securities.....
$600,000,000 Floating Rate Class A Asset Backed
Certificates, Series 1996-2 (the "Class A Certificates")
and $82,500,000 Floating Rate Class B Asset Backed
Certificates, Series 1996-2 (the "Class B Certificates"
and, together with the Class A Certificates, the "Investor
Certificates"). Only the Class A Certificates are offered
hereby.
Initial Investor
Amount................
$750,000,000 (the "Initial Investor Amount").
Class A Initial
Investor Amount.......
$600,000,000 (the "Class A Initial Investor Amount").
Class B Initial
Investor Amount.......
$82,500,000 (the "Class B Initial Investor Amount").
Collateral Initial
Investor Amount.......
$67,500,000 (the "Collateral Initial Investor Amount").
Series Designations.....
Series 1996-2 is not an Extendable Series or a Prefunded
Series.
Class A Certificate
Rate..................
A rate per annum equal to LIBOR for one-month United States
dollar deposits, determined as of the LIBOR Determination
Date as described herein plus 0.10%, provided that the rate
for the initial Interest Period shall equal 0.10% per annum
above the greater of (i) LIBOR for one-month United States
dollar deposits, and (ii) the rate determined by reference
to a straight-line interpolation (based on the actual
number of days in the initial Interest Period) between
LIBOR for one-month United States dollar deposits and LIBOR
for two-month United States dollar deposits.
Interest
Payment Dates.........
The 15th day of each month (or, if any such day is not a
business day, the next succeeding business day), commencing
on the January 1997 Distribution Date.
Class A Controlled
Accumulation
Amount................
For each Distribution Date with respect to the Class A
Accumulation Period, $30,000,000; except that, if the
commencement of the Class A Accumulation Period is delayed
as described herein under "Series Provisions -- Principal
Payments", which the Bank believes is likely, the Class A
Controlled Accumulation Amount may be different for each
Distribution Date with respect to the Class A Accumulation
Period and will be determined as described under "Series
Provisions -- Application of Collections -- Payments of
Principal".
Series 1996-2
Termination Date......
The February 2005 Distribution Date. See "Series
Provisions -- Series Termination".
Class A Expected
Final Payment Date....
The December 2001 Distribution Date.
Series Cut-Off Date.....
December 1, 1996.
Series Issuance Date....
December 5, 1996.
S-3
<PAGE> 4
SUMMARY OF SERIES PROVISIONS
The Investor
Certificates; the
Collateral
Indebtedness
Interest..............
Each of the Investor Certificates represents a specified
undivided interest in certain assets of the Trust. The
portion of the Trust Assets allocated to the holders of the
Investor Certificates as described below and under
"Description of the Certificates" in the Prospectus will be
further allocated between the holders of the Class A
Certificates (the "Class A Certificateholders' Interest")
and the holders of the Class B Certificates (the "Class B
Certificateholders' Interest") as described herein. The
Class A Certificateholders' Interest and the Class B
Certificateholders' Interest are sometimes collectively
referred to herein as the "Investor Certificateholders'
Interest". In addition, a specified undivided interest in
the Trust Assets (the "Collateral Indebtedness Interest")
in the initial amount of $67,500,000 (an amount that
represents 9% of the Initial Investor Amount) constitutes
the Credit Enhancement for the Investor Certificates. The
provider of such Credit Enhancement is the "Collateral
Indebtedness Holder." For purposes of this Prospectus
Supplement, the "Collateral Indebtedness Interest" shall be
deemed to be the "Enhancement Invested Amount" for all
purposes under the Prospectus.
The aggregate amount of Principal Receivables allocated to
the Investor Certificateholders' Interest and the
Collateral Indebtedness Interest (as more fully defined
herein, the "Invested Amount") will be $750,000,000 on the
Series Issuance Date (the "Initial Invested Amount").
The aggregate amount of Principal Receivables allocable to
the Class A Certificateholders' Interest (as more fully
defined herein, the "Class A Invested Amount") will be
$600,000,000 on the Series Issuance Date (the "Class A
Initial Invested Amount"). The aggregate amount of
Principal Receivables allocable to the Class B
Certificateholders' Interest (as more fully defined herein,
the "Class B Invested Amount") will be $82,500,000 on the
Series Issuance Date (the "Class B Initial Invested
Amount"). The aggregate amount of Principal Receivables
allocable to the Collateral Indebtedness Interest (as more
fully defined herein, the "Collateral Indebtedness Amount")
will be $67,500,000 on the Series Issuance Date (the
"Collateral Initial Indebtedness Amount"). Because Series
1996-2 is not a Prefunded Series, the Class A Initial
Invested Amount will equal the Class A Initial Investor
Amount, the Class B Initial Invested Amount will equal the
Class B Initial Investor Amount and the Collateral Initial
Indebtedness Amount will equal the Collateral Initial
Investor Amount.
The Class B Invested Amount will decline in certain
circumstances as a result of (a) the allocation to the
Class B Certificateholders' Interest of Defaulted Amounts
otherwise allocable to the Class A Certificateholders'
Interest and (b) the reallocation of collections of
Principal Receivables otherwise allocable to the Class B
Certificateholders' Interest to fund certain payments in
respect of the Class A Certificates. Any such reductions in
the Class B Invested Amount may be reimbursed out of Excess
Spread, if any, Excess Finance Charges allocable to Series
1996-2, the reallocation of certain amounts allocable to
the Collateral Indebtedness Interest and certain amounts,
if any, on deposit in the Cash Collateral Account as
described herein. During the Accumulation Period, for the
sole purpose of allocating collections of Finance Charge
Receivables and the Defaulted Amount with respect to each
Monthly Period, the Class A Certificateholders' Interest
and (after the Class B Principal Commencement Date) the
Class B Certificateholders' Interest will be further
reduced by the amount on deposit in the Principal Funding
Account (as so reduced, the "Class A Adjusted Invested
Amount" and the "Class B Adjusted Invested Amount,"
respectively, and together with the Collateral Indebtedness
Amount, the "Adjusted Invested Amount"). The principal
amount of the Seller's Interest will fluctuate as the
amount of Principal Receivables in the Trust, the invested
amount of each Series and the amounts on deposit in the
Excess Funding Account and any prefunding account change
from time to time.
S-4
<PAGE> 5
The Investor Certificateholders' Interest and the
Collateral Indebtedness Interest will include the right to
receive (but only to the extent needed to make required
payments under the Pooling Agreement and the Series 1996-2
Supplement and subject to any reallocation of such amounts
as described herein) varying percentages of the collections
of Finance Charge Receivables and Principal Receivables and
will be allocated a varying percentage of the Defaulted
Amount with respect to each Monthly Period. Finance Charge
Receivables collections and the Defaulted Amount will be
allocated to the Investor Certificates and the Collateral
Indebtedness Interest based on the Floating Allocation
Percentage. Such amounts will be further allocated to the
Class A Certificates, the Class B Certificates and the
Collateral Indebtedness Interest based on the Class A
Floating Percentage, the Class B Floating Percentage and
the Collateral Floating Percentage, respectively.
Collections of Principal Receivables will be allocated to
the Investor Certificates and the Collateral Indebtedness
Interest based on the Principal Allocation Percentage. Such
percentage will vary as described herein under "Series
Provisions -- Allocation Percentages" depending on whether
the Investor Certificates are in their Revolving Period,
Principal Payment Period, Accumulation Period or Early
Amortization Period. See also "Description of the
Certificates -- Allocation Percentages" in the Prospectus.
Such amounts will be further allocated to the Class A
Certificates, the Class B Certificates and the Collateral
Indebtedness Interest as described herein. See "Series
Provisions -- Allocation Percentages".
Issuance of Additional
Investor
Certificates..........
After the completion of the offering made hereby, the Bank
may cause the Trustee to issue additional Investor
Certificates of Series 1996-2 ("Additional Investor
Certificates") from time to time during the Revolving
Period, provided that certain conditions included in the
Series 1996-2 Supplement are met. In connection with each
Additional Issuance, the outstanding principal amounts of
the Class A Certificates and the Class B Certificates and
the aggregate amount of Credit Enhancement will be
increased pro rata. When issued, the Additional Investor
Certificates of a class will be identical in all respects
to the other outstanding Investor Certificates of that
class. See "Series Provisions -- Issuance of Additional
Investor Certificates" in this Prospectus Supplement.
Other Series............
As of the date hereof, the Trust has issued fourteen other
Series of Certificates, twelve of which are still
outstanding. For information concerning the characteristics
of such other outstanding Series of Certificates, see
"Annex I: Previous Issuances of Certificates". Additional
Series are expected to be issued from time to time by the
Trust. See "Description of the Certificates -- New
Issuances" in the Prospectus and "Maturity Considerations"
herein.
Receivables.............
The Bank has conveyed to the Trust Receivables arising in
Accounts constituting a portion of the Bank Portfolio,
based on criteria provided in the Pooling Agreement as
applied on July 30, 1993 (the "Trust Cut-Off Date"), and in
certain Additional Accounts conveyed to the Trust in
accordance with the Pooling Agreement since the Trust
Cut-Off Date, all as more fully described herein under "The
Bank Portfolio". The aggregate amount of Receivables in the
Accounts as of October 4, 1996 (including Receivables in
Accounts added to the Trust after October 4, 1996 and
before the Series Issuance Date) was $10,911,289,179.48,
consisting of $10,634,586,006.50 of Principal Receivables
and $276,703,172.98 of Finance Charge Receivables.
Registration of
Investor
Certificates..........
The Class A Certificates initially will be represented by
certificates registered in the name of Cede & Co., as the
nominee of DTC. No purchaser of a Class A Certificate will
be entitled to receive a definitive certificate except
under certain limited circumstances. Class A
Certificateholders may elect to hold their Class A
Certificates through DTC (in the United States) or Cedel or
Euroclear (in Europe). See "The Pooling Agreement
Generally -- Definitive Certificates" in the Prospectus.
S-5
<PAGE> 6
Servicing
Compensation..........
The Servicing Fee Rate for the Investor Certificates and
the Collateral Indebtedness Interest will be 2.00% per
annum. On each Distribution Date, Servicer Interchange with
respect to the related Monthly Period that is on deposit in
the Collection Account will be withdrawn from the
Collection Account and paid to the Servicer in respect of
the Monthly Servicing Fee. In addition, the Class A
Servicing Fee, the Class B Servicing Fee and the Collateral
Servicing Fee will be paid on each Distribution Date as
described under "Series Provisions -- Application of
Collections -- Payment of Interest, Fees and Other Items"
and "-- Servicing Compensation and Payment of Expenses"
herein. See also "Description of the
Certificates -- Servicing Compensation and Payment of
Expenses" in the Prospectus.
Funding Period..........
If the Summary of Terms herein designates Series 1996-2 a
Prefunded Series, then during the period (the "Funding
Period") from and including the Series Issuance Date to but
excluding the earlier of (i) the conclusion of the
Revolving Period, (ii) the date on which the Invested
Amount first equals the Investor Amount and (iii) the Final
Funding Date specified in the Summary of Terms, the
Prefunded Amount will be maintained in an Eligible Deposit
Account to be established with the Trustee (the "Prefunding
Account"). If Series 1996-2 is designated a Prefunded
Series, the "Prefunded Amount" will equal the Initial
Prefunded Amount specified in the Summary of Terms, less
the amounts of any increases in the Invested Amount
pursuant to the Series 1996-2 Supplement in connection with
an increase in the amount of Principal Receivables in the
Trust. Funds on deposit in the Prefunding Account will be
invested by the Trustee in Eligible Investments.
During the Funding Period, if applicable, funds on deposit
in the Prefunding Account will be withdrawn on the Funding
Dates specified in the Summary of Terms and paid to the
Seller, and the Invested Amount will be increased by a
corresponding amount, to the extent that the principal
amount of the Seller's Interest on such day exceeds the
Required Funding Percentage specified in the Summary of
Terms of the aggregate amount of Principal Receivables in
the Trust on such day; provided, however, that the Invested
Amount will in no event exceed the Initial Investor Amount
or increase by an amount in excess of the Prefunded Amount
immediately prior to giving effect to such increase.
Investor Certificateholders and the Collateral Indebtedness
Holder will have no further right to or interest in such
funds upon their withdrawal from the Prefunding Account in
connection with such increases in the Invested Amount.
Should the Prefunded Amount be greater than zero at the end
of the Funding Period, the amounts remaining on deposit in
the Prefunding Account will be payable pro rata to the
Class A Certificateholders, the Class B Certificateholders
and the Collateral Indebtedness Holder on the next
succeeding Distribution Date and result in a reduction of
the Investor Amount. See "Series Provisions -- Prefunding
Account" herein and "Description of the
Certificates -- Funding Period" in the Prospectus.
Revolving Period and
Accumulation Period...
Unless a Pay Out Event or, if Series 1996-2 is an
Extendable Series, a Principal Payment Event has occurred,
the revolving period with respect to the Investor
Certificates (the "Revolving Period") is scheduled to end
and the accumulation period with respect to the Investor
Certificates (the "Accumulation Period"), which includes
separate accumulation periods for the Class A Certificates
and the Class B Certificates, is scheduled to commence at
the close of business on the last day of the March 2000
Monthly Period. Subject to the conditions set forth under
"Series Provisions -- Principal Payments" herein, the day
on which the Revolving Period ends and the Accumulation
Period begins may be delayed to no later than the close of
business on the last day of the October 2001 Monthly
Period. Unless a Pay Out Event or, if Series 1996-2 is an
Extendable Series, a Principal Payment Event has occurred,
(i) the Class A accumulation period (the "Class A
Accumulation Period") will commence at the close of
business on the last day of the Revolving Period and end on
the earliest of (a) the commencement of the Early
Amortization Period, (b) the commencement of the Principal
Payment Period, if applicable, (c) the payment in full of
the Class A Invested Amount or (d) the Series 1996-2
Termination Date (the "Termination Date"),
S-6
<PAGE> 7
and (ii) the Class B accumulation period (the "Class B
Accumulation Period") will commence on the Distribution
Date on which the Class A Invested Amount is paid in full
or, if the Class A Invested Amount is paid in full on the
Class A Expected Final Payment Date, and the Early
Amortization Period has not commenced, the Distribution
Date following the Class A Expected Final Payment Date (the
"Class B Principal Commencement Date") and end on the
earliest of (a) the commencement of the Early Amortization
Period, (b) the payment in full of the Class B Invested
Amount or (c) the Termination Date. No principal will be
payable to Class A Certificateholders (other than, if
applicable, principal payments made from amounts on deposit
in the Prefunding Account on the first Distribution Date
following the end of the Funding Period) until the Class A
Expected Final Payment Date, or, upon the occurrence of a
Pay Out Event or a Principal Payment Event as described
herein, the first Special Payment Date with respect to the
Early Amortization Period or Principal Payment Period, as
applicable. No principal will be payable to the Class B
Certificateholders (other than, if applicable, principal
payments made from amounts on deposit in the Prefunding
Account on the first Distribution Date following the end of
the Funding Period) until the Class A Invested Amount is
paid in full. For the period beginning on the Series
Cut-Off Date and ending with the commencement of the
Accumulation Period, the Principal Payment Period or the
Early Amortization Period, collections of Principal
Receivables otherwise allocable to the Investor
Certificateholders' Interest and the Collateral
Indebtedness Interest (other than collections of Principal
Receivables allocated to
the Class B Certificateholders' Interest and the Collateral
Indebtedness Interest ("Reallocated Principal Collections")
that are used to pay any deficiency in the Class A Required
Amount or the Class B Required Amount) will, subject to
certain limitations and unless a reduction in the Required
Collateral Amount has occurred, be treated as Shared
Principal Collections and applied to cover principal
payments due to or for the benefit of Certificateholders of
other Series, if so specified in the Supplements for such
other Series, or paid to the Bank. See "Series
Provisions -- Pay Out Events" and "-- Extension of Initial
Principal Payment Date" herein and "Description of the
Certificates -- Pay Out Events" in the Prospectus for a
discussion of the events which might lead to the
termination of the Revolving Period prior to the
commencement of the Accumulation Period. In addition, see
"Series Provisions -- Principal Payments" herein and
"Description of the Certificates -- Shared Principal
Collections" in the Prospectus.
Subordination;
Additional Amounts
Available to Investor
Certificateholders....
The fractional undivided interest in the Trust Assets
allocable to the Class B Certificates and the Collateral
Indebtedness Interest will be subordinated to the extent
necessary to fund payments with respect to the Class A
Certificates as described herein. In addition, the
Collateral Indebtedness Interest will be subordinated to
the extent necessary to fund certain payments with respect
to the Investor Certificates.
If collections of Finance Charge Receivables allocable to
the Class A Certificates for any Monthly Period and certain
other available amounts described herein are less than the
sum of (i) current and overdue Class A Monthly Interest,
(ii) Class A Additional Interest, (iii) current and overdue
Class A Servicing Fee and (iv) the Class A Investor Default
Amount, with respect to the related Distribution Date,
Excess Spread and Excess Finance Charges allocable to
Series 1996-2 will be applied to fund the deficiency (the
"Class A Required Amount"). "Excess Spread" for any
Distribution Date will equal the sum of (a) the excess of
collections of Finance Charge Receivables allocated to the
Class A Certificates and other available funds described
herein over the sum of the amounts referred to in clauses
(i), (ii), (iii) and (iv) above, (b) the excess of
collections of Finance Charge Receivables allocated to the
Class B Certificates and certain other available funds
described herein over the sum of (i) current and overdue
Class B Monthly Interest, (ii) Class B Additional Interest
and (iii) current and overdue Class B Servicing Fee and (c)
the excess of collections of Finance Charge Receivables
allocated to the Collateral Indebtedness
S-7
<PAGE> 8
Interest and certain other available funds described herein
over the current and overdue Collateral Servicing Fee. If
Excess Spread and Excess Finance Charges allocable to
Series 1996-2 with respect to such Distribution Date are
less than the Class A Required Amount, amounts, if any, on
deposit in the Cash Collateral Account will then be used to
fund the remaining Class A Required Amount. If Excess
Spread and Excess Finance Charges allocable to Series
1996-2 with respect to such Distribution Date and amounts,
if any, on deposit in the Cash Collateral Account are less
than the Class A Required Amount, Reallocated Principal
Collections allocable first to the Collateral Indebtedness
Amount and then the Class B Invested Amount with respect to
the related Monthly Period will then be used to fund the
remaining Class A Required Amount. If Reallocated Principal
Collections with respect to such Monthly Period are
insufficient to fund the remaining Class A Required Amount
for the related Distribution Date, then a portion of the
Collateral Indebtedness Amount will be reduced by the
amount of such deficiency (but not by more than the Class A
Investor Default Amount for such Monthly Period). If such
reduction would cause the Collateral Indebtedness Amount to
be reduced below zero, the Class B Invested Amount will be
reduced by the amount by which the Collateral Indebtedness
Amount would have been reduced below zero (but not by more
than the excess of the Class A Investor Default Amount for
such Monthly Period over the amount of such reduction in
the Collateral Indebtedness Amount) to avoid a charge-off
with respect to the Class A Certificates. If the Class B
Invested Amount is reduced to zero, the Class A Invested
Amount will be reduced if the Class A Required Amount for
any Distribution Date exceeds the sum of Excess Spread and
Excess Finance Charges allocated to Series 1996-2, amounts,
if any, on deposit in the Cash Collateral Account and
Reallocated Principal Collections for the related Monthly
Period, but not by more than the excess of the Class A
Investor Default Amount for such Monthly Period over the
aggregate reductions in the Collateral Indebtedness Amount
and the Class B Invested Amount with respect to such
Monthly Period, and the Class A Certificateholders will
bear directly the credit and other risks associated with
their undivided interest in the Trust. See "Series
Provisions -- Reallocation of Cash Flows" and "-- Defaulted
Receivables; Investor Charge-Offs".
If collections of Finance Charge Receivables allocable to
the Class B Certificates for any Monthly Period and certain
other available amounts described herein are less than the
sum of (i) current and overdue Class B Monthly Interest,
(ii) Class B Additional Interest, (iii) current and overdue
Class B Servicing Fee and (iv) the Class B Investor Default
Amount, with respect to the related Distribution Date,
Excess Spread and Excess Finance Charges allocable to
Series 1996-2 and not required to pay the Class A Required
Amount will be applied to fund the deficiency (the "Class B
Required Amount"). If Excess Spread and Excess Finance
Charges allocable to Series 1996-2 with respect to such
Distribution Date and not required to pay the Class A
Required Amount are less than the Class B Required Amount,
amounts, if any, on deposit in the Cash Collateral Account
not required to pay the Class A Required Amount will be
withdrawn and applied to fund the Class B Required Amount.
If such amounts available with respect to such Distribution
Date are insufficient to pay the Class B Required Amount,
Reallocated Principal Collections allocable to the
Collateral Indebtedness Amount for the related Monthly
Period and not required to pay the Class A Required Amount
will then be used to fund the remaining Class B Required
Amount. If Reallocated Principal Collections allocable to
the Collateral Indebtedness Amount with respect to such
Monthly Period are insufficient to fund the remaining Class
B Required Amount for the related Distribution Date, then
the Collateral Indebtedness Amount will be reduced by the
amount of such deficiency (but not by more than the Class B
Investor Default Amount for such Monthly Period). If such
reduction would cause the Collateral Indebtedness Amount to
be reduced below zero, the Class B Invested Amount will be
reduced by the amount by which the Class B Required Amount
for any Distribution Date exceeds the sum of Excess Spread
and Excess Finance Charges allocated to Series 1996-2 not
required to pay the Class A Required Amount and amounts, if
any, on deposit in the Cash Collateral Account not required
to pay the Class A Required Amount
S-8
<PAGE> 9
and Reallocated Principal Collections not required to pay
the Class A Required Amount for the related Monthly Period,
but not by more than the excess of the Class B Investor
Default Amount for such Monthly Period over the reduction
in the Collateral Indebtedness Amount with respect to such
Monthly Period. In the event of a reduction of the Class A
Invested Amount, the Class B Invested Amount or the
Collateral Indebtedness Amount, the amount of principal and
interest available to fund payments with respect to the
Class A Certificates and the Class B Certificates will be
decreased. See "Series Provisions -- Reallocation of Cash
Flows".
The Cash Collateral
Account...............
A cash collateral account (the "Cash Collateral Account")
will be held in the name of the Trustee for the benefit of
the Investor Certificateholders and the Collateral
Indebtedness Holder. The Cash Collateral Account will have
a beginning balance of zero which will be increased (i) to
the extent the Bank elects, subject to certain conditions
described herein, to apply collections of Principal
Receivables to decrease the Collateral Indebtedness Amount,
(ii) to the extent collections of Principal Receivables
allocated to the Collateral Indebtedness Amount are
required to be deposited therein and (iii) to the extent
collections of Excess Spread and Excess Finance Charges
allocable to Series 1996-2 are required to be deposited
therein as described herein. See "Series Provisions -- Cash
Collateral Account". To the extent set forth herein,
withdrawals will be made from the Cash Collateral Account
to pay the Class A Required Amount first and then, to pay
the Class B Required Amount. See "Series
Provisions -- Reallocation of Cash Flows".
Amounts Available as
Credit Enhancement....
On each Distribution Date, the amount of Credit Enhancement
available to the Investor Certificateholders will equal the
lesser of (i) the sum of the Collateral Indebtedness Amount
and the amount, if any, on deposit in the Cash Collateral
Account (the "Available Collateral Amount") and (ii) the
Required Collateral Amount. The "Required Collateral
Amount" with respect to any Distribution Date means,
subject to certain limitations more fully described herein,
the product of (a) the sum of the Class A Adjusted Invested
Amount, the Class B Invested Amount and the Collateral
Indebtedness Amount, each as of such Distribution Date
after taking into account distributions made on such
Distribution Date and (b) 9%. With respect to any
Distribution Date, if the Available Collateral Amount is
less than the Required Collateral Amount, certain Excess
Spread and Excess Finance Charges allocable to Series
1996-2 will be used to increase the Collateral Indebtedness
Amount or be deposited into the Cash Collateral Account to
the extent of such shortfall. See "Series
Provisions -- Application of Collections -- Excess Spread;
Excess Finance Charges". If on any Distribution Date the
Available Collateral Amount exceeds the Required Collateral
Amount, such excess in the Cash Collateral Account will be
applied in accordance with the Loan Agreement and will not
be available to the Investor Certificateholders. See
"Series Provisions -- Cash Collateral Account".
Excess Finance
Charges.................
The Series 1996-2 Certificates will be the fifteenth Series
issued by the Trust and the thirteenth Series, outstanding
as of the Series Issuance Date, included in a group of
Series ("Group One") expected to be issued by the Trust
from time to time. The Series 1993-1 Certificates, the
Series 1993-3 Certificates, the Series 1993-4 Certificates,
the Series 1994-2 Certificates, the Series 1994-3
Certificates, the Series 1994-4 Certificates, the Series
1994-A Certificates, the Series 1995-1 Certificates, the
Series 1995-2 Certificates, the Series 1995-3 Certificates,
the Series 1995-4 Certificates and the Series 1996-1
Certificates are currently included in Group One. See
"Annex I: Previous Issuances of Certificates". Subject to
certain limitations described under "Description of the
Certificates -- Sharing of Excess Finance Charges" in the
Prospectus, Excess Finance Charges, if any, with respect to
a Series included in Group One will be applied to cover any
shortfalls with respect to amounts payable from collections
of Finance Charge Receivables allocable to any other Series
in Group One, pro rata based upon the amount of the
shortfall, if any, with respect to each Series in Group
One.
S-9
<PAGE> 10
Shared Principal
Collections...........
Collections of Principal Receivables and certain other
amounts otherwise allocable to other Series, to the extent
such collections are not needed to make payments to or
deposits for the benefit of the certificateholders of such
other Series, will be applied to cover principal payments
due to or for the benefit of the holders of the Investor
Certificates and the Collateral Indebtedness Interest. See
"Description of the Certificates -- Shared Principal
Collections" in the Prospectus.
Optional Repurchase.....
The Investor Certificateholders' Interest and the
Collateral Indebtedness Interest will be subject to
optional repurchase by the Bank on any Distribution Date
after the sum of the Class A Invested Amount, the Class B
Invested Amount and the Collateral Indebtedness Amount is
reduced to an amount that is less than or equal to 5% of
the sum of the Initial Invested Amount plus, if applicable,
the amount of any increases in the Invested Amount during
the Funding Period. The purchase price will be equal to the
sum of the Class A Invested Amount and the Class B Invested
Amount (less the Principal Funding Account Balance, if
any), the Collateral Indebtedness Amount and accrued and
unpaid interest on the Class A Certificates, the Class B
Certificates and the Collateral Indebtedness Amount (and
accrued and unpaid interest with respect to interest
amounts that were due but not paid on a prior Payment Date)
through (a) if the day on which such purchase occurs is a
Distribution Date, the day preceding such Distribution Date
or (b) if the day on which such repurchase occurs is not a
Distribution Date, the day preceding the Distribution Date
following such day. See "Description of the
Certificates -- Optional Termination; Final Payment of
Principal" in the Prospectus.
Required Principal
Balance; Addition
of Accounts...........
The Series 1996-2 Supplement provides that the Bank will be
required to make an Addition of Accounts to the Trust if
the amount of Principal Receivables in the Trust is not
maintained at a minimum level equal to the sum of the
initial invested amounts (plus the amount of any increases
in the invested amounts attributable to prefunding) of each
Series then outstanding (provided that certain Series may
be excluded from such calculation if the issuance of such
Series will not result in a Ratings Effect) minus amounts
on deposit in the Excess Funding Account. See "Series
Provisions -- Required Principal Balance; Addition of
Accounts" herein and "Description of the
Certificates -- Addition of Trust Assets" in the
Prospectus.
Defeasance..............
In certain circumstances and subject to certain conditions,
the Bank may terminate its substantive obligations in
respect of Series 1996-2 or the Pooling Agreement as a
whole. See "The Pooling Agreement Generally -- Defeasance"
in the Prospectus.
ERISA Considerations....
Class A Certificates may be eligible for purchase by
Benefit Plans. See "ERISA Considerations" in the
Prospectus.
Class A Certificate
Rating................
It is a condition to the issuance of the Class A
Certificates that they be rated in the highest rating
category by at least one nationally recognized rating
agency. The rating of the Class A Certificates is based
primarily on the value of the Receivables, the
subordination of the Class B Certificates and the
circumstances, as described herein, in which the Available
Collateral Amount may be available for the benefit of the
Class A Certificateholders. See "Risk Factors -- Series
Considerations -- Limited Nature of Rating" in the
Prospectus.
Class B Certificate
Rating................
It is a condition to the issuance of the Class B
Certificates that they be rated in one of the three highest
rating categories by at least one nationally recognized
rating agency. The rating of the Class B Certificates is
based primarily on the value of the Receivables and the
circumstances, as described herein, in which the Available
Collateral Amount may be available for the benefit of the
Class B Certificateholders. See "Risk Factors -- Series
Considerations -- Limited Nature of Rating" in the
Prospectus.
S-10
<PAGE> 11
RISK FACTORS
Limited Amounts of Credit Enhancement. Although Credit Enhancement with
respect to the Investor Certificates will be provided by the subordination of
the Collateral Indebtedness Interest and the funds, if any, held in the Cash
Collateral Account, such amounts are limited. If the Collateral Indebtedness
Amount and any amount on deposit in the Cash Collateral Account are reduced to
zero, the Class B Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust and the Class B
Invested Amount may be reduced. If the Class B Invested Amount is reduced to
zero, Class A Certificateholders will bear directly the credit and other risks
associated with their undivided interest in the Trust. See "Series
Provisions -- Cash Collateral Account".
Effect of Subordination of Class B Certificates; Principal Payments. The
Class B Certificates are subordinated in right of payment of principal to the
Class A Certificates. Payments of principal in respect of the Class B
Certificates (other than, if applicable, principal payments made from amounts on
deposit in the Prefunding Account on the first Distribution Date following the
end of the Funding Period) will not commence until after the final principal
payment with respect to the Class A Certificates has been made as described
herein. Moreover, the Class B Invested Amount is subject to reduction if the
Class A Required Amount for any Monthly Period is greater than zero and is not
funded from Excess Spread and Excess Finance Charges allocated to Series 1996-2,
Reallocated Principal Collections with respect to the Collateral Indebtedness
Interest, amounts, if any, on deposit in the Cash Collateral Account, and
reductions in the Collateral Indebtedness Amount. To the extent the Class B
Invested Amount is reduced, the percentage of collections of Finance Charge
Receivables allocable to the Class B Certificateholders' Interest in future
Monthly Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Invested Amount is not reimbursed, the amount of
principal and interest distributable to the Class B Certificateholders will be
reduced. See "Series Provisions -- Allocation Percentages" and "-- Reallocation
of Cash Flows" herein. If the Class B Invested Amount is reduced to zero, the
Class A Certificateholders will bear directly the credit and other risks
associated with their undivided interest in the Trust.
New Stand-Alone Company. The credit card business currently conducted by
the Bank was, prior to November 22, 1994, operated in a division of Signet
Bank/Virginia. On that date, as part of a corporate reorganization,
substantially all of the credit card business then conducted by Signet
Bank/Virginia, including the assets in the Trust, and related liabilities were
transferred to and assumed by the Bank. At that time, the Bank became a
separate, stand-alone company and a wholly-owned subsidiary of Capital One
Financial Corporation, a newly formed Delaware holding company, and became the
Seller and Servicer of the Trust. On February 28, 1995, all of the shares of
stock of Capital One Financial Corporation then held by Signet Banking
Corporation, the parent of Signet Bank/Virginia, were distributed to the
shareholders of Signet Banking Corporation in a tax-free distribution.
MATURITY CONSIDERATIONS
The Pooling Agreement and the Supplement thereto for Series 1996-2 (the
"Series 1996-2 Supplement") provide that Class A Certificateholders will not
receive payments of principal (other than, if applicable, principal payments
made from amounts on deposit in the Prefunding Account on the first Distribution
Date following the end of the Funding Period) until the Class A Expected Final
Payment Date, or earlier in the event of a Pay Out Event or, if Series 1996-2 is
an Extendable Series, a Principal Payment Event. Class A Certificateholders will
receive payments of principal (i) on each Distribution Date following the
Monthly Period in which a Pay Out Event occurs and (ii) on each Distribution
Date beginning with the commencement of the Principal Payment Period (each such
Distribution Date, a "Special Payment Date") until the Class A Invested Amount
has been paid in full or the Termination Date has occurred. The Class B
Certificateholders will not begin to receive payments of principal (other than,
if applicable, principal payments made from amounts on deposit in the Prefunding
Account on the first Distribution Date following the end of the Funding Period)
until the final principal payment on the Class A Certificates has been made.
On each Distribution Date during the Accumulation Period, amounts equal to
the least of (a) Available Investor Principal Collections (see "Series
Provisions -- Principal Payments") for the related Monthly Period on deposit in
the Collection Account, (b) the applicable Controlled Deposit Amount, which is
equal to the sum of the applicable Controlled Accumulation Amount for such
Monthly Period and any applicable Deficit Controlled Accumulation Amount and (c)
the Class A Adjusted Invested Amount will be deposited in the Principal Funding
Account held by the Trustee (the "Principal Funding Account") until the
Principal Funding Account Balance is equal to the Class A Invested Amount or, if
earlier, the Class A Expected Final Payment Date. After the Class A Invested
Amount has been paid in full, on each Distribution Date during the Class B
Accumulation Period, an amount equal to the least of (a) Available
S-11
<PAGE> 12
Investor Principal Collections for the related Monthly Period on deposit in the
Collection Account, (b) the applicable Controlled Deposit Amount and (c) the
Class B Adjusted Invested Amount will be deposited in the Principal Funding
Account until the Principal Funding Account Balance is equal to the Class B
Invested Amount or, if earlier, the Class B Expected Final Payment Date. See
"Series Provisions -- Principal Payments" for a discussion of circumstances
under which the commencement of the Accumulation Period may be delayed.
The Bank may, at or after the time at which the Accumulation Period
commences for Series 1996-2, cause the Trust to issue another Series (or some
portion thereof, to the extent that the full principal amount of such other
Series is not otherwise outstanding at such time) as a Paired Series with
respect to Series 1996-2 to be used to finance the increase in the Seller's
Interest caused by the accumulation of principal in the Principal Funding
Account with respect to Series 1996-2. Although no assurances can be given as to
whether such other Series will be issued and, if issued, the terms thereof, the
outstanding principal amount of such other Series may vary from time to time
(whether or not a Pay Out Event occurs with respect to the Investor
Certificates), and the interest rate with respect to certificates of such other
Series may be established on its date of issuance and may be reset periodically.
Further, since the terms of the Investor Certificates will vary from the terms
of such other Series, the Pay Out Events with respect to such other Series will
vary from the Pay Out Events with respect to Series 1996-2 and may include Pay
Out Events which are unrelated to the status of the Bank or the Receivables,
such as Pay Out Events related to the continued availability and rating of
certain providers of Series Enhancement to such other Series. If a Pay Out Event
does occur with respect to any such Paired Series prior to the payment in full
of the Investor Certificates, the final payment of principal to the Investor
Certificateholders may be delayed.
Should a Pay Out Event or, if Series 1996-2 is an Extendable Series, a
Principal Payment Event occur with respect to the Investor Certificates and the
Early Amortization Period or the Principal Payment Period commence, any amount
on deposit (a) in the Principal Funding Account will be paid to the Investor
Certificateholders on the first Special Payment Date and the Investor
Certificateholders will be entitled to receive Available Investor Principal
Collections on each Distribution Date with respect to such Early Amortization
Period or the Principal Payment Period or following the Expected Final Payment
Date, as the case may be, as described herein until the Class A Invested Amount
and Class B Invested Amount are paid in full or until the Termination Date
occurs, (b) in the Excess Funding Account will be released and treated as Shared
Principal Collections to the extent needed to cover principal payments due to or
for the benefit of any Series entitled to the benefits of Shared Principal
Collections and (c) in the Prefunding Account, if applicable, will be
distributed to the Investor Certificateholders and the Collateral Indebtedness
Holder on a pro rata basis based on the Class A Initial Invested Amount, the
Class B Initial Invested Amount and the Collateral Initial Indebtedness Amount,
respectively. See "Description of the Certificates -- Pay Out Events" in the
Prospectus and "Series Provisions -- Pay Out Events" herein.
The ability of Investor Certificateholders to receive payments of principal
on the applicable Expected Final Payment Date depends on the payment rates on
the Receivables, the amount of outstanding Receivables, the delinquencies,
charge-offs and new borrowings on the Accounts, the potential issuance by the
Trust of additional Series and the availability of Shared Principal Collections.
Monthly payment rates on the Receivables may vary because, among other things,
accountholders may fail to make a required minimum payment, may only make
payments as low as the minimum required amount or may make payments as high as
the entire outstanding balance. Monthly payment rates may also vary due to
seasonal purchasing and payment habits of accountholders and to changes in any
terms of rebate programs in which accountholders participate. See the
"Accountholder Monthly Payment Rates for the Bank Portfolio" table under "The
Bank Portfolio" herein. The Bank cannot predict, and no assurance can be given,
as to the accountholder monthly payment rates that will actually occur in any
future period, as to the actual rate of payment of principal of the Investor
Certificates or whether the terms of any previously or subsequently issued
Series might have an impact on the amount or timing of any such payment of
principal. A significant amount of receivables initially originated by the Bank
was attributable to customers who, attracted by the low introductory rates,
transferred balances from competing card issuers. Accounts in the Bank's low
introductory rate portfolio that reprice are subject to a significant risk of
attrition, because cardholders that were initially attracted by the Bank's low
introductory rates may determine to switch accounts or transfer account balances
to lower price products offered by competing card issuers. See "Risk
Factors -- Series Considerations -- Generation of Additional Receivables;
Dependency on Cardholder Repayments" and "Description of the
Certificates -- Shared Principal Collections" in the Prospectus.
In addition, the amount of outstanding Receivables and the delinquencies,
charge-offs and new borrowings on the Accounts may vary from month to month due
to seasonal variations, the product mix of the Trust Portfolio, the availability
of other sources of credit, legal factors, general economic conditions and
spending and borrowing habits of
S-12
<PAGE> 13
individual accountholders. There can be no assurance that collections of
Principal Receivables with respect to the Trust Portfolio, and thus the rate at
which Investor Certificateholders could expect to receive payments of principal
on their Investor Certificates during the Early Amortization Period or Principal
Payment Period or the rate at which the Principal Funding Account could be
funded during the Accumulation Period, will be similar to the historical
experience set forth in the "Accountholder Monthly Payment Rates for the Bank
Portfolio" table under "The Bank Portfolio" herein. As described under "Series
Provisions -- Principal Payments", the Bank may shorten the Class A Accumulation
Period and, in such event, there can be no assurance that there will be
sufficient time to accumulate all amounts necessary to pay the Class A Invested
Amount on the Class A Expected Final Payment Date.
The Trust, as a master trust, has previously issued fourteen Series, twelve
of which are still outstanding and may issue additional Series from time to
time, and there can be no assurance that the terms of any such Series might not
have an impact on the timing or amount of payments received by Investor
Certificateholders. Further, if a Pay Out Event occurs, the average life and
maturity of the Class A Certificates and Class B Certificates, respectively,
could be significantly reduced.
Due to the reasons set forth above, and the fact that payment experience
with respect to the more recently originated accounts in the Bank Portfolio
(from which the Accounts included in the Trust Portfolio have been selected) is
limited (see "The Bank Portfolio" herein), there can be no assurance that
deposits in the Principal Funding Account will be made in accordance with the
Controlled Accumulation Amount or that the actual number of months elapsed from
the date of issuance of the Class A and Class B Certificates to their respective
final Distribution Dates will equal the expected number of months. See "Risk
Factors -- Series Considerations -- Generation of Additional Receivables;
Dependency on Cardholder Repayments" in the Prospectus.
THE BANK PORTFOLIO
GENERAL
The Accounts included in the Trust as of the Trust Cut-Off Date and
subsequent Additional Cut-Off Dates (the "Trust Portfolio") were selected from
the Bank Portfolio based on the eligibility criteria specified in the Pooling
Agreement. The Trust Portfolio is comprised of the majority of Eligible Accounts
in the Bank Portfolio as of the Series Cut-off Date. The Trust Portfolio also
includes certain charged-off accounts with zero balances (the "Zero Balance
Accounts"), the recoveries on which will be treated as collections of Finance
Charge Receivables. The Bank plans to continue to add Zero Balance Accounts to
the Trust from time to time. See "The Accounts" and "The Pooling Agreement
Generally -- Conveyance of Receivables" and "-- Representations and Warranties"
in the Prospectus.
The Bank Portfolio is primarily comprised of accounts originated by the
Bank from 1992 to 1996, regardless of whether such accounts meet the eligibility
requirements specified in the Pooling Agreement. Although such accounts were not
originated using identical underwriting criteria, the receivables arising under
such accounts are assessed finance charges having one of two general pricing
characteristics. The annual percentage rate on such receivables is either a
relatively low introductory rate converting to a higher rate at the end of an
introductory period or a non-introductory rate generally ranging between
approximately 10% and 26%. Introductory period rates generally range from
approximately 6% to 10% for introductory periods of 6 to 18 months after which
the rate converts to an annual percentage rate generally between approximately
14% and 17%. The annual percentage rate is either a fixed rate or a variable
rate that adjusts periodically according to an index. These non-introductory
rate products generally include secured cards, affinity and joint account cards,
college student cards and other cards targeted to certain other market segments.
Historically, these non-introductory rate cards tend to have lower credit lines,
balances that build over time, less attrition, higher margins (including fees)
and higher delinquencies and credit losses than the Bank's traditional low
introductory rate products. The number of these non-introductory rate accounts
in the Bank Portfolio has been increasing, and as the number of these accounts
increases and as such accounts season, the characteristics of these accounts as
described in the preceding sentence will have a more significant effect on the
Bank Portfolio. In addition, the Trust Portfolio in the past has not included
certain types of these non-introductory rate credit card receivables, including
the secured cards. Receivables added to the Trust prior to the Series Issuance
Date will include such non-introductory rate credit card receivables, which at
the Series Issuance Date constitute, and at any given time thereafter may
constitute, a material portion of the Trust Portfolio. See "Risk
Factors -- Certain Legal Aspects -- Transfer of Receivables"; "The Bank's Credit
Card and Consumer Lending Business -- Underwriting Procedures" and "Certain
Legal Aspects of the Receivables -- Transfer of Receivables" in the Prospectus.
S-13
<PAGE> 14
As disclosed under "The Bank" in the Prospectus, on November 22, 1994 the
Bank succeeded to substantially all of the credit card business formerly
conducted in a division of Signet Bank/Virginia. The historical Bank Portfolio
information contained herein excludes certain identified accounts retained by
Signet Bank/Virginia in connection with the transaction which created the Bank.
Such retained accounts were generally originated in Signet Bank/Virginia's
Virginia, Maryland and District of Columbia market area and, in many cases, were
held by customers having certain other banking relationships with Signet
Bank/Virginia. Such accounts had an outstanding principal balance of
approximately $350,000,000 as of November 22, 1994. Amounts and percentages
reflected in the Bank Portfolio Delinquency and Loss Experience, Revenue
Experience, and Payment Rate tables herein for the periods prior to November 22,
1994 exclude, for the retained accounts, amounts based on assumptions which, in
the opinion of the Bank's management, are considered reasonable.
DELINQUENCY AND LOSS EXPERIENCE
The growth of the Bank Portfolio from approximately $1.985 billion at year
end 1992, to approximately $11.543 billion at month end September 1996, has had
the effect of significantly lowering the charge-off and delinquency rates for
the entire portfolio from what they otherwise would have been. However, as the
proportion of new accounts to seasoned accounts becomes smaller, this effect
should be lessened. As seasoning occurs or if new account origination slows, it
is expected that the charge-off rates and delinquencies will increase over time.
The following tables set forth the delinquency and loss experience for the
Bank Portfolio for each of the periods shown. The Bank Portfolio includes groups
of accounts each created in connection with a particular solicitation, which
may, when taken individually, have delinquency and loss characteristics
different from those of the overall Bank Portfolio. As of October 4, 1996, the
Trust Portfolio represented approximately 94% and 93% of the Bank Portfolio by
account and receivables outstanding, respectively (including Receivables added
to the Trust after October 4, 1996 and before the Series Issuance Date). Because
the Trust Portfolio is only a portion of the Bank Portfolio, actual delinquency
and loss experience with respect to the Receivables is different from that set
forth below for the Bank Portfolio. There can be no assurance that the
delinquency and loss experience for the Receivables will be similar to the
historical experience set forth below for the Bank Portfolio.
DELINQUENCIES AS A PERCENTAGE OF THE BANK PORTFOLIO (1)(3)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT YEAR END
---------------------------------------------------------------------------
AT MONTH END
SEPTEMBER 1996 1995 1994 1993
----------------------- ----------------------- ----------------------- -----------------------
NUMBER OF DAYS DELINQUENT DELINQUENT DELINQUENT DELINQUENT
DELINQUENT (2) AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- -------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 days................ $211,479 1.83% $165,306 1.58% $ 90,733 1.23% $ 46,391 0.96%
60-89 days................ 125,012 1.08 92,665 0.89 45,277 0.61 25,128 0.52
90+ days.................. 280,365 2.43 181,243 1.73 81,720 1.11 43,975 0.91
-------- ----- -------- ---- - -------- ---- - -------- ---- -
TOTAL................... $616,856 5.34% $439,214 4.20% $217,730 2.95% $115,494 2.39%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
- ---------------
(1) The percentages are the result of dividing the delinquent amount by end of
period receivables outstanding for the applicable period. The delinquent
amount is the dollar amount of month end delinquencies in each category for
the period. The end of period receivables outstanding at month end September
1996 and at year end 1995, 1994 and 1993 were $11,542,984, $10,445,480,
$7,378,455 and $4,832,400, respectively.
(2) The Bank uses billing cycles to determine delinquency. This table assumes
that each billing cycle is 30 days long, but actual billing cycles range
from 26 to 34 days each.
(3) Figures and percentages in this table are reported on a processing month
basis.
S-14
<PAGE> 15
LOSS EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER ----------------------------------------
1996(1) 1995 1994 1993
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding................ $10,760,330 $9,089,278 $6,197,423 $3,265,565
Gross Losses................................... $ 346,706 $ 238,438 $ 118,613 $ 86,531
Gross Losses as a Percentage of Average
Receivables Outstanding...................... 4.30 % 2.62% 1.91% 2.65%
Recoveries..................................... $ 29,410 $ 33,610 $ 26,965 $ 18,199
Net Losses..................................... $ 317,296 $ 204,828 $ 91,648 $ 68,332
Net Losses as a Percentage of Average
Receivables Outstanding...................... 3.93 % 2.25% 1.48% 2.09%
</TABLE>
- ---------------
(1) The percentages reflected for the nine months ended September 1996 are
annualized figures. Annualized figures are not necessarily indicative of
results for the entire year.
The Bank's delinquency and net loss rates at any time reflect, among other
factors, the quality of the credit card loans, the average seasoning of the
Bank's accounts, the success of the Bank's collection efforts, the product mix
of the portfolio and general economic conditions. Usually new accounts initially
exhibit a rising trend of delinquency and credit losses which peaks and then
declines to a more steady rate of delinquency and losses. Receivables from the
most seasoned group of accounts in the Bank Portfolio have generally followed
this pattern, but there can be no assurance that such pattern will be followed
in the case of newer accounts in the Bank Portfolio.
REVENUE EXPERIENCE
The following table sets forth the revenues from finance charges and fees
billed and Interchange received with respect to the Bank Portfolio for the
periods shown.
REVENUE EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER -------------------------------------------
1996(1) 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Average Receivables Outstanding................... $10,760,330 $ 9,089,278 $ 6,197,423 $ 3,265,565
Finance Charges and Fees (2)...................... $ 1,375,907 $ 1,363,765 $ 847,077 $ 501,388
Yield from Finance Charges and Fees............... 17.05% 15.00% 13.67% 15.35%
Interchange....................................... $ 70,839 $ 79,128 $ 61,262 $ 36,350
Yield from Interchange............................ 0.88% 0.87% 0.99% 1.11%
</TABLE>
- ---------------
(1) The percentages reflected for the nine months ended September 1996 are
annualized figures. Annualized figures are not necessarily indicative of
results for the entire year.
(2) Finance Charges and Fees does not include interest on subsequent collections
on accounts previously charged off. Finance Charges and Fees includes
monthly periodic rate finance charges, the portion of the annual membership
fees amortized on a monthly basis, cash advance fees, late charges,
overlimit charges and other miscellaneous fees.
Because the Trust Portfolio is only a portion of the Bank Portfolio, actual
revenue experience with respect to the Receivables is different from that set
forth above for the Bank Portfolio. There can be no assurance that the yield
experience with respect to the Receivables in the future will be similar to the
historical experience set forth above for the Bank Portfolio. In addition,
revenue from the Receivables will depend on the types of fees and charges
assessed on the Accounts, and could be adversely affected by future changes made
by the Bank or the Servicer in such fees and charges or by other factors. See
"Risk Factors -- Master Trust Considerations -- Certain Legal Aspects" and
"-- The Ability of the Bank to Change Terms of the Accounts" in the Prospectus.
S-15
<PAGE> 16
The revenue for the accounts in the Bank Portfolio shown in the above table
is comprised of three primary components: monthly periodic rate finance charges,
the amortized portion of annual membership fees and other service charges, such
as cash advance fees, late charges, overlimit fees and other miscellaneous fees.
If payment rates decline, the balances subject to monthly periodic rate finance
charges tend to grow, assuming no change in the level of purchasing activity.
Accordingly, under these circumstances, the yield related to monthly periodic
rate finance charges normally increases. Conversely, if payment rates increase,
the balances subject to monthly periodic rate finance charges tend to fall,
assuming no change in the level of purchasing activity. Accordingly, under these
circumstances, the yield related to monthly periodic rate finance charges
normally decreases. Furthermore, as the Bank Portfolio experiences growth in
receivables through account origination and account management balance transfer
programs which are assessed low introductory periodic rate finance charges and
to the extent the Bank chooses to waive all or part of the rate increase for
selected accounts in an effort to profitably retain balances, the yield related
to monthly periodic rate finance charges would be adversely affected. The yield
related to service charges varies with the type and volume of activity in and
the amount of each account. As account balances increase, annual membership
fees, which remain constant, represent a smaller percentage of the aggregate
account balances.
PAYMENT RATES
The following table sets forth the highest and lowest accountholder monthly
payment rates for the Bank Portfolio during any single month in the periods
shown and the average accountholder monthly payment rates for all months during
the periods shown, in each case calculated as a percentage of average monthly
account balances during the periods shown. Payment rates shown in the table are
based on amounts which would be payments of Principal Receivables and Finance
Charge Receivables with respect to the Accounts.
ACCOUNTHOLDER MONTHLY PAYMENT RATES
FOR THE BANK PORTFOLIO (1)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER -------------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Lowest Month (2)............................................... 9.10% 8.68% 8.61% 8.57%
Highest Month (2).............................................. 10.97% 11.76% 10.76% 10.17%
Average Payment Rate for the Period............................ 10.13% 10.17% 9.90% 9.18%
</TABLE>
- ---------------
(1) The monthly payment rates include amounts which are payments of Principal
Receivables and Finance Charge Receivables with respect to the Accounts.
(2) The monthly payment rates are calculated as the total amount of payments
received during the month divided by the average monthly receivables
outstanding for each month.
THE RECEIVABLES
The Receivables in the Trust Portfolio, as of October 4, 1996 (including
Receivables in Accounts added to the Trust after October 4, 1996 and before the
Series Issuance Date, which Accounts are included in all figures set forth in
this paragraph), included $10,634,586,006.50 of Principal Receivables and
$276,703,172.98 of Finance Charge Receivables. The Accounts had an average
balance of $1,493.27 and an average credit limit of $3,401.31. The percentage of
the aggregate total Receivables balance to the aggregate total credit limit was
43.90%. The average age of the Accounts was approximately 23.5 months. As of
October 4, 1996, all of the Accounts in the Trust Portfolio were VISA or
MasterCard credit card accounts, of which 70% were standard accounts and 30%
were premium accounts, and the aggregate Receivables balances of standard
accounts and premium accounts, as a percentage of the total aggregate
Receivables, were 41% and 59%, respectively. Since the Trust Cut-Off Date, and
prior to the Series Issuance Date, the Bank has added approximately $11.825
billion principal amount of Receivables in Additional Accounts to the Trust. The
Receivables arising under such accounts added to the Trust since the Trust
Cut-Off Date are generally assessed finance charges having one of two general
pricing characteristics. The annual percentage rate on such Receivables is
either a relatively low introductory rate converting to a higher rate at the end
of an introductory period or a non-introductory rate generally ranging between
approximately 10% and 26%. Introductory period rates generally range from
approximately 6% to 10% for
S-16
<PAGE> 17
introductory periods of 6 to 18 months after which the rate converts to an
annual percentage rate generally between approximately 14% and 17%. The annual
percentage rate is either a fixed rate or a variable rate that adjusts
periodically according to an index. These non-introductory rate products
generally include secured cards, affinity and joint account cards, college
student cards and other cards targeted to certain other market segments.
Historically, these non-introductory rate cards tend to have lower credit lines,
balances that build over time, less attrition, higher margins (including fees)
and higher delinquencies and credit losses than the Bank's traditional low
introductory rate products. In the past, the Trust Portfolio has not included
certain types of these non-introductory rate credit card receivables, including
the secured cards. Receivables added to the Trust prior to the Series Issuance
Date will include such non-introductory rate credit card receivables, which at
the Series Issuance Date constitute, and at any given time thereafter may
constitute, a material portion of the Trust Portfolio.
As of October 31, 1996, approximately 48% of the Trust Portfolio accounts
were assessed a variable rate periodic finance charge and approximately 52% were
assessed a fixed rate periodic finance charge.
The following tables summarize the Trust Portfolio by various criteria as
of October 4, 1996. References to "Receivables Outstanding" in the following
tables include both Finance Charge Receivables and Principal Receivables.
Because the future composition and product mix 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.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------------------------------- --------- --------- ------------------ -----------
<S> <C> <C> <C> <C>
Credit Balance (1)........................... 111,098 1.52% $ (8,740,669.06) (0.08)%
No Balance (2)............................... 1,247,958 17.08 0.00 0.00
More than $0 and less than or equal to
$1,500.00.................................. 3,907,826 53.48 1,851,999,351.92 16.97
$1,500.01-$5,000.00.......................... 1,374,485 18.81 4,208,884,666.03 38.57
$5,000.01-$10,000.00......................... 589,442 8.07 3,867,471,621.07 35.45
Over $10,000.00.............................. 76,161 1.04 991,674,209.52 9.09
--------- ------- ----------------- -------
TOTAL...................................... 7,306,970 100.00% $10,911,289,179.48 100.00%
========= ======= ================= =======
</TABLE>
- ---------------
(1) Credit balances are a result of cardholder payments and credit adjustments
applied in excess of the unpaid balance on an Account. Accounts which
currently have a credit balance are included because Receivables may be
generated with respect thereto in the future.
(2) Accounts which currently have no balance are included because Receivables
may be generated with respect thereto in the future. Zero Balance Accounts
are not included in these figures.
COMPOSITION BY CREDIT LIMIT (1)
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT RANGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------------------------------- --------- --------- ------------------ -----------
<S> <C> <C> <C> <C>
Less than or equal to $1,500.00.............. 3,569,068 48.84% $ 1,435,085,871.30 13.15%
$1,500.01-$5,000.00.......................... 1,543,168 21.12 2,389,150,565.38 21.90
$5,000.01-$10,000.00......................... 1,916,483 26.23 5,061,972,420.80 46.39
Over $10,000.00.............................. 278,251 3.81 2,025,080,322.00 18.56
--------- ------- ----------------- -------
TOTAL...................................... 7,306,970 100.00% $10,911,289,179.48 100.00%
========= ======= ================= =======
</TABLE>
- ---------------
(1) References to "Credit Limit" herein include both the line of credit
established for purchases and cash advances as well as receivables
originated under temporary extensions of credit through account management
balance transfer programs. Credit limits relating to these temporary
extensions decrease as cardholder payments are applied to these receivables.
S-17
<PAGE> 18
COMPOSITION BY PAYMENT STATUS (1)
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
PAYMENT STATUS (2) ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------------------------------- --------- --------- ------------------ -----------
<S> <C> <C> <C> <C>
Current to 29 days(3)........................ 6,968,790 95.37% $10,312,089,623.72 94.51%
Past due 30-59 days.......................... 133,999 1.83 240,469,354.78 2.20
Past due 60-89 days.......................... 69,416 0.95 112,276,791.82 1.03
Past due 90+ days............................ 134,765 1.85 246,453,409.16 2.26
--------- ------- ----------------- -------
TOTAL...................................... 7,306,970 100.00% $10,911,289,179.48 100.00%
========= ======= ================= =======
</TABLE>
- ---------------
(1) Payment Status is determined as of the prior statement cycle date.
(2) The Bank uses billing cycles to determine delinquency. The table assumes
that each billing cycle is 30 days long, but actual billing cycles range
from 26 to 34 days each.
(3) Accounts designated as current include accounts on which the minimum payment
has not been received prior to the second billing date following the
issuance of the related bill.
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
ACCOUNT AGE ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- -------------------------------------------- ---------- --------- ------------------ -----------
<S> <C> <C> <C> <C>
Not More than 6 Months...................... 1,885,259 25.80% $ 1,643,775,961.28 15.06%
Over 6 Months to 12 Months.................. 1,031,574 14.12 1,071,383,571.45 9.82
Over 12 Months to 24 Months................. 1,775,698 24.30 3,023,279,269.87 27.71
Over 24 Months.............................. 2,614,439 35.78 5,172,850,376.88 47.41
--------- ------- ----------------- -------
TOTAL..................................... 7,306,970 100.00% $10,911,289,179.48 100.00%
========= ======= ================= =======
</TABLE>
S-18
<PAGE> 19
COMPOSITION OF ACCOUNTS BY ACCOUNTHOLDER BILLING ADDRESS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
STATE OR NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
TERRITORY ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
-------- --------- --------- ------------------ -----------
<S> <C> <C> <C> <C>
California..................................... 1,048,148 14.34% $ 1,647,629,195.33 15.10%
Texas.......................................... 576,334 7.89 825,724,475.43 7.57
Florida........................................ 507,984 6.95 803,307,533.18 7.36
New York....................................... 559,399 7.66 795,525,349.99 7.29
Illinois....................................... 305,984 4.19 427,549,519.98 3.92
Virginia....................................... 227,930 3.12 382,076,659.59 3.50
Ohio........................................... 262,214 3.59 371,366,889.10 3.40
New Jersey..................................... 246,006 3.37 347,653,687.66 3.19
Pennsylvania................................... 260,252 3.56 337,102,763.22 3.09
Michigan....................................... 217,223 2.97 327,519,716.15 3.00
Georgia........................................ 195,723 2.68 294,557,463.36 2.70
Massachusetts.................................. 191,420 2.62 263,915,048.43 2.42
North Carolina................................. 172,639 2.36 263,386,034.67 2.41
Washington..................................... 143,801 1.97 260,950,231.20 2.39
Maryland....................................... 153,711 2.10 235,188,738.30 2.15
Missouri....................................... 146,491 2.01 221,012,831.46 2.02
Indiana........................................ 143,326 1.96 210,353,750.51 1.93
Tennessee...................................... 137,236 1.88 207,237,330.23 1.90
Minnesota...................................... 118,079 1.62 196,720,943.37 1.80
Arizona........................................ 127,468 1.74 186,200,349.85 1.71
Colorado....................................... 127,870 1.75 183,125,869.77 1.68
Alabama........................................ 105,006 1.44 150,859,489.28 1.38
Connecticut.................................... 96,517 1.32 139,787,831.41 1.28
Oregon......................................... 85,847 1.18 139,709,361.66 1.28
Oklahoma....................................... 92,553 1.27 136,126,241.06 1.25
Louisiana...................................... 104,453 1.43 134,909,916.28 1.24
South Carolina................................. 88,633 1.21 124,863,698.91 1.14
Kentucky....................................... 81,230 1.11 113,317,634.84 1.04
Kansas......................................... 64,943 0.89 104,650,435.86 0.96
Arkansas....................................... 65,052 0.89 91,263,833.84 0.84
Nevada......................................... 61,524 0.84 89,057,900.01 0.82
Mississippi.................................... 60,831 0.83 83,188,927.49 0.76
Iowa........................................... 48,791 0.67 76,520,863.62 0.70
West Virginia.................................. 46,908 0.64 65,364,676.53 0.60
New Hampshire.................................. 44,183 0.60 65,092,202.50 0.60
New Mexico..................................... 40,312 0.55 62,993,689.94 0.58
Utah........................................... 38,939 0.53 53,428,812.89 0.49
Nebraska....................................... 36,593 0.50 52,433,207.04 0.48
Idaho.......................................... 29,527 0.40 47,059,107.69 0.43
Maine.......................................... 23,318 0.32 46,343,446.98 0.42
Hawaii......................................... 29,941 0.41 44,299,955.02 0.41
Montana........................................ 25,297 0.35 42,677,321.21 0.39
Rhode Island................................... 28,782 0.39 40,020,884.22 0.37
Alaska......................................... 20,571 0.28 37,961,391.84 0.35
District of Columbia........................... 20,562 0.28 29,152,671.32 0.27
Vermont........................................ 18,266 0.25 26,670,411.01 0.24
South Dakota................................... 15,329 0.21 26,130,730.49 0.24
Delaware....................................... 18,656 0.26 25,556,942.75 0.23
North Dakota................................... 14,971 0.21 24,021,617.26 0.22
Wyoming........................................ 14,182 0.19 21,541,952.61 0.20
Wisconsin...................................... 6,341 0.09 11,759,340.86 0.11
Other.......................................... 9,674 0.13 16,420,302.28 0.15
--------- ------ ----------------- ------
TOTAL........................................ 7,306,970 100.00% $10,911,289,179.48 100.00%
========= ====== ================= ======
</TABLE>
S-19
<PAGE> 20
As of October 4, 1996, the Bank, like many other national credit card
issuers, had a significant concentration of credit card receivables outstanding
in California. Adverse economic conditions affecting accountholders residing in
California could affect timely payment by such accountholders of amounts due on
the Accounts and, accordingly, the actual rates of delinquencies and losses with
respect to the Trust Portfolio. See also "Risk Factors -- Master Trust
Considerations -- Certain Legal Aspects -- Consumer Protection Laws" in the
Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of the Investor Certificates will be paid to
the Bank. The Bank will use such proceeds for general corporate purposes.
THE BANK
At September 30, 1996, the Bank had assets of approximately $5.9 billion
and stockholder's equity of approximately $678 million. For a more detailed
description of the Bank, see "The Bank" in the Prospectus.
SERIES PROVISIONS
The Investor Certificates will be issued pursuant to the Pooling Agreement
and the Series 1996-2 Supplement. The following summary describes certain terms
applicable to the Investor Certificates. Reference should be made to the
Prospectus for additional information concerning the Investor Certificates and
the Pooling Agreement.
INTEREST PAYMENTS
Interest on the Class A Certificates and the Class B Certificates will
accrue from the Series Issuance Date on the outstanding principal balances of
the Class A Certificates and Class B Certificates, respectively, at the Class A
Certificate Rate and Class B Certificate Rate, respectively. Interest will be
distributed monthly on the 15th day of each month (or if any such day is not a
business day, the next succeeding business day), commencing on the January 1997
Distribution Date to Investor Certificateholders in whose names the Investor
Certificates were registered at the close of business on the last day of the
calendar month preceding the date of such payment (the "Record Date"). Interest
for any Payment Date will accrue from and including the preceding Payment Date
(or in the case of the first Payment Date, from and including the Series
Issuance Date) to but excluding such Payment Date.
If the Class A Certificate Rate specified in the Summary of Terms herein is
a floating rate, interest will be calculated based on the actual number of days
in the period from and including the preceding Distribution Date (or, in the
case of the initial Distribution Date, the Series Issuance Date) to but
excluding such Distribution Date and a 360-day year. If the Class A Certificate
Rate specified in the Summary of Terms herein is a fixed rate, interest will be
calculated based on a 360-day year of twelve 30-day months.
Interest payments on the Class A Certificates for each Payment Date will be
calculated on the outstanding principal balance of the Class A Certificates as
of the preceding Record Date (or in the case of the initial Payment Date, on the
initial Class A principal balance) based upon the Class A Certificate Rate. On
each Distribution Date, Class A Monthly Interest and Class A Outstanding Monthly
Interest for the related Monthly Period will be (i) paid to the Class A
Certificateholders, if Interest Payment Dates occur monthly, or (ii) deposited
in an Eligible Deposit Account in the name of the Trustee and for the benefit of
the Investor Certificateholders (the "Class A Interest Funding Account"), if
Interest Payment Dates occur less frequently than monthly. Payments to the Class
A Certificateholders or deposits in the Class A Interest Funding Account on any
Distribution Date will be funded from Class A Available Funds for the related
Monthly Period. To the extent Class A Available Funds allocated to the Class A
Certificateholders' Interest for such Monthly Period are insufficient to pay
such interest or make such deposits, as applicable, Excess Spread and Excess
Finance Charges allocated to Series 1996-2, amounts, if any, on deposit in the
Cash Collateral Account and Reallocated Principal Collections allocable first to
the Collateral Indebtedness Amount and then the Class B Invested Amount will be
used to make such payments or deposits. "Class A Available Funds" means, with
respect to any Monthly Period, an amount equal to the sum of (i) the Class A
Floating Percentage of collections of Finance Charge Receivables allocated to
the Series 1996-2 Certificates with respect to such Monthly Period (including
any investment earnings and certain other amounts that are to be treated as
collections of Finance Charge Receivables in accordance with the Pooling
Agreement, but excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to
S-20
<PAGE> 21
Servicer Interchange); (ii) if such Monthly Period relates to a Distribution
Date that occurs prior to the Class B Principal Commencement Date, the Principal
Funding Investment Proceeds, if any, with respect to the related Distribution
Date; (iii) if applicable, the Class A Certificateholders' pro rata portion of
interest and other investment income (net of losses and investment expenses)
earned on amounts on deposit in the Prefunding Account; and (iv) amounts, if
any, to be withdrawn from the Reserve Account which are required to be included
in Class A Available Funds pursuant to the Series 1996-2 Supplement with respect
to such Distribution Date.
Interest payments on the Class B Certificates for each Payment Date will be
calculated on the outstanding principal balance of the Class B Certificates as
of the preceding Record Date (or in the case of the initial Payment Date, on the
initial Class B principal balance) based upon the Class B Certificate Rate.
"Class B Certificate Rate" means a rate per annum agreed to by the Bank and the
purchaser of the Class B Certificates not greater than LIBOR for one-month
United States dollar deposits, determined as of the LIBOR Determination Date as
described herein plus 1.00%, provided that the rate for the initial Interest
Period shall equal 0.10% per annum above the greater of (i) LIBOR for one-month
United States dollar deposits, and (ii) the rate determined by reference to a
straight-line interpolation (based on the actual number of days in the initial
Interest Period) between LIBOR for one-month United States dollar deposits and
LIBOR for two-month United States dollar deposits. If the Class B Certificate
Rate specified herein is a floating rate, interest will be calculated based on
the actual number of days in the period from and including the preceding
Distribution Date to but excluding such Distribution Date and a 360-day year. If
the Class B Certificate Rate specified herein is a fixed rate, interest will be
calculated based on a 360-day year of twelve 30-day months. On each Distribution
Date, Class B Monthly Interest and Class B Outstanding Monthly Interest for the
related Monthly Period will be (i) paid to the Class B Certificateholders, if
Interest Payment Dates occur monthly, or (ii) deposited in an Eligible Deposit
Account in the name of the Trustee and for the benefit of the Class B Investor
Certificateholders (the "Class B Interest Funding Account"), if Interest Payment
Dates occur less frequently than monthly. Payments to the Class B
Certificateholders or deposits in the Class B Interest Funding Account, as
applicable, on any Distribution Date will be funded from Class B Available Funds
for such Monthly Period. To the extent Class B Available Funds allocated to the
Class B Certificateholders' Interest for such Monthly Period are insufficient to
pay such interest or make such deposits, as applicable, Excess Spread and Excess
Finance Charges allocated to Series 1996-2, amounts, if any, on deposit in the
Cash Collateral Account not required to pay the Class A Required Amount and
Reallocated Principal Collections allocable to the Collateral Indebtedness
Amount and not required to pay the Class A Required Amount, will be used to make
such payments or deposits. "Class B Available Funds" means, with respect to any
Monthly Period, an amount equal to the sum of (i) the Class B Floating
Percentage of collections of Finance Charge Receivables allocated to the Series
1996-2 Certificates with respect to such Monthly Period (including any
investment earnings and certain other amounts that are to be treated as
collections of Finance Charge Receivables in accordance with the Pooling
Agreement, but excluding the portion of collections of Finance Charge
Receivables attributable to Interchange that is allocable to Servicer
Interchange); (ii) if such Monthly Period relates to a Distribution Date that
occurs on or after the Class B Principal Commencement Date, the Principal
Funding Investment Proceeds, if any, with respect to the related Distribution
Date; (iii) if applicable, the Class B Certificateholders' pro rata portion of
interest and other investment income (net of losses and investment expenses)
earned on amounts on deposit in the Prefunding Account; and (iv) amounts, if
any, to be withdrawn from the Reserve Account which are required to be included
in Class B Available Funds pursuant to the Series 1996-2 Supplement with respect
to such Distribution Date.
If the Class A Interest Funding Account and the Class B Interest Funding
Account are created (because the Interest Payment Dates occur less frequently
than monthly), then funds on deposit in the Class A Interest Funding Account and
the Class B Interest Funding Account generally will be invested in certain
Eligible Investments. For purposes of investments of funds in the Class B
Interest Funding Account, the term "highest rating" as used in the definition of
"Eligible Investments" shall include A-1 as well as A-1+, in the case of a
short-term rating by Standard & Poor's. Any earnings (net of losses and
investment expenses) on funds in the Class A Interest Funding Account and the
Class B Interest Funding Account will be paid to the Bank. If an Early
Amortization Period commences, then thereafter Class A Monthly Interest will be
distributed to the Class A Certificateholders monthly on each Special Payment
Date and Class B Monthly Interest will be distributed to the Class B
Certificateholders monthly on each Special Payment Date and any amounts on
deposit in the Class A Interest Funding Account and the Class B Interest Funding
Account will be distributed to the Class A Certificateholders and the Class B
Certificateholders, respectively, on the first Special Payment Date.
The Servicer will make all determinations and calculations relating to the
Class A Certificate Rate and the Class B Certificate Rate.
S-21
<PAGE> 22
If the Class A Certificate Rate is a Federal Funds-based rate then the
Class A Certificates will bear interest at a rate per annum equal to the sum of
Applicable Federal Funds Rates for each day during the applicable Interest
Period divided by the number of days in such Interest Period, plus the Class A
Certificate Rate Spread.
If the Class A Certificate Rate is a Federal Funds-based rate, the Class A
Certificate Rate will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point rounded upwards
(e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and
all dollar amounts resulting from any calculation using such rate will be
rounded to the nearest cent (with one-half cent being rounded upward). For
purposes of calculating the Applicable Federal Funds Rate, a business day is any
day other than a Saturday or Sunday in the City of New York that is not a day on
which banking institutions are authorized or required by law, regulation or
executive order to close.
If applicable, the Federal Funds Weekly Rate will reset on Monday of each
week, or if such day is not a business day, the next succeeding business day
(each, a "Federal Funds Reset Date"). If applicable, the Federal Funds Weekly
Rate applied to each day (the "Applicable Federal Funds Rate") will be (a) if
such day is a Federal Funds Reset Date, the Federal Funds Weekly Rate for such
day or (b) if such day is not a Federal Funds Reset Date, the Federal Funds
Weekly Rate on the immediately preceding Federal Funds Reset Date; provided,
however, that for each day from and including a Determination Date to but
excluding the Distribution Date relating to such Determination Date, the
Applicable Federal Funds Rate shall be the rate applied on the day immediately
preceding the Determination Date.
The "Federal Funds Weekly Rate" means, with respect to any Federal Funds
Reset Date (1) the average of the rate on Federal Funds for the 7 calendar days
ending on the Wednesday of the immediately preceding week with the rates for
non-business days assumed as the rate as of the immediately preceding business
day (each a "Federal Funds Determination Period"), as published in H.15(519)
under the heading "Federal funds (effective)" or, (2) if not published by 3:00
p.m., New York City time on the business day next succeeding such Federal Funds
Reset Date, the average of the rates for each day in the Federal Funds
Determination Period as published on Bloomberg FEDL01 Index GPO GO Page Forward
("Bloomberg") under the heading "FED EFFECTIVE" and under the column "CLOSE,"
with any day for which no rate is specified assumed to be the rate on the
immediately preceding day for which a rate was published on Bloomberg. If such
rate is not published in H.15(519) and no rates are published on Bloomberg for
the related Federal Funds Determination Period, the Federal Funds Weekly Rate
will be the average of the rates for each day in the Federal Funds Determination
Period as published, with respect to each day, on the next succeeding business
day in The Wall Street Journal for near closing bid, with any day for which no
rate is specified assumed to be the rate on the immediately preceding day for
which a rate was published in The Wall Street Journal. Notwithstanding the
above, if for any day a rate other than the average weekly rate published in
H.15(519) is used, and such rate subsequently is published in H.15(519) prior to
the next Federal Funds Reset Date, then the rate as published in H.15(519) shall
be considered the Federal Funds Weekly Rate as it applies to each day following
the day of publication of such rate in H.15(519) but prior to the next Federal
Funds Reset Date.
"H.15(519)" means the weekly statistical release designated as such,
published by the Board of Governors of the Federal Reserve System (or such other
release which may replace H.15(519)).
If either the Class A Certificate Rate or the Class B Certificate Rate is a
LIBOR-based rate, then the Servicer will determine LIBOR (i) for the initial
Interest Period on the second business day prior to the Series Issuance Date and
(ii) for each Interest Period following the initial Interest Period on the
second business day prior to the commencement of such Interest Period (each a
"LIBOR Determination Date"). For purposes of calculating LIBOR, a business day
is any day on which dealings in deposits in U.S. Dollars are transacted in the
London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
U.S. Dollars for a period equal to the relevant Interest Period (commencing on
the first day of such Interest Period) which appears on Telerate Page 3750 as of
11:00 a.m., London Time, on such date. If such rate does not appear on Telerate
Page 3750, the rate for that day will be determined on the basis of the rates at
which deposits in U.S. Dollars are offered by the Reference Banks at
approximately 11:00 a.m., London Time, on that day to prime banks in the London
interbank market for a period equal to the relevant Interest Period (commencing
on the first day of such Interest Period). The Servicer will request the
principal London office of each of the Reference Banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate for the day
will be the arithmetic mean of the quotations. If fewer than two quotations are
provided as requested, the rate for that day will be the arithmetic mean of the
rates quoted by major banks in New York City, selected by the Servicer, at
approximately 11:00 a.m., New York City time, on that day for loans in U.S.
Dollars to leading
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international banks for a period equal to the relevant Interest Period
(commencing on the first day of such Interest Period).
"Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Servicer.
"Interest Period" means, with respect to any Payment Date, a period from
and including the preceding Payment Date to but excluding such Payment Date;
provided, however, that the initial Interest Period will constitute a period
from and including the Series Issuance Date to but excluding the January 1997
Distribution Date.
PREFUNDING ACCOUNT
If the Summary of Terms herein designates Series 1996-2 a Prefunded Series,
then the Servicer will establish and maintain in the name of the Trustee, on
behalf of the Trust, the Prefunding Account as an Eligible Deposit Account held
for the benefit of the Investor Certificateholders and the Collateral
Indebtedness Holder. If applicable, funds on deposit in the Prefunding Account
will be withdrawn on the Funding Dates and paid to the Seller, and the Invested
Amount will be increased by a corresponding amount, to the extent that the
principal amount of the Seller's Interest on such day exceeds the Required
Funding Percentage specified in the Summary of Terms of the sum of the aggregate
amount of Principal Receivables in the Trust and amounts on deposit in the
Excess Funding Account on such day; provided, however, that the Invested Amount
will in no event exceed the Initial Investor Amount or increase by an amount in
excess of the Prefunded Amount immediately prior to giving effect to such
increase. Should the Prefunded Amount be greater than zero at the end of the
Funding Period, any principal amounts remaining on deposit in the Prefunding
Account will be withdrawn for pro rata distribution to the Class A
Certificateholders, the Class B Certificateholders and the Collateral
Indebtedness Holder on the next succeeding Distribution Date.
All amounts on deposit in the Prefunding Account, if applicable, will be
invested by the Trustee in Eligible Investments. On each Distribution Date with
respect to the Funding Period, the amount of interest and other investment
income (net of losses and investment expenses) earned on amounts on deposit in
the Prefunding Account during the preceding Monthly Period will be withdrawn
from the Prefunding Account and deposited into the Collection Account for
distribution to the Investor Certificateholders and the Collateral Indebtedness
Holder. Such investment income will be deemed to be collections of Finance
Charge Receivables allocable to the Investor Certificateholders' Interest and
the Collateral Indebtedness Interest for such Monthly Period.
PRINCIPAL PAYMENTS
During the Revolving Period (which begins on the Series Cut-Off Date and
ends on the day before the commencement of the Accumulation Period or, if
earlier, the Early Amortization Period or the Principal Payment Period), no
principal payments will be made to Investor Certificateholders (other than, if
applicable, principal payments made from amounts on deposit in the Prefunding
Account on the first Distribution Date following the end of the Funding Period).
During the Accumulation Period (on or prior to the respective Expected Final
Payment Date), principal will be deposited in the Principal Funding Account as
described below and on the Class A Expected Final Payment Date will be
distributed to Class A Certificateholders up to the Class A Invested Amount and
then to the Class B Certificateholders on the Class B Expected Final Payment
Date up to the Class B Invested Amount. The "Class B Expected Final Payment
Date" is the February 2002 Distribution Date. During the Early Amortization
Period, which will begin upon the occurrence of a Pay Out Event, or during the
Principal Payment Period, and until the Termination Date occurs, principal will
be paid first to the Class A Certificateholders until the Class A Invested
Amount has been paid in full, and then to the Class B Certificateholders until
the Class B Invested Amount has been paid in full. No principal payments will be
made in respect of the Collateral Indebtedness Amount (other than deposits to
the Cash Collateral Account and payments with respect to reductions in the
Required Collateral Amount) until the final principal payment has been made to
the Class A Certificateholders and the Class B Certificateholders.
On each Distribution Date during the Revolving Period, unless a reduction
in the Required Collateral Amount has occurred, collections of Principal
Receivables allocable to the Investor Certificateholders' Interest and the
Collateral Indebtedness Interest will, subject to certain limitations, including
the allocation of any Reallocated Principal Collections with respect to the
related Monthly Period to pay the Class A Required Amount and the Class B
Required Amount, be paid to the Bank to purchase additional Receivables in order
to maintain the Invested Amount, and if necessary, be
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<PAGE> 24
treated as Shared Principal Collections. If a reduction in the Required
Collateral Amount has occurred, collections of Principal Receivables allocable
to the Collateral Indebtedness Amount will be applied in accordance with the
Loan Agreement to reduce the Collateral Indebtedness Amount to the Required
Collateral Amount.
On each Distribution Date of the Class A Accumulation Period, the Trustee
will deposit in the Principal Funding Account an amount equal to the least of
(a) Available Investor Principal Collections on deposit in the Collection
Account with respect to such Distribution Date, (b) the applicable Controlled
Deposit Amount for such Distribution Date and (c) the Class A Adjusted Invested
Amount, until the Principal Funding Account Balance equals the Class A Invested
Amount. Amounts on deposit in the Principal Funding Account will be paid to the
Class A Certificateholders on the Class A Expected Final Payment Date. After the
Class A Invested Amount has been paid in full, on each Distribution Date during
the Class B Accumulation Period, amounts equal to the least of (a) Available
Investor Principal Collections on deposit in the Collection Account with respect
to such Distribution Date (minus the portion of such Available Investor
Principal Collections applied to Class A Monthly Principal on such Distribution
Date), (b) the applicable Controlled Deposit Amount for such Distribution Date
and (c) the Class B Adjusted Invested Amount will be deposited in the Principal
Funding Account until the Principal Funding Account Balance equals the Class B
Invested Amount. Amounts on deposit in the Principal Funding Account in respect
of the Class B Certificates will be paid to the Class B Certificateholders on
the Class B Expected Final Payment Date. During the Accumulation Period until
the final principal payment to the Class B Certificateholders, collections of
Principal Receivables allocable to the Collateral Indebtedness Amount (other
than Reallocated Principal Collections that are used to pay the Class A Required
Amount or the Class B Required Amount and collections used to make payments with
respect to reductions in the Required Collateral Amount) will generally be paid
to the Bank to purchase additional Receivables in order to maintain the Invested
Amount and, if necessary, be treated as Shared Principal Collections.
If a Pay Out Event or, if Series 1996-2 is an Extendable Series, a
Principal Payment Event occurs with respect to Series 1996-2, the Early
Amortization Period or the Principal Payment Period will commence and (i) any
amount on deposit in the Principal Funding Account will be paid first to the
Class A Certificateholders on the first Special Payment Date and then, to the
extent the Class A Invested Amount is paid in full, to the Class B
Certificateholders and (ii) any amount on deposit in the Prefunding Account will
be distributed to the Investor Certificateholders and the Collateral
Indebtedness Holder on a pro rata basis based on the Class A Initial Invested
Amount, the Class B Initial Invested Amount and the Collateral Initial
Indebtedness Amount, respectively. If, on an Expected Final Payment Date, monies
on deposit in the Principal Funding Account are insufficient to pay the
scheduled principal amount, a Pay Out Event will occur and the Early
Amortization Period will commence. After payment in full of the Class A Invested
Amount, the Class B Certificateholders will be entitled to receive an amount
equal to the Class B Invested Amount.
"Available Investor Principal Collections" means, with respect to any
Monthly Period, an amount equal to the sum of (a) (i) an amount equal to the
product of the Principal Allocation Percentage of all collections of Principal
Receivables received during such Monthly Period multiplied by the sum of the
Class A Principal Percentage and the Class B Principal Percentage minus (ii) the
amount of Reallocated Principal Collections with respect to such Monthly Period
used to fund the Class A Required Amount (excluding certain Reallocated
Principal Collections that have resulted in a reduction of the Collateral
Indebtedness Amount), plus (b) the amount of Miscellaneous Payments, if any, for
such Monthly Period allocated to Series 1996-2, plus (c) any Shared Principal
Collections with respect to other Series that are allocated to Series 1996-2,
plus (d) the amount, if any, of Class A Available Funds to be distributed to
cover the Class A Investor Default Amount with respect to the related
Distribution Date, plus (e) any other amounts which pursuant to the Series
1996-2 Supplement are to be treated as Available Investor Principal Collections
with respect to the related Distribution Date.
The Class A Accumulation Period is scheduled to commence at the close of
business on the last day of the March 2000 Monthly Period. However, the Servicer
may elect to postpone the commencement of the Class A Accumulation Period, and
extend the length of the Revolving Period, subject to certain conditions
including those set forth below. The Servicer may make such election only if the
Class A Accumulation Period Length (determined as described below) is less than
twenty months. On each Determination Date until the Class A Accumulation Period
begins, the Servicer will determine the "Class A Accumulation Period Length",
which is the number of months expected to be required to fully fund the
Principal Funding Account no later than the Class A Expected Final Payment Date,
based on (i) the expected monthly collections of Principal Receivables expected
to be distributable to the Certificateholders of all Series (excluding certain
other Series), assuming a principal payment rate no greater than the lowest
monthly principal payment rate on the Receivables for the preceding twelve
months and (ii) the amount of principal expected to be distributable to
Certificateholders of all Series (excluding certain other Series) which are not
expected to be in their revolving period
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<PAGE> 25
during the Class A Accumulation Period. If the Class A Accumulation Period
Length is less than twenty months, the Servicer may, at its option, postpone the
commencement of the Class A Accumulation Period such that the number of months
included in the Class A Accumulation Period will be equal to or exceed the Class
A Accumulation Period Length. The effect of the foregoing calculation is to
permit the reduction of the length of the Class A Accumulation Period based on
the invested amounts of certain other Series which are expected to be in their
revolving periods during the Class A Accumulation Period or on increases in the
principal payment rate occurring after the Series Issuance Date. Notwithstanding
the above, the Series 1996-2 Supplement may require that the number of months in
the Class A Accumulation Period exceed the Class A Accumulation Period Length
and that certain minimum deposits be made to the Principal Funding Account
during the Class A Accumulation Period. The length of the Class A Accumulation
Period will not be less than one month. If the commencement of the Class A
Accumulation Period is delayed in accordance with the foregoing, and if a Pay
Out Event occurs after the date originally scheduled as the commencement of the
Class A Accumulation Period, then it is probable that the Class A
Certificateholders would receive some of their principal later than if the
Accumulation Period had not been delayed.
On each Distribution Date during the Early Amortization Period or the
Principal Payment Period until the Class A Invested Amount has been paid in full
or the Termination Date occurs, the Class A Certificateholders will be entitled
to receive Available Investor Principal Collections in an amount up to the Class
A Invested Amount. After payment in full of the Class A Invested Amount, the
Class B Certificateholders will be entitled to receive on each Distribution Date
Available Investor Principal Collections until the earlier of the date the Class
B Invested Amount is paid in full and the Termination Date. During the Early
Amortization Period or the Principal Payment Period, collections of Principal
Receivables allocable to the Collateral Indebtedness Interest will be deposited
in the Cash Collateral Account. Amounts will be retained in the Cash Collateral
Account at its required level and be made available to cover shortfalls with
respect to the Class A Certificates and the Class B Certificates. See "-- Cash
Collateral Account".
SUBORDINATION
The Class B Certificateholders' Interest and the Collateral Indebtedness
Interest will be subordinated to the extent necessary to fund certain payments
with respect to the Class A Certificates. In addition, the Collateral
Indebtedness Interest will be subordinated to the extent necessary to fund
certain payments with respect to the Class B Certificates. Certain principal
payments otherwise allocable to the Class B Certificateholders may be
reallocated to the Class A Certificateholders and the Class B Invested Amount
may be decreased. Similarly, certain principal payments allocable to the
Collateral Indebtedness Interest may be reallocated to the Class A
Certificateholders and the Class B Certificateholders and the Collateral
Indebtedness Amount may be reduced. To the extent the Class B Invested Amount is
reduced, the percentage of collections of Finance Charge Receivables allocated
to the Class B Certificateholders in subsequent Monthly Periods will be reduced.
Moreover, to the extent the amount of such reduction in the Class B Invested
Amount is not reimbursed, the amount of principal and interest distributable to
the Class B Certificateholders will be reduced. See "-- Allocation Percentages",
"-- Reallocation of Cash Flows", and "-- Excess Spread; Excess Finance Charges"
herein.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, the Servicer will allocate among the
Investor Certificateholders' Interest and the Collateral Indebtedness Interest,
the certificateholders' interest for all other Series of certificates issued and
outstanding and the Seller's Interest all collections of Finance Charge
Receivables and Principal Receivables and the Defaulted Amount with respect to
such Monthly Period.
Collections of Finance Charge Receivables and the Defaulted Amount with
respect to any Monthly Period will be allocated to Series 1996-2 based on the
Floating Allocation Percentage. The "Floating Allocation Percentage" means, with
respect to any Monthly Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is the sum of the
Adjusted Invested Amount as of the last day of the preceding Monthly Period (or
with respect to the first Monthly Period, the Initial Invested Amount as of the
Series Issuance Date) and the denominator of which is the sum of the total
amount of the Principal Receivables in the Trust as of such day (or with respect
to the first Monthly Period, the total amount of Principal Receivables in the
Trust on the Series Cut-Off Date) and the principal amount on deposit in the
Excess Funding Account as of such day; provided, however, that if (i) Series
1996-2 is a Prefunded Series and (ii) the Invested Amount has increased during
the previous Monthly Period as a result of an increase in the amount of
Principal Receivables in the Trust, then the numerator above shall instead be
equal to an average Adjusted Invested Amount for such Monthly Period. Such
amounts so allocated will be further allocated between the Class A
Certificateholders, the Class B Certificateholders and the Collateral
Indebtedness Holder
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<PAGE> 26
in accordance with the Class A Floating Percentage, the Class B Floating
Percentage and the Collateral Floating Percentage, respectively. The "Class A
Floating Percentage" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the Class A Adjusted Invested Amount as of the
close of business on the last day of the preceding Monthly Period (or with
respect to the first Monthly Period, as of the Series Issuance Date) and the
denominator of which is equal to the Adjusted Invested Amount as of the close of
business on such day (or with respect to the first Monthly Period, the Initial
Invested Amount). The "Class B Floating Percentage" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the Class B Adjusted
Invested Amount as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, as of the Series
Issuance Date) and the denominator of which is equal to the Adjusted Invested
Amount at the close of business on such day (or with respect to the first
Monthly Period, the Initial Invested Amount). The "Collateral Floating
Percentage" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is the Collateral Indebtedness Amount as of the close of business on the last
day of the preceding Monthly Period (or with respect to the first Monthly
Period, as of the Series Issuance Date) and the denominator of which is equal to
the Adjusted Invested Amount as of the close of business on such day (or with
respect to the first Monthly Period, the Initial Invested Amount).
Collections of Principal Receivables will be allocated to Series 1996-2
based on the Principal Allocation Percentage. The "Principal Allocation
Percentage" means, with respect to any Monthly Period, the percentage equivalent
(which percentage shall never exceed 100%) of a fraction, the numerator of which
is (a) during the Revolving Period, the Invested Amount as of the last day of
the immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Series Issuance Date) and (b) during the Accumulation Period, the
Principal Payment Period or the Early Amortization Period, the Invested Amount
as of the last day of the Revolving Period and the denominator of which is the
greater of (i) the sum of the total amount of Principal Receivables in the Trust
as of the last day of the immediately preceding Monthly Period and the principal
amount on deposit in the Excess Funding Account as of such last day (or, in the
case of the first Monthly Period, the Series Cut-Off Date) and (ii) the sum of
the numerators used to calculate the principal allocation percentages for all
Series outstanding as of the date as to which such determination is being made;
provided, however, that if (i) Series 1996-2 is designated a Prefunded Series in
the Summary of Terms herein, and (ii) the Invested Amount has increased during
the previous Monthly Period as a result of payments made to the Seller from
amounts on deposit in the Prefunding Account, then the numerator referred to in
(a) above shall instead be equal to an average Adjusted Invested Amount for such
Monthly Period; and provided further, however, that because the Investor
Certificates are subject to being paired with a future Series, if a Pay Out
Event occurs with respect to such a paired Series during the Accumulation
Period, the Principal Payment Period or the Early Amortization Period with
respect to Series 1996-2, the Bank may, by written notice delivered to the
Trustee and the Servicer, designate a different numerator for the foregoing
fraction, provided that such numerator is not less than the Adjusted Invested
Amount as of the last day of the revolving period for such paired Series and the
Bank shall have received written notice from each Rating Agency that such
designation will not have a Ratings Effect and the Bank shall have delivered to
the Trustee a certificate of an authorized officer to the effect that, based on
the facts known to such officer at the time, in the reasonable belief of the
Bank, such designation will not cause a Pay Out Event or an event that, after
the giving of notice or the lapse of time, would constitute a Pay Out Event, to
occur with respect to Series 1996-2. Such amounts so allocated to the Investor
Certificateholders will be further allocated between the Class A
Certificateholders and the Class B Certificateholders based on the Class A
Principal Percentage and the Class B Principal Percentage, respectively. The
"Class A Principal Percentage" means, with respect to any Monthly Period (a)
during the Revolving Period, the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is equal to the Class A Invested
Amount as of the last day of the immediately preceding Monthly Period (or, in
the case of the first Monthly Period, the Class A Initial Invested Amount), and
the denominator of which is equal to the Invested Amount as of such day (or, in
the case of the first Monthly Period, the Initial Series 1996-2 Invested Amount)
and (b) during the Accumulation Period, the Principal Payment Period or the
Early Amortization Period, the percentage equivalent (which shall never exceed
100%) of a fraction, the numerator of which is the Class A Invested Amount as of
the last day of the Revolving Period, and the denominator of which is the
Invested Amount as of such last day. The "Class B Principal Percentage" means,
with respect to any Monthly Period, (i) during the Revolving Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is the Class B Invested Amount as of the last day of the
immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Class B Initial Invested Amount) and the denominator of which is the
Invested Amount as of such day (or, in the case of the first Monthly Period, the
Series 1996-2 Initial Invested Amount) and (ii) during the Accumulation Period,
the Principal Payment Period or the
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Early Amortization Period, the percentage equivalent (which percentage shall
never exceed 100%) of a fraction, the numerator of which is the Class B Invested
Amount as of the last day of the Revolving Period, and the denominator of which
is the Invested Amount as of such last day. Collections of Principal Receivables
allocable to Series 1996-2 and not allocated to the Class A Certificateholders
or the Class B Certificateholders will be allocated, in an amount up to the
Collateral Indebtedness Amount, to the Collateral Indebtedness Holder.
As used herein, the following terms have the meanings indicated:
"Class A Invested Amount" for any date means an amount equal to (i) the
Class A Initial Invested Amount, minus (ii) the amount of principal payments
made to the Class A Certificateholders on or prior to such date (other than, if
applicable, principal payments made from amounts on deposit in the Prefunding
Account on the first Distribution Date following the end of the Funding Period),
minus (iii) the excess, if any, of the aggregate amount of Class A Investor
Charge-Offs for all prior Distribution Dates over the aggregate amount of any
reimbursements of Class A Investor Charge-Offs for all Distribution Dates prior
to such date, plus (iv) if applicable, the amount of any increases in the Class
A Invested Amount during the Funding Period as a result of payments made to the
Seller from amounts on deposit in the Prefunding Account.
"Class B Invested Amount" for any date means an amount equal to (i) the
Class B Initial Invested Amount, minus (ii) the amount of principal payments
made to Class B Certificateholders on or prior to such date (other than, if
applicable, principal payments made from amounts on deposit in the Prefunding
Account on the first Distribution Date following the end of the Funding Period),
minus (iii) the excess, if any, of the aggregate amount of Class B Investor
Charge-Offs for all prior Distribution Dates over the aggregate amount of any
reimbursement of Class B Investor Charge-Offs for all Distribution Dates
preceding such date, minus (iv) the aggregate amount of Reallocated Principal
Collections for all prior Distribution Dates which have been used to fund the
Required Amount with respect to such Distribution Dates (excluding any
Reallocated Principal Collections that have resulted in a reduction of the
Collateral Indebtedness Amount), minus (v) an amount equal to the amount by
which the Class B Invested Amount has been reduced to fund the Class A Investor
Default Amount on all prior Distribution Dates as described under "Class A
Investor Charge-Offs", plus (vi) the aggregate amount of Excess Spread and
Excess Finance Charges allocated to Series 1996-2 and applied on all prior
Distribution Dates for the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (iii), (iv) and (v), plus (vii) if applicable, the amount
of any increases in the Class B Invested Amount during the Funding Period as a
result of payments made to the Seller from amounts on deposit in the Prefunding
Account.
"Class A Adjusted Invested Amount", for any date of determination, means an
amount equal to the then current Class A Invested Amount, minus the funds on
deposit in the Principal Funding Account on such date.
"Class B Adjusted Invested Amount", for any date of determination, means
(a) if such date occurs prior to the Class B Principal Commencement Date, an
amount equal to the Class B Invested Amount and (b) if such date occurs on or
after the Class B Principal Commencement Date, an amount equal to the Class B
Invested Amount minus the funds on deposit in the Principal Funding Account on
such date.
"Collateral Indebtedness Amount" means an amount equal to (i) the
Collateral Initial Indebtedness Amount, minus (ii) the aggregate amount of
deposits made to the Cash Collateral Account from Principal Collections, minus
(iii) the aggregate amount of Reallocated Principal Collections allocable to the
Collateral Indebtedness Amount for all prior Distribution Dates which have been
used to fund the Class A Required Amount or the Class B Required Amount, minus
(iv) an amount equal to the aggregate amount by which the Collateral
Indebtedness Amount has been reduced to fund the Class A Investor Default Amount
and the Class B Investor Default Amount on all prior Distribution Dates as
described under "-- Defaulted Receivables; Investor Charge-Offs", minus (v) an
amount equal to the product of the Collateral Floating Percentage and the
Investor Default Amount (the "Collateral Defaulted Amount") with respect to any
Distribution Date that is not funded out of Excess Spread and Excess Finance
Charges allocated to Series 1996-2 and available for such purpose on such
Distribution Date, plus (vi) the aggregate amount of Excess Spread and Excess
Finance Charges allocated and available to reimburse amounts deducted pursuant
to the foregoing clauses (iii), (iv) and (v), plus (vii) if applicable, the
amount of any increases in the Collateral Indebtedness Amount during the Funding
Period as a result of payments made to the Seller from amounts on deposit in the
Prefunding Account; provided, however, that the Collateral Indebtedness Amount
may not be reduced below zero.
"Invested Amount", for any date, means an amount equal to the sum of the
Class A Invested Amount, the Class B Invested Amount and the Collateral
Indebtedness Amount.
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"Class A Investor Amount" for any date means an amount equal to the sum of
the Class A Invested Amount plus the product of (i) a fraction, the numerator of
which is the Class A Initial Investor Amount and the denominator of which is the
Initial Investor Amount and (ii) the amount, if any, on deposit in the
Prefunding Account, if applicable.
"Class B Investor Amount" for any date means an amount equal to the sum of
the Class B Invested Amount plus the product of (i) a fraction, the numerator of
which is the Class B Initial Investor Amount and the denominator of which is the
Initial Investor Amount and (ii) the amount, if any, on deposit in the
Prefunding Account, if applicable.
"Collateral Investor Amount" for any date means an amount equal to the sum
of the Collateral Indebtedness Amount plus the product of (i) a fraction, the
numerator of which is the Collateral Initial Investor Amount and the numerator
of which is the Initial Invested Amount and (ii) the amount, if any, on deposit
in the Prefunding Account, if applicable.
"Investor Amount" for any date means an amount equal to the sum of the
Invested Amount plus any amounts on deposit in the Prefunding Account, if
applicable.
PRINCIPAL FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the trustee, on
behalf of the Trust, the Principal Funding Account, as an Eligible Deposit
Account held for the benefit of the Investor Certificateholders. During the
Accumulation Period, the Servicer will transfer collections in respect of
Principal Receivables, Shared Principal Collections allocated to Series 1996-2,
Miscellaneous Payments allocated to Series 1996-2 and other amounts described
herein to be treated in the same manner as collections of Principal Receivables
from the Collection Account to the Principal Funding Account as described under
"-- Application of Collections".
Unless a Pay Out Event or, if Series 1996-2 is an Extendable Series, a
Principal Payment Event has occurred with respect to the Investor Certificates,
all amounts on deposit in the Principal Funding Account (the "Principal Funding
Account Balance") on any Distribution Date (after giving effect to any deposits
to, or withdrawals from the Principal Funding Account to be made on such
Distribution Date) will be invested to the following Distribution Date by the
Trustee at the direction of the Servicer in Eligible Investments. On each
Distribution Date with respect to the Accumulation Period (on or prior to the
Class B Expected Final Payment Date) the interest and other investment income
(net of investment expenses and losses) earned on such investments (the
"Principal Funding Investment Proceeds") will be withdrawn from the Principal
Funding Account and will be treated as a portion of Class A Available Funds,
prior to the Class B Principal Commencement Date and, thereafter, Class B
Available Funds. If such investments with respect to any such Distribution Date
yield less than the applicable Certificate Rate, the Principal Funding
Investment Proceeds with respect to such Distribution Date will be less than the
Covered Amount for such following Distribution Date. It is intended that any
such shortfall will be funded from Class A Available Funds or Class B Available
Funds, as the case may be (including a withdrawal from the Reserve Account, if
necessary, as described under "-- Reserve Account"). The Available Reserve
Account Amount at any time will be limited and there can be no assurance that
sufficient funds will be available to fund any such shortfall. The "Covered
Amount" shall mean for any Distribution Date with respect to the Class A
Accumulation Period or the first Special Payment Date, if such Special Payment
Date occurs prior to the Class B Principal Commencement Date, an amount equal to
(i) if the Class A Certificate Rate is a fixed rate, one-twelfth of the product
of the Class A Certificate Rate and the Principal Funding Account Balance, if
any, as of the preceding Distribution Date, and (ii) if the Class A Certificate
Rate is a floating rate, the product of (A) a fraction, the numerator of which
is the actual number of days in the period from and including the preceding
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, (B) the Class A Certificate Rate and (C) the Principal Funding
Account Balance, if any, as of the preceding Distribution Date and (b) for any
Distribution Date with respect to the Class B Accumulation Period or the first
Special Payment Date, if such Special Payment Date occurs on or after the Class
B Principal Commencement Date, an amount equal to (i) if the Class B Certificate
Rate is a fixed rate, one-twelfth of the product of the Class B Certificate Rate
and the Principal Funding Account Balance, if any, as of the preceding
Distribution Date, and (ii) if the Class B Certificate Rate is a floating rate,
the product of (A) a fraction, the numerator of which is the actual number of
days in the period from and including the preceding Distribution Date and the
denominator of which is 360, (B) the Class B Certificate Rate and (C) the
Principal Funding Account Balance, if any, as of the preceding Distribution
Date.
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RESERVE ACCOUNT
The Servicer will establish and maintain in the name of the Trustee, on
behalf of the Trust, an Eligible Deposit Account for the benefit of the Investor
Certificateholders and the Collateral Indebtedness Holder (the "Reserve
Account"). The Reserve Account is established to assure the subsequent
distribution of interest on the Investor Certificates and the Collateral
Indebtedness Holder as provided in this Prospectus Supplement during the
Accumulation Period. On each Distribution Date from and after the Reserve
Account Funding Date, but prior to the termination of the Reserve Account, the
Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 1996-2 (to the extent
described below under "-- Application of Collections -- Payment of Interest,
Fees and Other Items") to increase the amount on deposit in the Reserve Account
(to the extent such amount is less than the Required Reserve Account Amount).
The "Reserve Account Funding Date" will be the Distribution Date with respect to
the Monthly Period which commences no later than three months prior to the
Distribution Date with respect to the Monthly Period which commences the Class A
Accumulation Period or such earlier date as the Servicer may designate. The
"Required Reserve Account Amount" for any Distribution Date on or after the
Reserve Account Funding Date will be equal to the product of $3,412,500 and the
Reserve Account Factor as of such Distribution Date. On each Distribution Date,
after giving effect to any deposit to be made to, and any withdrawal to be made
from, the Reserve Account on such Distribution Date, the Trustee will withdraw
from the Reserve Account an amount equal to the excess, if any, of the amount on
deposit in the Reserve Account over the Required Reserve Account Amount and
shall distribute such excess to the Collateral Indebtedness Holder for
application in accordance with the terms of the Loan Agreement. The "Reserve
Account Factor" for any Distribution Date will be equal to the percentage (not
to exceed 100%) equivalent of a fraction, the numerator of which is the number
of Monthly Periods scheduled to be included in the Accumulation Period (as such
may have been postponed at the option of the Servicer) as of such Distribution
Date and the denominator of which is twenty.
Provided that the Reserve Account has not terminated as described below,
all amounts on deposit in the Reserve Account on any Distribution Date (after
giving effect to any deposits to, or withdrawals from, the Reserve Account to be
made on such Distribution Date) will be invested to the following Distribution
Date by the Trustee at the direction of the Servicer in Eligible Investments.
The interest and other investment income (net of investment expenses and losses)
earned on such investments will be retained in the Reserve Account (to the
extent the amount on deposit therein is less than the Required Reserve Account
Amount) or deposited in the Collection Account and treated as collections of
Finance Charge Receivables.
On or before each Distribution Date with respect to the Accumulation Period
(on or prior to the Class A Expected Final Payment Date) and on the first
Special Payment Date, a withdrawal will be made from the Reserve Account, and
the amount of such withdrawal will be deposited in the Collection Account and
included in Class A Available Funds, prior to the Class B Principal Commencement
Date, and, thereafter, in Class B Available Funds, in an amount equal to the
lesser of (a) the Available Reserve Account Amount with respect to such
Distribution Date or Special Payment Date and (b) the excess, if any, of the
Covered Amount with respect to such Distribution Date or Special Payment Date
over the Principal Funding Investment Proceeds with respect to such Distribution
Date or Special Payment Date; provided that the amount of such withdrawal shall
be reduced to the extent that funds otherwise would be available to be deposited
in the Reserve Account on such Distribution Date or Special Payment Date. On
each Distribution Date, the amount available to be withdrawn from the Reserve
Account (the "Available Reserve Account Amount") will be equal to the lesser of
the amount on deposit in the Reserve Account (before giving effect to any
deposit to be made to the Reserve Account on such Distribution Date) and the
Required Reserve Account Amount for such Distribution Date.
The Reserve Account will be terminated following the earlier to occur of
(a) the termination of the Trust pursuant to the Pooling Agreement, (b) the date
on which the Investor Certificates are paid in full and (c) if the Accumulation
Period has not commenced, the occurrence of a Pay Out Event or a Principal
Payment Event with respect to Series 1996-2 or, if the Accumulation Period has
commenced, the earlier of the first Special Payment Date and the Class B
Expected Final Payment Date. Upon the termination of the Reserve Account, all
amounts on deposit therein (after giving effect to any withdrawal from the
Reserve Account on such date as described above) will be distributed to the
Collateral Indebtedness Holder for application in accordance with the terms of
Loan Agreement. Any amounts withdrawn from the Reserve Account and distributed
to the Collateral Indebtedness Holder as described above will not be available
for distribution to the Investor Certificateholders.
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REALLOCATION OF CASH FLOWS
With respect to each Distribution Date, on each Determination Date, the
Servicer will determine the amount (the "Class A Required Amount"), which will
be equal to the amount, if any, by which (a) the sum of (i) Class A Monthly
Interest for such Distribution Date, (ii) any Class A Outstanding Monthly
Interest, (iii) any Class A Additional Interest, (iv) the Class A Servicing Fee
for such Distribution Date and any unpaid Class A Servicing Fee and (v) the
Class A Investor Default Amount, if any, for such Distribution Date exceeds the
sum of (A) the amount of Principal Funding Investment Proceeds, if any, with
respect to such Distribution Date, (B) the Class A Floating Percentage of
collections of Finance Charge Receivables allocated to Series 1996-2 (including
any investment earnings treated as collections of Finance Charge Receivables in
accordance with the Pooling Agreement but excluding the portion of collections
of Finance Charge Receivables attributable to Interchange that is allocable to
Servicer Interchange), (C) if applicable, the Class A Certificateholders' pro
rata portion of interest and other investment income (net of losses and
investment expenses) earned on amounts on deposit in the Prefunding Account, and
(D) the amount of funds, if any, to be withdrawn from the Reserve Account and
allocated to the Class A Certificates pursuant to the Pooling Agreement. If the
Class A Required Amount is greater than zero, Excess Spread and Excess Finance
Charges allocated to Series 1996-2 and available for such purpose will be used
to fund the Class A Required Amount with respect to such Distribution Date. If
such Excess Spread and Excess Finance Charges available with respect to such
Distribution Date are less than the Class A Required Amount, amounts, if any, on
deposit in the Cash Collateral Account will then be used to fund the remaining
Class A Required Amount. If such Excess Spread and Excess Finance Charges and
amounts, if any, on deposit in the Cash Collateral Account are insufficient to
fund the Class A Required Amount, collections of Principal Receivables allocable
first to the Collateral Indebtedness Amount and then to the Class B Certificates
for the related Monthly Period ("Reallocated Principal Collections") will then
be used to fund the remaining Class A Required Amount. If Reallocated Principal
Collections with respect to the related Monthly Period, together with Excess
Spread and Excess Finance Charges allocated to Series 1996-2 and amounts, if
any, on deposit in the Cash Collateral Account are insufficient to fund the
Class A Required Amount for such related Monthly Period, then the Collateral
Indebtedness Amount will be reduced by the amount of such excess (but not by
more than the Class A Investor Default Amount for such Distribution Date). In
the event that such reduction would cause the Collateral Indebtedness Amount to
be a negative number, the Collateral Indebtedness Amount will be reduced to
zero, and the Class B Invested Amount will be reduced by the amount by which the
Collateral Indebtedness Amount would have been reduced below zero (but not by
more than the excess of the Class A Investor Default Amount, if any, for such
Distribution Date over the amount of such reduction, if any, of the Collateral
Indebtedness Amount with respect to such Distribution Date). In the event that
such reduction would cause the Class B Invested Amount to be a negative number,
the Class B Invested Amount will be reduced to zero, and the Class A Invested
Amount will be reduced by the amount by which the Class B Invested Amount would
have been reduced below zero, but not by more than the excess, if any, of the
Class A Investor Default Amount for such Distribution Date over the amount of
the reductions, if any, of the Collateral Indebtedness Amount and the Class B
Invested Amount with respect to such Distribution Date as described above. Any
such reduction in the Class A Invested Amount will have the effect of slowing or
reducing the return of principal and interest to the Class A Certificateholders.
In such case, the Class A Certificateholders will bear directly the credit and
other risks associated with their undivided interest in the Trust. See
"-- Defaulted Receivables; Investor Charge-Offs".
Reductions of the Class A or Class B Invested Amount shall thereafter be
reimbursed and the Class A or Class B Invested Amount increased on each
Distribution Date by the amount, if any, of Excess Spread and Excess Finance
Charges. See "-- Excess Spread; Excess Finance Charges". When such reductions of
the Class A and Class B Invested Amount have been fully reimbursed, reductions
of the Collateral Indebtedness Amount shall be reimbursed and the Collateral
Indebtedness Amount increased up to the Required Collateral Amount in a similar
manner.
With respect to each Distribution Date, on each Determination Date, the
Servicer will determine the amount (the "Class B Required Amount"), which will
be equal to the amount, if any, by which (a) the sum of (i) Class B Monthly
Interest for such Distribution Date, (ii) any Class B Outstanding Monthly
Interest, (iii) any Class B Additional Interest, (iv) the Class B Servicing Fee
for such Distribution Date and any unpaid Class B Servicing Fee and (v) the
Class B Investor Default Amount, if any, for such Distribution Date exceeds the
sum of collections of Finance Charge Receivables allocable to the Class B
Certificates. If the Class B Required Amount is greater than zero, Excess Spread
and Excess Finance Charges allocated to Series 1996-2 and not required to pay
the Class A Required Amount will be used to fund the Class B Required Amount
with respect to such Distribution Date. If such Excess Spread and Excess Finance
Charges available with respect to such Distribution Date are less than the Class
B Required Amount, amounts, if any, on deposit in the Cash Collateral Account
not required to fund the Class A Required Amount will then be used to fund the
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<PAGE> 31
remaining Class B Required Amount. If such Excess Spread and Excess Finance
Charges and amounts, if any, on deposit in the Cash Collateral Account are
insufficient to pay the Class B Required Amount, Reallocated Principal
Collections allocable to the Collateral Indebtedness Interest and not required
to pay the Class A Required Amount for the related Monthly Period will then be
used to fund the remaining Class B Required Amount. If such Reallocated
Principal Collections allocable to the Collateral Indebtedness Interest with
respect to the related Monthly Period are insufficient to fund the remaining
Class B Required Amount, then the Collateral Indebtedness Amount will be reduced
by the amount of such insufficiency (but not by more than the Class B Investor
Default Amount for such Distribution Date). In the event that such a reduction
would cause the Collateral Indebtedness Amount to be a negative number, the
Collateral Indebtedness Amount will be reduced to zero, and the Class B Invested
Amount will be reduced by the amount by which the Collateral Indebtedness Amount
would have been reduced below zero (but not by more than the excess of the Class
B Investor Default Amount for such Distribution Date over the amount of such
reduction of the Collateral Indebtedness Amount), and the Class B
Certificateholders will bear directly the credit and other risks associated with
their undivided interests in the Trust. See "-- Defaulted Receivables; Investor
Charge-Offs".
APPLICATION OF COLLECTIONS
Payment of Interest, Fees and Other Items. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply the Class A
Available Funds, Class B Available Funds and Collateral Available Funds (see
"-- Interest Payments" above) on deposit in the Collection Account in the
following priority:
(A) On each Distribution Date, an amount equal to the Class A Available
Funds with respect to such Distribution Date will be distributed in the
following priority:
(i) an amount equal to Class A Monthly Interest for such Distribution
Date, plus the amount of any Class A Outstanding Monthly Interest,
plus the amount of any Class A Additional Interest for such
Distribution Date will be (x) distributed to the Class A
Certificateholders, if Interest Payment Dates occur monthly, or (y)
deposited in the Class A Interest Funding Account, if Interest Payment
Dates occur less frequently than monthly;
(ii) an amount equal to the Class A Servicing Fee for such Distribution
Date, plus the amount of any Class A Servicing Fee previously due but
not distributed to the Servicer on a prior Distribution Date, will be
distributed to the Servicer (unless such amount has been netted
against deposits to the Collection Account);
(iii) an amount equal to the Class A Investor Default Amount for such
Distribution Date will be treated as a portion of Available Investor
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Spread and shall be
allocated and distributed as described under "-- Excess Spread;
Excess Finance Charges" below.
(B) On each Distribution Date, an amount equal to the Class B Available
Funds with respect to such Distribution Date will be distributed in the
following priority:
(i) an amount equal to Class B Monthly Interest for such Distribution
Date, plus the amount of any Class B Outstanding Monthly Interest,
plus the amount of any Class B Additional Interest for such
Distribution Date will be (x) distributed to the Class B
Certificateholders, if Interest Payment Dates occur monthly, or (y)
deposited in the Class B Interest Funding Account, if Interest Payment
Dates occur less frequently than monthly;
(ii) an amount equal to the Class B Servicing Fee for such Distribution
Date, plus the amount of any Class B Servicing Fee previously due but
not distributed to the Servicer on a prior Distribution Date, will be
distributed to the Servicer (unless such amount has been netted
against deposits to the Collection Account); and
(iii) the balance, if any, shall constitute Excess Spread and shall be
allocated and distributed as described under "-- Excess Spread;
Excess Finance Charges" below.
(C) On each Distribution Date, an amount equal to the Collateral Available
Funds with respect to such Distribution Date will be distributed in the
following priority:
(i) an amount equal to the Collateral Servicing Fee for such Distribution
Date, plus the amount of any Collateral Servicing Fee previously due
but not distributed to the Servicer on a prior Distribution Date, will
be distributed to the Servicer (unless such amount has been netted
against deposits to the Collection Account); and
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<PAGE> 32
(ii) the balance, if any, shall constitute Excess Spread and shall be
allocated and distributed as described under "-- Excess Spread;
Excess Finance Charges" below.
"Class A Monthly Interest" means, with respect to any Distribution Date, an
amount equal to (i) if the Class A Certificate Rate specified in the Summary of
Terms is a floating rate, the product of (A) a fraction, the numerator of which
is the actual number of days in the period from and including the preceding
Distribution Date and the denominator of which is 360, (B) the Class A
Certificate Rate and (C) the outstanding principal balance of the Class A
Certificates as of the preceding Record Date, or (ii) if the Class A Certificate
Rate specified in the Summary of Terms is a fixed rate, one-twelfth of the
product of the Class A Certificate Rate and the outstanding principal balance of
the Class A Certificates as of the preceding Record Date; provided, however,
with respect to the first Distribution Date, Class A Monthly Interest shall be
equal to the interest accrued on the outstanding principal balance of the Class
A Certificates at the Class A Certificate Rate for the period from the Series
Issuance Date to but excluding the first Distribution Date and provided further,
that, with respect to the first Distribution Date following the Monthly Period
in which an Additional Issuance Date occurs, Class A Monthly Interest shall be
increased by the amount equal to the product of (a) a fraction, the numerator of
which is the actual number of days in the period from and including such
Additional Issuance Date to but excluding such Distribution Date (which actual
number of days in the period shall be computed using a 30-day month if the Class
A Certificate Rate is a fixed rate) and the denominator of which is 360, (b) the
Class A Certificate Rate and (c) the increase in the outstanding principal
balance of the Class A Certificates as a result of such Additional Issuance.
"Class A Outstanding Monthly Interest" means, with respect to any
Distribution Date, the amount of Class A Monthly Interest previously due but not
(i) paid to the Class A Certificateholders or (ii) deposited in the Class A
Interest Funding Account, as applicable.
"Class A Additional Interest" means any additional interest with respect to
interest amounts that were due but not (i) distributed to the Class A
Certificateholders on a prior Payment Date or (ii) deposited in the Class A
Interest Funding Account on a prior Distribution Date, as applicable, at a rate
equal to the Class A Certificate Rate plus 2% per annum.
"Class B Monthly Interest" means, with respect to any Distribution Date, an
amount equal to (i) if the Class B Certificate Rate specified herein is a
floating rate, the product of (A) a fraction, the numerator of which is the
actual number of days in the period from and including the preceding
Distribution Date and the denominator of which is 360, (B) the Class B
Certificate Rate and (C) the outstanding principal balance of the Class B
Certificates as of the preceding Record Date, or (ii) if the Class B Certificate
Rate specified herein is a fixed rate, one-twelfth of the product of the Class B
Certificate Rate and the outstanding principal balance of the Class B
Certificates as of the preceding Record Date; provided, however, with respect to
the first Distribution Date, Class B Monthly Interest shall be equal to the
interest accrued on the outstanding principal balance of the Class B
Certificates at the Class B Certificate Rate for the period from the Series
Issuance Date to but excluding the first Distribution Date and provided further,
that, with respect to the first Distribution Date following the Monthly Period
in which an Additional Issuance Date occurs, Class B Monthly Interest shall be
increased by the amount equal to the product of (a) a fraction, the numerator of
which is the actual number of days in the period from and including such
Additional Issuance Date to but excluding such Distribution Date (which actual
number of days in the period shall be computed using a 30-day month if the Class
B Certificate Rate is a fixed rate) and the denominator of which is 360, (b) the
Class B Certificate Rate and (c) the increase in the outstanding principal
balance of the Class B Certificates as a result of such Additional Issuance.
"Class B Outstanding Monthly Interest" means, with respect to any
Distribution Date, the amount of Class B Monthly Interest previously due but not
(i) paid to the Class B Certificateholders or (ii) deposited in the Class B
Interest Funding Account, as applicable.
"Class B Additional Interest" means any additional interest with respect to
interest amounts that were due but not (i) distributed to the Class B
Certificateholders on a prior Payment Date or (ii) deposited in the Class B
Interest Funding Account on a prior Distribution Date, as applicable, at a rate
equal to the Class B Certificate Rate plus 2% per annum.
"Collateral Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Collateral Floating Percentage of the
collections of Finance Charge Receivables (including any investment earnings and
certain other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Pooling Agreement, but other than Finance
Charge Receivables allocated to Servicer Interchange with respect to such
Monthly Period) allocated to Series 1996-2 and (b) if applicable, the Collateral
Indebtedness Holder's pro rata portion of interest and other investment income
(net of losses and expenses) earned on amounts on deposit in the Prefunding
Account.
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<PAGE> 33
"Excess Spread" means, with respect to any Distribution Date, an amount
equal to the sum of the amounts described in clause (A) (iv) above, clause (B)
(iii) above and clause (C) (ii) above.
Excess Spread; Excess Finance Charges. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 1996-2 with respect to the
related Monthly Period to make the following distributions in the following
priority:
(a) an amount equal to the Class A Required Amount, if any, with respect to
such Distribution Date will be used to fund any deficiency pursuant to
clauses (A) (i), (ii) and (iii) above under "-- Payment of Interest,
Fees and Other Items" provided that, in the event the Class A Required
Amount for such Distribution Date exceeds the amount of Excess Spread
and Excess Finance Charges allocated to Series 1996-2, such Excess
Spread and Excess Finance Charges shall be applied first to pay amounts
due with respect to such Distribution Date pursuant to clause (A)(i)
above under "-- Payment of Interest, Fees and Other Items", second to
pay the Class A Servicing Fee pursuant to clause (A)(ii) above under
"-- Payment of Interest, Fees and Other Items" and third to pay the
Class A Investor Default Amount for such Distribution Date pursuant to
clause (A)(iii) above under "-- Payment of Interest, Fees and Other
Items";
(b) an amount equal to the aggregate amount of Class A Investor Charge-Offs
which have not been previously reimbursed (after giving effect to the
allocation on such Distribution Date of certain other amounts applied
for that purpose) will be treated as a portion of Available Investor
Principal Collections for such Distribution Date as described under
"-- Payments of Principal" below;
(c) an amount equal to the Class B Required Amount, if any, with respect to
such Distribution Date will be (I) used to fund any deficiency pursuant
to clauses (B)(i) and (ii) above under "-- Payment of Interest, Fees
and Other Items" and (II) applied, up to the Class B Investor Default
Amount, as a portion of Available Investor Principal Collections for
such Distribution Date; provided that, in the event the Class B
Required Amount for such Distribution Date exceeds the amount of Excess
Spread and Excess Finance Charges allocated to Series 1996-2, such
Excess Spread and Excess Finance Charges shall be applied first to pay
amounts due with respect to such Distribution Date pursuant to clause
(B)(i) above under "-- Payment of Interest, Fees and Other Items",
second to pay the Class B Servicing Fee pursuant to clause (B)(ii)
above under "-- Payment of Interest, Fees and Other Items" and the
remainder applied as a portion of Available Investor Principal
Collections for such Distribution Date pursuant to clause (c)(II);
(d) an amount equal to the aggregate amount by which the Class B Invested
Amount has been reduced pursuant to clauses (iii), (iv) and (v) of the
definition of "Class B Invested Amount" under "-- Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated
as a portion of Available Investor Principal Collections for such
Distribution Date;
(e) an amount equal to the sum of (I) Collateral Monthly Interest for such
Distribution Date, plus the amount of any Collateral Monthly Interest
previously due but not distributed to the Collateral Indebtedness
Holder on a prior Distribution Date and any Collateral Additional
Interest previously due but not distributed to the Collateral
Indebtedness Holder on a prior Distribution Date, and (II) the excess,
if any, of (A) the accrued and unpaid interest due on the CA Investor
Principal Balance (as defined in the Loan Agreement) at the Collateral
Rate pursuant to the Loan Agreement, over (B) the sum of the amount
available to be distributed on such Distribution Date pursuant to
clause (e)(I) above in respect of Collateral Monthly Interest and
Collateral Additional Interest and the amount available from earnings
on investments in the Cash Collateral Account and amounts on deposit
in the Retention Account (as defined in the Loan Agreement) for
payment of such accrued and unpaid interest, will be distributed to
the Collateral Indebtedness Holder for application in accordance with
the Loan Agreement; provided that, Excess Spread and Excess Finance
Charges shall be applied first to pay amounts due pursuant to clause
(e)(I) and then to pay amounts due pursuant to clause (e)(II);
(f) an amount equal to the Collateral Servicing Fee due but not paid to
the Servicer on such Distribution Date or a prior Distribution Date
shall be paid to the Servicer;
(g) an amount equal to the Collateral Default Amount shall be treated as a
portion of Collateral Principal Collections with respect to such
Distribution Date;
(h) an amount equal to the aggregate amount by which the Collateral
Indebtedness Amount has been reduced pursuant to clauses (iii), (iv)
and (v) of the definition of "Collateral Indebtedness Amount" under
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<PAGE> 34
"-- Allocation Percentages" above (but not in excess of the aggregate
amount of such reductions which have not been previously reimbursed)
shall be treated as a portion of Collateral Principal Collections for
such Distribution Date;
(i) an amount up to the excess, if any, of the Required Collateral Amount
over the remaining Available Collateral Amount (without giving effect
to any deposit to the Cash Collateral Account made on such date) shall
be deposited into the Cash Collateral Account;
(j) on each Distribution Date from and after the Reserve Account Funding
Date, but prior to the date on which the Reserve Account terminates as
described under "-- Reserve Account" above, an amount up to the
excess, if any, of the Required Reserve Account Amount over the
Available Reserve Account Amount shall be deposited into the Reserve
Account;
(k) an amount equal to the aggregate of any other amounts then due to the
Collateral Indebtedness Holder out of collections of Excess Spread and
Excess Finance Charges allocated to Series 1996-2 pursuant to the Loan
Agreement shall be distributed to the Collateral Indebtedness Holder
for application in accordance with the Collateral Agreement; and
(l) the balance, if any, will constitute a portion of Excess Finance
Charges for such Distribution Date and will be available for
allocation to other Series in Group One or to the Bank as described in
"Description of the Certificates -- Sharing of Excess Finance Charges"
in the Prospectus.
"Collateral Monthly Interest" means, with respect to any Distribution Date,
an amount equal to the product of (i) (A) a fraction, the numerator of which is
the actual number of days in the period from and including the preceding
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, times (B) the Collateral Rate and (ii) the Collateral Investor
Amount as of the preceding Record Date; provided, however, with respect to the
first Distribution Date, Collateral Monthly Interest shall be equal to the
interest accrued on the initial Collateral Investor Amount at the Collateral
Rate for the period from the Series Issuance Date to but excluding the first
Distribution Date.
"Collateral Rate" means a rate specified in the Loan Agreement not to
exceed one-month LIBOR plus 1% per annum.
"Collateral Additional Interest," with respect to any Distribution Date,
means additional interest with respect to Collateral Monthly Interest due but
not paid to the Collateral Indebtedness Holder on a prior Distribution Date at a
rate equal to the Collateral Rate.
Payments of Principal. On each Distribution Date, the Trustee, acting
pursuant to the Servicer's instructions, will distribute Available Investor
Principal Collections (see "-- Principal Payments" above) on deposit in the
Collection Account in the following priority:
(i) on each Distribution Date with respect to the Revolving Period, all
such Available Investor Principal Collections will be treated as
Shared Principal Collections and applied as described under
"Description of the Certificates -- Shared Principal Collections" in
the Prospectus;
(ii) on each Distribution Date with respect to the Accumulation Period,
the Principal Payment Period or the Early Amortization Period, all
such Available Investor Principal Collections will be distributed or
deposited in the following priority:
(w) an amount equal to Class A Monthly Principal, up to the Class A
Adjusted Invested Amount on such Distribution Date, will be
deposited in the Principal Funding Account or, if such
Distribution Date is a Special Payment Date on which the Principal
Funding Account Balance is zero, shall be distributed to the Class
A Certificateholders; and
(x) for each Distribution Date beginning on the Class B Principal
Commencement Date, an amount equal to Class B Monthly Principal
for such Distribution Date, up to the Class B Adjusted Invested
Amount on such Distribution Date, will be deposited in the
Principal Funding Account or, if such Distribution Date is a
Special Payment Date on which the Principal Funding Account
Balance is zero, shall be distributed to the Class B
Certificateholders;
(iii) on each Distribution Date with respect to the Accumulation Period,
the Principal Payment Period or the Early Amortization Period in
which a reduction in the Required Collateral Amount has occurred,
Available Investor
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Principal Collections not applied to Class A Monthly Principal or
Class B Monthly Principal will be applied to reduce the Collateral
Indebtedness Amount to the Required Collateral Amount.
"Class A Monthly Principal" with respect to any Distribution Date relating
to the Class A Accumulation Period, the Principal Payment Period or the Early
Amortization Period will equal the least of (i) the Available Investor Principal
Collections on deposit in the Collection Account with respect to such
Distribution Date, (ii) for each Distribution Date with respect to the Class A
Accumulation Period, and on or prior to the Class A Expected Final Payment Date,
the Controlled Deposit Amount for such Distribution Date and (iii) the Class A
Adjusted Invested Amount on such Distribution Date.
"Class B Monthly Principal" with respect to any Distribution Date relating
to the Class B Accumulation Period, the Principal Payment Period or the Early
Amortization Period, after the Class A Certificates have been paid in full, will
equal the least of (i) the Available Investor Principal Collections on deposit
in the Collection Account with respect to such Distribution Date (minus the
portion of such Available Principal Collections applied to Class A Monthly
Principal on such Distribution Date), (ii) for each Distribution Date with
respect to the Class B Accumulation Period, and on or prior to the Class B
Expected Final Payment Date, the Controlled Deposit Amount for such Distribution
Date and (iii) the Class B Adjusted Invested Amount on such Distribution Date.
"Controlled Accumulation Amount" means (a) for any Distribution Date with
respect to the Class A Accumulation Period, $30,000,000; provided, however,
that, if the commencement of the Class A Accumulation Period is delayed as
described above under "-- Principal Payments", the Controlled Accumulation
Amount may be different for each Distribution Date with respect to the Class A
Accumulation Period and will be determined by the Servicer in accordance with
the Pooling Agreement based on the principal payment rates for the Accounts and
on the invested amounts of other Series (other than certain excluded Series)
which are scheduled to be in their revolving periods and then scheduled to
create Shared Principal Collections during the Class A Accumulation Period; and
(b) for any Distribution Date with respect to the Class B Accumulation Period,
an amount equal to one-half of the Class B Invested Amount as of the Class B
Principal Commencement Date.
"Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, the excess, if any, of the Controlled Accumulation Amount
for such Distribution Date over the amount distributed from the Collection
Account as Class A Monthly Principal or Class B Monthly Principal, as the case
may be, for such Distribution Date and (b) on each subsequent Distribution Date
with respect to the Class A Accumulation Period or the Class B Accumulation
Period, the excess, if any, of the Controlled Deposit Amount for such subsequent
Distribution Date plus any Deficit Controlled Accumulation Amount for the prior
Distribution Date over the amount distributed from the Collection Account as
Class A Monthly Principal or Class B Monthly Principal, as the case may be, for
such subsequent Distribution Date.
"Controlled Deposit Amount" shall mean, for any Distribution Date with
respect to the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Distribution Date and any Deficit Controlled
Accumulation Amount for the immediately preceding Distribution Date.
CASH COLLATERAL ACCOUNT
The Trust will have the benefit of the Cash Collateral Account which will
be held in the name of the Trustee for the benefit of the Investor
Certificateholders and the Collateral Indebtedness Holder and will be invested
in certain obligations meeting the requirements for "Eligible Investments".
The initial amount on deposit in the Cash Collateral Account will be zero
and will increase as the Collateral Indebtedness Amount is reduced (i) to the
extent the Bank elects, provided the Bank shall have received written notice
from each Rating Agency that such election will not result in the downgrading or
withdrawal of the then current rating of the Series 1996-2 Certificates, to
deposit collections of Principal Receivables in the Cash Collateral Account and
(ii) through payments of principal with respect to the Collateral Indebtedness
Amount which are required to be deposited in the Cash Collateral Account.
Amounts on deposit in the Cash Collateral Account will also increase by the
deposit of Excess Spread and Excess Finance Charges allocable to Series 1996-2
to increase the Available Collateral Amount up to the Required Collateral
Amount. For a discussion of the extent to which withdrawals will be made from
the Cash Collateral Account to pay the Class A Required Amount and the Class B
Required Amount, see "-- Reallocation of Cash Flows". The Cash Collateral
Account will be terminated following the earlier to occur of (a) the date on
which the
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Class A Certificates and Class B Certificates are paid in full, (b) the Series
1996-2 Termination Date and (c) the final Termination Date of the Trust.
"Required Collateral Amount" means, with respect to any Distribution Date,
the product of (a) the sum of the Class A Adjusted Invested Amount, the Class B
Adjusted Invested Amount and the Collateral Indebtedness Amount, each as of such
Distribution Date after taking into account distributions made on such
Distribution Date and (b) 9%, subject to a minimum of $7,500,000; provided,
however, that (i) if there are any withdrawals from the Cash Collateral Account
to fund the Class A Required Amount or the Class B Required Amount, any
reductions in the Collateral Indebtedness Amount pursuant to clauses (iii), (iv)
or (v) of the definition of such amount, or a Pay Out Event occurs with respect
to Series 1996-2, then the Required Collateral Amount shall equal the Required
Collateral Amount on the Distribution Date immediately preceding such
withdrawal, reduction or Pay Out Event, (ii) in no event shall the Required
Collateral Amount exceed the sum of the Class A Adjusted Invested Amount and the
Class B Adjusted Invested Amount on any such date and (iii) the Required
Collateral Amount may be reduced without the consent of the Series 1996-2
Certificateholders, if the Seller shall have received written notice from each
Rating Agency that such reduction will not result in the reduction or withdrawal
of the then current rating of the Series 1996-2 Certificates and the Seller
shall have delivered to the Trustee a certificate of an authorized officer to
the effect that, based on the facts known to such officer at such time, in the
reasonable belief of the Seller, such reduction will not cause a Pay Out Event
or an event that, after the giving of notice or the lapse of time, would
constitute a Pay Out Event, to occur with respect to Series 1996-2.
With respect to any Distribution Date, if the Available Collateral Amount
is less than the Required Collateral Amount, certain Excess Spread and Excess
Finance Charges will be used to increase the Collateral Indebtedness Amount or
will be deposited into the Cash Collateral Account to the extent of such
shortfall. Any of such Excess Spread and Excess Finance Charges not required to
be so allocated or deposited into the Cash Collateral Account with respect to
any Distribution Date will be applied in accordance with a loan agreement
between the Bank, the Trustee and the Collateral Indebtedness Holder (the "Loan
Agreement").
If on any Distribution Date, the Available Collateral Amount exceeds the
Required Collateral Amount, such excess in the Cash Collateral Account will be
applied in accordance with the Loan Agreement and will not be available to the
Investor Certificateholders.
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
On each Determination Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (i) the Floating
Allocation Percentage with respect to such Monthly Period and (ii) the Defaulted
Amount for such Monthly Period. A portion of the Investor Default Amount will be
allocated to the Class A Certificateholders (the "Class A Investor Default
Amount") on each Distribution Date in an amount equal to the product of the
Class A Floating Percentage applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. A portion of the Investor
Default Amount will be allocated to the Class B Certificateholders (the "Class B
Investor Default Amount") in an amount equal to the product of the Class B
Floating Percentage applicable during the related Monthly Period and the
Investor Default Amount for such Monthly Period. An amount equal to the Class A
Investor Default Amount for each Monthly Period will be paid from Class A
Available Funds, Excess Spread and Excess Finance Charges allocated to Series
1996-2 or from amounts, if any, on deposit in the Cash Collateral Account and
Reallocated Principal Collections and applied as described above in
"-- Application of Collections -- Payment of Interest, Fees and Other Items" and
"-- Reallocation of Cash Flows". An amount equal to the Class B Investor Default
Amount for each Monthly Period will be paid from Excess Spread and Excess
Finance Charges allocated to Series 1996-2 or from amounts, if any, available
under the Cash Collateral Account and Reallocated Principal Collections
allocable to the Collateral Indebtedness Amount and applied as described above
in "-- Application of Collections -- Payment of Interest, Fees and other Items"
and "-- Reallocation of Cash Flows".
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 1996-2, amounts, if any, on deposit in the Cash Collateral
Account and Reallocated Principal Collections, the Collateral Indebtedness
Amount will be reduced by the amount of such excess, but not by more than the
Class A Investor Default Amount for such Distribution Date. In the event that
such reduction would cause the Collateral Indebtedness Amount to be a negative
number, the Collateral Indebtedness Amount will be reduced to zero, and the
Class B Invested Amount will be reduced by the amount by which the Collateral
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Indebtedness Amount would have been reduced below zero, but not by more than the
excess, if any, of the Class A Investor Default Amount for such Distribution
Date over the amount of such reduction, if any, of the Collateral Indebtedness
Amount with respect to such Distribution Date. In the event that such reduction
would cause the Class B Invested Amount to be a negative number, the Class B
Invested Amount will be reduced to zero, and the Class A Invested Amount will be
reduced by the amount by which the Class B Invested Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class A
Investor Default Amount for such Distribution Date over the amount of the
reductions, if any, of the Collateral Indebtedness Amount and the Class B
Invested Amount with respect to such Distribution Date as described above (a
"Class A Investor Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the Class A Certificateholders. If the Class
A Invested Amount has been reduced by the amount of any Class A Investor
Charge-Offs, it will thereafter be increased on any Distribution Date (but not
by an amount in excess of the aggregate Class A Investor Charge-Offs) by the
amount of Excess Spread and Excess Finance Charges allocated to Series 1996-2
and available for such purpose as described under "-- Excess Spread; Excess
Finance Charges".
On each Distribution Date, if the Class B Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 1996-2 and not required to pay the Class A Required Amount,
amounts, if any, on deposit in the Cash Collateral Account not required to pay
the Class A Required Amount and Reallocated Principal Collections allocable to
the Collateral Indebtedness Interest and not required to pay the Class A
Required Amount, then the Collateral Indebtedness Amount will be reduced by the
amount of such excess. In the event that such reduction would cause the
Collateral Indebtedness Amount to be a negative number, the Collateral
Indebtedness Amount will be reduced to zero, and the Class B Invested Amount
will be reduced by the amount by which the Collateral Indebtedness Amount would
have been reduced below zero, but not by more than the excess, if any, of the
Class B Investor Default Amount for such Distribution Date over the amount of
such reduction, if any, of the Collateral Indebtedness Amount with respect to
such Distribution Date (a "Class B Investor Charge-Off"). If the Class B
Invested Amount has been reduced by the amount of any Class B Investor
Charge-Offs, it will thereafter be increased on any Distribution Date (but not
by an amount in excess of the aggregate Class B Investor Charge-Offs) by the
amount of Excess Spread and Excess Finance Charges allocated to Series 1996-2
and available for such purpose as described under "-- Excess Spread; Excess
Finance Charges".
EXTENSION OF INITIAL PRINCIPAL PAYMENT DATE
Unless an Early Amortization Event has occurred, principal (other than, if
applicable, principal payments made from amounts on deposit in the Prefunding
Account on the first Distribution Date following the end of the Funding Period)
with respect to the Class A Certificates is expected to be paid on the Class A
Expected Final Payment Date and principal with respect to the Class B
Certificates is expected to be paid on the Class B Expected Final Payment Date,
provided, that if Series 1996-2 is designated an Extendable Series in the
Summary of Terms, the Investor Certificateholders will receive payments of
principal earlier than such dates if the Servicer elects not to extend the
Initial Principal Payment Date. The Initial Principal Payment Date will
initially be the date specified as such in the Summary of Terms, but will
successively be extended to the next Distribution Date after the then-current
Initial Principal Payment Date unless the Servicer, at least 30 days prior to
the then-current Initial Principal Payment Date, elects not to cause such
extension. In the event that the Servicer elects not to extend the Initial
Principal Payment Date, the Revolving Period or the Accumulation Period, as
applicable, will end, and the Principal Payment Period will commence. During the
Principal Payment Period, interest will be paid monthly on each Distribution
Date, and amounts then on deposit in the Principal Funding Account and Available
Investor Principal Collections with respect to each Distribution Date commencing
on the Initial Principal Payment Date will be paid first to the Class A
Certificateholders until the earlier of the date on which the Class A Invested
Amount is paid in full or the Series Termination Date, and, after payment in
full to the Class A Certificateholders, then to the Class B Certificateholders
until the earlier of the date on which the Class B Invested Amount is paid in
full or the Series Termination Date.
The payment in full of the Invested Amount on the Initial Principal Payment
Date is dependent on Available Investor Principal Collections with respect to
such date and any amounts then on deposit in the Principal Funding Account. With
respect to certain principal payments to be made prior to the Class A Expected
Final Payment Date, other Series will have priority over the Investor
Certificates in the allocation of Shared Principal Collections, as described
"Description of the Certificates -- Shared Principal Collections" in the
Prospectus.
The Servicer will cause the Trustee to provide written notice to each
Certificateholder, the Seller, each Rating Agency and the Collateral
Indebtedness Holder of any election by the Servicer not to extend the Initial
Principal Payment
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Date. The Servicer will cause the Trustee to provide such notice not more than
60 nor less than 30 days prior to the then-current Initial Principal Payment
Date.
ISSUANCE OF ADDITIONAL INVESTOR CERTIFICATES
The Series 1996-2 Supplement provides that, from time to time during the
Revolving Period, the Bank may, subject to certain conditions described below,
cause the Trustee to issue Additional Investor Certificates (each such issuance,
an "Additional Issuance"). When issued, the Additional Investor Certificates of
each class will be identical in all respects to the other outstanding
Certificates of that class and will be equally and ratably entitled to the
benefits of the Pooling Agreement and the Series 1996-2 Supplement without
preference, priority or distinction.
In connection with each Additional Issuance, the outstanding principal
amounts of the Class A Certificates and the Class B Certificates and the
aggregate amount of Credit Enhancement will all be increased pro rata. The
additional Credit Enhancement provided in connection with an Additional Issuance
may take the form of an increase in the Collateral Indebtedness Interest or
another form of Credit Enhancement, provided that the form and amount of
additional Credit Enhancement will not cause a Ratings Effect.
Following an Additional Issuance, the Controlled Accumulation Amounts of
each Class will be increased proportionately to reflect the principal amount of
Additional Investor Certificates.
Additional Investor Certificates may be issued only upon the satisfaction
of certain conditions provided in the Series 1996-2 Supplement, including the
following: (a) on or before the fifth business day immediately preceding the
date on which the Additional Investor Certificates are to be issued, the Bank
shall have given the Trustee, the Servicer and any provider of Credit
Enhancement written notice of such issuance and the date upon which it is to
occur; (b) after giving effect to the Additional Issuance, the total amount of
Principal Receivables shall be at least equal to the Required Principal Balance;
(c) the Bank shall have delivered to the Trustee any additional Credit
Enhancement agreement related to the Additional Issuance, executed by each of
the parties to such agreement; (d) the Bank shall have received written notice
from each Rating Agency that such Additional Issuance will not have a Ratings
Effect; (e) the Bank shall have delivered to the Trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at the time, in the reasonable belief of the Bank, such Additional Issuance will
not cause a Pay Out Event or an event that, after the giving of notice or the
lapse of time, would constitute a Pay Out Event, to occur with respect to Series
1996-2; (f) as of the date of the Additional Issuance and taking the Additional
Issuance into account, the amount of Credit Enhancement with respect to Series
1996-2, together with any additional Credit Enhancement, shall not be less than
the amount required so that the Additional Issuance will not result in a Ratings
Effect; (g) as of the date of the Additional Issuance, all amounts due and owing
to the holders of Investor Certificates shall have been paid, and there shall
not be any unreimbursed Class A Investor Charge-Offs or Class B Investor
Charge-Offs; (h) the excess of the principal amount of the Additional Investor
Certificates over their issue price shall not exceed the maximum amount
permitted under the Code without the creation of original issue discount, (i)
the Bank's remaining interest in Principal Receivables shall not be less than 2%
of the total amount of Principal Receivables, in each case as of the date upon
which the Additional Issuance is to occur after giving effect to such issuance;
and (j) the Bank shall have delivered to the Trustee a Tax Opinion with respect
to the Additional Issuance.
There are no restrictions on the timing or amount of any Additional
Issuance, provided that the conditions described above are met. As of the date
of any Additional Issuance, the Class A Invested Amount and the Class B Invested
Amount will be increased to reflect the initial principal balance of the
Additional Investor Certificates of the respective classes.
PAIRED SERIES
The Series 1996-2 Certificates may be paired with one or more other Series
(each a "Paired Series"). Each Paired Series either will be prefunded with an
initial deposit to a prefunding account in an amount up to the initial principal
balance of such Paired Series and primarily from the proceeds of the sale of
such Paired Series or will have a variable principal amount. Any such prefunding
account will be held for the benefit of such Paired Series and not for the
benefit of Investor Certificateholders. As funds are accumulated in the
Principal Funding Account, either (i) in the case of a prefunded Paired Series,
an equal amount of funds on deposit in any prefunding account for such prefunded
Paired Series will be released (which funds will be distributed to the Bank) or
(ii) in the case of a Paired Series having a variable principal amount, an
interest in such variable Paired Series in an equal or lesser amount may be sold
by the Trust (and the proceeds thereof will be distributed to the Bank) and, in
either case, the invested amount in the Trust of such Paired Series will
increase by up to a corresponding amount. Upon payment in full of Series 1996-2,
assuming that there have
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been no unreimbursed charge-offs with respect to any related Paired Series, the
aggregate invested amount of such related Paired Series will have been increased
by an amount up to an aggregate amount equal to the Invested Amount paid to the
Investor Certificateholders and the Collateral Indebtedness Holder. The issuance
of a Paired Series will be subject to the conditions described under
"Description of the Certificates -- New Issuances" in the Prospectus. There can
be no assurance, however, that the terms of any Paired Series might not have an
impact on the timing or amount of payments received by an Investor
Certificateholder. See "Special Considerations -- Master Trust
Considerations -- Issuance of Additional Series; Effect on Payments to
Certificateholders" in the Prospectus.
REQUIRED PRINCIPAL BALANCE; ADDITION OF ACCOUNTS
The obligation of the Trustee to authenticate certificates of a new Series
and to execute and deliver the related Series Supplement shall be subject to the
conditions described under "Description of the Certificates -- New Issuances" in
the Prospectus and to the additional condition that, as of the Series Issuance
Date and after giving effect to such issuance, the aggregate amount of Principal
Receivables in the Trust equals or exceeds the Required Principal Balance. The
"Required Principal Balance" means, as of any date of determination, the sum of
the "Initial Invested Amount" (as defined in the relevant Supplement) of each
Series outstanding on such date plus the aggregate amounts of any increases in
the Invested Amounts of each Prefunded Series outstanding (in each case, other
than any Series or portion thereof (an "Excluded Series") which is designated in
the relevant Supplement as then being an Excluded Series) minus the principal
amount on deposit in the Excess Funding Account on such date; provided, however,
that if at any time the only Series outstanding are Excluded Series and a Pay
Out Event has occurred with respect to one or more such Series, the Required
Principal Balance shall mean the sum of the "Invested Amount" (as defined in the
relevant Supplement) of each such Excluded Series as of the earliest date on
which any such Pay Out Event is deemed to have occurred minus the principal
amount on deposit in the Excess Funding Account.
If, as of the close of business on the last business day of any Monthly
Period, the aggregate amount of Principal Receivables in the Trust is less than
the Required Principal Balance on such date, the Bank shall on or before the
tenth business day following such day, unless the amount of Principal
Receivables in the Trust equals or exceeds the Required Principal Balance as of
the close of business on any day after the last business day of such Monthly
Period and prior to such tenth business day, make an Addition to the Trust such
that, after giving effect to such Addition, the amount of Principal Receivables
in the Trust is at least equal to the Required Principal Balance.
PAY OUT EVENTS
The Pay Out Events with respect to the Certificates will include each of
the events specified in the Prospectus under "Description of the
Certificates -- Pay Out Events" and the following:
(a) failure on the part of the Bank (i) to make any payment or deposit
required under the Pooling Agreement or the Series 1996-2 Supplement
within five business days after the day such payment or deposit is
required to be made; or (ii) to observe or perform any other covenants
or agreements of the Bank set forth in the Pooling Agreement or the
Series 1996-2 Supplement, which failure has a material adverse effect
on the Series 1996-2 Certificateholders and which continues unremedied
for a period of 60 days after written notice;
(b) any representation or warranty made by the Bank in the Pooling
Agreement or the Series 1996-2 Supplement or any information required
to be given by the Bank to the Trustee to identify the Accounts proves
to have been incorrect in any material respect when made and continues
to be incorrect in any material respect for a period of 60 days after
written notice and as a result of which the interests of the Series
1996-2 Certificateholders are materially and adversely affected;
provided, however, that a Pay Out Event shall not be deemed to occur
thereunder if the Bank has repurchased the related Receivables or all
such Receivables, if applicable, during such period in accordance with
the provisions of the Pooling Agreement;
(c) a failure by the Bank to make an Addition to the Trust within five
business days after the day on which it is required to make such
Addition pursuant to the Pooling Agreement or the Series 1996-2
Supplement;
(d) the occurrence of any Servicer Default;
(e) the average Portfolio Yield for any three consecutive Monthly Periods
is less than the average of the Base Rates with respect to Series
1996-2 for such three Monthly Periods;
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(f) the failure to pay in full the Class A Invested Amount on the Class A
Expected Final Payment Date, or the Class B Invested Amount on the
Class B Expected Final Payment Date; and
(g) the Bank is unable for any reason to transfer Receivables to the Trust
in accordance with the Pooling Agreement or the Series 1996-2
Supplement.
Then, in the case of any event described in subparagraph (a), (b) or (d),
after the applicable grace period, if any, set forth in such subparagraphs,
either the Trustee or the holders of Investor Certificates evidencing more than
50% of the aggregate unpaid principal amount of Series 1996-2 by notice then
given in writing to the Bank and the Servicer (and to the Trustee if given by
the Investor Certificateholders) may declare that a Pay Out Event has occurred
with respect to Series 1996-2 as of the date of such notice, and, in the case of
any event described in subparagraph (c), (e), (f) or (g), a Pay Out Event shall
occur with respect to Series 1996-2, without any notice or other action on the
part of the Trustee immediately upon the occurrence of such event.
For purposes of the foregoing discussion pertaining to Pay Out Events,
references to the Investor Certificates will include the Collateral Indebtedness
Interest.
For purposes of the Pay Out Event described in clause (e) above, the terms
"Base Rate" and "Portfolio Yield" will be defined as follows with respect to the
Investor Certificates:
"Base Rate" means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the
sum of Class A Monthly Interest, Class B Monthly Interest, Collateral
Monthly Interest and the Monthly Servicing Fee with respect to Series
1996-2 for the related Distribution Date and the denominator of which is
the Investor Amount as of the last day of the preceding Monthly Period;
provided, however, that if the Bank receives written notice from each
Rating Agency that the following will not have a Ratings Effect, for
purposes of determining the Base Rate, the Monthly Servicing Fee will be
replaced with an amount equal to one-twelfth of the product of (a) the Net
Servicing Fee Rate and (b) the Servicing Base Amount.
"Portfolio Yield" means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to (a)
the Floating Allocation Percentage of collections of Finance Charge
Receivables (including any investment earnings and certain other amounts
that are to be treated as collections of Finance Charge Receivables in
accordance with the Pooling Agreement) for such Monthly Period calculated
on a billed basis or, in the case of any such collections consisting of
annual membership fees, on an amortized rather than billed basis, plus (b)
the amount of Principal Funding Investment Proceeds for the related
Distribution Date, plus (c) if applicable, the amount of interest and other
investment income (net of losses and investment expenses) earned on amounts
on deposit in the Prefunding Account, plus (d) any Excess Finance Charges
that are allocated to Series 1996-2, plus (e) the amount of funds withdrawn
from the Reserve Account and which are required to be included as Class A
Available Funds or Class B Available Funds, in each case for the
Distribution Date with respect to such Monthly Period minus (f) the
Investor Default Amount for the Distribution Date with respect to such
Monthly Period, and the denominator of which is the Series 1996-2 Investor
Amount as of the last day of the preceding Monthly Period.
If the proceeds of any sale of the Receivables following the occurrence of
an Insolvency Event with respect to the Bank, as described in the Prospectus
under "Description of the Certificates -- Pay Out Events", allocated to the
Class A Invested Amount and the proceeds of any collections on the Receivables
in the Collection Account are not sufficient to pay in full the remaining amount
due on the Class A Certificates, the Class A Certificateholders will suffer a
corresponding loss and no such proceeds will be available to the Class B
Certificateholders. See "Certain Legal Aspects of the Receivables -- Certain
Matters Relating to Receivership" in the Prospectus for a discussion of the
impact of recent Federal legislation on the Trustee's ability to liquidate the
Receivables.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the Servicing Fee allocable to Series 1996-2 with respect to
any Distribution Date (the "Monthly Servicing Fee") shall be equal to
one-twelfth of the product of (a) 2.00% (the "Servicing Fee Rate") and (b) the
Adjusted Invested Amount as of the last day of the Monthly Period preceding such
Distribution Date (the amount calculated pursuant to this clause (b) is referred
to as the "Servicing Base Amount"); provided, however, that the Monthly
Servicing Fee with respect to the first Distribution Date will be equal to the
Servicing Fee accrued on the Initial Invested Amount at the Servicing Fee Rate
for the period from the Series Issuance Date to but excluding the first
Distribution Date. On each Distribution Date, but only if the Bank or The Bank
of New York is the Servicer, Servicer Interchange with respect to the related
Monthly Period that is on deposit in the Collection Account shall be withdrawn
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from the Collection Account and paid to the Servicer in payment of a portion of
the Monthly Servicing Fee with respect to such Monthly Period. The "Servicer
Interchange" for any Monthly Period for which the Bank or The Bank of New York
is the Servicer will be equal to the product of (a) the Floating Allocation
Percentage for such Monthly Period and
(b) the portion of Finance Charge Receivables allocated to the Investor
Certificates and the Collateral Indebtedness Amount with respect to such Monthly
Period that is attributed to Interchange; provided, however, that Servicer
Interchange for a Monthly Period shall not exceed one-twelfth of the product of
(i) the Servicing Base Amount as of the last day of such Monthly Period and (ii)
0.75%. In the case of any insufficiency of Servicer Interchange on deposit in
the Collection Account, a portion of the Monthly Servicing Fee with respect to
such Monthly Period will not be paid to the extent of such insufficiency and in
no event shall the Trust, the Trustee, the Investor Certificateholders or the
Collateral Indebtedness Holder be liable for the share of the Servicing Fee to
be paid out of Servicer Interchange.
The share of the Monthly Servicing Fee allocable to the Class A
Certificateholders (after giving effect to the distribution of any Servicer
Interchange to the Servicer) with respect to any Distribution Date (the "Class A
Servicing Fee") shall be equal to one-twelfth of the product of (a) the Class A
Floating Percentage, (b) the Net Servicing Fee Rate and (c) the Servicing Base
Amount; provided, however, with respect to the first Distribution Date, the
Class A Servicing Fee shall be equal to the Class A Certificateholders' share of
the Monthly Servicing Fee for the period from the Series Issuance Date to but
excluding the first Distribution Date. The "Net Servicing Fee Rate" means (a) so
long as the Bank is the Servicer, 0.75% per annum, (b) if The Bank of New York
is the Servicer, 1.25% per annum and (c) if the Bank or The Bank of New York is
not the Servicer, 2.00%. The share of the Monthly Servicing Fee allocable to the
Class B Certificateholders (after giving effect to any distribution of Servicer
Interchange to the Servicer) with respect to any Distribution Date (the "Class B
Servicing Fee") shall be equal to one-twelfth of the product of (a) the Class B
Floating Percentage, (b) the Net Servicing Fee Rate and (c) the Servicing Base
Amount; provided, however, with respect to the first Distribution Date, the
Class B Servicing Fee shall be equal to the Class B Certificateholders' share of
the Monthly Servicing Fee for the period from the Series Issuance Date to but
excluding the first Distribution Date. The share of the Monthly Servicing Fee
allocable to the Collateral Indebtedness Holder (after giving effect to the
distribution of any Servicer Interchange to the Servicer) with respect to such
Distribution Date (the "Collateral Servicing Fee") shall be equal to one-twelfth
of the product of (a) the Collateral Floating Percentage, (b) the Net Servicing
Fee Rate and (c) the Servicing Base Amount; provided, however, with respect to
the first Distribution Date, the Collateral Servicing Fee shall be equal to the
Collateral Indebtedness Holder's share of the Monthly Servicing Fee for the
period from the Series Issuance Date to but excluding the first Distribution
Date. The remainder of the Servicing Fee shall be paid by the Bank or the
certificateholders of other Series (as provided in the related Supplements) or,
to the extent of any insufficiency of Servicer Interchange as described above,
not be paid and in no event shall the Trust, the Trustee, the Investor
Certificateholders or the Collateral Indebtedness Holder be liable for the share
of the Servicing Fee to be paid by the Bank or the Certificateholders of any
other Series or to be paid out of Servicer Interchange. The Class A Servicing
Fee, the Class B Servicing Fee and the Collateral Servicing Fee shall be payable
to the Servicer solely to the extent amounts are available for distribution in
respect thereof as described under "-- Payment of Interest, Fees and Other
Items" above.
SERIES TERMINATION
If on the Distribution Date which is two months prior to the Termination
Date, the Invested Amount (after giving effect to all changes therein on such
date) exceeds zero, the Servicer will, within the 40-day period beginning on
such date, solicit bids for the sale of interests in the Principal Receivables
or certain Principal Receivables, together in each case with the related Finance
Charge Receivables, in an amount equal to the Invested Amount at the close of
business on the last day of the Monthly Period preceding the Termination Date
(after giving effect to all distributions required to be made on the Termination
Date). The Bank and the Collateral Indebtedness Holder will be entitled to
participate in, and to receive notice of each bid submitted in connection with,
such bidding process. Upon the expiration of such 40-day period, the Trustee
will determine (a) which bid is the highest cash purchase offer (the "Highest
Bid") and (b) the amount (the "Available Final Distribution Amount") which
otherwise would be available in the Collection Account on the Termination Date
for distribution to the Investor Certificateholders and the Collateral
Indebtedness Holder. The Servicer will sell such Receivables on the Termination
Date to the bidder who provided the Highest Bid and will deposit the proceeds of
such sale in the Collection Account for allocation (together with the Available
Final Distribution Amount) to the Investor Certificateholders' Interest and the
Collateral Indebtedness Interest.
S-41
<PAGE> 42
TAX MATTERS
Subject to the matters discussed under "Certain Federal Income Tax
Consequences" in the Prospectus, Tax Counsel will deliver its opinion that,
under existing law, the Class A Certificates offered hereby will properly be
characterized as debt for Federal income tax purposes.
REPORTS
No later than the fourth business day prior to each Distribution Date, the
Servicer will forward to the Trustee, the Paying Agent, each Rating Agency and
the Collateral Indebtedness Holder a statement (the "Monthly Report") prepared
by the Servicer setting forth certain information with respect to the Trust, the
Investor Certificates and the Collateral Indebtedness Amount, including: (a) the
aggregate amount of Principal Receivables and Finance Charge Receivables in the
Trust as of the end of such Monthly Period; (b) the Class A Invested Amount, the
Class B Invested Amount and the Collateral Indebtedness Amount at the close of
business on the last day of the preceding Monthly Period; (c) the Floating
Allocation Percentage and, during the Accumulation Period, the Principal Payment
Period or Early Amortization Period with respect to such Series, the Principal
Allocation Percentage with respect to the Investor Certificates and the
Collateral Indebtedness Interest; (d) the amount of collections of Principal
Receivables and Finance Charge Receivables processed during the related Monthly
Period and the portion thereof allocated to the Investor Certificateholders'
Interest and the Collateral Indebtedness Interest; (e) the aggregate outstanding
balance of Accounts which were 30, 60 and 90 days or more delinquent as of the
end of such Monthly Period; (f) the Defaulted Amount with respect to such
Monthly Period and the portion thereof allocated to the Investor
Certificateholders' Interest and the Collateral Indebtedness Interest; (g) the
amount, if any, of Class A Investor Charge-Offs, Class B Investor Charge-Offs
and the amounts by which the Collateral Indebtedness Amount has been reduced
pursuant to clauses (c), (d) and (e) of the definition of Collateral
Indebtedness Amount; (h) the Monthly Servicing Fee; (i) the Portfolio Yield for
such Monthly Period; (j) amounts, if any, on deposit in the Cash Collateral
Account for such Distribution Date and (k) Reallocated Principal Collections.
LEGAL MATTERS
Certain legal matters relating to the Class A Certificates will be passed
upon for the Underwriters by Cravath, Swaine & Moore, New York, New York.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Bank and the underwriters named below
(the "Underwriters"), the Bank has agreed to sell to the Underwriters, and each
of the Underwriters has severally agreed to purchase, the principal amount of
the Class A Certificates set forth opposite its name (the "Underwritten
Certificates"):
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
-------------------------------------------------------------------------------- ------------
<S> <C>
J.P. Morgan Securities Inc...................................................... $120,000,000
Chase Securities Inc. .......................................................... 120,000,000
Deutsche Morgan Grenfell Inc. .................................................. 120,000,000
NationsBanc Capital Markets, Inc. .............................................. 120,000,000
UBS Securities LLC.............................................................. 120,000,000
------------
Total................................................................. $600,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Underwritten Certificates are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. All of the Class A Certificates offered hereby will be issued
if any are issued. Under the terms and conditions of the Underwriting Agreement,
the Underwriters are committed to take and pay for all the Underwritten
Certificates offered hereby, if any are taken.
The Underwriters propose initially to offer the Class A Certificates to the
public at the price set forth on the cover page hereof and to certain dealers at
such price less concessions not in excess of .175% of the principal amount of
the
S-42
<PAGE> 43
Class A Certificates. The Underwriters may allow, and such dealers may reallow,
concessions not in excess of .125% of the principal amount of the Class A
Certificates to certain brokers and dealers. After the initial public offering,
the public offering price and other selling terms may be changed by the
Underwriters.
Each Underwriter has represented and agreed that:
(a) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Certificates in, from or otherwise involving the United
Kingdom;
(b) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue
of the Certificates to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or are persons to whom such document may
otherwise lawfully be issued or passed on;
(c) if it is an authorized person under Chapter III of part I of the
Financial Services Act 1986, it has only promoted and will only promote
(as that term is defined in Regulation 1.02(2) of the Financial
Services (Promotion of Unregulated Schemes) Regulations 1991) to any
person in the United Kingdom the scheme described in this Prospectus
Supplement and the Prospectus if that person is of a kind described
either in section 76(2) of the Financial Services Act 1986 or in
Regulation 1.04 of the Financial Services (Promotion of Unregulated
Schemes) Regulations 1991; and
(d) it is a person of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996.
The Bank will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
The closing of the sale of each class of Investor Certificates is
conditional upon the closing of the sale of the other class.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may engage in investment banking
and/or commercial banking transactions with the Bank and its affiliates.
S-43
<PAGE> 44
GLOSSARY FOR PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Accounts........................... S-1
Accumulation Period................ S-6
Additional Investor Certificates... S-5
Additional Issuance................ S-38
Adjusted Invested Amount........... S-4
Applicable Federal Funds Rate...... S-22
Available Collateral Amount........ S-9
Available Final Distribution
Amount........................... S-41
Available Investor Principal
Collections...................... S-24
Available Reserve Account Amount... S-29
Bank............................... S-1
Base Rate.......................... S-40
Bloomberg.......................... S-22
Cash Collateral Account............ S-9
Class A Accumulation Period........ S-6
Class A Accumulation Period
Length........................... S-24
Class A Additional Interest........ S-32
Class A Adjusted Invested Amount... S-4, S-27
Class A Available Funds............ S-20
Class A Certificate Rate........... S-2
Class A Certificateholders'
Interest......................... S-4
Class A Certificates............... S-1, S-3
Class A Floating Percentage........ S-26
Class A Initial Invested Amount.... S-4
Class A Initial Investor Amount.... S-3
Class A Interest Funding Account... S-20
Class A Invested Amount............ S-4, S-27
Class A Investor Amount............ S-28
Class A Investor Charge-Off........ S-37
Class A Investor Default Amount.... S-36
Class A Monthly Interest........... S-32
Class A Monthly Principal.......... S-35
Class A Outstanding Monthly
Interest......................... S-32
Class A Principal Percentage....... S-26
Class A Required Amount............ S-7, S-30
Class A Servicing Fee.............. S-41
Class B Accumulation Period........ S-7
Class B Additional Interest........ S-32
Class B Adjusted Invested Amount... S-4, S-27
Class B Available Funds............ S-21
Class B Certificate Rate........... S-21
Class B Certificateholders'
Interest......................... S-4
Class B Certificates............... S-1, S-3
Class B Expected Final Payment
Date............................. S-23
Class B Floating Percentage........ S-26
Class B Initial Invested Amount.... S-4
Class B Initial Investor Amount.... S-3
Class B Interest Funding Account... S-21
Class B Invested Amount............ S-4, S-27
Class B Investor Amount............ S-28
Class B Investor Charge-Off........ S-37
Class B Investor Default Amount.... S-36
Class B Monthly Interest........... S-32
Class B Monthly Principal.......... S-35
Class B Outstanding Monthly
Interest......................... S-32
Class B Principal Commencement
Date............................. S-7
Class B Principal Percentage....... S-26
Class B Required Amount............ S-8, S-30
Class B Servicing Fee.............. S-41
Collateral Additional Interest..... S-34
Collateral Available Funds......... S-32
Collateral Defaulted Amount........ S-27
Collateral Floating Percentage..... S-26
Collateral Indebtedness Amount..... S-4, S-27
Collateral Indebtedness Holder..... S-4
Collateral Indebtedness Interest... S-4
Collateral Initial Indebtedness
Amount........................... S-4
Collateral Initial Investor
Amount........................... S-3
Collateral Investor Amount......... S-28
Collateral Monthly Interest........ S-34
Collateral Rate.................... S-34
Collateral Servicing Fee........... S-41
Controlled Accumulation Amount..... S-35
Controlled Deposit Amount.......... S-35
Covered Amount..................... S-28
Deficit Controlled Accumulation
Amount........................... S-35
Eligible Investments............... S-21
Enhancement Invested Amount........ S-4
Excess Spread...................... S-7, S-33
Excluded Series.................... S-39
Federal Funds Determination
Period........................... S-22
Federal Funds Reset Date........... S-22
Federal Funds Weekly Rate.......... S-22
Floating Allocation Percentage..... S-25
Funding Period..................... S-6
Group One.......................... S-9
H.15(519).......................... S-22
Highest Bid........................ S-41
Initial Invested Amount............ S-4, S-39
Initial Investor Amount............ S-3
Initial Principal Payment Date..... S-5
Interest Period.................... S-23
Invested Amount.................... S-4, S-27, S-39
Investor Amount.................... S-28
Investor Certificateholders........ S-1
Investor Certificateholders
Interest......................... S-4
Investor Certificates.............. S-1, S-3
Investor Default Amount............ S-36
LIBOR.............................. S-2, S-22
LIBOR Determination Date........... S-22
Loan Agreement..................... S-36
Monthly Report..................... S-42
Monthly Servicing Fee.............. S-40
Net Servicing Fee Rate............. S-41
Paired Series...................... S-38
Portfolio Yield.................... S-40
Prefunded Amount................... S-6
Prefunding Account................. S-6
Principal Allocation Percentage.... S-26
Principal Funding Account.......... S-11
Principal Funding Account
Balance.......................... S-28
Principal Funding Investment
Proceeds......................... S-28
Reallocated Principal
Collections...................... S-7, S-30
</TABLE>
S-44
<PAGE> 45
<TABLE>
<S> <C>
Receivables........................ S-1
Record Date........................ S-20
Reference Banks.................... S-23
Required Collateral Amount......... S-9, S-36
Required Principal Balance......... S-39
Required Reserve Account Amount.... S-29
Reserve Account.................... S-29
Reserve Account Factor............. S-29
Reserve Account Funding Date....... S-29
Revolving Period................... S-6
Series 1996-2 Supplement........... S-11
Servicer Interchange............... S-41
Servicing Base Amount.............. S-40
Servicing Fee Rate................. S-40
Special Payment Date............... S-11
Summary of Terms................... S-3
Telerate Page 3750................. S-23
Termination Date................... S-6
Trust.............................. S-1, S-3
Trust Cut-Off Date................. S-5
Trust Portfolio.................... S-13
Underwriters....................... S-42
Underwriting Agreement............. S-42
Underwritten Certificates.......... S-42
Zero Balance Accounts.............. S-13
</TABLE>
S-45
<PAGE> 46
[This Page Intentionally Left Blank]
<PAGE> 47
ANNEX I
PREVIOUS ISSUANCES OF CERTIFICATES
The table below sets forth the principal characteristics of the Class A and
Class B Asset Backed Certificates of the only outstanding Series that have been
issued by the Trust prior to the date hereof. For more specific information with
respect to any Series, prospective investors should contact the Servicer (in
care of Capital One Bank, attention: Treasury Department) at (703) 205-1000. The
Servicer will provide, without charge, to any prospective purchaser of the
Investor Certificates, a copy of the Prospectus Supplement for any previous
publicly-issued Series.
<TABLE>
<S> <C>
1. Series 1993-1 Certificates
Initial Series 1993-1 Invested Amount.................. $500,000,000
Initial Class A Invested Amount........................ $450,000,000
Initial Class B Invested Amount........................ $ 50,000,000
Class A Certificate Rate............................... 5.20%
Class B Certificate Rate............................... 5.40%
Class A Expected Final Payment Date.................... October 1998 Distribution Date
Class B Expected Final Payment Date.................... December 1998 Distribution Date
Class A Controlled Accumulation Amount................. $ 22,500,000(1)
Class B Controlled Accumulation Amount................. $ 25,000,000
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ February 15, 2002
2. Series 1993-3 Certificates
Initial Series 1993-3 Invested Amount.................. $400,000,000
Initial Class A Invested Amount........................ $360,000,000
Initial Class B Invested Amount........................ $ 40,000,000
Class A Certificate Rate............................... 4.85%
Class B Certificate Rate............................... 5.25%
Class A Expected Final Payment Date.................... December 1996 Distribution Date
Class B Expected Final Payment Date.................... February 1997 Distribution Date
Class A Controlled Accumulation Amount................. $ 18,000,000(1)
Class B Controlled Accumulation Amount................. $ 20,000,000
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ April 2000 Distribution Date
3. Series 1993-4 Certificates
Initial Series 1993-4 Invested Amount.................. $700,000,000
Initial Class A Invested Amount........................ $609,000,000
Initial Class B Invested Amount........................ $ 91,000,000
Class A Certificate Rate............................... One-month LIBOR + 0.25% per annum
Class B Certificate Rate............................... 5.80%
Class A Expected Final Payment Date.................... January 1999 Distribution Date
Class B Expected Final Payment Date.................... March 1999 Distribution Date
Class A Controlled Accumulation Amount................. $ 30,450,000(1)
Class B Controlled Accumulation Amount................. $ 45,500,000
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ May 2002 Distribution Date
</TABLE>
- ---------------
(1) Subject to change if the commencement of the Accumulation Period is delayed.
A-1
<PAGE> 48
<TABLE>
<S> <C>
4. Series 1994-2 Certificates
Initial Series 1994-2 Invested Amount.................. $398,734,091
Initial Class A Invested Amount........................ $315,000,000
Initial Class B Invested Amount........................ $ 35,886,000
Class A Certificate Rate............................... One-month LIBOR + 0.16% per annum
Class B Certificate Rate............................... 6.95%
Class A Expected Final Payment Date.................... June 1997 Distribution Date
Class B Expected Final Payment Date.................... August 1997 Distribution Date
Class A Controlled Accumulation Amount................. $ 15,750,000(1)
Class B Controlled Accumulation Amount................. $ 17,943,000
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ September 2000 Distribution Date
</TABLE>
The Series 1994-2 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
invested amount of $47,848,091.
<TABLE>
<S> <C>
5. Series 1994-3 Certificates
Initial Series 1994-3 Invested Amount.................. $452,530,818
Initial Class A Invested Amount........................ $357,500,000
Initial Class B Invested Amount........................ $ 40,727,000
Class A Certificate Rate............................... One-month LIBOR + 0.20% per annum
Class B Certificate Rate............................... 7.35%
Class A Expected Final Payment Date.................... June 1999 Distribution Date
Class B Expected Final Payment Date.................... August 1999 Distribution Date
Class A Controlled Accumulation Amount................. $ 17,875,000(1)
Class B Controlled Accumulation Amount................. $ 20,363,500
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ September 2002 Distribution Date
</TABLE>
The Series 1994-3 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
invested amount of $54,303,818.
<TABLE>
<S> <C>
6. Series 1994-4 Certificates
Initial Series 1994-4 Invested Amount.................. $598,802,395
Initial Class A Invested Amount........................ $500,000,000
Initial Class B Invested Amount........................ $ 38,922,000
Class A Certificate Rate............................... 6.80%
Class B Certificate Rate............................... 7.10%
Class A Expected Final Payment Date.................... August 1997 Distribution Date
Class B Expected Final Payment Date.................... October 1997 Distribution Date
Class A Controlled Accumulation Amount................. $ 25,000,000(1)
Class B Controlled Accumulation Amount................. $ 19,461,000
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ December 2000 Distribution Date
</TABLE>
The Series 1994-4 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $59,880,395.
- ---------------
(1) Subject to change if the commencement of the Accumulation Period is delayed.
A-2
<PAGE> 49
<TABLE>
<S> <C>
7. Series 1994-A Certificates
Initial Series 1994-A Invested Amount.................. $550,000,000
Maximum Invested Amount................................ $1,000,000,000
Certificate Rate....................................... Floating Rate
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Termination Date....................................... April 2001 Distribution Date
8. Series 1995-1 Certificates
Initial Series 1995-1 Invested Amount.................. $900,000,000
Initial Class A Invested Amount........................ $720,000,000
Initial Class B Invested Amount........................ $ 81,000,000
Class A Certificate Rate............................... One-month LIBOR + 0.19% per annum
Class B Certificate Rate............................... Floating Rate
Class A Expected Final Payment Date.................... June 2000
Class B Expected Final Payment Date.................... August 2000
Class A Controlled Accumulation Amount................. $ 36,000,000(1)
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ October 2003
</TABLE>
The Series 1995-1 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $99,000,000.
<TABLE>
<S> <C>
9. Series 1995-2 Certificates
Initial Series 1995-2 Invested Amount.................. $375,000,000
Initial Class A Invested Amount........................ $300,000,000
Initial Class B Invested Amount........................ $ 48,750,000
Class A Certificate Rate............................... One-month LIBOR + 0.11% per annum
Class B Certificate Rate............................... Floating Rate
Class A Expected Final Payment Date.................... August 1998
Class B Expected Final Payment Date.................... October 1998
Class A Controlled Accumulation Amount................. $ 15,000,000(1)
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ December 2001
</TABLE>
The Series 1995-2 Certificates are supported by a collateral indebtedness
interest in the Receivables which on the respective Series Issuance Date had an
initial invested amount of $26,250,000.
- ---------------
(1) Subject to change if the commencement of the Accumulation Period is delayed.
A-3
<PAGE> 50
<TABLE>
<S> <C>
10. Series 1995-3 Certificates
Initial Series 1995-3 Invested Amount.................. $1,050,000,000
Initial Class A Invested Amount........................ $ 840,000,000
Initial Class B Invested Amount........................ $ 136,500,000
Class A Certificate Rate............................... One-month LIBOR + 0.15% per annum
Class B Certificate Rate............................... Floating Rate
Class A Expected Final Payment Date.................... August 2000
Class B Expected Final Payment Date.................... October 2000
Class A Controlled Accumulation Amount................. $ 42,000,000(1)
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ December 2003
</TABLE>
The Series 1995-3 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $73,500,000.
<TABLE>
<S> <C>
11. Series 1995-4 Certificates
Initial Series 1995-4 Invested Amount.................. $750,000,000
Initial Class A Invested Amount........................ $600,000,000
Initial Class B Invested Amount........................ $ 97,500,000
Class A Certificate Rate............................... Federal Funds + 0.28% per annum
Class B Certificate Rate............................... Floating Rate
Class A Expected Final Payment Date.................... May 1998
Class B Expected Final Payment Date.................... July 1998
Class A Controlled Accumulation Amount................. $ 30,000,000(1)
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ December 2000
</TABLE>
The Series 1995-4 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $52,500,000.
<TABLE>
<S> <C>
12. Series 1996-1 Certificates
Initial Series 1996-1 Invested Amount.................. $845,000,000
Initial Class A Invested Amount........................ $676,000,000
Initial Class B Invested Amount........................ $109,850,000
Class A Certificate Rate............................... Three-month LIBOR + 0.12% per annum
Class B Certificate Rate............................... Floating Rate
Class A Expected Final Payment Date.................... August 2001
Class B Expected Final Payment Date.................... October 2001
Class A Controlled Accumulation Amount................. $ 33,800,000(1)
Group.................................................. One
Servicing Fee Rate..................................... 2.00%
Series Termination Date................................ October 2004
</TABLE>
The Series 1996-1 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $59,150,000.
- ---------------
(1) Subject to change if the commencement of the Accumulation Period is delayed.
A-4
<PAGE> 51
PROSPECTUS
CAPITAL ONE MASTER TRUST
ASSET BACKED CERTIFICATES
CAPITAL ONE BANK
SELLER AND SERVICER
Capital One Bank (the "Bank" or "Capital One") may sell from time to time
one or more series (each a "Series") of asset backed certificates (the
"Certificates") evidencing undivided interests in certain assets of Capital One
Master Trust (the "Trust"). The Trust was formed pursuant to a Pooling and
Servicing Agreement between a predecessor of the Bank, as seller and servicer,
and The Bank of New York, as trustee (the "Pooling Agreement"). The property of
the Trust includes receivables (the "Receivables") generated from time to time
in a portfolio of consumer revolving credit card accounts and other consumer
revolving credit accounts (the "Accounts"), collections thereon and certain
other property, as more fully described herein and, with respect to any Series,
in an accompanying prospectus supplement (a "Prospectus Supplement") relating to
such Series.
Certificates will be sold from time to time under this Prospectus on terms
determined for each Series at the time of the sale and described in the related
Prospectus Supplement. Each Series will consist of one or more classes of
Certificates (each, a "Class"). Each Certificate will represent an undivided
interest in the Trust and the interest of the Certificateholders of each Class
or Series will include the right to receive a varying percentage of each month's
collections with respect to the Receivables at the times, in the manner and to
the extent described herein and, with respect to any Series offered hereby, in
the related Prospectus Supplement. Interest and principal payments with respect
to each Series offered hereby will be made as specified in the related
Prospectus Supplement. One or more Classes of a Series offered hereby may be
entitled to the benefits of a letter of credit, cash collateral guaranty or
account, surety bond, insurance policy, spread account, subordinated interest in
the Receivables or certain cash flows in respect of the Receivables or other
form of enhancement as specified in the Prospectus Supplement relating to such
Series. In addition, any Series offered hereby may include one or more Classes
which are subordinated in right and priority to payment of principal of, and/or
interest on, one or more other Classes of such Series or another Series, in each
case to the extent described in the related Prospectus Supplement.
While the specific terms of any Series in respect of which this Prospectus
is being delivered will be described in the related Prospectus Supplement, the
terms of such Series will not be subject to prior review by, or consent of, the
holders of the Certificates of any previously issued Series.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" HEREIN ON PAGE 14 AND IN THE PROSPECTUS SUPPLEMENT
ON PAGE S-11.
------------------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE BANK OR ANY AFFILIATE OF THE BANK.
NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES OR ANY
COLLECTIONS THEREON ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Certificates may be sold by the Bank directly to purchasers, through agents
designated from time to time, through underwriting syndicates led by one or more
managing underwriters or through one or more underwriters acting alone. If
underwriters or agents are involved in the offering of the Certificates of any
Series offered hereby, the name of the managing underwriter or underwriters or
agents will be set forth in the related Prospectus Supplement. If an
underwriter, agent or dealer is involved in the offering of the Certificates of
any Series offered hereby, the underwriter's discount, agent's commission or
dealer's purchase price will be set forth in, or may be calculated from, the
related Prospectus Supplement, and the net proceeds to the Bank from such
offering will be the public offering price of such Certificates less such
discount in the case of an underwriter, the purchase price of such Certificates
less such commission in the case of an agent or the purchase price of such
Certificates in the case of a dealer, and less, in each case, the other expenses
of the Bank associated with the issuance and distribution of such Certificates.
See "Plan of Distribution".
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES OF ANY
SERIES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 25, 1996.
<PAGE> 52
AVAILABLE INFORMATION
The Bank has filed a Registration Statement under the Securities Act of
1933, as amended (the "Act"), with the Securities and Exchange Commission (the
"Commission") on behalf of the Trust with respect to the Certificates offered
hereby. This Prospectus, which forms a part of the Registration Statement, omits
certain information contained in such Registration Statement pursuant to the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement (including any amendments thereof and
exhibits thereto) and any reports and other documents incorporated herein by
reference as described below under "Incorporation of Certain Documents by
Reference", which are available for inspection without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, Monthly Reports, which
contain unaudited information concerning the Trust and will be prepared by the
Servicer, will be sent on behalf of the Trust to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") and registered holder of the
Certificates offered hereby, pursuant to the Pooling Agreement. See "Description
of the Certificates -- Reports" and "The Pooling Agreement Generally --
Book-Entry Registration" and "-- Evidence as to Compliance". Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles. The Pooling Agreement will not require the
sending of, and the Bank does not intend to send, any of its financial reports
to holders of interests in Certificates (the "Certificateholders") offered
hereby. Copies of the Monthly Reports may be obtained free of charge from the
Servicer (in care of Capital One Bank, attention: Treasury Department) upon
request by calling (703) 205-1000. The Servicer will file with the Commission
such periodic reports with respect to the Trust as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Servicer, on
behalf of the Trust, are incorporated in this Prospectus by reference: the
Trust's Annual Report on Form 10-K for the years ended December 31, 1993, 1994
and 1995 and Current Reports on Form 8-K filed since the formation of the Trust.
All reports and other documents filed by the Servicer, on behalf of the Trust,
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the offering of the
Certificates offered hereby shall be deemed to be incorporated by reference into
this Prospectus and to be part hereof. Any statement contained herein or in a
document deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any other subsequently filed document which also is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of Certificates, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any of
or all the documents incorporated herein by reference (other than exhibits to
such documents). Written requests for such copies should be directed to Capital
One Bank, in care of Capital One Financial Corporation, 2980 Fairview Park
Drive, Suite 1300, Falls Church, Virginia 22042-4525, attention: Treasury
Department. Telephone requests for such copies should be directed to Capital One
Bank (attention: Treasury Department) at (703) 205-1000.
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<PAGE> 53
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in any
accompanying Prospectus Supplement with respect to the Series offered thereby.
Reference is made to the Glossary for the location herein of the definitions of
certain capitalized terms used herein. Unless the context requires otherwise,
capitalized terms used in this Prospectus and in any accompanying Prospectus
Supplement refer only to the particular Series being offered by such Prospectus
Supplement. References in this Prospectus to the "Servicer", the "Seller" or the
"Bank" shall, unless the context otherwise requires, mean Signet Bank/Virginia
prior to November 22, 1994 and Capital One Bank for all periods after November
22, 1994.
TRUST...................
Capital One Master Trust (the "Trust"). The Trust, as a
master trust, previously has issued other Series of
Certificates, the terms of which are summarized in "Annex
I: Previous Issuances of Certificates" in the related
Prospectus Supplement, and is expected to issue additional
Series from time to time. The assets of the Trust (the
"Trust Assets") include and will include a portfolio of
receivables (the "Receivables") arising under the Accounts
included in the Trust from time to time, funds collected or
to be collected from accountholders in respect of the
Receivables, the right to receive certain Interchange
attributed to accountholder charges for merchandise and
services in certain of the Accounts, recoveries (net of
collection expenses) and proceeds of credit insurance
policies relating to the Receivables, monies on deposit in
certain accounts of the Trust, Funds Collateral, if any,
relating to secured accounts and any Series Enhancement
with respect to a particular Series or Class. The term
"Series Enhancement" means, with respect to any Series or
Class of Certificates, any letter of credit, surety bond,
cash collateral guaranty or account, insurance policy,
spread account, reserve account, subordinated interest in
the Receivables or certain cash flows in respect of the
Receivables, guaranteed rate agreement, maturity liquidity
facility, tax protection agreement, interest rate cap
agreement, interest rate swap agreement, currency exchange
agreement, other derivative securities agreement or other
contract or arrangement for the benefit of
Certificateholders of such Series or Class. The Trust
Assets are expected to change over the life of the Trust as
receivables in revolving credit card accounts and other
revolving credit accounts, including secured revolving
credit accounts, and related assets are included in the
Trust, and as receivables in accounts subject to the Trust
are charged off or removed. The Pooling Agreement provides
that (subject to certain limitations and conditions) Trust
Assets may also include from time to time participations
representing undivided interests in pools of assets
primarily consisting of revolving credit card accounts or
other revolving credit accounts owned by the Bank or any
affiliate thereof and collections thereon
("Participations"). See "The Trust" and "Description of the
Certificates -- Addition of Trust Assets", "-- Removal of
Accounts" and "-- New Issuances".
The Trust was originated by Signet Bank/Virginia
("Signet/Virginia") in 1993 as Signet Master Trust. In
connection with the Separation (as hereinafter defined) and
as permitted by the Pooling Agreement, (i) Signet/Virginia
transferred to Capital One, and Capital One accepted and
assumed, all of Signet/Virginia's rights and obligations
under the Pooling Agreement, (ii) Capital One became Seller
and Servicer of the Trust, (iii) Signet/Virginia was
released from any continuing obligations under the Pooling
Agreement, (iv) the Trust's name was changed to Capital One
Master Trust and (v) Signet/Virginia and Capital One filed
with the appropriate governmental authorities Uniform
Commercial Code financing statements and amendments to
financing statements reflecting the transfer to and
assumption by Capital One.
BANK....................
Capital One Bank (the "Bank" or "Capital One"), a Virginia
banking corporation and a subsidiary of Capital One
Financial Corporation, is the Seller of the Receivables.
Capital One is a limited purpose credit card bank and a
member of the Federal Reserve System. The deposits of
Capital One are insured by the Federal Deposit Insurance
Corporation up to the applicable limits. Under certain
circumstances, Capital One may transfer its interests and
obligations as Seller to and Servicer of the Trust to
another entity which would assume all of
3
<PAGE> 54
Capital One's obligations under the Pooling Agreement and
related agreements. See "Assumption of the Bank's
Obligations".
Prior to November 22, 1994, Capital One conducted its
operations as a division of Signet/Virginia, a wholly-owned
subsidiary of Signet Banking Corporation ("Signet").
Pursuant to the terms of an agreement among Signet,
Signet/Virginia and Capital One Financial Corporation (the
"Separation Agreement"), Signet/Virginia contributed
designated assets and liabilities of its credit card
division and $358 million of equity capital to Capital One
on November 22, 1994 (the "Separation"). Following the
contribution of assets and the assumption of liabilities,
Signet/Virginia distributed the capital stock of Capital
One to Signet, which then contributed such stock to Capital
One Financial Corporation. Concurrently with the
Separation, Capital One Financial Corporation consummated
an initial public offering (the "Offering") of 7,125,000
shares of its common stock (or approximately 10.8% of its
outstanding shares), the net proceeds of which were
approximately $102 million. Approximately $92 million of
such net proceeds were contributed as capital to Capital
One. On February 28, 1995, Signet divested its remaining
ownership interest in Capital One Financial Corporation by
means of a tax-free distribution to its stockholders.
TRUSTEE.................
The Bank of New York (the "Trustee").
THE ACCOUNTS............
The Accounts will consist of the Initial Accounts and any
Additional Accounts but will exclude any Account all the
Receivables in which are either reassigned or assigned to
the Bank or its designee or the Servicer in accordance with
the terms of the Pooling Agreement. See "The Accounts". The
Bank conveyed to the Trust all Receivables existing on July
30, 1993 (the "Trust Cut-Off Date") in certain MasterCard
and VISA1 consumer credit card accounts (the "Initial
Accounts") and all Receivables arising in the Initial
Accounts from time to time thereafter until the termination
of the Trust. Since the Trust Cut-Off Date, the Bank has
conveyed to the Trust Receivables in certain Additional
Accounts in accordance with the provisions of the Pooling
Agreement. In addition, pursuant to the Pooling Agreement,
the Bank expects (subject to certain limitations and
conditions), and in some circumstances will be obligated,
to designate Additional Accounts the Receivables in which,
whether then existing or thereafter created, will be
included in the Trust or, in lieu thereof or in addition
thereto, to include Participations in the Trust. The
addition to the Trust of Receivables in Additional Accounts
(other than Automatic Additional Accounts) or
Participations, will be subject to certain conditions,
including among others, that (a) the Bank shall have
received written notice from each Rating Agency that such
addition will not have a Ratings Effect and (b) the Bank
shall have delivered to the Trustee and certain providers
of Series Enhancement a certificate of an authorized
officer to the effect that, based on the facts known to
such officer at the time, in the reasonable belief of the
Bank, such addition will not at the time of its occurrence
cause a Pay Out Event or an event that, after the giving of
notice or the lapse of time, would constitute a Pay Out
Event, to occur with respect to any Series. Any addition of
Participations would require amendment of the Pooling
Agreement. No consent of Certificateholders, however, would
be required for such an amendment. See "Description of the
Certificates -- Addition of Trust Assets".
Pursuant to the Pooling Agreement, the Bank has the right
to remove the Receivables in certain Accounts ("Removed
Accounts") from the Trust, subject to certain conditions,
including among others, that (a) the Bank shall have
received written notice from each Rating Agency that such
removal will not have a Ratings Effect and (b) the Bank
shall have delivered to the Trustee and certain providers
of Series Enhancement a certificate of an authorized
officer to the effect that, based on the facts known to
such officer at the time, in the reasonable belief of the
Bank, such removal will not at the time of its occurrence
cause a
- ---------------
1MasterCard and VISA are registered trademarks of MasterCard International
Incorporated and VISA USA, Inc., respectively.
4
<PAGE> 55
Pay Out Event or an event that, after the giving of notice
or the lapse of time, would constitute a Pay Out Event, to
occur with respect to any Series. See "Description of the
Certificates -- Removal of Accounts".
THE RECEIVABLES.........
The Receivables consist of all amounts charged by
accountholders for goods and services and cash advances
("Principal Receivables") and all related periodic rate
finance charges, annual membership fees, cash advance fees,
late charge fees, returned check charges, overlimit fees
and any other fees and charges billed on the Accounts from
time to time ("Finance Charge Receivables"). In addition,
certain Interchange attributable to accountholder charges
for goods and services in certain of the Accounts will be
treated as Finance Charge Receivables for purposes of the
Pooling Agreement. Recoveries of charged-off Receivables
(net of any collection expenses deducted therefrom) will be
applied against charge-offs of Principal Receivables. From
time to time, subject to certain conditions, certain
amounts described above which are included in Principal
Receivables may be treated as Finance Charge Receivables
(see "Description of the Certificates -- Discount Option").
The amount of Receivables will fluctuate from day to day as
new Receivables are generated or added to the Trust and as
existing Receivables are collected, charged off as
uncollectible or otherwise adjusted. "Interchange" consists
of certain fees received by the Bank, as a credit
card-issuing bank, from VISA USA, Inc. ("VISA"), MasterCard
International Incorporated ("MasterCard") or any other
similar entity, as partial compensation for taking credit
risk, absorbing fraud losses and funding receivables for a
limited period prior to initial billing.
THE CERTIFICATES........
The Certificates will be issued in Series, each of which
will consist of one or more Classes. The specific terms of
a Series or Class will be established as described herein
under "Description of the Certificates -- New Issuances".
However, while the specific terms of any Series or Class
offered hereby will be described in the related Prospectus
Supplement, the terms of such Series or Class will not be
subject to prior review by, or consent of, the holders of
the Certificates of any previously issued Series. There can
be no assurance that the terms of any Series issued from
time to time hereafter might not have an impact on the
timing or amount of payments received by a
Certificateholder. See "Description of the Certificates --
New Issuances".
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series offered hereby
will be available for purchase in minimum denominations of
$1,000, and will only be available in book-entry form
except in certain limited circumstances as described herein
under "The Pooling Agreement Generally -- Definitive
Certificates". A portion of the Trust Assets will be
allocated among the Certificateholders of a particular
Series (the "Certificateholders' Interest"), the
Certificateholders of other Series and the interest of the
Bank (the "Seller's Interest"), as described below. The
aggregate principal amount of the Certificateholders'
Interest of a Series offered hereby will, except as
otherwise provided herein and in the related Prospectus
Supplement, remain fixed at the aggregate initial principal
amount of the Certificates of such Series. The
Certificateholders' Interest of a Series will include the
right to receive (but only to the extent needed to make
required payments under the Pooling Agreement and the
related Supplement and subject to any reallocation of such
amounts if the related Supplement so provides) varying
percentages of collections of Finance Charge Receivables
and Principal Receivables and will be allocated a varying
percentage of the Defaulted Amount with respect to each
Monthly Period. If the Certificates of a Series offered
hereby include more than one Class of Certificates, the
Trust Assets allocable to the Certificateholders' Interest
of such Series may be further allocated among each Class in
such Series as described in the related Prospectus
Supplement.
The Certificates of a Series will evidence undivided
interests in the Trust Assets allocated to the
Certificateholders' Interest of such Series. In certain
circumstances, interests in the Trust Assets may be
allocated to a Credit Enhancer. The Certificates represent
beneficial interests in the Trust only and do not represent
interests in or obligations of the Bank or any affiliate of
the Bank. Neither the Certificates nor the Accounts, the
Receivables or any collections
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<PAGE> 56
thereon are insured or guaranteed by the Federal Deposit
Insurance Corporation (the "FDIC") or any other
governmental agency or instrumentality.
REGISTRATION OF
CERTIFICATES..........
Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series initially will be
represented by certificates registered in the name of Cede,
as nominee of DTC, and no purchaser of a Certificate will
be entitled to receive a definitive certificate except
under certain limited circumstances. Unless otherwise
specified in the related Prospectus Supplement,
Certificateholders may elect to hold their Certificates
through DTC (in the United States) or Cedel or Euroclear
(in Europe). See "The Pooling Agreement
Generally -- Book-Entry Registration" and "-- Definitive
Certificates".
THE SELLER'S INTEREST...
The Seller's Interest represents the right to the Trust
Assets not allocated to the Certificateholders' Interest of
any Series. The principal amount of the Seller's Interest
will fluctuate as the amount of the Principal Receivables
held by the Trust changes from time to time. The Bank
intends to cause the issuance of additional Series from
time to time and any such issuance will have the effect of
decreasing the Seller's Interest. The Pooling Agreement
provides that the Bank will be required to make an Addition
to the Trust in the event that the Seller's Interest is
less than the Required Seller's Interest. See "Description
of the Certificates -- Addition of Trust Assets" and
"-- New Issuances". In addition, a portion of the Seller's
Interest may be sold separately in one or more public or
private transactions. See "The Pooling Agreement
Generally -- The Bank Certificate".
ISSUANCE OF ADDITIONAL
SERIES................
The Pooling Agreement authorizes the Trustee to issue three
types of certificates: (i) one or more Series of
Certificates, (ii) an exchangeable certificate evidencing
the Seller's Interest in the Trust, which initially is to
be held by the Bank and will be transferable only as
provided in the Pooling Agreement, and (iii) Supplemental
Certificates to be held by transferees of a portion of the
certificate evidencing the Seller's Interest in the Trust.
The exchangeable certificate evidencing the Seller's
Interest (the "Bank Certificate") and any Supplemental
Certificates are collectively referred to herein as the
"Seller's Certificate". The Pooling Agreement provides
that, pursuant to any one or more supplements to the
Pooling Agreement (each, a "Supplement"), the Bank may
cause the Trustee to issue one or more new Series and
accordingly cause a reduction in the Seller's Interest
represented by the Bank Certificate. Under the Pooling
Agreement, the Bank may define, with respect to any Series,
the Principal Terms of such Series. See "Description of the
Certificates -- New Issuances". The Bank may offer any
Series to the public or other investors under a disclosure
document (a "Disclosure Document"), which will consist of a
Prospectus Supplement in the case of a Series offered
hereby, in transactions either registered under the
Securities Act or exempt from registration thereunder,
directly or through one or more underwriters or placement
agents, in fixed-price offerings or in negotiated
transactions or otherwise. See "Plan of Distribution". The
Bank expects to offer, from time to time, additional Series
issued by the Trust.
A new Series may only be issued upon satisfaction of the
conditions described herein under "Description of the
Certificates -- New Issuances" including, among others,
that (a) the Bank shall have received written notice from
each Rating Agency that such issuance will not have a
Ratings Effect and (b) the Bank shall have delivered to the
Trustee and certain providers of Series Enhancement a
certificate of an authorized officer to the effect that,
based on the facts known to such officer at the time, in
the reasonable belief of the Bank, such issuance will not
at the time of its occurrence cause a Pay Out Event or an
event that, after the giving of notice or the lapse of
time, would constitute a Pay Out Event, to occur with
respect to any Series.
COLLECTIONS.............
All collections of Receivables will be allocated by the
Servicer between amounts collected on Principal Receivables
and on Finance Charge Receivables. The Servicer will
allocate between the Certificateholders' Interest of each
Series and the Seller's Interest all amounts
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<PAGE> 57
collected with respect to Finance Charge Receivables and
Principal Receivables and the Defaulted Amount. Collections
of Finance Charge Receivables and the Defaulted Amount will
be allocated to each Series at all times based upon its
Floating Allocation Percentage. Collections of Principal
Receivables will be allocated to each Series at all times
based upon its Principal Allocation Percentage. The
Floating Allocation Percentage and the Principal Allocation
Percentage with respect to each Series will be determined
as set forth in the related Supplement and, with respect to
each Series offered hereby, in the related Prospectus
Supplement. Collections will be deposited in an Eligible
Deposit Account (the "Collection Account") and invested in
the manner described under "Prospectus
Summary -- Servicing" and "Description of the
Certificates -- Deposits in Collection Account".
INTEREST................
Interest will accrue on the Invested Amount of the
Certificates of a Series or Class offered hereby at the per
annum rate either specified in or determined in the manner
specified in the related Prospectus Supplement. If the
Prospectus Supplement for a Series of Certificates so
provides, the interest rate and interest payment dates
applicable to each Certificate of that Series may be
subject to adjustment from time to time. Any such interest
rate adjustment would be determined by reference to one or
more indices or by a remarketing firm, in each case as
described in the Prospectus Supplement for such Series.
Except as otherwise provided herein or in the related
Prospectus Supplement, collections of Finance Charge
Receivables and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby
will be used to make interest payments to
Certificateholders of such Series on each Interest Payment
Date with respect thereto, provided that if an Early
Amortization Period commences with respect to such Series,
thereafter interest will be distributed to such
Certificateholders monthly on each Special Payment Date. If
the Interest Payment Dates for a Series or Class occur less
frequently than monthly, such collections or other amounts
(or the portion thereof allocable to such Class) will be
deposited in one or more trust accounts (each an "Interest
Funding Account") and used to make interest payments to
Certificateholders of such Series or Class on the following
Interest Payment Date with respect thereto. If a Series has
more than one Class of Certificates, each such Class may
have a separate Interest Funding Account.
PRINCIPAL...............
Unless otherwise specified in the Prospectus Supplement,
the principal of the Certificates of each Series offered
hereby will be scheduled to be paid either in full on an
expected date specified in the related Prospectus
Supplement (the "Expected Final Payment Date"), in which
case such Series will have an Accumulation Period as
described below under "-- Accumulation Period", or in
installments commencing on a date specified in the related
Prospectus Supplement (the "Principal Commencement Date"),
in which case such Series will have a Controlled
Amortization Period as described below under "-- Controlled
Amortization Period". If a Series has more than one Class
of Certificates, a different method of paying principal,
Expected Final Payment Date and/or Principal Commencement
Date may be assigned to each Class. The payment of
principal with respect to the Certificates of a Series or
Class may commence earlier than the applicable Expected
Final Payment Date or Principal Commencement Date, and the
final principal payment with respect to the Certificates of
a Series or Class may be made later than the applicable
Expected Final Payment Date or other expected date if a Pay
Out Event occurs with respect to such Series or Class or
under certain other circumstances described herein. See
"Risk Factors -- Series Considerations -- Generation of
Additional Receivables; Dependency on Cardholder
Repayments" for a description of factors that may affect
the timing of principal payments on Certificates.
Certificates of a Series offered hereby may also be subject
to purchase from time to time, generally at their
respective principal amounts, in connection with a
remarketing thereof, under the terms of a liquidity
facility established for the benefit of such Series or in
the event that the Seller's Interest is less than a
specified percentage of the Required Seller's Interest, in
each case if so specified in the related Prospectus
Supplement. A purchase of Certificates of such a Series,
depending on the circumstances giving rise thereto, may
result in a decrease
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<PAGE> 58
in the outstanding principal amount of such Series prior to
the commencement of the Controlled Amortization Period,
Accumulation Period or Early Amortization Period with
respect thereto. The Prospectus Supplement for any Series
subject to purchase as described above will describe the
conditions to and procedures for any such purchase. The
proceeds of any such purchase would be paid to the holders
of the Certificates so purchased.
REVOLVING PERIOD........
The Certificates of each Series offered hereby will have a
revolving period (the "Revolving Period"), which will
commence at the close of business on a date specified in
the related Prospectus Supplement (the "Series Cut-Off
Date") and continue until the earlier of (a) the
commencement of the Early Amortization Period with respect
to such Series and (b) the date specified in the related
Prospectus Supplement as the end of the Revolving Period
with respect to such Series. During the Revolving Period
with respect to a Series offered hereby, collections of
Principal Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of such
Series shall be treated as Shared Principal Collections and
be distributed to, or for the benefit of, the
Certificateholders of other Series (if so provided in the
Supplement therefor) or the Bank. See "Description of the
Certificates -- Principal" and "-- Shared Principal
Collections" and see "-- Pay Out Events" for a discussion
of the events which might lead to the termination of the
Revolving Period with respect to a Series prior to its
scheduled ending date.
ACCUMULATION PERIOD.....
If and to the extent the related Prospectus Supplement so
specifies, unless an Early Amortization Period commences
with respect to a Series offered hereby, the Certificates
of such Series or any Class thereof will have an
accumulation period (the "Accumulation Period"), which will
commence at the close of business on the date specified in
or determined in the manner specified in such Prospectus
Supplement and continue until the earliest of (a) the
commencement of the Early Amortization Period with respect
to such Series, (b) payment in full of the Certificates of
such Series or such Class and (c) the Series
Termination Date with respect to such Series. During the
Accumulation Period with respect to a Series or any Class
thereof, collections of Principal Receivables and certain
other amounts allocable to such Series or such Class
(including Shared Principal Collections, if any, allocable
to such Series or such Class) will be deposited on each
Distribution Date in a trust account established for the
benefit of the Certificateholders of such Series or such
Class (a "Principal Funding Account") and used to make
principal distributions to the Certificateholders of such
Series or such Class when due. The amount to be deposited
in the Principal Funding Account for any Series or any
Class thereof offered hereby on any Distribution Date may,
but will not necessarily, be limited to an amount (the
"Controlled Deposit Amount") equal to an amount specified
in the related Prospectus Supplement (the "Controlled
Accumulation Amount") plus any existing deficit Controlled
Accumulation Amount arising from prior Distribution Dates
(the "Deficit Controlled Accumulation Amount"). If a Series
has more than one Class of Certificates, each Class may
have a separate Principal Funding Account and Controlled
Accumulation Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such
Classes with respect to deposits of principal into such
Principal Funding Accounts.
CONTROLLED AMORTIZATION
PERIOD................
If and to the extent the related Prospectus Supplement so
specifies, unless an Early Amortization Period commences
with respect to a Series offered hereby, the Certificates
of such Series or any Class thereof will have an
amortization period (the "Controlled Amortization Period"),
which will commence at the close of business on the date
specified in or determined in the manner specified in such
Prospectus Supplement and continue until the earliest of
(a) the commencement of the Early Amortization Period with
respect to such Series, (b) payment in full of the Invested
Amount of the Certificates of such Series or such Class and
(c) the Series Termination Date with respect to such
Series. During the Controlled Amortization Period with
respect to a Series or any Class thereof, collections of
Principal Receivables and certain other amounts allocable
to such Series or such Class (including Shared Principal
Collections, if any, allocable to such Series or such
Class) will
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be used on each Distribution Date to make principal
distributions to Certificateholders of such Series or any
Class of such Series then scheduled to receive such
distributions. The amount to be distributed to
Certificateholders of any Series or any Class thereof
offered hereby on any Distribution Date may, but will not
necessarily, be limited to an amount (the "Controlled
Distribution Amount") equal to an amount (the "Controlled
Amortization Amount") specified in the related Prospectus
Supplement plus any existing deficit Controlled
Amortization Amount arising from prior Distribution Dates
(the "Deficit Controlled Amortization Amount"). If a Series
has more than one Class of Certificates, each Class may
have a separate Controlled Amortization Amount. In
addition, the related Prospectus Supplement may describe
certain priorities among such Classes with respect to such
distributions.
EARLY AMORTIZATION
PERIOD................
During the period beginning at the close of business on the
business day immediately preceding the day on which a Pay
Out Event is deemed to have occurred with respect to a
Series and ending upon the earlier to occur of (i) the
payment in full of the Invested Amount of the Certificates
of such Series and the Enhancement Invested Amount, if any,
with respect thereto or (ii) the Series Termination Date
(the "Early Amortization Period"), collections of Principal
Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be
distributed as principal payments to the Certificateholders
of such Series monthly on each Distribution Date beginning
with the first Special Payment Date with respect to such
Series. During the Early Amortization Period with respect
to a Series, distributions of principal to
Certificateholders will not be subject to any Controlled
Deposit Amount or Controlled Distribution Amount. In
addition, upon the commencement of the Early Amortization
Period with respect to a Series, any funds on deposit in a
Principal Funding Account with respect to such Series will
be paid to the Certificateholders of the relevant Class or
Series on the first Special Payment Date with respect to
such Series. See "Description of the Certificates -- Pay
Out Events" for a discussion of the events which might lead
to the commencement of the Early Amortization Period with
respect to a Series.
SHARED PRINCIPAL
COLLECTIONS...........
To the extent that collections of Principal Receivables and
certain other amounts that are allocated to the
Certificateholders' Interest of any Series are not needed
to make payments to the Certificateholders of such Series
or required to be deposited in a Principal Funding Account
for such Series, such collections and other amounts shall
be treated as Shared Principal Collections and applied to
cover principal payments due to or for the benefit of
Certificateholders of another Series, if so specified in
the Supplement for such Series, or paid to the Bank. Any
such reallocation will not result in a reduction in the
Invested Amount of the Series to which such collections
were initially allocated. See "Description of the
Certificates -- Shared Principal Collections".
EXCESS FUNDING
ACCOUNT...............
If on any date the Seller's Interest is less than or equal
to the Required Seller's Interest, the Servicer shall not
distribute to the Bank any Shared Principal Collections
which otherwise would be distributed to the Bank, but shall
deposit such funds in the Excess Funding Account. Funds on
deposit in the Excess Funding Account will be withdrawn and
paid to the Bank on any Distribution Date to the extent
that, after giving effect to such payment, the Seller's
Interest exceeds the Required Seller's Interest on such
date; provided, however, that if an Accumulation Period,
Controlled Amortization Period or Early Amortization Period
commences with respect to any Series, any funds on deposit
in the Excess Funding Account will be released and treated
as Shared Principal Collections to the extent needed to
cover principal payments due to or for the benefit of such
Series, if the Supplement for such Series so provides.
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SHARING OF EXCESS
FINANCE CHARGES.......
Subject to certain limitations described under "Description
of the Certificates -- Sharing of Excess Finance Charges",
collections of Finance Charge Receivables allocable to the
Certificateholders' Interest of any Series which is
included in a Group in excess of the amounts necessary to
make required payments with respect to such Series
(including payments to the provider of any related Series
Enhancement) will be applied to cover any shortfalls with
respect to amounts payable from collections of Finance
Charge Receivables allocable to any other Series included
in such Group, in each case pro rata based upon the amount
of the shortfall, if any, with respect to such other
Series. See "Description of the Certificates -- Sharing of
Excess Finance Charges".
FUNDING PERIOD..........
The Prospectus Supplement relating to a Series of
Certificates may specify that for a period beginning on the
Series Issuance Date with respect to such Series and ending
on a specified date before the commencement of the
Controlled Amortization Period or Accumulation Period with
respect to such Series (the "Funding Period"), the
aggregate amount of Principal Receivables in the Trust
allocable to such Series may be less than the aggregate
principal amount of the Certificates of such Series. If so
specified in the related Prospectus Supplement, the amount
of such deficiency (the "Prefunded Amount") will be held in
a trust account established with the Trustee for the
benefit of Certificateholders of such Series (the
"Prefunding Account") pending the transfer of additional
Principal Receivables to the Trust or pending the reduction
of the Certificateholders' Interests of other Series issued
by the Trust. The related Prospectus Supplement will
specify the initial Certificateholders' Interest on the
Series Issuance Date with respect to such Series, the
aggregate principal amount of the Certificates of such
Series (the "Initial Investor Amount") and the date by
which the Certificateholders' Interest is expected to equal
the Initial Investor Amount. The Certificateholders'
Interest will increase as Principal Receivables are
transferred to the Trust or as the Certificateholders'
Interests of other Series of the Trust are reduced. The
Certificateholders' Interest may decrease due to
charge-offs or the occurrence of a Pay Out Event as
specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement,
during the Funding Period, funds on deposit in the
Prefunding Account for a Series will be withdrawn and paid
to the Bank to the extent of any increases in the
Certificateholders' Interest. In the event that the
Certificateholders' Interest does not equal the Initial
Investor Amount by the end of the Funding Period, any
amount remaining in the Prefunding Account and any
additional amounts specified in the related Prospectus
Supplement will be payable to the Certificateholders of
such Series in a manner and at such time as set forth in
the related Prospectus Supplement.
If so specified in the related Prospectus Supplement,
monies in the Prefunding Account with respect to any Series
will be invested by the Trustee in Eligible Investments or
will be subject to a guaranteed rate or investment
agreement or other similar arrangement, and investment
earnings and any applicable payment under any such
investment arrangement will be applied to pay interest on
the Certificates of such Series.
PAIRED SERIES...........
If so specified in the related Prospectus Supplement, a
Series of Certificates may be paired with another Series
issued by the Trust (a "Paired Series"). As the
Certificateholders' Interest of the Series having a Paired
Series is reduced, the Certificateholders' Interest of the
Paired Series will increase by an equal amount. If a Pay
Out Event occurs with respect to the Series having a Paired
Series or with respect to the Paired Series when such
Series is in the Controlled Amortization Period or
Accumulation Period, the Principal Allocation Percentage
for the Series and the Principal Allocation Percentage for
the Paired Series may be reset as specified in the related
Prospectus Supplement.
CREDIT ENHANCEMENT......
"Credit Enhancement" with respect to a Series offered
hereby may include a letter of credit, a cash collateral
guaranty or account, a surety bond, an insurance policy, a
spread account, a reserve account, a subordinated interest
in the Receivables or certain cash flows in respect of the
Receivables or any other form of credit enhancement
described in the related Prospectus
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Supplement. Credit Enhancement may also be provided to a
Series or Class or Classes of a Series by subordination
provisions which require that distributions of principal
and/or interest be made with respect to the Certificates of
such Series or Class or Classes before distributions are
made to one or more Series or one or more Classes of such
Series (if the Supplement for such Series so provides). The
type, characteristics and amount of the Credit Enhancement
with respect to any Series will be determined based on
several factors, including the characteristics of the
Receivables and Accounts underlying or comprising the Trust
Assets as of the Series Issuance Date with respect thereto,
and will be established on the basis of requirements of
each applicable Rating Agency. The terms of the Credit
Enhancement with respect to any Series offered hereby will
be described in the related Prospectus Supplement. See
"Description of the Certificates -- Credit Enhancement" and
"Risk Factors -- Series Considerations -- Limited Nature of
Rating".
SERVICING...............
The Servicer (initially, the Bank) will be responsible for
servicing, managing and making collections on the
Receivables. Subject to certain exceptions described under
"Description of the Certificates -- Deposits in Collection
Account", the Servicer will deposit any collections on the
Receivables in a Monthly Period into the Collection Account
within two business days of the Date of Processing (or, in
the case of Interchange, on each Distribution Date) to the
extent such collections are allocable to the
Certificateholders' Interest of any Series and are required
to be deposited into an account for the benefit of, or
distributed to, the Certificateholders of any Series or the
issuer of any Series Enhancement. The "Distribution Date"
is the 15th day of each calendar month (or, if any such
15th day is not a business day, the next succeeding
business day). On the earlier of (i) the second business
day following the Date of Processing and (ii) the day on
which the Servicer deposits any collections into the
Collection Account, subject to certain exceptions described
herein, the Servicer will pay to the Bank its allocable
portion of any collections then held by the Servicer. The
"Date of Processing" is the business day a record of any
transaction is first recorded on the Servicer's computer
file of consumer revolving accounts (without regard to the
effective date of such recordation). On or about the fourth
business day preceding each Distribution Date (each, a
"Determination Date"), the Servicer will calculate the
amounts to be allocated to the Certificateholders of each
Class or Series and the Bank as described herein in respect
of collections of Receivables received with respect to the
preceding Monthly Period.
In certain limited circumstances, the Bank may resign or be
removed as Servicer, in which event either the Trustee or,
so long as it meets certain eligibility standards set forth
in the Pooling Agreement, a third-party servicer may be
appointed as successor servicer. (The Bank or any such
successor servicer is referred to herein as the
"Servicer".) Pursuant to the Pooling Agreement, in the
ordinary course of business, the Bank, as Servicer, has the
right to delegate its duties as Servicer to any person who
agrees to conduct such duties in accordance with the
Pooling Agreement and the Lending Guidelines. The Bank has
contracted with Capital One Services, Inc. ("Capital One
Services"), an affiliate of the Bank, to act as sub-
servicer and to perform its servicing activities. Such
delegation, however, will not relieve the Bank of its
obligations as Servicer under the Pooling Agreement or any
Supplement. In certain circumstances, however, the Bank
could be relieved of its duties as Servicer upon the
assumption of such duties by another entity. See
"Assumption of the Bank's Obligations". The Servicer will
receive servicing fees payable with respect to each Series
offered hereby as servicing compensation from the Trust.
See "The Bank's Credit Card and Consumer Lending
Business -- Interchange" and "Description of the
Certificates -- Servicing Compensation and Payment of
Expenses".
MANDATORY REASSIGNMENT
AND TRANSFER OF
CERTAIN RECEIVABLES...
As of each Series Issuance Date, the Bank will make certain
representations and warranties in the Pooling Agreement
with respect to the Accounts and the Receivables in its
capacity as Seller and in its capacity as Servicer. If the
Bank breaches certain of its representations and warranties
with respect to any Receivable and such breach remains
uncured for a specified
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period after the Bank becomes aware or receives notice
thereof from the Trustee and such breach has a material
adverse effect on the Certificateholders' Interest of all
Series therein, the Certificateholders' Interest of all
Series in all Receivables with respect to the affected
Account will be reassigned to the Bank. If the Servicer
fails to comply in all material respects with certain
covenants or warranties with respect to any Receivable and
such noncompliance is not cured within a specified period
after the Servicer becomes aware or receives notice thereof
from the Trustee and such noncompliance has a materially
adverse effect on the Certificateholders' Interest of all
Series therein, the Certificateholders' Interest of all
Series in all Receivables with respect to the affected
Account will be assigned to the Servicer. In the event of a
transfer of servicing obligations to a successor servicer,
such successor servicer, rather than the Bank, would be
responsible for any failure to comply with the Servicer's
covenants and warranties arising thereafter. In addition,
if the Bank breaches certain other representations and
warranties described under "The Pooling Agreement
Generally -- Representations and Warranties", and such
noncompliance is not cured within a specified period after
notice thereof and such noncompliance has a material
adverse effect on the Certificateholders' Interest of all
Series in the Receivables, all the Receivables transferred
by the Bank to the Trust may be reassigned to the Bank.
OPTIONAL REPURCHASE.....
If specified in the related Prospectus Supplement, the
Certificateholders' Interest of any Series may be subject
to optional purchase by the Bank on any day after the
aggregate Invested Amount and Enhancement Invested Amount,
if any, of such Series is less than or equal to a certain
percentage of the Initial Invested Amount of such Series.
The purchase price therefor will be as specified in the
related Prospectus Supplement and will generally be equal
to the Invested Amount and the Enhancement Invested Amount,
if any, plus accrued and unpaid interest on, the
Certificates.
DEFEASANCE..............
The Pooling Agreement provides that, under certain
circumstances and subject to certain conditions, including
the receipt by the Bank of written notice from each Rating
Agency that such transaction will not have a Ratings
Effect, the Bank may terminate its substantive obligations
in respect of a Series or the Pooling Agreement by
depositing with the Trustee monies or Eligible Investments
representing or acquired with collections on the
Receivables in an amount sufficient to make all remaining
scheduled interest and principal payments with respect to
such Series or on all outstanding Series of Certificates,
as the case may be, on the dates scheduled for such
payments and to pay all amounts owing to providers of any
Series Enhancement. In such event, any Series Enhancement
for the defeased Series would no longer be available to
make payments with respect thereto. See "The Pooling
Agreement Generally -- Defeasance".
TAX STATUS..............
Except to the extent otherwise specified in the related
Prospectus Supplement, special counsel to the Bank will
deliver its opinion that under existing law the
Certificates of each Series offered hereby will be
characterized as debt for federal income tax purposes.
Except to the extent otherwise specified in the related
Prospectus Supplement, the Certificateholders will agree to
treat the Certificates as debt of the Bank for federal,
state and local income and franchise tax purposes. See
"Certain Federal Income Tax Consequences" for additional
information concerning the application of federal income
tax laws.
ERISA CONSIDERATIONS....
Certificates of any Series offered hereby may be eligible
for purchase by Benefit Plans. See "ERISA Considerations".
CERTIFICATE RATING......
Unless otherwise specified in the related Prospectus
Supplement, it will be a condition to the issuance of the
Certificates of each Series offered hereby that they be
rated in one of the three highest applicable rating
categories by at least one nationally recognized
statistical rating organization selected by the Bank (the
rating agency or agencies rating any Series, a "Rating
Agency"); provided, however, that the Certificates offered
pursuant to this Prospectus and the related Prospectus
Supplement will be investment grade asset-backed securities
within the meaning of the Act and the rules promulgated
thereunder. The rating or ratings
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applicable to the Certificates of each such Series will be
as set forth in the related Prospectus Supplement.
A security rating should be evaluated independently of
similar ratings of different types of securities. A rating
is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the
assigning Rating Agency. Each rating should be evaluated
independently of any other rating. See "Risk
Factors -- Series Considerations -- Limited Nature of
Rating".
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RISK FACTORS
SERIES CONSIDERATIONS
LIMITED LIQUIDITY
It is anticipated that, to the extent permitted, the underwriters of any
Series or Class 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 can be no assurance that a secondary market will develop with
respect to the Certificates of any Series offered hereby or, if such a secondary
market does develop, that it will provide Certificateholders with liquidity of
investment or that it will continue for the life of such Certificates.
GENERATION OF ADDITIONAL RECEIVABLES; DEPENDENCY ON CARDHOLDER REPAYMENTS
The Receivables may be paid at any time and there is no assurance that
there will be new Receivables created in the Accounts, that Receivables will be
added to the Trust or that any particular pattern of accountholder repayments
will occur. The actual rate of accumulation of principal with respect to a
Series in a Principal Funding Account during an Accumulation Period and the rate
of distributions of principal with respect to a Series during a Controlled or
Early Amortization Period will depend on, among other factors, the rate of
accountholder repayments, the timing of the receipt of repayments and the rate
of default by accountholders. As a result, no assurance can be given that the
Invested Amount of a Series of Certificates will be paid on the Expected Final
Payment Date, if any, with respect to such Series or that payment of principal
during the Controlled Amortization Period, if any, with respect to a Series of
Certificates will equal the Controlled Amortization Amount, if any, with respect
to such Series or will follow any expected pattern. Accountholder monthly
payment rates with respect to the Accounts are dependent upon a variety of
factors, including seasonal purchasing and payment habits of accountholders, the
availability of other sources of credit, general economic conditions, tax laws
and the terms of the Accounts (which are subject to change by the Bank).
Increased convenience use, where accountholders pay their Account balances in
full on or prior to the due date, and thus avoid all finance charges, would
decrease the effective yield on the Accounts and could cause the commencement of
an Early Amortization Period for one or more Series, as well as a decrease in
protection to Certificateholders against defaults under the Accounts. No
assurance can be given as to the accountholder payment rates which will actually
occur in any future period. See "Maturity Considerations" in the related
Prospectus Supplement.
Continued generation of Receivables in certain of the Bank's accounts
depends, in part, on the levels of account attrition (losing accounts to
competing card issuers) and balance attrition (losing account balances to
competing card issuers) experienced by the Bank. The Bank has offered accounts
with introductory rates, which are generally at low levels during some initial
period and which generally rise to higher variable rates after the initial
period expires, although the Bank may in its discretion waive all or part of the
rate increase for selected accounts. Much of the initial growth in the Bank's
account originations was attributable to customers who, attracted by the Bank's
low introductory rates, transferred balances from competing card issuers.
Accounts in the Bank's low introductory rate portfolio that reprice are subject
to a significant risk of attrition, because cardholders that were initially
attracted by the Bank's low introductory rates may determine to switch accounts
or transfer account balances to lower price products offered by competing card
issuers. Although the Bank has developed methodologies for retaining these
accounts after expiration of the initial period, there can be no assurance that
attrition in these accounts will not be significant.
The continuation of the Revolving Period of a Series will be dependent on
the continued generation of new Receivables for the Trust. 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,
increased convenience use or other factors) could result in the occurrence of a
Pay Out Event with respect to a Series and the commencement of an Early
Amortization Period with respect to such Series. In such event,
Certificateholders would bear the risk of reinvestment of the principal amounts
of their Certificates. The Pooling Agreement provides that the Bank will be
required to make an Addition to the Trust in the event that the Seller's
Interest is not maintained at a minimum level equal to the Required Seller's
Percentage of the aggregate amount of Principal Receivables in the Trust (the
"Required Seller's Interest"). The "Required Seller's Percentage" is equal to 7%
but may be reduced under certain circumstances described herein under
"Description of the Certificates -- Addition of Trust Assets". In the event that
the Bank fails to make such Addition within five business days of the day on
which it is required to make such Addition pursuant to the Pooling Agreement,
unless the Required Seller's Percentage has been reduced and if the Supplement
for any Series so provides, a Pay Out Event will occur with respect to such
Series.
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LIMITED NATURE OF RATING
Any rating assigned to the Certificates of a Series or a Class by a Rating
Agency will reflect such Rating Agency's assessment of the likelihood that
Certificateholders of such Series or Class will receive the payments of interest
and principal required to be made under the Pooling Agreement and will be based
primarily on the value of the Receivables in the Trust and the availability of
any Series Enhancement with respect to such Series or Class. However, any such
rating will not, unless otherwise specified in the related Prospectus Supplement
with respect to any Class or Series offered hereby, address the likelihood that
the principal of, or interest on, any Certificates of such Class or Series will
be paid on a scheduled date. In addition, any such rating will not address the
possibility of the occurrence of a Pay Out Event with respect to such Class or
Series or the possibility of the imposition of United States withholding tax
with respect to non-U.S. Certificateholders. 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.
BOOK-ENTRY REGISTRATION
Unless otherwise stated in the related Prospectus Supplement, the
Certificates of each Series offered hereby initially will be represented by one
or more certificates registered in the name of Cede, the nominee for DTC, and
will not be registered in the names of the Certificateholders or their nominees.
Consequently, unless and until Definitive Certificates are issued,
Certificateholders will not be recognized by the Trustee as "Certificateholders"
(as such term is used in the Pooling Agreement and any Supplement). Hence, until
such time, Certificateholders will only be able to exercise the rights of
Certificateholders indirectly through DTC, and its participating organizations,
and unless the Prospectus Supplement for a Series provides otherwise, through
Cedel or Euroclear and their respective participating organizations. See "The
Pooling Agreement Generally -- Book-Entry Registration" and "-- Definitive
Certificates".
MASTER TRUST CONSIDERATIONS
ISSUANCE OF ADDITIONAL SERIES; EFFECT ON PAYMENTS TO CERTIFICATEHOLDERS
The Trust, as a master trust, previously has issued other Series of
Certificates and is expected to issue additional Series from time to time. While
the terms of any Series will be specified in a Supplement, the provisions of a
Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review by, or consent of, holders of the Certificates of
any previously issued Series. Such terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security or other Series Enhancements, provisions
subordinating such Series to another Series or other Series (if the Supplement
relating to such Series so permits) to such Series, and any other amendment or
supplement to the Pooling Agreement which is made applicable only to such
Series. The obligation of the Trustee to issue any new Series is subject to the
following conditions, among others: (a) the Bank shall have received written
notice that such issuance will not result in any Rating Agency reducing or
withdrawing its rating of the Certificates of any outstanding Series (any such
reduction or withdrawal is referred to herein as a "Ratings Effect") and (b) the
Bank shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer to the effect that, based on
the facts known to such officer at the time, in the reasonable belief of the
Bank, such issuance will not at the time of its occurrence cause a Pay Out Event
or an event that, after the giving of notice or the lapse of time, would
constitute a Pay Out Event, to occur with respect to any Series. There can be no
assurance, however, that the terms of any other Series, including any Series
issued from time to time hereafter, might not have an impact on the timing or
amount of payments received by a Certificateholder. See "Description of the
Certificates -- New Issuances".
IMPACT OF DISCOUNT OPTION; SLOWER PAYMENT RATE
Pursuant to the Pooling Agreement, the Bank has the option from time to
time to designate a fixed or variable percentage of Receivables that otherwise
would be treated as Principal Receivables to be treated as Finance Charge
Receivables. Any such designation would result in an increase in the amount of
Finance Charge Receivables and a slower payment rate of collections in respect
of Principal Receivables than otherwise would occur. Pursuant to the Pooling
Agreement, the Bank can make such a designation without notice to or the consent
of Certificateholders. Thereafter, pursuant to the Pooling Agreement, the Bank
may, without notice to or the consent of Certificateholders, reduce or
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eliminate the percentage of Receivables subject to such a designation. The Bank
must provide 30 days prior written notice to the Servicer, the Trustee, any
provider of Series Enhancement and each Rating Agency of any such designation or
reduction of Principal Receivables to be treated as Finance Charge Receivables,
and such designation or reduction will become effective only if (i) the Bank
shall have delivered to the Trustee and certain providers of Series Enhancement
a certificate of an authorized officer to the effect that, based on the facts
known to such officer at the time, in the reasonable belief of the Bank, such
designation or reduction would not at the time of its occurrence cause a Pay Out
Event or an event that, after the giving of notice or the lapse of time would
constitute a Pay Out Event, to occur with respect to any Series and (ii) the
Bank shall have received written notice from each Rating Agency that such
designation or reduction will not have a Ratings Effect. See "Description of the
Certificates -- Discount Option".
IMPACT OF ADDITION OF TRUST ASSETS; DIFFERENT CHARACTERISTICS
The Bank expects, and in some cases will be obligated, to designate
Additional Accounts, the Receivables in which will be conveyed to the Trust.
Such Additional Accounts may include accounts originated using criteria
different from those which were applied to the Initial Accounts because such
accounts were originated at a different date or were part of a portfolio of
accounts which were not part of the Bank Portfolio as of the Trust Cut-Off Date
or which were acquired from another institution. Moreover, Additional Accounts
may not be accounts of the same type as those previously included in the Trust.
See "The Pooling Agreement Generally -- Representations and Warranties".
Consequently, there can be no assurance that such Additional Accounts will be of
the same credit quality as the Initial Accounts or the Additional Accounts
previously included in the Trust. In addition, such Additional Accounts may
consist of consumer revolving credit card accounts or other consumer revolving
credit accounts, including secured accounts, which have different terms or
characteristics than the Initial Accounts and the Additional Accounts previously
included in the Trust, including different periodic rate finance charges and
other fees and charges, which may have the effect of reducing or increasing the
average yield on the portfolio of Accounts included in the Trust, different
payment rates and higher loss or delinquency experience, which may have the
effect of reducing or increasing the average yield on the portfolio of accounts
included in the Trust. The Pooling Agreement provides that the Bank may also add
to the Trust Participations (see "Prospectus Summary -- Trust"). The designation
of Additional Accounts (other than Automatic Additional Accounts) and
Participations will be subject to the satisfaction of certain conditions
described herein under "Description of the Certificates -- Addition of Trust
Assets", including that (a) the Bank shall have received written notice from
each Rating Agency that such addition will not have a Ratings Effect and (b) the
Bank shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer to the effect that, based on
the facts known to such officer at the time, in the reasonable belief of the
Bank, such addition will not at the time of its occurrence cause a Pay Out Event
or an event that, after the giving of notice or the lapse of time, would
constitute a Pay Out Event, to occur with respect to any Series. Although the
addition of Participations will require an amendment to the Pooling Agreement,
no consent of Certificateholders will be required for any such amendment. See
"Description of the Certificates -- Addition of Trust Assets".
CERTAIN LEGAL ASPECTS
Transfer of Receivables. While the Bank has sold and will sell Receivables
to the Trust, a court could treat such a transaction as an assignment of
collateral as security for the benefit of holders of Certificates issued by the
Trust. The Bank has represented and warranted in the Pooling Agreement that the
transfer of the Receivables to the Trust is either a valid sale and assignment
of such Receivables to the Trust or the grant to the Trust of a security
interest in such Receivables. The Bank will take certain actions as are required
or reasonably requested under applicable state law to perfect the Trust's
interest in the Receivables, and the Bank warrants that if the transfer to the
Trust is deemed to be a grant to the Trust of a security interest in the
Receivables, the Trustee will have a first priority perfected security interest
therein, and, with certain exceptions and for certain limited periods of time
provided for in the Uniform Commercial Code as in effect in the Commonwealth of
Virginia (the "UCC"), in the proceeds thereof (subject, in each case, to certain
potential governmental liens referred to under "The Pooling Agreement
Generally -- Representations and Warranties"). Certain Receivables may be added
to the Trust from time to time with respect to which the related accountholders
have provided the Bank with Funds Collateral (as defined under the heading "The
Bank's Credit Card and Consumer Lending Business -- Underwriting Procedures") as
security for such accountholder's obligations to the Bank. The Funds Collateral
is expected to be held by one or more FDIC-insured depositary institutions which
may be the Bank, an affiliate of the Bank or an unaffiliated third-party (a
"Depositary"). The Bank will take certain actions as are required or reasonably
requested under applicable state law to perfect the Bank's security interest in
the Funds Collateral. The perfection of a security interest in the Funds
Collateral may not be governed by the UCC, and existing common law
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authority does not definitively establish what steps are necessary to perfect
such a lien. This uncertainty exists both with respect to the grant of a
security interest in the Funds Collateral by accountholders to the Bank and with
respect to the grant of a security interest in the Bank's interest in the Funds
Collateral by the Bank to the Trust. While not free from doubt, a Virginia court
properly presented with the issue should determine that the Bank has taken
sufficient action and has adequately divested the accountholders of control over
the Funds Collateral so as to perfect a security interest therein. In connection
with the transfer of Receivables to the Trust, the Bank will also sell and
assign to the Trust its interest as secured party in the related Funds
Collateral, if any. Because possession of such Funds Collateral will be
maintained by the Depositary and will not be transferred to the Trustee, the
Trust will not have a direct claim to the Funds Collateral. The Bank will
represent and warrant in the Pooling Agreement that the transfer of the Bank's
interest in the Receivables and the Funds Collateral, if any, to the Trust is
either a valid sale and assignment of the Bank's interest in the Receivables and
the Funds Collateral, if any, to the Trust or the grant to the Trust of a
security interest in the Bank's interest in the Receivables and the Funds
Collateral, if any. The Bank will take certain actions as it believes are
required under applicable state law to perfect the Trust's interest in the
Receivables and the Funds Collateral, if any, transferred to the Trust, and the
Bank warrants that if the transfer to the Trust is deemed to be a grant to the
Trust of a security interest in the Receivables and the Funds Collateral, if
any, the Trustee will have a first priority perfected security interest in the
Bank's interest therein, and, with certain exceptions and for certain limited
periods of time provided for in the UCC, in the proceeds thereof (subject, in
each case, to certain potential governmental liens referred to under "The
Pooling Agreement Generally -- Representations and Warranties"). Although the
Bank has taken steps it believes appropriate to perfect interests given to the
Trust, and on the basis of its belief has made the related representations and
warranties, the legal uncertainty in these areas is such that no definitive
assurance can be given that a first priority perfected security interest in the
Bank's interest in the Funds Collateral will exist for the benefit of the Trust.
Moreover, even if the transfer of the Bank's interest in the Receivables and the
related Funds Collateral, if any, to the Trust is deemed to create a security
interest therein, a tax or governmental lien or other nonconsensual lien arising
before the Bank's interest in such Receivables comes into existence, or through
fraud or negligence of the Bank, a subsequent transferee of the Funds
Collateral, may have priority over the Trust's interest in such Receivables and
related Funds Collateral, as applicable. If the FDIC were appointed conservator
or receiver of the Bank, the conservator's or receiver's administrative expenses
may also have priority over the Trust's interest in such Receivables and such
Funds Collateral. In addition, while the Bank is the Servicer, cash collections
held by the Bank may, subject to certain conditions, be commingled and used for
the benefit of the Bank prior to the date on which such collections are required
to be deposited in the Collection Account as described under "Description of the
Certificates -- Deposits in Collection Account". In the event of the
conservatorship, receivership or insolvency of the Bank or, in certain
circumstances, the lapse of certain time periods, the Trust may not have a
perfected interest in such collections and, in such event, the Trust may suffer
a loss of all or part of such collections which may result in a loss to
Certificateholders.
Certain Matters Relating to Receivership. To the extent that the Bank has
granted or will grant a security interest in the Bank's interest in the
Receivables and the related Funds Collateral, if any, to the Trust and such
security interest is validly perfected before the Bank's insolvency and was not
or will not be taken in contemplation of insolvency of the Bank, or with the
intent to hinder, delay or defraud the Bank or the creditors of the Bank, the
Federal Deposit Insurance Act ("FDIA"), as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (as amended, "FIRREA"), provides
that such security interests should not be subject to avoidance by the FDIC, as
conservator or receiver for the Bank. Positions taken by the FDIC staff prior to
the passage of FIRREA do not suggest that the FDIC, as receiver or conservator
for the Bank, would interfere with the timely transfer to the Trust of payments
collected on the Receivables or applications of the Funds Collateral. If,
however, the FDIC were to assert a contrary position, such as requiring the
Trustee to establish its right to those payments or the Funds Collateral by
submitting to and completing the administrative claims procedure under the FDIA,
or the conservator or receiver were to request a stay of proceedings with
respect to the Bank as provided under the FDIA, delays in payments to
Certificateholders on all outstanding Series of Certificates and possible
reductions in the amount of those payments could occur.
If a conservator or receiver were appointed for the Bank or if certain
other events relating to the bankruptcy, insolvency or receivership of the Bank
were to occur (an "Insolvency Event"), then a Pay Out Event would occur with
respect to all Series then outstanding and, pursuant to the Pooling Agreement,
neither new Principal Receivables nor the Bank's interest in the Funds
Collateral, if any, related to such new Principal Receivables would be
transferred to the Trust and the Trustee would sell the Receivables and the
Trust's interest in the related Funds Collateral (unless each other holder of
the Seller's Certificate and Certificateholders holding Certificates of each
Series or, if a Series includes more than one Class, each Class of such Series
evidencing more than 50% of the aggregate unpaid principal amount of each such
Series or Class and, in the case of any Series with respect to which there is an
Enhancement Invested Amount, any
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Credit Enhancer with respect thereto instruct otherwise), thereby causing early
termination of the Trust and a loss to Certificateholders of a particular Series
if the sum of (a) the portion of the proceeds of such sale allocable to such
Certificateholders and (b) the proceeds of any collections on the Receivables in
the Collection Account allocated to the Certificateholders' Interest of such
Series is insufficient to pay such Certificateholders in full. If a Pay Out
Event occurs involving either the insolvency of the Bank or the appointment of a
conservator or receiver for the Bank, the conservator or receiver may have the
power to prevent the early sale, liquidation or disposition of the Receivables
and the Trust's interest in any related Funds Collateral and the commencement of
the Early Amortization Period. A conservator or receiver may also have the power
to cause the early sale of the Receivables and the Trust's interest in any
related Funds Collateral and the early retirement of the Certificates of each
Series or to prohibit the continued transfer of Principal Receivables and of the
Bank's security interest in the related Funds Collateral, if any, to the Trust.
In addition, in the event of a Servicer Default relating to the conservatorship
or receivership of the Servicer, if no Servicer Default other than such
conservatorship or receivership 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. See "Certain Legal
Aspects of the Receivables -- Transfer of Receivables" and "-- Certain Matters
Relating to Receivership."
The Bank will establish the Deposit Account and maintain or cause to be
maintained records regarding each accountholder's beneficial interest in the
Funds sufficient to afford each accountholder federal deposit insurance up to
applicable limits. In the event of the insolvency, conservatorship or
receivership of the Depositary, although the Funds will be FDIC insured up to
applicable limits, such an insolvency, conservatorship or receivership may
result in a delay in the payment of such Funds, and possible reduction in amount
of payment of such Funds, to the accountholder or to the Trust by the FDIC as
conservator or receiver for the Depositary.
Consumer Protection Laws. The Accounts and Receivables are subject to
numerous Federal and state consumer protection laws which impose requirements on
the making, enforcement and collection of consumer loans. The United States
Congress and the states may enact laws and amendments to existing laws to
regulate further the credit card and consumer revolving loan industry or to
reduce finance charges or other fees or charges applicable to credit card and
other consumer revolving loan accounts. Such laws, as well as any new laws or
rulings which may be adopted, may adversely affect the Servicer's ability to
collect on the Receivables or maintain the current level of periodic rate
finance charges and other fees and charges with respect to the Accounts. In
addition, failure by the Servicer to comply with such requirements could
adversely affect the Servicer's ability to enforce the Receivables. In October
1987, November 1991 and March 1994, members of Congress attempted unsuccessfully
to limit the maximum annual percentage rate that may be assessed on credit card
accounts. If Federal legislation were enacted which contained an interest rate
cap substantially lower than the annual percentage rates currently assessed on
the Accounts, it is possible that the average yield on the portfolio of Accounts
in the Trust would be reduced and therefore a Pay Out Event could occur with
respect to the Certificates of a Series, if the related Supplement for such
Series so provides. See "Description of the Certificates -- Pay Out Events". In
addition, during recent years, there has been increased consumer awareness with
respect to the level of finance charges and fees and other practices of credit
card issuers and other consumer revolving loan providers. As a result of these
developments and other factors, there can be no assurance as to whether any
Federal or state legislation will be promulgated which would impose additional
limitations on the monthly periodic rate finance charges or other fees or
charges relating to the Accounts.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of Certificateholders in the Receivables if such laws
result in any Receivables being charged off as uncollectible when there are no
funds available from Series Enhancement or other sources and could delay
realization on any related Funds Collateral or otherwise affect the ability of
the Bank to realize on such Funds Collateral.
Legal Matters. Since October 1991, a number of lawsuits and administrative
actions were filed in several states against out-of-state banks (both
federally-insured state-chartered banks and federally-insured national banks)
which issue credit cards. These actions challenged various fees and charges
(such as late fees, overlimit fees, returned check charges and annual membership
fees) assessed against residents of the states in which such suits were filed,
based on restrictions or prohibitions under such states' laws alleged to be
applicable to the out-of-state credit card issuers. The Supreme Courts of
California, Colorado and New Jersey have recently issued decisions in such
actions. The California and Colorado Supreme Courts opined that federal law
governed late fees and found for the respective defendant banks, while the New
Jersey Supreme Court found that late payment fees are not interest and that,
therefore, state law is not preempted by federal law with respect to such late
fees. On June 3, 1996, the United States Supreme Court upheld the decision of
the California Supreme Court and the determination of the Office of the
Comptroller of the Currency, holding that the late payment fees in question were
"interest" and as such were governed by federal law, which authorizes national
banks to
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charge out-of-state customers an interest rate allowed by the bank's home state.
In addition, the United States Supreme Court reversed and remanded the decision
of the New Jersey Supreme Court respecting a state-chartered bank for treatment
consistent with its decision in the California case. See "-- Consumer Protection
Laws".
SOCIAL, LEGAL, ECONOMIC AND OTHER FACTORS
Changes in credit use and payment patterns by accountholders result from a
variety of economic, legal and social factors. Economic factors include the rate
of inflation, unemployment levels and relative interest rates. The use of
incentive programs (e.g., gift awards for credit usage) may affect credit use.
The Bank is unable to determine whether or to what extent changes in applicable
laws or other economic or social factors will affect credit use or repayment
patterns.
COMPETITION IN THE CREDIT CARD AND CONSUMER REVOLVING LOAN INDUSTRY
The credit card and consumer revolving loan industry is highly competitive
and operates in a legal and regulatory environment increasingly focused on the
cost of services charged to consumers. There is increased use of advertising,
target marketing, pricing competition and incentive programs. New consumer
credit providers seek to enter, or expand their share of, the market. Certain
credit card issuers and other revolving credit providers assess periodic rate
finance charges or other fees or charges at rates lower than the rate currently
being assessed on most of the Accounts and more of the Bank's competitors have
begun to do so. In addition, a number of the Bank's competitors are now
attempting to employ programs similar to the specialized marketing programs and
information-based strategies through which the Bank has solicited new
accountholders. The Bank may also solicit existing accountholders to open other
revolving credit card accounts or revolving credit accounts which offer certain
benefits not available under the Accounts, including lower periodic rate finance
charges or reduced late charges and other fees or charges. Credit card customers
are attracted to credit card issuers largely on the basis of price, credit limit
and other product features and, once an account is originated, customer loyalty
may be limited. If accountholders choose to utilize competing sources of credit,
the rate at which new Receivables are generated in the Accounts may be reduced
and certain purchase and payment patterns with respect to the Receivables may be
affected. The Trust will be dependent upon the Bank's continued ability to
generate new Receivables. If the rate at which new Receivables are generated
declines significantly and the Bank does not add Additional Accounts to the
Trust, a Pay Out Event could occur with respect to a Series, if the related
Supplement so provides.
THE ABILITY OF THE BANK TO CHANGE TERMS OF THE ACCOUNTS
Pursuant to the Pooling Agreement, the Bank does not transfer to the Trust
the Accounts but only the Receivables arising in the Accounts. As owner of the
Accounts, the Bank will have the right to determine the periodic rate finance
charge, the fees and the other charges which will be applicable from time to
time to the Accounts, to alter the minimum monthly payment required under the
Accounts and to change various other terms with respect to the Accounts. A
decrease in the periodic rate finance charge or other fees or charges applicable
to the Accounts would decrease the effective yield on the Accounts and could
result in the occurrence of a Pay Out Event with respect to a Series and the
commencement of an Early Amortization Period with respect to such Series, if the
related Supplement so provides, as well as decreased protection to
Certificateholders against charged-off Receivables. Under the Pooling Agreement,
the Bank has agreed that, unless required by law or unless, in its sole
discretion, it deems it necessary to maintain on a competitive basis its lending
business, it will not reduce the annual percentage rate of the monthly periodic
rate finance charge assessed on the Receivables or reduce other fees on the
Accounts, if as a result of such reduction, either its reasonable expectation is
that such reduction will cause a Pay Out Event to occur with respect to a Series
or such reduction is not applied to any comparable segment of consumer revolving
credit accounts owned by the Bank which have characteristics the same as or
substantially similar to the Accounts. In addition, the Bank, subject to
compliance with applicable laws, may in its sole discretion change the other
terms of its Accounts, if such change is made applicable to any comparable
segment of consumer revolving credit accounts owned by the Bank which have
characteristics the same as, or substantially similar to, such Accounts. Except
as specified above, there are no restrictions on the Bank's ability to change
the terms of the Accounts. There can be no assurance that changes in applicable
law, changes in the marketplace, including recent announcements by other credit
card issuers lowering annual percentage rates, or prudent business practice
might not result in a determination by the Bank to decrease customer finance
charges or otherwise take actions which would change any Account terms. See
"-- Competition in the Credit Card and Consumer Revolving Loan Industry". In
servicing the Accounts, the Servicer is required to apply its usual and
customary servicing procedures for servicing receivables comparable to the
Receivables and to act in accordance with the Bank's established policies and
procedures relating to the operation of its consumer revolving lending business,
as such policies and procedures relating to
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the operation of its consumer revolving lending business, as such policies and
procedures may be changed from time to time (the "Lending Guidelines").
CONTROL
Subject to certain exceptions, the Certificateholders of each Series may
take certain actions, or direct certain actions to be taken, under the Pooling
Agreement or the related Supplement. However, under certain circumstances, the
consent or approval of the holders of a specified percentage of the aggregate
unpaid principal amount of the Certificates of all outstanding Series will be
required to direct certain actions, including requiring the appointment of a
successor Servicer following a Servicer Default, amending the Pooling Agreement
under certain circumstances and directing a reassignment of the entire portfolio
of Accounts. In addition, following the occurrence of an Insolvency Event with
respect to the Bank, the Trust Assets will be liquidated unless the holders of
Certificates evidencing more than 50% of the aggregate unpaid principal amount
of each Series or, if a Series includes more than one Class, each Class of such
Series (along with each other holder of the Bank Certificate and, in the case of
any Series with respect to which there is an Enhancement Invested Amount, any
Credit Enhancer) direct the Trustee not to sell or otherwise liquidate the
Receivables. Further, in certain cases (including with respect to certain
amendments described under "The Pooling Agreement Generally -- Amendments"),
when determining whether the required percentage of Certificateholders of a
Series have given their approval or consent, all the Certificateholders of such
Series will be treated as a single class (whether or not such Series includes
more than one Class). Accordingly, one or more Classes of Certificateholders may
have the power to determine whether any such action is taken without regard to
the position or interests of other Classes of Certificateholders relating to
such action.
THE BANK'S CREDIT CARD AND CONSUMER LENDING BUSINESS
BUSINESS OVERVIEW
The Bank is engaged in secured and unsecured consumer lending nationwide,
principally through prescreened direct mail and telemarketing. The Bank's
consumer revolving receivables portfolio (the "Bank Portfolio") consists
primarily of unsecured consumer loans for which the credit extension vehicle is
principally a check or credit card. The Bank is a member of both the VISA and
MasterCard associations.
The receivables conveyed initially and to be conveyed by the Bank to the
Trust pursuant to the Pooling Agreement have been and will be generated from
transactions made by holders of selected VISA and MasterCard credit card
accounts, including premium accounts and standard accounts. Generally, both
premium and standard accounts undergo the same credit analysis, but premium
accounts have higher initial credit limits. In addition, premium accounts offer
a wider variety of services to accountholders.
The consumer credit card and revolving loan industry is highly competitive.
See "Risk Factors -- Master Trust Considerations -- Competition in the Credit
Card and Consumer Revolving Loan Industry" and "-- The Ability of the Bank to
Change Terms of the Accounts". The Bank has responded to this competition by
targeting its origination of new accounts through the creation of products for
multiple customer segments using various marketing channels. For example, the
Bank offers credit cards and revolving loans with different periodic rate
finance charges and annual fee combinations or other special features such as a
balance transfer option. The Bank approves prospective accountholders through
preapproval as well as full application underwriting procedures as described
below under "-- Underwriting Procedures". Using information derived from
proprietary statistical models, the Bank matches prospective accountholders who
meet the various applicable underwriting criteria with an acceptable credit card
or revolving loan product.
The Bank and its affiliate Capital One Services, Inc. currently service the
credit card accounts through facilities in Richmond, Virginia, Fredericksburg,
Virginia, Tampa, Florida and Dallas, Texas. Such services will either be
conducted by the Bank or another third party provider, and such termination is
not expected to have a material adverse effect on the servicing capabilities of
the Bank. The Bank's underwriting, customer service and collection procedures,
described below, are subject to change as the competitive environment, industry
practice, legal requirements or the Bank's business objectives may require. In
addition, the Bank or its affiliates may acquire accounts originated by third
parties from time to time in the future.
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UNDERWRITING PROCEDURES
The Bank has historically originated accounts through (i) applications
mailed directly to prospective accountholders, (ii) direct mail and
telemarketing solicitations for accounts from individuals whose creditworthiness
was prescreened, (iii) arrangements with affinity groups, (iv) conversion of
existing non-premium accounts to premium accounts, (v) application information
taken over the telephone from prospective accountholders and (vi) newspaper,
magazine, radio and television advertisements. For account originations and
solicitation activity since 1990, the Bank has focused largely on prescreened
direct mail and telemarketing targeted to multiple customer segments with
varying combinations of product structure and pricing. In general, the Bank's
prescreening and underwriting criteria are intended to identify and avoid
potential losses. These procedures are based on limited information, however,
and it is not possible for the Bank to identify all potential losses. The
following describes the process by which the Bank originates accounts.
Generally, the credit risk of each applicant is evaluated by use of a
credit scoring system, which is intended to provide a general indication, based
on the information available, of the applicant's willingness and ability to
repay his or her obligations. Most applications are scored based on the
information received on the application as well as data obtained from an
independent credit reporting agency. In select cases, based on certain criteria,
including likelihood of fraud, and in accordance with criteria established by
Bank management, further verification of information by telephone may be
required. Credit limits, and with respect to the secured credit card program,
deposit amounts, are determined based on information obtained from the
application and the independent credit reporting agency. Accountholder requests
for increased credit limits are evaluated based on a current credit reporting
agency report, updated application data and prior account performance.
The Bank's accounts are grouped into solicitations for purposes of
administrative convenience. A solicitation represents a group of accounts
established from replies to a specific mailing, telemarketing program or
advertisement program. Each program has a discrete set of underwriting criteria
corresponding to it. Product information for a particular solicitation is mailed
within a discrete period, normally two to three weeks in length.
The Bank's pre-approved account solicitation process generally begins with
a prescreening review which identifies consumers who are likely to be approved
for a credit card account. In the prescreening process, the Bank provides a set
of credit history and other criteria to credit reporting agencies, which
generate appropriate lists of names with desired attributes. The Bank further
refines this list by applying additional sets of underwriting criteria resulting
in a new list which represents the consumers who receive direct mail
solicitations. Additional sets of underwriting criteria vary from time to time
in accordance with the Lending Guidelines and include various models, including
risk models, designed to predict the credit risk of potential accountholders.
Those persons who receive solicitation packages generally must fill out
acceptance certificates which are used to initiate a back-end verification
process in which an applicant's credit information is reviewed a second time,
updated and verified against criteria established by the Lending Guidelines.
Once the acceptance certificates are returned and sorted and current credit
reporting agency reports are obtained, the acceptance certificates are processed
through the Bank's underwriting criteria.
In order to establish the amount of the customer's credit line, returned
applications are subject to the back-end verification process. Each customer
whose credit request meets all of the underwriting criteria is generally offered
a line of credit in excess of a minimum level, which is currently $200, although
lower levels are also offered.
The Bank tracks and continually tests the results of each mailing.
Extensive management information systems and processes enable management to
monitor continuously the effectiveness of prescreening and underwriting
criteria. Criteria are periodically modified based on the results obtained from
this process.
Each accountholder is subject to an agreement governing the terms and
conditions of the account under which the Bank reserves the right to change or
terminate any terms, conditions, services or features of the account (including
increasing or decreasing monthly periodic rate finance charges, other charges,
minimum payments or, with respect to secured credit card accounts, the amount of
the related deposit). The terms of the lending agreements are governed by
Virginia law. Credit limits are adjusted periodically based upon the Bank's
continuing evaluation of an accountholder's credit behavior.
For non-preapproved solicitations, the Bank acquires prospect names from a
variety of sources and then edits the list utilizing internal and external
sources to ensure quality and accuracy. The prospective customers on the final
list are mailed solicitations. Respondents are approved or declined based on
both the characteristics drawn from the application and a credit reporting
agency check.
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Under the Bank's secured credit card program, an accountholder provides the
Bank with a sum of money in the form of a check or money order (the "Funds") as
security for such accountholder's payment obligations arising under the secured
credit card. The Funds equal all, or a portion, of the credit limit available to
the accountholder and are deposited by the Bank, on behalf of the accountholder,
in an FDIC insured deposit account (the "Deposit Account", and together with the
Funds, the "Funds Collateral") at a Depositary as selected by the Bank. Pursuant
to a security agreement, each such accountholder pledges and assigns to the Bank
all of its right, title and interest in any and all Funds delivered by the
accountholder to the Bank and in the Deposit Account to secure the full
performance and payment of the obligations of such accountholder. If a secured
credit card account becomes delinquent, the Bank may immediately withdraw funds
from the Deposit Account to satisfy the accountholder's payment obligations.
Notwithstanding this right to immediately withdraw funds, the Bank typically
will not withdraw funds until shortly before the secured credit card account is
charged off as uncollectible. See "-- Delinquencies and
Collections -- Collection Efforts".
CUSTOMER SERVICE
Customer service representatives are currently available 24 hours a day,
seven days a week. Such representatives have on-line access to the customer's
account history in order to resolve immediately the majority of questions. When
charges are in dispute, the Bank's current policy is to credit the
accountholder's monthly billing statement for such portion of the balance that
is in dispute. If the dispute is resolved so that the customer accepts the
charge, it is re-billed to the customer's account. However, finance charges are
not applied retroactively on any disputed balances. Multiple tracking and
reporting systems are employed to ensure that service standards are achieved and
maintained.
BILLING AND PAYMENTS
The accounts in the Bank Portfolio currently have various billing and
payment characteristics, including varying periodic rate finance charges and
fees.
Currently, monthly billing statements are sent by the Bank to
accountholders with balances at the end of each billing period. Generally, with
some exceptions, each month an accountholder must make a minimum payment equal
to the sum of (i) the greater of 3.0% of the outstanding balance (including
purchases, cash advances, finance charges and fees posted to the account) or
$10.00 plus (ii) any past due amounts. If the accountholder's outstanding
balance is less than $10.00, then the minimum monthly payment equals the amount
of the outstanding balance. An accountholder may also make payments in advance
for up to three months.
A monthly periodic rate finance charge is assessed on the accounts in the
Bank Portfolio. Accounts may have a different periodic rate finance charge for
purchase, cash and account management balance transfer activity. Monthly
periodic rate finance charges are calculated from the date that a purchase, cash
advance or balance transfer is made by multiplying the monthly periodic rate by
the average daily balance of the account during the billing cycle. No periodic
rate finance charges are assessed on new purchases if the accountholder's
balance from the preceding billing cycle is paid in full by the due date and if
new purchases are paid in full by the next statement cycle date. The Bank does
not currently offer products that have no grace period for purchases.
There can be no assurance that periodic rate finance charges, fees and
other charges on Accounts the Receivables in which are included in the Trust
from time to time will remain at current levels. See "Risk Factors -- Master
Trust Considerations -- The Ability of the Bank to Change Terms of the
Accounts".
Currently, payments by accountholders to the Bank are processed at the
Bank's credit card operations center and other offices in Richmond, Virginia and
Fredericksburg, Virginia. Payments are applied first to finance charges assessed
with respect to the preceding billing period, then to any fees billed to the
account and then to the principal balance outstanding at the end of such billing
period. See "The Pooling Agreement Generally -- Collection and Other Servicing
Procedures".
DELINQUENCIES AND COLLECTIONS -- COLLECTION EFFORTS
The Bank generally considers an account delinquent if a minimum payment due
thereunder is not received by the Bank by the accountholder's payment due date.
The Bank makes use of behavioral scoring models designed to predict the
probability of an account charging off. Based on the behavioral score and
certain other factors, the Bank determines the timing of the collection activity
to be implemented for the account. Delinquent accounts are currently referred
for contact by phone between seven and 60 days after contractual delinquency,
depending on the accountholder's risk profile. In any
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event, the accountholder's statement reflects the request for payment of past
due amounts. Efforts to collect delinquent credit card accounts are generally
made by the Bank's regular collection group or legal collection staff.
The Bank reserves the right to suspend charging privileges at any time
after an account enters the collections process. In most cases, an account is
restricted and charging privileges are suspended no later than 105 days after
contractual delinquency. The Bank may also, at its discretion, enter into
arrangements with delinquent accountholders to extend or otherwise change
payment schedules. The current policy of the Bank is to charge off as
uncollectible an account during the cycle after the account becomes 180 days
delinquent. In connection with a secured credit card account, except as set
forth below, funds will generally be withdrawn from the Deposit Account by the
Servicer shortly before the secured credit card account is charged off as
uncollectible in an amount equal to the lesser of (i) all Principal Receivables
plus all Finance Charge Receivables related to such secured credit card account
and (ii) the amount of funds for such secured credit card account in the Deposit
Account. If the Bank receives notice that an accountholder has filed for
bankruptcy or has had a bankruptcy petition filed against it, the Bank charges
off such account no later than 60 days after the Bank receives such notice and
with respect to secured credit card accounts, funds will be withdrawn from the
Deposit Account and applied as set forth above, only after the bankruptcy
automatic stay is lifted. The Bank charges off accounts of deceased
accountholders within 60 days of receiving proper notice if no estate exists
against which a proof of claim can be filed, no other parties remit payments or
no other responsible party is available. The credit evaluation, servicing and
charge-off policies and collection practices of the Bank may change over time in
accordance with the business judgement of the Bank, applicable law and
guidelines established by applicable regulatory authorities.
INTERCHANGE
Members participating in the VISA and MasterCard associations receive
certain fees ("Interchange") as partial compensation for taking credit risk,
absorbing fraud losses, funding receivables and servicing accountholders for a
limited period prior to initial billing. Under the VISA and MasterCard systems,
Interchange in connection with accountholder charges for merchandise and
services is passed from banks which clear the transactions for merchants to
credit card-issuing banks. Interchange ranges from approximately 1% to 2% of the
transaction amount, although VISA and MasterCard may from time to time change
the amount of Interchange reimbursed to banks issuing their credit cards.
Interchange paid to the Bank will be allocated to the Trust with respect to each
Monthly Period on the basis of the percentage equivalent of the ratio which the
amount of accountholder sales charges in the Accounts bears to the total amount
of accountholder sales charges for all accounts in the Bank Portfolio, in each
case for such Monthly Period. This percentage is an estimate of the actual
Interchange paid to the Bank from time to time in respect of the Accounts and
may be greater or less than the actual amount of Interchange so paid. The Bank
will be required, pursuant to the terms of the Pooling Agreement, to transfer to
the Trust for the benefit of Certificateholders the percentage of the
Interchange allocable to the Certificateholders' Interest. All or a portion of
Interchange allocable to the Certificates as specified in the related Prospectus
Supplement for a Series will be used exclusively to pay the Servicer part of its
Monthly Servicing Fee. See "Description of the Certificates -- Servicing
Compensation and Payment of Expenses". Interchange, if any, in excess of the
portion thereof required to be used exclusively to pay the Servicer part of such
Monthly Servicing Fee will be included in Finance Charge Receivables pursuant to
the Pooling Agreement for purposes of determining the amount of Finance Charge
Receivables and allocating collections and payments thereof to the
Certificateholders. Interchange (including the portion used exclusively to pay
the Servicer a portion of its Monthly Services Fee) will be included in Finance
Charge Receivables for purposes of calculating the average yield on the
portfolio of Accounts included in the Trust applicable to any Series as
specified in the related Supplement.
THE ACCOUNTS
The Receivables arise in certain Eligible Accounts selected by the Bank
from the Bank Portfolio. The Bank has identified a pool of accounts, from which
the Initial Accounts were selected, based on the eligibility and other criteria
specified in the Pooling Agreement.
The Bank has transferred and will transfer to the Trust all Receivables
existing in each Account and any Funds Collateral on the date of transfer to the
Trust and all Receivables and any Funds Collateral generated in such Account
after such date. All monthly calculations with respect to such Accounts are
computed based on activity occurring during a processing month (each, a "Monthly
Period"), which is a period of approximately 30 days, that (a) contains a full
set of processing cycles with respect to the Accounts, as defined by the
Servicer, (b) commences on the day immediately succeeding the last day of the
immediately preceding Monthly Period and (c) ends prior to the Determination
Date for
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the related Distribution Date, provided that the initial Monthly Period with
respect to any Series will commence on the cut-off date with respect to such
Series. The Initial Accounts do (and any Additional Accounts may) include
certain Accounts for which Receivables have been charged off as uncollectible
prior to their addition to the Trust in accordance with the Bank's normal
servicing policies and the Lending Guidelines. Receivables in charged-off
Accounts are deemed to have a zero balance and the Trust will own only the right
to receive recoveries (net of any collection expenses deducted therefrom) with
respect to such Receivables other than recoveries in respect of insurance
proceeds. Pursuant to the Pooling Agreement, the Bank has the right, and in
certain cases the obligation (subject to certain limitations and conditions
described below), to designate from time to time additional qualifying secured
or unsecured VISA or MasterCard consumer revolving credit card accounts and
other consumer revolving credit accounts to be included as Accounts and to
convey to the Trust all Receivables in such Additional Accounts, whether such
Receivables are then existing or thereafter created. These Accounts must be
Eligible Accounts as of the date the Bank designates such accounts as Additional
Accounts. Since the Trust Cut-Off Date, the Bank has conveyed to the Trust
Receivables in certain Additional Accounts in accordance with the provisions of
the Pooling Agreement. In addition, as of the Trust Cut-Off Date (or as of the
addition date for any Account) and on the date any new Receivables are created,
the Bank will represent and warrant to the Trust that each of the Receivables in
any Account or Additional Account which is conveyed to the Trust on such day
meets the eligibility requirements specified in the Pooling Agreement. See "The
Pooling Agreement Generally -- Representations and Warranties". However, there
can be no assurance that all the Accounts will continue to meet the applicable
eligibility requirements throughout the life of the Trust. The Pooling Agreement
also provides that the Bank may convey to the Trust Participations, which may
have different eligibility requirements, characteristics and risks than the
Accounts. See "Description of the Certificates -- Addition of Trust Assets".
Accounts may also include any account or accounts (each, a "Related
Account") having the following characteristics: (a) such Related Account was
established in compliance with the Lending Guidelines pursuant to a Lending
Agreement; (b) the accountholder or accountholders with respect to such Related
Account are the same person or persons as the accountholder or accountholders of
the Account; (c) such Related Account is originated (i) as a result of the
credit card with respect to the Account being lost or stolen; (ii) as a result
of the accountholder requesting a change in his billing cycle; (iii) as a result
of the accountholder requesting the discontinuance of responsibility with
respect to an Account; (iv) as a result of the accountholder requesting a
product change; or (v) for any other reasons permitted by the Lending
Guidelines; and (d) such Related Account can be traced or identified by
reference to or by way of the computer or other records of the Bank.
Subject to certain limitations and restrictions, the Bank may also
designate certain Accounts the Receivables and Funds Collateral in which will be
removed from the Trust. In such case, the Receivables and Funds Collateral in
the Removed Accounts, together with any related Funds Collateral, will be
reassigned to the Bank. Throughout the term of the Trust, the Accounts will
consist of the Initial Accounts, plus any Additional Accounts and Participations
added to the Trust, and minus any Removed Accounts.
Additional Accounts might not be accounts of the same type or with the same
characteristics as those the Receivables in which were previously included in
the Trust. Therefore there can be no assurance that such Additional Accounts
will be of the same credit quality as the Initial Accounts or the Additional
Accounts the Receivables in which have been conveyed previously to the Trust.
Moreover, Additional Accounts may contain Receivables which consist of fees,
charges and amounts which are different from the fees, charges and amounts
described herein. Such Additional Accounts may also be subject to different
credit limits, balances and ages. Consequently, there can be no assurance that
the Accounts will continue to have the characteristics described herein as
Additional Accounts are added. In addition, the inclusion in the Trust of
Additional Accounts with lower periodic rate finance charges may have the effect
of reducing the average yield of the portfolio of Accounts in the Trust. The
Bank may add Participations to the Trust from time to time without the approval
of Certificateholders of any Series. In addition to the periodic reports
otherwise required to be filed by the Bank with the Securities and Exchange
Commission pursuant to the Exchange Act, the Bank intends to file, on behalf of
the Trust, a Report on Form 8-K with respect to any addition of Accounts which
would have a material effect on the composition of the Accounts or any addition
of Participations.
THE BANK
Capital One is a limited purpose Virginia state chartered credit card bank,
a subsidiary of Capital One Financial Corporation and a member of the Federal
Reserve System whose deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation. Capital One (i) engages only in credit card
operations, (ii) does not accept
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demand deposits or deposits that the depositor may withdraw by check or similar
means for payment to third parties or others, (iii) does not accept any savings
or time deposit of less than $100,000 although it may accept deposits of under
$100,000 as collateral for extension of credit, (iv) maintains only one office
that accepts deposits, and (v) does not engage in the business of making
commercial loans. Capital One (through its predecessor) is one of the oldest
continually operating bank card issuers in the U.S., having commenced operations
in 1953, the same year as the formation of what is now MasterCard International.
Prior to November 22, 1994, Capital One conducted its operations as a
division of Signet/Virginia, a wholly-owned subsidiary of Signet. Pursuant to
the terms of the Separation Agreement, Signet/Virginia contributed designated
assets and liabilities of its credit card division and $358 million of equity
capital to Capital One on November 22, 1994. Following the contribution of
assets and the assumption of liabilities, Signet/Virginia distributed the
capital stock of Capital One to Signet, which then contributed such stock to
Capital One Financial Corporation. Concurrently with the Separation, Capital One
Financial Corporation consummated the Offering of 7,125,000 shares of its common
stock (or approximately 10.8% of its outstanding shares), the net proceeds of
which were approximately $102 million. Approximately $92 million of such net
proceeds were contributed as capital to Capital One. On February 28, 1995 Signet
divested its remaining ownership interest in Capital One Financial Corporation
by means of a tax-free distribution to its stockholders.
Capital One was incorporated under the laws of Virginia on May 3, 1994. Its
main office is currently located at 11011 West Broad Street Road, Richmond,
Virginia 23260. Capital One's telephone number is (804) 967-1000.
ASSUMPTION OF THE BANK'S OBLIGATIONS
The Pooling Agreement permits a transfer of all of the Bank's consumer
revolving credit card accounts and other revolving credit accounts and the
receivables arising thereunder, which may include all, but not less than all, of
the Accounts and the Bank's remaining interest in the Receivables arising
thereunder, its interest in Participations and its interest in the Trust
(collectively, the "Assigned Assets"), together with all servicing functions and
other obligations under the Pooling Agreement or relating to the transactions
contemplated thereby (collectively, the "Assumed Obligations"), to another
entity (the "Assuming Entity") which may or may not ultimately be affiliated
with the Bank. Pursuant to the Pooling Agreement, the Bank is permitted to
assign, convey and transfer the Assigned Assets and the Assumed Obligations to
the Assuming Entity, without the consent or approval of the holders of any
Certificates, if the following conditions, among others, are satisfied: (i) the
Assuming Entity, the Bank and the Trustee shall have entered into an Assumption
Agreement (as defined in the Pooling Agreement) providing for the Assuming
Entity to assume the Assumed Obligations, including the obligation under the
Pooling Agreement to transfer the Receivables arising under the Accounts and the
Receivables arising under any Additional Accounts to the Trust, (ii) each
provider of Series Enhancement, if any, shall have consented to the transfer and
assumption, (iii) all filings required to perfect the interest of the Trustee in
the Receivables arising under such Accounts shall have been duly made and copies
thereof shall have been delivered by the Bank to the Trustee, (iv) if the
Assuming Entity is a savings and loan association, a national banking
association, a bank or other entity that is not subject to Title 11 of the
United States Code (a "Non-Code Entity"), the Bank shall have delivered notice
of such transfer and assumption to each Rating Agency (in which case there is no
requirement that such transfer and assumption will not have a Ratings Effect)
or, if the Assuming Entity is not a Non-Code Entity, the Bank shall have
received written notice from each Rating Agency that such transfer and
assumption will not have a Ratings Effect, (v) the Trustee shall have received
an opinion of counsel with respect to clause (iii) above and as to certain other
matters specified in the Pooling Agreement, and (vi) the Trustee shall have
received an opinion of counsel acceptable to the Trustee that for Federal income
tax purposes and Virginia income and franchise tax purposes and for income and
franchise tax purposes of the jurisdiction in which the Assuming Entity engages
in its principal servicing activities, if different from Virginia, (x) following
the transaction the Trust will not be deemed to be an association (or publicly
traded partnership) taxable as a corporation and (y) such transaction will not
affect the tax characterization as debt of Certificates of any outstanding
Series or Class that were characterized as debt at the time of their issuance
and will not cause a taxable event to the holders of the Certificates (an
opinion of counsel with respect to any matter to the effect referred to in
clauses (x) and (y) with respect to any action is referred to herein as a "Tax
Opinion"). The Pooling Agreement provides that the Bank, the Assuming Entity and
the Trustee may enter into amendments to the Pooling Agreement to permit the
transfer and assumption described above without the consent of the holders of
any Certificates. After any permitted transfer and assumption, the Assuming
Entity will be considered to be the "Bank" for all purposes hereof, and the Bank
will have no further liability or obligation under the Pooling Agreement. It
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was pursuant to this provision of the Pooling Agreement that Capital One assumed
the roles of Seller and Servicer under the Trust. See "Prospectus
Summary -- Bank".
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds from the sale of the Certificates of any Series offered hereby will be
paid to the Bank and will be used for general corporate purposes.
THE TRUST
The Trust, as a master trust, previously has issued other Series of
Certificates and is expected to issue additional Series from time to time. The
Trust has not engaged and will not engage in any business activity other than
acquiring and holding Trust Assets and proceeds therefrom, issuing Series of
Certificates and the Bank Certificate and making payments thereon and related
activities. As a consequence, the Trust does not and is not expected to have any
source of capital resources other than the Trust Assets. The Trust is formed
under and administered in accordance with the laws of the State of New York.
The Bank has conveyed to the Trust, without recourse, its interest in all
Receivables arising under the Accounts. The Trust Assets consist of the
Receivables, all monies due or to become due thereunder, the proceeds of the
Receivables, recoveries (net of collection expenses) and proceeds of credit
insurance policies relating to the Receivables, the right to receive certain
Interchange attributed to accountholder charges for merchandise and services in
the Accounts, all monies on deposit in the Collection Account and in certain
accounts maintained for the benefit of the Certificateholders, Funds Collateral
relating to secured accounts and any Series Enhancements. The Trust Assets are
expected to change over the life of the Trust as secured and unsecured consumer
revolving credit card accounts, other consumer revolving credit accounts and
related assets become subject to the Trust and as Accounts are closed, charged
off or removed and are no longer subject to the Trust. The Pooling Agreement
provides that, subject to certain limitations and conditions, Trust Assets may
also include Participations. Pursuant to the Pooling Agreement, the Bank will
have the right (subject to certain limitations and conditions), and in some
circumstances will be obligated, to designate as Trust Assets Receivables
arising in Additional Accounts or, in lieu thereof or in addition thereto,
Participations. See "Description of the Certificates -- Addition of Trust
Assets". In addition, the Bank will have the right to remove from the Trust
Receivables arising in designated Accounts as described herein under
"Description of the Certificates -- Removal of Accounts".
The Trust was originated by Signet/Virginia in 1993 as Signet Master Trust.
In connection with the Separation and as permitted by the Pooling Agreement, (i)
Signet/Virginia transferred to Capital One, and Capital One accepted and
assumed, all of Signet/Virginia's rights and obligations under the Pooling
Agreement, (ii) Capital One became Seller and Servicer of the Trust, (iii)
Signet/Virginia was released from any continuing obligations under the Pooling
Agreement, (iv) the Trust's name was changed to Capital One Master Trust and (v)
Signet/Virginia and Capital One filed with the appropriate governmental
authorities Uniform Commercial Code financing statements and amendments to
financing statements reflecting the transfer to and assumption by Capital One.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of a Series will be issued pursuant to the Pooling
Agreement, and a Supplement thereto relating to such Certificates, between the
Bank, as seller of the interests in the Receivables and servicer of the
Accounts, and the Trustee; the Pooling Agreement and each Supplement with
respect to any Series offered hereby will be substantially in the form filed as
an exhibit to the Registration Statement of which this Prospectus is a part. See
"Description of the Certificates -- New Issuances". The Trustee will provide a
copy of the Pooling Agreement (without exhibits or schedules), including any
Supplements, to Certificateholders upon written request. The following summary
describes certain terms generally applicable to the Certificates of each Series.
The Certificates of each Series offered hereby will initially be
represented by one or more certificates registered in the name of the nominee of
DTC (together with any successor depository selected by the Bank, the
"Depository"), except as set forth below. Unless otherwise specified in the
related Prospectus Supplement, the Certificates of each Series offered hereby
will be available for purchase in minimum denominations of $1,000 and in
integral multiples thereof in book-entry
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form. The Bank has been informed by DTC that DTC's nominee will be Cede. See
"The Pooling Agreement Generally -- Book-Entry Registration" and "-- Definitive
Certificates".
The Certificates of each Series offered hereby will evidence undivided
interests in the Trust Assets allocated to the Certificateholders' Interest of
such Series, representing the right to receive from such Trust Assets funds up
to (but not in excess of) the amounts required to make payments of interest and
principal with respect thereto as described in the related Prospectus
Supplement.
INTEREST
Interest will accrue on the Invested Amount of the Certificates of a Series
or Class offered hereby at the per annum rate either specified in or determined
in the manner specified in the related Prospectus Supplement. If the Prospectus
Supplement for a Series of Certificates so provides, the interest rate and
interest payment dates applicable to each Certificate of that Series may be
subject to adjustment from time to time. Any such interest rate adjustment would
be determined by reference to one or more indices or by a remarketing firm, in
each case as described in the Prospectus Supplement for such Series. Except as
otherwise provided herein or in the related Prospectus Supplement, collections
of Finance Charge Receivables and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby will be used to make
interest payments to Certificateholders of such Series on each Interest Payment
Date specified with respect thereto in the related Prospectus Supplement,
provided that if an Early Amortization Period commences with respect to such
Series, thereafter interest will be distributed to such Certificateholders
monthly on each Special Payment Date. If the Interest Payment Dates for a Series
or Class occur less frequently than monthly, such collections or other amounts
(or the portion thereof allocable to such Class) will be deposited in one or
more Interest Funding Accounts and used to make interest payments to
Certificateholders of such Series or Class on the following Interest Payment
Date. If a Series has more than one Class of Certificates, each such Class may
have a separate Interest Funding Account. Funds on deposit in an Interest
Funding Account will be invested in Eligible Investments. Interest with respect
to the Certificates of each Series offered hereby will accrue and be calculated
on the basis described in the related Prospectus Supplement.
PRINCIPAL
The Certificates of each Series will have a Revolving Period during which
collections of Principal Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of such Series, including
Miscellaneous Payments so allocated, will be treated as Shared Principal
Collections and will be distributed to, or for the benefit of, the
Certificateholders of other Series, if the Supplement therefor so provides, or
the Bank. Unless an Early Amortization Period commences with respect to a
Series, following the Revolving Period with respect to such Series, to the
extent specified in the related Prospectus Supplement, such Series will have
either an Accumulation Period or a Controlled Amortization Period.
During the Accumulation Period, if any, with respect to a Series or any
Class thereof, collections of Principal Receivables and certain other amounts
allocable to such Series or such Class (including Miscellaneous Payments and, if
the Supplement so provides, Shared Principal Collections, if any, allocable to
such Series or such Class) will be deposited on each Distribution Date in a
Principal Funding Account and used to make principal distributions to the
Certificateholders of such Series or such Class when due. The amount to be
deposited in a Principal Funding Account for any Series or any Class thereof
offered hereby on any Distribution Date may, but will not necessarily, be
limited to a Controlled Deposit Amount equal to a Controlled Accumulation Amount
specified in the related Prospectus Supplement plus any existing Deficit
Controlled Accumulation Amount arising from prior Distribution Dates. If a
Series has more than one Class of Certificates, each Class may have a separate
Principal Funding Account and Controlled Accumulation Amount. In addition, the
related Prospectus Supplement may describe certain priorities among such Classes
with respect to such distributions.
During the Controlled Amortization Period, if any, with respect to a Series
or any Class thereof, collections of Principal Receivables and certain other
amounts allocable to such Series or such Class (including Miscellaneous Payments
and, if the Supplement so provides, Shared Principal Collections, if any,
allocable to such Series or such Class) will be used on each Distribution Date
to make principal distributions to any Class of Certificateholders then
scheduled to receive such distributions. The amount to be distributed to
Certificateholders of any Series or any Class thereof offered hereby on any
Distribution Date may, but will not necessarily, be limited to a Controlled
Distribution Amount equal to a Controlled Amortization Amount specified in the
related Prospectus Supplement plus any existing Deficit Controlled
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Amortization Amount arising from prior Distribution Dates. If a Series has more
than one Class of Certificates, each Class may have a separate Controlled
Amortization Amount. In addition, the related Prospectus Supplement may describe
certain priorities among such Classes with respect to such distributions.
During the Early Amortization Period with respect to a Series, collections
of Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series (including Miscellaneous Payments
and, if the Supplement so provides, Shared Principal Collections, if any,
allocable to such Series) will be distributed as principal payments to the
applicable Certificateholders monthly on each Distribution Date beginning with
the first Special Payment Date. During the Early Amortization Period with
respect to a Series, distributions of principal to Certificateholders of such
Series will not be subject to any Controlled Deposit Amount or Controlled
Distribution Amount. In addition, upon the commencement of the Early
Amortization Period, any funds on deposit in a Principal Funding Account with
respect to such Series will be paid to the Certificateholders of the relevant
Class or Series on the first Special Payment Date. See "Series Provisions -- Pay
Out Events" for a discussion of the events which might lead to the commencement
of the Early Amortization Period with respect to a Series.
Funds on deposit in any Principal Funding Account established with respect
to a Class or Series offered hereby will be invested in Eligible Investments,
and may be subject to a guarantee or guaranteed investment contract or other
mechanism specified in the related Prospectus Supplement intended to assure a
minimum rate of return on the investment of such funds. In order to enhance the
likelihood of the payment in full of the principal amount of a Class of
Certificates offered hereby at the end of an Accumulation Period with respect
thereto, such Class may be subject to a maturity liquidity facility or other
similar mechanism specified in the relevant Prospectus Supplement. A maturity
liquidity facility is a financial contract that generally provides that
sufficient principal will be available to retire the Certificates at a certain
date.
Certificates of a Series offered hereby may also be subject to purchase
from time to time, generally at their respective principal amounts, in
connection with a remarketing thereof, under the terms of a liquidity facility
established for the benefit of such Series or in the event that the Seller's
Interest is less than a specified percentage of the Required Seller's Interest
on the last business day of any Monthly Period, in each case if so specified in
the related Prospectus Supplement. A purchase of Certificates of such a Series,
depending on the circumstances giving rise thereto, may result in a decrease in
the outstanding principal amount of such Series prior to the commencement of any
Controlled Amortization Period, Accumulation Period or Early Amortization Period
with respect thereto. The Prospectus Supplement for any Series subject to
purchase as described in this paragraph will describe the conditions to and
procedures for any such purchase. The proceeds of any such purchase would be
paid to the holders of the Certificates so purchased.
ADDITION OF TRUST ASSETS
If, as of the close of business on the last business day of any Monthly
Period, the Seller's Interest is less than the Required Seller's Interest on
such date, the Bank shall on or prior to the close of business on the tenth
business day following the last business day of such Monthly Period (the
"Required Designation Date") unless the Seller's Interest exceeds the Required
Seller's Interest as of the close of business on any day after the last business
day of such Monthly Period and prior to the Required Designation Date, make an
Addition to the Trust as of the Required Designation Date or any earlier date in
a sufficient amount such that, after giving effect to such Addition, the
Seller's Interest as of the close of business on the Addition Date is at least
equal to the Required Seller's Interest on such date. An "Addition" will consist
of (i) receivables arising in Eligible Accounts owned by the Bank and related
Funds Collateral, if any, or (ii) participations representing undivided
interests in a pool of assets primarily consisting of secured and unsecured
consumer revolving credit card accounts or other consumer revolving credit
accounts owned by the Bank or any affiliate thereof and collections thereon
("Participations"). Participations may be evidenced by one or more certificates
of ownership issued under a separate pooling and servicing or similar agreement
(a "participation agreement") entered into by the Bank or an affiliate of the
Bank which entitles the certificateholder to receive percentages of collections
generated by the pool of assets subject to such participation agreement from
time to time and to certain other rights and remedies specified therein.
Participations may have their own credit enhancement, pay out events, servicing
obligations and servicer defaults, all of which are likely to be enforceable by
a separate trustee under the participation agreement and may be different from
those specified herein. The rights and remedies of the Trust as the holder of a
Participation (and therefore the Certificateholders) will be subject to all the
terms and provisions of the participation agreement. The Bank may, upon 30 days'
prior notice to the Trustee, each Rating Agency and certain providers of Series
Enhancement, reduce the Required Seller's Percentage, provided that (a) the Bank
shall have received written notice from each Rating Agency that such reduction
will not have a Ratings Effect and (b) the Bank shall have delivered to the
Trustee and certain
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<PAGE> 79
providers of Series Enhancement a certificate of an authorized officer to the
effect that, based on the facts known to such officer at the time, in the
reasonable belief of the Bank, such reduction will not at the time of its
occurrence cause a Pay Out Event or an event that, after the giving of notice or
the lapse of time, would constitute a Pay Out Event, to occur with respect to
any Series; and provided further that the Required Seller's Percentage shall
never be less than 2%, unless the Bank shall have delivered to the Trustee, each
Rating Agency and certain providers of Series Enhancement a Tax Opinion with
respect to the lowering of such percentage. In addition, the Bank may from time
to time, at its sole discretion, subject to the conditions described below,
voluntarily make an Addition to the Trust.
The Bank may from time to time, at its sole discretion, designate certain
types of Eligible Accounts approved by the Rating Agencies to be included as
Accounts ("Automatic Additional Accounts"), subject to the limitations specified
in this paragraph. Unless each Rating Agency otherwise consents, the number of
Automatic Additional Accounts plus the number of Accounts added to maintain the
Seller's Interest as specified above, without prior Rating Agency notice, shall
not either (i) with respect to any three consecutive Monthly Periods, exceed 15%
of the number of Accounts at the end of the ninth Monthly Period preceding the
commencement of such three Monthly Periods (or, the Trust Cut-Off Date,
whichever is later) and (ii) with respect to any twelve Monthly Periods, exceed
20% of the number of Accounts as of the first day of such twelve Monthly Periods
(or, the Trust Cut-Off Date, whichever is later) (the "Aggregate Addition
Limit"). On or before March 31, June 30, September 30 and December 31 of each
calendar year, or more frequently if required by any Rating Agency, the Bank
shall have delivered to the Trustee, each Rating Agency and certain providers of
Series Enhancement an opinion of counsel with respect to the Automatic
Additional Accounts included as Accounts during the preceding three-month period
confirming the validity and perfection of each transfer of such Automatic
Additional Accounts. Such opinion of counsel shall be provided by outside
counsel. If such opinion of counsel with respect to any Automatic Additional
Accounts is not so received, the ability of the Bank to designate Automatic
Additional Accounts will be suspended until such time as each Rating Agency
otherwise consents in writing or such Accounts are removed from the Trust. The
addition to the Trust of Receivables in Automatic Additional Accounts will be
subject to the further condition that revolving credit card accounts and other
revolving credit accounts either (i) not originated by the Bank or (ii) not of a
type included in the Accounts at the time of their addition may only be
designated as Automatic Additional Accounts upon compliance with the conditions
described below with respect to Additions. Additions of Participations must also
comply with such conditions. Automatic Additional Accounts and Accounts relating
to any Addition are collectively referred to herein as "Additional Accounts".
In connection with an Addition, the Bank will convey to the Trust the
Receivables arising in Additional Accounts and Participations subject to the
following conditions, among others (provided that the following conditions
(other than the delivery of a written assignment and a computer file or
microfiche list as described in clause (b)) shall not apply to the transfer to
the Trust of Receivables in Automatic Additional Accounts): (a) on or before the
tenth business day immediately preceding such Addition the Bank shall have given
the Trustee, the Servicer, each Rating Agency and certain providers of Series
Enhancement written notice that the Additional Accounts or Participations will
be included as Trust Assets; (b) within ten business days of the date on which
any such Receivables or Participations are added to the Trust, the Bank shall
have delivered to the Trustee a written assignment and a computer file or
microfiche list containing a true and complete list of the related Additional
Accounts or Participations specifying for each such Account its account number,
the collection status, the aggregate amount outstanding in such Account, the
aggregate amount of Principal Receivables outstanding in such Account or
comparable information in the case of Participations and, with respect to any
Funds Collateral relating to such Account, the account number for, and the
amount of Funds on deposit in, the applicable Deposit Account; (c) the Bank
shall have delivered to the Trustee copies of all filings necessary to perfect
the Trust's interest in the Receivables in Additional Accounts; (d) in the case
of an addition other than a required Addition, the Bank shall have received
written notice from each Rating Agency that such Addition will not have a
Ratings Effect; (e) in the case of a required Addition which exceeds the
Aggregate Addition Limit, the Bank shall have provided each Rating Agency with
15 days prior written notice and each Rating Agency shall not have notified the
Bank that such Addition would result in a Ratings Effect; (f) the Bank shall
have delivered to the Trustee, each Rating Agency and any provider of Series
Enhancement entitled thereto an opinion of counsel that for Federal income tax
purposes and Virginia income and franchise tax purposes (or, if there has been a
transfer and assumption as described under "Assumption of the Bank's
Obligations" herein, for income and franchise tax purposes of the jurisdiction
in which the Assuming Entity engages in its principal servicing activities, if
other than Virginia), such Addition will not cause a taxable event to the
holders of the Certificates and certain other opinions of counsel; and (g) prior
to or on the date any such Receivables or Participations are added to the Trust,
the Bank shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer to the effect that any
related Additional Accounts are Eligible Accounts and that, in the reasonable
belief of the Bank (i) such Addition will not, based on the facts known to such
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officer at the time, cause a Pay Out Event or an event that, after the giving of
notice or lapse of time, would cause a Pay Out Event, to occur with respect to
any Series and (ii) in the case of Additional Accounts, no selection procedure
was utilized by the Bank that would result in a selection of Additional Accounts
(from the available Eligible Accounts owned by the Bank) that would be
materially adverse to the interests of the Certificateholders of any Series as
of the date of the Addition.
Affiliates of the Bank may originate or acquire portfolios of revolving
credit card accounts or other revolving credit accounts the receivables in which
may be participated to the Bank and sold to the Trust. Such a sale of
receivables to the Trust will be subject to the conditions described above
relating to Additions.
Additional Accounts may include accounts originated using criteria
different from those which were applied to the Initial Accounts because such
accounts were originated at a different date or were part of a portfolio of
revolving credit card accounts or other revolving credit accounts which were not
part of the Bank Portfolio as of the Trust Cut-Off Date or which were acquired
from another institution. Moreover, Additional Accounts may not be accounts or
assets of the same type or having the same characteristics as those previously
included in the Trust. See "The Pooling Agreement Generally -- Representations
and Warranties". Consequently, there can be no assurance that such Additional
Accounts will be of the same credit quality or have the same payment
characteristics as the Initial Accounts or the Additional Accounts previously
included in the Trust.
Additional Accounts of a type different than the Initial Accounts may
contain Receivables which consist of fees, charges and amounts which are
different from the fees, charges and amounts which have been designated as
Finance Charge Receivables and Principal Receivables herein and Participations
may be added to the Trust as Additions. In either case, the Servicer will
designate the portions of funds collected or to be collected in respect of such
Receivables to be treated for purposes of the Pooling Agreement as Principal
Receivables and Finance Charge Receivables. The Pooling Agreement provides that
the Bank may add to the Trust Participations which may have characteristics
substantially different than those of Accounts or Additional Accounts, including
substantially different eligibility requirements, payment characteristics and
risks.
REMOVAL OF ACCOUNTS
On any day of any Monthly Period the Bank shall have the right to require
the reassignment to it or its designee of all the Trust's right, title and
interest in, to and under the Receivables and the related Funds Collateral, if
any, then existing and thereafter created, all monies due or to become due and
all amounts received with respect thereto and all proceeds thereof in or with
respect to the Removed Accounts owned and designated by the Bank, upon
satisfaction of the following conditions: (a) on or before the fifth business
day (the "Removal Notice Date") immediately preceding the date upon which the
Removed Accounts are to be removed from the Trust, the Bank shall have given the
Trustee, the Servicer, each Rating Agency and certain providers of Series
Enhancement written notice of such removal specifying the date for removal of
the Removed Accounts (the "Removal Date"); (b) on or prior to the date that is
ten business days after the Removal Date, the Bank shall have delivered to the
Trustee a computer file or microfiche list containing a true and complete list
of the Removed Accounts specifying for each such Account, as of the Removal
Notice Date, its account number, the aggregate amount outstanding in such
Account, the aggregate amount of Principal Receivables outstanding in such
Account and, with respect to any Funds Collateral relating to such Account, the
account number for, and the amount of Funds on deposit in, the applicable
Deposit Account; (c) the aggregate amount of Principal Receivables to be removed
shall not equal or exceed 5% of the aggregate amount of Principal Receivables in
the Trust; (d) the Bank shall have represented and warranted as of each Removal
Date that the list of Removed Accounts delivered pursuant to clause (b) above,
as of the Removal Date, is true and complete in all material respects; (e) the
Bank shall have received written notice from each Rating Agency that such
removal will not have a Ratings Effect; and (f) as of the Removal Notice Date,
either (i) the Removed Accounts are not more than 15% delinquent by estimated
principal amount and the weighted average delinquency of such Removed Accounts
is not more than 60 days or (ii) the Removed Accounts are not more than 7%
delinquent by estimated principal amount and the weighted average delinquency of
such Removed Accounts does not exceed 90 days. Such removal could occur for a
number of reasons, including a determination by the Bank that the Trust contains
more Receivables than the Bank is obligated to retain in the Trust under the
Pooling Agreement and any applicable Supplements and a determination that the
Bank does not desire to obtain additional financing at the time through the
Trust. In addition, the Pooling Agreement permits the Bank to designate as a
Removed Account without the consent of the Trustee, any Certificateholders or
any Rating Agency any Account that has had a zero balance with no activity for
the twelve months preceding such designation.
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Upon satisfaction of the above conditions, the Trustee shall execute and
deliver to the Bank a written reassignment and shall be deemed to sell,
transfer, assign, set over and otherwise convey to the Bank or its designee,
without recourse, representation or warranty, all the right, title and interest
of the Trust in and to the Receivables arising in the Removed Accounts, all
monies due and to become due and all amounts received with respect thereto and
all proceeds thereof.
NEW ISSUANCES
The Pooling Agreement provides that, pursuant to any one or more
Supplements, the Bank may direct the Trustee to issue from time to time new
Series subject to the conditions described below (each such issuance a "New
Issuance"). Each New Issuance will have the effect of decreasing the Seller's
Interest to the extent of the Invested Amount of such new Series.
Under the Pooling Agreement, the Bank may designate, with respect to any
newly issued Series: (i) its name or designation; (ii) its initial principal
amount (or method for calculating such amount) and its invested amount in the
Trust (the "Invested Amount"); (iii) its certificate rate (or method for the
determination thereof) and the manner, if any, in which such rate may be
adjusted from time to time; (iv) the interest payment date or dates (the
"Interest Payment Dates") and the manner, if any, in which the Interest Payment
Dates may be reset from time to time and the date or dates from which interest
shall accrue; (v) the method for allocating collections to Certificateholders of
such Series; (vi) any bank accounts to be used by such Series and the terms
governing the operation of any such bank accounts; (vii) the method of
calculating the servicing fee with respect thereto; (viii) the provider and the
terms of any form of Series Enhancement with respect thereto; (ix) the terms on
which the Certificates of such Series may be exchanged for Certificates of
another Series, repurchased by the Bank or remarketed to other investors; (x)
the Series Termination Date; (xi) the number of Classes of Certificates of such
Series, and if such Series consists of more than one Class, the rights and
priorities of each such Class; (xii) the extent to which the Certificates of
such Series will be issuable in temporary or permanent global form (and, in such
case, the depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate may be exchanged, in
whole or in part, for definitive certificates, and the manner in which any
interest payable on a global certificate will be paid); (xiii) whether the
Certificates of such Series may be issued in bearer form and any limitations
imposed thereon; (xiv) the priority of such Series with respect to any other
Series; (xv) the rating agency or agencies, if any, rating the Series; (xvi) the
name of the clearing agent, if any; (xvii) the base rate applicable to any
Series; (xviii) the minimum amount of Principal Receivables required to be
maintained through the designation of Additional Accounts; (xix) any deposit
into any account maintained for the benefit of Certificateholders; (xx) the
rights of the holders of the Seller's Certificate that have been transferred to
the holders of such Series; (xxi) the Group, if any, in which the Series will be
included; (xxii) whether or not such Series is entitled to receive Shared
Principal Collections; and (xxiii) any other relevant terms (all such terms, the
"Principal Terms" of such Series). None of the Bank, the Servicer, the Trustee
or the Trust is required or intends to obtain the consent of any
Certificateholder of any outstanding Series to issue any additional Series. The
Bank may offer any Series to the public under a Prospectus Supplement or other
Disclosure Document in transactions either registered under the Securities Act
or exempt from registration thereunder directly, through one or more
underwriters or placement agents, in fixed-price offerings or in negotiated
transactions or otherwise. See "Plan of Distribution". Any such Series may be
issued in fully registered, bearer or book-entry form in minimum denominations
determined by the Bank. The Bank intends to offer, from time to time, additional
Series.
The Pooling Agreement provides that the Bank may designate Principal Terms
such that each Series has a period during which accumulation of the principal
amount thereof in a Principal Funding Account or amortization of the principal
amount thereof is intended to occur which may have a different length and begin
on a different date than such periods for any other Series. Further, one or more
Series may be in their Accumulation or Controlled Amortization Periods while
other Series are not. Collections of Principal Receivables and Miscellaneous
Payments otherwise allocable to a Series which is not amortizing or accumulating
principal will be treated as Shared Principal Collections and, if the Supplement
for another Series which is amortizing or accumulating principal so provides,
reallocated to such Series. Moreover, each Series may have the benefits of
Series Enhancement issued by enhancement providers different from the providers
of Series Enhancement with respect to any other Series. Under the Pooling
Agreement, the Trustee shall hold any such Series Enhancement only on behalf of
the Series to which such Series Enhancement relates. With respect to each such
Series Enhancement, the Bank may deliver a different form of Series Enhancement
agreement. Additionally, if specified in the related Prospectus Supplement,
certain Series may be subordinated to certain other Series, or Classes within a
Series may have different priorities. The Bank also has the option under the
Pooling Agreement to vary among Series the terms upon which a Series may be
repurchased by the Bank or remarketed to other investors. There is no limit
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to the number of New Issuances that the Bank may cause under the Pooling
Agreement. The Trust will terminate only as provided in the Pooling Agreement.
There can be no assurance that the terms of any Series might not have an impact
on the timing and amount of payments received by a Certificateholder of another
Series.
Under the Pooling Agreement and pursuant to a Supplement, a New Issuance
may only occur upon the satisfaction of certain conditions provided in the
Pooling Agreement. The obligation of the Trustee to issue the Certificates of
such new Series and to execute and deliver the related Supplement is subject to
the satisfaction of the following conditions: (a) on or before the fifth
business day immediately preceding the date upon which the New Issuance is to
occur, the Bank shall have given the Trustee, the Servicer, each Rating Agency
and certain providers of Series Enhancement written notice of such New Issuance
and the date upon which the New Issuance is to occur; (b) the Bank shall have
delivered to the Trustee the related Supplement, in form satisfactory to the
Trustee, executed by each party to the Pooling Agreement other than the Trustee;
(c) the Bank shall have delivered to the Trustee any related Series Enhancement
agreement executed by each of the parties to such agreement; (d) the Bank shall
have received written notice from each Rating Agency that such New Issuance will
not have a Ratings Effect; (e) the Bank shall have delivered to the Trustee and
certain providers of Series Enhancement a certificate of an authorized officer,
dated the date upon which the New Issuance is to occur, to the effect that,
based on the facts known to such officer at the time, the Bank reasonably
believes that such issuance will not at the time of its occurrence cause a Pay
Out Event or an event that, after the giving of notice or the lapse of time,
would constitute a Pay Out Event, to occur with respect to any Series; (f) the
Bank shall have delivered to the Trustee, each Rating Agency and certain
providers of Series Enhancement a Tax Opinion; (g) the Bank's remaining interest
in Principal Receivables shall not be less than 2% (unless the Bank shall have
delivered to the Trustee, each Rating Agency and certain providers of Series
Enhancement a Tax Opinion with respect to a lower percentage) of the total
amount of Principal Receivables, in each case as of the date upon which the New
Issuance is to occur after giving effect to such issuance; and (h) any other
conditions specified in any Supplement. Upon satisfaction of the above
conditions, the Trustee shall execute the Supplement and issue to the Bank the
Certificates of such new Series for execution and redelivery to the Trustee for
authentication.
COLLECTION ACCOUNT
The Servicer has established and maintains for the benefit of the
Certificateholders of each Series, in the name of the Trustee, on behalf of the
Trust, an Eligible Deposit Account bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the Certificateholders
of each Series (the "Collection Account"). "Eligible Deposit Account" means
either (a) a segregated account with an Eligible Institution or (b) a segregated
trust account with the corporate trust department of a depository institution
organized under the laws of the United States or any one of the states thereof,
including the District of Columbia (or any domestic branch of a foreign bank),
or a trust company acceptable to each Rating Agency, and acting as a trustee for
funds deposited in such account, so long as any of the securities of such
depository institution or trust company shall have a credit rating from each
Rating Agency in one of its generic credit rating categories which signifies
investment grade. "Eligible Institution" means (a) a depository institution
(which may be the Trustee) organized under the laws of the United States or any
one of the states thereof which at all times (i) has either (x) a long-term
unsecured debt rating of A2 or better by Moody's Investors Service, Inc.
("Moody's") or (ii) a certificate of deposit rating of P-1 by Moody's, (ii) has
either (x) a long-term unsecured debt rating of AA by Standard & Poor's
Corporation ("Standard & Poor's") or (y) a certificate of deposit rating of A-1+
by Standard & Poor's and (iii) is a member of the FDIC or (b) any other
institution that is acceptable to each Rating Agency. The Collection Account
will initially be maintained with Signet Trust Company. If at any time the
Collection Account ceases to be an Eligible Deposit Account, the Collection
Account shall be moved so that it will again be qualified as an Eligible Deposit
Account. Funds in the Collection Account generally will be invested in (i)
direct obligations of, and obligations fully guaranteed by, the United States of
America, (ii) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository institutions or
trust companies incorporated under the laws of the United States of America or
any state thereof (or domestic branches of foreign banks) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided that at the time of the Trust's investment or
contractual commitment to invest therein, the short-term debt of such depository
institution or trust company shall be in the highest rating category from each
Rating Agency, (iii) commercial paper (or other short-term obligations) having,
at the time of the Trust's investment therein, a rating in the highest rating
category from each Rating Agency, (iv) demand deposits, time deposits and
certificates of deposit which are fully insured by the FDIC, with an entity the
commercial paper of which has a credit rating from each Rating Agency in its
highest rating category, (v) notes or bankers' acceptances (having original
maturities of no more than 365 days) issued by any depository institution or
trust company referred to in (ii) above, (vi) investments in money market funds
which have the highest
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rating from, or have otherwise been approved in writing by, each Rating Agency,
(vii) time deposits (having maturities of not more than 30 days) other than as
referred to in clause (iv) above, with an entity the commercial paper of which
has the highest rating from each Rating Agency and (viii) any other investments
approved in writing by each Rating Agency (collectively, "Eligible
Investments"). Such funds may be invested in debt obligations of the Bank or its
affiliates so long as such obligations qualify as Eligible Investments. Any
earnings (net of losses and investment expenses) on funds in the Collection
Account will be paid to, or at the direction of, the Bank except as otherwise
specified in any Supplement. The Servicer will have the revocable power to
withdraw funds from the Collection Account and to instruct the Trustee to make
withdrawals and payments from the Collection Account for the purpose of carrying
out its duties under the Pooling Agreement and any Supplement. The Paying Agent
shall have the revocable power to withdraw funds from the Collection Account for
the purpose of making distributions to the Certificateholders. Unless specified
otherwise in the related Prospectus Supplement, the Paying Agent shall initially
be Signet Trust Company.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, the Servicer will allocate among the
Certificateholders' Interest of each Series and the Seller's Interest all
amounts collected with respect to Finance Charge Receivables and Principal
Receivables and the Defaulted Amount with respect to any Monthly Period and will
allocate among the Certificateholders' Interest of each Series all Adjustment
Payments and Transfer Deposit Amounts (collectively, "Miscellaneous Payments")
with respect to any Monthly Period as follows:
(a) collections of Finance Charge Receivables and the Defaulted Amount
will at all times be allocated to the Certificateholders' Interest of a
Series based on the Floating Allocation Percentage of such Series;
(b) collections of Principal Receivables will at all times be
allocated to the Certificateholders' Interest of a Series based on the
Principal Allocation Percentage of such Series; and
(c) Miscellaneous Payments will at all times be allocated among the
Certificateholders' Interests of each Series based on their respective
Invested Amounts.
The "Floating Allocation Percentage" and the "Principal Allocation
Percentage" with respect to any Series will be determined as set forth in the
related Supplement and, with respect to each Series offered hereby, in the
related Prospectus Supplement. Amounts not allocated to the Certificateholders'
Interest of any Series as described above will be allocated to the Bank.
Notwithstanding the foregoing, amounts collected as annual membership fees
with respect to any Monthly Period will be held in the Collection Account and
will be amortized in twelve equal installments over twelve Monthly Periods
commencing with the Monthly Period following the Monthly Period in which the
annual fee is billed. Each such installment of annual membership fees will be
treated as a collection of Finance Charge Receivables in the Monthly Period in
which it is amortized and allocated in the manner described above.
Collections of Receivables with respect to any Monthly Period will be
allocated by the Servicer first to annual membership fees billed during the
preceding Monthly Period, second to Finance Charge Receivables, to the extent of
Finance Charge Receivables billed (or, in the case of annual membership fees,
amortized) during the preceding Monthly Period, and third to Principal
Receivables. The Servicer will, to the extent it is required to make daily
deposits into the Collection Account, make an estimated allocation of
collections between annual membership fees, Finance Charge Receivables and
Principal Receivables on each deposit date and will deposit amounts into the
Collection Account as set forth above in accordance with such allocation.
DEPOSITS IN COLLECTION ACCOUNT
For as long as (i) the Bank remains the Servicer under the Pooling
Agreement and (ii) either (x) the Bank, as the Servicer, provides to the Trustee
a letter of credit covering collection risk of the Servicer acceptable to each
Rating Agency (as evidenced by a letter from such Rating Agency) or (y) the
Bank, if the Collection Account is maintained with the Bank, has and maintains a
certificate of deposit rating of at least A-1 and P-1 (or their equivalent) by
each Rating Agency, the Bank may use for its own benefit all collections
received with respect to the Receivables in each Monthly Period until the
business day preceding the related Distribution Date or, in the case of any
collections consisting of Interchange, not later than 12:00 noon, Richmond,
Virginia time, on each Distribution Date, at which time the Bank will deposit
all such collections, to the extent described below, into the Collection
Account, and the Servicer will make the deposits and payments to the accounts
and parties described herein and in the related Prospectus Supplement on the
date
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of such deposit. However, if the Bank is no longer the Servicer or fails to
maintain the required letter of credit covering collection risk or certificate
of deposit rating, the Servicer will make such deposits, as described below, not
later than two business days after the Date of Processing or, in the case of
collections consisting of Interchange, not later than 12:00 noon, Richmond,
Virginia time, on each Distribution Date. Whether the Servicer is required to
make deposits of collections pursuant to the first or the second preceding
sentence, (i) the Servicer will only be required to deposit collections into the
Collection Account up to the aggregate amount of collections required to be
deposited into an account established for any Series or, without duplication,
distributed on or prior to the related Distribution Date to Certificateholders
of any Series or to the issuer of any Series Enhancement pursuant to the terms
of any Supplement or Series Enhancement agreement plus the aggregate amount of
the unamortized portion of any collections of annual membership fees and (ii) if
at any time prior to such Distribution Date the amount of collections deposited
in the Collection Account exceeds the amount required to be deposited pursuant
to clause (i) above, the Servicer will be permitted to withdraw such excess from
the Collection Account. Unless otherwise agreed by each Rating Agency, if at any
time the Bank or another eligible affiliate of the Bank is not the Servicer, the
Collection Account will be moved from the Bank, if then maintained there.
On the earlier of (i) the second business day after the Date of Processing
and (ii) the day any such deposit is made into the Collection Account or, in the
case of any collections consisting of Interchange, not later than 12:00 noon,
Richmond, Virginia time, on each Distribution Date, the Servicer will pay to the
Bank (i) the Bank's allocable portion of collections on Principal Receivables,
provided that the Seller's Interest in Principal Receivables on such day (after
giving effect to any new Receivables transferred to the Trust on such day) is
greater than zero; and (ii) the Bank's allocable portion of collections on
Finance Charge Receivables. Any amount not allocated to the Bank because the
Seller's Interest in Principal Receivables is zero will be held in the
Collection Account unallocated ("Unallocated Principal Collections") until the
Seller's Interest in Principal Receivables is greater than zero (at which time
such amount will be allocated to the Bank) or until an Accumulation Period,
Controlled Amortization Period or Early Amortization Period commences for any
Series (after which such amount will be treated as Shared Principal Collections
to the extent needed to cover principal payments due to or for the benefit of
such Series if the Supplement with respect thereto so provides).
SHARED PRINCIPAL COLLECTIONS
Collections on Principal Receivables and certain other amounts, including
Miscellaneous Payments, for any Monthly Period allocated to the
Certificateholders' Interest of any Series offered hereby will first be used to
cover certain amounts described in the related Prospectus Supplement (including
any required deposits into a Principal Funding Account or required distributions
to Certificateholders of such Series). The Servicer will determine the amount of
collections of Principal Receivables for any Monthly Period (plus Miscellaneous
Payments and certain other amounts described in the related Prospectus
Supplement) allocated to such Series remaining after covering such required
deposits and distributions and any similar amount remaining for any other Series
(collectively, "Shared Principal Collections"), and will allocate the Shared
Principal Collections to cover any principal distributions to Certificateholders
and deposits to Principal Funding Accounts for any Series which are either
scheduled or permitted and which have not been covered out of the investor
principal collections and Miscellaneous Payments and certain other amounts for
such Series, provided that the Supplement for such Series so provides
("Principal Shortfalls"); provided that in such allocation, all other Series
will have priority over any Series whose terms permit the Servicer to extend the
Initial Principal Payment Date, and then only to the extent that the Principal
Shortfall for such Series is greater than such Principal Shortfall would
otherwise have been due to the election by the Servicer not to extend the
Initial Principal Payment Date. If Principal Shortfalls exceed Shared Principal
Collections for any Monthly Period, Shared Principal Collections will be
allocated pro rata among the Series entitled to the benefits thereof based on
the respective Principal Shortfalls of such Series. To the extent that Shared
Principal Collections exceed Principal Shortfalls, the balance will be allocated
to the Bank, provided, however, that (a) such Shared Principal Collections will
be distributed to the Bank only to the extent the Seller's Interest in Principal
Receivables is greater than zero (see "-- Deposits in Collection Account") and
(b) in certain circumstances described below under "-- Excess Funding Account",
such Shared Principal Collections will be deposited in the Excess Funding
Account. Any such reallocation of collections on Principal Receivables and other
amounts will not result in a reduction in the Invested Amount of the Series to
which such collections were initially allocated. There can be no assurance that
there will be any Shared Principal Collections with respect to any Monthly
Period.
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EXCESS FUNDING ACCOUNT
If on any date the Seller's Interest is less than or equal to the Required
Seller's Interest, the Servicer shall not distribute to the Bank any Shared
Principal Collections that otherwise would be distributed to the Bank, but shall
deposit such funds in an Eligible Deposit Account established and maintained by
the Servicer for the benefit of the Certificateholders of each Series entitled
to the benefits thereof, in the name of the Trustee, on behalf of the Trust, and
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Certificateholders of each Series (the "Excess
Funding Account"). Funds on deposit in the Excess Funding Account will be
withdrawn and paid to the Bank on any Distribution Date to the extent that the
Seller's Interest exceeds the Required Seller's Interest on such date; provided,
however, that if an Accumulation Period, Controlled Amortization Period or Early
Amortization Period commences with respect to any Series entitled to the
benefits of Shared Principal Collections, any funds on deposit in the Excess
Funding Account will be released and treated as Shared Principal Collections to
the extent needed to cover principal payments due to or for the benefit of such
Series, if the Supplement with respect to such Series so provides.
Funds on deposit in the Excess Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Eligible Investments. Any earnings
(net of losses and investment expenses) earned on amounts on deposit in the
Excess Funding Account during any Monthly Period will be withdrawn from the
Excess Funding Account and treated as collections of Finance Charge Receivables
with respect to such Monthly Period.
SHARING OF EXCESS FINANCE CHARGES
Any Series offered hereby may be included in a group of Series (a "Group").
Each Series in a specific Group will be entitled to share Excess Finance Charges
in the manner, and to the extent, described below with each other Series, if
any, in such Group. The Prospectus Supplement with respect to a Series offered
hereby will specify whether such Series will be included in a Group and whether
any previously issued Series have been included in such Group. Subsequently
issued Series may also be included in such Group. Collections of Finance Charge
Receivables and certain other amounts allocable to the Certificateholders'
Interest of any Series which is included in a Group in excess of the amounts
necessary to make required payments with respect to such Series (including
payments to the provider of any related Series Enhancement) that are payable out
of collections of Finance Charge Receivables ("Excess Finance Charges") will be
applied to cover any shortfalls with respect to amounts payable from collections
of Finance Charge Receivables allocable to any other Series included in such
Group, pro rata based upon the amount of the shortfall, if any, with respect to
each other Series in such Group; provided, however, that the sharing of Excess
Finance Charges among Series in any Group will continue only until such time, if
any, at which the Bank shall deliver to the Trustee a certificate of an
authorized officer to the effect that, in the reasonable belief of the Bank or
its counsel, the continued sharing of Excess Finance Charges among Series in any
Group would have adverse regulatory implications with respect to the Bank.
Following the delivery by the Bank of any such certificate to the Trustee there
will not be any further sharing of Excess Finance Charges among the Series in
any Group. In all cases, any Excess Finance Charges remaining after covering
shortfalls with respect to all outstanding Series in a Group will be paid to the
Bank. While any Series offered hereby may be included in a Group, there can be
no assurance that (i) any other Series will be included in such Group, (ii)
there will be any Excess Finance Charges with respect to such Group for any
Monthly Period or (iii) the Bank will not at any time deliver a certificate as
described above. While the Bank believes that, based upon applicable rules and
regulations as currently in effect, the sharing of Excess Finance Charges among
Series in a Group will not have adverse regulatory implications for it, there
can be no assurance that this will continue to be true in the future.
FUNDING PERIOD
For any Series, the related Prospectus Supplement may specify that during a
Funding Period, the Prefunded Amount will be held in a Prefunding Account
pending the transfer of additional Receivables to the Trust or pending the
reduction of the Certificateholders' Interests of other Series issued by the
Trust. The related Prospectus Supplement will specify the initial
Certificateholders' Interest with respect to such Series, the Initial Investor
Amount and the date by which the Certificateholders' Interest is expected to
equal the Initial Investor Amount. The Certificateholders' Interest will
increase as Receivables are delivered to the Trust or as the Certificateholders'
Interests of other Series of the Trust are reduced. The Certificateholders'
Interest may also decrease due to charge-offs or the occurrence of a Pay Out
Event with respect to such Series as provided in the related Prospectus
Supplement.
During the Funding Period, funds on deposit in the Prefunding Account for a
Series will be withdrawn and paid to the Bank to the extent of any increases in
the Certificateholders' Interest. In the event that the Certificateholders'
Interest
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does not for any reason equal the Initial Investor Amount by the end of the
Funding Period, any amount remaining in the Prefunding Account and any
additional amounts specified in the related Prospectus Supplement will be
payable to the Certificateholders of such Series in the manner and at such time
as set forth in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, monies in the
Prefunding Account will be invested by the Trustee in Eligible Investments or
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Prefunding Account during the
related Monthly Period will be withdrawn from the Prefunding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Collection Account
for distribution in respect of interest on the Certificates of the related
Series in the manner specified in the related Prospectus Supplement.
PAIRED SERIES
If so provided in the Prospectus Supplement relating to a Series, each such
Series is subject to being paired with a Paired Series issued by the Trust. As
the Certificateholders' Interest of the Series having a Paired Series is
reduced, the Certificateholders' Interest in the Trust of the Paired Series will
increase by an equal amount. If a Pay Out Event occurs with respect to the
Series having a Paired Series or with respect to the Paired Series when the
Series is in a Controlled Amortization Period, the Principal Allocation
Percentage in respect of collections of Principal Receivables for the Series and
the Principal Allocation Percentage for the Paired Series will be reset as
provided in the related Prospectus Supplement.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
"Defaulted Receivables" for any Monthly Period are Principal Receivables
that were charged off as uncollectible in such Monthly Period in accordance with
the Lending Guidelines and the Servicer's customary and usual servicing
procedures for servicing consumer revolving credit card and other consumer
revolving credit account receivables comparable to the Receivables other than
due to any Adjustment Payment. The "Defaulted Amount" for any Monthly Period
will be an amount (not less than zero) equal to (a) the amount of Principal
Receivables which became Defaulted Receivables for such Monthly Period minus (b)
the sum of (i) the amount of any Defaulted Receivables of which the Bank or the
Servicer becomes obligated to accept reassignment or assignment during such
Monthly Period (unless an Insolvency Event has occurred with respect to the Bank
or the Servicer, in which event the amount of such Defaulted Receivables will
not be added to the sum so subtracted), (ii) the aggregate amount of recoveries
(net of collection expenses) received in such Monthly Period with respect to
both Finance Charge Receivables and Principal Receivables previously charged off
as uncollectible and (iii) the excess, if any, for the immediately preceding
Monthly Period of the sum computed pursuant to this clause (b) for such Monthly
Period over the amount of Principal Receivables which became Defaulted
Receivables in such Monthly Period. The current policy of the Bank is to charge
off as uncollectible an account during the cycle after the account becomes 180
days delinquent. If the Bank receives notice that an accountholder has filed for
bankruptcy or has had a bankruptcy petition filed against it, the Bank charges
off such account no later than 30 days after the Bank receives such notice. The
Bank charges off accounts of deceased accountholders within 60 days of receiving
proper notice if no estate exists against which a proof of claim can be filed,
no other parties remit payments or no other responsible party is available.
Generally, shortly before a secured credit card account is charged off as
uncollectible or in the case of a bankruptcy, after the bankruptcy automatic
stay is lifted, the Servicer will withdraw funds from the Deposit Account in an
amount equal to the lesser of (i) all Principal Receivables plus all Finance
Charge Receivables related to such secured credit card account and (ii) the
amount of funds for such secured credit card account in the Deposit Account, and
the Servicer will allocate such amount for treatment as Collections of Principal
Receivables and Finance Charge Receivables.
If the Servicer adjusts downward the amount of any Principal Receivable
(other than Ineligible Receivables which have been, or are to be, reassigned to
the Bank) because of a rebate, refund, counterclaim, defense, error, fraudulent
charge or counterfeit charge to an accountholder or such Principal Receivable
was created in respect of merchandise which was refused or returned by an
accountholder, or, if the Servicer otherwise adjusts downward the amount of any
Principal Receivable without receiving collections therefor or charging off such
amount as uncollectible, the amount of the Principal Receivables in the Trust
with respect to the Monthly Period in which such adjustment takes place will be
reduced by the amount of the adjustment. Furthermore, in the event that the
exclusion of any such Receivables would cause the Seller's Interest in Principal
Receivables at such time to be a negative number, the Bank shall be required to
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<PAGE> 87
pay an amount equal to such deficiency into the Collection Account (each such
payment an "Adjustment Payment" with respect to such Distribution Date).
CREDIT ENHANCEMENT
GENERAL. For any Series, Credit Enhancement may be provided with respect to
one or more Classes thereof. Credit Enhancement with respect to one or more
Classes of a Series offered hereby may include a letter of credit, the
establishment of a cash collateral guaranty or account, a surety bond, an
insurance policy, a spread account, a reserve account, a subordinated interest
in the Receivables or certain cash flows in respect of the Receivables, or
another form of credit enhancement described in the related Prospectus
Supplement or any combination of the foregoing. Credit Enhancement may also be
provided to a Series or Class or Classes of a Series by subordination provisions
which require that distributions of principal and/or interest be made with
respect to the Certificates of such Series or such Class or Classes before
distributions are made to one or more Series or one or more Classes of such
Series, if the Supplements with respect thereto so provide. If so specified in
the related Prospectus Supplement, any form of Credit Enhancement may be
structured so as to be available to more than one Class or Series to the extent
described therein.
The presence of Credit Enhancement with respect to a Class is intended to
enhance the likelihood of receipt by Certificateholders of such Class of the
full amount of principal and interest with respect thereto and to decrease the
likelihood that such Certificateholders will experience losses. However, unless
otherwise specified in the Prospectus Supplement for a Series offered hereby,
the Credit Enhancement, if any, with respect thereto will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by the Credit Enhancement or which are not
covered by the Credit Enhancement, Certificateholders will bear their allocable
share of deficiencies. In addition, if specific Credit Enhancement is provided
for the benefit of more than one Class or Series, Certificateholders of any such
Class or Series will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of Certificateholders of other Classes or Series.
If Credit Enhancement is provided with respect to a Series offered hereby,
the related Prospectus Supplement will include a description of (a) the amount
payable under such Credit Enhancement, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount payable under such Credit Enhancement may be reduced and under which such
Credit Enhancement may be terminated or replaced and (d) any material provisions
of any agreement relating to such Credit Enhancement. Additionally, in certain
cases, the related Prospectus Supplement may set forth certain information with
respect to the provider of any third-party Credit Enhancement (the "Credit
Enhancer"), including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' equity or policyholders' surplus, if applicable, as of a date
specified in the Prospectus Supplement. If so described in the related
Prospectus Supplement, Credit Enhancement with respect to a Series offered
hereby may be available to pay principal of the Certificates of such Series
following the occurrence of certain Pay Out Events with respect to such Series.
In such event and in certain other instances described in the related Prospectus
Supplement, the Credit Enhancer will have a subordinated interest in the
Receivables or certain cash flows in respect of the Receivables to the extent
described in such Prospectus Supplement (the "Enhancement Invested Amount").
SUBORDINATION. If so specified in the related Prospectus Supplement, one or
more Series or one or more Classes of a Series offered hereby may be
subordinated to one or more other Series or one or more Classes of such Series.
If so specified in the related Prospectus Supplement, the rights of the holders
of the subordinated Certificates to receive distributions of principal and/or
interest on any Payment Date will be subordinated to such rights of the holders
of the Certificates which are senior to such subordinated Certificates to the
extent set forth in the related Prospectus Supplement. The related Prospectus
Supplement will also set forth information concerning the amount of
subordination of a Series or Class or Classes of subordinated Certificates in a
Series, the circumstances in which such subordination will be applicable, the
manner, if any, in which the amount of subordination will decrease over time,
and the conditions under which amounts available from payments that would
otherwise be made to holders of such subordinated Certificates will be
distributed to holders of Certificates which are senior to such subordinated
Certificates. The amount of subordination will decrease whenever amounts
otherwise payable to the holders of subordinated Certificates are paid to the
holders of the Certificates which are senior to such subordinated Certificates.
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<PAGE> 88
LETTER OF CREDIT. If so specified in the related Prospectus Supplement, a
letter of credit with respect to a Series or Class of Certificates offered
hereby may be issued by a bank or financial institution specified in the related
Prospectus Supplement (the "L/C Issuer"). Subject to the terms and conditions
specified in the related Prospectus Supplement, an L/C Issuer will be obligated
to honor drawings under a letter of credit in an aggregate dollar amount (which
may be fixed or may be reduced as described in the related Prospectus
Supplement), net of unreimbursed payments thereunder, equal to the amount
described in the related Prospectus Supplement. The amount available under a
letter of credit will be reduced to the extent of the unreimbursed payments
thereunder.
CASH COLLATERAL GUARANTY OR CASH COLLATERAL ACCOUNT. If specified in the
related Prospectus Supplement, support for the Certificates of any Class or
Series offered hereby will be provided by (i) a guaranty (the "Cash Collateral
Guaranty") issued by a cash collateral trust (the "Cash Collateral Trust") or
similar entity and secured by the deposit of cash or certain Eligible
Investments in an account (the "Cash Collateral Guaranty Account") owned by the
beneficiaries of the Cash Collateral Trust or (ii) an account of the Trust (a
"Cash Collateral Account"). A Cash Collateral Account with respect to a Class or
Series will be funded by cash or certain Eligible Investments on the Series
Issuance Date with respect thereto. The amount available pursuant to the Cash
Collateral Guaranty or the Cash Collateral Account will be the lesser of the
amount on deposit in the Cash Collateral Guaranty Account or the Cash Collateral
Account, as the case may be, and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments are made to beneficiaries of the Cash Collateral Guaranty
from the Cash Collateral Trust or funds are to be released from the Cash
Collateral Account, as the case may be.
The Servicer will determine on each Determination Date with respect to the
Series enhanced by a Cash Collateral Account or a Cash Collateral Guaranty
whether a deficiency exists with respect to the payment of interest and/or
principal on the Certificates so enhanced. If the Servicer determines that a
deficiency exists, it shall instruct the Trustee to draw an amount equal to such
deficiency from the Cash Collateral Account or Cash Collateral Guaranty Account,
as the case may be, up to the maximum amount available thereunder.
SURETY BOND OR INSURANCE POLICY. If so specified in the related Prospectus
Supplement, insurance with respect to a Series or Class of Certificates offered
hereby may be provided by one or more insurance companies. Such insurance will
guarantee, with respect to one or more Classes of the related Series,
distributions of interest or principal in the manner and amount specified in the
related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond may be
purchased for the benefit of the holders of any Series or Class of Certificates
offered hereby to assure distributions of interest or principal with respect to
such Series or Class of Certificates in the manner and amount specified in the
related Prospectus Supplement.
SPREAD ACCOUNT. If so specified in the related Prospectus Supplement,
support for a Series or one or more Classes of a Series offered hereby may be
provided by the periodic deposit of certain available excess cash flow from the
Trust Assets into an account (the "Spread Account") intended to assure the
subsequent distributions of interest and principal on the Certificates of such
Class or Series in the manner specified in the related Prospectus Supplement.
RESERVE ACCOUNT. If so specified in the related Prospectus Supplement,
support for a Series or one or more Classes thereof will be provided by the
establishment of a reserve account (the "Reserve Account"). The Reserve Account
may be funded, to the extent provided in the related Prospectus Supplement, by
an initial cash deposit, the retention of certain periodic distributions of
principal or interest or both otherwise payable to one or more Classes of
Certificates or the provision of a letter of credit, guarantee, insurance policy
or other form of credit enhancement or any combination thereof. The Reserve
Account will be established to help assure the subsequent distribution of
principal or interest on the Certificates of such Series or Class thereof in the
manner provided in the related Prospectus Supplement.
SWAP AGREEMENT
If so provided in the related Prospectus Supplement, the Trustee, on behalf
of the Trust, may enter into one or more interest rate swap agreements for the
benefit of a Class or Series, the terms of which will be specified in the
related Prospectus Supplement.
DISCOUNT OPTION
The Pooling Agreement provides that the Bank may at any time and from time
to time, but without any obligation to do so, designate a fixed percentage or a
variable percentage based on a formula (the "Discount Percentage") of the amount
of Receivables arising in the Accounts on and after the date such designation
becomes effective that would
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otherwise constitute Principal Receivables to be treated as Finance Charge
Receivables (the "Discount Option Receivables"). Although there can be no
assurance that the Bank will do so, such designation may occur because the Bank
determines that the exercise of the discount option is needed to provide a
sufficient yield on the Receivables to cover interest and other amounts due and
payable from Finance Charge Receivables or to avoid the occurrence of a Pay Out
Event relating to the reduction of the average yield on the portfolio of
Accounts in the Trust, if the Supplement for a Series provides for such a Pay
Out Event. After any such designation, pursuant to the Pooling Agreement, the
Bank may, without notice to or the consent of Certificateholders, from time to
time reduce or eliminate the percentage of Receivables subject to such
designation or reduction; provided, however, that such reduction or elimination
will only occur at such time, if any, at which the Bank shall deliver to the
Trustee a certificate of an authorized officer to the effect that, in the
reasonable belief of the Bank, such reduction or elimination would not have
adverse regulatory or other accounting implications for the Bank. The Bank must
provide 30 days' prior written notice to the Servicer, the Trustee, each Rating
Agency and any Series Enhancer of any such designation or reduction, and such
designation or reduction will become effective on the date specified therein
only if (i) the Bank shall have delivered to the Trustee and certain providers
of Series Enhancement a certificate of an authorized officer to the effect that,
based on the facts known to such officer at the time, the Bank reasonably
believes that such designation or reduction will not at the time of its
occurrence cause a Pay Out Event or an event which with notice or the lapse of
time would constitute a Pay Out Event, to occur with respect to any Series and
(ii) the Seller shall have received written notice from each Rating Agency that
such designation or reduction will not have a Ratings Effect. On the Date of
Processing of any collections on or after the date the exercise of the Discount
Option takes effect, the product of (a) a fraction the numerator of which is the
amount of the Discount Option Receivables and the denominator of which is the
sum of the Principal Receivables (other than Discount Option Receivables) and
the Discount Option Receivables in each case (for both numerator and
denominator) at the end of the prior Monthly Period and (b) collections of
Principal Receivables that arise in the Accounts on such day on or after the
date such option is exercised that otherwise would be Principal Receivables will
be deemed "Discount Option Receivables Collections." An amount equal to the
product of (i) the aggregate Floating Allocation Percentages with respect to all
Series of Certificates issued and outstanding and (ii) the aggregate amount of
such Discount Option Receivables Collections processed in such day will be
deposited by the Bank into the Collection Account and an amount equal to the
balance of such Discount Option Receivables Collections will be paid to the
Bank. The former amount deposited into the Collection Account will be applied as
provided herein regarding payments with respect to Finance Charge Receivables.
The Pooling Agreement also provides that the Bank may at any time and from
time to time designate an amount of Principal Receivables in Additional Accounts
to be treated as Finance Charge Receivables (such amount, the "Addition Discount
Receivables"); provided, however, that the Bank may not make such designation
unless (i) the Bank shall have received written notice from each Rating Agency
that such designation will not have a Ratings Effect and shall have delivered
copies of each such written notice to the Servicer and the Trustee and (ii) the
Bank shall have delivered to the Trustee and certain providers of Series
Enhancement an Officer's Certificate of the Bank, to the effect that the Bank
reasonably believes that such designation will not, based on the facts known to
such officer at the time of such certification, then cause a Pay Out Event or
any event that, after the giving of notice or the lapse of time, would
constitute a Pay Out Event to occur with respect to any Series. On or prior to
each Determination Date after such designation is made, the Servicer shall
deliver to the Trustee a certificate setting forth (a) the amount of Addition
Discount Receivables to be included as collections of Finance Charge Receivables
with respect to the preceding Monthly Period, as calculated in accordance with
the formula set forth in the applicable Assignment of Receivables or accretion
designation letter delivered to the Trustee, and (b) the portion of such
Addition Discount Receivables which have not been treated as Collections of
Finance Charge Receivables with respect to the preceding Monthly Period.
PAY OUT EVENTS
As described above, the Revolving Period with respect to a Series will
continue until the commencement of the Accumulation Period or the Controlled
Amortization Period with respect thereto, which will continue until the Invested
Amount of such Series shall have been paid in full or the Series Termination
Date with respect to such Series occurs, unless a Pay Out Event occurs with
respect to such Series prior to any of such dates. Except as otherwise provided
in the related Prospectus Supplement with respect to any Series offered hereby,
a "Pay Out Event" with respect to a Series refers to any of the following events
and any other events specified as such in the related Prospectus Supplement:
(a) the occurrence of an Insolvency Event relating to the Bank; or
(b) the Trust becomes an investment company within the meaning of the
Investment Company Act of 1940, as amended.
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In the case of either event described above, a Pay Out Event with respect
to all Series will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Certificateholders of any Series immediately
upon the occurrence of such event. The Early Amortization Period with respect to
a Series will commence at the close of business on the day immediately preceding
the day on which a Pay Out Event occurs with respect thereto. Distributions of
principal to the Certificateholders of such Series will begin on the
Distribution Date in the Monthly Period following the Monthly Period in which
such Pay Out Event occurs (such Distribution Date and each following
Distribution Date with respect to such Series, a "Special Payment Date"). Any
amounts on deposit in a Principal Funding Account or an Interest Funding Account
with respect to such Series at such time will be distributed on such first
Special Payment Date to the Certificateholders of such Series. If a Series has
more than one Class of Certificates, each Class may have different Pay Out
Events which, in the case of any Series of Certificates offered hereby, will be
described in the related Prospectus Supplement.
In addition to the consequences of a Pay Out Event discussed above, if an
Insolvency Event occurs, pursuant to the Pooling Agreement, on the day of such
Insolvency Event, the Bank will immediately cease to transfer Principal
Receivables to the Trust and promptly give notice to the Trustee of such
Insolvency Event. Under the terms of the Pooling Agreement, within 15 days the
Trustee will publish a notice of the occurrence of the Insolvency Event stating
that the Trustee intends to sell, dispose of or otherwise liquidate the
Receivables in a commercially reasonable manner and on commercially reasonable
terms unless within 90 days from the date such notice is published each other
holder of the Bank Certificate, the holders of Certificates of each Series or,
if a Series includes more than one Class, each Class of such Series evidencing
more than 50% of the aggregate unpaid principal amount of each such Series or
Class (and, in the case of any Series with respect to which there is an
Enhancement Invested Amount, any Credit Enhancer with respect thereto) instruct
the Trustee not to dispose of or liquidate the Receivables and to continue
transferring Principal Receivables as before such Insolvency Event. The proceeds
from any such sale, disposition or liquidation of the Receivables will be
deposited in the Collection Account and allocated as described in the Pooling
Agreement and each Supplement. If the sum of (a) the portion of such proceeds
allocated to the Certificateholders' Interest of any Series and (b) the proceeds
of any collections on the Receivables in the Collection Account allocated to the
Certificateholders' Interest of such Series is not sufficient to pay the
Invested Amount of the Certificates of such Series in full, such
Certificateholders will incur a loss.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses for any Monthly Period will be a servicing fee (the "Servicing
Fee") payable monthly in an amount equal to one-twelfth of the product of (a)
the weighted average of the applicable servicing fee rates with respect to each
Series outstanding (based upon the applicable servicing fee rate for each Series
and the outstanding principal amount of each Series) and (b) the amount of
Principal Receivables outstanding on the last day of the prior Monthly Period.
The Servicing Fee will be allocated among the Seller's Interest, the
Certificateholders' Interests of each Series and the interest represented by the
Enhancement Invested Amount, if any, with respect to such Series. The share of
the Servicing Fee allocable to the Certificateholders' Interest of a particular
Series, which includes the Enhancement Invested Amount, if any, of such Series
with respect to any Monthly Period (the "Monthly Servicing Fee") will be
determined in accordance with the relevant Supplement. A portion of the
Servicing Fee as specified in the related Prospectus Supplement will be paid
solely from Interchange allocable to such Series, before such Interchange is
used for any other purpose. A portion of the Servicing Fee as specified in the
related Prospectus Supplement will be paid from collections of Finance Charge
Receivables allocable to Certificateholders of a Series. The portion of the
Servicing Fee not so allocated to a Series or payable from Interchange shall be
paid by the Bank and in no event shall the Trust, the Trustee or the
Certificateholders of any Series be liable for the share of the Servicing Fee to
be paid by the Bank or from Interchange. Unless otherwise provided in any
Supplement, in the case of the first Distribution Date with respect to any
Series, the Servicing Fee and the Monthly Servicing Fee shall accrue from the
Series Issuance Date with respect to such Series. The Monthly Servicing Fee will
be paid on the Distribution Date with respect to each Monthly Period from the
Collection Account (unless such amount has been netted against deposits to the
Collection Account).
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, expenses related to the enforcement of the Receivables, payment of
the fees and disbursements of the Trustee and independent accountants and other
fees which are not expressly stated in the Pooling Agreement to be payable by
the Trust, the Certificateholders of a Series or the Bank (other than Federal,
state, local and foreign income, franchise or other taxes based on income, if
any, or any interest or penalties with respect thereto,
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imposed upon the Trust). In the event that the Bank is acting as Servicer and
fails to pay the fees and disbursements of the Trustee, the Trustee will be
entitled to receive the portion of the Servicing Fee that is equal to such
unpaid amounts. In no event will the Certificateholders of a Series be liable to
the Trustee for the Servicer's failure to pay such amounts, and any such amounts
so paid to the Trustee will be treated as paid to the Servicer for all other
purposes of the Pooling Agreement.
RECORD DATE
Payments on the Certificates of a Series offered hereby will be made as
described herein and in the relevant Prospectus Supplement to the
Certificateholders in whose names the Certificates were registered (expected to
be Cede, as nominee of DTC) at the close of business on the last day of the
calendar month preceding the date of such payment (each a "Record Date").
However, the final payment on the Certificates of a Series offered hereby will
be made only upon presentation and surrender of such Certificates. Distributions
will be made to DTC in immediately available funds. See "The Pooling Agreement
Generally -- Book-Entry Registration".
OPTIONAL TERMINATION; FINAL PAYMENT OF PRINCIPAL
If specified in the Prospectus Supplement with respect to any Series
offered hereby and subject to any conditions described therein, on any day
occurring on or after the day that the Invested Amount of the Certificates of a
Series and the Enhancement Invested Amount, if any, with respect to such Series
is reduced to a percentage of the initial outstanding aggregate principal amount
of the Certificates of such Series set forth in such Prospectus Supplement, the
Bank will have the option to repurchase the Certificateholders' Interest of such
Series. The purchase price will be equal to the sum of the Invested Amount of
such Series (less the amount, if any, on deposit in any Principal Funding
Account with respect to such Series), plus the Enhancement Invested Amount, if
any, with respect to such Series, plus accrued and unpaid interest on the unpaid
principal amount of the Certificates and (if applicable) on the Enhancement
Invested Amount (and accrued and unpaid interest with respect to interest
amounts that were due but not paid on a prior Payment Date) through (a) if the
day on which such repurchase occurs is a Distribution Date, the day preceding
such Distribution Date or (b) if the day on which such repurchase occurs is not
a Distribution Date, the day preceding the Distribution Date following such day,
at the applicable certificate rate. Following any such repurchase and the
deposit of the aggregate purchase price into the Collection Account, the
Certificateholders of such Series will have no further rights with respect to
the Receivables. In the event that the Bank shall fail for any reason to deposit
the aggregate purchase price for the Certificateholders' Interest of a Series
offered hereby, payments would continue to be made to the Certificateholders of
such Series as described herein and in the related Prospectus Supplement.
In any event, the last payment of principal and interest on the
Certificates of a Series offered hereby will be due and payable not later than
the date (the "Series Termination Date") specified in the related Prospectus
Supplement. In the event that the Invested Amount of the Certificates of such
Series or the Enhancement Invested Amount is greater than zero on the Series
Termination Date, the Trustee will sell or cause to be sold interests in the
Principal Receivables or certain Principal Receivables, together in each case
with related Finance Charge Receivables, as specified in the Pooling Agreement
and the related Supplement, in an amount equal to the sum of the Invested Amount
and the Enhancement Invested Amount, if any, with respect to such Series at the
close of business on the Series Termination Date. The net proceeds of such sale
will be deposited in the Collection Account and allocated to the
Certificateholders of such Series or the Enhancement Invested Amount after such
Certificateholders are paid in full, as provided in the Pooling Agreement and
the Supplement with respect to such Series.
REPORTS
No later than the third business day prior to each Distribution Date, the
Servicer will forward to the Trustee, the Paying Agent, each Rating Agency and
certain providers of Series Enhancement with respect to a Series a statement
(the "Monthly Report") prepared by the Servicer setting forth certain
information with respect to the Trust and the Certificates of such Series
(unless otherwise indicated), as specified in the related Prospectus Supplement.
With respect to each Interest Payment Date or Special Payment Date (each, a
"Payment Date"), as the case may be, the Monthly Report with respect to any
Series will include the following additional information with respect to the
Certificates of such Series: (a) the total amount distributed; (b) the amount of
such distribution allocable to principal on the Certificates; (c) the amount of
such distribution allocable to interest on the Certificates; and (d) the amount,
if any, by which the unpaid principal balance of the Certificates exceeds the
Invested Amount as of the Record Date with respect
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to such Payment Date. On each Distribution Date, the Paying Agent, on behalf of
the Trustee, will forward to each Certificateholder of record a copy of the
Monthly Report.
On or before January 31 of each calendar year, the Paying Agent, on behalf
of the Trustee, will furnish (or cause to be furnished) to each person who at
any time during the preceding calendar year was a Certificateholder of record a
statement containing the information required to be provided by an issuer of
indebtedness under the Code for such preceding calendar year or the applicable
portion thereof during which such person was a Certificateholder, together with
such other customary information as is necessary to enable the
Certificateholders to prepare their tax returns. See "Certain Federal Income Tax
Consequences".
LIST OF INVESTOR CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Certificateholder or group of Certificateholders of
record holding Certificates evidencing not less than 10% of the aggregate unpaid
principal amount of the Certificates of a Series or all outstanding Series, as
the case may be, the Trustee will afford such Certificateholders access during
normal business hours to the current list of Certificateholders of such Series
or all outstanding Series, as the case may be, for purposes of communicating
with other Certificateholders with respect to their rights under the Pooling
Agreement or any Supplement or Certificates. See "The Pooling Agreement
Generally -- Book-Entry Registration" and "-- Definitive Certificates".
Certificateholders who hold Certificates through DTC will not have access to the
list of Certificateholders.
The Pooling Agreement does not provide for any annual or other meetings of
Certificateholders.
THE POOLING AGREEMENT GENERALLY
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement,
Certificateholders may hold Certificates of a Series offered hereby through DTC
(in the United States) or Cedel or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems.
Cede, as nominee for DTC, will be the registered holder of the global
Certificates. No Certificateholder will be entitled to receive a certificate
representing such person's interest in the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
below, all references herein to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from its Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Certificates, for distribution to Certificateholders in
accordance with DTC procedures.
Cedel and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Cedel's and Euroclear's
names on the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Citibank, N.A. ("Citibank"), will act as depositary for Cedel and
Morgan Guaranty Trust Company of New York ("Morgan") will act as depositary for
Euroclear (in such capacities, the "Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between Cedel Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
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Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel participant on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel Participant
or a Euroclear Participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for the
Certificates, see Annex I hereto and for information with respect to tax
documentation procedures relating to the Certificates, see Annex I hereto and
"Tax Matters -- Federal Income Tax Consequences -- Non-United States Investors".
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificateholders will receive all distributions of principal of
and interest on the Certificates from the Paying Agent or the Trustee through
DTC and its Participants. Under a book-entry format, Certificateholders will
receive payments after the related Payment Date because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each such date, DTC
will forward such payments to its Participants which thereafter will be required
to forward them to Indirect Participants or Certificateholders. It is
anticipated that the only "Certificateholder" (as such term is used in the
Pooling Agreement and the Supplements) will be Cede, as nominee of DTC, and that
Certificateholders will not be recognized by the Trustee as "Certificateholders"
under the Pooling Agreement and the Supplements. Certificateholders will only be
permitted to exercise the rights of Certificateholders under the Pooling
Agreement and the Supplements indirectly through DTC and its Participants which
in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificateholders.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Bank that it will take any action permitted to be taken
by a Certificateholder under the Pooling Agreement or the Supplements only at
the direction of one or more Participants to whose account with DTC the
Certificates are credited. Additionally, DTC has advised the Bank that it will
take such actions with respect to specified percentages of the
Certificateholders' Interest only at the direction of and on behalf of
Participants whose holdings include undivided interests that satisfy such
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 32 currencies, including United States dollars. Cedel
provides to its Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities
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lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include any underwriters, agents or dealers with respect
to a Series of Certificates offered hereby. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant,
either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 27
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear Operator" or "Euroclear"), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include any
underwriters, agents or dealers with respect to a Series of Certificates offered
hereby. Indirect access to the Euroclear System is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences". Cedel or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder under the Pooling Agreement or the relevant Supplement on
behalf of a Cedel Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to its Depositary's ability to
effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Unless otherwise stated in the related Prospectus Supplement, the
Certificates of a Series offered hereby will be issued in fully registered,
certificated form to Certificateholders or their respective nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Bank advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to the
Certificates, and the Trustee or the Bank are unable to locate a qualified
successor, (ii) the Bank, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of a Servicer Default,
Certificateholders evidencing not less than 50% of the aggregate unpaid
principal amount of the Certificates of any Class of such Series advise the
Trustee and DTC through Participants in
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writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of the Certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and instructions for
re-registration, the Trustee will issue such Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as "Certificateholders" under the Pooling
Agreement and the relevant Supplement ("Holders").
If Definitive Certificates are issued, distribution of principal and
interest on the Definitive Certificates will be made by the Paying Agent or the
Trustee directly to the Holders in whose names the Definitive Certificates were
registered on the related Record Date in accordance with the procedures set
forth herein and in the Pooling Agreement and the relevant Supplement.
Distributions will be made by check mailed to the address of each Holder as it
appears on the register maintained by the Trustee, except that the final payment
on any Definitive Certificate will be made only upon presentation and surrender
of such Definitive Certificate on the date for such final payment at such office
or agency as is specified in the notice of final distribution to Holders. The
Trustee will provide such notice to Holders not later than the fifth day of the
month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be Signet
Trust Company. No service charge will be imposed for any registration of
transfer or exchange, but the Transfer Agent and Registrar may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
THE BANK CERTIFICATE
The Pooling Agreement provides that the Bank may exchange a portion of the
Bank Certificate for another certificate (a "Supplemental Certificate") for
transfer or exchange to a person designated by the Bank upon the execution and
delivery of a supplement to the Pooling Agreement (which supplement shall be
subject to the amendment section of the Pooling Agreement to the extent that it
amends any of the terms of the Pooling Agreement; see "-- Amendments") provided
that prior to such transfer or exchange (a) the Bank shall have received written
notice from each Rating Agency that such transfer or exchange will not have a
Ratings Effect and (b) the Bank shall have delivered to the Trustee, each Rating
Agency and certain providers of Series Enhancement a Tax Opinion with respect to
the transfer or exchange. Any transfer or exchange of a Supplemental Certificate
is subject to the conditions set forth in the preceding sentence. See also
"Assumption of the Bank's Obligations".
DEFEASANCE
Pursuant to the Pooling Agreement, the Bank may terminate its substantive
obligations in respect of a Series or the Pooling Agreement (the "Defeased
Series") by depositing with the Trustee, under the terms of an irrevocable trust
agreement satisfactory to the Trustee, from amounts representing or acquired
with collections on the Receivables (allocable to the Defeased Series and
available to purchase additional Receivables) monies or Eligible Investments
sufficient to make all remaining scheduled interest and principal payments on
the Defeased Series on the dates scheduled for such payments and to pay all
amounts owing to any provider of Series Enhancement. To achieve that end, the
Bank has the right to use collections on Receivables to purchase Eligible
Investments rather than additional Receivables. Prior to its first exercise of
its right to substitute monies or Eligible Investments for Receivables, the Bank
shall deliver to the Trustee a Tax Opinion with respect to such deposit and
termination of obligations and to the Servicer and the Trustee written notice
from each Rating Agency that such transaction will not have a Ratings Effect. In
addition, the Bank must comply with certain other requirements set forth in the
Pooling Agreement, including requirements that the Bank deliver to the Trustee
an opinion of counsel to the effect that the deposit and termination of
obligations will not require the Trust to register as an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, and that
the Bank deliver to the Trustee and certain providers of Series Enhancement a
certificate of an authorized officer stating that, based on the facts known to
such officer at the time, in the reasonable opinion of the Bank, such deposit
and termination of obligations will not at the time of its occurrence cause a
Pay Out Event or an event that, after the giving of notice of the lapse of time,
would constitute a Pay Out Event, to occur with respect to any Series. If the
Bank discharges its substantive obligations in respect of the Defeased Series,
any Series Enhancement for the affected Series might no longer be available to
make payments with respect thereto.
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TERMINATION OF TRUST
Unless the Bank instructs the Trustee otherwise, the Trust will only
terminate on the earlier to occur of (a) the day following the Distribution Date
on which the aggregate Invested Amounts and Enhancement Invested Amounts, if
any, of all Series is zero, (b) September 1, 2014, or (c) if the Receivables are
sold, disposed of or liquidated following the occurrence of an Insolvency Event
as described under "Description of the Certificates -- Pay Out Events",
immediately following such sale, disposition or liquidation (the "Trust
Termination Date"). Upon termination of the Trust, all right, title and interest
in the Receivables and other funds of the Trust (other than amounts in accounts
maintained by the Trust for the final payment of principal and interest to
Certificateholders) will be conveyed and transferred to the Bank.
CONVEYANCE OF RECEIVABLES
Pursuant to the Pooling Agreement, the Bank has sold and assigned to the
Trust its interest in all Receivables in the Initial Accounts outstanding as of
the Trust Cut-Off Date, and will sell and assign all Receivables in the
Additional Accounts as of the applicable additional cut-off date, all
Receivables thereafter created under the Accounts, any Participations added to
the Trust and the proceeds of all of the foregoing.
In connection with the transfer of any Receivables to the Trust, the Bank
is required to indicate in its computer records that the Receivables have been
conveyed to the Trust. In addition, the Bank has provided or will provide to the
Trustee a computer file or a microfiche list containing a true and complete list
showing for each Initial Account, as of the Trust Cut-Off Date, and for each
Additional Account, as of the applicable additional cut-off date (i) its account
number, (ii) the collection status and (iii) the aggregate amount outstanding
and the aggregate amount of Principal Receivables in such Account. The Bank, as
initial Servicer, will retain and will not deliver to the Trustee any other
records or agreements relating to the Accounts or the Receivables. Except as set
forth above, the records and agreements relating to the Accounts and the
Receivables will not be segregated from those relating to other revolving credit
accounts and receivables, and the physical documentation relating to the
Accounts or Receivables will not be stamped or marked to reflect the transfer of
Receivables to the Trust. The Bank has filed and is required to file UCC
financing statements with respect to the sale of the Receivables to the Trust
meeting the requirements of applicable state law. See "Risk Factors -- Master
Trust Considerations -- Certain Legal Aspects" and "Certain Legal Aspects of the
Receivables".
REPRESENTATIONS AND WARRANTIES
As of the issuance date for a Series offered hereby (the "Series Issuance
Date") specified in the related Prospectus Supplement, the Bank will make
representations and warranties to the Trust relating to the Accounts, the
Receivables and, if any, the Funds Collateral, to the effect, among other
things, that (a) as of the Trust Cut-Off Date (or as of the additional cut-off
date) each Account or each Additional Account was an Eligible Account, (b) as of
the Trust Cut-Off Date (or as of the additional cut-off date), each of the
Receivables then existing in any Account or Additional Account is an Eligible
Receivable, (c) thereafter, as of the date of creation of any new Receivable,
such Receivable is an Eligible Receivable and (d) each of the Receivables, and
all Funds Collateral, if any, have been transferred to the Trust free and clear
of any lien other than (i) liens for municipal or other local taxes if such
taxes shall not at the time be due and payable or if the Bank shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto, and
(ii) with respect to Funds Collateral, liens granted in favor of the Bank by
secured credit card accountholders. If the Bank breaches any representation and
warranty described in this paragraph and such breach remains uncured for 60
days, or such longer period, not in excess of 150 days, as may be agreed to by
the Trustee, after the earlier to occur of the discovery of such breach by the
Bank or receipt of written notice of such breach by the Bank, and such breach
has a material adverse effect on the Certificateholders' Interest of all Series
in any Receivable (which determination shall be made without regard to the
availability of funds under any Credit Enhancement), such Certificateholders'
Interest in all Receivables with respect to the affected Account ("Ineligible
Receivables") will be reassigned to the Bank on the terms and conditions set
forth below and such Account shall no longer be included as an Account.
An Ineligible Receivable shall be reassigned to the Bank on or before the
end of the Monthly Period in which such reassignment obligation arises by the
Bank directing the Servicer to deduct the portion of such Ineligible Receivable
which is a Principal Receivable from the aggregate amount of the Principal
Receivables used to calculate the Seller's Interest. In the event that the
exclusion of an Ineligible Receivable from the calculation of the Seller's
Interest would cause the Seller's Interest to be a negative number, on the
Distribution Date following the Monthly Period in which such reassignment
obligation arises, the Bank will make a deposit in immediately available funds
in an amount equal to the
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principal portion and the interest portion of the amount by which the Seller's
Interest would be reduced below zero into the Excess Funding Account and the
Collection Account, respectively. Any amount deposited into the Excess Funding
Account and the Collection Account, respectively, in connection with the
reassignment of an Ineligible Receivable (the amount of any such deposit being
referred to herein as a "Transfer Deposit Amount") shall be considered a payment
in full of the Ineligible Receivable. The reassignment of any Ineligible
Receivable to the Bank is the sole remedy respecting any breach of the
representations and warranties described in the preceding paragraph with respect
to such Receivable available to Certificateholders of any Series (or the Trustee
on behalf of such Certificateholders) or any provider of Series Enhancement.
The Bank will also make representations and warranties to the Trust to the
effect, among other things, that as of each Series Issuance Date (a) it is a
Virginia banking corporation validly existing under the laws of the Commonwealth
of Virginia, it has, in all material respects, full power and authority to
consummate the transactions contemplated by the Pooling Agreement and the
related Supplement and each of the Pooling Agreement and the related Supplement
constitutes a valid, binding and enforceable agreement of the Bank and (b)
subject, in each case pertaining to proceeds, to Section 9-306 of the UCC, and
further subject to certain tax liens as specified in the Pooling Agreement, the
Pooling Agreement constitutes a valid sale, transfer and assignment to the Trust
of all right, title and interest of the Bank in the Receivables, whether then
existing or thereafter created and the proceeds thereof (including proceeds in
any of the accounts established for the benefit of the Certificateholders) or
the grant of a first priority perfected security interest in such Receivables
and the proceeds thereof (including proceeds in any of the accounts established
for the benefit of the Certificateholders) under the UCC as in effect in
Virginia and in any other state where the filing of a financing statement is
required to perfect the Trust's interest in the Receivables and the proceeds
thereof, which is effective as to each Receivable then existing on the Series
Issuance Date or, as to each Receivable arising thereafter, upon the creation
thereof and until termination of the Trust. In the event that the breach of any
of the representations and warranties described in this paragraph has a material
adverse effect on the Certificateholders' Interest of all Series in the
Receivables transferred to the Trust by the Bank, either the Trustee or the
holders of Certificates evidencing not less than 50% of the aggregate unpaid
principal amount of the Certificates of all Series, by written notice to the
Bank and the Servicer (and to the Trustee if given by the holders of the
requisite percentage of Certificates of all Series), may direct the Bank to
accept the reassignment of the Receivables if such breach and any material
adverse effect caused by such breach is not cured within 60 days of such notice
(or within such longer period, not in excess of 150 days, as may be specified in
such notice). The Bank will be obligated to accept the reassignment of such
Receivables on the Distribution Date following the Monthly Period in which such
reassignment obligation arises. Such reassignment will not be required to be
made, however, if (i) at the end of such applicable period, the representations
and warranties shall then be true and correct in all material respects as if
made on such day and (ii) the Bank shall have delivered to the Trustee a
certificate of an authorized officer of the Bank describing the nature of such
breach and the manner in which the relevant representation and warranty became
true and correct and the breach of such representation and warranty shall no
longer materially adversely affect the Certificateholders and any material
adverse effect caused by such breach shall have been cured. The price for such
reassignment will generally be equal to the aggregate Invested Amounts and
Enhancement Invested Amounts of all Series on the Distribution Date on which the
purchase is scheduled to be made plus accrued and unpaid interest on the unpaid
principal amount of all Series and any interest amounts that were due but not
paid on a prior date and interest on such overdue interest amounts (if the
applicable Supplement so provides) at the applicable certificate rates through
the day preceding such Distribution Date. The payment of such reassignment
price, in immediately available funds, will be considered a payment in full of
all Receivables and the principal portion of such funds and the interest portion
of such funds will be deposited in the Excess Funding Account and the Collection
Account, respectively. If the Trustee or the requisite percentage of
Certificateholders of all Series gives a notice as provided above, the
obligation of the Bank to make any such deposit will constitute the sole remedy
respecting a breach of the representations and warranties available to
Certificateholders of all Series (or the Trustee on behalf of such
Certificateholders) or any provider of Series Enhancement.
An "Eligible Account" is defined to mean a MasterCard or Visa consumer
revolving credit card account or other consumer revolving credit account owned
by the Bank which as of the Trust Cut-Off Date with respect to an Initial
Account or as of the related Addition Date with respect to an Additional
Account: (a) is in existence and maintained with the Bank or any affiliate
thereof on the Trust Cut-Off Date or the Addition Date, as the case may be; (b)
is payable in United States dollars; (c) has not been identified as an account
the credit cards or checks, if any, with respect to which have been reported to
the Bank as having been lost or stolen; (d) the accountholder of which has
provided, as his or her current billing address, an address located in the
United States (or its territories or possessions or a military address); (e) has
not been, and does not have any Receivables which have been, sold, pledged,
assigned or otherwise conveyed to
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any person (except pursuant to the Pooling Agreement); (f) except as provided
below, does not have any Receivables which are Defaulted Receivables; (g) does
not have any Receivables which have been identified by the Bank or the relevant
accountholder as having been incurred as a result of fraudulent use of any
related credit card or check; (h) relates to an accountholder who is not
identified by the Bank in its computer files as being the subject of a voluntary
or involuntary bankruptcy proceeding; and (i) is not an account with respect to
which the accountholder has requested discontinuance of responsibility. Eligible
Accounts may include accounts, the receivables of which have been charged off;
provided, however, that (a) the balance of all receivables included in such
accounts is reflected on the books and records of the Bank (and is treated for
purposes of the Pooling Agreement) as "zero" and (b) charging privileges with
respect to all such accounts have been canceled in accordance with the Lending
Guidelines of the Bank and will not be reinstated by the Bank or the Servicer.
An "Eligible Receivable" is defined to mean each Receivable (a) which has
arisen under an Eligible Account; (b) which was created in compliance in all
material respects with the Lending Guidelines and all requirements of law
applicable to the Bank, the failure to comply with which would have a material
adverse effect on Certificateholders, and pursuant to a lending agreement which
complies with all requirements of law applicable to the Bank, the failure to
comply with which would have a material adverse effect on Certificateholders;
(c) with respect to which all consents, licenses, approvals or authorizations
of, or registrations or declarations with, any governmental authority required
to be obtained or given by the Bank in connection with the creation of such
Receivable or the execution, delivery and performance by the Bank of the related
lending agreement have been duly obtained or given and are in full force and
effect as of the date of the creation of such Receivable; (d) as to which, at
the time of its transfer to the Trust, the Bank or the Trust will have good and
marketable title free and clear of all liens and security interests (other than
any lien for municipal or other local taxes if such taxes are not then due and
payable or if the Bank is then contesting the validity thereof in good faith by
appropriate proceedings and has set aside on its books adequate reserves with
respect thereto); (e) which has been the subject of either a valid transfer and
assignment from the Bank to the Trust of all the Bank's right, title and
interest therein (including any proceeds thereof), or the grant of a first
priority perfected security interest therein (and in the proceeds thereof),
effective until the termination of the Trust; (f) which at and after the time of
transfer to the Trust is the legal, valid and binding payment obligation of the
accountholder thereof, legally enforceable against such accountholder in
accordance with its terms (with certain bankruptcy and equity-related
exceptions); (g) which constitutes either an "account" or a "general intangible"
under Article 9 of the UCC as then in effect in the Commonwealth of Virginia and
in any other state where the filing of a financing statement is required to
perfect the Trust's interest in the Receivables and the proceeds thereof; (h)
which, at the time of its transfer to the Trust, has not been waived or modified
except as permitted by the Pooling Agreement; (i) which, at the time of its
transfer to the Trust, is not subject to any right of rescission, setoff,
counterclaim or other defense of the accountholder (including the defense of
usury), other than certain bankruptcy and equity-related defenses and
adjustments permitted by the Pooling Agreement to be made by the Servicer; (j)
as to which, at the time of its transfer to the Trust, the Bank has satisfied
all obligations to be fulfilled at the time it is transferred to the Trust; and
(k) as to which, at the time of its transfer to the Trust, the Bank has not
taken any action which, or failed to take any action the omission of which
would, at the time of its transfer to the Trust, impair in any material respect
the rights of the Trust or Certificateholders therein.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of any documents or records related to the
Receivables or the Accounts for the purpose of establishing the presence or
absence of defects, compliance with the Bank's representations and warranties or
for any other purpose. In addition, it is not anticipated or required that the
Trustee will make any initial or periodic general examination of the Servicer
for the purpose of establishing the compliance by the Servicer with its
representations or warranties or the performance by the Servicer of its
obligations under the Pooling Agreement or for any other purpose. The Servicer,
however, will deliver to the Trustee on or before April 30 of each calendar year
an opinion of counsel with respect to the validity of the interest of the Trust
in and to the Receivables and certain other components of the Trust.
INDEMNIFICATION
The Pooling Agreement provides that the Servicer will indemnify the Trust
and the Trustee from and against any loss, liability, expense, damage or injury
suffered or sustained arising out of the Servicer's actions or omissions with
respect to the Trust pursuant to the Pooling Agreement.
Under the Pooling Agreement, the Bank has agreed to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Certificateholder in the capacity of
an investor in the Certificates or those which arise from any action on the part
of any Certificateholder) arising out of or based on the
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arrangement created by the Pooling Agreement as though such agreement created a
partnership under the Uniform Partnership Act in which the Bank was a general
partner. The Bank has agreed to pay, indemnify and hold harmless each holder of
Certificates of any Series against and from any such losses, claims, damages or
liabilities except to the extent that they arise from any action by such holder.
In the event of a Service Transfer, the successor Servicer will indemnify and
hold harmless the Bank for any losses, claims, damages and liabilities of the
Bank as described in this paragraph arising from the actions or omissions of
such successor Servicer.
Except as provided in the preceding paragraph, the Pooling Agreement
provides that none of the Bank, the Servicer or any of their directors,
officers, employees or agents will be under any other liability to the Trust,
the Trustee, the holders of Certificates of any Series, any provider of Series
Enhancement or any other person for any action taken, or for refraining from
taking any action, in good faith pursuant to the Pooling Agreement. However,
none of the Bank, the Servicer or any of their directors, officers, employees or
agents will be protected against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence of any such
person in the performance of their duties or by reason of reckless disregard of
their obligations and duties thereunder.
In addition, the Pooling Agreement provides that the Servicer is not under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Pooling Agreement. The
Servicer may, in its sole discretion, undertake any such legal action which it
may deem necessary or desirable for the benefit of holders of Certificates of
any Series with respect to the Pooling Agreement and the rights and duties of
the parties thereto and the interest of such Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling Agreement, the Servicer is responsible for
servicing, collecting, enforcing and administering the Receivables, including
the Funds Collateral, if any, in accordance with its customary and usual
procedures for servicing receivables comparable to the Receivables and the
Lending Guidelines.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with accountholders, investigating payment
delinquencies, evaluating the increase of credit limits and the issuance of
credit cards, providing billing and tax records to accountholders and
maintaining internal records with respect to each Account. Managerial and
custodial services performed by the Servicer on behalf of the Trust include
providing assistance in any inspections of the documents and records relating to
the Accounts and Receivables by the Trustee pursuant to the Pooling Agreement,
maintaining the agreements, documents and files relating to the Accounts and
Receivables as custodian for the Trust and providing related data processing and
reporting services for Certificateholders of any Series and on behalf of the
Trustee.
Pursuant to the Pooling Agreement, the Bank, as Servicer, has the right to
delegate its duties as Servicer to any Person who agrees to conduct such duties
in accordance with the Pooling Agreement and the Lending Guidelines. The Bank
has contracted with Capital One Services, Inc. ("Capital One Services"), an
affiliate of the Bank, to act as sub-servicer and to perform its servicing
activities. Notwithstanding any such delegation to Capital One Services, the
Servicer will continue to be liable for all of its obligations under the Pooling
Agreement. In certain circumstances, however, the Bank could be relieved of its
duties as Servicer upon the assumption of such duties by another entity. See
"Assumption of the Bank's Obligations".
SERVICER COVENANTS
In the Pooling Agreement, the Servicer has covenanted as to each Receivable
and related Account that: (a) it will duly fulfill all obligations on its part
to be fulfilled under or in connection with the Receivables or Accounts, and
will maintain in effect all qualifications required in order to service the
Receivables or Accounts the failure to comply with which would have a material
adverse effect on the Certificateholders or any provider of Series Enhancement;
(b) it will not permit any rescission or cancellation of a Receivable except as
ordered by a court of competent jurisdiction or other governmental authority in
accordance with the Lending Guidelines; (c) it will take no action which, nor
omit to take any action the omission of which, would substantially impair the
rights of the Certificateholders in the Receivables, the Funds Collateral, if
any, or the Accounts; (d) it will not reschedule, revise or defer collections
due on the Receivable except in accordance with the ordinary course of business
and the Lending Guidelines; and (e) except in connection with its enforcement or
collection of an Account, it will take no action to cause or permit any
Receivables to be evidenced by any instrument (as defined in the UCC) and if any
Receivable is so evidenced, it shall be reassigned or assigned to the Servicer
as provided below.
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Under the terms of the Pooling Agreement, in the event any of the
representations, warranties or covenants of the Servicer contained in clauses
(a) through (e) above with respect to any Receivable or the related Account is
breached, and such breach has a material adverse effect on the
Certificateholders' Interest of all Series in such Receivable (which
determination shall be made without regard to the availability of funds under
any Credit Enhancement) and is not cured within 60 days (or such longer period,
not in excess of 150 days, as may be agreed to by the Trustee) of the earlier to
occur of the discovery of such event by the Servicer, or receipt by the Servicer
of written notice of such event given, by the Trustee, then all Receivables in
the Account or Accounts to which such event relates shall be reassigned or
assigned to the Servicer on the terms and conditions set forth below; provided,
however, that such Receivables will not be reassigned or assigned to the
Servicer if, on any day prior to the end of such 60-day or longer period, (i)
the relevant representation and warranty shall be true and correct, or the
relevant covenant shall have been complied with, in all material respects and
(ii) the Servicer shall have delivered to the Trustee a certificate of an
authorized officer describing the nature of such breach and the manner in which
such breach was cured. If the Bank is the Servicer, such reassignment will be
made on or before the Distribution Date following the Monthly Period in which
such reassignment obligation arises by the Servicer deducting the portion of any
such Receivable which is a Principal Receivable from the aggregate amount of
Principal Receivables used to calculate the Seller's Interest. In addition, if
the deduction of such Principal Receivable would reduce the Seller's Interest
below zero, the Bank as the Servicer will deposit into the Collection Account
the applicable Transfer Deposit Amount described above under "-- Representations
and Warranties". If the Bank is not the Servicer, such assignment and transfer
will be made when the Servicer deposits an amount equal to the amount of such
Receivable in the Collection Account on the business day preceding the
Distribution Date following the Monthly Period during which such obligation
arises. The amount of such deposit shall be deemed a Transfer Deposit Amount
hereunder. This reassignment or transfer and assignment to the Servicer
constitutes the sole remedy available to the Certificateholders of any Series if
such covenant or warranty of the Servicer is not satisfied and the Trust's
interest in any such reassigned Receivables shall be automatically assigned to
the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling Agreement, except upon determination that such duties are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Pooling Agreement. Notwithstanding
the foregoing, subject to compliance with certain conditions described under
"Assumption of the Bank's Obligations", the Bank may transfer its servicing
obligations to another entity and be relieved of its obligations and duties
under the Pooling Agreement and related agreements.
Any person into which, in accordance with the Pooling Agreement, the Bank
or the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which the Bank or the Servicer is a party, or any
person succeeding to the business of the Bank or the Servicer, will be the
successor to the Bank, as servicer, or the Servicer, as the case may be, under
the Pooling Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, either the Trustee or
Certificateholders holding Certificates evidencing more than 50% of the
aggregate unpaid principal amount of all outstanding Series, by written notice
to the Servicer (and to the Trustee and certain providers of Series Enhancement,
if given by the Certificateholders) (a "Termination Notice"), may terminate all
of the rights and obligations of the Servicer, as servicer, under the Pooling
Agreement. If the Trustee within 60 days of receipt of a Termination Notice is
unable to obtain any bids from eligible Servicers and the Bank delivers an
officer's certificate to the effect that the Servicer cannot in good faith cure
the Servicer Default which gave rise to the Termination Notice, then the Trustee
shall offer the Bank a right of first refusal to purchase the
Certificateholders' Interest for all Series. The purchase price for such a
purchase shall be paid on a Distribution Date and shall generally be equal to,
with respect to each Series, the higher of (a) the sum of the Invested Amount
and the Enhancement Invested Amount, if any, of such Series on such Distribution
Date (less the amount, if any, on deposit in any Principal Funding Account with
respect to such Series) plus accrued and unpaid interest at the applicable
certificate rate (together with, if applicable, interest on interest amounts
that were due and not paid on a prior date), through the last day of the
calendar month preceding such Distribution Date and (b) the sum of (i) the
average bid price quoted by two recognized dealers for similar securities rated
in the same rating category as the initial rating of the Certificates of such
Series with a remaining maturity approximately equal to the remaining maturity
of the Certificates of such Series and (ii) the Enhancement Invested Amount, if
any, of such Series.
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The Trustee shall, as promptly as possible after giving a Termination
Notice, appoint a successor Servicer (a "Service Transfer"), and if no successor
Servicer has been appointed by the Trustee and has accepted such appointment by
the time the Servicer ceases to act as Servicer, all rights, authority, power
and obligations of the Servicer under the Pooling Agreement shall pass to and be
vested in the Trustee. Prior to any Service Transfer, the Trustee will seek to
obtain bids from potential Servicers meeting certain eligibility requirements
set forth in the Pooling Agreement to serve as a successor Servicer for
servicing compensation not in excess of the Trust Servicing Fee. The rights and
interest of the Bank under the Pooling Agreement and any Supplement in the
Seller's Interest will not be affected by any Termination Notice or Service
Transfer.
A "Servicer Default" refers to any of the following events:
(a) failure by the Servicer to make any payment, transfer or deposit,
or to give instructions or to give notice to the Trustee to make such
payment, transfer or deposit, on or before the date the Servicer is
required to do so under the Pooling Agreement or any Supplement, which is
not cured within a ten business day grace period;
(b) failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer in
the Pooling Agreement or any Supplement which has a material adverse effect
on the Certificateholders of any Series or Class (determined without regard
to the availability of funds under any Series Enhancement) and which
continues unremedied for a period of 60 days after written notice, or the
Servicer assigns or delegates its duties under the Pooling Agreement,
except as specifically permitted thereunder;
(c) any representation, warranty or certification made by the Servicer
in the Pooling Agreement or any Supplement or in any certificate delivered
pursuant to the Pooling Agreement or any Supplement proves to have been
incorrect when made, which has a material adverse effect on the rights of
the Certificateholders of any Series or Class (determined without regard to
the availability of funds under any Series Enhancement), and which material
adverse effect continues for a period of 60 days after written notice; or
(d) the occurrence of certain events of bankruptcy, insolvency or
receivership with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for an additional period of five business
days or referred to under clause (b) or (c) for an additional period of 60 days,
shall not constitute a Servicer Default if such delay or failure could not be
prevented by the exercise of reasonable diligence by the Servicer and such delay
or failure was caused by an act of God or other similar occurrence. Upon the
occurrence of any such event the Servicer shall not be relieved from using its
best efforts to perform its obligations in a timely manner in accordance with
the terms of the Pooling Agreement and any Supplement and the Servicer shall
provide the Trustee, the Bank, any provider of Series Enhancement and the
Certificateholders of each Series prompt notice of such failure or delay by it,
together with a description of its efforts to so perform its obligations. The
Servicer shall immediately notify the Trustee in writing of any Servicer
Default.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement provides that on or before May 31 of each calendar
year the Servicer will cause a firm of nationally recognized independent public
accountants (who may also render other services to the Servicer or the Bank) to
furnish a report to the effect that they have attested to the assertion of
authorized officers of the Servicer that the servicing was conducted in
compliance with certain applicable provisions of the Pooling Agreement and each
Supplement in all material respects.
In addition, on or before May 31 of each year such accountants will compare
the mathematical calculations of the amounts contained in the monthly Servicer's
certificates delivered during the preceding calendar year with the Servicer's
computer reports that generated such amounts, and will deliver a report to the
Trustee and each Rating Agency reporting all discrepancies, regardless of
materiality, revealed by such comparison.
The Pooling Agreement provides for delivery to the Trustee, each Rating
Agency and certain providers of Series Enhancement on or before May 31 of each
calendar year of a statement signed by an officer of the Servicer to the effect
that the Servicer has, or has caused to be, fully performed its obligations in
all material respects under the Pooling Agreement throughout the preceding year
or, if there has been a default in the performance of any such obligation in any
material respect, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee.
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AMENDMENTS
The Pooling Agreement and any Supplement may be amended from time to time
(including in connection with (v) the assumption by the Assuming Entity of the
Bank's obligations under the Pooling Agreement, (w) the provision of additional
Series Enhancement for the benefit of Certificateholders of any Series, (x) the
issuance of a Supplemental Certificate, (y) the addition of Participations to
the Trust or (z) the designation of an additional Seller) by agreement of the
Trustee, the Bank and the Servicer without the consent of the Certificateholders
of any Series or the consent of the provider of any Series Enhancement provided
that (i) the Bank shall have received written notice from each Rating Agency
that such amendment will not have a Ratings Effect, (ii) the Bank delivers to
the Trustee and each provider of Series Enhancement a certificate of an
authorized officer to the effect that, in the reasonable belief of the Bank,
such amendment will not, based on the facts known to the officer at the time,
have a material adverse effect on the interests of the Certificateholders, and
(iii) in the case of an amendment relating to the assumption by the Assuming
Entity of the Bank's obligations, all other conditions to such assumption
specified in the Pooling Agreement shall have been satisfied (see "Assumption of
the Bank's Obligations").
The Pooling Agreement and any Supplement may also be amended from time to
time by the Bank, the Servicer and the Trustee with the consent of the holders
of Certificates evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the Certificates of all adversely affected Series for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Pooling Agreement or any Supplement or of modifying in
any manner the rights of such Certificateholders. No such amendment, however,
may (a) reduce in any manner the amount of or delay the timing of any
distributions to be made to Certificateholders or deposits of amounts to be so
distributed or the amount available under any Series Enhancement without the
consent of each Certificateholder affected; (b) change the definition or the
manner of calculating the interest of any Certificateholder without the consent
of each affected Certificateholder; (c) reduce the aforesaid percentage required
to consent to any such amendment, without the consent of each Certificateholder;
or (d) adversely affect the rating of any Series or Class by any Rating Agency
without the consent of the holders of Certificates of such Series or Class
evidencing not less than 66 2/3% of the aggregate unpaid principal amount of the
Certificates of such Series or Class. Promptly following the execution of any
such amendment (other than an amendment described in the preceding paragraph),
the Trustee will furnish written notice of the substance of such amendment to
each Certificateholder.
TRUSTEE
The Bank of New York is the Trustee under the Pooling Agreement. The
Corporate Trust Department of The Bank of New York is located at 101 Barclay
Street, New York, New York 10286. The Bank, the Servicer and their respective
affiliates may from time to time enter into normal banking and trust
relationships with the Trustee and its affiliates. The Trustee, the Bank, the
Servicer and any of their respective affiliates may hold Certificates of any
Series in their own names; however, any Certificates so held shall not be
entitled to participate in any decisions made or instructions given to the
Trustee by such Certificateholders as a group. In addition, for purposes of
meeting the legal requirements of certain local jurisdictions, the Trustee shall
have the power to appoint a co-trustee or separate trustees of all or any part
of the Trust. In the event of such appointment, all rights, powers, duties and
obligations shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee, who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Bank will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. In such circumstances,
the Servicer will be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee does not become
effective until acceptance of the appointment by the successor Trustee.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Bank has represented and warranted in the Pooling Agreement that the
transfer of Receivables by it to the Trust is either a valid sale and assignment
to the Trust of all right, title and interest of the Bank in and to such
Receivables, except for the interest of the Bank as holder of the Bank
Certificate (or the interests of transferees, if any, of a portion of
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the Seller's Certificate), or a grant to the Trust of a security interest in
such Receivables. The Bank also represents and warrants in the Pooling Agreement
that in the event the transfer of Receivables by the Bank to the Trust is deemed
to create a security interest under the UCC, there will exist a valid,
subsisting and enforceable first priority perfected security interest in such
Receivables created thereafter in favor of the Trust on and after their
creation, except for certain governmental liens. For a discussion of the Trust's
rights arising from a breach of these warranties, see "The Pooling Agreement
Generally -- Representations and Warranties."
Certain Receivables may be added to the Trust from time to time with
respect to which the related accountholders have provided the Bank with Funds
Collateral as security for such accountholder's obligations to the Bank. The
Funds Collateral is expected to be held by a Depositary. The Bank will take
certain actions as it believes are required or reasonably requested under
applicable state law to perfect the Bank's security interest in the Funds
Collateral. The perfection of a security interest in the Funds Collateral may
not be governed by the UCC, and existing common law authority does not
definitively establish what steps are necessary to perfect such a lien. This
uncertainty exists both with respect to the grant of a security interest in the
Funds Collateral by accountholders to the Bank and with respect to the grant of
a security interest in the Bank's interest in the Funds Collateral by the Bank
to the Trust. While not free from doubt, a Virginia court properly presented
with the issue should determine that the Bank has taken sufficient action and
has adequately divested the accountholders of control over the Funds Collateral
so as to perfect a security interest therein. In connection with the transfer of
the Bank's interest in the Receivables to the Trust, the Bank will also sell and
assign to the Trust its interest as secured party in the related Funds
Collateral, if any. Because possession of such Funds Collateral will be
maintained by the Depositary and will not be transferred to the Trustee, the
Trust will not have a direct claim to the Funds Collateral. The Bank will
represent and warrant in the Pooling Agreement that the transfer of the Bank's
interest in the Receivables and the related Funds Collateral, if any, to the
Trust is either a valid sale and assignment of the Bank's interest in such
Receivables and such Funds Collateral to the Trust or the grant to the Trust of
a security interest in the Bank's interest in such Receivables and such Funds
Collateral. The Bank will also represent and warrant in the Pooling Agreement
that in the event the transfer of the Bank's interest in the Receivables and the
related Funds Collateral, if any, by the Bank to the Trust is deemed to create a
security interest, there will exist a valid, subsisting and enforceable first
priority perfected security interest in the Bank's interest in the Receivables
and the related Funds Collateral, if any, created thereafter in favor of the
Trust on and after their creation, except for certain governmental liens and
other non-consensual liens or certain subsequent transferees of the Funds
Collateral. Although the Bank has taken steps it believes appropriate to perfect
interests given to the Trust, and on the basis of its belief has made the
related representations and warranties, the legal uncertainty in these areas is
such that no definitive assurance can be given that a first priority perfected
security interest in the Bank's interest in the Funds Collateral will exist for
the benefit of the Trust. For a discussion of the Trust's rights arising from a
breach of these warranties, see "The Pooling Agreement Generally --
Representations and Warranties."
The Bank has represented as to previously conveyed Receivables, and will
represent as to Receivables and the related Funds Collateral, if any, to be
conveyed, that the Bank's interest in the Receivables and the related Funds
Collateral, if any, are "accounts" or "general intangibles" for purposes of the
UCC. Both the transfer and assignment of accounts and the transfer of accounts
as security for an obligation are treated under Article 9 of the UCC as creating
a security interest therein and are subject to its provisions, and the filing of
an appropriate financing statement or statements is required to perfect the
security interest of the Trust. If a transfer of general intangibles is deemed
to create a security interest, the UCC applies and filing of an appropriate
financing statement or statements is also required in order to perfect the
Trust's security interest in the Receivables and the related Funds Collateral,
if any. Financing statements covering the Receivables and the related Funds
Collateral, if any, have been and will be filed with the appropriate state and
local governmental authority to protect the interests of the Trust in the
Receivables and the related Funds Collateral, if any. If a transfer of general
intangibles is deemed to be a sale, the filing of a financing statement is not
required to protect the Trust's interest from third parties. Although the
priority of a transfer of general intangibles arising after the formation of the
Trust is not as clear under the laws of the Commonwealth of Virginia as the
priority of interests governed by the UCC, the Bank believes that it would be
inconsistent for a court to afford the Trust less favorable treatment if the
transfer of the Receivables and the related Funds Collateral, if any, is deemed
to be a sale than if it were deemed to be a security interest and that a court
should conclude that a sale of Receivables and the related Funds Collateral, if
any, consisting of general intangibles would be deemed to have occurred as of
the date of execution of the Pooling Agreement or the applicable date
Receivables arising in Additional Accounts have been conveyed to the Trust.
In connection with the transfer of the Bank's interest in the Receivables
and the related Funds Collateral, if any, to the Trust, the Bank is required to
indicate in its computer records that the Bank's interest in such Receivables
and such
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Funds Collateral has been conveyed to the Trust. In addition, the Bank has
provided or will provide to the Trustee a computer file or a microfiche list
containing a true and complete list showing for each Initial Account, as of the
Trust Cut-Off Date, and for each Additional Account, as of the applicable
additional cut-off date (i) its account number, (ii) the collection status and
(iii) the aggregate amount outstanding, the aggregate amount of Principal
Receivables in such Account and the amount of the related Funds Collateral, if
any. The Bank as initial Servicer, will retain and will not deliver to the
Trustee any other records or agreements relating to the Accounts, the
Receivables or the Funds Collateral. Except as set forth above, the records and
agreements relating to the Accounts, the Receivables and the Funds Collateral
will not be segregated from those relating to other revolving credit accounts
and receivables, and the physical documentation relating to the Accounts, the
Receivables or the Funds Collateral will not be stamped or marked to reflect the
transfer of the Receivables and the Funds Collateral to the Trust. The Bank has
filed and is required to file UCC financing statements with respect to the sale
of the Receivables and the Funds Collateral and the proceeds thereof to the
Trust meeting the requirements of applicable state law. With respect to the
Funds Collateral, in order to perfect its interest in the Funds Collateral, the
Depositary or a person unaffiliated with the accountholders has obtained and
will maintain continuous possession and control of such Funds Collateral.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables and the related Funds Collateral, if any,
coming into existence after the date of the Pooling Agreement could have an
interest in such Receivables and the related Funds Collateral, as applicable,
with priority over the Trust's interest. Under the Pooling Agreement, however,
the Bank has represented and warranted that it transferred the Receivables to
the Trust, and will represent and warrant that it will transfer the Bank's
interest in the Receivables and the related Funds Collateral, if any, to the
Trust, free and clear of the lien of any third party except for certain
governmental liens. In addition, the Bank has covenanted and will covenant that
it will not sell, pledge, assign, transfer or grant any lien on any Receivable
or any related Funds Collateral (or any interest therein) other than to the
Trust. A tax or government lien or other nonconsensual lien arising prior to the
time a Receivable comes into existence or through fraud or negligence of the
Bank, a subsequent transferee of the Funds Collateral may also have priority
over the interest of the Trust in such Receivables and any related Funds
Collateral. Furthermore, if the FDIC were appointed as a conservator or receiver
of the Bank, the conservator's or receiver's administrative expenses may also
have priority over the interest of the Trust in the Bank's interest in such
Receivables and related Funds Collateral.
CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Bank is chartered under the laws of Virginia. In Virginia, the Virginia
State Corporation Commission (the "SCC"), which supervises and examines the
Bank, may apply to any Virginia court having jurisdiction over the appointment
of receivers to appoint a receiver upon determination that certain events
relating to the Bank's financial condition have occurred. The SCC is authorized,
but not required, to apply for the appointment of the FDIC as receiver and, as a
matter of Federal law, the FDIC would be authorized, but not obligated, to
accept such appointment. The SCC has informally indicated that it would seek to
have the FDIC appointed as receiver in any receivership proceeding involving a
bank such as the Bank. Virginia law sets forth certain powers that could be
exercised by the FDIC upon its appointment as receiver. There are no Virginia or
statutory provisions governing the appointment of a conservator for a
Virginia-chartered bank.
The FDIA, as amended by FIRREA, sets forth certain powers that the FDIC in
its capacity as conservator or receiver for the Bank could exercise. Positions
taken by the FDIC staff prior to the passage of FIRREA do not suggest that the
FDIC, if appointed as conservator or receiver for the Bank, would interfere with
the timely transfer to the Trust of payments collected on the Receivables or
applications of the Funds Collateral or interfere with the timely liquidation of
such Receivables or the Trust's interest in such Funds Collateral, as described
below. To the extent that the Bank has granted a security interest in the
Receivables and in the Bank's security interest in the related Funds Collateral,
if any, to the Trust, and that interest was validly perfected before the Bank's
insolvency and was not taken in contemplation of insolvency or with the intent
to hinder, delay or defraud the Bank or its creditors, the FDIA provides that
such security interest should not be subject to avoidance. As a result, payments
to the Trust with respect to the Receivables and the related Funds Collateral,
if any, should not be subject to recovery by the FDIC as conservator or receiver
for the Bank. If, however, the FDIC, as conservator or receiver for the Bank,
were to assert a contrary position, or were to require the Trustee to establish
its right to such payments or the Funds Collateral by submitting to and
completing the administrative claims procedure established under the FDIA, or
the conservator or receiver were to request a stay of proceedings with respect
to the Bank as provided under the FDIA, delays in payments on Certificates of
all Series and possible reductions in the amount of those payments could occur.
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The Pooling Agreement provides that, upon the occurrence of an Insolvency
Event, the Bank will promptly give notice thereof to the Trustee and a Pay Out
Event will occur with respect to all Series then outstanding under the Trust.
Pursuant to the Pooling Agreement, neither newly created Principal Receivables
nor the Bank's interest in the Funds Collateral, if any, related to such newly
created Principal Receivables will be transferred to the Trust and the Trustee
will proceed to sell, dispose of or otherwise liquidate the Receivables and the
Trust's interest in the related Funds Collateral in a commercially reasonable
manner and on commercially reasonable terms, unless otherwise instructed within
a specified period by each other holder of the Bank Certificate and the
Certificateholders holding Certificates of each Series or, if a Series includes
more than one Class, each Class of such Series evidencing more than 50% of the
aggregate unpaid principal amount of each such Series or Class (and, in the case
of any Series with respect to which there is an Enhancement Invested Amount, any
Series Enhancer with respect thereto), or unless otherwise required by the FDIC
as receiver or conservator of the Bank. Under the Pooling Agreement, the
proceeds from the sale of the Receivables and the Trust's interest in any
related Funds Collateral would be treated as collections on the Receivables.
This procedure, however, could be delayed as described above. Upon the
occurrence of a Pay Out Event, if a conservator or receiver is appointed for the
Bank and no Pay Out Event other than such conservatorship or receivership or
insolvency of the Bank exists, the conservator or receiver may have the power to
prevent the early sale, liquidation or disposition of the Receivables and of the
Trust's interest in any related Funds Collateral and the commencement of the
Early Amortization Period. In addition, a conservator or receiver may have the
power to cause the early sale of the Receivables and of the Trust's interest in
any related Funds Collateral and the early retirement of the Certificates or to
prohibit the continued transfer of Principal Receivables and of the Bank's
security interest in the related Funds Collateral, if any, to the Trust. See
"Description of the Certificates -- Pay Out Events."
In the event of a Servicer Default, if a conservator, receiver or
liquidator is appointed for the Servicer, and no Servicer Default other than
such conservatorship, receivership, liquidation or insolvency of the Servicer
exists, the conservator, receiver or liquidator may have the power to prevent
either the Trustee or the requisite percentage of holders of Certificates of all
Series from appointing a successor Servicer. See "The Pooling Agreement
Generally -- Servicer Default".
The Bank will establish the Deposit Account and maintain records regarding
each accountholder's beneficial interest in the Funds sufficient to afford each
accountholder federal deposit insurance up to applicable limits. In the event of
the insolvency of the Depositary, although the Funds will be FDIC insured up to
applicable limits, such an insolvency may result in a delay in the payment of
such Funds to the accountholder or to the Trust by the FDIC as receiver for the
Depositary.
CONSUMER PROTECTION LAWS
The relationship between an accountholder and consumer lender is
extensively regulated by Federal, state and local consumer protection laws. With
respect to consumer revolving credit accounts owned by the Bank, the most
significant Federal laws include the Federal Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Reporting and Fair Debt Collection Practices Acts.
These statutes impose disclosure requirements before and when an Account is
opened and at the end of monthly billing cycles and, in addition, limit
accountholder liability for unauthorized use, prohibit certain discriminatory
practices in extending credit, impose certain limitations on the type of
account-related charges that may be issued and regulate collection practices. In
addition, accountholders are entitled under these laws to have payments and
credits applied to their accounts promptly and to require billing errors to be
resolved promptly. The Trust may be liable for certain violations of consumer
protection laws that apply to the Receivables or the Funds Collateral, if any,
either as assignee from the Bank with respect to obligations arising before
transfer of the Receivables or the Funds Collateral, if any, to the Trust or as
the party directly responsible for obligations arising after the transfer. In
addition, an accountholder may be entitled to assert such violations by way of
setoff against the obligation to pay the amount of Receivables owing. See "Risk
Factors -- Master Trust Considerations -- Certain Legal Aspects" and "-- The
Ability of the Bank to Change Terms of the Accounts". All Receivables, including
any Funds Collateral, that were not created or serviced in compliance in all
material respects with the requirements of such laws, subject to certain
conditions described under "The Pooling Agreement Generally -- Representations
and Warranties", will be reassigned to the Bank. The Servicer has also agreed in
the Pooling Agreement to indemnify the Trust, among other things, for any
liability arising from such violations. For a discussion of the Trust's rights
if the Receivables were not created in compliance in all material respects with
applicable laws, see "The Pooling Agreement Generally -- Representations and
Warranties".
The Soldiers' and Sailors' Civil Relief Act of 1940 allows individuals on
active duty in the military to cap the interest rate on debts incurred before
the call to active duty at 6%. In addition, subject to judicial discretion, any
action or court
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proceeding in which an individual in military service is involved may be stayed
if the individual's rights would be prejudiced by denial of such a stay.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of Certificateholders in the Receivables if such laws
result in any Receivables being charged off as uncollectible when there are no
funds available from Series Enhancement or other sources and could delay
realization on any related Funds Collateral or otherwise affect the ability of
the Bank to realize on such Funds Collateral. See "Description of the
Certificates -- Defaulted Receivables; Rebates and Fraudulent Charges".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain material federal income
tax consequences relating to the purchase, ownership and disposition of a
Certificate offered hereunder. Additional federal income tax considerations
relevant to a particular Series may be set forth in the related Prospectus
Supplement. This discussion is based on current law, which is subject to changes
that could prospectively or retroactively modify or adversely affect the tax
consequences summarized below. The discussion does not address all of the tax
consequences relevant to a particular Certificateholder in light of that
Certificateholder's circumstances, and some Certificateholders may be subject to
special tax rules and limitations not discussed below. Each prospective
Certificateholder is urged to consult its own tax adviser in determining the
federal, state, local and foreign income and any other tax consequences of the
purchase, ownership and disposition of a Certificate.
For purposes of this discussion, "U.S. Person" means a citizen or resident
of the United States, a corporation or partnership organized in or under the
laws of the United States, any state thereof, or any political subdivision of
either (including the District of Columbia), or an estate or trust the income of
which is includible in gross income for U.S. federal income tax purposes
regardless of its source. The term "U.S. Certificateholder" means any U.S.
Person and any other person to the extent that the income attributable to its
interest in a Certificate is effectively connected with that person's conduct of
a U.S. trade or business.
TREATMENT OF THE CERTIFICATES AS DEBT
The Bank expresses in the Pooling Agreement the intent that for federal,
state and local income and franchise tax purposes, the Certificates will be debt
of the Bank secured by the Receivables. The Bank, by entering into the Pooling
Agreement, and each investor, by the acceptance of a beneficial interest in a
Certificate, will agree to treat the Certificates as debt of the Bank for
federal, state and local income and franchise tax purposes. However, the Pooling
Agreement generally refers to the transfer of Receivables as a "sale," and
because different criteria are used in determining the non-tax accounting
treatment of the transaction, the Bank will treat the Pooling Agreement for
certain non-tax accounting purposes as causing a transfer of an ownership
interest in the Receivables and not as creating a debt obligation.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines its tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers as
well as the Internal Revenue Service (the "IRS") to treat a transaction in
accordance with its economic substance, as determined under federal income tax
law, even though the participants in the transaction have characterized it
differently for non-tax purposes.
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed to
determine whether the seller has relinquished (and the purchaser has obtained)
substantial incidents of ownership in the property. Among those factors, the
primary ones examined are whether the purchaser has the opportunity to gain if
the property increases in value, and has the risk of loss if the property
decreases in value. Except to the extent otherwise specified in the related
Prospectus Supplement, Orrick, Herrington & Sutcliffe LLP, special counsel to
the Bank ("Tax Counsel"), will deliver its opinion generally to the effect that,
under current law as in effect on the Series Issuance Date, although no
transaction closely comparable to that contemplated herein has been the subject
of any Treasury regulation, revenue ruling or judicial decision, for federal
income tax purposes the Certificates offered hereunder will not constitute an
ownership interest in the Receivables but will properly be characterized as
debt. Except where indicated to the contrary, the following discussion assumes
that the Certificates offered hereunder are debt for federal income tax
purposes.
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TREATMENT OF THE TRUST
General. The Pooling Agreement permits the issuance of Certificates and
certain other interests in the Trust (including certain undivided interests in
the Trust, or "Collateral Indebtedness Interests" such as may be set forth in
the Prospectus Supplement), each of which may be treated for federal income tax
purposes either as debt or as equity interests in the Trust. If all of the
Certificates and other interests (other than the Seller's Certificate) in the
Trust were characterized as debt, the Trust might be characterized as a security
arrangement for debt collateralized by the Receivables and issued directly by
the Bank (or other holder of the Seller's Certificate). Under such a view, the
Trust would be disregarded for federal income tax purposes. Alternatively, if
some of the Certificates or other interests (other than the Seller's
Certificate) in the Trust were characterized as equity, the Trust might be
characterized as a separate entity owning the Receivables, issuing its own debt,
and jointly owned by the Bank (or other holder of the Seller's Certificate) and
the other holders of equity interests in the Trust. However, Tax Counsel will
deliver its opinion generally to the effect that, under current law as in effect
on the Series Issuance Date, any such entity constituted by the Trust will not
be an association or publicly traded partnership taxable as a corporation.
Possible Treatment of the Trust as a Partnership, a Publicly Traded
Partnership or an Association. Although, as described above, Tax Counsel will
deliver its opinion that the Certificates offered hereunder will properly be
treated as debt and that the Trust will not be treated as an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, such opinion will not bind the IRS and thus no assurance can be given
that such treatment will prevail. If the IRS were to contend successfully that
some or all of the Certificates or any other interest in the Trust (other than
the Seller's Certificate), including any Collateral Indebtedness Interest, were
not debt obligations for federal income tax purposes, all or a portion of the
Trust could be classified as a partnership or an association taxable as a
corporation for such purposes. Because Tax Counsel will deliver its opinion that
the Certificates offered hereunder will be characterized as debt for federal
income tax purposes and because any holder of an interest in a Collateral
Indebtedness Interest will agree to treat that interest as debt for such
purposes, no attempt will be made to comply with any tax reporting requirements
that would apply as a result of such alternative characterizations.
If the Trust were treated in whole or in part as a partnership in which
some or all holders of interests in the publicly offered Certificates were
partners, that partnership could be classified as a publicly traded partnership,
and so could be taxable as a corporation. Further, regulations published by the
Treasury Department on December 4, 1995 (the "Regulations") could cause the
Trust to constitute a publicly traded partnership even if all holders of
interests in publicly offered Certificates are treated as holding debt. The
Regulations generally apply to taxable years beginning after December 31, 1995,
and thus could affect the classification of presently existing entities and the
ongoing tax treatment of already completed transactions. Although the
Regulations provide for a 10-year grandfather period for a partnership actively
engaged in an activity before December 4, 1995, it is not clear whether the
Trust would qualify for this grandfather period. If the Trust were classified as
a publicly traded partnership, whether by reason of the treatment of publicly
offered Certificates as equity or by reason of the Regulations, it would avoid
taxation as a corporation if its income was not derived in the conduct of a
"financial business"; however, whether the income of the Trust would be so
classified is unclear.
Under the Code and the Regulations, a partnership will be classified as a
publicly traded partnership if equity interests therein are traded on an
"established securities market," or are "readily tradable" on a "secondary
market" or its "substantial equivalent." The Bank has taken and intends to take
measures designed to reduce the risk that the Trust could be classified as a
publicly traded partnership by reason of interests in the Trust other than the
publicly traded Certificates. However, certain of the actions that may be
necessary for avoiding the treatment of such interests as "readily tradable on a
secondary market (or the substantial equivalent thereof)" are not fully within
the control of the Bank, and certain Series predating the Regulations may not
conform to the requirements of the regulations. As a result, there can be no
assurance that the measures the Bank has taken and intends to take will in all
circumstances be sufficient to prevent the Trust from being classified as a
publicly traded partnership under the Regulations.
If the Trust was treated as a partnership but nevertheless was not treated
as a publicly traded partnership taxable as a corporation, that partnership
would not be subject to federal income tax. Rather, each item of income, gain,
loss and deduction of the partnership generated through the ownership of the
related Receivables would be taken into account directly in computing taxable
income of the Bank (or the holder of the Seller's Certificate) and any
Certificateholders treated as partners in accordance with their respective
partnership interests therein. The amounts and timing of income reportable by
any Certificateholders treated as partners would likely differ from that
reportable by such Certificateholders had they been treated as owning debt. In
addition, if the Trust were treated in whole or in part as a partnership other
than
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a publicly traded partnership, income derived from the partnership by any
Certificateholder that is a pension fund or other tax-exempt entity may be
treated as unrelated business taxable income. Partnership characterization also
may have adverse state and local income or franchise tax consequences for a
Certificateholder. From time to time, legislation has been introduced in
Congress that would affect the treatment of any "large partnership," defined as
any partnership in which there are at least 250 partners in a taxable year.
Under such legislative proposals, among other things, the availability of
certain deductions to partners may be limited, and certain computations (such as
those relating to the level of allowable miscellaneous itemized deductions and
the netting of capital gains and losses) would be made at the partnership rather
than the partner level. No prediction can be made regarding whether any such
legislation will be enacted or, if so, what its ultimate effective date will be.
If the arrangement created by the Pooling Agreement were treated in whole
or in part as a publicly traded partnership or an association taxable as a
corporation, that entity would be subject to federal income tax at corporate tax
rates on its taxable income generated by ownership of the related Receivables.
That tax could result in reduced distributions to Certificateholders. No
distributions from the Trust would be deductible in computing the taxable income
of the corporation, except to the extent that any Certificates were treated as
debt of the corporation and distributions to the related Certificateholders were
treated as payments of interest thereon. In addition, distributions to
Certificateholders not treated as holding debt would be dividend income to the
extent of the current and accumulated earnings and profits of the corporation
(and Certificateholders may not be entitled to any dividends received deduction
in respect of such income).
TAXATION OF INTEREST INCOME OF U.S. CERTIFICATEHOLDERS
General. Stated interest on a beneficial interest in a Certificate will be
includible in gross income in accordance with a U.S. Certificateholder's method
of accounting.
Original Issue Discount. It is not expected that the Certificates will be
issued with original issue discount ("OID"). If the Certificates are issued with
OID, the provisions of sections 1271 through 1273 and 1275 of the Internal
Revenue Code of 1986 (the "Code") will apply to the Certificates. Under those
provisions, a U.S. Certificateholder (including a cash basis holder) generally
would be required to accrue the OID on its interest in a Certificate in income
for federal income tax purposes on a constant yield basis, resulting in the
inclusion of OID in income somewhat in advance of the receipt of cash
attributable to that income. In general, a Certificate will be treated as having
OID to the extent that its "stated redemption price" exceeds its "issue price,"
if such excess is more than 0.25 percent multiplied by the weighted average life
of the Certificate (determined by taking into account only the number of
complete years following issuance until payment is made for any partial
principal payments). Under section 1272(a)(6) of the Code, special provisions
apply to debt instruments on which payments may be accelerated due to
prepayments of other obligations securing those debt instruments. However, no
regulations have been issued interpreting those provisions, and the manner in
which those provisions would apply to the Certificates is unclear. Additionally,
the IRS could take the position based on Treasury regulations that none of the
interest payable on a Certificate is "unconditionally payable" and hence that
all of such interest should be included in the Certificate's stated redemption
price at maturity. If sustained, such treatment should not significantly affect
the tax liability of most Certificateholders, but prospective U.S.
Certificateholders should consult their own tax advisers concerning the impact
to them in their particular circumstances. Except where indicated to the
contrary, this discussion assumes that the interest payable on a Certificate is
"unconditionally payable."
Market Discount. A U.S. Certificateholder who purchases an interest in a
Certificate at a discount that exceeds any unamortized OID may be subject to the
"market discount" rules of sections 1276 through 1278 of the Code. These rules
provide, in part, that gain on the sale or other disposition of a Certificate
and partial principal payments on a Certificate are treated as ordinary income
to the extent of accrued market discount. The market discount rules also provide
for deferral of interest deductions with respect to debt incurred to purchase or
carry a Certificate that has market discount.
Market Premium. A U.S. Certificateholder who purchases an interest in a
Certificate at a premium may elect to offset the premium against interest income
over the remaining term of the Certificate in accordance with the provisions of
section 171 of the Code.
SALE OR EXCHANGE OF CERTIFICATES
Upon a disposition of an interest in a Certificate, a U.S.
Certificateholder generally will recognize gain or loss equal to the difference
between the amount realized on the disposition and the U.S. Certificateholder's
adjusted basis in its interest in the Certificate. The adjusted basis in the
interest in the Certificate will equal its cost, increased by any OID or
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market discount includible in income with respect to the interest in the
Certificate prior to its sale and reduced by any principal payments previously
received with respect to the interest in the Certificate and any amortized
premium. Subject to the market discount rules, gain or loss will be capital gain
or loss if the interest in the Certificate was held as a capital asset. Capital
losses generally may be used only to offset capital gains.
NON-U.S. CERTIFICATEHOLDERS
In general, a non-U.S. Certificateholder will not be subject to U.S.
federal income tax on interest (including OID) on a beneficial interest in a
Certificate unless (i) the non-U.S. Certificateholder actually or constructively
owns 10 percent or more of the total combined voting power of all classes of
stock of the Bank entitled to vote (or of a profits or capital interest of the
Trust if characterized as a partnership), (ii) the non-U.S. Certificateholder is
a controlled foreign corporation that is related to the Bank (or the Trust if
treated as a partnership) through stock ownership, (iii) the non-U.S.
Certificateholder is a bank receiving interest described in Code Section
881(c)(3)(A), (iv) such interest is described in the applicable Prospectus
Supplement as contingent interest described in Code Section 871(h)(4), or (v)
the non-U.S. Certificateholder bears certain relationships to any holder of
either the Seller's Certificate other than the Bank or any other interest in the
Trust not properly characterized as debt. To qualify for the exemption from
taxation, the last U.S. Person in the chain of payment prior to payment to a
non-U.S. Certificateholder (the "Withholding Agent") must have received (in the
year in which a payment of interest or principal occurs or in either of the two
preceding years) a statement that (i) is signed by the non-U.S.
Certificateholder under penalties of perjury, (ii) certifies that the non-U.S.
Certificateholder is not a U.S. Person and (iii) provides the name and address
of the non-U.S. Certificateholder. The statement may be made on a Form W-8 or
substantially similar substitute form, and the non-U.S. Certificateholder must
inform the Withholding Agent of any change in the information on the statement
within 30 days of the change. If a Certificate is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. However,
in that case, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the non-U.S. Certificateholder to the organization
or institution holding the Certificate on behalf of the non-U.S.
Certificateholder. The U.S. Treasury Department is considering implementation of
further certification requirements aimed at determining whether the issuer of a
debt obligation is related to holders thereof.
Generally, any gain or income realized by a non-U.S. Certificateholder upon
retirement or disposition of an interest in a Certificate will not be subject to
U.S. federal income tax, provided that (i) in the case of a Certificateholder
that is an individual, such Certificateholder is not present in the United
States for 183 days or more during the taxable year in which such retirement or
disposition occurs and (ii) in the case of gain representing accrued interest,
the conditions described in the preceding paragraph for exemption from
withholding are satisfied. Certain exceptions may be applicable, and an
individual non-U.S. Certificateholder should consult a tax adviser.
If the Certificates were treated as an interest in a partnership, the
recharacterization could cause a non-U.S. Certificateholder to be treated as
engaged in a trade or business in the United States. In that event, the non-U.S.
Certificateholder would be required to file a federal income tax return and, in
general, would be subject to U.S. federal income tax (including the branch
profits tax) on its net income from the partnership. Further, certain
withholding obligations apply with respect to income allocable or distributions
made to a foreign partner. That withholding may be at a rate as high as 39.6
percent. If some or all of the Certificates were treated as stock in a
corporation, any related dividend distributions to a non-U.S. Certificateholder
generally would be subject to withholding of tax at the rate of 30 percent,
unless that rate were reduced by an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Backup withholding of U.S. federal income tax at a rate of 31 percent may
apply to payments made in respect of a Certificate to a registered owner who is
not an "exempt recipient" and who fails to provide certain identifying
information (such as the registered owner's taxpayer identification number) in
the manner required. Generally, individuals are not exempt recipients whereas
corporations and certain other entities are exempt recipients. Payments made in
respect of a U.S. Certificateholder must be reported to the IRS, unless the U.S.
Certificateholder is an exempt recipient or otherwise establishes an exemption.
Compliance with the identification procedures (described in the preceding
section) would establish an exemption from backup withholding for a non-U.S.
Certificateholder who is not an exempt recipient.
In addition, upon the sale of a Certificate to (or through) a "broker," the
broker must withhold 31 percent of the entire purchase price, unless either (i)
the broker determines that the seller is a corporation or other exempt recipient
or
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(ii) the seller provides certain identifying information in the required manner,
and in the case of a non-U.S. Certificateholder certifies that the seller is a
non-U.S. Certificateholder (and certain other conditions are met). Such a sale
must also be reported by the broker to the IRS, unless either (i) the broker
determines that the seller is an exempt recipient or (ii) the seller certifies
its non-U.S. status (and certain other conditions are met). Certification of the
registered owner's non-U.S. status normally would be made on Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence. As defined by Treasury regulations, the term
"broker" includes all persons who stand ready to effect sales made by others in
the ordinary course of a trade or business, as well as brokers and dealers
registered as such under the laws of the United States or a state. These
requirements generally will apply to a U.S. office of a broker, and the
information reporting requirements generally will apply to a foreign office of a
U.S. broker as well as to a foreign office of a foreign broker (i) that is a
controlled foreign corporation within the meaning of section 957(a) of the Code
or (ii) 50 percent or more of whose gross income from all sources for the three
year period ending with the close of its taxable year preceding the payment (or
for such part of the period that the foreign broker has been in existence) was
effectively connected with the conduct of a trade or business within the United
States.
Any amounts withheld under the backup withholding rules from a payment to a
Certificateholder would be allowed as a refund or a credit against such
Certificateholder's U.S. federal income tax, provided that the required
information is furnished to the IRS.
STATE AND LOCAL TAXATION
The discussion above does not address the taxation of the Trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
Certificates under any state or local law. Each investor should consult its own
tax adviser regarding state or local tax consequences.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits employee benefit plans subject to Title I of ERISA
from engaging in certain transactions with persons who are "parties in interest"
unless a statutory or administrative exemption applies to the transaction.
Section 4975 of the Code prohibits plans described in Section 4975(e)(1) of the
Code from engaging in transactions with persons who are "disqualified persons"
unless a statutory or administrative exemption applies. Persons who are "parties
in interest" or "disqualified persons" with respect to employee benefit and
other plans subject to Title I of ERISA or Section 4975 of the Code
(collectively, "Benefit Plans") may be subject to excise taxes, civil fines and
other liabilities for violating the "prohibited transaction" rules of Section
406 of ERISA and Section 4975 of the Code. For example, a prohibited transaction
could arise, unless an exemption were available, if a Certificate were viewed as
debt of the Bank and the Bank were a "party in interest" or a "disqualified
person" with respect to a Benefit Plan that acquired the Certificate.
Moreover, additional prohibited transactions could arise if the Trust
Assets were deemed to constitute assets of any Benefit Plan that owned
Certificates. The Department of Labor ("DOL") has issued a final regulation (the
"Final Regulation") concerning the definition of what constitutes "plan assets"
of a Benefit Plan. Under the Final Regulation, the assets of corporations,
partnerships, trusts and certain other entities in which a Benefit Plan (or
other entities whose assets include assets of a Benefit Plan) makes an
investment in an "equity interest" could be deemed to be assets of the Benefit
Plan in certain circumstances. The Final Regulation specifically defines a
"beneficial interest" in a trust as an equity interest. Accordingly, if a
Benefit Plan purchases Certificates, the Trust could be deemed to hold assets of
the Benefit Plan unless one of the exceptions under the Final Regulation is
applicable to the Trust.
The Final Regulation only applies to the investment by a Benefit Plan in an
"equity interest" of an entity. Assuming that a Certificate is an equity
interest for purposes of the Final Regulation, the Final Regulation contains an
exception that may apply to the purchase of Certificates by Benefit Plans. Under
this exception the issuer of a security will not be deemed to hold assets of a
Benefit Plan that purchases the security so long as the security qualifies as a
"publicly-offered security" for purposes of the Final Regulation. A
publicly-offered security is a security that is (i) freely transferable, (ii)
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another and (iii) either is (A) part of a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act or (B)
sold to the Benefit Plan as part of an offering of securities to the public
pursuant to an effective registration statement under the Act and the class of
securities of which such security is a part is registered under the Exchange Act
within 120 days (or such later time as may be allowed by the Commission) after
the end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. For purposes of this exception, a class of
securities will not fail to be
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widely-held solely because subsequent to the initial offering the number of
independent investors falls below 100 as a result of events beyond the control
of the issuer.
The Certificates of each Class and Series must be separately tested under,
and may each meet, the criteria of publicly-offered securities as described
above. There are no restrictions imposed on the transfer of the Certificates,
and the Certificates will be sold as part of an offering pursuant to an
effective registration statement under the Securities Act and then will be
timely registered under the Exchange Act. Based on information provided by an
underwriter, agent or dealer involved in the distribution of the Certificates,
the Bank will notify the Trustee as to whether or not the Certificates of a
Class or Series will be held by at least 100 separately named persons at the
conclusion of the offering thereof. The Bank will not, however, determine
whether the 100 independent investors requirement of the exception for publicly
offered securities is satisfied as to either a specific Class or Series.
Prospective purchasers may obtain a copy of the notification described in the
second preceding sentence from the Trustee at its Corporate Trust Department.
If the Certificates of a Class or Series fail to meet the requirements of
the publicly-offered securities exception and the Trust Assets are deemed to
include assets of Benefit Plan investors, transactions involving the Trust and
"parties in interest" or "disqualified persons" with respect to such plans might
be prohibited under Section 406 of ERISA and Section 4975 of the Code unless an
exemption is applicable. In addition, persons providing services with respect to
the assets of the Trust could become "parties in interest" with respect to the
Benefit Plan investors and could, in certain cases, be subject to the prohibited
transaction and other fiduciary responsibility rules of ERISA. Thus, for
example, if a participant in any Benefit Plan holding Certificates is an
accountholder of one of the Accounts, under a DOL interpretation the purchase of
such Certificates by such Benefit Plan could constitute a prohibited
transaction.
There are five class exemptions issued by the DOL that could apply in such
event: DOL Prohibited Transaction Exemptions 96-23 (Class Exemption for Plan
Asset Transactions Determined by In-house Asset Managers), 95-60 (Class
Exemption for Certain Transactions Involving Insurance Company General
Accounts), 91-38 (Class Exemption for Certain Transactions Involving Bank
Collective Investment Funds), 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate Accounts) and 84-14 (Class Exemption
for Plan Asset Transactions Determined by Independent Qualified Professional
Asset Managers). However, there is no assurance that these exemptions, even if
all of the conditions specified therein are satisfied, will apply to all
transactions involving the Trust Assets.
As discussed above, while Tax Counsel has given its opinion that (unless
otherwise provided in the related Prospectus Supplement) the Certificates of a
Series offered hereby will properly be treated as debt for Federal income tax
purposes, if any Certificates were instead treated as equity interests in a
partnership not taxable as a corporation, a Benefit Plan could have its share of
income from the partnership treated as "unrelated business taxable income" under
the Code and thus taxable to the Benefit Plan. Furthermore, if any Class or
Series of Certificates is treated as equity interests in a partnership in which
any other Class or Series of Certificates are debt, all or part of a tax-exempt
investor's share of income from the Certificates that are treated as equity
probably would be treated as unrelated debt-financed income under the Code and
taxable to the tax-exempt investor.
In light of the foregoing, fiduciaries of Benefit Plans considering the
purchase of Certificates should consult their own counsel as to whether the
acquisition of such Certificates would be a prohibited transaction, whether
Trust Assets which are represented by such Certificates would be considered
assets of the Benefit Plan, the consequences that would apply if the Trust
Assets were considered assets of the Benefit Plan, the applicability of
exemptive relief from the prohibited transaction rules, and the applicability of
the tax on unrelated business income and unrelated debt-financed income. In
addition, based on the reasoning of the United States Supreme Court's decision
in John Hancock Mut. Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517
(1993), under certain circumstances assets in the general account of an
insurance company may be deemed to be plan assets for certain purposes, and
under such reasoning a purchase of Certificates with assets of an insurance
company's general account may subject the insurance company to the prohibited
transaction and other fiduciary responsibility rules of ERISA with respect to
such assets. Insurance company general account investors should also consider
the effect of the recent enactment of Section 401(c) of ERISA.
Unless otherwise provided in the Prospectus Supplement, if the Bank does
not notify the Trustee, as described above, that the Certificates of any
particular Class or Series will be held by at least 100 separately named
persons, the Certificates of such Class or Series may not be acquired by any
Benefit Plan or by any entity investing with assets that are treated as assets
of a Benefit Plan. Furthermore, in that case, the Pooling Agreement, the related
Supplement and each Certificate of such Class or Series will provide that each
holder of such Certificate shall be deemed to have represented
61
<PAGE> 112
and warranted that it is not a Benefit Plan, is not purchasing such Certificate
on behalf of a Benefit Plan and is not using assets treated as assets of a
Benefit Plan to effect the purchase.
PLAN OF DISTRIBUTION
The Bank may sell Certificates in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The related Prospectus Supplement will set forth the terms of
the offering of any Certificates offered hereby, including, without limitation,
the names of any underwriters, the purchase price of such Certificates and the
proceeds to the Bank from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Certificates of a Series offered
hereby, such Certificates will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. Such Certificates may be offered to the public either through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. Unless otherwise set forth in the related Prospectus
Supplement, the obligations of the underwriters to purchase such Certificates
will be subject to certain conditions precedent, and the underwriters will be
obligated to purchase all of such Certificates if any of such Certificates are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Certificates of a Series offered hereby may also be offered and sold, if so
indicated in the related Prospectus Supplement, in connection with a remarketing
upon their purchase, in accordance with a redemption or repayment pursuant to
their terms, by one or more firms ("remarketing firms") acting as principals for
their own accounts or as agents for the Bank. Any remarketing firm will be
identified and the terms of its agreement, if any, with the Bank and its
compensation will be described in the related Prospectus Supplement. Remarketing
firms may be deemed to be underwriters in connection with the Certificates
remarketed thereby.
Certificates may also be sold directly by the Bank or through agents
designated by the Bank from time to time. Any agent involved in the offer or
sale of Certificates will be named, and any commissions payable by the Bank to
such agent will be set forth in the related Prospectus Supplement. Unless
otherwise indicated in the related Prospectus Supplement, any such agent will
act on a best efforts basis for the period of its appointment.
Any underwriters, agents or dealers participating in the distribution of
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them on the sale or resale of Certificates may be deemed to be
underwriting discounts and commissions, under the Securities Act. Certain agents
and underwriters may be entitled under agreements entered into with the Bank to
indemnification by the Bank against certain civil liabilities, including
liabilities under the 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 Bank or its affiliates in the ordinary course
of business.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Bank and the Trust by Orrick, Herrington & Sutcliffe LLP, Washington, D.C.
and McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia and for any
underwriters, agents or dealers by counsel named in the applicable Prospectus
Supplement. Certain Federal income tax matters will be passed upon for the Bank
by Tax Counsel, Orrick, Herrington & Sutcliffe LLP, Washington, D.C.
62
<PAGE> 113
GLOSSARY FOR PROSPECTUS
<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------- -------
<S> <C>
Accounts................................ 1
Accumulation Period..................... 8
Act..................................... 2
Addition................................ 28
Addition Discount Receivables........... 39
Additional Accounts..................... 29
Adjustment Payment...................... 37
Aggregate Addition Limit................ 29
Assigned Assets......................... 25
Assumed Obligations..................... 25
Assuming Entity......................... 25
Automatic Additional Accounts........... 29
Bank.................................... 1,3,25
Bank Certificate........................ 6
Bank Portfolio.......................... 20
Benefit Plans........................... 60
Capital One............................. 1,3
Capital One Services.................... 11,49
Cash Collateral Account................. 38
Cash Collateral Guaranty Account........ 38
Cash Collateral Guaranty................ 38
Cash Collateral Trust................... 38
Cede.................................... 2
Cedel................................... 43
Cedel Participants...................... 43
Certificateholders...................... 2,15,43
Certificateholders' Interest............ 5
Certificates............................ 1
Citibank................................ 42
Class................................... 1
Code.................................... 58
Collateral Indebtedness Interests....... 57
Collection Account...................... 7,32
Commission.............................. 2
Controlled Accumulation Amount.......... 8
Controlled Amortization Amount.......... 9
Controlled Amortization Period.......... 8
Controlled Deposit Amount............... 8
Controlled Distribution Amount.......... 9
Cooperative............................. 44
Credit Enhancement...................... 10
Credit Enhancer......................... 37
Date of Processing...................... 11
Defaulted Amount........................ 36
Defaulted Receivables................... 36
Defeased Series......................... 45
Deficit Controlled Accumulation
Amount................................ 8
Deficit Controlled Amortization
Amount................................ 9
Definitive Certificates................. 44
Depositaries............................ 42
Deposit Account......................... 22
Depositary.............................. 16
Depository.............................. 26
Determination Date...................... 11
Disclosure Document..................... 6
Discount Option Receivables............. 39
<CAPTION>
TERM PAGE
- ---------------------------------------- -------
<S> <C>
Discount Option Receivables
Collections........................... 39
Discount Percentage..................... 38
Distribution Date....................... 11
DOL..................................... 60
DTC..................................... 2
Early Amortization Period............... 9
Eligible Account........................ 47
Eligible Deposit Account................ 32
Eligible Institution.................... 32
Eligible Investments.................... 33
Eligible Receivable..................... 48
Enhancement Invested Amount............. 37
ERISA................................... 60
Euroclear............................... 44
Euroclear Operator...................... 44
Euroclear Participants.................. 44
Excess Finance Charges.................. 35
Excess Funding Account.................. 35
Exchange Act............................ 2
Expected Final Payment Date............. 7
FDIA.................................... 17
FDIC.................................... 6
Final Regulation........................ 60
Finance Charge Receivables.............. 5
FIRREA.................................. 17
Floating Allocation Percentage.......... 33
Funding Period.......................... 10
Funds................................... 22
Funds Collateral........................ 22
Group................................... 35
Holders................................. 45
Indirect Participants................... 43
Ineligible Receivables.................. 46
Initial Accounts........................ 4
Initial Investor Amount................. 10
Insolvency Event........................ 17
Interchange............................. 23
Interest Funding Account................ 7
Interest Payment Dates.................. 31
Invested Amount......................... 31
IRS..................................... 56
L/C Issuer.............................. 38
Lending Guidelines...................... 20
MasterCard.............................. 5
Miscellaneous Payments.................. 33
Monthly Servicing Fee................... 40
Monthly Period.......................... 23
Monthly Report.......................... 41
Moody's................................. 32
Morgan.................................. 42
New Issuance............................ 31
Non-Code Entity......................... 25
Offering................................ 4
OID..................................... 58
Paired Series........................... 10
Participants............................ 43
</TABLE>
63
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<TABLE>
<CAPTION>
TERM PAGE
- ---------------------------------------- -------
<S> <C>
participation agreement................. 28
Participations.......................... 3,28
Pay Out Event........................... 39
Payment Date............................ 41
Pooling Agreement....................... 1
Prefunded Amount........................ 10
Prefunding Account...................... 10
Principal Allocation Percentage......... 33
Principal Commencement Date............. 7
Principal Funding Account............... 8
Principal Receivables................... 5
Principal Shortfalls.................... 34
Principal Terms......................... 31
Prospectus Supplement................... 1
publicly-offered security............... 60
Rating Agency........................... 12
Ratings Effect.......................... 15
Receivables............................. 1,3
Record Date............................. 41
Regulations............................. 57
Related Account......................... 24
remarketing firms....................... 62
Removal Date............................ 30
Removal Notice Date..................... 30
Removed Accounts........................ 4
Required Designation Date............... 28
Required Seller's Interest.............. 14
Required Seller's Percentage............ 14
Reserve Account......................... 38
Revolving Period........................ 8
SCC..................................... 54
Seller.................................. 3
Seller's Certificate.................... 6
Seller's Interest....................... 5
Separation.............................. 4
TERM PAGE
- ---------------------------------------- -------
Separation Agreement.................... 4
Series.................................. 1
Series Cut-Off Date..................... 8
Series Enhancement...................... 3
Series Issuance Date.................... 46
Series Termination Date................. 41
Service Transfer........................ 51
Servicer................................ 11
Servicer Default........................ 51
Servicing Fee........................... 40
Shared Principal Collections............ 34
Signet.................................. 4
Signet/Virginia......................... 3
Special Payment Date.................... 40
Spread Account.......................... 38
Standard & Poor's....................... 32
Supplement.............................. 6
Supplemental Certificate................ 45
Tax Counsel............................. 56
Tax Opinion............................. 25
Termination Notice...................... 50
Terms and Conditions.................... 44
Transfer Deposit Amount................. 47
Trust................................... 1,3
Trust Assets............................ 3
Trust Cut-Off Date...................... 4
Trust Termination Date.................. 46
Trustee................................. 4
UCC..................................... 16
Unallocated Principal Collections....... 34
U.S. Certificateholder.................. 56
U.S. Person............................. 56
VISA.................................... 5
Withholding Agent....................... 59
</TABLE>
64
<PAGE> 115
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Certificates
(the "Global Securities") will be available only in book-entry form. Unless
otherwise specified in a Prospectus Supplement for a Series, investors in the
Global Securities may hold such Global Securities through any of DTC, Cedel or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through Citibank and Morgan as the respective
depositaries of Cedel and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective depositaries,
Citibank and Morgan, which in turn will hold such positions in accounts as
participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional asset-backed securities.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
participants will be settled using the procedures applicable to conventional
asset-backed securities.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants and/or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a participant at least one
business day prior to settlement. Cedel or Euroclear will instruct Citibank or
Morgan, respectively, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by Citibank or Morgan to the DTC participant's
account
A-1
<PAGE> 116
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be credited to the respective clearing system and by
the clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The Global Securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedel or Euroclear cash debit will be valued instead as of the actual
settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit line
to be drawn upon to finance settlement. Under this procedure, Cedel Participants
or Euroclear Participants purchasing Global Securities would incur overdraft
charges for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities to
Citibank or Morgan for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel and Euroclear Participants may employ
their customary procedures for transactions in which Global Securities are to be
transferred by the respective clearing system, through Citibank or Morgan, to a
DTC participant. The seller will send instructions to Cedel or Euroclear through
a participant at least one business day prior to settlement. In these cases,
Cedel or Euroclear will instruct Citibank or Morgan, as appropriate, to deliver
the Global Securities to the DTC participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. The payment will
then be reflected in the account of the Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel or Euroclear Participant's account would instead be valued as of the
actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(1) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
A-2
<PAGE> 117
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Certificates that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate
of Foreign Status). If the information shown on Form W-8 changes, a new
Form W-8 must be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are beneficial owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing
Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that
rate unless the filer alternatively files Form W-8. Form 1001 may be filed
by the beneficial owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Global Security
holder, or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom he
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof, or any political subdivision of either
(including the District of Columbia), or (iii) an estate or trust the income of
which is includible in gross income for United States tax purposes, regardless
of its source. This summary does not deal with all aspects of U.S. Federal
income tax withholding that may be relevant to foreign holders of these Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of these Global Securities.
Further, the IRS has recently proposed new regulations that would revise some
aspects of the current system for withholding on amounts paid to foreign
persons. Under these proposed regulations, interest or OID paid to a nonresident
alien would continue to be exempt from U.S. withholding taxes (including backup
withholding) provided that the holder complies with the new certification
procedures.
A-3
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[This Page Intentionally Left Blank]
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE BANK OR THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE
ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE BANK SINCE THE DATE HEREOF OR THEREOF OR
THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Series Terms............... S-3
Summary of Series Provisions.......... S-4
Risk Factors.......................... S-11
Maturity Considerations............... S-11
The Bank Portfolio.................... S-13
The Receivables....................... S-16
Use of Proceeds....................... S-20
The Bank.............................. S-20
Series Provisions..................... S-20
Underwriting.......................... S-42
Glossary for Prospectus Supplement.... S-44
Annex I............................... A-1
PROSPECTUS
Available Information................. 2
Reports to Certificateholders......... 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 14
The Bank's Credit Card and Consumer
Lending Business.................... 20
The Accounts.......................... 23
The Bank.............................. 24
Assumption of the Bank's
Obligations......................... 25
Use of Proceeds....................... 26
The Trust............................. 26
Description of the Certificates....... 26
The Pooling Agreement Generally....... 42
Certain Legal Aspects of the
Receivables......................... 52
Certain Federal Income Tax
Consequences........................ 56
ERISA Considerations.................. 60
Plan of Distribution.................. 62
Legal Matters......................... 62
Glossary for Prospectus............... 63
Annex I............................... A-1
</TABLE>
- ------------------------------------------------------
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[CAPITAL ONE LOGO]
MASTER TRUST
$600,000,000
FLOATING RATE CLASS A
ASSET BACKED CERTIFICATES, SERIES 1996-2
CAPITAL ONE BANK
Seller and Servicer
------------------------
PROSPECTUS SUPPLEMENT
DATED NOVEMBER 25, 1996
------------------------
J.P. MORGAN & CO.
CHASE SECURITIES INC.
DEUTSCHE MORGAN GRENFELL
NATIONSBANC CAPITAL MARKETS, INC.
UBS SECURITIES
- ------------------------------------------------------
- ------------------------------------------------------
