<PAGE>
FILED PURSUANT TO RULE 424(b)5
UNDER REGISTRATION NO. 33-99276
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS +
+SUPPLEMENT AND ACCOMPANYING PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE +
+AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE +
+ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION +
+OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 16, 1998
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED MARCH 16, 1998
[LOGO OF CAPITAL ONE(R) APPEARS HERE]
MASTER TRUST
$500,000,000 CLASS A % ASSET BACKED CERTIFICATES, SERIES 1998-1
$50,236,407 CLASS B % ASSET BACKED CERTIFICATES, SERIES 1998-1
CAPITAL ONE BANK, SELLER AND SERVICER
The Class A % Asset Backed Certificates, Series 1998-1 (the "Class A
Certificates") and the Class B % Asset Backed Certificates, Series 1998-1 (the
"Class B Certificates" and, together with the Class A Certificates, the
"Investor 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 Investor Certificates, the Trust will
issue $40,780,142 aggregate initial principal amount of Floating Rate Class C
Asset Backed Interests, Series 1998-1 (the "Class C Interests" and, together
with the Investor Certificates, the "Series 1998-1 Interests"). 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 eighteen 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 and the Class C
Interests. 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 INVESTOR CERTIFICATES, AND
THERE IS NO ASSURANCE THAT ONE WILL DEVELOP OR, IF ONE DOES DEVELOP, THAT IT
WILL CONTINUE UNTIL THE INVESTOR CERTIFICATES ARE PAID IN FULL. POTENTIAL
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET FORTH IN
"RISK FACTORS" HEREIN ON PAGE S-16 AND IN THE PROSPECTUS ON PAGE 18.
THE INVESTOR 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 INVESTOR 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) DISCOUNTS THE SELLER(1)(2)
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Certificate................ % % %
- - --------------------------------------------------------------------------------
Per Class B Certificate................ % % %
- - --------------------------------------------------------------------------------
Total.................................. $ $ $
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the Class A Certificate Rate or Class B
Certificate Rate, as applicable, from April 1, 1998.
(2) Before deduction of expenses payable by the Seller, estimated to be $ .
----------
The Investor Certificates are offered by the Underwriter when, as and if
issued by the Trust and accepted by the Underwriter and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Investor Certificates will be delivered in book-entry form on or about
April 1, 1998, through the facilities of The Depository Trust Company, Cedel
Bank, societe anonyme and the Euroclear System.
BARCLAYS CAPITAL
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH , 1998
<PAGE>
(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 April 1, 1998 (the
"Series Issuance Date") at the rate of percent per annum (the "Class A
Certificate Rate"). Interest on the Class B Certificates will accrue from the
Series Issuance Date at the rate of percent per annum (the "Class B
Certificate Rate"). Interest on the Investor Certificates 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) beginning on May 15, 1998 (each, a
"Distribution Date"). See "Series Provisions--Interest Payments." 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 April 2008 Distribution Date, but may be paid earlier or later under
certain circumstances described herein. Principal with respect to the Class B
Certificates is scheduled to be paid on the June 2008 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."
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 fractional undivided interest in the Trust represented by the
Class C Interests will be subordinated to the extent necessary to fund
payments with respect to the Investor Certificates to the extent described
herein. The Series 1998-1 Interests will also have the benefit of the Cash
Collateral Account which will be funded with an initial deposit of $9,456,265.
See "Summary of Series Provisions--The Investor Certificates; the Class C
Interests," "--Subordination; Additional Amounts Available to Investor
Certificateholders" and "--The Cash Collateral Account." Only the Investor
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.
Application will be made to list the Investor Certificates on the Luxembourg
Stock Exchange; however, no assurance can be given that such listing will be
obtained. Investor Certificateholders should consult with Banque
Internationale a Luxembourg, the Luxembourg listing agent for the Investor
Certificates, 69, route d'Esch, L-1470 Luxembourg, phone number 011-352-4590-
3550, for the status of such listing.
The Termination Date for the Investor Certificates is the June 2011
Distribution Date.
Series 1998-1 is not an Extendable Series or a Prefunded Series.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING
TRANSACTIONS, SYNDICATE COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Investor Certificates offered hereby constitute a separate Series of
investor certificates being offered by the Bank from time to time pursuant to
its Prospectus dated March 16, 1998. This Prospectus Supplement does not
contain complete information about the offering of the Investor Certificates.
Additional information is contained in the Prospectus and investors are urged
to read both this Prospectus Supplement and the Prospectus in full. Sales of
the Investor Certificates may not be consummated unless the purchaser has
received both this Prospectus Supplement and the Prospectus.
S-2
<PAGE>
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.
SUMMARY OF SERIES TERMS
TRUST....................... Capital One Master Trust (the "Trust").
TITLE OF SECURITIES......... $500,000,000 Class A % Asset Backed
Certificates, Series 1998-1 (the "Class A
Certificates") and $50,236,407 Class B % Asset
Backed Certificates, Series 1998-1 (the "Class B
Certificates" and, together with the Class A
Certificates, the "Investor Certificates"). In
addition, the Trust will issue $40,780,142
Floating Rate Class C Asset Backed Interests,
Series 1998-1 (the "Class C Interests" and,
together with the Investor Certificates, the
"Series 1998-1 Interests"). Only the Investor
Certificates are offered hereby.
INITIAL INVESTOR AMOUNT..... $591,016,549 (the "Initial Investor Amount").
CLASS A INITIAL INVESTOR
AMOUNT..................... $500,000,000 (the "Class A Initial Investor
Amount").
CLASS B INITIAL INVESTOR
AMOUNT..................... $50,236,407 (the "Class B Initial Investor
Amount").
CLASS C INITIAL INVESTOR
AMOUNT..................... $40,780,142 (the "Class C Initial Investor
Amount").
INITIAL CASH COLLATERAL
AMOUNT..................... $9,456,265 (the "Initial Cash Collateral
Amount").
SERIES DESIGNATIONS......... Series 1998-1 is not an Extendable Series or a
Prefunded Series.
CLASS A CERTIFICATE RATE.... % per annum.
CLASS B CERTIFICATE RATE.... % per annum.
INTEREST PAYMENT DATES...... The 15th day of each calendar month (or, if any
such day is not a business day, the next
succeeding business day), beginning on May 15,
1998.
CLASS A CONTROLLED
ACCUMULATION AMOUNT........ For each Distribution Date with respect to the
Class A Accumulation Period, $25,000,000; 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
S-3
<PAGE>
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 1998-1 TERMINATION
DATE ...................... The June 2011 Distribution Date. See "Series
Provisions--Series Termination."
CLASS A EXPECTED FINAL
PAYMENT DATE............... The April 2008 Distribution Date.
CLASS B EXPECTED FINAL
PAYMENT DATE............... The June 2008 Distribution Date.
SERIES CUT-OFF DATE......... April 1, 1998.
SERIES ISSUANCE DATE........ April 1, 1998.
GOVERNING LAW............... New York.
S-4
<PAGE>
SUMMARY OF SERIES PROVISIONS
THE INVESTOR
CERTIFICATES;THE CLASS C
INTERESTS.................. Each of the Series 1998-1 Interests represents a
specified undivided interest in certain assets
of the Trust. The portion of the Trust Assets
allocated to the holders of the Series 1998-1
Interests 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"), the holders of
the Class B Certificates (the "Class B
Certificateholders' Interest") and the holders
of the Class C Interests (the "Class C
Investors' 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." The
specified undivided interest in the Trust Assets
represented by the Class C Interests in the
initial amount of $40,780,142 (an amount that
represents 6.90% of the Initial Investor Amount)
together with amounts on deposit in the Cash
Collateral Account constitute the Credit
Enhancement for the Investor Certificates. For
purposes of this Prospectus Supplement, the
Class C Investors' Interest shall be deemed to
be the "Enhancement Invested Amount" for all
purposes under the Prospectus. The Class C
Interests will be issued pursuant to the Pooling
Agreement and the Series 1998-1 Supplement as
supplemented by the supplement relating to the
Class C Interests (the "Class C Supplemental
Agreement").
The aggregate amount of Principal Receivables
allocated to the Investor Certificateholders'
Interest and the Class C Investors' Interest (as
more fully defined herein, the "Invested
Amount") will be $591,016,549 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 $500,000,000
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 $50,236,407 on the Series Issuance Date
(the "Class B Initial Invested Amount"). The
aggregate amount of Principal Receivables
allocable to the Class C Interests (as more
fully defined herein, the "Class C Invested
Amount") will be $40,780,142 on the Series
Issuance Date (the "Class C Initial Invested
Amount"). Because Series 1998-1 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 Class C Initial Invested Amount will equal
the Class C Initial Investor Amount.
S-5
<PAGE>
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 1998-1, the reallocation of certain
amounts allocable to the Class C Interests and
certain amounts, if any, on deposit in the Cash
Collateral Account as described herein. The
Class C Invested Amount may be reduced and may
be reimbursed in certain circumstances, as
described herein. During the Class A
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 will be further
reduced by the amount on deposit in the
Principal Funding Account (as so reduced, the
"Class A Adjusted Invested Amount" and together
with the Class B Invested Amount and the Class C
Invested 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, any principal
funding account and any prefunding account
change from time to time.
The Investor Certificateholders' Interest and the
Class C Investors' Interest will include the
right to receive (but only to the extent needed
to make required payments under the Pooling
Agreement and the Series 1998-1 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 Series 1998-1 Interests
based on the Floating Allocation Percentage.
Such amounts will be further allocated to the
Class A Certificates, the Class B Certificates
and the Class C Interests based on the Class A
Floating Percentage, the Class B Floating
Percentage and the Class C Floating Percentage,
respectively. Collections of Principal
Receivables will be allocated to the Series
1998-1 Interests 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
Class C Interests as described herein. See
"Series Provisions--Allocation Percentages."
S-6
<PAGE>
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 1998-
1 ("Additional Investor Certificates") from time
to time during the Revolving Period, provided
that certain conditions included in the Series
1998-1 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
eighteen other Series of Certificates, thirteen
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 (including
Receivables in Accounts conveyed to the Trust
after January 30, 1998 and before the Series
Issuance Date) as of January 30, 1998 was
$10,951,046,183.46, consisting of
$10,629,372,511.61 of Principal Receivables and
$321,673,671.85 of Finance Charge Receivables.
REGISTRATION, CLEARANCE AND
SETTLEMENT................. The Investor Certificates will be represented by
certificates registered in the name of Cede, as
the nominee of DTC. No purchaser of an Investor
Certificate will be entitled to receive a
definitive certificate except under certain
limited circumstances. Investor
Certificateholders may elect to hold their
Investor Certificates through DTC (in the United
States) or Cedel or Euroclear (in Europe). See
"The Pooling Agreement Generally--Definitive
Certificates" in the Prospectus.
SERVICING COMPENSATION...... The Servicing Fee Rate for the Series 1998-1
Interests 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
S-7
<PAGE>
Servicing Fee. In addition, the Class A
Servicing Fee, the Class B Servicing Fee and the
Class C 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
1998-1 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 1998-1 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 1998-1 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 holders of
the Class C Interests (the "Class C Interest
Holders" and, together with the Investor
Certificateholders, the "Series 1998-1 Holders")
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 Class C Interest
Holders 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.
S-8
<PAGE>
REVOLVING PERIOD; CLASS A
ACCUMULATION PERIOD; CLASS
B AMORTIZATION PERIOD;
CLASS C AMORTIZATION
PERIOD..................... Unless a Pay Out Event or, if Series 1998-1 is an
Extendable Series, a Principal Payment Event has
occurred, the revolving period with respect to
Series 1998-1 (the "Revolving Period") is
scheduled to end at the close of business on the
last day of the July 2006 Monthly Period.
Subject to the conditions set forth under
"Series Provisions--Principal Payments" herein,
the day on which the Revolving Period ends and
the Class A Accumulation Period begins may be
delayed to no later than the close of business
on the last day of February 2008 Monthly Period.
Unless a Pay Out Event or, if Series 1998-1 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 1998-1 Termination Date (the
"Termination Date"), (ii) the Class B
amortization period (the "Class B Amortization
Period") will commence on the Distribution Date
on which the Class A Invested Amount is paid in
full (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 and (iii) the Class
C amortization period (the "Class C Amortization
Period") will commence on the Distribution Date
on which the Class B Invested Amount is paid in
full (the "Class C 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 C 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. No principal will be
payable to the Class C Interest Holders (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 B
Invested Amount
S-9
<PAGE>
is paid in full. For the period beginning on the
Series Cut-Off Date and ending with the
commencement of the Class A Accumulation Period,
the Principal Payment Period or the Early
Amortization Period, collections of Principal
Receivables otherwise allocable to the Investor
Certificateholders' Interest and the Class C
Investors' Interest (other than collections of
Principal Receivables allocated to the Class B
Certificateholders' Interest and the Class C
Investors' 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, 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 Class A 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 Class C Interests will be subordinated to
the extent necessary to fund payments with
respect to the Class A Certificates as described
herein. In addition, the Class C Interests will
be subordinated to the extent necessary to fund
certain payments with respect to the Class B
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 1998-1 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
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the Class C Interests and certain other
available funds described herein over the
current and overdue Class C Servicing Fee. If
Excess Spread and Excess Finance Charges
allocable to Series 1998-1 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 1998-1 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
Class C Invested 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
Class C Invested 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 Class C Invested Amount to be reduced below
zero, the Class B Invested Amount will be
reduced by the amount by which the Class C
Invested 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
Class C Invested 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 1998-1,
amounts 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 Class C Invested
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."
Excess Spread and Excess Finance Charges
allocable to Series 1998-1 and not required to
pay the Class A Required Amount or reimburse
Class A Investor Charge-Offs will be applied to
fund the Class B Required Amount. The "Class B
Required Amount" means the amount for any
Distribution Date equal to the sum of (a) the
amount, if any, by which 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 exceeds
collections of Finance Charge Receivables
allocable to the
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<PAGE>
Class B Certificates for the related Monthly
Period and certain other available amounts
described herein and (b) the Class B Investor
Default Amount for the related Monthly Period.
If Excess Spread and Excess Finance Charges
allocable to Series 1998-1 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 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 Class C Invested
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 Class C Invested
Amount with respect to such Monthly Period are
insufficient to fund the remaining Class B
Required Amount for the related Distribution
Date, then the Class C Invested 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 Class C Invested
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 1998-1 not required to pay the Class A
Required Amount and amounts on deposit in the
Cash Collateral Account not required to pay the
Class A Required Amount 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 Class C
Invested 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 Class C Invested 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 Series 1998-1
Holders. The Cash Collateral Account will be
fully funded on the Closing Date in the amount
of $9,456,265 (the "Initial Cash Collateral
Amount"). 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 and then to pay the excess, if
any, of (a) the sum of (i) the excess, if any,
of current and overdue Class C Servicing Fee
over Class C
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Available Funds, (ii) current and overdue Class
C Monthly Interest, (iii) Class C Additional
Interest, and (iv) the Class C Investor Default
Amount for such Distribution Date over (b) the
amount of Excess Spread and Excess Finance
Charges allocated to Series 1998-1 and available
to fund such amounts. See "Series Provisions--
Reallocation of Cash Flows" and "--Application
of Collections."
On each Distribution Date, Excess Spread and
Excess Finance Charges allocable to Series 1998-
1 (to the extent described under "Series
Provisions--Application of Collections--Excess
Spread; Excess Finance Charges" herein) will be
deposited in the Cash Collateral Account, to the
extent that the amount on deposit in the Cash
Collateral Account is less than the Required
Cash Collateral Amount. The "Required Cash
Collateral Amount" with respect to any
Distribution Date means, subject to certain
limitations more fully described herein, the
greater of (I) the product of (a) the sum of the
Class A Adjusted Invested Amount, the Class B
Invested Amount and the Class C Invested Amount,
each as of such Distribution Date after taking
into account distributions made on such
Distribution Date and (b) 1.6% and (II)
$1,112,502. If on any Distribution Date the
Available Cash Collateral Amount exceeds the
Required Cash Collateral Amount, such excess in
the Cash Collateral Account will be applied in
accordance with the Series 1998-1 Supplement and
the Class C Supplemental Agreement and will not
be available to the Investor Certificateholders.
See "Series Provisions--Cash Collateral
Account."
EXCESS FINANCE CHARGES...... The Series 1998-1 Certificates will be the
nineteenth Series issued by the Trust and the
fourteenth 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 1993-4 Certificates,
the Series 1994-3 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,
the Series 1996-1 Certificates, the Series 1996-
2 Certificates, the Series 1996-3 Certificates,
the Series 1997-1 Certificates and the Series
1997-2 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.
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
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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 Class C Interests.
See "Description of the Certificates--Shared
Principal Collections" in the Prospectus.
OPTIONAL REPURCHASE......... The Investor Certificateholders' Interest and the
Class C Investors' 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 Class C Invested 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 Class C Invested Amount
and accrued and unpaid interest on the Class A
Certificates, the Class B Certificates and the
Class C Interests (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 1998-1 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
1998-1 or the Pooling Agreement as a whole. See
"The Pooling Agreement Generally--Defeasance" in
the Prospectus.
ERISA CONSIDERATIONS........ The Class A Certificates and the Class B
Certificates may not be acquired by (a) any
employee benefit plan that is subject to the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), any plan or other
arrangement (including an
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<PAGE>
individual retirement account or Keogh plan)
that is subject to Section 4975 of the Code, or
(c) any entity whose underlying assets include
"plan assets" under the Final Regulation (as
defined under "ERISA Considerations" in the
Prospectus) by reason of any such plan's
investment in the entity. By its acceptance of
an Investor Certificate, each Investor
Certificateholder will be deemed to have
represented and warranted that it is not subject
to the foregoing limitation. 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 Class C
Interests and the circumstances, as described
herein, in which the Available Cash 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, the
subordination of the Class C Interests and the
circumstances, as described herein, in which the
Available Cash 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.
LISTING..................... Application will be made to list the Investor
Certificates on the Luxembourg Stock Exchange;
however, no assurance can be given that such
listing will be obtained. Investor
Certificateholders should consult with Banque
Internationale a Luxembourg, S.A., the
Luxembourg listing agent for the Investor
Certificates, 69, route d'Esch, L-1470
Luxembourg, phone number 011-352-4590-3550 for
the status of such listing.
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<PAGE>
RISK FACTORS
LIMITED AMOUNTS OF CREDIT ENHANCEMENT. Although Credit Enhancement with
respect to the Investor Certificates will be provided by the subordination of
the Class C Interests and the funds held in the Cash Collateral Account, such
amounts are limited. If the Class C Invested Amount and the 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 1998-1, Reallocated Principal Collections with respect to
the Class C Interests, amounts on deposit in the Cash Collateral Account, and
reductions in the Class C Invested 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.
MATURITY CONSIDERATIONS
The Pooling Agreement and the Supplement thereto for Series 1998-1 (the
"Series 1998-1 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 1998-1 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. The Class C Interest Holders 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 B Certificates has been made.
On each Distribution Date during the Class A 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. See "Series Provisions--Principal Payments" for a discussion of
circumstances under which the commencement of the Class A Accumulation Period
may be delayed. After the Class A Invested Amount has
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<PAGE>
been paid in full, on each Distribution Date during the Class B Amortization
Period, an amount equal to the lesser of (a) Available Investor Principal
Collections for the related Monthly Period on deposit in the Collection
Account (minus the portion of such Available Investor Principal Collections
applied to Class A Monthly Principal on such Distribution Date) and (b) the
Class B Invested Amount will be paid to the Class B Certificateholders.
The Bank may, at or after the time at which the Class A Accumulation Period
commences for Series 1998-1, 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 1998-1 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 1998-1. 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 Series 1998-1),
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 1998-1 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 1998-1 is an Extendable Series, a
Principal Payment Event occur with respect to Series 1998-1 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 Class A
Certificateholders on the first Special Payment Date and the Series 1998-1
Holders 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 Invested Amount is 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 Series 1998-1 Holders on a
pro rata basis based on the Class A Initial Invested Amount, the Class B
Initial Invested Amount and the Class C Initial Invested 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.
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<PAGE>
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 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 Class A 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 eighteen Series,
thirteen 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," "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 1998, 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 5% 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. 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)
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<PAGE>
and, in some cases, 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. Receivables added to the
Trust have and 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.
In the fourth quarter of 1997, the Bank adopted a more conservative
accounting methodology with respect to charge-offs and made an adjustment to
its recognition of finance charges and fee income. The Bank modified its
methodology for charging off credit card loans (net of any collateral) to 180
days past-due, from the prior practice of charging off loans during the
billing cycle after 180 days past-due. This resulted in adjustments to
delinquencies and losses, as well as a reduction in revenue as a result of a
reversal of previously accrued finance charges and fee income. In addition,
the Bank also began recognizing the estimated uncollectible portion of finance
charges and fee income receivables which resulted in a decrease in loans and a
corresponding decrease in revenue. The 1997 impact of these adjustments is
shown as a footnote in the tables that follow.
DELINQUENCY AND LOSS EXPERIENCE
Because new accounts usually initially exhibit lower delinquency rates and
credit losses, the growth of the Bank Portfolio from approximately $1.985
billion at year end 1992, to approximately $13.155 billion at month end
December 1997, 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 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.
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 January 30, 1998,
the Trust Portfolio (including Receivables added to the Trust after January
30, 1998 and before the Series Issuance Date) represented approximately 63%
and 84% of the Bank Portfolio by account and receivables outstanding,
respectively. 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.
S-19
<PAGE>
DELINQUENCIES AS A PERCENTAGE OF THE BANK PORTFOLIO(1)(3)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT YEAR END
-----------------------------------------------------------------
1997 (4) 1996 1995
--------------------- --------------------- ---------------------
NUMBER OF DAYS DELINQUENT DELINQUENT DELINQUENT
DELINQUENT(2) AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
30-59 days.............. $309,440 2.35% $261,165 2.16% $165,306 1.58%
60-89 days.............. 202,735 1.54 151,218 1.25 92,665 0.89
90+ days................ 323,803 2.46 335,986 2.78 181,243 1.73
-------- ---- -------- ---- -------- ----
TOTAL.................. $835,978 6.35% $748,369 6.19% $439,214 4.20%
======== ==== ======== ==== ======== ====
</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 year end
1997, 1996 and 1995 were $13,155,103, $12,092,872 and $10,445,480,
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.
(4) The total delinquencies greater than or equal to 30 days as a percentage
of the Bank Portfolio would have been 7.13% without the adjustments
discussed above under "--General."
LOSS EXPERIENCE FOR THE BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
1997(1) 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Average Receivables Outstanding......... $12,103,362 $11,028,180 $9,089,278
Gross Losses............................ $ 895,434 $ 509,689 $ 238,438
Gross Losses as a Percentage of Average
Receivables Outstanding................ 7.40% 4.62% 2.62%
Recoveries.............................. $ 74,902 $ 37,166 $ 33,610
Net Losses.............................. $ 820,532 $ 472,523 $ 204,828
Net Losses as a Percentage of Average
Receivables Outstanding................ 6.78% 4.28% 2.25%
</TABLE>
- - --------
(1) Net Losses as a Percentage of Average Receivables Outstanding would have
been 6.40% without the change in charge-off methodology discussed above
under "--General."
S-20
<PAGE>
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>
YEAR ENDED
------------------------------------
1997(2) 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Average Receivables Outstanding........... $12,103,362 $11,028,180 $9,089,278
Finance Charges and Fees(1)............... $ 2,434,650 $ 1,904,885 $1,363,765
Yield from Finance Charges and Fees....... 20.12% 17.27% 15.00%
Interchange............................... $ 109,394 $ 97,892 $ 79,128
Yield from Interchange.................... 0.90% 0.89% 0.87%
</TABLE>
- - --------
(1) 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.
(2) Yield from Finance Charges and Fees would have been 20.66% without the
adjustments discussed above under "--General."
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--Certain Legal Aspects" and""--The Ability of the Bank to
Change Terms of the Accounts" in the Prospectus.
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 well as
with the number of delinquent accounts. 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
S-21
<PAGE>
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>
YEAR ENDED
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Lowest Month(2)............................................ 9.66% 8.54% 8.68%
Highest Month(2)........................................... 10.74% 10.97% 11.76%
Average Payment Rate for the Period........................ 10.20% 9.83% 10.17%
</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 January 30, 1998 (including
Receivables in Accounts conveyed to the Trust after January 30, 1998 and
before the Series Issuance Date, which Receivables and Accounts are included
in all figures set fourth below in this paragraph, the next paragraph and the
following tables) included $10,629,372,511.61 of Principal Receivables and
$321,673,671.85 of Finance Charge Receivables. The Accounts had an average
balance of $1,541.15 and an average credit limit of $3,423.37. The percentage
of the aggregate total Receivables balance to the aggregate total credit limit
was 45.0%. The average age of the Accounts was approximately 32 months. As of
January 30, 1998, 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 47% and 53%, respectively. Since the Trust Cut-Off Date, and
prior to the Series Issuance Date, the Bank has added approximately $15.892
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 5% 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. 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, in some cases higher delinquencies and credit
losses than the Bank's traditional low introductory rate products. Receivables
added to the Trust have and 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 January 30, 1998, approximately 41% of the Trust Portfolio accounts
were assessed a variable rate periodic finance charge and approximately 59%
were assessed a fixed rate periodic finance charge.
The following tables summarize the Trust Portfolio by various criteria as of
January 30, 1998. 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.
S-22
<PAGE>
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)........ 134,840 1.90% $ (13,264,226.93) (0.12)%
No Balance(2)............ 1,222,559 17.21 0.00 0.00
More than $0 and less
than or equal to
$1,500.00............... 3,698,709 52.05 1,941,107,666.09 17.73
$1,500.01-$5,000.00...... 1,395,721 19.64 4,285,561,944.43 39.13
$5,000.01-$10,000.00..... 584,617 8.23 3,853,206,032.97 35.18
Over $10,000.00.......... 69,321 0.97 884,434,766.90 8.08
--------- ------ ------------------ ------
TOTAL.................. 7,105,767 100.00% $10,951,046,183.46 100.00%
========= ====== ================== ======
</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................. 3,399,365 47.84% $ 1,583,174,600.88 14.46%
$1,500.01-$5,000.00........ 1,513,864 21.31 2,537,115,577.75 23.17
$5,000.01-$10,000.00....... 1,984,056 27.92 5,305,854,411.77 48.45
Over $10,000.00............ 208,482 2.93 1,524,901,593.06 13.92
--------- ------ ------------------ ------
TOTAL.................... 7,105,767 100.00% $10,951,046,183.46 100.00%
========= ====== ================== ======
</TABLE>
- - --------
(1) References to "Credit Limit" herein include both the line of credit
established for purchases, cash advances and balance transfers as well as
receivables originated under temporary extensions of credit through
account management programs. Credit limits relating to these temporary
extensions decrease as cardholder payments are applied to these
receivables.
S-23
<PAGE>
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)...... 6,537,837 92.01% $10,064,222,573.25 91.90%
Past due 30-59 days........ 232,250 3.27 358,323,509.42 3.27
Past due 60-89 days........ 123,676 1.74 189,376,993.81 1.73
Past due 90+ days.......... 212,004 2.98 339,123,106.98 3.10
--------- ------ ------------------ ------
TOTAL.................... 7,105,767 100.00% $10,951,046,183.46 100.00%
========= ====== ================== ======
</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..... 515,551 7.25% $ 1,924,045,662.40 17.57%
Over 6 Months to 12
Months.................... 668,574 9.41 1,144,675,687.76 10.45
Over 12 Months to 24
Months.................... 2,583,443 36.36 1,978,187,073.05 18.06
Over 24 Months to 36
Months.................... 1,112,937 15.66 1,703,631,365.94 15.56
Over 36 Months to 48
Months.................... 1,011,208 14.23 1,810,008,402.91 16.53
Over 48 Months to 60
Months.................... 650,085 9.15 1,313,305,282.92 11.99
Over 60 Months............. 563,969 7.94 1,077,192,708.48 9.84
--------- ------ ------------------ ------
TOTAL.................... 7,105,767 100.00% $10,951,046,183.46 100.00%
========= ====== ================== ======
</TABLE>
S-24
<PAGE>
COMPOSITION OF ACCOUNTS BY ACCOUNTHOLDER BILLING ADDRESS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
STATE OR TERRITORY ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
------------------ --------- ---------- ------------------ -----------
<S> <C> <C> <C> <C>
California.................. 1,006,473 14.16% $ 1,559,784,441.82 14.24%
Texas....................... 561,218 7.90 855,731,463.07 7.81
New York.................... 536,427 7.55 784,846,556.26 7.17
Florida..................... 483,527 6.80 752,803,992.82 6.87
Pennsylvania................ 280,364 3.95 418,532,857.98 3.82
Illinois.................... 292,881 4.12 416,062,885.64 3.80
Virginia.................... 223,744 3.15 402,068,962.56 3.67
Ohio........................ 253,722 3.57 375,754,054.44 3.43
New Jersey.................. 241,840 3.40 359,796,306.29 3.29
Michigan.................... 207,024 2.91 320,272,905.35 2.93
Georgia..................... 196,582 2.77 305,500,857.11 2.79
Massachusetts............... 190,371 2.68 289,753,701.40 2.65
North Carolina.............. 167,413 2.36 270,862,719.96 2.47
Maryland.................... 155,774 2.19 262,869,089.93 2.40
Washington.................. 141,548 1.99 262,771,719.51 2.40
Missouri.................... 139,721 1.97 220,868,815.40 2.02
Indiana..................... 135,997 1.91 202,784,200.95 1.85
Tennessee................... 127,169 1.79 191,448,452.93 1.75
Minnesota................... 109,249 1.54 188,758,244.33 1.72
Arizona..................... 125,557 1.77 187,454,697.05 1.71
Colorado.................... 123,662 1.74 180,960,235.60 1.65
Connecticut................. 97,671 1.37 155,240,618.96 1.42
Alabama..................... 101,892 1.43 148,445,105.85 1.36
Louisiana................... 100,476 1.41 143,081,059.44 1.31
Oregon...................... 84,442 1.19 135,739,497.86 1.24
Oklahoma.................... 89,641 1.26 134,545,054.89 1.23
South Carolina.............. 88,455 1.25 132,186,462.97 1.21
Kentucky.................... 78,863 1.11 110,531,457.08 1.01
Kansas...................... 63,119 0.89 105,274,132.29 0.96
Arkansas.................... 62,987 0.89 94,447,670.95 0.86
Nevada...................... 61,374 0.86 89,144,217.74 0.81
Mississippi................. 59,296 0.83 81,816,863.56 0.75
West Virginia............... 47,132 0.66 70,190,387,14 0.64
New Hampshire............... 44,899 0.63 69,321,358.09 0.63
New Mexico.................. 39,419 0.56 62,409,917.24 0.57
Utah........................ 37,972 0.53 54,731,784.01 0.50
Nebraska.................... 36,483 0.51 54,298,863.32 0.50
Maine....................... 25,606 0.36 49,921,727.30 0.46
Iowa........................ 37,492 0.53 49,149,172.47 0.45
Idaho....................... 29,116 0.41 47,576,544.65 0.43
Hawaii...................... 28,217 0.40 45,398,061.60 0.41
Rhode Island................ 29,474 0.42 44,455,985.86 0.41
Montana..................... 23,221 0.33 38,640,615.02 0.35
Alaska...................... 18,850 0.27 33,563,949.37 0.31
Vermont..................... 19,886 0.28 31,506,128.56 0.29
Delaware.................... 19,753 0.28 31,190,572.75 0.29
District of Columbia........ 17,934 0.25 26,607,259.36 0.24
South Dakota................ 14,477 0.20 25,586,701.18 0.23
North Dakota................ 13,983 0.20 24,569,477.35 0.22
Wyoming..................... 13,926 0.20 21,269,016.95 0.19
Wisconsin................... 6,720 0.09 11,089,757.35 0.10
Other....................... 12,728 0.18 19,429,601.90 0.18
--------- ------ ------------------ ------
TOTAL..................... 7,105,767 100.00% $10,951,046,183.46 100.00%
========= ====== ================== ======
</TABLE>
S-25
<PAGE>
As of January 30, 1998, 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--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 December 31, 1997, the Bank had assets of approximately $6.3 billion and
stockholder's equity of approximately $681 million. For a more detailed
description of the Bank, see "The Bank" in the Prospectus.
SERIES PROVISIONS
The Investor Certificates and the Class C Interests will be issued pursuant
to the Pooling Agreement and the Series 1998-1 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 the Class B Certificates, respectively, at the
Class A Certificate Rate and the 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 May 1998 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 or the Class B 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 or the Class B 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 close of business on 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
S-26
<PAGE>
Finance Charges allocated to Series 1998-1, amounts on deposit in the Cash
Collateral Account and Reallocated Principal Collections allocable first to
the Class C Invested 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 1998-1 Interests 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 or the Series 1998-1 Supplement, 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 with respect to the Class A Accumulation Period, 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
1998-1 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. 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 1998-1, amounts on deposit in the Cash Collateral Account not required
to pay the Class A Required Amount or reimburse Class A Investor Charge-Offs
and Reallocated Principal Collections allocable to the Class C Invested Amount
and not required to pay the Class A Required Amount or reimburse Class A
Investor Charge-Offs, 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 1998-1 Interests 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 or the Series 1998-1 Supplement, 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 1998-1 Supplement with respect to
such Distribution Date.
Interest payments on the Class C Interests for each Payment Date will be
calculated on the outstanding principal balance of the Class C Interests as of
the preceding Record Date (or in the case of the initial Payment Date, on the
initial Class C principal balance) based upon the Class C Interest Rate.
"Class C Interest Rate" means a rate per annum not to exceed LIBOR for one-
month United States dollar deposits, determined as of the LIBOR Determination
Date as described herein, plus 1.00%. If the Class C Interest 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
C Interest 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 C Monthly Interest for the related Monthly Period and any Class C
Monthly Interest previously due but not distributed to the Class C Interest
Holders will be (i) paid to the Class C Interest
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Holders, 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 C Interest Holders (the "Class C Interest Funding Account"), if Interest
Payment Dates occur less frequently than monthly. Payments to the Class C
Interest Holders or deposits in the Class C Interest Funding Account, as
applicable, on any Distribution Date will be funded from Excess Spread and
Excess Finance Charges allocated to Series 1998-1 and amounts on deposit in
the Cash Collateral Account not required to pay the Class A Required Amount or
the Class B Required Amount or reimburse Class A Investor Charge-Offs for such
Monthly Period. To the extent such Excess Spread and Excess Finance Charges
allocated to Series 1998-1 and amounts on deposit in the Cash Collateral
Account for such Monthly Period are insufficient to pay such interest or make
such deposits, as applicable, amounts, if any, on deposit in the spread
account maintained for the benefit of the Class C Interest Holders (the "Class
C Spread Account") will be used to make such payments or deposits.
If the Class A Interest Funding Account, the Class B Interest Funding
Account and the Class C 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, the Class B Interest Funding
Account and the Class C Interest Funding Account generally will be invested in
certain Eligible Investments. For purposes of investments of funds in the
Class B Interest Funding Account and the Class C 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, the Class B Interest Funding
Account and the Class C 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, Class B Monthly Interest will be distributed to the
Class B Certificateholders monthly on each Special Payment Date and Class C
Monthly Interest will be distributed to the Class C Interest Holders monthly
on each Special Payment Date and any amounts on deposit in the Class A
Interest Funding Account, the Class B Interest Funding Account and the Class C
Interest Funding Account will be distributed to the Class A
Certificateholders, the Class B Certificateholders and the Class C Interest
Holders, respectively, on the first Special Payment Date.
The Servicer will make all determinations and calculations relating to the
Class A Certificate Rate, the Class B Certificate Rate and the Class C
Interest Rate.
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
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"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, the Class B Certificate Rate or the
Class C Interest 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 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 May 1998
Distribution Date.
PREFUNDING ACCOUNT
If the Summary of Terms herein designates Series 1998-1 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
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Deposit Account held for the benefit of the Series 1998-1 Holders. 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 Class C Interest
Holders 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 Series 1998-1 Holders. Such investment income
will be deemed to be collections of Finance Charge Receivables allocable to
the Investor Certificateholders' Interest and the Class C Investors' 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 Class A 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 Class A Accumulation Period (on or prior to the Class A
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. On each Distribution Date during the Class B Amortization
Period, principal payments will be distributed to the Class B
Certificateholders up to the Class B Invested Amount. 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,
and then to the Class C Interest Holders. No principal payments will be made
in respect of the Class C Invested 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, collections of
Principal Receivables allocable to the Investor Certificateholders' Interest
and the Class C Investors' 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 treated as Shared
Principal Collections.
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 Amortization Period, amounts equal to the
lesser of (a) Available Investor Principal Collections on deposit in the
Collection Account with respect to
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such Distribution Date (minus the portion of such Available Investor Principal
Collections applied to Class A Monthly Principal on such Distribution Date)
and (b) the Class B Invested Amount will be paid to the Class B
Certificateholders.
If a Pay Out Event or, if Series 1998-1 is an Extendable Series, a Principal
Payment Event occurs with respect to Series 1998-1, 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 to the Class A
Certificateholders on the first Special Payment Date and (ii) any amount on
deposit in the Prefunding Account will be distributed to the Investor
Certificateholders and the Class C Interest Holders on a pro rata basis based
on the Class A Initial Invested Amount, the Class B Initial Invested Amount
and the Class C Initial Invested 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, minus (ii) the amount of
Reallocated Principal Collections with respect to such Monthly Period used to
fund the Class A Required Amount or the Class B Required Amount, plus (b) the
amount of Miscellaneous Payments, if any, for such Monthly Period allocated to
Series 1998-1, plus (c) any Shared Principal Collections with respect to other
Series that are allocated to Series 1998-1, 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 1998-1 Supplement are to be treated
as Available Investor Principal Collections with respect to the related
Distribution Date, plus (f) the proceeds of any withdrawal from the Class C
Spread Account in respect of the Class C Investor Default Amount (which
proceeds will only be used to make principal payments on the Class C
Interests).
The Class A Accumulation Period is scheduled to commence at the close of
business on the last day of the July 2006 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
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 1998-1
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
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that the Class A Certificateholders would receive some of their principal
later than if the Class A 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 Series 1998-1
Termination Date.
SUBORDINATION
The Class B Certificateholders' Interest and the Class C Investors' Interest
will be subordinated to the extent necessary to fund certain payments with
respect to the Class A Certificates. In addition, the Class C Investors'
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 Class C Investors'
Interest may be reallocated to the Class A Certificateholders and the Class B
Certificateholders and the Class C Invested 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
"--Application of Collections--Excess Spread; Excess Finance Charges" herein.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, the Servicer will allocate among the
Investor Certificateholders' Interest and the Class C Investors' 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 1998-1 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 1998-1 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 Class C Interest Holders in accordance with the
Class A Floating Percentage, the Class B Floating Percentage and the Class C
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
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to the Class B 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 "Class C
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 Class C 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).
Collections of Principal Receivables will be allocated to Series 1998-1
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
Class A Accumulation Period, the Class B Amortization Period, the Class C
Amortization 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 1998-1 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 Class A Accumulation Period,
the Class B Amortization Period, the Class C Amortization Period, the
Principal Payment Period or the Early Amortization Period with respect to
Series 1998-1, 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 1998-1. 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 Invested
Amount) and (b) during the Class A Accumulation Period, the Class B
Amortization Period, the Class C Amortization 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 Initial Invested Amount) and (ii) during
the Class A
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Accumulation Period, the Class B Amortization Period, the Class C Amortization
Period, the Principal Payment Period or the 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.
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 Class C Invested 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 1998-1 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 C Invested Amount" means an amount equal to (i) the Class C Initial
Invested Amount, minus (ii) the aggregate amount of principal payments made to
the Class C Interest Holders prior to such date (other than principal payments
made from the proceeds of any withdrawal from the Class C Spread Account for
the purpose of reimbursing previous reductions in the Class C Invested
Amount), minus (iii) the aggregate amount of Reallocated Principal Collections
allocable to the Class C Invested 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 Class C Invested 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 Class C Floating
Percentage and the Investor Default Amount (the "Class C Investor Default
Amount") with respect to any Distribution Date that is not funded out of
Excess Spread and Excess Finance Charges allocated to Series 1998-1 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 Class C
Invested 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 Class C Invested Amount may not be reduced below zero.
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"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 Class C Invested
Amount.
"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.
"Class C Investor Amount" for any date means an amount equal to the sum of
the Class C Invested Amount plus the product of (i) a fraction, the numerator
of which is the Class C Initial Invested 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 Class A Investor Certificateholders.
During the Class A Accumulation Period, the Servicer will transfer collections
in respect of Principal Receivables, Shared Principal Collections allocated to
Series 1998-1, Miscellaneous Payments allocated to Series 1998-1 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 1998-1 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 Class A
Accumulation Period (on or prior to the Class A 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. If such investments with
respect to any such Distribution Date yield less than the Class A 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 (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 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.
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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 Class
A Certificateholders (the "Reserve Account"). The Reserve Account is
established to assure the subsequent distribution of interest on the Class A
Certificates as provided in this Prospectus Supplement during the Class A
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 1998-1 (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 during which the Class A
Accumulation Period begins 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 $5,000,000
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 pay such amount to the Seller. 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 Class A 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 Class A 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, 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 Class A Certificates are paid in full and (c) if the Class A
Accumulation Period has not commenced, the occurrence of a Pay Out Event or a
Principal Payment Event with respect to Series 1998-1 or, if the Class A
Accumulation Period has commenced, the first Special 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 paid to the Seller. Any amounts withdrawn from the
Reserve Account and paid to the Seller as described above will not be
available for distribution to the Investor Certificateholders or the Class C
Interest Holders.
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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
1998-1 (including any investment earnings treated as collections of Finance
Charge Receivables in accordance with the Pooling Agreement or the Series
1998-1 Supplement 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 Series 1998-1
Supplement. If the Class A Required Amount is greater than zero, Excess Spread
and Excess Finance Charges allocated to Series 1998-1 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 Class C Invested
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 1998-1 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 Class C Invested 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 Class C Invested Amount to be a negative number, the Class C
Invested Amount will be reduced to zero, and the Class B Invested Amount will
be reduced by the amount by which the Class C Invested 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 Class C Invested 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
Class C Invested 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 "--Application of Collections--Excess Spread; Excess Finance
Charges." When such reductions of the Class A and Class B Invested Amount have
been fully reimbursed, reductions of the Class C Invested Amount will be
reimbursed and the Class C Invested Amount increased 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 sum of (a) the amount, if any, by which 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 and (iv) the Class B
Servicing Fee for such Distribution Date and any unpaid
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<PAGE>
Class B Servicing Fee exceeds the collections of Finance Charge Receivables
allocable to the Class B Certificates for the related Monthly Period and
certain other available amounts described herein and (b) the Class B Investor
Default Amount for the related Monthly Period. If the Class B Required Amount
is greater than zero, Excess Spread and Excess Finance Charges allocated to
Series 1998-1 and not required to pay the Class A Required Amount or reimburse
Class A Investor Charge-Offs 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 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 Class C Investors' 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 Class C Investors'
Interest with respect to the related Monthly Period are insufficient to fund
the remaining Class B Required Amount, then the Class C Invested 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 Class C Invested Amount to be a negative number,
the Class C Invested Amount will be reduced to zero, and the Class B Invested
Amount will be reduced by the amount by which the Class C Invested 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 Class C Invested 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 Class C 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
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<PAGE>
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 Class C Available
Funds with respect to such Distribution Date will be distributed in the
following priority:
(i) an amount equal to the Class C Servicing Fee for such Distribution Date,
plus the amount of any Class C 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
(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 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
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 in the Summary of Terms is a fixed rate, one-
twelfth of the product of the Class B Certificate Rate and
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<PAGE>
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.
"Class C Available Funds" means, with respect to any Monthly Period, an
amount equal to the sum of (a) the Class C 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 or the Series
1998-1 Supplement, but other than Finance Charge Receivables allocated to
Servicer Interchange with respect to such Monthly Period) allocated to Series
1998-1 and (b) if applicable, the Class C Interest Holders' pro rata portion
of interest and other investment income (net of losses and expenses) earned on
amounts on deposit in the Prefunding Account.
"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 1998-1 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 1998-1, 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
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<PAGE>
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 1998-1, 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) Class C Monthly Interest for such
Distribution Date, plus the amount of any Class C Monthly Interest
previously due but not distributed to the Class C Interest Holders on a
prior Distribution Date and (II) the amount of any Class C Additional
Interest for such Distribution Date and any Class C Additional Interest
previously due but not distributed to the Class C Interest Holders on a
prior Distribution Date will be distributed to the Class C Interest
Holders;
(f) an amount equal to the Class C 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 Class C Investor Default Amount shall be treated
as a portion of Available Investor Principal Collections with respect
to such Distribution Date;
(h) an amount equal to the aggregate amount by which the Class C Invested
Amount has been reduced pursuant to clauses (iii), (iv) and (v) of the
definition of "Class C Invested Amount" under "--Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed, including from
the Spread Account) shall be treated as a portion of Available Investor
Principal Collections for such Distribution Date;
(i) an amount up to the excess, if any, of the Required Cash Collateral
Amount over the remaining Available Cash 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) amounts required to be deposited in the Class C Spread Account pursuant
to the Class C Supplemental Agreement will be deposited into the Class
C Spread Account;
(l) if applicable, an amount equal to the aggregate of any amounts then due
to the depositor of funds into the Cash Collateral Account (or any
successor or assignee thereto) pursuant to an agreement, as amended
from time to time, among the Seller, the Servicer, such depositor and
the Trustee (to the extent such amounts are payable pursuant to the
terms of such agreement out of Excess Spread or Excess Finance Charges
allocated to Series 1998-1) will be distributed to the depositor or its
designee for application in accordance with such agreement; and
(m) 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.
"Class C 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
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(B) the Class C Interest Rate and (ii) the outstanding principal balance of
the Class C Interests as of the preceding Record Date; provided, however, with
respect to the first Distribution Date, Class C Monthly Interest shall be
equal to the interest accrued on the initial Class C Investor Amount at the
Class C Interest Rate for the period from the Series Issuance Date to but
excluding the first Distribution Date.
"Class C Interest Rate" means a rate specified in the Class C Supplemental
Agreement not to exceed one-month LIBOR plus 1% per annum.
"Class C Additional Interest," with respect to any Distribution Date, means
additional interest with respect to Class C Monthly Interest due but not paid
to the Class C Interest Holders on a prior Distribution Date at a rate equal
to the Class C Interest 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; and
(ii) on each Distribution Date with respect to the Class A Accumulation
Period, the Class B Amortization Period, the Class C Amortization
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;
(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 Invested Amount on such
Distribution Date, will be distributed to the Class B
Certificateholders;
(y) for each Distribution Date beginning on the Class C Principal
Commencement Date, an amount equal to Class C Monthly Principal, up
to the Class C Invested Amount on such Distribution Date, will be
distributed to the Class C Interest Holders; and
(z) the balance, if any, will be treated as Shared Principal
Collections and applied as described under "Description of the
Certificates--Shared Principal Collections" in the Prospectus.
"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 Amortization Period, the Principal Payment Period or the Early
Amortization Period, after the Class A Certificates have been paid in full,
will equal the lesser 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) and (ii) the Class B Invested
Amount on such Distribution Date.
"Class C Monthly Principal" with respect to any Distribution Date relating
to the Class C Amortization Period, the Principal Payment Period or the Early
Amortization Period, after the Class B Certificates have been
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paid in full, will equal the lesser of (i) the Available Investor Principal
Collections not applied to Class A Monthly Principal or Class B Monthly
Principal on such Distribution Date and (ii) the Class C Invested Amount on
such Distribution Date.
"Controlled Accumulation Amount" means $25,000,000 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.
"Deficit Controlled Accumulation Amount" means (a) on the first Distribution
Date with respect to the Class A 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 for such
Distribution Date and (b) on each subsequent Distribution Date with respect to
the Class A 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 for such
subsequent Distribution Date.
"Controlled Deposit Amount" shall mean, for any Distribution Date with
respect to the Class A 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 Series 1998-1 Holders
and will be invested in certain obligations meeting the requirements for
"Eligible Investments."
The Cash Collateral Account will be fully funded on the Series Issuance Date
in the Initial Cash Collateral Amount with a deposit to be made by the Seller.
The Cash Collateral Account will be terminated following the earlier to occur
of (a) the date on which the Class A Certificates, Class B Certificates and
the Class C Interests are paid in full, (b) the Series 1998-1 Termination Date
and (c) the final Termination Date of the Trust.
On each Distribution Date, the amount available to be withdrawn from the
Cash Collateral Account (the "Available Cash Collateral Amount") will be equal
to the lesser of the amount on deposit in the Cash Collateral Account on such
date (before giving effect to any deposit to or withdrawal from the Cash
Collateral Account to be made on such Distribution Date) and the Required Cash
Collateral Amount.
On each Distribution Date, a withdrawal will be made from the Cash
Collateral Account in an amount up to the Available Cash Collateral Amount, to
fund the following amounts in the following order of priority:
(a) the excess, if any, of the Class A Required Amount with respect to
the related Distribution Date over the amount of Excess Spread and Excess
Finance Charges allocated to Series 1998-1 available to fund such Class A
Required Amount will be used first to fund any deficiency in current Class
A Monthly Interest, overdue Class A Monthly Interest and any current or
overdue Class A Additional Interest, second to fund any deficiency in the
Class A Servicing Fee, and third to fund the Class A Investor Default
Amount not funded from Class A Available Funds and Excess Spread and Excess
Finance Charges allocated to Series 1998-1 , if any, for such Distribution
Date;
(b) the excess, if any, of the Class B Required Amount with respect to
the related Distribution Date over the amount of Excess Spread and Excess
Finance Charges allocated to Series 1998-1 available to fund such Class B
Required Amount will be used first to fund any deficiency in current Class
B Monthly Interest, overdue Class B Monthly Interest and any current or
overdue Class B Additional Interest, second to fund any deficiency in the
Class B Servicing Fee and third to fund the Class B Investor Default Amount
not funded from Excess Spread and Excess Finance Charges allocated to
Series 1998-1 for such Distribution Date;
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(c) the excess, if any, of the current Class C Monthly Interest, overdue
Class C Monthly Interest and any current or overdue Class C Additional
Interest over the amount of Excess Spread and Excess Finance Charges
allocated to Series 1998-1 and available to fund such amount;
(d) the excess, if any of the accrued and unpaid Class C Servicing Fee
with respect to the related Distribution Date over the amount of Class C
Available Funds and Excess Spread and Excess Finance Charges allocated to
Series 1998-1 and available to fund such amount; and
(e) the excess, if any, of the Class C Investor Default Amount for the
related Distribution Date over the amount of Excess Spread and Excess
Finance Charges allocated to Series 1998-1 and available to fund such
amount.
"Required Cash Collateral Amount" means, with respect to any Distribution
Date, the greater of (I) the product of (a) the sum of the Class A Adjusted
Invested Amount, the Class B Invested Amount and the Class C Invested Amount,
each as of such Distribution Date after taking into account distributions made
on such Distribution Date and (b) 1.6%, and (II) $1,112,502; provided,
however, that (i) if there are any withdrawals from the Cash Collateral
Account (other than withdrawals from the Cash Collateral Account because the
amount on deposit in the Cash Collateral Account exceeds the Required Cash
Collateral Amount), or a Pay Out Event occurs with respect to Series 1998-1,
then the Required Cash Collateral Amount shall equal the Required Cash
Collateral Amount on the Distribution Date immediately preceding such
withdrawal or Pay Out Event, (ii) in no event shall the Required Cash
Collateral Amount exceed the sum of the Class A Adjusted Invested Amount, the
Class B Invested Amount and the Class C Invested Amount on any such date and
(iii) the Required Cash Collateral Amount may be reduced without the consent
of the Series 1998-1 Holders, 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 Investor Certificates or the
Class C Interests 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 1998-1.
With respect to any Distribution Date, if the Available Cash Collateral
Amount is less than the Required Cash Collateral Amount, certain Excess Spread
and Excess Finance Charges will be deposited into the Cash Collateral Account
to the extent of such shortfall.
If on any Distribution Date, the Available Cash Collateral Amount exceeds
the Required Cash Collateral Amount, such excess in the Cash Collateral
Account will be applied in accordance with the Series 1998-1 Supplement and
the Class C Supplemental 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
1998-1 or from amounts 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 1998-1 or from amounts available under the
Cash Collateral Account and Reallocated Principal Collections allocable to the
Class C Invested Amount and applied as described above in "--Application of
Collections--Payment of Interest, Fees and other Items" and "--Reallocation of
Cash Flows."
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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 1998-1, amounts on deposit in the Cash Collateral Account
and Reallocated Principal Collections, the Class C Invested 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 Class C Invested Amount to be a negative number, the
Class C Invested Amount will be reduced to zero, and the Class B Invested
Amount will be reduced by the amount by which the Class C 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 such reduction, if any, of the Class C Invested 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 Class C Invested 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 1998-1 and available for such
purpose as described under "--Application of Collections--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 1998-1 and not required to pay the Class A Required
Amount, amounts on deposit in the Cash Collateral Account not required to pay
the Class A Required Amount and Reallocated Principal Collections allocable to
the Class C Investors' Interest and not required to pay the Class A Required
Amount, then the Class C Invested Amount will be reduced by the amount of such
excess. In the event that such reduction would cause the Class C Invested
Amount to be a negative number, the Class C Invested Amount will be reduced to
zero, and the Class B Invested Amount will be reduced by the amount by which
the Class C Invested 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 Class C
Invested 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 1998-1 and available for such purpose as described
under "--Application of Collections--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 the final principal payment with
respect to the Class B Certificates is expected to be paid on the Class B
Expected Final Payment Date, provided, that if Series 1998-1 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 Class A
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
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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 Class C Interest
Holders of any election by the Servicer not to extend the Initial Principal
Payment 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 1998-1 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 1998-1
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 Class C Investors' 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 Amount 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 1998-1 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 and the Servicer 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 1998-1; (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 1998-1,
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
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Invested Amount will be increased to reflect the initial principal balance of
the Additional Investor Certificates of the respective classes.
PAIRED SERIES
The Series 1998-1 Interests 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 1998-1, assuming that there have been no unreimbursed charge-
offs with respect to any related Paired Series, the aggregate invested amount
of such related Paired Series will have been increased by an amount up to an
aggregate amount equal to the Invested Amount paid to the Investor
Certificateholders and the Class C Interest Holders. 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
"Risk Factors--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 Series 1998-1 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 1998-1 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
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Bank set forth in the Pooling Agreement or the Series 1998-1 Supplement,
which failure has a material adverse effect on the Series 1998-1 Holders
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 1998-1 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
1998-1 Holders 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 1998-1
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 1998-
1 for such three Monthly Periods;
(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 1998-1
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 1998-1 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 1998-1 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 1998-1, without any notice or
other action on the part of the Trustee immediately upon the occurrence of
such event.
If, contrary to the opinion of Tax Counsel described under "Certain Federal
Income Tax Considerations--General" in the Prospectus, it is determined that
the Class A Certificates or the Class B Certificates do not constitute
indebtedness for Federal income tax purposes, such determination will not
constitute a Pay Out Event with respect to the Investor Certificates.
For purposes of the foregoing discussion pertaining to Pay Out Events,
references to the Investor Certificates will include the Class C Investors'
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
Series 1998-1:
"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, Class C Monthly
Interest and the Monthly Servicing Fee with respect to Series 1998-1 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
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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 1998-1, 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 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 1998-1 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 (the
"Initial Servicing Fee") will be equal to the Servicing Fee accrued on the
Initial Invested Amount at the Net 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 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 Class C Invested
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 Class C Interest
Holders 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 product of
the Class A Floating Percentage as of the first Distribution Date and the
Initial Servicing Fee. 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 product of
the Class B Floating Percentage as of the first Distribution Date and the
Initial Servicing Fee. The share of the Monthly Servicing Fee allocable to the
Class C Interest Holders (after giving effect to the distribution of any
Servicer Interchange to the Servicer) with respect to such Distribution Date
(the "Class C Servicing Fee") shall be equal to one-twelfth of the product of
(a) the Class C Floating Percentage, (b) the Net Servicing Fee Rate and
S-49
<PAGE>
(c) the Servicing Base Amount; provided, however, with respect to the first
Distribution Date, the Class C Servicing Fee shall be equal to the product of
the Class C Floating Percentage as of the first Distribution Date and the
Initial Servicing Fee. 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 Class C Interest Holders 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 Class C Servicing Fee shall
be payable to the Servicer solely to the extent amounts are available for
distribution in respect thereof as described under "--Application of
Collections--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 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 Class C Interest Holders. 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
Class C Investors' Interest.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
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 and the Class B 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 and each Rating Agency
a statement (the "Monthly Report") prepared by the Servicer setting forth
certain information with respect to the Trust, the Investor Certificates and
the Class C Interests, 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 Class C Invested Amount at the close of business on the last day of
the preceding Monthly Period; (c) the Floating Allocation Percentage and,
during the Class A Accumulation Period, the Class B Amortization Period, the
Class C Amortization 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 Class C
Interests; (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 Class C
Investors' 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
Class C Investors' Interest; (g) the amount, if any, of Class A Investor
Charge-Offs, Class B Investor Charge-Offs and the amounts by which the Class C
Invested Amount has been reduced pursuant to clauses (iii), (iv) and (v) of
the definition of Class C Invested Amount; (h) the Monthly Servicing Fee; (i)
the Portfolio Yield for such Monthly Period; (j) amounts on deposit in the
Cash Collateral Account for such Distribution Date; and (k) Reallocated
Principal Collections.
LEGAL MATTERS
Certain legal matters relating to the Investor Certificates will be passed
upon for the Underwriters by Cravath, Swaine & Moore, New York, New York.
S-50
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
for the Class A Certificates and the underwriting agreement for the Class B
Certificates (collectively, the "Underwriting Agreement") between the Bank and
Barclays de Zoete Wedd Limited ("Barclays Capital" or the "Underwriter"), the
Bank has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase, the Class A Certificates and the Class B Certificates.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Investor Certificates is subject to the
approval of certain legal matters by its counsel and to certain other
conditions. All of the Investor Certificates offered hereby will be issued if
any are issued. Under the terms and conditions of the Underwriting Agreement,
the Underwriter is committed to take and pay for all the Investor Certificates
offered hereby, if any are taken.
The Underwriter intends initially to sell the Class A Certificates to a
single institutional investor at the price set forth on the cover page hereof.
The Underwriter proposes initially to offer the Class B Certificates to the
public at the price set forth on the cover page hereof and to certain dealers
at such price less concessions not in excess of % of the principal amount of
the Class B Certificates. The Underwriter may allow, and such dealers may
reallow, concessions not in excess of % of the principal amount of the Class
B Certificates to certain brokers and dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Underwriter.
Barclays Capital, a United Kingdom broker-dealer regulated by the Securities
and Futures Authority Limited, has agreed that, as part of the distribution of
Investor Certificates offered hereby and subject to certain exceptions, it
will not offer or sell any Investor Certificates within the United States, its
territories or possessions or to persons who are citizens thereof or residents
therein. Affiliates of Barclays Capital (such as BZW Securities Inc.) are not,
however, prohibited from acting as agents for investors in the United States
in connection with the distribution of Investor Certificates.
The Underwriter has represented and agreed that:
(a) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities
Regulations 1995 (the "Regulations") with respect to anything done by it
in relation to the Investor 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 Investor 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 Underwriter may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the Investor Certificates in accordance with Regulation M under the Exchange
Act. Over-allotment transactions involve syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the Investor Certificates so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the
S-51
<PAGE>
Investor Certificates in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Underwriter to reclaim a selling concession from a syndicate member when the
Investor Certificates originally sold by such syndicate member are purchased
in a syndicate covering transaction. Such over-allotment transactions,
stabilization transactions, syndicate covering transactions and penalty bids
may cause the price of the Investor Certificates to be higher than they would
otherwise be in the absence of such transactions. Neither the Bank nor the
Underwriter represents that the Underwriter will engage in any such
transactions or that such transactions, once commenced, will not be
discontinued without notice at any time.
The Bank will indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriter 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 Underwriter and
its affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with the Bank and its affiliates.
S-52
<PAGE>
GLOSSARY FOR PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Accounts............................................................. S-1
Additional Investor Certificates..................................... S-7
Additional Issuance.................................................. S-46
Adjusted Invested Amount............................................. S-6
Applicable Federal Funds Rate........................................ S-28
Available Cash Collateral Amount..................................... S-43
Available Final Distribution Amount.................................. S-50
Available Investor Principal Collections............................. S-31
Available Reserve Account Amount..................................... S-36
Bank................................................................. S-1
Barclays Capital..................................................... S-51
Base Rate............................................................ S-48
Bloomberg............................................................ S-29
Cash Collateral Account.............................................. S-12
Class A Accumulation Period.......................................... S-9
Class A Accumulation Period Length................................... S-31
Class A Additional Interest.......................................... S-39
Class A Adjusted Invested Amount..................................... S-6, S-34
Class A Available Funds.............................................. S-27
Class A Certificate Rate............................................. S-2
Class A Certificateholders' Interest................................. S-5
Class A Certificates................................................. S-1, S-3
Class A Floating Percentage.......................................... S-32
Class A Initial Invested Amount...................................... S-5
Class A Initial Investor Amount...................................... S-3
Class A Interest Funding Account..................................... S-26
Class A Invested Amount.............................................. S-5, S-34
Class A Investor Amount.............................................. S-35
Class A Investor Charge-Off.......................................... S-45
Class A Investor Default Amount...................................... S-44
Class A Monthly Interest............................................. S-39
Class A Monthly Principal............................................ S-42
Class A Outstanding Monthly Interest................................. S-39
Class A Principal Percentage......................................... S-33
Class A Required Amount.............................................. S-10, S-37
Class A Servicing Fee................................................ S-49
Class B Additional Interest.......................................... S-40
Class B Amortization Period.......................................... S-9
Class B Available Funds.............................................. S-27
Class B Certificate Rate............................................. S-2
Class B Certificateholders' Interest................................. S-5
Class B Certificates................................................. S-1, S-3
Class B Floating Percentage.......................................... S-32
Class B Initial Invested Amount...................................... S-5
Class B Initial Investor Amount...................................... S-3
Class B Interest Funding Account..................................... S-27
Class B Invested Amount.............................................. S-5, S-34
Class B Investor Amount.............................................. S-35
Class B Investor Charge-Off.......................................... S-45
Class B Investor Default Amount...................................... S-44
</TABLE>
S-53
<PAGE>
<TABLE>
<S> <C>
Class B Monthly Interest........................................ S-39
Class B Monthly Principal....................................... S-42
Class B Outstanding Monthly Interest............................ S-40
Class B Principal Commencement Date............................. S-9
Class B Principal Percentage.................................... S-33
Class B Required Amount......................................... S-11, S-37
Class B Servicing Fee........................................... S-49
Class C Additional Interest..................................... S-42
Class C Amortization Period..................................... S-9
Class C Available Funds......................................... S-40
Class C Floating Percentage..................................... S-33
Class C Initial Invested Amount................................. S-5
Class C Initial Investor Amount................................. S-3
Class C Interest Funding Account................................ S-28
Class C Interest Holders........................................ S-8
Class C Interest Rate........................................... S-27, S-42
Class C Interests............................................... S-1, S-3
Class C Invested Amount......................................... S-5, S-34
Class C Investor Amount......................................... S-35
Class C Investor Default Amount................................. S-34
Class C Investors' Interest..................................... S-5
Class C Monthly Interest........................................ S-41
Class C Monthly Principal....................................... S-42
Class C Principal Commencement Date............................. S-9
Class C Servicing Fee........................................... S-49
Class C Spread Account.......................................... S-28
Class C Supplemental Agreement.................................. S-5
Controlled Accumulation Amount.................................. S-43
Controlled Deposit Amount....................................... S-43
Covered Amount.................................................. S-35
Deficit Controlled Accumulation Amount.......................... S-44
Distribution Date............................................... S-2
Enhancement Invested Amount..................................... S-5
ERISA........................................................... S-14
Excess Spread................................................... S-10, S-40
Excluded Series................................................. S-47
Federal Funds Determination Period.............................. S-29
Federal Funds Reset Date........................................ S-28
Federal Funds Weekly Rate....................................... S-28
Floating Allocation Percentage.................................. S-32
Funding Period.................................................. S-8
Group One....................................................... S-13
H.15(519)....................................................... S-29
Highest Bid..................................................... S-50
Initial Cash Collateral Amount.................................. S-3, S-12
Initial Invested Amount......................................... S-5, S-47
Initial Investor Amount......................................... S-3
Initial Servicing Fee........................................... S-49
Interest Period................................................. S-29
Invested Amount................................................. S-5, S-35, S-47
Investor Amount................................................. S-35
Investor Certificateholders..................................... S-1
</TABLE>
S-54
<PAGE>
<TABLE>
<S> <C>
Investor Certificateholders' Interest................................ S-5
Investor Certificates................................................ S-1, S-3
Investor Default Amount.............................................. S-44
LIBOR................................................................ S-29
LIBOR Determination Date............................................. S-29
Monthly Report....................................................... S-50
Monthly Servicing Fee................................................ S-49
Net Servicing Fee Rate............................................... S-49
Paired Series........................................................ S-47
Portfolio Yield...................................................... S-48
Prefunded Amount..................................................... S-8
Prefunding Account................................................... S-8
Principal Allocation Percentage...................................... S-33
Principal Funding Account............................................ S-16
Principal Funding Account Balance.................................... S-35
Principal Funding Investment Proceeds................................ S-35
Reallocated Principal Collections.................................... S-10, S-37
Receivables.......................................................... S-1
Record Date.......................................................... S-26
Reference Banks...................................................... S-29
Regulations.......................................................... S-51
Required Cash Collateral Amount...................................... S-13, S-44
Required Principal Balance........................................... S-47
Required Reserve Account Amount...................................... S-36
Reserve Account...................................................... S-36
Reserve Account Factor............................................... S-36
Reserve Account Funding Date......................................... S-36
Revolving Period..................................................... S-9
Series Issuance Date................................................. S-2
Series 1998-1 Holders................................................ S-8
Series 1998-1 Interests.............................................. S-1, S-3
Series 1998-1 Supplement............................................. S-16
Servicer Interchange................................................. S-49
Servicing Base Amount................................................ S-49
Servicing Fee Rate................................................... S-49
Special Payment Date................................................. S-16
Summary of Terms..................................................... S-3
Telerate Page 3750................................................... S-29
Termination Date..................................................... S-9
Trust................................................................ S-1, S-3
Trust Cut-Off Date................................................... S-7
Trust Portfolio...................................................... S-18
Underwriter.......................................................... S-51
Underwriting Agreement............................................... S-51
Zero Balance Accounts................................................ S-18
</TABLE>
S-55
<PAGE>
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 1993-4 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
3. 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.
- - --------
(1) Subject to change if the commencement of the Accumulation Period is
delayed.
A-1
<PAGE>
<TABLE>
<S> <C>
4. SERIES 1994-4 CERTIFICATES
Initial Series 1994-A Invested Amount......... $550,000,000
Maximum Invested Amount....................... $1,500,000,000
Certificate Rate.............................. Floating Rate
Group......................................... One
Servicing Fee Rate............................ 2.00%
Termination Date.............................. April 2003 Distribution Date
5. 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
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.
6. 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-2
<PAGE>
<TABLE>
<S> <C>
7. 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
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.
8. 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
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.
9. 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-3
<PAGE>
<TABLE>
<S> <C>
10. SERIES 1996-2 CERTIFICATES
Initial Series 1996-2 Invested Amount...... $750,000,000
Initial Class A Invested Amount............ $600,000,000
Initial Class B Invested Amount............ $82,500,000
Class A Certificate Rate................... One-month LIBOR + 0.10% per annum
Class B Certificate Rate................... Floating Rate
Class A Expected Final Payment Date........ December 2001
Class B Expected Final Payment Date........ February 2002
Class A Controlled Accumulation Amount..... $30,000,000 (1)
Group...................................... One
Servicing Fee Rate......................... 2.00%
Series Termination Date.................... February 2005
The Series 1996-2 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $67,500,000.
11. SERIES 1996-3 CERTIFICATES
Initial Series 1996-3 Invested Amount...... $500,000,000
Initial Class A Invested Amount............ $400,000,000
Initial Class B Invested Amount............ $55,000,000
Class A Certificate Rate................... One-month LIBOR + 0.12% per annum
Class B Certificate Rate................... Floating Rate
Class A Expected Final Payment Date........ January 2004
Class B Expected Final Payment Date........ March 2004
Class A Controlled Accumulation Amount..... $20,000,000(1)
Group...................................... One
Servicing Fee Rate......................... 2.00%
Series Termination Date.................... March 2007
The Series 1996-3 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $45,000,000.
12. SERIES 1997-1 CERTIFICATES
Initial Series 1997-1 Invested Amount...... $608,275,000
Initial Class A Invested Amount............ $486,620,000
Initial Class B Invested Amount............ $66,910,250
Class A Certificate Rate................... Three-month LIBOR - 0.03% per annum
Class B Certificate Rate................... Floating Rate
Class A Expected Final Payment Date........ June 2002
Class B Expected Final Payment Date........ August 2002
Class A Controlled Accumulation Amount..... $24,331,000 (1)
Group...................................... One
Servicing Fee Rate......................... 2.00%
Series Termination Date.................... June 2007
</TABLE>
The Series 1997-1 Certificates are supported by a collateral indebtedness
interest in the receivables which on the respective Series Issuance Date had an
initial invested amount of $54,744,750.
- - --------
(1) Subject to change if the commencement of the Accumulation Period is
delayed.
A-4
<PAGE>
<TABLE>
<S> <C>
13. SERIES 1997-2 CERTIFICATES
Initial Series 1997-2 Invested Amount..... $502,212,500
Initial Class A Invested Amount........... $401,770,000
Initial Class B Invested Amount........... $55,243,375
Initial Class C Invested Amount........... $45,199,125
Class A Certificate Rate.................. Three-month LIBOR + 0.049% per annum
Class B Certificate Rate.................. Floating Rate
Class A Expected Final Payment Date....... August 2002
Class B Expected Final Payment Date....... October 2002
Class A Controlled Accumulation Amount.... $20,088,500 (1)
Group..................................... One
Servicing Fee Rate........................ 2.00%
Series Termination Date................... October 2005
</TABLE>
- - --------
(1) Subject to change if the commencement of the Accumulation Period is
delayed.
A-5
<PAGE>
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 18 AND IN THE APPLICABLE PROSPECTUS
SUPPLEMENT ON PAGE S-16.
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 MARCH 16, 1998.
<PAGE>
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; the Commission regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a public access site on the
Internet through the World Wide Web at which site reports, proxy and
information statements and other information regarding registrants, including
all electronic filing, may be viewed. The Internet address of the Commission's
World Wide Web site is http://www.sec.gov.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, Monthly Reports, which
contain unaudited information concerning the Trust will be prepared by the
Servicer and 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, Director of Securitization) 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 year ended December 31, 1996 and Current
Reports on Form 8-K filed since December 31, 1996. 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 Services, Inc., 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.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in any
accompanying Prospectus Supplement 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 "Bank" shall, unless the
context otherwise requires, mean Signet Bank 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,"
"Description of the Certificates--Addition of
Trust Assets," "--Removal of Accounts" and "--
New Issuances."
3
<PAGE>
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 (in such capacity, the
"Seller"). 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 Capital One's obligations
under the Pooling Agreement and related
agreements. See "Assumption of the Bank's
Obligations."
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
VISA/1/ 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."
- - --------
/1/MasterCard and VISA are registered trademarks of MasterCard International
Incorporated and VISA USA, Inc., respectively.
4
<PAGE>
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 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 and
Recoveries received by the Servicer with respect
to Defaulted Receivables and allocated as
provided in the Pooling Agreement 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. "Recoveries" consist
of amounts, excluding insurance proceeds,
received by the Servicer with respect to
Receivables which have previously become
Defaulted Receivables, net of any out-of-pocket
costs and expenses of collection, plus the net
proceeds of any sale or securitization of such
Defaulted Receivables and any residual payments
from any such securitization.
5
<PAGE>
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 thereon are insured or guaranteed by
the Federal Deposit Insurance Corporation (the
"FDIC") or any other governmental agency or
instrumentality.
6
<PAGE>
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 Bank currently plans to amend
the Pooling Agreement to provide that the Bank
Certificate and any Supplemental Certificates
may be in certificated or uncertificated form.
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 an
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
7
<PAGE>
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 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
8
<PAGE>
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 in the outstanding
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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
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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 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
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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 business day to the extent that, after
giving effect to such payment, the Seller's
Interest exceeds the Required Seller's Interest
on such day and the balance of the Principal
Receivables equals or exceeds the Required
Principal Balance; 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.
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
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<PAGE>
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
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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
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
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<PAGE>
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
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<PAGE>
of its representations and warranties with
respect to any Receivable and such breach
remains uncured for a specified 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
16
<PAGE>
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 of such
Series 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 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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<PAGE>
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
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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 5% 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.
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 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, the
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 a Certificateholder indirectly thorough DTC, and its
participating organizations, and unless the Prospectus Supplement for a Series
provides otherwise, thorough 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
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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 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."
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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 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
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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 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 should 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.
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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 materially 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
Under current judicial interpretations of the Depository Institutions
Deregulation and Monetary Control Act of 1980 ("DIDMCA"), state-chartered
institutions such as the Bank may charge interest at the rate allowed by the
laws of the state where the institution is located, notwithstanding any other
state's constitution or statute to the contrary. In 1978, a statute similar to
DIDMCA applicable to national banks was interpreted by the United States
Supreme Court to permit a national bank to "export" interest rates by charging
the interest rate allowed by the laws of the state where the bank is located
on loans to borrowers in other states, notwithstanding the laws of such other
states. In 1996, the United States Supreme Court upheld a decision of the
California Supreme Court and the determination of the Office of the
Comptroller of the Currency to the effect that late payment fees were
"interest" and, as such, national banks could charge out-of-state customers
rates allowed by the bank's home state. In addition, the United States Supreme
Court reversed and remanded a decision of the New Jersey Supreme Court
respecting a state-chartered bank for treatment consistent with its decision
in the California case. As a result, the Bank believes that state-chartered
institutions, such as the Bank, are permitted to export interest rates and
other charges pursuant to DIDMCA.
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.
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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 the operation of its
consumer revolving lending business, as such policies and procedures may be
changed from time to time (the "Lending Guidelines").
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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 --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. 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 originates 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, (vi) newspaper, magazine, radio and
television advertisements and (vii) location or event marketing. 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 or in writing 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 prescreened account solicitation process generally utilizes
information from credit reporting agencies to identify consumers who are
likely to be approved for a credit card account. In the prescreening process,
the Bank is provided anonymous credit report information on potential
customers which is screened against underwriting standards determined by the
Bank to produce appropriate lists of anonymous credit reports with desired
credit attributes. The list of names associated with the anonymous credit
bureau reports is also refined through the use of appropriate criteria
developed by the Bank. The resulting lists of names and anonymous credit
reports are linked together by a third party vendor to produce the final list
of consumers who will receive direct mail solicitations. The sets of
underwriting criteria used to prescreen potential applicants 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
cardholders.
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 may also be 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 periodic rate finance charges, other
charges, minimum payments or,
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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, including list vendors, 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.
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 a percentage (either 2% or 3%) 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. With certain
exceptions, accountholders are also permitted to make payments in advance for
up to three months.
A daily 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. Daily
periodic rate finance charges are calculated from the date that a purchase,
cash advance or balance transfer is made and are equal to the sum of the
amount computed for each day during the billing cycle by multiplying the daily
periodic rate by the 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.
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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--Certain Legal
Aspects--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 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, supplemented in certain cases by
collection agencies.
The focus of the Bank's response to an early stage delinquency is
rehabilitation and identification of the causes for delinquency. The Bank's
policies and procedures are designed to encourage cardholders to pay
delinquent amounts; for example, once a delinquent account has re-established
a payment pattern with three consecutive minimum monthly payments, it can be
re-aged as current. An account generally can be re-aged once in the life of
the account.
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. During the fourth quarter of 1997, the Bank modified its
methodology for charging off credit card accounts. The Bank now charges off an
account (net of collateral) at 180 days past due. The Bank's prior practice
had been to charge off as uncollectible an account in the next billing cycle
after the account became 180 days past due. 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. The Bank generally
charges off bankrupt customers' accounts within 30 days after the Bank
receives the bankruptcy petition 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
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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 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. On the date
when any Receivable in an Account becomes a Defaulted Receivable, the Trust
automatically transfers the Defaulted Receivables to the Bank together with
all monies due or to become due with respect thereto, all proceeds thereof and
any 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
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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 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 Bank ("Signet Bank"), a wholly-owned subsidiary of Signet
Banking Corporation ("Signet"). Pursuant to the terms of an agreement among
Signet, Signet Bank and Capital One Financial Corporation (the "Separation
Agreement"), Signet Bank 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 Bank distributed the capital stock of
Capital One to Signet, which then
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contributed such stock to Capital One Financial Corporation. Concurrently with
the Separation, Capital One Financial Corporation consummated an initial
public 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. Signet Bank and Signet have since been
acquired by First Union National Bank and First Union Corporation,
respectively, as of November 30, 1997.
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 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."
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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) received by the Servicer
including proceeds from the sale or securitization of Defaulted Receivables
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 Bank in 1993 as Signet Master Trust. In
connection with the Separation and as permitted by the Pooling Agreement, (i)
Signet Bank transferred to Capital One, and Capital One accepted and assumed,
all of Signet Bank's rights and obligations under the Pooling Agreement, (ii)
Capital One became Seller and Servicer of the Trust, (iii) Signet Bank 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 Bank 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. 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.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series offered hereby will initially be represented by
one or more certificates registered in the name of the nominee of the
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Depository Trust Company ("DTC") or Cedel or Euroclear (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 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,
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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
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
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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 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."
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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 fifth 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 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
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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 and 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.
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.
In addition to the foregoing, on the date when any Receivable in an Account
becomes a Defaulted Receivable (including any related Finance Charge
Receivables), the Trust shall automatically be deemed to transfer, set over
and otherwise convey to the Bank all right, title and interest of the Trust in
and to the Defaulted Receivables (including any related Finance Charge
Receivables) in such Account, all monies due or to become due with respect
thereto, all proceeds thereof and any insurance proceeds relating thereto;
provided, that Recoveries of such Account which include any proceeds of the
sale or securitization of such Defaulted Receivables shall be applied as
provided in the Pooling Agreement. See "--Allocation Percentages."
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
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"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 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
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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 is maintained with The Bank of New York.
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
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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 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 with respect to each Series shall be Harris Trust
and Savings Bank.
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.
With respect to Recoveries constituting the proceeds of any sale or initial
securitization of Defaulted Receivables, such Recoveries will be treated as
Finance Charge Collections and allocated as described above over a period of
time. With respect to each Monthly Period, the amount of Recoveries received
from the sale or initial securitization of Defaulted Receivables which shall
be included as Finance Charges for such Monthly Period shall be an amount
equal to the total amount of such Recoveries collected during the three
Monthly Periods ending with such Monthly Period divided by three.
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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 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 Investor 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 plus the aggregate amount
of the unamortized portion of any collections representing Recoveries 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) exceeds the Required Seller's Interest and the aggregate amount
of Principal Receivables exceeds the Required Principal Balance and otherwise
such amounts shall be deposited into the Excess Funding Account; and (ii) the
Bank's allocable portion of collections on Finance Charge Receivables. The
"Required Principal Balance," is an amount, as of any date of determination,
equal to the (a) 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 (b) 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
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any such Pay Out Event is deemed to have occurred minus the principal amount
on deposit in the Excess Funding Account.
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 Offering Circular 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
such Shared Principal Collections will be distributed to the Bank only if the
Seller's Interest on such Distribution Date exceeds the Required Seller's
Interest and the aggregate amount of Principal Receivables exceeds the
Required Principal Balance and otherwise such amounts shall be deposited into
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.
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 business date to the
extent that the Seller's Interest exceeds the Required Seller's Interest and
the aggregate amount of Principal Receivables exceeds the Required Principal
Balance 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
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.
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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 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.
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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; RECOVERIES
"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 at 180
days past due. The Bank generally charges off a bankrupt customer's account
within 30 days after the Bank receives the bankruptcy petition. 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.
On the date when any Receivable in an Account becomes a Defaulted Receivable
(including any related Finance Charge Receivables), the Trust will
automatically transfer to the Bank all right title and interest of the Trust
in and to the Defaulted Receivables (including any related Finance Charge
Receivables) in such Account, all monies due or to become due with respect
thereto, all proceeds thereof and any insurance proceeds relating thereto;
provided that Recoveries of such Account shall be applied as provided in the
Pooling Agreement. See "--Allocation Percentages." "Recoveries," as defined in
the Pooling Agreement and as used herein, means all amounts, excluding
insurance proceeds, received by the Servicer with respect to Receivables which
have previously become Defaulted Receivables (including any related Finance
Charge Receivables), net of any out-of-pocket costs and expenses of collection
(including attorneys fees and expenses) deducted therefrom, plus the net
proceeds of any sale or securitization of such Defaulted Receivables (plus any
related Finance Charge Receivables), plus any residual payments from any such
securitization, but excluding any interest, principal and servicing fees or
other fees payable with respect to the securitization of such Defaulted
Receivables and the related 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,
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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 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").
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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.
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
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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 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
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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.
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.
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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, 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.
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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
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Certificates; and (d) the amount, if any, by which the unpaid principal
balance of the Certificates exceeds the Invested Amount as of the close of
business on the last day of the calendar month preceding the date of such
payment (each, a "Record Date") with respect to such Payment Date. On each
Distribution Date, the Paying Agent, on behalf of the Trustee, will forward to
each Certificateholder of record a copy of the Monthly Report.
On or before January 31 of each calendar year, the Paying Agent, on behalf
of the Trustee, will furnish (or cause to be furnished) to each person who at
any time during the preceding calendar year was a Certificateholder of record
a statement containing the information required to be provided by an issuer of
indebtedness under the Code for such preceding calendar year or the applicable
portion thereof during which such person was a Certificateholder, together
with such other customary information as is necessary to enable the
Certificateholders to prepare their tax returns. See "Certain Federal Income
Tax Consequences."
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 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. Unless otherwise specified in the related Prospectus
Supplement, Citibank, N.A. ("Citibank"), will act as depositary for Cedel and
Morgan Guaranty Trust Company of New York ("Morgan") will act as depositary
for Euroclear (in such capacities, the "Depositaries").
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between Cedel Participants and Euroclear
Participants will occur in the ordinary way in accordance with their
applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel or
Euroclear participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing
system by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. Cedel Participants and
Euroclear Participants may not deliver instructions directly to the
Depositaries.
Because of time-zone differences, credits of securities received in Cedel or
Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled
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during such processing will be reported to the relevant Euroclear or Cedel
participant on such business day. Cash received in Cedel or Euroclear as a
result of sales of securities by or through a Cedel Participant or a Euroclear
Participant to a DTC participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel or Euroclear cash
account only as of the business day following settlement in DTC. For
additional information regarding clearance and settlement procedures for the
Certificates, see Annex I hereto and for information with respect to tax
documentation procedures relating to the Certificates, see Annex I hereto and
"Certain Federal Income Tax Consequences--Non-U.S. Certificateholders."
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 action in respect to such
Certificates, may be limited due to 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 interest.
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
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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 the 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 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 Systems 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.
Distribution 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 distribution 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.
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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 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 relevent 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 is Harris Trust and Savings Bank.
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." The Bank
currently plans to amend the Pooling Agreement to provide that the Bank
Certificate and any Supplemental Certificates may be in certificated or
uncertificated form.
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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.
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
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Receivables to the Trust meeting the requirements of applicable state law. See
"Risk Factors--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 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
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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 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
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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 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
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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 two preceding paragraphs, 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
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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.
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
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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.
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
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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.
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
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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 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
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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 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
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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.
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.
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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--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 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.
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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 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 Colombia), 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
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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.
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" or "Class C Interests" such
as may be set forth in the 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 or a Publicly Traded
Partnership. 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 a publicly traded partnership
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
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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 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. If the Trust were treated in whole or in part as a
partnership and the number of holders of interests in the publicly offered
Certificates and other interests in the Trust treated as partners equaled or
exceeded 100, the Bank may cause the Trust to elect to be an "electing large
partnership." The consequence of such election to investors could include the
determination of certain tax items at the partnership level and the
disallowance of otherwise allowable deductions. No representation is made as
to whether such election will be made.
If the arrangement created by the Pooling Agreement were treated in whole or
in part as a publicly traded partnership 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 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
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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 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, under currently applicable procedures, 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 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
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thereof. The U.S. Treasury Department recently issued final regulations which
will revise some of the foregoing procedures whereby, a non-U.S.
Certificateholder may establish an exemption from withholding beginning
January 1, 1999. Non-U.S. Certificateholders should consult their tax advisers
concerning the impact to them, if any, of such procedures.
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 (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 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.
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Recently issued final Treasury regulations will revise some of the foregoing
information reporting and backup withholding procedures beginning January 1,
1999. Certificateholders should consult their tax advisers concerning the
impact to them, if any, of such revised procedures.
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 advisor 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" (collectively,
"Parties in Interest") 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 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 would likely 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 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 of a Series must be separately tested under,
and may 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
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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 the most senior Class of a Series will
be held by at least 100 separately named persons at the conclusion of the
offering thereof, unless the related Prospectus Supplement describes such
Class as ineligible for purchase by Benifit Plans. 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 particular Class 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 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 and Section 4975
of the Code. 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 non-exempt 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 will deliver its opinion that (unless
otherwise provided in the related Prospectus Supplement) the Certificates of a
Series offered hereby and thereby 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 of Certificates were treated as equity interests in
a partnership in which any other Class 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 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, 510 U.S. 86
(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 enactment of Section 401(c) of ERISA.
Unless otherwise provided in the related Prospectus Supplement, if the Bank
does not notify the Trustee (as described above) that the Certificates of any
particular Class will be held by at least 100 separately named
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persons, the Certificates of such Class 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 will provide that each holder of
such Certificate shall be deemed to have represented and warranted that it is
not a Benefit Plan, is not purchasing such Certificate on behalf of a Benefit
Plan and is not using assets treated as assets of 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 LLP, 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.
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GLOSSARY FOR PROSPECTUS
<TABLE>
<CAPTION>
TERM PAGE
- - ---- -------------
<S> <C>
Accounts.......................................................... 1
Act............................................................... 2
Accumulation Period............................................... 10
Addition.......................................................... 35
Addition Discount Receivables..................................... 48
Additional Accounts............................................... 35
Adjustment Payment................................................ 45
Aggregate Addition Limit.......................................... 35
Assigned Assets................................................... 31
Assumed Obligations............................................... 31
Assuming Entity................................................... 31
Automatic Additional Accounts..................................... 35
Bank.............................................................. 1, 4
Bank Certificate.................................................. 7
Bank Portfolio.................................................... 25
Benefit Plans..................................................... 72
Capital One....................................................... 1, 4
Capital One Services.............................................. 15, 59
Cash Collateral Account........................................... 46
Cash Collateral Guaranty.......................................... 46
Cash Collateral Guaranty Account.................................. 46
Cash Collateral Trust............................................. 46
Cede.............................................................. 2
Cedel............................................................. 52
Cedel Participants................................................ 52
Certificateholders................................................ 2, 19, 52, 54
Certificateholders' Interest...................................... 6
Certificates...................................................... 1
Citibank.......................................................... 51
Class............................................................. 1
Class C Interests................................................. 68
Code.............................................................. 69
Collateral Indebtedness Interests................................. 68
Collection Account................................................ 8, 39
Commission........................................................ 2
Controlled Accumulation Amount.................................... 11
Controlled Amortization Amount.................................... 11
Controlled Amortization Period.................................... 11
Controlled Deposit Amount......................................... 10
Controlled Distribution Amount.................................... 11
Cooperative....................................................... 53
Credit Enhancement................................................ 14
Credit Enhancer................................................... 45
Date of Processing................................................ 15
Defaulted Amount.................................................. 44
Defaulted Receivables............................................. 44
Defeased Series................................................... 55
Deficit Controlled Accumulation Amount............................ 11
Deficit Controlled Amortization Amount............................ 11
Definitive Certificates........................................... 54
Deposit Account................................................... 27
Depositaries...................................................... 51
Depositary........................................................ 21
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE
- - ---- ------
<S> <C>
Depository............................................................... 33
Determination Date....................................................... 15
DIDMCA................................................................... 23
Disclosure Document...................................................... 7
Discount Option Receivables.............................................. 47
Discount Option Receivables Collections.................................. 48
Discount Percentage...................................................... 47
Distribution Date........................................................ 15
DOL...................................................................... 72
DTC...................................................................... 2, 33
Early Amortization Period................................................ 11
Eligible Account......................................................... 57
Eligible Deposit Account................................................. 39
Eligible Institution..................................................... 39
Eligible Investments..................................................... 40
Eligible Receivable...................................................... 57
Enhancement Invested Amount.............................................. 45
ERISA.................................................................... 72
Euroclear................................................................ 53
Euroclear Operator....................................................... 53
Euroclear Participants................................................... 53
Excess Finance Charges................................................... 43
Excess Funding Account................................................... 42
Exchange Act............................................................. 2
Excluded Series.......................................................... 41
Expected Final Payment Date.............................................. 9
FDIA..................................................................... 22
FDIC..................................................................... 6
Final Regulation......................................................... 72
Finance Charge Receivables............................................... 5
FIRREA................................................................... 22
Floating Allocation Percentage........................................... 40
Funding Period........................................................... 13
Funds.................................................................... 27
Funds Collateral......................................................... 27
Group.................................................................... 43
Holders.................................................................. 54
Indirect Participants.................................................... 52
Ineligible Receivables................................................... 56
Initial Accounts......................................................... 4
Initial Invested Amount.................................................. 41
Initial Investor Amount.................................................. 13
Insolvency Event......................................................... 22
Interchange.............................................................. 5, 28
Interest Funding Account................................................. 9
Interest Payment Dates................................................... 38
Invested Amount.......................................................... 38, 41
IRS...................................................................... 67
L/C Issuer............................................................... 46
Lending Guidelines....................................................... 24
</TABLE>
76
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<TABLE>
<CAPTION>
TERM PAGE
- - ---- ------
<S> <C>
MasterCard............................................................... 5
Miscellaneous Payments................................................... 40
Monthly Period........................................................... 29
Monthly Report........................................................... 50
Monthly Servicing Fee.................................................... 49
Moody's.................................................................. 39
Morgan................................................................... 51
New Issuance............................................................. 38
Non-Code Entity.......................................................... 31
OID...................................................................... 69
Paired Series............................................................ 14
Participants............................................................. 52
Participation agreement.................................................. 35
Participations........................................................... 3, 35
Parties in Interest...................................................... 72
Pay Out Event............................................................ 48
Payment Date............................................................. 50
Pooling Agreement........................................................ 1
Prefunded Amount......................................................... 13
Prefunding Account....................................................... 13
Principal Allocation Percentage.......................................... 40
Principal Commencement Date.............................................. 9
Principal Funding Account................................................ 10
Principal Receivables.................................................... 5
Principal Shortfalls..................................................... 42
Principal Terms.......................................................... 38
Prospectus Supplement.................................................... 1
Rating Agency............................................................ 17
Ratings Effect........................................................... 19
Receivables.............................................................. 1, 3
Record Date.............................................................. 50, 51
Recoveries............................................................... 44
Regulations.............................................................. 68
Related Account.......................................................... 30
Removal Date............................................................. 37
Removal Notice Date...................................................... 37
Removed Accounts......................................................... 5
Required Designation Date................................................ 34
Required Principal Balance............................................... 41
Required Seller's Interest............................................... 19
Required Seller's Percentage............................................. 19
Reserve Account.......................................................... 47
Revolving Period......................................................... 10
SCC...................................................................... 65
Seller................................................................... 4
Seller's Certificate..................................................... 7
Seller's Interest........................................................ 6
Separation............................................................... 30
Separation Agreement..................................................... 30
Series................................................................... 1
Series Cut-Off Date...................................................... 10
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- - ---- ----
<S> <C>
Series Enhancement......................................................... 3
Series Issuance Date....................................................... 56
Series Termination Date.................................................... 50
Service Transfer........................................................... 61
Servicer................................................................... 15
Servicer Default........................................................... 61
Servicing Fee.............................................................. 49
Shared Principal Collections............................................... 42
Signet..................................................................... 30
Signet Bank................................................................ 30
Special Payment Date....................................................... 48
Spread Account............................................................. 47
Standard & Poor's.......................................................... 39
Supplement................................................................. 7
Supplemental Certificate................................................... 54
Tax Counsel................................................................ 67
Tax Opinion................................................................ 31
Termination Notice......................................................... 60
Terms and Conditions....................................................... 53
Transfer Deposit Amount.................................................... 56
Trust...................................................................... 1, 3
Trust Assets............................................................... 3
Trust Cut-Off Date......................................................... 4
Trustee.................................................................... 4
Trust Termination Date..................................................... 55
UCC........................................................................ 21
U.S. Certificateholder..................................................... 67
U.S. Person................................................................ 67
VISA....................................................................... 5
Withholding Agent.......................................................... 70
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Certificates
(the "Global Securities") will be available only in book-entry form. 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 the 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.
A-1
<PAGE>
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 the 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 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.
A-2
<PAGE>
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 climinate 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 systems'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 give the Global Securities
sufficient time to be reflected in their Cedel or Euroclear account in
order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside of 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, under currently applicable law, (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 or 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.
A-3
<PAGE>
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 of 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 U.S. Treasury Department has recently finalized new
regulations that will revise some aspects of the current system for
withholding on amounts paid to foreign persons. Under these 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-4
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT 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 UNDERWRITER. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PRO-
SPECTUS CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION 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 HEREUN-
DER 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Series Terms.................................................... S-3
Summary of Series Provisions............................................... S-5
Risk Factors............................................................... S-16
Maturity Considerations.................................................... S-16
The Bank Portfolio......................................................... S-18
The Receivables............................................................ S-22
Use of Proceeds............................................................ S-26
The Bank................................................................... S-26
Series Provisions.......................................................... S-26
Underwriting............................................................... S-51
Glossary for Prospectus Supplement......................................... S-53
Annex I--Previous Issuances of Certificates................................ A-1
PROSPECTUS
Available Information...................................................... 2
Reports to Certificateholders.............................................. 2
Incorporation of Certain Documents by Reference............................ 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 18
The Bank's Credit Card and Consumer Lending Business....................... 25
The Accounts............................................................... 29
The Bank................................................................... 30
Assumption of the Bank's Obligations....................................... 31
Use of Proceeds............................................................ 32
The Trust.................................................................. 32
Description of the Certificates............................................ 32
The Pooling Agreement Generally............................................ 51
Certain Legal Aspects of the Receivables................................... 63
Certain Federal Income Tax Consequences.................................... 67
ERISA Considerations....................................................... 72
Plan of Distribution....................................................... 74
Legal Matters.............................................................. 74
Glossary for Prospectus.................................................... 75
Annex I.................................................................... A-1
</TABLE>
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[LOGO OF CAPITAL ONE(R) APPEARS HERE]
MASTER TRUST
$500,000,000
CLASS A %
ASSET BACKED CERTIFICATES
SERIES 1998-1
$50,236,407
CLASS B %
ASSET BACKED CERTIFICATES
SERIES 1998-1
CAPITAL ONE BANK
SELLER AND SERVICER
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PROSPECTUS SUPPLEMENT
DATED MARCH , 1998
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BARCLAYS CAPITAL
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