<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1998
REGISTRATION NO. 333-58391
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
FIRST NORTH AMERICAN NATIONAL BANK
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
---------------------
FNANB CREDIT CARD MASTER TRUST
<TABLE>
<S> <C>
UNITED STATES 58-1897792
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
</TABLE>
225 CHASTAIN MEADOWS COURT
KENNESAW, GEORGIA 30144
(770) 792-4600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MICHAEL T. CHALIFOUX
FIRST NORTH AMERICAN NATIONAL BANK
225 CHASTAIN MEADOWS COURT
KENNESAW, GEORGIA 30144
(770) 792-4600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID E. MELSON, ESQUIRE RICHARD S. FORTUNATO, ESQUIRE
MCGUIRE, WOODS, BATTLE & BOOTHE LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
901 EAST CARY STREET 919 THIRD AVENUE
RICHMOND, VIRGINIA 23219 NEW YORK, NEW YORK 10022
(804) 775-1000 (212) 735-3000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If the only securities registered on this Form are to be offered pursuant to
dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER CERTIFICATE* OFFERING PRICE* FEE
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<S> <C> <C> <C> <C>
Asset Backed Certificates....... $492,000,000 100% $492,000,000 $145,140**
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</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
** Includes $295.00 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
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 PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. 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.
PROSPECTUS SUBJECT TO COMPLETION, DATED OCTOBER , 1998
FNANB CREDIT CARD MASTER TRUST
$402,000,000 CLASS A FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1998-1
$ 90,000,000 CLASS B FLOATING RATE ASSET BACKED CERTIFICATES, SERIES 1998-1
FNANB CREDIT CARD MASTER TRUST
ISSUER
FIRST NORTH AMERICAN NATIONAL BANK
TRANSFEROR AND SERVICER
---------------------
Each Class A Floating Rate Asset Backed Certificate (collectively, the
"Class A Certificates") and each Class B Floating Rate Asset Backed Certificate
(collectively, the "Class B Certificates" and, together with the Class A
Certificates, the "Certificates") will be issued by, and will represent an
undivided interest in, the FNANB Credit Card Master Trust (the "Trust") created
pursuant to a Master Pooling and Servicing Agreement dated as of October 30,
1997 (the "Agreement") between First North American National Bank, as transferor
(in such capacity, the "Transferor") and servicer (in such capacity, the
"Servicer"), and First Union National Bank, as trustee (in such capacity, the
"Trustee"). The property of the Trust includes receivables (the "Receivables")
arising from time to time in a portfolio of MasterCard(R) and VISA(R) credit
card accounts (the "Accounts"), all monies due or to become due and all amounts
received with respect to the Receivables and certain other property, as more
fully described herein. The Class B Certificates will be subordinated to the
Class A Certificates as described herein. In addition, the Collateralized Trust
Obligations and the Class D Certificates (each as defined herein), having a
combined initial principal balance of $108,000,000, will be issued as part of
Series 1998-1 and will be subordinated to the Certificates as described herein.
The Collateralized Trust Obligations and the Class D Certificates are not
offered hereby. The Trust has previously issued, and from time to time may offer
and sell, other Series that evidence undivided interests in certain assets of
the Trust, which Series may have terms significantly different from the terms of
the Certificates as described herein. The issuance of such other Series may
affect the amount or timing of payments on the Certificates. See "Risk
Factors -- Master Trust Considerations -- Issuance of Additional Series Could
Affect Certificate Payments" and "-- Issuance of Paired Series Could Affect
Certificate Payments." The Transferor will own the remaining undivided interest
in the Trust not represented by the Certificates, the Collateralized Trust
Obligations or the Class D Certificates or by other outstanding Series issued by
the Trust.
(Continued on the following page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE CAN
BE NO ASSURANCE THAT ONE WILL DEVELOP OR, IF ONE DOES DEVELOP, THAT IT WILL
CONTINUE UNTIL THE CERTIFICATES ARE PAID IN FULL.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE 17.
---------------------
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR RECOURSE OBLIGATIONS OF FIRST NORTH AMERICAN NATIONAL
BANK OR ANY AFFILIATE THEREOF. THE CERTIFICATES ARE NOT DEPOSITS, AND NEITHER
THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT TRANSFEROR(1)(2)
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<S> <C> <C> <C>
Per Class A Certificate.......................... % % %
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Per Class B Certificate.......................... % % %
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Total............................................ $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) Before deducting expenses estimated at $ .
---------------------
The Certificates are offered by the Underwriters when, as and if issued by
the Trust and accepted by the Underwriters and subject to approval of certain
legal matters by counsel for the Underwriters . The Underwriters reserve the
right to reject orders in whole or in part. It is expected that the Certificates
will be delivered in book-entry form on or about October , 1998 through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme and the
Euroclear System.
---------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC MONTGOMERY SECURITIES LLC
GOLDMAN, SACHS & CO.
DEUTSCHE MORGAN GRENFELL
FIRST UNION CAPITAL MARKETS
UNDERWRITERS OF THE CLASS B CERTIFICATES
NATIONSBANC MONTGOMERY SECURITIES LLC GOLDMAN, SACHS & CO.
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The date of this Prospectus is October , 1998
<PAGE> 3
(Continued from the cover page)
Interest will accrue on the Class A Certificates from ,
1998 (the "Closing Date") through the day preceding the Distribution
Date (as defined herein) and with respect to each Interest Period (as defined
herein) thereafter at a rate of % per annum above the London interbank
offered rate for one-month United States dollar deposits ("LIBOR"), determined
as described herein, prevailing on the related LIBOR Determination Date (as
defined herein) with respect to such period (the "Class A Certificate Rate").
Interest will accrue on the Class B Certificates from the Closing Date through
the day preceding the Distribution Date and with respect to each
Interest Period thereafter at a rate of % per annum above LIBOR, determined
as described herein, prevailing on the related LIBOR Determination Date with
respect to such period (the "Class B Certificate Rate"). The Trustee will
determine LIBOR for each Interest Period on the second business day prior to the
Distribution Date on which such Interest Period commences (each, a "LIBOR
Determination Date"). The initial LIBOR Determination Date with respect to the
Certificates is , 1998. Interest with respect to the
Certificates will be distributed on the 15th day of each month (or, if such 15th
day is not a business day, the next succeeding business day) (each, a
"Distribution Date"), commencing with the Distribution Date. Principal
on the Class A Certificates is scheduled to be paid on the
Distribution Date (the "Class A Expected Final Distribution Date"), but may be
paid earlier or later under certain circumstances described herein. Principal on
the Class B Certificates is scheduled to be paid on the Distribution
Date (the "Class B Expected Final Distribution Date"), but may be paid earlier
or later under certain circumstances described herein. Principal on the Class B
Certificates will not be paid unless and until the Class A Certificates have
been paid in full. See "Maturity Considerations." The Certificates will also be
entitled to the benefits of the funds, if any, on deposit in a segregated trust
account as described herein. See "Description of the Certificates -- Cash
Collateral Account."
---------------------
The Transferor will apply, on behalf of the Trust, to list the Certificates
on the Luxembourg Stock Exchange. There can be no assurance, however, that such
application will be accepted. The Certificateholders should consult with Banque
Generale du Luxembourg, the Luxembourg listing agent for the Certificates, 50,
Avenue J. F. Kennedy, L-2951, Luxembourg, phone number 011-352-4242-3175, to
determine whether the Certificates are listed on the Luxembourg Stock Exchange.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES,
INCLUDING OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS, SYNDICATE
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF
SECURITIES IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND OTHER APPLICABLE LAWS AND REGULATIONS WITH RESPECT TO
ANYTHING DONE BY ANY PERSON IN RELATION TO SECURITIES IN, FROM OR OTHERWISE
INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING."
2
<PAGE> 4
REPORTS TO CERTIFICATEHOLDERS
If Definitive Certificates (as defined herein) are issued (which will occur
only under the limited circumstances described herein), monthly and annual
reports, containing information concerning the Trust and prepared by the
Servicer pursuant to the Agreement, will be sent on behalf of the Trust to the
registered holders of the Definitive Certificates. Unless and until Definitive
Certificates are issued, such reports will be sent on behalf of the Trust to
Cede & Co., as nominee of The Depository Trust Company ("DTC") and registered
holder of the Certificates. See "Description of the Agreement -- Evidence as to
Compliance" and "Description of the Certificates -- Book-Entry Registration" and
"-- Reports to Certificateholders." Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The Transferor is not required and does not intend to send any of its financial
reports to the registered holders of the Certificates (the "Certificateholders")
or to the owners of beneficial interests in the Certificates (the "Certificate
Owners"). The Transferor will file with the Securities and Exchange Commission
(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 for so long as
the Certificates are outstanding.
AVAILABLE INFORMATION
The Transferor, as originator of the Trust, has filed a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act"),
with the Commission on behalf of the Trust with respect to the Certificates. For
further information, reference is made to the Registration Statement and
amendments thereof and exhibits thereto and any reports and other documents
incorporated herein by reference as described below under "Incorporation of
Certain Documents by Reference," which are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a public
access site on the Internet through the world wide web, at which site reports,
information statements and other information, including all electronic filings,
may be reviewed. The Internet address of the Commission's world wide web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Servicer, on
behalf of the Trust, are incorporated by reference into this Prospectus: the
Trust's Annual Report on Form 10-K for the fiscal year ended February 28, 1998
and the Trust's Current Reports on Form 8-K filed on March 16, 1998, April 15,
1998, May 15, 1998, June 15, 1998, July 15, 1998, August 17, 1998 and September
15, 1998. 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 shall be deemed to be incorporated by reference
into this Prospectus and to be part hereof. Any statement contained in any
document incorporated or deemed to be incorporated by reference into this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference into this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Transferor will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference, except the
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into such documents). Written requests for such copies should be
directed to First North American National Bank, 225 Chastain Meadows Court,
Kennesaw, Georgia 30144. Telephone requests for such copies should be directed
to First North American National Bank at (770) 792-4600.
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain capitalized
terms used in this summary are defined elsewhere in this Prospectus. A listing
of the pages on which such terms are defined is found in the "Index to Location
of Defined Terms" beginning on page 94.
The Certificates........... $402,000,000 aggregate principal amount of Class A
Floating Rate Asset Backed Certificates, Series
1998-1 (the "Class A Certificates") and
$90,000,000 aggregate principal amount of Class B
Floating Rate Asset Backed Certificates, Series
1998-1 (the "Class B Certificates" and, together
with the Class A Certificates, the
"Certificates"). The Certificates will represent
interests in the Trust only and will not
represent interests in or recourse obligations of
First North American National Bank or any
affiliate thereof. The Certificates are not
deposits, and neither the Certificates nor the
underlying Accounts or Receivables are insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
Overview of the
Transaction................ The FNANB Credit Card Master Trust (the "Trust")
was formed for the purpose of holding the Trust
Property and issuing one or more series of asset
backed certificates. The Certificates will
represent the right to receive a varying
percentage of the amounts collected in respect of
the Receivables during each month (each, a
"Collection Period") (but only to the extent
needed to make required payments under the
Agreement and subject to the reallocation of such
amounts as described herein) and will be
allocated a varying percentage of the amount of
Receivables charged off as uncollectible. See
"Description of the Certificates -- Allocation of
Collections and Default Amounts." The amounts
collected will be applied, to the extent
allocated to or otherwise available to the
Certificates, to pay interest and principal due
on the Certificates, to reimburse Class A
Investor Charge-Offs or Class B Investor
Charge-Offs, as applicable, and Series Adjustment
Amounts allocated to the Certificates and to pay
certain other amounts, in each case as described
herein. See "Description of the
Certificates -- Application of Collections." The
Class A Certificates will also have the benefit
of Shared Excess Finance Charge Collections,
amounts on deposit in the Cash Collateral
Account, if any, and the subordination of the
Class B Certificates, the Collateralized Trust
Obligations and the Class D Certificates. The
Class B Certificates will also have the benefit
of Shared Excess Finance Charge Collections not
needed to cover shortfalls in respect of the
Class A Certificates, amounts on deposit in the
Cash Collateral Account, if any, not needed to
cover shortfalls in respect of the Class A
Certificates and the subordination of the
Collateralized Trust Obligations and the Class D
Certificates. See "Description of the
Certificates -- Subordination of the Class B
Certificates, the Collateralized Trust
Obligations and the Class D Certificates,"
"-- Reallocation of Cash Flows," "-- Application
of Collections" and "-- Cash Collateral Account."
The Trust.................. The Trust was formed pursuant to a Master Pooling
and Servicing Agreement dated as of October 30,
1997 (the "Agreement") between First North
American National Bank, a limited purpose credit
card national bank, as transferor (in such
capacity, the "Transferor") and servicer (in such
capacity, the "Servicer"), and First Union
National
4
<PAGE> 6
Bank, a national banking association, as trustee
(in such capacity, the "Trustee"). The Agreement
provides for the Trust to issue two types of
certificates: (i) one or more series of investor
certificates which evidence an undivided interest
in the Trust Property and may be transferable
(collectively, the "Investor Certificates") and
(ii) a certificate which evidences the undivided
interest in the Trust Property not evidenced by
the Investor Certificates or the interests of any
Enhancement Providers, if applicable, and which
generally is not transferable (the "Exchangeable
Transferor Certificate"). Each series of Investor
Certificates (each, a "Series") may consist of
one or more classes of Investor Certificates
(each, a "Class") and may be included in a
designated group of Series (each, a "Group"). The
Exchangeable Transferor Certificate is currently
held by the Transferor.
The Trust has previously issued two other Series
(the "Previously Issued Series") and may issue
additional Series from time to time, each
pursuant to a supplement to the Agreement (each,
a "Series Supplement"). See "Annex A (Previously
Issued Series)" for a description of certain
terms of the Previously Issued Series.
The Certificates will be issued pursuant to the
Series 1998-1 Supplement to the Agreement (the
"Series 1998-1 Supplement") and will be part of
Series 1998-1 of the Trust ("Series 1998-1").
Series 1998-1 will be included in a Group
designated as Group One ("Group One") and will be
the third Series included in Group One. Each
Series in Group One will be entitled to share
Finance Charge Collections and Principal
Collections allocated to any other Series in
Group One but not needed to make required
payments with respect to such other Series, in
each case in the manner, and to the extent,
provided in the related Series Supplement. As
used herein, "Agreement" means the Agreement as
supplemented by the Series 1998-1 Supplement
unless the context requires otherwise. See
"Description of the Agreement -- Shared Excess
Finance Charge Collections" and "-- Shared
Principal Collections."
Interests referred to as the collateralized trust
obligations and deemed to be a Class of Investor
Certificates (the "Collateralized Trust
Obligations") and the Class D Floating Rate Asset
Backed Certificates, Series 1998-1 (the "Class D
Certificates" and, collectively with the
Certificates and the Collateralized Trust
Obligations, the "Series 1998-1 Certificates"),
having a combined initial principal balance of
$108,000,000, will be issued pursuant to the
Agreement as part of Series 1998-1. The Class D
Certificates will initially be held by the
Transferor and may not be transferred unless the
Transferor shall have delivered to the Trustee a
tax opinion to the effect that such transfer will
not adversely affect the tax characterization of
the Trust and such transfer shall not, in the
reasonable belief of the Transferor, cause an
Early Amortization Event to occur. The Transferor
may, at its option during the Revolving Period,
and subject to the satisfaction of certain
conditions set forth in the Series 1998-1
Supplement, cause the issuance of additional
Class D Certificates. If any such additional
Class D Certificates are issued, such issuance
will increase the Class D Invested Amount and may
increase the amount of Enhancement available to
the Certificateholders. See "Description of the
Agree-
5
<PAGE> 7
ment -- Enhancement" and "Description of the
Certificates -- Application of Collections."
There can be no assurance as to whether the
Transferor will cause the issuance of any such
additional Class D Certificates.
Exchanges.................. The Agreement provides that, pursuant to one or
more Series Supplements, the Transferor may
tender or cause to be tendered the Exchangeable
Transferor Certificate, or the Exchangeable
Transferor Certificate and the Investor
Certificates of any Series, to the Trustee in
exchange for one or more newly issued Series of
Investor Certificates and a reissued Exchangeable
Transferor Certificate. The issuance of such
newly issued Series may affect the amount or
timing of payments on the Certificates. See
"Description of the Agreement -- Exchanges."
The Trust Property......... The property of the Trust (the "Trust Property")
includes all right, title and interest of the
Transferor in and to (i) all receivables (the
"Receivables") arising from time to time in a
portfolio of MasterCard(R) and VISA(R)(1) credit
card accounts (the "Accounts") originated or
acquired by the Transferor and satisfying certain
eligibility criteria described herein (including
any Supplemental Accounts following their
designation and any Automatic Additional Accounts
following their creation but excluding any
Removed Accounts following their designation),
(ii) all monies due or to become due and all
amounts received with respect to the Receivables
on and after the Cut-Off Date (including
recoveries of amounts previously charged-off
("Recoveries")), (iii) certain fees received by
the Transferor with respect to the Receivables as
partial compensation for taking credit risk,
absorbing fraud losses and funding receivables
for a limited period prior to initial billing
("Interchange"), (iv) all monies on deposit in
certain bank accounts of the Trust (including, to
the extent specified in the related Series
Supplement, investment earnings on such amounts),
(v) all proceeds of the foregoing and (vi) any
Enhancement with respect to any particular Series
or Class as provided in the related Series
Supplement. Each of the Certificates will
represent an undivided interest in the Trust
Property. See "Description of the
Agreement -- The Trust Property."
The Receivables transferred to the Trust will arise
from time to time in MasterCard and VISA credit
card accounts selected by the Transferor on the
basis of criteria set forth in the Agreement as
applied on the Cut-Off Date or, in the case of
Supplemental Accounts, on the Addition Cut-Off
Date. The Receivables consist of amounts charged
by cardholders for goods and services and cash
advances and monthly premiums charged to
cardholders for insurance plans offered with
respect to the Accounts ("Principal Receivables")
and amounts charged to the Accounts in respect of
periodic finance charges, overlimit charges, late
charges, returned check charges, annual fees,
cash advance fees and similar fees and charges
("Finance Charge Receivables"); provided,
however, that an amount equal to the product of
the Discount Percentage and the amount of
Receivables that
- ---------------
(1)MasterCard(R) and VISA(R) are registered trademarks of MasterCard
International Incorporated and VISA USA Incorporated, respectively.
6
<PAGE> 8
would otherwise be Principal Receivables will be
treated as Finance Charge Receivables (a
recharacterization that increases the Portfolio
Yield and thereby decreases the risk of the
occurrence of the Early Amortization Event
related to Portfolio Yield). In addition, all
amounts collected in respect of Interchange will
be treated as Finance Charge Collections. As of
August 31, 1998, the aggregate amount owing in
respect of the Receivables was $1,730,226,921,
comprised of $1,653,325,581 of Principal
Receivables and $76,901,340 of Finance Charge
Receivables (which includes $33,741,338 of
Discount Option Receivables). See "The
Receivables" and "Description of the
Agreement -- Discount Option."
At the time of the formation of the Trust, the
Transferor transferred to the Trust all
Receivables in the Accounts as of September 30,
1997 (the "Cut-Off Date") and all Receivables
arising in the Accounts from time to time
thereafter until termination of the Trust. All
new Receivables arising in the Accounts are
automatically transferred to the Trust. The
Agreement provides that, unless the Transferor
elects to suspend or discontinue such feature and
subject to certain limitations and conditions set
forth in the Agreement, all MasterCard and VISA
credit card accounts satisfying certain
eligibility criteria described herein will be
automatically included as Accounts ("Automatic
Additional Accounts") upon their creation and the
Receivables in such Automatic Additional
Accounts, whether then existing or thereafter
created, will be automatically transferred to the
Trust. This feature allows the Transferor to
transfer additional Receivables to the Trust
(which may allow the issuance of additional
Series or decrease the risk of the occurrence of
certain Early Amortization Events) more
efficiently than through the designation of
Supplemental Accounts. See "The Receivables" and
"Description of the Agreement -- Automatic
Additional Accounts."
The Agreement permits or, under certain
circumstances, requires the Transferor to
designate from time to time, in each case subject
to certain limitations and conditions set forth
in the Agreement, additional MasterCard or VISA
credit card accounts as Accounts (the
"Supplemental Accounts") and to transfer the
Receivables in such Supplemental Accounts,
whether then existing or thereafter created, to
the Trust. This feature requires the Transferor
to transfer additional Receivables to the Trust
if there would otherwise be insufficient
Receivables to support all Series then
outstanding. In addition, unlike the Automatic
Additional Accounts feature, this feature allows
the Transferor to transfer to the Trust the
receivables in a discrete group of MasterCard or
VISA credit card accounts selected by the
Transferor (which, like the inclusion of
Automatic Additional Accounts, may allow the
issuance of additional Series or decrease the
risk of the occurrence of certain Early
Amortization Events). See "The Receivables" and
"Description of the Agreement -- Supplemental
Accounts."
The Agreement permits the Transferor to designate
from time to time, subject to certain limitations
and conditions set forth in the Agreement,
certain Accounts the Receivables in which are to
be removed from the Trust (the "Removed
Accounts"). This feature allows the
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<PAGE> 9
Transferor to obtain unencumbered ownership of
the Receivables in Defaulted Accounts or other
Receivables not needed to support all Series then
outstanding. See "The Receivables" and
"Description of the Agreement -- Removal of
Accounts."
Servicing Compensation..... The Servicer is entitled to receive, as
compensation for its servicing activities under
the Agreement, a monthly servicing fee (the
"Servicing Fee"). The share of the Servicing Fee
allocable to Series 1998-1 with respect to any
Distribution Date (the "Investor Monthly
Servicing Fee") will be equal to one-twelfth of
the product of 2.00% and the Invested Amount as
of the last day of the second preceding
Collection Period. The share of the Investor
Monthly Servicing Fee allocable to the Class A
Certificates with respect to any Distribution
Date will be equal to one-twelfth of the product
of 2.00% and the Class A Invested Amount as of
the last day of the second preceding Collection
Period. The share of the Investor Monthly
Servicing Fee allocable to the Class B
Certificates with respect to any Distribution
Date will be equal to one-twelfth of the product
of 2.00% and the Class B Invested Amount as of
the last day of the second preceding Collection
Period. See "Description of the
Agreement -- Servicing Compensation" and
"Description of the Certificates -- Servicing
Compensation."
Denominations.............. Beneficial interests in the Certificates will be
offered for purchase in denominations of $1,000
and integral multiples thereof.
Registration of
Certificates............... The Certificates initially will be represented by
one or more certificates registered in the name
of Cede & Co., the nominee for DTC, and will not
be registered in the names of the Certificate
Owners or their nominees. The Certificate Owners
will only be entitled to receive Definitive
Certificates under the limited circumstances
described herein. See "Description of the
Certificates -- Book-Entry Registration" and
"-- Definitive Certificates."
Clearance and Settlement... The Certificate Owners may elect to hold the
Certificates through DTC (in the United States)
or Cedel or Euroclear (in Europe). Transfers
within DTC, Cedel or Euroclear, as the case may
be, will be made in accordance with the usual
rules and operating procedures of the relevant
system. Cross-market transfers between persons
holding directly or indirectly through DTC in the
United States, on the one hand, and Cedel or
Euroclear, on the other, will be effected in DTC
through the relevant Depositaries of Cedel or
Euroclear. See "Description of the
Certificates -- Book-Entry Registration" and
"Annex B (Global Clearance, Settlement and Tax
Documentation Procedures)."
Collections................ The Trustee has established and will maintain a
segregated trust account (the "Collection
Account") for the benefit of all then outstanding
Series. The Servicer will deposit all amounts
collected in respect of the Receivables (subject
to certain exceptions described herein) in the
Collection Account on a monthly basis or, under
certain limited circumstances described herein,
on a daily basis. All amounts deposited in the
Collection Account will be allocated by the
Servicer between (i) amounts collected in respect
of Finance Charge Receivables, amounts collected
in respect of Discount Option Receivables, if
any, and amounts collected in respect of
Interchange (collectively,
8
<PAGE> 10
"Finance Charge Collections") and (ii) amounts
collected in respect of Principal Receivables
(exclusive of amounts collected in respect of
Discount Option Receivables, if any) ("Principal
Collections"). All such amounts will then be
allocated by the Servicer among Series 1998-1,
the interests of the Previously Issued Series,
the interests of all other then outstanding
Series, the interests of any Enhancement
Providers, if applicable, and the interest of the
holder of the Exchangeable Transferor Certificate
(the "Transferor Interest"). See "Description of
the Agreement -- Collection Account,"
"-- Discount Option " and "-- Allocation of
Collections; Deposits in Collection Account."
Interest and Principal..... Each Class A Certificate will represent the right
to receive (i) interest payments on each
Distribution Date at the Class A Certificate
Rate, accruing from the Closing Date, and (ii)
principal payments commencing on the Class A
Expected Final Distribution Date or during the
Early Amortization Period as described herein, in
each case funded from a percentage of the amounts
collected in respect of the Receivables and
certain other funds as described herein
(including, under the circumstances described
herein, any funds on deposit in the Excess
Funding Account, the Cash Collateral Account, the
Reserve Account or the Principal Funding
Account). See "Description of the
Certificates -- Interest Payments" and
"-- Principal Payments." Interest on the Class A
Certificates will be distributed on each
Distribution Date in an amount equal to the
product of (i) the Class A Certificate Rate for
the related Interest Period, (ii) a fraction, the
numerator of which is the actual number of days
in such Interest Period and the denominator of
which is 360, and (iii) the outstanding principal
amount of the Class A Certificates as of the
preceding Record Date (or, in the case of the
first Distribution Date, as of the Closing Date).
The aggregate undivided interest in the Aggregate
Principal Receivables evidenced by the Class A
Certificates (the "Class A Invested Amount")
initially will equal $402,000,000 (the "Class A
Initial Invested Amount") and will decline as
principal with respect to the Class A
Certificates is deposited in the Principal
Funding Account (or, without duplication, paid to
the holders of the Class A Certificates (the
"Class A Certificateholders")) or as Class A
Investor Charge-Offs occur. See "Description of
the Certificates -- Principal Payments" and
"-- Allocation of Investor Default Amount;
Allocation of Series Adjustment Amount; Investor
Charge-Offs."
Each Class B Certificate will represent the right
to receive (i) interest payments on each
Distribution Date at the Class B Certificate
Rate, accruing from the Closing Date, and (ii)
principal payments commencing on the Class B
Expected Final Distribution Date or during the
Early Amortization Period as described herein, in
each case funded from a percentage of the amounts
collected in respect of the Receivables and
certain other funds as described herein
(including, under the circumstances described
herein, any funds on deposit in the Excess
Funding Account, the Cash Collateral Account, the
Reserve Account or the Principal Funding
Account); provided, however, that the holders of
the Class B Certificates (the "Class B
Certificateholders") will in no event begin to
receive principal payments until the Class A
Certificates have been paid in full. See
"Description of the Certificates -- Interest
Payments" and "-- Principal Payments." In-
9
<PAGE> 11
terest on the Class B Certificates will be
distributed on each Distribution Date in an
amount equal to the product of (i) the Class B
Certificate Rate for the related Interest Period,
(ii) a fraction, the numerator of which is the
actual number of days in such Interest Period and
the denominator of which is 360, and (iii) the
outstanding principal amount of the Class B
Certificates as of the preceding Record Date (or,
in the case of the first Distribution Date, as of
the Closing Date). The aggregate undivided
interest in the Aggregate Principal Receivables
evidenced by the Class B Certificates (the "Class
B Invested Amount") initially will equal
$90,000,000 (the "Class B Initial Invested
Amount") and will decline as principal with
respect to the Class B Certificates is deposited
in the Principal Funding Account (or, without
duplication, paid to the Class B
Certificateholders), as Principal Collections
allocated to the Class B Certificates are
reallocated for the benefit of the Class A
Certificates, as Class A Allocable Amounts are
allocated to the Class B Certificates or as Class
B Investor Charge-Offs occur. See "Description of
the Certificates -- Principal Payments,"
"-- Reallocation of Cash Flows" and
"-- Allocation of Investor Default Amount;
Allocation of Series Adjustment Amount; Investor
Charge-Offs."
Interest on the Class A Certificates or the Class B
Certificates due but not paid on any Distribution
Date will be payable on the next succeeding
Distribution Date, together with additional
interest on such amount at the Class A
Certificate Rate or the Class B Certificate Rate,
as applicable, plus 2.00% per annum. "Interest
Period" means, with respect to any Distribution
Date, the period from and including the previous
Distribution Date through and including the day
preceding such Distribution Date, except that the
initial Interest Period will be the period from
and including the Closing Date through and
including the day preceding the initial
Distribution Date. See "Description of the
Certificates -- Interest Payments."
It is expected that a single principal payment will
be made to the Class A Certificateholders on the
Class A Expected Final Distribution Date and that
a single principal payment will be made to the
Class B Certificateholders on the Class B
Expected Final Distribution Date. There can be no
assurance, however, that such payments will be
made. See "Maturity Considerations."
The final distribution of interest and principal on
the Certificates will be made no later than the
Distribution Date (the "Stated Series
Termination Date"). After the Stated Series
Termination Date, the Trust will have no further
obligation to pay interest or principal on the
Certificates.
Application of Available
Principal Collections --
Revolving Period......... On each Distribution Date with respect to the
period (the "Revolving Period") commencing on the
Closing Date and ending on the earlier of the
commencement of the Accumulation Period and the
commencement of the Early Amortization Period,
Available Principal Collections will, subject to
certain limitations described herein, be treated
as Shared Principal Collections and applied to
cover principal payments due to or for the
benefit of other Series included in Group
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<PAGE> 12
One (to the extent provided in the Series
Supplements for such other Series), be deposited
in the Excess Funding Account, be paid to the
holder of the Exchangeable Transferor Certificate
or, under certain limited circumstances described
herein, be paid to the holders of the Class D
Certificates (the "Class D Certificateholders").
See "Description of the Certificates -- Early
Amortization Events" for a discussion of the
events that might lead to the termination of the
Revolving Period prior to the commencement of the
Accumulation Period. See "Description of the
Agreement -- Shared Principal Collections" and
"Description of the Certificates -- Principal
Payments."
Application of Available
Principal Collections --
Accumulation Period...... The Servicer will establish and maintain, in the
name of the Trustee, a segregated trust account
(the "Principal Funding Account") for the benefit
of the Certificateholders. Unless an Early
Amortization Event has occurred, on each
Distribution Date with respect to the period (the
"Accumulation Period") commencing at the close of
business on the last day of the
Collection Period (or such later date to which
commencement of the Accumulation Period may be
postponed in accordance with the Agreement) and
ending on the earliest of (i) the commencement of
the Early Amortization Period, (ii) the date on
which the Series 1998-1 Certificates are paid in
full and (iii) the Stated Series Termination
Date, Available Principal Collections will be
deposited in the Principal Funding Account (in an
amount not to exceed the applicable Controlled
Deposit Amount for such Distribution Date) and
used to make principal payments to the
Certificateholders on the Class A Expected Final
Distribution Date or the Class B Expected Final
Distribution Date, as applicable. The
Accumulation Period is designed to enable the
Certificateholders to receive a single payment
(rather than installment payments) with respect
to the principal balance of their Certificates.
The commencement of the Accumulation Period may,
subject to certain limitations and conditions set
forth in the Agreement, be postponed until a date
no later than the last day of the
Collection Period. See "Description of the
Certificates -- Principal Payments,"
"-- Postponement of Accumulation Period,"
"-- Principal Funding Account" and
"-- Application of Collections."
The Accumulation Period includes a period during
which amounts will accumulate in the Principal
Funding Account for the benefit of the Class A
Certificateholders (the "Class A Accumulation
Period") and a period during which amounts will
accumulate in the Principal Funding Account for
the benefit of the Class B Certificateholders
(the "Class B Accumulation Period"). Unless an
Early Amortization Event has occurred, the Class
A Accumulation Period will commence at the close
of business on the last day of the
Collection Period (or such later date to which
commencement of the Accumulation Period may be
postponed in accordance with the Agreement) and
end on the earliest of (i) the commencement of
the Early Amortization Period, (ii) the date on
which the Class A Certificates are paid in full
and (iii) the Stated Series Termination Date. The
Class B Accumulation Period will commence on the
Distribution Date on which the Class A
Certificates are paid in full and end on the
earliest
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<PAGE> 13
of (i) the commencement of the Early Amortization
Period, (ii) the date on which the Class B
Certificates are paid in full and (iii) the
Stated Series Termination Date. See "Description
of the Certificates -- Principal Payments."
The principal amount on deposit in the Principal
Funding Account will be invested by the Trustee,
at the direction of the Servicer, in Eligible
Investments. On each Distribution Date with
respect to the Accumulation Period, all interest
and other investment earnings (net of losses and
investment expenses) on funds on deposit in the
Principal Funding Account will be withdrawn and
used to make interest payments with respect to
the Certificates. The Servicer will establish and
maintain, in the name of the Trustee, a
segregated trust account (the "Reserve Account")
for the benefit of the Certificateholders
intended to help assure the payment of interest
with respect to the Certificates. See
"Description of the Certificates -- Principal
Funding Account" and "-- Reserve Account."
If the Available Principal Collections for any
Distribution Date with respect to the
Accumulation Period are less than the sum of (i)
the Controlled Accumulation Amount for such
Distribution Date plus (ii) the Deficit
Controlled Accumulation Amount, if any, for the
immediately preceding Distribution Date (such sum
for such Distribution Date, the "Controlled
Deposit Amount"), the available amount will be
deposited in the Principal Funding Account and
such deficiency plus the Controlled Accumulation
Amount for the following Distribution Date will
be deposited in the Principal Funding Account on
such following Distribution Date (to the extent
amounts are available to make such deposit). If
the Available Principal Collections for any
Distribution Date with respect to the
Accumulation Period exceed the Controlled Deposit
Amount for such Distribution Date, the Controlled
Deposit Amount will be deposited in the Principal
Funding Account and such excess may be paid to
the Class D Certificateholders to the extent that
the Available Enhancement Amount exceeds the
Required Enhancement Amount and any remaining
excess will be applied as Shared Principal
Collections. See "Description of the
Certificates -- Principal Payments" and
"-- Application of Collections."
Application of Available
Principal Collections --
Early Amortization
Period................... On each Distribution Date with respect to the
period (the "Early Amortization Period")
commencing on the date on which an Early
Amortization Event is deemed to have occurred and
ending on the earlier of (i) the date on which
the Series 1998-1 Certificates have been paid in
full and (ii) the Stated Series Termination Date,
all amounts on deposit in the Principal Funding
Account, if any, and the Available Principal
Collections will be paid to the Class A
Certificateholders (without regard to the
Controlled Deposit Amount) until the Class A
Certificates have been paid in full and,
following payment in full of the Class A
Certificates, to the Class B Certificateholders
(without regard to the Controlled Deposit Amount)
until the Class B Certificates have been paid in
full. The Early Amortization Period is
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<PAGE> 14
designed to accelerate the distribution of
principal to the Certificateholders following an
Early Amortization Event. See "Description of the
Certificates -- Principal Payments" and "-- Early
Amortization Events."
The diagram set forth below illustrates the
application of Available Principal Collections
during the Revolving Period and the Accumulation
Period. If an Early Amortization Event occurs any
time during the Revolving Period or the
Accumulation Period, Available Principal
Collections will be paid to the
Certificateholders as described above.
(Chart)
Shared Excess Finance
Charge Collections......... The Certificates will be entitled to receive
Finance Charge Collections allocated to other
Series in Group One but not needed to make
payments or deposits with respect to such other
Series in the manner, and to the extent, provided
in the Series Supplements for such other Series.
The sharing of Finance Charge Collections may
enable the Transferor to avoid the occurrence of
an Early Amortization Event that would otherwise
occur as a result of a shortfall in Finance
Charge Collections allocated to Series 1998-1.
There can be no assurance, however, that excess
Finance Charge Collections will exist or be
allocated to the Certificates with respect to any
Collection Period. See "Description of the
Agreement -- Shared Excess Finance Charge
Collections."
Shared Principal
Collections................ The Certificates will be entitled to receive
Principal Collections allocated to other Series
in Group One but not needed to make payments or
deposits with respect to such other Series in the
manner, and to the extent, provided in the Series
Supplements for such other Series. The sharing of
Principal Collections may enable the Transferor
to avoid the occurrence of an Early Amortization
Event that would otherwise occur as a result of a
shortfall in Available Principal Collections.
There can be no assurance, however, that excess
Principal Collections will exist or be allocated
to the Certificates with respect to any
Collection Period. See "Description of the
Agreement -- Shared Principal Collections."
Subordination of the Class
B Certificates, the
Collateralized Trust
Obligations and the Class
D Certificates........... The Class B Certificates, the Collateralized Trust
Obligations and the Class D Certificates will be
subordinated as described herein to the extent
necessary to fund certain payments with respect
to the Class A Certificates. In addition, the
Collateralized Trust Obligations and the
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<PAGE> 15
Class D Certificates will be subordinated as
described herein to the extent necessary to fund
certain payments with respect to the Class B
Certificates. If the amount on deposit in the
Cash Collateral Account is zero and the CTO
Invested Amount and the Class D Invested Amount
are reduced to zero, the Class B
Certificateholders will bear directly the credit
and other risks associated with their undivided
interest in the Trust. If the Class B Invested
Amount is reduced, the percentage of Finance
Charge Collections allocated to the Class B
Certificateholders with respect to subsequent
Collection Periods may be reduced. If and to the
extent that the amount of such reduction in the
Class B Invested Amount is not reimbursed, the
amount of principal distributable to the Class B
Certificateholders will be reduced. If the amount
on deposit in the Cash Collateral Account is zero
and the Class B Invested Amount, the CTO Invested
Amount and the Class D Invested Amount are
reduced to zero, the Class A Certificateholders
will bear directly the credit and other risks
associated with their undivided interest in the
Trust. If the Class A Invested Amount is reduced,
the percentage of Finance Charge Collections
allocated to the Class A Certificateholders with
respect to subsequent Collection Periods may be
reduced. If and to the extent that the amount of
such reduction in the Class A Invested Amount is
not reimbursed, the amount of principal
distributable to the Class A Certificateholders
will be reduced. See "Description of the
Certificates -- Subordination of the Class B
Certificates, the Collateralized Trust
Obligations and the Class D Certificates,"
"-- Allocation of Collections and Default
Amounts" and "-- Allocation of Investor Default
Amount; Allocation of Series Adjustment Amount;
Investor Charge-Offs."
Amounts Available as
Enhancement.............. On each Distribution Date, the amount of
Enhancement available to the Certificateholders
will equal the lesser of (i) the sum of the CTO
Invested Amount, the Class D Invested Amount and
the amount, if any, on deposit in the Cash
Collateral Account on such Distribution Date
(collectively, the "Available Enhancement
Amount") and (ii) the greater of (A) the product
of the Invested Amount on such Distribution Date
and 18% and (B) $18,000,000 (the amount described
in this clause (ii), the "Required Enhancement
Amount"); provided, however, that if an Early
Amortization Event occurs, then the Required
Enhancement Amount on any Distribution Date will
equal the Required Enhancement Amount on the
Distribution Date immediately preceding the
occurrence of such Early Amortization Event. The
Required Enhancement Amount may be reduced
without the consent of the Certificateholders if
the Rating Agency Condition and certain other
conditions shall have been satisfied. If the
Available Enhancement Amount is less than the
Required Enhancement Amount on any Distribution
Date (after giving effect to any optional
issuance of additional Class D Certificates made
on such Distribution Date in accordance with the
Agreement), certain Excess Spread and Shared
Excess Finance Charge Collections allocable to
Series 1998-1 will be used to increase the
Available Enhancement Amount to the extent of
such shortfall. If the Available Enhancement
Amount exceeds the Required Enhancement Amount on
any Distribution Date, such excess may not be
available to the Certificateholders. See
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<PAGE> 16
"Description of the Agreement -- Enhancement" and
"Description of the Certificates -- Application
of Collections."
Cash Collateral Account.... The Trustee will establish and maintain a
segregated trust account (the "Cash Collateral
Account") for the benefit of the
Certificateholders, the holders of the
Collateralized Trust Obligations (the "CTO
Securityholders") and the Class D
Certificateholders. The Cash Collateral Account
will have a beginning balance of zero, which
balance may be increased to the extent Excess
Spread and Shared Excess Finance Charge
Collections allocated to Series 1998-1 are
required to be or are otherwise deposited
therein. Any funding of the Cash Collateral
Account may result in a corresponding reduction
of the Class D Invested Amount; provided,
however, that, after giving effect to such
reduction on any Distribution Date, the Available
Enhancement Amount on such Distribution Date must
equal or exceed the Required Enhancement Amount
on such Distribution Date. Amounts on deposit in
the Cash Collateral Account will be available to
make payments to or for the benefit of the
Certificateholders to the extent described
herein. See "Description of the
Certificates -- Cash Collateral Account."
Optional Repurchase........ The Transferor may, at its sole option and subject
to certain conditions set forth in the Agreement,
repurchase the Series 1998-1 Certificates on any
Distribution Date on or after which the Invested
Amount is reduced to an amount less than or equal
to 5% of the initial Invested Amount by
depositing into the Collection Account, on such
Distribution Date, an amount equal to the
Invested Amount plus interest on all outstanding
Series 1998-1 Certificates accrued through the
last day of the immediately preceding Interest
Period. See "Description of the
Certificates -- Optional Repurchase."
Material Federal Income Tax
Consequences............. McGuire, Woods, Battle & Boothe LLP, special tax
counsel to the Transferor, is of the opinion that
under existing law the Certificates will be
characterized as indebtedness for federal income
tax purposes and the Trust will not be subject to
federal income tax at the entity level. Under the
Agreement, the Transferor agrees, and the
Certificate Owners will be deemed to agree, to
treat the Certificates as indebtedness of the
Transferor for federal, state and local income
and franchise tax purposes. See "Material Federal
Income Tax Consequences" for additional
information concerning the application of federal
income tax laws.
ERISA Considerations....... Under a regulation issued by the U.S. Department of
Labor (the "Final Regulation"), the Trust
Property will not be deemed "plan assets" of an
employee benefit plan holding an interest in the
Certificates if the Certificates qualify as
"publicly-offered securities" within the meaning
of the Final Regulation. To qualify as
"publicly-offered securities" within the meaning
of the Final Regulation, certain conditions must
be met, including that, with respect to the Class
A Certificates, interests in the Class A
Certificates be held by at least 100 investors
independent of the Transferor and of one another
upon completion of the public offering being made
hereby. The Underwriters of the Class A
Certificates expect, although no assurance can be
given, that the Class A Certificates will be held
by at least 100 such investors. The
15
<PAGE> 17
Transferor anticipates that the other conditions
of the "publicly-offered security" exception
contained in the Final Regulation will be met
with respect to the Class A Certificates. No
monitoring or other measures will be taken to
ensure that any such conditions will be met with
respect to the Class A Certificates. The
Underwriter of the Class B Certificates expects
that the Class B Certificates will not qualify as
"publicly-offered securities." Accordingly, the
Class B Certificates may not be acquired by
Benefit Plans or entities whose underlying assets
include plan assets, including, without
limitation, an insurance company general account.
Each Certificate Owner of a Class B Certificate,
by its acceptance thereof, will be deemed to have
represented that it is not a Benefit Plan
investor. See "ERISA Considerations."
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 two nationally
recognized statistical rating organizations
selected by the Transferor (each, a "Rating
Agency"). The rating of the Class A Certificates
is based primarily on the value of the
Receivables as determined by each Rating Agency,
the amounts held in any trust account for the
benefit of the Class A Certificates and the terms
of the Class B Certificates, the Collateralized
Trust Obligations and the Class D Certificates.
See "Description of the
Certificates -- Subordination of the Class B
Certificates, the Collateralized Trust
Obligations and the Class D Certificates."
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 -- Certificate Ratings Do Not Address
Certain Risks and May Be Revised or Withdrawn."
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 two
Rating Agencies. The rating of the Class B
Certificates is based primarily on the value of
the Receivables as determined by each Rating
Agency, the amounts held in any trust account for
the benefit of the Class B Certificates and the
terms of the Collateralized Trust Obligations and
the Class D Certificates. See "Description of the
Certificates -- Subordination of the Class B
Certificates, the Collateralized Trust
Obligations and the Class D Certificates."
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 -- Certificate Ratings Do Not Address
Certain Risks and May Be Revised or Withdrawn."
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<PAGE> 18
RISK FACTORS
CERTIFICATEHOLDERS MAY BE UNABLE TO RESELL CERTIFICATES
There is currently no market for the Certificates. Each Underwriter intends
to make a market in the Certificates purchased by it from the Transferor, but is
not obligated to do so. The Certificates will not be listed on a United States
securities exchange. There can be no assurance that a secondary market will
develop with respect to the Certificates or, if a secondary market does develop,
that it will enable the Certificateholders to resell the Certificates or that it
will continue until the Certificates are paid in full. If a secondary market
does not develop with respect to the Certificates, the Certificateholders may be
unable to resell the Certificates.
CERTIFICATEHOLDERS MUST LOOK SOLELY TO LIMITED TRUST ASSETS FOR CERTIFICATE
PAYMENTS
The Certificates will represent interests in the Trust only and will not
represent interests in or recourse obligations of First North American National
Bank or any affiliate thereof. Consequently, the Certificateholders must rely
solely upon amounts collected in respect of the Receivables for the payment of
principal of and interest on the Certificates. Furthermore, under the Agreement,
the Certificateholders have an interest in the Receivables and amounts collected
in respect of the Receivables only to the extent that the Receivables or such
amounts are allocated to Series 1998-1 or, to the limited extent described
herein, the Transferor Interest. Should the Certificates not be paid in full on
a timely basis, the Certificateholders may not look to any assets of the
Transferor (other than the Exchangeable Transferor Certificate and the Class D
Certificates, to the extent described herein) or any affiliate thereof to
satisfy their claims. The Trust will have no substantial assets other than its
interests in the Receivables and the proceeds thereof as described herein.
RECHARACTERIZATION OF RECEIVABLES TRANSFER COULD AFFECT CERTIFICATE PAYMENTS
Although the Agreement provides that the Transferor has transferred all of
its right, title and interest in and to the Receivables to the Trust, a court
could conclude that the Transferor still owns the Receivables subject to a
security interest in favor of the Trust. The risk of a court reaching such a
conclusion may be increased by the retention by the Transferor of the
Exchangeable Transferor Certificate, the Class D Certificates and any other
Class of Investor Certificates that may be issued and retained by the
Transferor. The Transferor has taken steps to create in favor of the Trust a
first priority perfected security interest in the Receivables under the Uniform
Commercial Code (the "UCC") in the event that a court concludes that the
Transferor still owns the Receivables. If a court concludes that the Transferor
still owns the Receivables subject to a security interest in favor of the Trust,
a tax or governmental lien (or other lien imposed under applicable state or
federal law without the consent of the Transferor) on the Transferor's property
arising before new Receivables come into existence may be senior to the Trust's
interest in the Receivables. In addition, if the Transferor becomes insolvent or
the FDIC is appointed conservator or receiver for the Transferor, the FDIC's
administrative expenses may be paid from the Receivables before the Trust
receives any payments on the Receivables. See "Certain Legal Aspects of the
Receivables -- Transfer of Receivables."
INSOLVENCY OF TRANSFEROR COULD AFFECT CERTIFICATE PAYMENTS
A conservator or receiver for the Transferor would have the power under the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
to repudiate contracts of, and to request a stay of up to 90 days of any
judicial action or proceeding involving, the Transferor. However,
notwithstanding the insolvency of, or the appointment of a conservator or
receiver for, the Transferor, subject to certain qualifications, a valid
perfected security interest of the Trust in the Receivables should be
enforceable (to the extent of the Trust's "actual direct compensatory damages")
and payments to the Trust with respect to the Receivables (up to the amount of
such damages) should not be subject to an automatic stay of payment or to
recovery by such a conservator or receiver. If, however, the conservator or
receiver were to (i) assert that the security interest was unperfected or
unenforceable, (ii) require the Trust to establish its right to those payments
by submitting to and completing the administrative claims procedure established
under FIRREA or
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(iii) request a stay of proceedings with respect to the Transferor as provided
under FIRREA, delays in payments to the Trust and on the Certificates and
possible reductions in the amount of those payments could occur. In the event of
a repudiation of obligations by a conservator or receiver, FIRREA provides that
a claim for the repudiated obligation is limited to "actual direct compensatory
damages" determined as of the date of the appointment of the conservator or
receiver. In the event a conservator or receiver of the Transferor repudiated
the Agreement, the amount paid to the Certificateholders could, depending upon
the method used to determine "actual direct compensatory damages" and the
circumstances existing on the date of the repudiation, be less than the
principal of the Certificates and the interest accrued thereon to the date of
payment. See "Certain Legal Aspects of the Receivables -- Certain Matters
Relating to Receivership." In addition, in the event of a Servicer Default, if a
conservator or receiver is appointed for the Servicer, and no Servicer Default
other than such conservatorship or receivership exists, the conservator or
receiver may have the power to prevent either the Trustee or the Required
Investor Certificateholders from appointing a successor Servicer.
If a receiver were appointed for the Transferor, causing an early
amortization event to occur with respect to all then outstanding Series, new
Principal Receivables would not be transferred to the Trust. If a receiver were
appointed for the Transferor, the Trustee would sell the portion of the
Receivables allocable in accordance with the Agreement to each Series (unless
the holders of more than 50% of the principal amount of each Class of each
Series, excluding any Class or portion thereof held by the Transferor, and the
holders of any other interest in the Exchangeable Transferor Certificate other
than the Transferor instruct otherwise), thereby causing early termination of
the Trust and a loss to the Certificateholders if the net proceeds allocable to
the Certificateholders from such sale, if any, were insufficient to pay the
Certificateholders in full. The net proceeds of any such sale of the portion of
the Receivables allocated to Series 1998-1 would first be used to pay amounts
due to the Class A Certificateholders, would thereafter be used to pay amounts
due to the Class B Certificateholders, would thereafter be used to pay amounts
due to the CTO Securityholders and would thereafter be used to pay amounts due
to the Class D Certificateholders. If the only Early Amortization Event to occur
were either the insolvency of the Transferor or the appointment of a conservator
or receiver for the Transferor, the conservator or receiver might have the power
to require the Transferor to continue to transfer new Receivables to the Trust
and to prevent the early sale, liquidation or disposition of the Receivables and
the commencement of the Early Amortization Period. In addition, a conservator or
receiver for the Transferor might have the power to cause early payment of the
Certificates. In the event of an early payment of principal on the Certificates,
the Certificateholders may realize a lower yield on their reinvestment of such
early payment and may be required to incur costs associated with reinvesting
such early payment. See "Certain Legal Aspects of the Receivables -- Certain
Matters Relating to Receivership."
CONSUMER AND DEBTOR PROTECTION LAWS COULD AFFECT CERTIFICATE PAYMENTS
The relationship between the cardholder and credit card issuer is
extensively regulated by federal and state consumer protection laws. In
addition, various proposed federal and state laws and amendments to existing
laws have from time to time been introduced in Congress and certain state and
local legislatures that, if enacted, could further regulate the credit card
industry in ways that make it more difficult to collect payments on credit card
receivables or that reduce the finance charges and fees that may be charged with
respect to credit card accounts. Although such proposed legislation has not been
enacted, there can be no assurance that such a bill will not become law in the
future. The potential effect of any legislation which limits the amount of
finance charges and fees that may be charged with respect to credit card
accounts could be to reduce the portfolio yield on the Accounts. Any failure by
the Transferor or the Servicer to comply with such legal requirements also could
adversely affect the Trust's ability to collect the full amount of the
Receivables. Although the Transferor makes certain representations and
warranties relating to the validity and enforceability of the Receivables, it is
not anticipated that the Trustee will make any initial or periodic general
examination of the Accounts or the Receivables or any records relating to the
Accounts or the Receivables for the purpose of establishing the presence or
absence of defects or compliance with such representations and warranties or for
any other purpose. In the event of a breach of certain representations and
warranties, the Transferor may be obligated to accept the reassignment and
transfer of the entire Trust Portfolio. See
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"Description of the Agreement -- Representations and Warranties" and "Certain
Legal Aspects of the Receivables -- Consumer and Debtor Protection Laws."
The application of federal and state bankruptcy and debtor relief laws to
the obligations represented by the Receivables could adversely affect the
interests of the Certificateholders if such laws result in any Receivables being
charged off as uncollectible. See "Description of the Agreement -- Defaulted
Accounts," "Description of the Certificates -- Allocation of Investor Default
Amount; Allocation of Series Adjustment Amount; Investor Charge-Offs" and
"Certain Legal Aspects of the Receivables -- Consumer and Debtor Protection
Laws."
DECLINE IN NEW RECEIVABLES COULD AFFECT CERTIFICATE PAYMENTS
The rate at which new Receivables are created could affect the payment of
principal on the Certificates. If the rate at which new Receivables are created
declines significantly and the Transferor is unable to designate Supplemental
Accounts, the Early Amortization Period could commence and principal on the
Certificates could be paid earlier than expected. If principal on the
Certificates is paid earlier than expected, the Certificateholders may realize a
lower yield on their reinvestment of such early payment and may incur costs in
connection with such reinvestment. The rate at which new Receivables are created
is affected by various factors, including the use of competing sources of
credit, general economic conditions, the terms of the Accounts (which may be
changed by the Transferor) and seasonal purchasing habits. See "Description of
the Agreement -- Supplemental Accounts" and "Description of the
Certificates -- Early Amortization Events."
DECLINE IN PRINCIPAL PAYMENT RATE COULD AFFECT CERTIFICATE PAYMENTS
The rate at which Principal Receivables are paid could affect the payment
of principal on the Certificates. If the rate at which Principal Receivables are
paid declines significantly during the Accumulation Period, the Available
Principal Collections for one or more Distribution Dates may be less than the
related Controlled Deposit Amounts and the Trust may be unable to accumulate in
the Principal Funding Account an amount sufficient to pay the Class A
Certificates in full on the Class A Expected Final Distribution Date or to pay
the Class B Certificates in full on the Class B Expected Final Distribution
Date. The rate at which Principal Receivables are paid is affected by various
factors, including increased convenience use (where account balances are paid in
full on a monthly basis to avoid finance charges), general economic conditions,
the terms of the Accounts (which may be changed by the Transferor) and seasonal
payment habits. See "Maturity Considerations."
SUBORDINATION OF CLASS B CERTIFICATES COULD AFFECT PAYMENTS TO CLASS B
CERTIFICATEHOLDERS
The Class B Certificateholders will not be entitled to receive principal
payments until the Class A Certificates have been paid in full. In addition,
Finance Charge Collections or Available Principal Collections otherwise
allocable to the Class B Certificateholders may be reallocated to the Class A
Certificateholders and may cause the Class B Invested Amount to be reduced. If
the Class B Invested Amount is reduced, the percentage of Finance Charge
Collections allocated to the Class B Certificateholders with respect to
subsequent Collection Periods may be reduced. If and to the extent that the
amount of such reduction in the Class B Invested Amount is not reimbursed, the
amount of principal distributable to the Class B Certificateholders will be
reduced. If the amount on deposit in the Cash Collateral Account is zero and the
Class B Invested Amount, the CTO Invested Amount and the Class D Invested Amount
are reduced to zero, the Class A Certificateholders will bear directly the
credit and other risks associated with their undivided interest in the Trust.
See "Description of the Certificates -- Allocation of Collections and Default
Amounts," "-- Allocation of Investor Default Amount; Allocation of Series
Adjustment Amount; Investor Charge-Offs" and "-- Subordination of the Class B
Certificates, the Collateralized Trust Obligations and the Class D
Certificates."
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ACCOUNT ADDITIONS COULD AFFECT CERTIFICATE PAYMENTS
Unless the Transferor elects to suspend or discontinue such feature and
subject to certain limitations and conditions set forth in the Agreement, all
Automatic Additional Accounts will constitute Accounts upon their creation and
the Receivables in such Automatic Additional Accounts, whether then existing or
thereafter created, will be automatically transferred to the Trust. In addition,
the Agreement permits or, under certain circumstances, requires the Transferor
to designate from time to time, in each case subject to certain limitations and
conditions set forth in the Agreement, Supplemental Accounts and to transfer the
Receivables in such Supplemental Accounts, whether then existing or thereafter
created, to the Trust. Such Automatic Additional Accounts and Supplemental
Accounts may include Accounts originated using criteria different from those
which were applied to the Accounts existing on the Closing Date or to
previously-designated Automatic Additional Accounts or Supplemental Accounts.
Consequently, there can be no assurance that Automatic Additional Accounts or
Supplemental Accounts designated in the future will be of the same credit
quality as previously-designated Accounts. In addition, such Automatic
Additional Accounts or Supplemental Accounts may have different terms or
characteristics than the initial Accounts or the Automatic Additional Accounts
or Supplemental Accounts previously included in the Trust, including lower
periodic rate finance charges and other fees and charges, different payment
rates and higher loss or delinquency experience, which may have the effect of
reducing the average yield on the Receivables. Each designation of Supplemental
Accounts is subject to certain conditions, including that the Rating Agency
Condition shall have been satisfied, but there is no mechanism to assure
consistent credit quality from time to time. See "The Receivables" and
"Description of the Agreement -- Automatic Additional Accounts" and
"-- Supplemental Accounts."
DEPOSITS TO EXCESS FUNDING ACCOUNT OR PRINCIPAL FUNDING ACCOUNT COULD REDUCE
PORTFOLIO YIELD
If, on any date, the Transferor Amount is less than the Minimum Transferor
Amount, Principal Collections that would otherwise be distributed to the holder
of the Exchangeable Transferor Certificate will be deposited in the Excess
Funding Account to the extent of such deficiency. In addition, on each
Distribution Date with respect to the Accumulation Period, Available Principal
Collections that would otherwise be distributed to the holder of the
Exchangeable Transferor Certificate will be deposited in the Principal Funding
Account in an amount not to exceed the Controlled Deposit Amount for such
Distribution Date. The amounts, if any, on deposit in the Excess Funding Account
and the Principal Funding Account will be invested in Eligible Investments. See
"Description of the Agreement -- Excess Funding Account" and "Description of the
Certificates -- Principal Funding Account."
The deposit of amounts in the Excess Funding Account or the Principal
Funding Account may result in a reduction in Portfolio Yield. In the case of
deposits to the Excess Funding Account, such deposits have the effect of
substituting cash for Principal Receivables. Because the Eligible Investments in
which such cash is invested may earn a rate which is less than the effective
yield from the Finance Charge Collections that would otherwise have been
allocated to Series 1998-1 with respect to such Principal Receivables, this
substitution may result in a reduction in Portfolio Yield. In the case of
deposits to the Principal Funding Account, such deposits have the effect of
substituting the earnings from Eligible Investments for Finance Charge
Collections. Finance Charge Collections with respect to any Collection Period
during the Accumulation Period are allocated to Series 1998-1 based on the
Floating Allocation Percentage, an allocation percentage that tends to decrease
as the Invested Amount decreases. Because deposits to the Principal Funding
Account reduce the Invested Amount, such deposits reduce the percentage (and
therefore the amount) of Finance Charge Collections allocated to Series 1998-1.
Although such deposits will increase the amount of cash in the Principal Funding
Account available to be invested in Eligible Investments, such Eligible
Investments may earn a rate which is less than the effective yield from the
Finance Charge Collections that would otherwise have been allocated to Series
1998-1 and therefore may result in a reduction in Portfolio Yield.
The reduction in Portfolio Yield that may result from deposits to the
Excess Funding Account or the Principal Funding Account is illustrated by the
following example. If (i) the amount on deposit in the Principal Funding Account
equals 25% of the Class A Initial Invested Amount, (ii) such amount is invested
in Eligible Investments that earn 5% per annum, (iii) the effective yield from
Finance Charge Collections is 25% per annum and (iv) the Portfolio Yield is not
affected by other collections or defaults, then the Portfolio
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Yield will be reduced, in general, from 25% per annum (the effective yield from
Finance Charge Collections) to 20% per annum (the blended yield from Finance
Charge Collections and investment earnings). The Reserve Account is intended to
help assure the payment of interest on the Certificates during the Accumulation
Period by reducing any reduction in the Portfolio Yield that would otherwise
result from the deposit of amounts in the Principal Funding Account. See
"Description of the Certificates -- Reserve Account."
SOCIAL, TECHNOLOGICAL AND ECONOMIC FACTORS COULD AFFECT CERTIFICATE PAYMENTS
Changes in purchase and payment patterns by cardholders may result from a
variety of social, technological and economic factors. Social factors include
potential changes in consumers' attitudes toward financing purchases with debt.
Technological factors include new methods of payment, such as debit cards.
Economic factors include the rate of inflation, unemployment levels, personal
bankruptcy levels and relative interest rates. Cardholders with respect to the
Accounts have billing addresses in all 50 states, the District of Columbia and
certain United States territories and possessions. Adverse economic changes in
certain states in which the largest number of such cardholders have billing
addresses (such as California, Florida, Illinois, Ohio and Texas) could have a
direct impact on the creation of Receivables and the timing or amount of
payments on the Certificates. There is no basis to predict whether, or to what
extent, social, technological or economic factors will affect future use of
credit or repayment patterns. See "The Receivables -- Geographic Distribution of
Accounts."
COMPETITION IN THE CREDIT CARD INDUSTRY COULD AFFECT CERTIFICATE PAYMENTS
The credit card industry is highly competitive and operates in a legal and
regulatory environment increasingly focused on the finance charges and other
fees charged to consumers for credit card services. As new credit card issuers
and other credit providers enter the market and all issuers and providers seek
to expand their share of the market, there is increased use of advertising,
target marketing, pricing competition and incentive programs. In many cases,
customers select credit cards on the basis of product features, such as price
and credit limit, and will change credit cards if they can obtain more
attractive product features through another credit card issuer or other credit
provider. If the obligors on the Accounts choose to use competing sources of
credit, the rate at which new Receivables are created could decline. If the rate
at which new Receivables are created declines significantly and the Transferor
is unable to designate Supplemental Accounts, the Early Amortization Period
could commence and principal on the Certificates could be paid earlier than
expected. If principal on the Certificates is paid earlier than expected, the
Certificateholders may realize a lower yield on their reinvestment of such early
payment and may incur costs in connection with such reinvestment. See
"Description of the Agreement -- Supplemental Accounts" and "Description of the
Certificates -- Early Amortization Events."
BOOK-ENTRY REGISTRATION MAY LIMIT RIGHTS OF CERTIFICATE OWNERS
The Certificates initially will be represented by one or more certificates
registered in the name of Cede & Co., the nominee for DTC, and will not be
registered in the names of the Certificate Owners or their nominees. Unless and
until Definitive Certificates are issued, the Certificate Owners will not be
recognized by the Trustee as Certificateholders. Consequently, until such time,
the Certificate Owners will only be able to receive payments from, and exercise
the rights of Certificateholders indirectly through, DTC and its participating
organizations and, unless a Certificate Owner requests a copy of any such report
or other information from the Trustee, will receive reports and other
information provided for under the Agreement only if, when and to the extent
provided to the Certificate Owners by DTC and its participating organizations.
In addition, the ability of the Certificate Owners to pledge the Certificates to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of the Certificates, may be limited due to the lack of
physical certificates for the Certificates. See "Description of the
Certificates -- Book-Entry Registration" and "-- Definitive Certificates."
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CHANGES IN ACCOUNT TERMS COULD AFFECT CERTIFICATE PAYMENTS
The Transferor has not transferred to the Trust the Accounts but only the
Receivables arising in the Accounts. As owner of the Accounts, the Transferor
has the right to change various Account terms (including, without limitation,
the finance charges and fees charged with respect to the Accounts and the
minimum monthly payments required with respect to the Accounts). A reduction in
such finance charges and fees would decrease the effective yield on the Accounts
and could result in the occurrence of an Early Amortization Event. An alteration
of payment terms may result in fewer payments on the Receivables being made in
any month. Under the Agreement, the Transferor agrees that, unless required by
law or unless it deems it necessary in its sole discretion to maintain on a
competitive basis its credit card business, it will not at any time reduce the
annual percentage rates or the periodic finance charges assessed on the
Receivables or the other fees applicable to the Accounts if, as a result of any
such reduction, either (i) the Transferor reasonably expects that such reduction
would cause an early amortization event to occur with respect to any Series or
(ii) such reduction is not also applied to any comparable segment of consumer
revolving credit card accounts owned by the Transferor that have characteristics
the same as, or substantially similar to, the Accounts. In addition, the
Transferor has the right to change the terms of the Accounts or its policies and
procedures with respect to servicing the Accounts (including the amount or
timing of charge-offs and the periodic finance charges and other fees to be
assessed on the Accounts) if such change is made applicable to any comparable
segment of consumer revolving credit card accounts owned by the Transferor that
have characteristics the same as, or substantially similar to, the Accounts.
Except as specified above, there are no restrictions in the Agreement on the
ability of the Transferor to change the terms of the Accounts. There can be no
assurance that changes in applicable law, changes in the marketplace or prudent
business practice might not result in a determination by the Transferor to
change the terms of the Accounts.
CERTIFICATEHOLDERS MAY BE UNABLE TO CONTROL CERTAIN ACTIONS
Subject to certain exceptions, the holders of the Investor Certificates of
each Series may take certain actions, or direct certain actions to be taken,
under the Agreement or the related Series Supplement. Under certain
circumstances, however, the consent or approval of a specified percentage of the
aggregate invested amount of all Series then outstanding may be required to
direct certain actions, including requiring the appointment of a successor
Servicer following a Servicer Default, amending the Agreement in certain
circumstances, directing the Servicer not to sell the Receivables upon the
occurrence of certain events of insolvency or bankruptcy and directing a
repurchase of all outstanding Series upon the breach of certain representations
and warranties by the Transferor. There can be no assurance that the interests
of the holders of the Investor Certificates of other Series will coincide with
the interests of the Certificateholders with respect to such actions.
In determining whether the holders of Series 1998-1 have consented to or
given their approval of any action to be taken under the Agreement or the Series
1998-1 Supplement, except as otherwise specified, the consent or approval of a
specified percentage of the aggregate Invested Amount will be required. Because
the Class A Invested Amount will in most cases exceed the Class B Invested
Amount, the Class A Certificateholders may have the power to determine whether
any such action is taken without regard to the interests of the Class B
Certificateholders.
MASTER TRUST CONSIDERATIONS
Issuance of Additional Series Could Affect Certificate Payments
The Trust has issued the Previously Issued Series and is expected to issue
additional Series from time to time. Although the Principal Terms of any
additional Series will be specified in a Series Supplement, the provisions of
such Series Supplement and, therefore, the terms of such additional Series will
not be subject to the prior review or consent of the Certificateholders. It is a
condition to the issuance of any additional Series that the Rating Agency
Condition shall have been satisfied. There can be no assurance, however, that
the Principal Terms of any other Series might not have an adverse impact on the
timing and amount of
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<PAGE> 24
payments received by a Certificateholder. See "Description of the
Agreement -- Investor Certificates; Exchangeable Transferor Certificate" and
"-- Exchanges."
Issuance of Paired Series Could Affect Certificate Payments
The Transferor, at or after the commencement of the Accumulation Period,
may cause the Trust to issue another Series as a Paired Series with respect to
Series 1998-1 and use the proceeds of such issuance to finance the increase in
the Transferor amount that would otherwise result from the deposit of Available
Principal Collections into the Principal Funding Account. Because the terms of
the Series 1998-1 Certificates may vary from the terms of such other Series, the
early amortization events with respect to such other Series may vary from the
Early Amortization Events and may include early amortization events that are
unrelated to the status of the Transferor, the Servicer or the Receivables, such
as early amortization events related to the continued availability and rating of
certain Enhancement Providers with respect to such other Series. If an early
amortization event were to occur with respect to any such Paired Series prior to
the payment in full of the Series 1998-1 Certificates, the Fixed Allocation
Percentage might be reduced and principal on the Certificates might be paid
later than expected. See "Description of the Certificates -- Paired Series."
CERTIFICATE RATINGS DO NOT ADDRESS CERTAIN RISKS AND MAY BE REVISED OR WITHDRAWN
It is a condition to the issuance of the Class A Certificates that they be
rated in the highest rating category by at least two Rating Agencies. 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 two Rating Agencies. The
ratings assigned to the Certificates by each Rating Agency will reflect such
Rating Agency's assessment of the likelihood that Certificateholders of such
Class will receive the payments of interest and principal required to be made
under the Agreement, in the case of interest as required under the Agreement and
in the case of principal on or prior to the Stated Series Termination Date. The
ratings will be based primarily on an assessment of the Receivables (including
the eligibility criteria for the designation of Supplemental Accounts), the
amounts held in any trust account for the benefit of the Certificates (including
the Excess Funding Account) and the subordination of the Class B Certificates,
the Collateralized Trust Obligations and the Class D Certificates for the
benefit of the Class A Certificates and the subordination of the Collateralized
Trust Obligations and the Class D Certificates for the benefit of the Class B
Certificates. Any such rating will not address the possibility of the occurrence
of an Early Amortization Event, the possibility of the imposition of United
States withholding tax with respect to non-U.S. Certificateholders, the
likelihood that principal of the Class A Certificates will be paid on the Class
A Expected Final Distribution Date or the likelihood that principal of the Class
B Certificates will be paid on the Class B Expected Final Distribution Date.
The Transferor will request a rating of the Certificates by at least two
Rating Agencies. There can be no assurance as to whether any rating agency not
requested to rate the Certificates will nonetheless issue a rating with respect
to either Class of the Certificates, and, if so, what such rating would be. A
rating assigned to either Class of the Certificates by a rating agency that has
not been requested by the Transferor to do so may be lower than the ratings
assigned by the Rating Agencies pursuant to the Transferor's request. 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.
USE OF DIFFERENT INDICES COULD AFFECT CERTIFICATE PAYMENTS
In general, the finance charges assessed on the Accounts are calculated by
adding a specified margin to the prime rate. The Certificates bear interest,
however, at a specified margin above LIBOR. Because the finance charges assessed
on the Accounts and the interest payable on the Certificates are calculated
based on different indices, the Finance Charge Collections allocated to the
Certificateholders could be reduced without a corresponding reduction in the
interest payable on the Certificates or the interest payable on the Certificates
could be increased without a corresponding increase in the Finance Charge
Collections allocated to the Certificateholders.
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FIRST NORTH AMERICAN NATIONAL BANK(R)
First North American National Bank(R) ("FNANB") is a limited purpose credit
card national bank headquartered in Kennesaw, Georgia. FNANB engages only in
credit card operations, does not accept demand deposits or deposits that the
depositor may withdraw by check or similar means for payment to third parties or
others, does not accept any savings or time deposits of less than $100,000
(although it may accept deposits of under $100,000 as collateral for extensions
of credit), maintains only one office that accepts deposits and does not engage
in the business of making commercial loans.
FNANB was chartered by the Office of the Comptroller of the Currency in
October 1990 and commenced operations in November 1990. FNANB is a wholly-owned
subsidiary of Circuit City Stores, Inc., a Virginia corporation ("Circuit
City"). As of August 31, 1998, FNANB had assets of approximately $437.9 million
and equity of approximately $243.9 million. The principal executive offices of
FNANB are located at 225 Chastain Meadows Court, Kennesaw, Georgia 30144.
FIRST NORTH AMERICAN NATIONAL BANK CREDIT CARD OPERATIONS
GENERAL
The Receivables transferred to the Trust arise from transactions made by
holders of various MasterCard and VISA credit cards issued by FNANB. FNANB is a
member of MasterCard International Incorporated and VISA USA Incorporated. FNANB
also services a private label credit card program for Circuit City. The
receivables in the private label credit card accounts have not been, and will
not be, transferred to the Trust.
Each cardholder is subject to an agreement with FNANB governing the terms
and conditions of the related MasterCard or VISA credit card account. Pursuant
to each such agreement, FNANB reserves the right, subject to such notice to the
cardholder as may be required by law, to add to or change the terms, conditions,
services or features of its MasterCard or VISA credit card accounts at any time,
including increasing or decreasing periodic finance charges, other fees or
minimum payment terms. The agreement with each cardholder provides that new or
changed terms will become effective at the time stated in such notice and will
apply to all outstanding unpaid indebtedness as well as new transactions.
A cardholder may use the FNANB credit card to purchase or lease goods or
services wherever the card is honored or to obtain cash advances from any
financial institution that accepts the card. In addition, FNANB sends
convenience checks to select cardholders. A cardholder may use convenience
checks, which are completed and signed by the cardholder in the same way as
regular personal checks, to transfer balances from other credit cards, to repay
other debt or to purchase or lease goods or services.
NEW ACCOUNT UNDERWRITING AND ORIGINATION
Beginning in September 1992, FNANB made its initial offering of MasterCard
credit cards solely to certain existing holders of Circuit City private label
credit cards. The Circuit City private label credit card portfolio provided a
test group of applicants for whom FNANB had already developed a detailed credit
profile. This test group allowed FNANB to develop its initial origination
strategy using a group of accounts with known credit characteristics.
Beginning in 1993, solicitations were distributed to people outside the
existing Circuit City retail customer base. At this time, FNANB began using
"HNC" brand modeling software for targeting specific consumer segments using
third party databases, such as those managed by credit bureaus and third party
vendors. As solicitations have moved away from existing private label
cardholders, account and charge originations have become less reliant on
existing Circuit City customers. During the twelve months ended June 30, 1998,
purchases at Circuit City stores charged on FNANB MasterCard or VISA credit
cards as a percentage of total FNANB MasterCard or VISA purchases averaged
approximately 1%. As of June 30, 1998, approximately 16% of those individuals
who held a FNANB MasterCard or VISA credit card also held a Circuit City private
label credit card.
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FNANB solicits new bank card applicants through pre-approved direct mail
solicitations and telemarketing. FNANB's direct mail solicitation process begins
with a pre-screening review to identify creditworthy consumers for a credit card
account. As part of the pre-screening process, FNANB provides credit history
criteria to credit reporting agencies, which in turn generate a list of
prospective cardholders with desired attributes. FNANB carefully targets
consumers through front-end modeling and aligns offers with targeted customer
segments to maximize penetration, response rates and usage. FNANB further
refines the prospective cardholder list by applying its internal underwriting
criteria. These additional criteria are applied using risk analysis models
designed to predict the potential credit risk of prospective cardholders. In
general, the credit risk of each prospective cardholder is evaluated in order to
assess, based on the information available, the prospective cardholder's
propensity and ability to repay his or her obligations. FNANB's underwriting
criteria for prospective cardholders generally includes previous payment
patterns with other creditors, historical delinquencies, longevity of account
relationships, credit utilization and certain demographic characteristics.
FNANB sends mass mailings to pre-approved consumers. A back-end credit
bureau report is reviewed for all applicants who respond to the offer to insure
that FNANB has the most updated information on the applicant and to determine
what credit line to assign. If an applicant no longer meets the original
pre-approved criteria, FNANB is not required, pursuant to the Fair Credit
Reporting Act, to extend the applicant credit. FNANB does not provide
applications for its MasterCard or VISA credit card accounts in Circuit City
stores.
Customers who do not respond to the pre-approved direct mail campaign are
processed through a response model scorecard to evaluate their propensity to
respond to a telemarketing follow-up campaign. Customers scoring high in this
model are then solicited via a follow-up call. The telemarketing call is
initiated by either a third party representative contracted by FNANB or an
employee of FNANB's internal telemarketing department.
In April 1997, FNANB modified its underwriting criteria using a different
modeling methodology. The modified modeling technique has resulted in the
extension of pre-approved offers to individuals with better credit histories
than the credit histories of those previously solicited and an increase in the
average credit score of new accounts. Because these individuals often receive
multiple pre-approved offers and are more selective in accepting such offers,
however, the modified modeling technique has also resulted in a decrease in
consumer response rates to new account solicitations and an increase in the cost
of acquiring new accounts. As FNANB acquires a statistically significant
population of solicitation responders, it will be able to develop a response
model that limits solicitations to those individuals most likely to respond,
thereby reducing account acquisition costs.
FNANB uses both generic credit bureau risk scores and a customized credit
risk monitoring system to develop and manage strategies for credit line
adjustments, overlimit charges and delinquent collection actions. These risk
management systems evaluate a number of account and credit bureau
characteristics including historical payment history, delinquency, existing
credit line utilization and credit bureau risk score. Increases in credit lines
are initiated predominantly through the credit risk monitoring system and are
only issued if the applicable account has a balance outstanding. The decision to
increase a credit line is processed instantly through an automated credit line
increase system. An account's credit bureau score, behavior score, credit
utilization and cash utilization factor heavily into the credit line increase
decision. The credit line increase system ensures consistency and enables
back-end tracking of credit lines. Credit line decreases are based on a
combination of factors, including the length of time the account has been
opened, days/cycles delinquent, the behavior score and the risk score.
Each cardholder's credit bureau credit risk score is purchased a minimum of
three times a year to update the cardholder's scoring information. In addition,
FNANB uses computerized query programs, including scorecard analysis software,
which monitors portfolio performance by key demographic, account and credit
attributes. FNANB management can make immediate adjustments to the credit
scoring algorithms based on identified relations between portfolio performance
and applicant attributes.
25
<PAGE> 27
ASSESSMENT OF FINANCE AND OTHER CHARGES
FNANB currently offers multiple pricing structures with a range of annual
percentage rates and annual fees. The majority of FNANB's MasterCard and VISA
accounts have variable monthly periodic rate finance charges assessed at one
twelfth of the sum of the prime rate plus a specified margin. In addition, a
select number of MasterCard and VISA accounts have a fixed annual percentage
rate. Most accounts have an annual fee of $25, although annual fees may be
waived with respect to certain accounts if a cardholder exceeds a specified
dollar amount of purchases during the year. The specific pricing for each credit
card is determined prior to solicitation based primarily on the prospective
cardholder's risk profile.
All FNANB MasterCard and VISA credit cards have a 25 day grace period for
purchases but no grace period for cash advances or convenience checks. The
minimum payment for any period is equal to the greater of $15 or 3% of the new
account balance for "low" APR accounts and $20 or 4% for "standard" APR accounts
(in general, low APR accounts have an annual percentage rate of less than 18%
and standard APR accounts have an annual percentage rate of greater than or
equal to 18%). All accounts are subject to certain additional fees and charges,
including a late payment fee of $25, a returned check fee of $20 and an
overlimit fee of $20. If a periodic finance charge is imposed on purchases or
cash advances, the minimum amount of such charge is $.50. In addition, a one
time cash advance transaction fee is assessed for all cash advances at a rate of
$5.00 or 3% of the cash advance, whichever is greater.
FNANB selectively offers interest free promotions whereby cardholders are
able to make specific purchases on an interest free basis during a specified
time period, usually 90 days. Regular monthly principal payments are still
required, and finance charges are assessed retroactively if the cardholder does
not meet the terms and conditions of the offering. The offer of interest free
promotions may reduce the amount of Finance Charge Collections received during
the interest free period, which would reduce Portfolio Yield. It is not
expected, however, that any such reduction would be material.
There can be no assurance that periodic rate finance charges, fees and
other charges assessed on the Accounts included in the Trust will remain at
current levels.
BILLING AND PAYMENTS
FNANB relies upon a calculation of "average daily balance" to determine the
appropriate amount of finance charges to be assessed to an account. The "average
daily balance" is determined by summing the daily balances for the account for
each day in the billing cycle and by dividing such sum by the number of the days
in the billing cycle. The daily balance outstanding on an account for any day
during the monthly billing cycle is equal to the sum of the beginning balance of
the account during any day, increased by purchases and unpaid finance charges
posted to the account that day and decreased by any payments and credits posted
to the account that day.
DELINQUENCIES AND COLLECTIONS
An account is considered delinquent when the minimum payment due is not
received by the payment due date specified on the cardholder's billing
statement. One component of FNANB's collection strategy involves the segregation
of FNANB's collections staff into teams specializing by delinquency categories.
Collection efforts are initiated as early as the second day of delinquency, but
no later than the 21st day of delinquency, when collectors attempt to establish
telephone contact. Behavioral risk scoring of all accounts enables the
collection effort to be timed and tailored to the potential risk of an account
and the dollars at risk. Collection efforts escalate in intensity as an account
is cycled into a more advanced delinquency category.
FNANB's collection strategies begin with an early delinquency calling
program using state-of-the-art technology that includes predictive dialing for
accounts in the delinquency levels of 1-30 and 31-60 days past due. Statement
messaging and automatic letter dunning are also employed during the first 60
days of delinquency. Delinquency levels are monitored daily by the respective
collectors, and aggregated delinquency information is reported to and reviewed
by senior management.
26
<PAGE> 28
Accounts that are 61-90 days past due are assigned to specific collectors
for accelerated collection activities, including demands for payment in full,
correspondence describing the impact that the delinquent credit obligation has
upon the cardholder's credit history, and preparatory actions to place accounts
with attorneys for legal action. Accounts that are more than 90 days past due
are pursued through collection activities through the 180th day of delinquency.
Other collection related activities include bankruptcy placements with outside
collection agencies, attorney referrals and internal and external post-charge
off recovery. An account is written-off as uncollectible at 181 days past due or
within 30 days after FNANB receives notice of the death or bankruptcy of the
related cardholder.
FNANB has a policy of restoring or "reaging" a delinquent account to
current status when the cardholder has made, over a three month period,
aggregate payments equivalent to 9% of the outstanding balance (for low APR
accounts) or 12% of the outstanding balance (for standard APR accounts). FNANB
policy requires that a partial payment of less than the full monthly minimum
payment (plus or minus $0.99) due on an account will result in the forward aging
of the delinquency status.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth the delinquency experience for FNANB's
portfolio of MasterCard and VISA credit card accounts (the "Bank Portfolio") as
of each of the dates shown. Because delinquencies are affected by a number of
factors, including competitive and general economic conditions and consumer debt
levels, there can be no assurance that the future delinquency experience for the
Receivables, including, without limitation, the Receivables in the Automatic
Additional Accounts or any Supplemental Accounts, will be similar to the
historical experience set forth below.
DELINQUENCY EXPERIENCE
BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF DECEMBER 31,
----------------------------------------------------- ---------------------------------------
1998 1997 1997 1996
------------------------- ------------------------- ------------------------- -----------
PERCENTAGE PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Receivables
Outstanding(1)..... $1,730,676 100.00% $1,640,405 100.00% $1,749,357 100.00% $1,486,705
========== ====== ========== ====== ========== ====== ==========
Delinquent 31-60
Days(2)............ $ 46,241 2.67% $ 52,495 3.20% $ 52,682 3.01% $ 44,951
Delinquent 61-90
Days(2)............ 29,640 1.71% 31,516 1.92% 36,741 2.10% 29,545
Delinquent 91 or More
Days(2)............ 56,471 3.26% 61,869 3.77% 72,136 4.12% 53,581
---------- ------ ---------- ------ ---------- ------ ----------
Total................ $ 132,352 7.64% $ 145,880 8.89% $ 161,559 9.23% $ 128,077
========== ====== ========== ====== ========== ====== ==========
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------
1996 1995
----------- -------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
RECEIVABLES RECEIVABLES RECEIVABLES
----------- ----------- -----------
<S> <C> <C> <C>
Total Receivables
Outstanding(1)..... 100.00% $806,321 100.00%
====== ======== ======
Delinquent 31-60
Days(2)............ 3.02% $ 30,601 3.80%
Delinquent 61-90
Days(2)............ 1.99% 2,804 0.35%
Delinquent 91 or More
Days(2)............ 3.60% 23,235 2.88%
------ -------- ------
Total................ 8.61% $ 56,640 7.03%
====== ======== ======
</TABLE>
- ---------------
(1) Total Receivables Outstanding consists of all amounts due from cardholders
as posted to the accounts (including delinquent accounts that have been
"reaged" to current status) as of the date shown.
(2) The delinquency rates are the amount of delinquent receivables (excluding
receivables in delinquent accounts that have been "reaged" to current
status) as of the date shown divided by the Total Receivables Outstanding as
of the same date. The exclusion of receivables in "reaged" accounts does not
have a material effect on the delinquency rates.
27
<PAGE> 29
The following table sets forth the loss experience for the Bank Portfolio
for each of the periods shown. There can be no assurance that the future loss
experience for the Receivables will be similar to the historical experience set
forth below.
LOSS EXPERIENCE
BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED TWELVE MONTHS ENDED
AUGUST 31, DECEMBER 31,
------------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Average Principal Receivables(1)..................... $1,678,159 $1,526,215 $1,560,267 $1,015,406 $487,576
Gross Principal Charge-Off(s)(2)................... 154,160 128,471 203,189 110,730 32,638
Recoveries......................................... 18,167 12,866 19,745 6,955 1,439
Net Principal Charge-Offs.......................... 135,993 115,605 183,444 103,775 31,199
Net Principal Charge-Offs as a percentage of
Average Principal Receivables.................... 12.16%(3) 11.36%(3) 11.76% 10.22% 6.40%
</TABLE>
- ---------------
(1) Average Principal Receivables for a particular period is the average of the
principal balances outstanding at the beginning and end of each month during
such period.
(2) Gross Principal Charge Offs are charge offs before Recoveries and do not
include fraud losses.
(3) The percentages reflected for the eight months ended August 31, 1998 and
1997 are annualized figures, which are not necessarily indicative of results
for the entire year.
FNANB's delinquencies and net principal charge-offs at any time reflect,
among other factors, the overall credit quality of the cardholders, the
seasoning of the accounts, the success of FNANB's collection efforts and general
economic conditions.
The increase, since 1995, in delinquency and loss rates experienced within
the Bank Portfolio is predominantly attributable to three factors: the
maturation of the Bank Portfolio, an increased incidence of bankruptcy filings
in the United States, and intense competition among credit card issuers. As a
portfolio matures, delinquency and loss rates plateau, and this trend is
apparent in the Bank Portfolio, taking seasonality trends into consideration.
Newly booked accounts historically have exhibited rising delinquencies and
losses which reach a steady state within approximately two to three years after
origination. As new account originations have continued to become a smaller
percentage of the Bank Portfolio, delinquency and loss rates for the Bank
Portfolio have increased. Most credit card issuers have also experienced
increases in delinquency and loss rates since 1996. One significant factor
affecting industry-wide loss rates centers around the record increases in
personal bankruptcy filings, particularly from 1996 forward. FNANB revised its
acquisition modeling techniques beginning in January 1997, which has resulted in
the acquisition of lower risk cardholders. See "-- New Account Underwriting and
Origination." Additionally, as competition to acquire and retain existing
cardholders has increased among credit card issuers, FNANB has found it
increasingly more difficult to acquire cardholders and retain existing
cardholders under profitable conditions. As a result, portfolio growth slowed
significantly beginning in January 1997. Therefore, while absolute dollars
delinquent or charged off (the numerator in the delinquency and loss rate
calculations) recently have remained relatively constant, the total receivables
(the denominator in the delinquency and loss rate calculations) has not
increased at the rate experienced from 1992 through 1996, and has in some months
declined moderately.
FNANB believes its delinquency and loss rates will follow general industry
trends. FNANB remains focused on optimizing the profitability of each account
within the context of acceptable risk attributes. Furthermore, as FNANB has
identified profitable segments, it has attempted to maximize the acquisition of
customers matching the profile of the profitable segments.
28
<PAGE> 30
CUSTOMER SERVICE AND ACCOUNT MANAGEMENT
FNANB's customer service department is located principally in Richmond,
Virginia, with an additional office in Kennesaw, Georgia. An automated voice
response unit handles a substantial percentage of in-coming calls, enabling
customers to receive information 24 hours a day, quickly and efficiently.
Customers can receive balance, payment and credit information, request documents
and even make payments over the phone without having to speak with a customer
service representative.
Customer service representatives are authorized to release information to a
customer relating to the customer's account. Each customer service
representative is also permitted to modify and update data on an account,
including information about the customer such as addresses or telephone numbers,
as well as financial transactions. The ability to change data on a customer's
file is restricted by established system security protocols. Each customer
service representative is assigned access to customer files by an independent
systems security administrator. In addition, every transaction performed by a
customer service representative, whether the transaction modifies information on
the account or merely allows the customer service representative to view a
customer's information without making changes, is automatically logged in a
computer file which can be reviewed at a later time. Finally, audits of
financial transactions, as well as maintenance transactions, are performed
routinely to confirm that customer service representatives are complying with
applicable policies.
Overhead monitors in the customer service areas provide representatives
with real time information, such as the number of customers who are waiting to
speak to a representative, the number of calls that have been answered within
the time standards established, the number of representatives active in the
system to handle phone calls, and the number of representatives performing
follow-up administrative functions to address customer requests.
Several systems have been implemented to increase the efficiency of FNANB's
customer service areas, including Automated Number Identification which allows a
customer service representative to identify the customer and, upon
identification, presents the customer's account number to the representative
with little or no input from the customer. Front end interfaces allow customer
service representatives to increase customer credit lines or decrease customer
annual percentage rates within underwriting parameters with the push of a
keystroke, reducing call handling time and attrition while increasing customer
satisfaction.
DESCRIPTION OF TOTAL SYSTEM SERVICES, INC.
Certain data processing and administrative functions associated with the
servicing of the credit card accounts are performed on behalf of FNANB by Total
System Services, Inc. ("TSYS") from its facilities in Columbus, Georgia. The
majority of TSYS's common stock is owned by Synovus, Financial, Inc. A minority
portion of TSYS's common stock is publicly traded on the New York Stock
Exchange. TSYS is a bankcard and bank data processing company. TSYS provides a
variety of data processing services to FNANB, including processing and
settlement of transactions, maintenance of individual cardholder accounts,
processing of cardholder statements and issuance of plastic cards. TSYS is the
second largest third-party bankcard processor behind First Data Resources, Inc.
YEAR 2000
FNANB, like most other companies, utilizes computer programs which process
transactions using two digits for the year of the transaction rather than a full
four digits. Programs that process year 2000 transactions with the year "00" may
encounter significant processing inaccuracies or inoperability. FNANB has
determined that it, like most other companies, will be required to modify or
replace portions of its software so that its information systems will be able to
utilize dates properly subsequent to December 31, 1999. The year 2000 issue will
be addressed either through modifications to existing software or conversions to
new software. If such modifications are not made or completed on a timely basis,
however, the year 2000 issue could have a material impact on the operations of
FNANB.
29
<PAGE> 31
FNANB has developed and is following a plan to implement and thoroughly
test the year 2000 modifications and conversions on a timely basis. Based on
progress made to date, and assuming the continued availability of staff and
other technical resources and no unexpected difficulty in implementing the year
2000 modifications and conversions, FNANB anticipates that software and hardware
for critical information systems will be year 2000 compliant by the end of 1998.
FNANB believes that the costs of implementing the year 2000 modifications and
conversions will not be material. The Certificateholders will not incur any
costs in connection with FNANB's efforts to become year 2000 compliant.
FNANB utilizes services and software provided by outside suppliers which
must also become year 2000 compliant. The majority of all software applications
and computer services used by FNANB are provided by TSYS. FNANB also utilizes
other third party suppliers of software and services. FNANB has requested
commitment letters from TSYS and such other third party suppliers indicating
that such suppliers will take the necessary actions to become year 2000
compliant in a timely manner. FNANB is actively monitoring the progress of such
outside suppliers in their efforts to comply and is developing contingency plans
to address any failure of such outside suppliers to do so. There can be no
assurance, however, that the software of other suppliers on which FNANB's
information systems rely will be converted on a timely basis, or that failure to
convert would not have a material adverse effect on FNANB's operations.
INTERCHANGE
Creditors participating in the MasterCard and VISA associations receive
certain fees as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing
("Interchange"). Under the MasterCard and VISA systems, a portion of the
Interchange in connection with cardholder charges for goods and services is
passed from banks which clear the transactions for merchants to credit card
issuing banks. Interchange fees are set annually by MasterCard and VISA. The
Transferor will transfer to the Trust all of the Interchange attributable to
cardholder charges for goods and services in the Accounts. Interchange received
with respect to the Accounts will be treated as Finance Charge Collections and
will be allocated to the Certificates as described herein.
THE RECEIVABLES
The Receivables transferred to the Trust (the "Trust Portfolio") will arise
from time to time in MasterCard and VISA credit card accounts selected by the
Transferor that qualify as Eligible Accounts. See "Description of the
Agreement -- Representations and Warranties." The account eligibility criteria
was applied on the Cut-Off Date and, in the case of Supplemental Accounts, will
be applied on the cut-off date related to such Supplemental Accounts (the
"Addition Cut-Off Date"). The Receivables consist of amounts charged by
cardholders for goods and services and cash advances and monthly premiums
charged to cardholders for insurance plans offered with respect to the Accounts
("Principal Receivables") and amounts charged to the Accounts in respect of
periodic finance charges, overlimit charges, late charges, returned check
charges, annual fees, cash advance fees and similar fees and charges ("Finance
Charge Receivables"); provided, however, that an amount equal to the product of
the Discount Percentage and the amount of Receivables that would otherwise be
Principal Receivables will be treated as Finance Charge Receivables. In
addition, all amounts collected in respect of Interchange will be treated as
Finance Charge Collections. All new Receivables arising in the Accounts are
automatically transferred to the Trust.
The Agreement provides that, unless the Transferor elects to suspend or
discontinue such feature and subject to certain limitations and conditions set
forth in the Agreement, all Automatic Additional Accounts will be automatically
included as Accounts upon their creation and the Receivables in such Automatic
Additional Accounts, whether then existing or thereafter created, will be
automatically transferred to the Trust. In addition, the Agreement permits or,
under certain circumstances, requires the Transferor to designate from time to
time, in each case subject to certain limitations and conditions set forth in
the Agreement, Supplemental Accounts and to transfer the Receivables in such
Supplemental Accounts, whether then existing or thereafter created, to the
Trust. Any Supplemental Account designated pursuant to the Agreement must be an
Eligible Account as of the designation date. The Transferor also has the right
to
30
<PAGE> 32
designate from time to time, in each case subject to certain limitations and
conditions set forth in the Agreement, Removed Accounts and to require that the
Receivables in such Removed Accounts be reassigned to the Transferor. The
Accounts in which the Receivables arise will, on any date, be the Accounts
designated by the Transferor on the Cut-Off Date plus any Automatic Additional
Accounts created or Supplemental Accounts designated by the Transferor on or
before such date minus any Removed Accounts designated by the Transferor on or
before such date.
As of August 31, 1998, the aggregate amount owing in respect of the
Receivables was $1,730,226,921, comprised of $1,653,325,581 of Principal
Receivables and $76,901,340 of Finance Charge Receivables (which includes
$33,741,338 of Discount Option Receivables). As of August 31, 1998, the average
Receivables balance of Accounts with debit balances was $1,973 and the average
credit limit of all Accounts was $3,152. As of August 31, 1998, the average
Receivables balance of Accounts with debit balances divided by the average
credit limit of all Accounts, expressed as a percentage, was 62.60%. As of
August 31, 1998, cardholders with respect to the Accounts had billing addresses
in all 50 states, the District of Columbia and certain United States territories
and possessions. As of June 30, 1998, approximately 16% of the cardholders with
respect to the Accounts also held a Circuit City private label credit card. For
the twelve months ended June 30, 1998, approximately 1% of all purchases on
FNANB's MasterCard and VISA credit card accounts were made at Circuit City store
locations.
The following tables summarize the Receivables in the Trust Portfolio by
various criteria as of August 31, 1998. Because the composition of the Trust
Portfolio will change over time, these tables are not necessarily indicative of
the composition of the Trust Portfolio at any subsequent time.
COMPOSITION BY ACCOUNT BALANCE
TRUST PORTFOLIO
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
ACCOUNT BALANCE RANGE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- --------------------- --------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Credit Balance......................... 9,618 0.59% $ (830,503.64) -0.05%
Zero Balance........................... 737,663 45.14 -- 0.00
$0.01 to $1,500.00..................... 444,789 27.22 277,124,589.92 16.02
$1,500.01 to $3,000.00................. 221,962 13.58 492,077,474.13 28.44
$3,000.01 to $4,500.00................. 142,245 8.70 522,266,777.48 30.18
Over $4,500.00......................... 77,862 4.77 439,588,583.48 25.41
--------- ------ ----------------- ------
TOTAL........................ 1,634,139 100.00% $1,730,226,921.37 100.00%
========= ====== ================= ======
</TABLE>
COMPOSITION BY CREDIT LIMIT
TRUST PORTFOLIO
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF AGGREGATE AGGREGATE OF TOTAL
CREDIT LIMIT RANGE ACCOUNTS ACCOUNTS CREDIT LIMIT CREDIT LIMIT RECEIVABLES RECEIVABLES
- ------------------ --------- ---------- ----------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Zero Limit........... 12 0.00% $ -- 0.00% $ 443.77 0.00%
$0.01 to $1,500.00... 483,756 29.61 360,034,301.00 6.99 166,480,170.12 9.62
$1,500.01 to
$3,000.00.......... 501,264 30.67 1,271,130,279.00 24.69 332,358,882.34 19.21
$3,000.01 to
$4,500.00.......... 277,468 16.98 1,052,876,496.00 20.45 478,769,499.60 27.67
Over $4,500.00....... 371,639 22.74 2,464,365,464.00 47.87 752,617,925.54 43.50
--------- ------ ----------------- ------ ----------------- ------
TOTAL...... 1,634,139 100.00% $5,148,406,540.00 100.00% $1,730,226,921.37 100.00%
========= ====== ================= ====== ================= ======
</TABLE>
31
<PAGE> 33
COMPOSITION BY PERIOD OF DELINQUENCY
TRUST PORTFOLIO
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
PERIOD OF DELINQUENCY NUMBER OF NUMBER OF OF TOTAL
(DAYS CONTRACTUALLY DELINQUENT) ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ------------------------------- --------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Not Delinquent......................... 1,504,367 92.06% $1,451,209,715.62 83.88%
Up to 30 Days.......................... 72,300 4.42 146,719,683.20 8.48
31 to 60 Days.......................... 21,215 1.30 46,234,009.64 2.67
61 to 90 Days.......................... 12,858 0.79 29,616,285.06 1.71
91 to 120 Days......................... 9,782 0.60 23,344,068.38 1.35
121 to 150 Days........................ 7,554 0.46 18,224,921.51 1.05
151 or more Days....................... 6,063 0.37 14,878,237.96 0.86
--------- ------ ----------------- ------
TOTAL........................ 1,634,139 100.00% $1,730,226,921.37 100.00%
========= ====== ================= ======
</TABLE>
COMPOSITION BY ACCOUNT AGE
TRUST PORTFOLIO
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
ACCOUNT AGE ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------- --------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
0 to 3 Months.......................... 36,081 2.21% $ 6,757,851.94 0.39%
4 to 6 Months.......................... 56,583 3.46 28,895,599.41 1.67
7 to 9 Months.......................... 44,206 2.71 37,851,185.98 2.19
10 to 12 Months........................ 246,546 15.09 81,178,158.88 4.69
13 to 24 Months........................ 318,539 19.49 342,108,203.50 19.77
25 to 36 Months........................ 423,297 25.90 604,686,743.91 34.95
37 or More Months...................... 508,887 31.14 628,749,177.75 36.34
--------- ------ ----------------- ------
TOTAL........................ 1,634,139 100.00% $1,730,226,921.37 100.00%
========= ====== ================= ======
</TABLE>
32
<PAGE> 34
GEOGRAPHIC DISTRIBUTION OF ACCOUNTS
TRUST PORTFOLIO
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
STATES, TERRITORIES AND POSSESSIONS ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------- --------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Alabama...................................... $ 9,551 0.58% $ 8,411,122.75 0.49%
Alaska....................................... 505 0.03 697,380,59 0.04
Arizona...................................... 25,301 1.55 32,273,092.40 1.86
Arkansas..................................... 15,985 0.98 20,016,054.66 1.16
California................................... 177,618 10.87 221,354,771.66 12.79
Colorado..................................... 26,059 1.60 37,254,505.09 2.15
Connecticut.................................. 14,811 0.91 16,540,341.14 0.96
Delaware..................................... 3,328 0.20 3,680,852.89 0.21
District of Columbia......................... 5,955 0.36 6,379,188.19 0.37
Florida...................................... 123,295 7.55 113,336,551.48 6.55
Georgia...................................... 66,182 4.05 61,440,266.77 3.55
Hawaii....................................... 729 0.04 886,915.14 0.05
Idaho........................................ 5,448 0.33 6,754,718.87 0.39
Illinois..................................... 90,352 5.53 99,547,450.89 5.75
Indiana...................................... 42,177 2.58 51,669,552.02 2.99
Iowa......................................... 14,101 0.86 15,475,657.86 0.89
Kansas....................................... 12,338 0.76 13,617,142.80 0.79
Kentucky..................................... 37,507 2.30 32,991,807.38 1.91
Louisiana.................................... 27,335 1.67 31,064,013.40 1.80
Maine........................................ 3,702 0.23 3,364,442.05 0.19
Maryland..................................... 48,128 2.95 39,054,434.03 2.26
Massachusetts................................ 32,100 1.96 27,226,133.34 1.57
Michigan..................................... 45,925 2.81 51,164,236.77 2.96
Minnesota.................................... 21,457 1.31 19,044,491.01 1.10
Mississippi.................................. 12,736 0.78 15,967,519.03 0.92
Missouri..................................... 46,364 2.84 45,598,497.27 2.64
Montana...................................... 3,336 0.20 3,809,335.32 0.22
Nebraska..................................... 7,585 0.46 6,781,195.98 0.39
Nevada....................................... 18,761 1.15 26,384,895.10 1.52
New Hampshire................................ 5,497 0.34 5,032,301.98 0.29
New Jersey................................... 53,795 3.29 58,834,658.58 3.40
New Mexico................................... 9,627 0.59 13,423,731.93 0.78
New York..................................... 3,302 0.20 3,859,257.07 0.22
North Carolina............................... 60,589 3.71 46,804,631.17 2.70
North Dakota................................. 3,165 0.19 3,458,225.72 0.20
Ohio......................................... 81,477 4.99 96,315,464.69 5.57
Oklahoma..................................... 24,893 1.52 26,897,503.48 1.55
Oregon....................................... 21,545 1.32 29,064,808.85 1.68
Other........................................ 2,853 0.17 3,437,497.51 0.20
Pennsylvania................................. 70,626 4.32 67,705,533.94 3.91
Rhode Island................................. 6,799 0.42 6,203,226.56 0.36
South Carolina............................... 26,926 1.65 20,901,743.64 1.21
South Dakota................................. 2,356 0.14 2,190,876.51 0.13
Tennessee.................................... 57,302 3.51 55,119,990.96 3.19
Texas........................................ 131,137 8.03 154,128,195.87 8.91
Utah......................................... 7,858 0.48 9,367,663.15 0.54
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
STATES, TERRITORIES AND POSSESSIONS ACCOUNTS ACCOUNTS RECEIVABLES RECEIVABLES
- ----------------------------------- --------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Vermont...................................... 890 0.05% 1,026,611.54 0.06%
Virginia..................................... 61,596 3.77 45,831,015.44 2.65
Washington................................... 27,167 1.66 34,345,198.38 1.98
West Virginia................................ 7,219 0.44 6,043,607.34 0.35
Wisconsin.................................... 27,080 1.66 26,255,166.39 1.52
Wyoming...................................... 1,769 0.11 2,193,444.79 0.13
--------- ------ ----------------- ------
TOTAL.............................. 1,634,139 100.00% $1,730,226,921.37 100.00%
========= ====== ================= ======
</TABLE>
Because the largest number of cardholders (based on billing addresses)
whose Accounts were included in the Trust Portfolio as of August 31, 1998 were
located in California, Florida, Illinois, Ohio and Texas, adverse changes in the
economic conditions in these areas could have a direct impact on the creation of
Receivables or the timing or amount of payments on the Certificates. See "Risk
Factors -- Social, Technological and Economic Factors Could Affect Certificate
Payments."
MATURITY CONSIDERATIONS
The Class A Certificateholders will not receive principal payments until
the Distribution Date (the "Class A Expected Final Distribution
Date"), or earlier in the event of an Early Amortization Event which results in
the commencement of the Early Amortization Period. The Class A
Certificateholders will receive principal payments on each Distribution Date
during the Early Amortization Period until the Class A Certificates have been
paid in full. The Class B Certificateholders will not receive principal payments
until the Distribution Date (the "Class B Expected Final Distribution
Date"), or earlier in the event of an Early Amortization Event which results in
the commencement of the Early Amortization Period; provided, however, that the
Class B Certificateholders will in no event begin to receive principal payments
until the Class A Certificates have been paid in full.
If an Early Amortization Event occurs and the Early Amortization Period
commences, any amount on deposit in the Principal Funding Account will be paid
to the Certificateholders on the first Distribution Date with respect to the
Early Amortization Period, first to the Class A Certificateholders until the
Class A Certificates have been paid in full and then to the Class B
Certificateholders until the Class B Certificates have been paid in full.
Thereafter, Available Principal Collections will be paid to the
Certificateholders on each Distribution Date with respect to the Early
Amortization Period, first to the Class A Certificateholders until the Class A
Certificates have been paid in full and then to the Class B Certificateholders
until the Class B Certificates have been paid in full. See "Description of the
Certificates -- Early Amortization Events."
Although it is expected that a single principal payment will be made to the
Class A Certificateholders on the Class A Expected Final Distribution Date and
that a single principal payment will be made to the Class B Certificateholders
on the Class B Expected Final Distribution Date, there can be no assurance that
such payments will be made. The ability of the Certificateholders to receive
principal payments on the Class A Expected Final Distribution Date or the Class
B Expected Final Distribution Date, as applicable, depends on the payment rates
on the Receivables, the amount of outstanding Receivables, delinquencies,
charge-offs, the rate at which new Receivables are created, the 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,
cardholders may fail to make required minimum payments, may only make required
minimum payments 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 cardholders and to changes in any terms of promotional programs in
which cardholders participate. The Transferor cannot predict, and no assurance
can be given as to, the cardholder monthly payment rates that will actually
occur in any future period, the actual rate of principal
34
<PAGE> 36
payments on the Certificates or whether the terms of any additional Series might
have an impact on the amount or timing of such payments.
The amount of outstanding Receivables, delinquencies, charge-offs and the
rate at which new Receivables are created may vary from month to month due to
seasonal variations, the availability of other sources of credit, legal factors,
general economic conditions and spending and borrowing habits of individual
cardholders. There can be no assurance that Available Principal Collections, and
therefore the rate at which the Principal Funding Account will be funded during
the Accumulation Period or the rate at which Certificateholders can expect to
receive principal payments on the Certificates during the Early Amortization
Period, will be similar to the historical experience set forth below. In
addition, because the Trust has issued the Previously Issued Series and may
issue additional Series from time to time, there can be no assurance that the
terms of any such Series might not have an adverse impact on the timing or
amount of principal payments received by the Certificateholders. Further, if an
Early Amortization Event occurs, the average life and maturity of the Class A
Certificates and the Class B Certificates, respectively, could be significantly
reduced. In the event of an early payment of principal on the Certificates, the
Certificateholders may realize a lower yield on their reinvestment of such early
payment and may be required to incur costs associated with reinvesting such
early payment.
For the reasons set forth above, there can be no assurance that the
Principal Funding Account will be funded in accordance with the applicable
Controlled Accumulation Amount or that the actual number of months elapsed from
the date of issuance of the Class A Certificates and the Class B Certificates to
their respective final Distribution Dates will equal the expected number of
months.
The following table sets forth the highest and lowest monthly payment rates
for the receivables in the Bank Portfolio for each month during the periods
shown and the average monthly payment rates for the receivables in the Bank
Portfolio for all months during the periods shown, in each case calculated by
dividing the total amount collected in respect of the receivables during a given
month by the beginning receivables balance during such month and expressing such
amount as a percentage.
MONTHLY PAYMENT RATES(1)
BANK PORTFOLIO
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED TWELVE MONTHS ENDED
AUGUST 31, DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
----- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Lowest Month..................... 8.15% 8.29% 7.72% 8.25% 8.40%
Highest Month.................... 9.85 9.54 9.54 9.79 11.43
Monthly Average.................. 8.83 8.85 8.78 8.91 9.98
</TABLE>
- ---------------
(1) The monthly payment rates are calculated with the numerator as the total
amount of collections received (including interchange) during the month and
the denominator as the beginning receivables balance for the month.
35
<PAGE> 37
YIELD CONSIDERATIONS
The following table sets forth the yield from finance charges and fees
billed with respect to the Bank Portfolio for each of the periods shown. The
historical yield figures in the following table are calculated on an accrual
basis. The yield on the Receivables will be calculated on a cash basis and may
not reflect the historical yield experience in the table. Yield calculated on an
accrual basis may differ from yield calculated on a cash basis due to (i) delays
between when finance charges and fees are billed with respect to cardholder
accounts and when such finance charges and fees are collected and (ii) the
failure to collect such finance charges and fees. The yield for a portfolio of
accounts, whether calculated on an accrual basis or a cash basis, will also be
affected by numerous factors, including changes in periodic rates, variations in
the rate of payments and new borrowings on the accounts, the amount of annual
fees and other fees and charges with respect to the accounts, changes in the
delinquency and loss rates on the related receivables and the percentage of
cardholders who pay their balances in full each month and do not incur periodic
finance charges, which may in turn be caused by a variety of factors, including
seasonal variations, the availability of other sources of credit and general
economic conditions.
PORTFOLIO YIELD
BANK PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED TWELVE MONTHS ENDED
AUGUST 31, DECEMBER 31,
--------------------------- -----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Average Principal Receivables
Outstanding(1)................... $1,678,159 $1,526,215 $1,560,267 $1,015,406 $487,576
Finance Charges and Fees
Billed(2)........................ 268,599 248,297 387,049 256,000 127,432
Interchange........................ 13,378 12,595 19,574 16,843 9,765
Sum of Finance Charges, Fees Billed
and Interchange.................. 281,977 260,892 406,623 272,843 137,197
Yield From Finance Charges, Fees
and Interchange.................. 25.20%(3) 25.64%(3) 26.06% 26.87% 28.14%
Discount Option Receivable
Collections (2.00% Discount
Percentage)...................... $ 18,805 $ 17,003 $ 25,736 $ 16,671 $ 8,891
Portfolio Yield,
Discount-Adjusted(4)............. 26.88%(3) 27.31%(3) 27.71% 28.51% 29.96%
</TABLE>
- ---------------
(1) Average Principal Receivables Outstanding for a particular period is the
average of the principal balances outstanding at the beginning and end of
each month during such period.
(2) Finance Charges and Fees Billed are net of finance charge and other fee
charge-offs.
(3) The percentages reflected for the eight months ended August 31, 1998 and
1997 are annualized figures, which are not necessarily indicative of results
for the entire year.
(4) Represents the historical portfolio yield adjusted to reflect the inclusion
of Discount Option Receivable Collections and a Discount Percentage of 2%
for all periods indicated.
The yield for the Bank Portfolio shown in the above table is comprised of
monthly periodic finance charges and other service charges, such as late fees
and returned check fees. As payment rates decline, the balances subject to
monthly periodic finance charges tend to grow, assuming no change in the level
of purchasing activity. Accordingly, under these circumstances, the yield
related to periodic finance charges normally increases. The yield related to
service charges varies with the type and volume of activity in and the amount of
each account. As account balances increase, annual cardholder fees, which remain
constant, represent a smaller percentage of the aggregate account balances. The
yield for the Bank Portfolio has decreased predominantly due to the increase in
loss rates for the Bank Portfolio, as further described above under "Delinquency
and Loss Experience." As receivables in the Bank Portfolio are charged off,
accrued finance charges and fees with respect to such receivables are reversed,
decreasing the yield for the Bank Portfolio.
36
<PAGE> 38
THE TRUST
The Trust was formed pursuant to the Agreement. The Trust will not engage
in any activity other than acquiring and holding the Receivables, issuing the
Investor Certificates and related interests in the Trust, issuing the
Exchangeable Transferor Certificate, making payments with respect to such
certificates and related interests and engaging in related activities
(including, with respect to any Series, obtaining any Enhancement and entering
into related agreements).
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be paid to the
Transferor. The Transferor will use such proceeds to repay a portion of the
Series 1997-1 Certificates and for general corporate purposes. See "Annex A
(Previously Issued Series)."
37
<PAGE> 39
DESCRIPTION OF THE AGREEMENT
The Trust was formed pursuant to a Master Pooling and Servicing Agreement
dated as of October 30, 1997 (the "Agreement") between First North American
National Bank, a limited purpose credit card national bank, as transferor (in
such capacity, the "Transferor") and servicer (in such capacity, the
"Servicer"), and First Union National Bank, a national banking association, as
trustee (in such capacity, the "Trustee"). The following sections describe the
material provisions of the Agreement.
INVESTOR CERTIFICATES; EXCHANGEABLE TRANSFEROR CERTIFICATE
The Agreement provides for the Trust to issue two types of certificates:
(i) one or more series of investor certificates which evidence an undivided
interest in the Trust Property and may be transferable (collectively, the
"Investor Certificates") and (ii) a certificate which evidences the undivided
interest in the Trust Property not evidenced by the Investor Certificates or the
interests of any Enhancement Providers, if applicable, and which generally is
not transferable (the "Exchangeable Transferor Certificate"). Each series of
Investor Certificates (each, a "Series") may consist of one or more classes of
Investor Certificates (each, a "Class") and may be included in a designated
group of Series (each, a "Group"). The Exchangeable Transferor Certificate is
currently held by the Transferor.
The Agreement provides that, pursuant to one or more Series Supplements,
the Transferor may tender or cause to be tendered the Exchangeable Transferor
Certificate, or the Exchangeable Transferor Certificate and the Investor
Certificates of any Series, to the Trustee in exchange for one or more newly
issued Series of Investor Certificates and a reissued Exchangeable Transferor
Certificate. The Principal Terms of such newly issued Series may include methods
for determining applicable allocation percentages and allocating amounts
collected in respect of the Receivables, provisions creating security or
Enhancement, different Classes of Investor Certificates (including subordinated
Classes), provisions subordinating such Series to another Series (if the Series
Supplement relating to such Series so permits) or another Series to such Series
(if the Series Supplement for such other Series so permits) and any other
amendment or supplement to the Agreement which is made applicable only to such
Series. The issuance of such newly issued Series may affect the amount or timing
of payments on the Investor Certificates of any then outstanding Series. See
"-- Exchanges."
THE TRUST PROPERTY
The property of the Trust (the "Trust Property") includes and will include
all right, title and interest of the Transferor in and to (i) all receivables
(the "Receivables") arising from time to time in a portfolio of MasterCard and
VISA credit card accounts (the "Accounts") originated or acquired by the
Transferor and satisfying certain eligibility criteria described herein
(including any Supplemental Accounts following their designation and any
Automatic Additional Accounts following their creation but excluding any Removed
Accounts following their designation), (ii) all monies due or to become due and
all amounts received with respect to the Receivables on and after the Cut-Off
Date (including recoveries of amounts previously charged-off ("Recoveries")),
(iii) certain fees received by the Transferor with respect to the Receivables as
partial compensation for taking credit risk, absorbing fraud losses and funding
receivables for a limited period prior to initial billing ("Interchange"), (iv)
all monies on deposit in certain bank accounts of the Trust (including, to the
extent specified in the related Series Supplement, investment earnings on such
amounts), (v) all proceeds of the foregoing and (vi) any Enhancement with
respect to any particular Series or Class as provided in the related Series
Supplement. Each of the Certificates will represent an undivided interest in the
Trust Property.
At the time of the formation of the Trust, the Transferor transferred to
the Trust all Receivables in the Accounts as of September 30, 1997 (the "Cut-Off
Date") and all Receivables arising in the Accounts from time to time thereafter
until termination of the Trust. In connection with such transfer, the Transferor
has indicated in its records, including its computer files, that the Receivables
have been transferred to the Trust. In addition, the Transferor has agreed to
deliver to the Trustee on a monthly basis a computer file or microfiche list
identifying each Account by account number and outstanding balance as of the
last day of the immediately preceding Collection Period. FNANB, 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 described
above, the
38
<PAGE> 40
records and agreements relating to the Accounts and the Receivables will not be
segregated from those relating to other credit card accounts and receivables and
neither the computer files nor the physical documentation relating to the
Accounts or the Receivables will be stamped or marked to reflect the transfer of
the Receivables from the Transferor to the Trust. The Trustee will have
reasonable access to such records and agreements as may be required by
applicable law or to enforce the rights of the Certificateholders. The
Transferor has filed UCC-1 financing statements in accordance with applicable
state law to perfect the interest of the Trust in the Receivables. See "Risk
Factors -- Insolvency of Transferor Could Affect Certificate Payments" and
"Certain Legal Aspects of the Receivables."
ENHANCEMENT
The Trust Property with respect to any Series may include one or more forms
of credit support, including, without limitation, any letter of credit,
guaranteed rate agreement, maturity guaranty facility, liquidity facility, cash
collateral account, cash collateral guaranty, collateral indebtedness amount,
collateral interest, surety bond, insurance policy, interest rate protection
agreement, tax protection agreement, spread account, reserve account,
subordination arrangement, cross-support feature or other similar arrangement or
any combination of the foregoing (collectively, "Enhancement"). Enhancement may
be obtained through a reallocation of Trust Property or may be provided by a
third party (the "Enhancement Provider"). The type, characteristics and amount
of the Enhancement for any Series will be determined based on several factors,
including the characteristics of the Receivables as of the closing date with
respect to such Series, and will be established on the basis of requirements
imposed by each Rating Agency that provides a rating with respect to such
Series. Any Enhancement obtained with respect to a Series will not directly
benefit any other Series.
EXCHANGES
The Agreement provides that, pursuant to one or more Series Supplements,
the Transferor may tender or cause to be tendered the Exchangeable Transferor
Certificate, or the Exchangeable Transferor Certificate and the Investor
Certificates of any Series, to the Trustee in exchange for one or more newly
issued Series of Investor Certificates and a reissued Exchangeable Transferor
Certificate (each, an "Exchange"). Under the Agreement, the Transferor may
define, with respect to any newly issued Series: (i) its name or designation,
(ii) its initial invested amount (or the method of calculating such amount),
(iii) its interest rate (or the formula for determining such rate), (iv) the
rights of the holder of the Exchangeable Transferor Certificate that have been
transferred to the holders of such Series pursuant to such Exchange (including
any rights to allocations of Principal Collections), (v) the interest payment
date or dates and the date or dates from which interest will accrue, (vi) the
method of allocating Principal Collections for such Series and, if applicable,
with respect to other Series and the method by which the principal amount of
Investor Certificates of such Series will amortize or accrete and the method for
allocating Finance Charge Collections and collections of amounts due with
respect to Defaulted Accounts, (vii) the names of any accounts to be used by
such Series and the terms governing the operation of any such account, (viii)
the Servicing Fee percentage, (ix) the Minimum Transferor Percentage applicable
to such Series, (x) the minimum amount of Principal Receivables required to be
maintained with respect to such Series, (xi) the final date on which interest
and principal are scheduled to be distributed with respect to such Series, (xii)
the terms of any Enhancement, (xiii) the Enhancement Provider, if any, (xiv) the
base rate, if any, (xv) the terms on which the Investor Certificates of such
Series may be repurchased at the option of the Transferor or the terms on which
the Investor Certificates of such Series may be remarketed to other investors,
(xvi) any deposit into any account provided for such Series, (xvii) the number
of classes of such Series and, if more than one class, the rights and priorities
of each such class, (xviii) the extent to which the Investor Certificates of
such Series will be issuable in temporary or permanent global form (and, in such
case, the depository for such global certificate, 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
temporary or global certificate will be paid), (xix) whether the Investor
Certificates of such Series may be issued in bearer form and any limitations
imposed thereon and provisions relating to compliance with applicable laws and
rules for bearer instruments, (xx) the priority of such Series with respect to
any other Series, (xxi) the Group, if any, to which such Series belongs and
(xxii) any other relevant terms of such Series (collectively, the "Principal
Terms"). The Transferor may
39
<PAGE> 41
define different Principal Terms for each Series, and there is no limit to the
number of Exchanges that the Transferor may perform under the Agreement.
The Transferor, the Servicer, the Trustee and the Trust are not required
and do not intend to obtain the consent of any Certificateholder to issue any
additional Series. An Exchange may only occur, however, upon the satisfaction of
certain conditions provided in the Agreement. Under the Agreement, the
Transferor may perform an Exchange by notifying the Trustee at least three
business days in advance of the date upon which the Exchange is to occur, which
notice will state the designation of any Series to be issued on the date of the
Exchange and, with respect to each such Series, its initial invested amount (or
the method of calculating such amount) and its interest rate (or the method for
allocating interest payments or other cash flow to such Series). On the date of
the Exchange, the Trustee will issue any such Series only upon delivery to it of
the following: (i) a Series Supplement in form satisfactory to the Trustee
signed by the Transferor and specifying the Principal Terms of such Series; (ii)
the Enhancement agreement, if any, with respect to such Series executed by the
Transferor, if applicable, and the related Enhancement Provider; (iii) a Tax
Opinion with respect to such Series; (iv) written confirmation that the Rating
Agency Condition shall have been satisfied; and (v) the existing Exchangeable
Transferor Certificate and the Investor Certificates of the Series to be
exchanged, if applicable. Upon satisfaction of such conditions, the Trustee will
cancel the existing Exchangeable Transferor Certificate and the Investor
Certificates of the exchanged Series, if applicable, and issue the new Series
and a new Exchangeable Transferor Certificate. The issuance of such new Series
may affect the amount or timing of payments on the Investor Certificates of any
then outstanding Series. The Transferor intends to issue additional Series.
"Tax Opinion" means, with respect to act to any Series, an opinion of
counsel to the effect that the Investor Certificates of such Series (other than
any Class of Investor Certificates required to be retained by the Transferor)
will be characterized as either indebtedness or an interest in a partnership
(that is not taxable as a corporation) under existing law for federal income tax
purposes and that such action will not have a material adverse impact on the
federal income tax characterization of any outstanding Series that has been the
subject of a previous opinion of tax counsel or result in the Trust being
taxable as an association or as a publicly traded partnership taxable as a
corporation for federal or applicable state tax purposes.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have notified the Transferor, the Servicer and the Trustee
in writing that such action will not result in a downgrade or withdrawal of the
rating by such Rating Agency of any Class of Investor Certificates of any then
outstanding Series; provided, however, that, in certain instances, "Rating
Agency Condition" also means that the holders of certain unrated Investor
Certificates of any then outstanding Series shall have consented to such action.
REPRESENTATIONS AND WARRANTIES
The Transferor represents and warrants to the Trustee, on behalf of the
Trust, as of the initial closing date with respect to the initial Accounts and
as of the related supplemental closing date with respect to Supplemental
Accounts, that (i) each Receivable existing in the initial Accounts as of the
Cut-Off Date was an Eligible Receivable as of such date and each Receivable
existing in the Supplemental Accounts as of the related Addition Cut-Off Date
was an Eligible Receivable as of such date, (ii)(A) the computer file or
microfiche list of the initial Accounts delivered by the Transferor to the
Trustee is an accurate and complete listing of the initial Accounts in all
material respects as of the Cut-Off Date and the information contained therein
with respect to the identity of such Accounts and the Receivables existing
thereunder was true and correct in all material respects as of the Cut-Off Date
and (B) each computer file or microfiche list delivered by the Transferor to the
Trustee with respect to Supplemental Accounts is an accurate and complete
listing of such Supplemental Accounts in all material respects as of the related
Addition Cut-Off Date and the information contained therein with respect to the
identity of such Supplemental Accounts and the Receivables existing thereunder
was true and correct in all material respects as of such Addition Cut-Off Date
and (iii) no selection procedure believed by the Transferor to be adverse to the
interests of the Investor Certificateholders has been used in selecting the
Accounts. In addition, (i) on each day on which any new Receivable is created
(including, without limitation, any Receivable created in an Automatic
Additional Account), the Transferor
40
<PAGE> 42
will be deemed to represent and warrant to the Trust that each Receivable
created on such day is an Eligible Receivable and (ii) on each day on which a
computer file or microfiche list is delivered by the Transferor to the Trustee
with respect to Automatic Additional Accounts, the Transferor will be deemed to
represent and warrant to the Trust that such computer file or microfiche list is
an accurate and complete listing of all the Accounts in all material respects as
of the last day of the preceding Collection Period and that the information
contained therein with respect to the identity of such Accounts and the
Receivables existing thereunder was true and correct in all material respects as
of the last day of such preceding Collection Period. In the event that any of
the representations and warranties set forth above is breached with respect to a
Receivable and, as a result of such breach, such Receivable is charged off as
uncollectible or the Trust's rights in and to such Receivable or its proceeds
are materially impaired or the proceeds of such Receivable are not available for
any reason to the Trust free and clear of any lien (other than certain tax or
other governmental liens) (each, an "Ineligible Receivable") and such breach has
not been cured within 60 days (or such longer period as may be agreed upon by
the Trustee, not to exceed an additional 120 days) after the earlier of
discovery of such breach by the Transferor or receipt by the Transferor of
written notice of such breach given by the Trustee, the Transferor is required
to accept the reassignment of such Receivable by directing the Servicer to
deduct the principal balance of such Ineligible Receivable from the Aggregate
Principal Receivables. In the event that such deduction would cause the
Transferor Amount to be reduced below zero (after giving effect to any addition
of any Principal Receivables to the Trust), the Transferor will make a deposit
into the Excess Funding Account in an amount equal to the amount by which the
Transferor Amount would be reduced below zero. Any deposit into the Excess
Funding Account in connection with the reassignment of an Ineligible Receivable
will be deemed a payment in full of such Ineligible Receivable and will be
applied in accordance with the provisions of the Agreement and the terms of each
applicable Series Supplement. The obligation of the Transferor described above
constitutes the sole remedy available to the holders of the Investor
Certificates with respect to any breach by the Transferor of such
representations and warranties. The Certificateholders will not incur any costs
in connection with the reassignment of an Ineligible Receivable.
The Transferor represents and warrants to the Trustee, on behalf of the
Trust, as of the date of any Series Supplement and the related closing date,
that (i) the Transferor is duly organized and validly existing in good standing
under the laws of the United States, has the full power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to execute,
deliver and perform its obligations under the Agreement and such Series
Supplement and to execute and deliver to the Trustee the related Investor
Certificates, (ii) the execution and delivery of the Agreement and such Series
Supplement and the execution and delivery to the Trustee of the related Investor
Certificates and the consummation of the transactions provided for in the
Agreement and such Series Supplement have been duly authorized by the Transferor
by all necessary action on the part of the Transferor, (iii) the Agreement and
such Series Supplement constitute legal, valid, binding and enforceable
obligations of the Transferor, subject to certain bankruptcy and equity related
exceptions, and (iv) the Agreement constitutes either a valid transfer and
assignment to the Trust of all right, title and interest of the Transferor in
and to the Receivables, whether then existing or thereafter created, and the
proceeds thereof, or the grant of a first priority perfected security interest
in the Receivables, subject to certain tax or other governmental liens, and,
with certain exceptions made for certain limited time periods, the proceeds
thereof, which is effective as to each Receivable upon the transfer thereof to
the Trust or upon its creation, as the case may be. In the event of a breach of
any of the representations and warranties described above, if such breach has a
materially adverse effect on the holders of the Investor Certificates, or in the
event that a material amount of Receivables are not Eligible Receivables and
such event has a materially adverse effect on the holders of the Investor
Certificates, either the Trustee or the holders of Investor Certificates
evidencing undivided interests aggregating more than 50% of the Aggregate
Invested Amount (the "Required Investor Certificateholders"), by notice then
given in writing to the Transferor (and to the Trustee and the Servicer, if
given by such holders), may direct the Transferor to accept reassignment of all
the Receivables on any Distribution Date occurring within 60 days of such
notice, or within such longer period as may be specified in such notice (not to
exceed an additional 120 days); provided, however, that no such reassignment
shall be required if such breach shall have been cured prior to such
Distribution Date. The deposit amount for such reassignment will be equal to the
Aggregate Invested Amount on the close of business on the Record Date related to
the Distribution
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Date on which such deposit is made (less the aggregate principal amount on
deposit in the Excess Funding Account or, without duplication, any principal
funding account with respect to any Series) plus (i) an amount equal to all
accrued but unpaid interest on the Investor Certificates of all then outstanding
Series at the applicable interest rates through the end of the respective
interest accrual period(s) of such Series and (ii) any other unpaid amounts
required to be paid pursuant to the Agreement or any Series Supplement. Payment
of the reassignment deposit amount and all other amounts in the Collection
Account in respect of the preceding Collection Period will be considered a
prepayment in full of all of the Receivables. The obligation of the Transferor
described above constitutes the sole remedy available to the holders of the
Investor Certificates with respect to any breach by the Transferor of such
representations and warranties. The Certificateholders will not incur any costs
in connection with the reassignment of all the Receivables.
"Eligible Receivable" means each Receivable (i) which has arisen under an
Eligible Account, (ii) which was created in compliance with all applicable
requirements of law and pursuant to a cardholder agreement which complies with
all applicable requirements of law in either case the failure to comply with
which would have a material adverse effect upon the holders of the Investor
Certificates of any then outstanding Series, (iii) with respect to which all
material consents, licenses, approvals or authorizations of, or registrations
with, any governmental authority required to be obtained, effected or given by
the Transferor in connection with the creation of such Receivable or the
execution, delivery and performance by the Transferor of the related cardholder
agreement have been duly obtained, effected or given and are in full force and
effect as of such date of creation, (iv) as to which at the time of the transfer
of such Receivable to the Trust, the Trust will have good and marketable title,
free and clear of all liens, encumbrances, charges and security interests
(except certain tax or other governmental liens), (v) which has been the subject
of either a valid transfer and assignment from the Transferor to the Trust of
all of the Transferor's right, title and interest therein or the grant by the
Transferor to the Trust of a first priority perfected security interest therein
(and in the proceeds thereof to the extent set forth in Section 9-306 of the
UCC), effective until the termination of the Trust, (vi) which is the legal,
valid and binding payment obligation of the obligor thereof enforceable against
such obligor in accordance with its terms, subject to certain bankruptcy and
equity related exceptions, (vii) which constitutes "chattel paper," an "account"
or a "general intangible" under and as defined in Article 9 of the UCC, (viii)
which, at the time of its transfer to the Trust, has not been waived or modified
except in accordance with the policies and procedures of the Transferor relating
to the operation of its consumer credit card business, (ix) which is not subject
to any setoff, right of rescission, counterclaim or other defense (including the
defense of usury), other than certain bankruptcy and equity related defenses,
(x) as to which the Transferor has satisfied all obligations to be satisfied at
the time of the transfer of such Receivable to the Trust, (xi) as to which the
Transferor has done nothing, at the time of the transfer of such Receivable to
the Trust, to impair the rights of the Trust or the holders of the Investor
Certificates of all then outstanding Series therein and (xii) which was
generated by the Transferor in the ordinary course of business.
"Eligible Account" means each Account (i) which is in existence and owned
by the Transferor, (ii) which is payable in United States dollars, (iii) as to
which the related credit card has not been reported lost or stolen or designated
as fraudulent, (iv) which was created in accordance with, or under standards no
less stringent than, the policies and procedures of the Transferor relating to
the operation of its consumer credit card business, (v) which is not identified
in the Transferor's computer files as canceled due to the bankruptcy, insolvency
or death of the related obligor, (vi) the receivables in which have not been
charged off as uncollectible, (vii) the receivables in which have not been
assigned, pledged or sold, (viii) which is not a corporate account, (ix) the
obligor on which has provided a billing address in the United States or its
territories or possessions or which is a United States military address and (x)
on which neither the Transferor nor any affiliate of the Transferor is the
obligor.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of the Accounts or the Receivables or any records
relating to the Accounts or the Receivables for the purpose of establishing the
presence or absence of defects or compliance with the Transferor's
representations and warranties or for any other purpose.
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CERTAIN COVENANTS
The Transferor covenants in the Agreement that, among other things, (i) it
will take no action to cause any Receivable to be evidenced by an "instrument"
under and as defined in Article 9 of the UCC (except in connection with the
enforcement or collection of such Receivable), (ii) it will not sell, pledge,
assign or transfer any Receivable to any other person or grant, create, incur,
assume or suffer to exist any lien on (or the filing of any financing statement
with respect to) any Receivable (other than certain tax and other governmental
liens), (iii) it will, except as otherwise permitted under the Agreement,
deposit or cause to be deposited in the Collection Account all amounts collected
by it in respect of the Receivables within two business days after receipt
thereof and (iv) it will notify the Trustee of any change in its name, identity
or structure which would cause any financing statement or continuation statement
filed pursuant to the Agreement to be misleading or any change in its principal
executive office or the location of the principal records concerning the
Receivables which would require the filing of any amendment to any such
financing statement or continuation statement or the filing of any new financing
statement and, in connection with any such change, will take certain actions
necessary or advisable to protect the interests of the Trustee in the
Receivables and the other Trust Property.
AUTOMATIC ADDITIONAL ACCOUNTS
The Agreement provides that, unless the Transferor elects to suspend or
discontinue such feature and subject to certain limitations and conditions set
forth in the Agreement, all MasterCard and VISA credit card accounts satisfying
certain eligibility criteria described herein will be automatically included as
Accounts ("Automatic Additional Accounts") upon their creation and the
Receivables in such Automatic Additional Accounts, whether then existing or
thereafter created, will be automatically transferred to the Trust. Unless each
Rating Agency otherwise consents, the number of Automatic Additional Accounts
plus the number of Supplemental Accounts added without prior Rating Agency
consent may not (i) with respect to any calendar quarter, exceed 15% of the sum
of the number of Accounts as of the first day of such calendar quarter (or the
Cut-Off Date, whichever is later) plus the number of Supplemental Accounts added
with Rating Agency consent during such calendar quarter and (ii) with respect to
any period of twelve consecutive Collection Periods, exceed 20% of the sum of
the number of Accounts as of the first day of such period (or the Cut-Off Date,
whichever is later) plus the number of Supplemental Accounts added with Rating
Agency consent during such period.
The Automatic Additional Accounts feature allows the Transferor to transfer
additional Receivables to the Trust (which may allow the issuance of additional
Series or decrease the risk of the occurrence of certain Early Amortization
Events) more efficiently than through the designation of Supplemental Accounts.
The Certificateholders will not incur any costs in connection with the inclusion
of Automatic Additional Accounts. There can be no assurance that the Automatic
Additional Accounts, if any, will be of the same credit quality as the initial
Accounts.
SUPPLEMENTAL ACCOUNTS
The Agreement permits or, under the circumstances described below, requires
the Transferor to designate from time to time, in each case subject to certain
limitations and conditions set forth in the Agreement, additional MasterCard or
VISA credit card accounts as Accounts (the "Supplemental Accounts") and to
transfer the Receivables in such Supplemental Accounts, whether then existing or
thereafter created, to the Trust. If, as of the end of any Collection Period,
(i) the Transferor Amount (after giving effect to any amounts deposited in the
Excess Funding Account) is less than the Minimum Transferor Amount or (ii) the
Aggregate Principal Receivables is less than the Minimum Aggregate Principal
Receivables, the Transferor is required, before the close of business on the
business day preceding the following Distribution Date, to designate
Supplemental Accounts and to transfer the Receivables in such Supplemental
Accounts, whether then existing or thereafter created, to the Trust in an amount
sufficient to cure all such deficiencies; provided, however, that the Transferor
need not make any such transfer to the extent that such deficiencies have been
eliminated on or before such preceding business day through reductions in the
Aggregate Invested Amount or
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through increases in the amount on deposit in the Excess Funding Account. A
failure to make any such transfer when required or within any applicable grace
period will result in an Early Amortization Event.
"Transferor Amount" means, on any date of determination, the Aggregate
Principal Receivables at the end of the day immediately prior to such date plus
the amount on deposit in the Excess Funding Account at the end of such day minus
the Aggregate Invested Amount at the end of such day minus any additional
invested amount allocated to any Enhancement pursuant to any Series Supplement.
"Aggregate Principal Receivables" means, with respect to any date of
determination, the aggregate amount of Principal Receivables at the end of such
date.
"Aggregate Invested Amount" means, on any date of determination, the
aggregate invested amount of all then outstanding Series.
"Minimum Transferor Amount" means, as of any date of determination, the
product of the Aggregate Principal Receivables at the end of such date and the
Minimum Transferor Percentage as of such date.
"Minimum Transferor Percentage" means, as of any date of determination, the
highest percentage specified as such in any Series Supplement for any then
outstanding Series (currently 0%). The Minimum Transferor Percentage specified
in the Series 1998-1 Supplement is 0%.
"Minimum Aggregate Principal Receivables" means, as of any date of
determination, the aggregate of the amounts specified as such in each Series
Supplement for each then outstanding Series (generally equal to the invested
amount for such Series). The Minimum Aggregate Principal Receivables specified
in the Series 1998-1 Supplement is the Invested Amount as of the Closing Date
plus the principal amount of any additional Class D Certificates which may be
issued or, subject to satisfaction of the Rating Agency Condition, such lesser
amount as may be designated by the Transferor.
Each designation of Supplemental Accounts is subject to the following
conditions, among others: (i) the Transferor shall have given notice of such
designation to the Trustee, the Servicer, each Rating Agency and each other
person entitled thereto pursuant to the related Series Supplement; (ii) the
Transferor shall have delivered to the Trustee an officer's certificate
certifying, among other things, that each such Supplemental Account was, as of
the related Addition Cut-Off Date, an Eligible Account and that no selection
procedures believed by the Transferor to be materially adverse to the interests
of any Series or any Enhancement Provider were used in selecting such
Supplemental Account; and (iii) in the case of an optional transfer, the Rating
Agency Condition shall have been satisfied.
The Supplemental Accounts feature requires the Transferor to transfer
additional Receivables to the Trust if there would otherwise be insufficient
Receivables to support all Series then outstanding. In addition, unlike the
Automatic Additional Accounts feature, this feature allows the Transferor to
transfer to the Trust the Receivables in a discrete group of MasterCard or VISA
credit card accounts selected by the Transferor (which, like the inclusion of
Automatic Additional Accounts, may allow the issuance of additional Series or
decrease the risk of the occurrence of certain Early Amortization Events). The
Certificateholders will not incur any costs in connection with the designation
of Supplemental Accounts. There can be no assurance that the Supplemental
Accounts, if any, will be of the same credit quality as the initial Accounts.
REMOVAL OF ACCOUNTS
The Agreement permits the Transferor to designate from time to time (which
may be restricted to certain periods if so provided in the related Series
Supplement), subject to certain limitations and conditions set forth in the
Agreement, certain Accounts the Receivables in which are to be removed from the
Trust (the "Removed Accounts"). This feature allows the Transferor to obtain
unencumbered ownership of Receivables not needed to support any then outstanding
Series. The Certificateholders will not incur any cost in connection with the
designation of Removed Accounts. The Transferor may designate and require
reassignment to it of the Receivables in any Removed Accounts only upon
satisfaction of the following conditions: (i) the Transferor shall have
delivered to the Trustee for execution a written assignment and a computer file
or microfiche list containing a true and complete list of all Removed Accounts
identified by account number and
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the aggregate amount of the Receivables in such Removed Accounts; (ii) the
Transferor shall have represented and warranted that no selection procedures
believed by the Transferor to be materially adverse to the interests of the
holders of the Investor Certificates of any then outstanding Series were used in
selecting the Removed Accounts; (iii) the removal of the Receivables in the
Removed Accounts shall not, in the reasonable belief of the Transferor, cause an
early amortization event to occur with respect to any then outstanding Series;
(iv) the Rating Agency Condition shall have been satisfied; (v) the Transferor
shall have delivered to the Trustee an officer's certificate confirming the
items set forth in clauses (i) through (iv) above; and (vi) such other
conditions as may be provided in the Series Supplement for any then outstanding
Series shall have been satisfied. Notwithstanding the above, the Transferor may
designate as a Removed Account (i) without the consent of the Trustee, the
holders of the Investor Certificates of any then outstanding Series or any
Rating Agency, any Account that has a zero balance and (ii) without the consent
of the Trustee or the holders of the Investor Certificates of any then
outstanding Series (but with the consent of, or in accordance with written
procedures approved by, Moody's Investors Service, Inc. and Standard & Poor's),
any Defaulted Account. The designation of Defaulted Accounts as Removed Accounts
might have an impact on the amount or timing of Recoveries.
COLLECTION ACCOUNT
The Trustee has established and will maintain with an Eligible Institution
in the name of the Trustee, on behalf of the Trust, a segregated trust account
(the "Collection Account") for the benefit of all then outstanding Series. An
"Eligible Institution" means (i) a depository institution, which may include the
Trustee, organized under the laws of the United States or any state thereof or
the District of Columbia (or any domestic branch or agency of any foreign bank),
the deposits in which are insured by the Federal Deposit Insurance Corporation
and which at all times has a short-term unsecured debt rating in the highest
rating category from each applicable Rating Agency or (ii) a depository
institution, which may include the Trustee, which is acceptable to each Rating
Agency assigning a rating for any Class of Investor Certificates of any then
outstanding Series.
Funds on deposit in the Collection Account will be invested by the Trustee,
at the direction of the Servicer, in Eligible Investments. "Eligible
Investments" means (i) negotiable instruments or securities represented by
instruments in bearer or registered or in book-entry form which evidence (A)
obligations of or fully guaranteed by the United States of America; (B) time
deposits in, or promissory notes or bankers acceptances issued by, any
depository institution or trust company organized under the laws of the United
States of America or any state thereof or the District of Columbia (or any
domestic branch or agency of any foreign bank) and subject to supervision and
examination by federal or state banking or depository institution authorities;
provided, however, that at the time of the Trust's investment or contractual
commitment to invest therein, the certificates of deposit or short-term
deposits, if any, or long-term unsecured debt obligations (other than any such
obligation whose rating is based on collateral or on the credit of a person
other than such depository institution or trust company) of such depository
institution or trust company shall have a rating in the highest rating category
from each applicable Rating Agency, in the case of certificates of deposit or
short-term deposits, or a rating not lower than one of the two highest rating
categories from each applicable Rating Agency, in the case of long-term
unsecured debt obligations; (C) certificates of deposit having, at the time of
the Trust's investment or contractual commitment to invest therein, a rating in
the highest rating category from each applicable Rating Agency; or (D)
investments in money market funds rated in the highest rating category or
otherwise approved in writing by each applicable Rating Agency, (ii) demand
deposits in the name of the Trust or the Trustee on behalf of the Trust in any
depository institution or trust company referred to in (i)(B) above, (iii)
commercial paper (having original or remaining maturities of no more than 30
days) having, at the time of the Trust's investment or contractual commitment to
invest therein, a rating in the highest rating category from each applicable
Rating Agency, (iv) Eurodollar time deposits having a rating in the highest
rating category from each applicable Rating Agency, (v) repurchase agreements
involving any of the investments described in clauses (i)(A), (i)(C) and (iv)
above so long as the other party to the repurchase agreement has, at the time of
the Trust's investment therein, a short-term rating in the highest rating
category from each applicable Rating Agency and (vi) any other investment if the
Rating Agency Condition is satisfied. Any such investment will be held to
maturity. On each Distribution Date, all interest
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and other investment earnings (net of losses and investment expenses) on funds
on deposit in the Collection Account will be paid to the holder of the
Exchangeable Transferor Certificate. 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 the Servicer's or the Trustee's duties under the Agreement.
The Servicer need not deposit amounts collected in respect of the
Receivables into the Collection Account until the business day preceding the
following Distribution Date, and may use such funds for its own purposes, so
long as (i) FNANB or an affiliate has and maintains a certain short-term debt
rating, (ii) FNANB or such affiliate obtains and maintains in force a letter of
credit or other surety covering collection risk acceptable to each applicable
Rating Agency and certain holders of any unrated Investor Certificates or (iii)
FNANB obtains the consent of such holders and obtains a written notification
from each Rating Agency assigning a rating to any Class of Investor Certificates
of any then outstanding Series to the effect that the Rating Agency Condition
has been satisfied. See "-- Allocation of Collections; Deposits in Collection
Account."
DISCOUNT OPTION
Pursuant to the Agreement, the Transferor has designated 2.00% of the
amount of Receivables arising in the Accounts that would otherwise be treated as
Principal Receivables to be treated as Finance Charge Receivables (the "Discount
Option Receivables"). The Transferor may, without notice to or consent of the
Certificateholders, from time to time, elect to increase, reduce or eliminate
(subject to the limitations described below) the percentage used to determine
Discount Option Receivables (the "Discount Percentage"), which change will apply
to Receivables arising in the Accounts on and after the date of such change. The
Transferor must provide 30 days' prior written notice to the Servicer, the
Trustee and each Rating Agency of any such increase, reduction or elimination,
and such increase, reduction or elimination will become effective on the date
specified therein only if (i) the Transferor has 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, the Transferor reasonably believes that such
increase, reduction or elimination will not at the time of its occurrence cause
an early amortization event or an event which with notice or the lapse of time
would constitute an early amortization event, to occur with respect to any
Series, including Series 1998-1, and (ii) if such designation would cause the
Discount Percentage to be less than 1.00% or more than 3.00%, the Rating Agency
Condition has been satisfied. On each date of processing of any collections
during the time the discount feature is in effect, collections in an amount
equal to the product of (i) a fraction the numerator of which is the amount of
Discount Option Receivables and the denominator of which is the amount of all of
the Principal Receivables (including Discount Option Receivables) at the end of
the prior Collection Period and (ii) collections of Receivables that arise in
the Accounts during such time that would otherwise be Principal Collections will
be deemed Finance Charge Collections ("Discount Option Receivable Collections")
and will be applied accordingly. The discount feature allows the Transferor to
increase the Portfolio Yield and thereby decrease the risk of the occurrence of
the Early Amortization Event relating to Portfolio Yield.
ALLOCATION OF COLLECTIONS; DEPOSITS IN COLLECTION ACCOUNT
The Servicer will allocate Finance Charge Collections and Principal
Collections with respect to each Collection Period among Series 1998-1, the
interests of the Previously Issued Series, the interests of all other then
outstanding Series, the interests of any Enhancement Providers, if applicable,
and the interest of the holder of the Exchangeable Transferor Certificate (the
"Transferor Interest"). Except as described below, the Servicer will, no later
than the second business day after amounts collected in respect of the
Receivables are processed or payments made by the Transferor in respect of
Ineligible Receivables or Adjustment Amounts are received, deposit such amounts
or payments into the Collection Account; provided, however, that (i) prior to
the occurrence of an Early Amortization Event, the amount of Finance Charge
Collections with respect to each Collection Period deposited in the Collection
Account will not exceed the sum of (A) the Class A Monthly Interest plus the
Class B Monthly Interest plus the CTO Monthly Interest, in each case for the
following Distribution Date plus (B) if FNANB is not the Servicer, the sum of
the Class A Servicing Fee plus
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the Class B Servicing Fee plus the CTO Servicing Fee, in each case with respect
to such following Distribution Date, plus (C) an amount equal to the average
Investor Default Amount for the three preceding Collection Periods and (ii)
Principal Collections will only be deposited into the Collection Account during
the Accumulation Period (to the extent of the Controlled Deposit Amount) and the
Early Amortization Period. The Servicer need not deposit amounts collected in
respect of the Receivables into the Collection Account within two business days
of each date of processing, but rather may make a single deposit into the
Collection Account in immediately available funds on the business day prior to
each Distribution Date in an amount equal to the amounts collected with respect
to the preceding Collection Period, to the extent such amounts are allocated to
the holders of the Investor Certificates of any Series (net of the Investor
Servicing Fee and net of any amounts to be distributed to the Transferor), if
FNANB or an affiliate of FNANB is the Servicer and (i) FNANB or such affiliate
has and maintains a short-term debt rating (which may be an implied rating) of
at least "P-1" by Moody's Investors Service, Inc. and "A-1" by Standard &
Poor's, (ii) FNANB or such affiliate obtains and maintains in force a letter of
credit or other surety covering collection risk of the Servicer approved in
writing by each Rating Agency and certain holders of the Investor Certificates
of any then outstanding Series which is not assigned a rating by any Rating
Agency, or (iii) FNANB obtains (A) the consent of the holders of 66 2/3% of the
invested amount of each Class of Investor Certificates of any then outstanding
Series which is not assigned a rating by any Rating Agency and such consent has
not been withdrawn in accordance with the terms of the related Series Supplement
and (B) a written notification from each Rating Agency to the effect that the
Rating Agency Condition has been satisfied with respect to the Servicer's
inability to satisfy the rating requirement specified in clause (i) above. Until
such amounts and payments are deposited into the Collection Account, such
amounts and payments will not be segregated from the assets of the Servicer, and
the proceeds of any short-term investment of such proceeds will accrue to the
Servicer. If the Servicer holds amounts collected in respect of the Receivables
allocable to the Certificateholders and payments made by the Transferor in
respect of Ineligible Receivables and Adjustment Amounts and is permitted to use
such amounts and payments for its own benefit, the Certificateholders are
subject to risk of loss, including risk resulting from the insolvency of the
Servicer. The Servicer will pay no fee to the Trust or the Certificateholders
for the use of such amounts and payments. Amounts collected in respect of the
Receivables allocable to the Transferor Interest will be remitted by the
Servicer on each business day to the Transferor. Amounts collected in respect of
the Receivables will be allocated among Series 1998-1, the interests of the
Previously Issued Series, the interests of all other then outstanding Series,
the interests of any Enhancement Providers, if applicable, and the Transferor
Interest based upon the allocation percentages specified in each Series
Supplement. See "Description of the Certificates -- Allocation of Collections
and Default Amounts."
SHARED EXCESS FINANCE CHARGE COLLECTIONS
Each Series in a Group will be entitled to share Shared Excess Finance
Charge Collections in the manner, and to the extent, provided in the related
Series Supplement with each other Series, if any, in such Group. Finance Charge
Collections and certain other amounts allocated to any Series which is included
in such Group in excess of the amounts necessary to make required payments with
respect to such Series (including, without limitation, payments to any related
Enhancement Provider) that are payable out of Finance Charge Collections
("Shared Excess Finance Charge Collections") will be applied to cover any
shortfalls with respect to amounts payable from Finance Charge Collections
allocated to any other Series in such Group pro rata based upon the amount of
the shortfall, if any, with respect to each other Series in such Group. Any
Shared Excess Finance Charge Collections remaining after covering shortfalls
with respect to all outstanding Series in a Group will be paid to the holder of
the Exchangeable Transferor Certificate to the extent provided in the related
Series Supplement. The sharing of excess Finance Charge Collections may enable
the Transferor to avoid the occurrence of an Early Amortization Event that would
otherwise occur as a result of a shortfall in Finance Charge Collections
allocable to Series 1998-1. There can be no assurance, however, that excess
Finance Charge Collections will exist or be allocated to Series 1998-1 with
respect to any Collection Period.
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SHARED PRINCIPAL COLLECTIONS
Each Series in a Group will be entitled to share Shared Principal
Collections in the manner, and to the extent, provided in the related Series
Supplement with each other Series, if any, in such Group. Principal Collections
and certain other amounts allocated to any Series which is in such Group in
excess of the amounts necessary to make required payments with respect to such
Series (including, without limitation, any required deposits into a principal
funding account or required principal distributions to such Series) that are
payable out of Principal Collections ("Shared Principal Collections") will be
applied to cover any shortfalls with respect to amounts payable from Principal
Collections allocated to any other Series in such Group pro rata based upon the
amount of the shortfall, if any, with respect to each other Series in such
Group. Any Shared Principal Collections remaining after covering shortfalls with
respect to all outstanding Series in a Group will be paid to the holder of the
Exchangeable Transferor Certificate to the extent provided in the related Series
Supplement; provided, however, that (i) such Shared Principal Collections will
be distributed to the holder of the Exchangeable Transferor Certificate only to
the extent that the Transferor Amount exceeds the Minimum Transferor Amount and
(ii) in certain circumstances described below under "-- Excess Funding Account,"
such Shared Principal Collections will be deposited in the Excess Funding
Account. Any such reallocation of Principal Collections and other amounts will
not result in a reduction in the invested amount of the Series to which such
collections were initially allocated. The sharing of Principal Collections may
enable the Transferor to avoid the occurrence of an Early Amortization Event
that would otherwise occur as a result of a shortfall in Principal Collections
allocated to Series 1998-1. There can be no assurance, however, that excess
Principal Collections will exist or be allocated to Series 1998-1 with respect
to any Collection Period.
EXCESS FUNDING ACCOUNT
The Trustee has established and will maintain with an Eligible Institution
in the name of the Trustee, on behalf of the Trust, a segregated trust account
(the "Excess Funding Account") for the benefit of all then outstanding Series.
If on any date the Transferor Amount is less than the Minimum Transferor Amount
(after giving effect to any Automatic Additional Accounts or Supplemental
Accounts), the Servicer will not distribute to the holder of the Exchangeable
Transferor Certificate any Principal Collections that otherwise would be
distributed to the holder of the Exchangeable Transferor Certificate but instead
will deposit such funds in the Excess Funding Account. Funds on deposit in the
Excess Funding Account will be withdrawn and paid to the holder of the
Exchangeable Transferor Certificate on any date to the extent that the
Transferor Amount exceeds the Minimum Transferor Amount on such date; provided,
however, that funds on deposit in the Excess Funding Account may be released and
treated as Shared Principal Collections to the extent needed to cover principal
payments due to or for the benefit of a Series if required by the related Series
Supplement. Funds on deposit in the Excess Funding Account will be invested by
the Trustee, at the direction of the Servicer, in Eligible Investments. On each
Distribution Date, all interest and other investment earnings (net of losses and
investment expenses) on funds on deposit in the Excess Funding Account will be
deposited in the Collection Account. The Servicer will have the revocable power
to withdraw funds from the Excess Funding Account and to instruct the Trustee to
make withdrawals and payments from the Excess Funding Account for the purpose of
carrying out the Servicer's or the Trustee's duties under the Agreement.
On each Distribution Date during the Early Amortization Period, there will
be withdrawn from the Excess Funding Account an amount equal to the product of
(i) the amount on deposit in the Excess Funding Account, if any, and (ii) a
fraction, the numerator of which is the principal shortfall with respect to
Series 1998-1 and the denominator of which is equal to the aggregate principal
shortfalls of all Series then outstanding. Such amount will be deposited in the
Collection Account and be considered as part of Available Principal Collections
with respect to Series 1998-1.
DEFAULTED ACCOUNTS
The Servicer will allocate the Default Amount with respect to each
Collection Period among Series 1998-1, the interests of the Previously Issued
Series, the interests of all other then outstanding Series, the interests of any
Enhancement Providers, if applicable, and the Transferor Interest. "Default
Amount" means, for any Collection Period, the aggregate amount of Principal
Receivables in all Accounts which became
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Defaulted Accounts during such Collection Period minus the amount of Recoveries
received by the Servicer with respect to Defaulted Accounts during such
Collection Period. "Defaulted Account" means an Account the Receivables in which
should be charged off as uncollectible in accordance with the usual and
customary servicing policies and procedures of the Servicer. Receivables will be
considered charged-off for purposes of the Agreement on the date on which such
Receivables are recorded as charged-off by the Servicer, but in any event no
later than the earlier of (i) the last day of the month in which the related
Account becomes 180 days delinquent on a contractual basis and (ii) 30 days
after receipt of notice by the Servicer that the related obligor has died or
become the subject of a bankruptcy proceeding. See "Description of the
Certificates -- Allocation of Investor Default Amount; Allocation of Series
Adjustment Amount; Investor Charge-Offs."
ADJUSTMENTS
If the Transferor or the Servicer adjusts downward the amount of any
Principal Receivable because of a rebate, refund, unauthorized charge or billing
error to an obligor or because such Receivable was created in respect of goods
or services which were refused, returned or not received by an obligor, or if
the Transferor or the Servicer otherwise adjusts downward the amount of any
Principal Receivable without receiving collections therefor or without charging
off such amount as uncollectible, then, in any such case, the amount of the
Aggregate Principal Receivables will be reduced by the amount of such
adjustment. In addition, the amount of the Aggregate Principal Receivables will
be reduced by the amount of any Principal Receivable which was discovered as
having been created through a fraudulent transaction or with respect to which a
lien (other than certain tax and other governmental liens) exists. Any
adjustment required pursuant to either of the two preceding sentences (each, an
"Adjustment") will be made on or prior to the end of the Collection Period in
which such adjustment obligation arises. If, following any Adjustment, the
Transferor Amount would be less than the Minimum Transferor Amount, within two
business days of the date on which such adjustment obligation arises, the
Transferor will pay to the Servicer, for deposit into the Excess Funding
Account, in immediately available funds an amount equal to the amount by which
the Transferor Amount would be reduced below the Minimum Transferor Amount
(each, an "Adjustment Payment"). If the Transferor fails to make any required
Adjustment Payment and, as a result of such failure, the Transferor Amount is
less than zero as of the last day of any Collection Period, the amount of such
deficiency (the "Adjustment Amount") will, to the extent such Adjustment Amount
is not otherwise reduced, be allocated among all then outstanding Series. An
Adjustment Amount will be reduced to the extent that amounts are deposited in
the Excess Funding Account, the Aggregate Principal Receivables increase,
certain decreases occur in the Aggregate Invested Amount or the Transferor
subsequently makes a required Adjustment Payment. See "Description of the
Certificates -- Allocation of Investor Default Amount; Allocation of Series
Adjustment Amount; Investor Charge-Offs."
INDEMNIFICATION
The Agreement provides that the Servicer will indemnify and hold harmless
the Trust, for the benefit of the holders of all then outstanding Series, and
the Trustee, including its directors, officers, employees and agents, from and
against any loss, liability, claim, damage, injury or expense (including,
without limitation, reasonable fees and expenses of counsel) arising out of or
relating to (i) the acceptance by the Trustee of the Trust pursuant to the
Agreement or (ii) any claims, actions or proceedings brought or asserted against
the Trust, the Trustee or any director, officer, employee or agent of the
Trustee pursuant to the Agreement or any Series Supplement; provided, however,
that the Servicer will not indemnify or hold harmless the Trust, for the benefit
of the holders of all then outstanding Series, the Trustee or any director,
officer, employee or agent of the Trustee for any loss, liability, claim,
damage, injury or expense arising out of or relating to (i) the willful
misfeasance, bad faith or negligence of the Trustee in the performance of its
duties under the Agreement or (ii) any action taken by the Trustee at the
request of the holders of any Series; and provided further, that the Servicer
will not indemnify the Trust, for the benefit of the Certificateholders, from or
against (i) any federal, state or local taxes required to be paid by the Trust
or the holders of any Series in connection with the Agreement to any taxing
authority or (ii) any loss, liability, claim, damage, injury or expense incurred
by the holders of any Series in their capacity as investors as a result of any
action taken by the holders of any Series, or as a result of the performance of
the Receivables, market fluctuations , a shortfall in any Enhancement or
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other similar market or investment risks (except to the extent that such loss,
liability, claim, damage, injury or expense was incurred by reason of the
failure by the Servicer to act in accordance with the Agreement and its usual
and customary servicing policies and procedures).
Under the Agreement, the Transferor will be liable directly to an injured
party for the entire amount of any losses, claims, damages or liabilities (other
than those incurred by a holder in the capacity of an investor in the Investor
Certificates of any Series) arising out of or based on the arrangement created
by the Agreement or the actions of the Servicer taken pursuant to the Agreement
as though the Agreement created a partnership under the Uniform Partnership Act.
The Transferor will also pay, indemnify and hold harmless each holder of any
Series for any such losses, claims, damages or liabilities (other than those
incurred by such holder in the capacity of an investor in the Investor
Certificates of any Series) except to the extent that they arise from any action
by any holder. In the event of a Service Transfer, the successor Servicer will
indemnify the Transferor for any losses, claims, damages and liabilities of the
Transferor as described in this paragraph arising from the actions or omissions
of such successor Servicer.
Except as provided in the preceding paragraph, the Agreement provides that
neither the Transferor nor the Servicer, nor any of their respective officers,
directors, employees or agents, will be under any other liability to the Trust,
the Trustee, the holders of any Series, any Enhancement Provider or any other
person for any action taken, or for refraining from taking any action, in good
faith pursuant to the Agreement. However, neither the Transferor nor the
Servicer, nor any of their respective officers, directors, 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. 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 Agreement. The Servicer may, in its sole
discretion, undertake any such legal action which it may deem necessary or
desirable for the benefit of the holders of the Investor Certificates with
respect to the Agreement and the rights and duties of the parties thereto and
the interest of such holders thereunder.
SERVICING DUTIES
The Servicer, whether acting itself or through one or more subservicers, is
responsible for servicing, collecting, enforcing and administering the
Receivables in accordance with its usual and customary servicing policies and
procedures for servicing credit card receivables comparable to the Receivables.
The Servicer is required to maintain fidelity bond coverage insuring against
losses through wrongdoing of its officers and employees who are involved in the
servicing of the Receivables covering such actions and in such amounts as the
Servicer believes to be commercially reasonable from time to time.
The servicing activities to be performed by the Servicer with respect to
the Receivables include collecting and recording payments, communicating with
cardholders, investigating payment delinquencies, providing billing records to
cardholders and maintaining internal records. The managerial and custodial
services to be 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 the Receivables by the Trustee pursuant to the Agreement,
maintaining the agreements, documents and files relating to the Accounts and the
Receivables as custodian for the Trust and providing related data processing and
reporting services for the holders of the Investor Certificates and on behalf of
the Trustee.
The Servicer may not resign from its obligations and duties under the
Agreement, except upon determination that such duties are impermissible under
applicable law, regulation or order. 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 Agreement. The Servicer may delegate
certain of its duties under the Agreement to any person who agrees to conduct
such duties in accordance with the usual and customary servicing policies and
procedures of the Servicer. Notwithstanding any such delegation, the Servicer
will continue to be liable for all of its obligations as Servicer under the
Agreement.
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SERVICER COVENANTS
The Servicer has covenanted that (i) it will duly satisfy in all material
respects its obligations under or in connection with each Account and each
Receivable, will maintain in effect all material qualifications required in
order to service properly each Account and each Receivable and will comply in
all material respects with all applicable requirements of law in connection with
servicing each Account and each Receivable the failure to comply with which
would have a material adverse effect on the holders of the Investor Certificates
(without regard to the amount of any Enhancement), (ii) except in connection
with an Adjustment Payment, it will not permit any rescission or cancellation of
any Receivable except as ordered by a court of competent jurisdiction or other
governmental authority or in the ordinary course of its business and in
accordance with its usual and customary servicing procedures and (iii) it will
take no action which, nor omit to take any action the omission of which, would
impair the rights of the holders of the Investor Certificates in any Receivable
or the rights of any Enhancement Provider, and will not reschedule, revise,
waive or defer payments due on any Receivable except in accordance with its
usual and customary servicing policies and procedures.
In the event of a breach with respect to a Receivable of any of the
covenants set forth above which has a material adverse effect on the interest of
the holders of the Investor Certificates in such Receivable (without regard to
the amount of any Enhancement) and has not been cured within 60 days (or such
longer period as may be agreed upon by the Trustee, not to exceed an additional
120 days) after the earlier of discovery of such breach by the Servicer or
receipt by the Servicer of written notice of such breach given by the Trustee,
the Servicer is required to deposit into the Collection Account prior to the
next succeeding Distribution Date an amount equal to the outstanding principal
balance of such Receivable at the end of the preceding Collection Period plus
the amount of finance charges at the applicable monthly periodic rate from the
last date billed through the end of such preceding Collection Period. Any such
deposit will be considered a payment in full of such Receivable and will be
allocated and applied in accordance with the Agreement. The obligation of the
Servicer described above constitutes the sole remedy available to the holders of
the Investor Certificates with respect to any breach by the Servicer of such
covenants. It is not required or anticipated that the Trustee will make any
initial or periodic general examination of the Servicer for the purpose of
establishing compliance by the Servicer with its representations or warranties
or the performance by the Servicer of its obligations under the Agreement or any
Series Supplement or for any other purpose. The Servicer is required, however,
to deliver to the Trustee on or before June 30 of each calendar year, beginning
with June 30, 1998, an officer's certificate stating that, to the best of such
officer's knowledge, there has occurred no event which would constitute a
Servicer Default.
SERVICING COMPENSATION
The Servicer is entitled to receive, as compensation for its servicing
activities under the Agreement, a monthly servicing fee (the "Servicing Fee") in
an amount, on any Distribution Date, equal to, with respect to each Series,
one-twelfth of the product of (i) the applicable servicing fee percentage with
respect to such Series and (ii) the sum of an allocable portion of the
Transferor Amount and the invested amount with respect to such Series as of the
last day of the second preceding Collection Period. The Servicing Fee will be
allocated among the Transferor Interest and the holders of the Investor
Certificates of all then outstanding Series. The portion of the Servicing Fee
allocable to the holders of the Investor Certificates on each Distribution Date
(the "Investor Servicing Fee") will be specified in the related Series
Supplement. The Investor Servicing Fee will be paid on each Distribution Date
from amounts on deposit in the Collection Account (unless the amount of such fee
has been netted against deposits to the Collection Account). See "Description of
the Certificates -- Servicing Compensation."
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Accounts and the Receivables,
including, without limitation, expenses related to enforcement of the
Receivables, payment of fees and disbursements of the Trustee and independent
accountants and all other fees and expenses which are not expressly stated in
the Agreement to be payable by the Trust or the holders of the Investor
Certificates, other than federal, state and local income and franchise taxes, if
any, of the Trust.
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CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
The Agreement prohibits the Transferor or the Servicer from consolidating
with or merging into another corporation or from conveying or transferring their
respective properties and assets substantially as an entirety to another person
except in certain limited circumstances. Any person into which either the
Transferor or the Servicer may be merged or consolidated or any person resulting
from any merger or consolidation to which either the Transferor or the Servicer
is a party, or any person succeeding to the business of either the Transferor or
the Servicer, will be the successor to the Transferor or the Servicer, as the
case may be, under the Agreement.
SERVICER DEFAULT
In the event of any Servicer Default that has not been remedied, either the
Trustee or the Required Investor Certificateholders, by written notice to the
Servicer (and to the Trustee, if given by such holders), may terminate all of
the rights and obligations of the Servicer under the Agreement with respect to
the Receivables and the proceeds thereof, and the Trustee will thereafter
appoint a new Servicer (a "Service Transfer"). The rights and interests of the
holder of the Transferor Interest will not be affected by any Service Transfer.
The Transferor will have the right to nominate to the Trustee a potential
successor Servicer. The Trustee will as promptly as possible appoint the entity
nominated by the Transferor if such entity meets certain eligibility criteria
set forth in the Agreement. If the Transferor does not nominate an entity to be
successor Servicer, the Trustee will as promptly as possible appoint a successor
Servicer, 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 and obligations of the Servicer under the Agreement will 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 Agreement to serve as successor Servicer for servicing
compensation not in excess of the Servicing Fee. If the Trustee is unable to
obtain any bids from eligible potential Servicers and the Servicer delivers an
officer's certificate to the Trustee to the effect that it cannot in good faith
cure the related Servicer Default, then the Trustee will under certain
circumstances offer the Transferor the right to accept the retransfer of all of
the Receivables. The deposit amount for such a retransfer will be equal to the
sum of the Aggregate Invested Amount (less the aggregate principal amount on
deposit in the Excess Funding Account and any principal funding account with
respect to any Series) plus accrued and unpaid interest on the Investor
Certificates of all then outstanding Series plus certain amounts payable to
Enhancement Providers, if applicable.
"Servicer Default" means any of the following events:
(a) the Servicer shall fail to make any payment, transfer or deposit,
or to give instructions or notice to the Trustee to make any payment,
transfer or deposit or as to any required drawing under any Enhancement, on
the date required under the Agreement or any Series Supplement or within
five business days thereafter;
(b) the Servicer shall fail to observe or perform any other covenants
or agreements of the Servicer set forth in the Agreement or any Series
Supplement which continues unremedied for a period of 60 days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by the Required Investor Certificateholders of any
Series adversely affected thereby, which failure has a material adverse
effect on the rights of the holders of the Investor Certificates of any
then outstanding Series; provided, however, that if the covenant which was
breached relates to any particular Receivable or group of Receivables a
Servicer Default will not be deemed to have occurred if the Servicer has
made a deposit in the Collection Account with respect to such breach in
accordance with the Agreement;
(c) any representation, warranty or certification made by the Servicer
in the Agreement or any Series Supplement or in any certificate delivered
pursuant to the Agreement or any Series Supplement shall prove to have been
incorrect when made and continues to be incorrect in any material respect
for a period of 60 days after the date on which written notice of such
breach, requiring the same to be remedied, shall have been given to the
Servicer by the Trustee, or to the Servicer and the Trustee by the
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Required Investor Certificateholders of any Series adversely affected
thereby, which incorrectness has a material adverse effect on the rights of
the holders of the Investor Certificates of any then outstanding Series; or
(d) certain events of insolvency or receivership shall have occurred
with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of 10 business days after the
applicable grace period or a delay in or failure of performance referred to
under clause (b) or (c) above for a period of 60 business days after the
applicable grace period shall not constitute a Servicer Default if such delay or
failure could not have been 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 Agreement or any Series
Supplement and the Servicer shall provide the Trustee, each Enhancement
Provider, if any, applicable to any Series, the Transferor and the holders of
the Investor Certificates of all then outstanding Series prompt notice of such
failure or delay, together with a description of its efforts to so perform its
obligations. The Servicer will immediately notify the Trustee in writing of any
Servicer Default. The Servicer is required to deliver to the Trustee on or
before June 30 of each calendar year an officer's certificate stating that, to
the best of such officer's knowledge, there has occurred no event which would
constitute a Servicer Default.
MONTHLY SERVICER REPORT
On the eighth day of each month (or, if such eighth day is not a business
day, the next succeeding business day) (each, a "Determination Date"), the
Servicer will forward to the Trustee a statement (the "Monthly Servicer Report")
prepared by the Servicer setting forth certain information with respect to the
Trust and each Series, including, without limitation: (i) the aggregate amount
of Finance Charge Collections and the aggregate amount of Principal Collections
processed during the preceding Collection Period; (ii) the allocation
percentages applicable with respect to such Collection Period; (iii) the amount
to be distributed on the next succeeding Distribution Date to the holders of
each Class of Investor Certificates of each then outstanding Series; (iv) the
aggregate outstanding balance of all Accounts which were delinquent by 31 to 60,
61 to 90 and 91 or more days as of the end of such Collection Period; (v) the
Default Amount allocable to each Series for such Collection Period; (vi) the
amount of investor charge-offs and the amount of reimbursements of investor
charge-offs allocated to each Series for such Collection Period; (vii) the
amount of the Investor Servicing Fee allocable to each Series for the following
Distribution Date; (viii) the Aggregate Principal Receivables at the close of
business on the last day of such Collection Period; (ix) the Aggregate Invested
Amount at the close of business on the last day of such Collection Period; and
(x) whether an Early Amortization Event has occurred. The Trustee will make such
statement available to the holders of the Investor Certificates of each then
outstanding Series upon request.
EVIDENCE AS TO COMPLIANCE
On or before June 30 of each calendar year, the Servicer will cause a firm
of nationally recognized independent accountants to furnish to the Trustee, each
Rating Agency assigning a rating for any Class of Investor Certificates then
outstanding and any Enhancement Provider, if applicable, (i) a report, prepared
in accordance with standards established by the Agreement, to the effect that,
in their opinion, the Monthly Servicer Reports are, in all material respects, in
conformity with the Agreement and (ii) a report to the effect that such firm has
applied procedures, as agreed upon between such firm and the Servicer, to
certain documents and records relating to the administration and servicing of
the Accounts and the Receivables during the preceding year ended February 28 or
29 and that, based upon such agreed-upon procedures, no matters came to their
attention that caused them to believe that such servicing was not conducted in
compliance with certain applicable terms and conditions set forth in the
Agreement except for such exceptions or errors as shall be set forth in such
report. In addition, on or before June 30 of each calendar year, such
accountants will compare the mathematical calculations of the amounts contained
in the Monthly Servicer Reports delivered during the preceding year ended
February 28 or 29 with the computer reports of the Servicer and the statements
of any agents engaged by the Servicer to perform servicing activities which were
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the source of such amounts and deliver a report to the Trustee stating that such
amounts are in agreement except for such exceptions as shall be set forth in
such report.
On or before June 30 of each calendar year, the Servicer will deliver to
the Trustee 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 Agreement throughout the preceding year ended
February 28 or 29 or, if there has been a default in the performance of any such
obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by any holder of the Investor Certificates or any Certificate
Owner by a request in writing delivered to the Trustee.
AMENDMENTS
The Agreement and any Series Supplement may be amended by the Transferor,
the Servicer and the Trustee, without the consent of the holders of the Investor
Certificates, to cure any ambiguity, to correct or supplement any provision
therein which may be inconsistent with any other provision therein and to add
any other provisions with respect to matters or questions arising under the
Agreement or any Series Supplement which are not inconsistent with the
provisions of the Agreement or any Series Supplement, provided that such action
shall not adversely affect in any material respect the interest of any holder of
the Investor Certificates. In addition, the Agreement and any Series Supplement
may be amended from time to time by the Transferor, the Servicer and the
Trustee, without the consent of the holders of the Investor Certificates, for
the purpose of adding any provisions to, changing in any manner or eliminating
any of the provisions of the Agreement or any Series Supplement or modifying in
any manner the rights of the holders of the Investor Certificates of any then
outstanding Series provided that (i) the Servicer must provide an opinion of
counsel to the Trustee to the effect that such amendment will not materially and
adversely affect the interests of the holders of the Investor Certificates of
any then outstanding Series, which opinion of counsel may rely as to any rated
Series solely on the rating confirmation referred to in clause (iii) below (or
100% of the holders of the Investor Certificates so affected shall have
consented), (ii) such amendment shall not, as evidenced by an opinion of
counsel, cause the Trust to be characterized for federal income tax purposes as
an association or publicly traded partnership taxable as a corporation or
otherwise have any material adverse impact on the federal income tax
characterization of any outstanding Series of Investor Certificates or the
federal income taxation of any holder of the Investor Certificates or any
Certificate Owner and (iii) the Rating Agency Condition shall have been
satisfied. No such amendment, however, may (i) reduce in any manner the amount
of, or delay the timing of, distributions required to be made on such Series,
(ii) change the definition or the manner of calculating the invested amount, any
allocation percentage, the applicable available amount under any Enhancement or
the Default Amount allocable to such Series, or (iii) reduce the aforesaid
percentage of undivided interests the holders of which are required to consent
to any such amendment, in each case without the consent of all holders of the
Investor Certificates of all Series adversely affected. Any Series Supplement
and any amendments regarding the designation of Supplemental Accounts will not
require the consent of the holders of the Investor Certificates under the
provisions of the Agreement or any Series Supplement.
The Agreement and any Series Supplement may also be amended by the
Transferor, the Servicer and the Trustee with the consent of the holders of
Investor Certificates evidencing undivided interests aggregating not less than
66 2/3% of the invested amounts of all Series adversely affected for the purpose
of adding any provisions to, changing in any manner or eliminating any of the
provisions of the Agreement or any Series Supplement or modifying in any manner
the rights of the holders of the Investor Certificates of any then outstanding
Series. Any such amendment shall require that the Rating Agency Condition be
satisfied. No such amendment, however, may (i) reduce in any manner the amount
of, or delay the timing of, distributions required to be made on such Series,
(ii) change the definition or the manner of calculating the invested amount, any
allocation percentage, the applicable available amount under any Enhancement or
the Default Amount allocable to such Series, or (iii) reduce the aforesaid
percentage of undivided interests the holders of which are required to consent
to any such amendment, in each case without the consent of all holders of the
Investor Certificates of all Series adversely affected.
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Promptly following the execution of any amendment to the Agreement or any
Series Supplement, the Trustee will furnish written notice of the substance of
such amendment to each holder of the Investor Certificates of all then
outstanding Series (or, with respect to an amendment to any Series Supplement,
to each holder of the Investor Certificates of the related Series).
LIST OF CERTIFICATEHOLDERS
Upon the written request of any one or more holders of the Investor
Certificates representing undivided interests in the Trust aggregating not less
than 10% of the invested amount of a Series, the Trustee, after having been
adequately indemnified for its costs and expenses, will afford such holders
access during business hours to the current list of holders of the Investor
Certificates of such Series for purposes of communicating with such other
holders with respect to their rights under the Agreement. The Agreement
generally does not provide for any annual or other meetings of the holders of
the Investor Certificates.
THE TRUSTEE
First Union National Bank is the Trustee under the Agreement. The
Transferor and the Servicer, and their respective affiliates, may from time to
time enter into normal banking and trustee relationships with the Trustee and
its affiliates. The Trustee, the Transferor and the Servicer, and any of their
respective affiliates, may hold Investor Certificates in their own names;
provided, however, that any Investor Certificates so held shall not be entitled
to participate in any decisions made or instructions given to the Trustee by the
holders of the Investor Certificates as a group. The address of the Trustee is
800 East Main Street, Richmond, Virginia 23219, Attention: Corporate Trust
Department.
For purposes of meeting the legal requirements of certain local
jurisdictions, the Trustee has the power to appoint a co-trustee or separate
trustee of all or any part of the Trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the Trustee
will be conferred or imposed upon and exercised or performed by the Trustee and
such co-trustee or separate trustee jointly or, in any jurisdiction in which the
Trustee is incompetent or unqualified to perform certain acts, singly upon such
co-trustee or separate trustee, who will exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event a successor Trustee will
be appointed as provided in the Agreement. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, a
successor Trustee will be appointed as provided in the Agreement. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
TERMINATION OF THE TRUST
Unless the Transferor instructs the Trustee otherwise, the Trust will
terminate on the earlier of (i) the day following the date on which funds shall
have been deposited in the Collection Account in an amount sufficient to pay (A)
the Aggregate Invested Amount and the aggregate invested amount of all
outstanding Enhancement, if applicable, in full plus (B) interest on the
Investor Certificates of all then outstanding Series accrued through the last
day of the applicable interest accrual period preceding such date and (ii)
October 1, 2097 (the "Final Termination Date"); provided, however, that in no
event will the Trust continue beyond the expiration of 21 years from the death
of the last survivor of the descendants of George Herbert Walker Bush, former
President of the United States, living on the date of the Agreement. Upon the
termination of the Trust and the surrender of the Exchangeable Transferor
Certificate, the Trustee will convey to the Transferor all right, title and
interest of the Trust in, to and under the Receivables and the other Trust
Property (other than amounts in the accounts maintained by the Trustee or the
Servicer on behalf of the Trust for the final payment of principal and interest
to the holders of the Investor Certificates of all then outstanding Series).
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DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement as supplemented
by the Series 1998-1 Supplement. The Trust has issued the Previously Issued
Series pursuant to a Series Supplement, and the Transferor and the Trustee may
execute further Series Supplements in order to issue additional Series. See
"Annex A" for a description of certain terms of the Previously Issued Series.
The following sections describe the material provisions of the Certificates.
ENHANCEMENT
The Class B Certificates will be subordinated to the Class A Certificates
as described herein. The subordination of the Class B Certificates will provide
credit enhancement for the Class A Certificates. In addition, the Collateralized
Trust Obligations and the Class D Certificates will be subordinated to the Class
A Certificates and the Class B Certificates as described herein. The
subordination of the Collateralized Trust Obligations and the Class D
Certificates will provide credit enhancement for both the Class A Certificates
and the Class B Certificates. See "-- Subordination of the Class B Certificates,
the Collateralized Trust Obligations and the Class D Certificates."
BOOK-ENTRY REGISTRATION
The Certificates will be issued in book-entry form. Certificateholders may
hold their Certificates through DTC (in the United States) or Cedel or Euroclear
(in Europe), which in turn hold through DTC, if they are participants in such
systems, or indirectly through organizations that are participants in such
systems.
Cede & Co., as nominee for DTC, will hold the global certificates. Cedel
and Euroclear will hold omnibus positions on behalf of the Cedel Participants
and the Euroclear Participants, respectively, through customers' securities
accounts in Cedel's and Euroclear's names on the books of their respective
depositaries (collectively, the "Depositaries") which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities for its participants ("DTC Participants") and facilitates the
clearance and settlement among DTC Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic book-entry
changes in DTC Participant accounts, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a DTC Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and the DTC Participants are on file with the Commission.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
Depositary to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC and making or receiving payment in accordance
with normal procedures for same-day funds settlement
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applicable to DTC. Cedel Participants and Euroclear Participants may not deliver
instructions directly to the Depositaries.
Because of time-zone differences, credits or securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Purchases of Certificates under the DTC system must be made by or through
DTC Participants, which will receive a credit for the Certificates on DTC's
records. The ownership interest of each Certificate Owner is in turn to be
recorded on the DTC Participants' and Indirect Participants' records.
Certificate Owners will not receive written confirmation from DTC of their
purchase, but Certificate Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the DTC Participant or Indirect Participant through which the
Certificate Owner entered into the transaction. Transfers of ownership interests
in the Certificates are to be accomplished by entries made on the books of DTC
Participants acting on behalf of Certificate Owners. Certificate Owners will not
receive certificates representing their ownership interest in Certificates,
except in the event that use of the book-entry system for the Certificates is
discontinued.
To facilitate subsequent transfers, all Certificates deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Certificates with DTC and their registration in the name of Cede
& Co. effects no change in beneficial ownership. DTC has no knowledge of the
actual Certificate Owners of the Certificates. DTC's records reflect only the
identity of the DTC Participants to whose accounts such Certificates are
credited, which may or may not be the Certificate Owners. The DTC Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect Participants, and by DTC Participants and
Indirect Participants to Certificate Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. Neither DTC nor Cede & Co. will consent or vote with
respect to the Certificates. Under its usual procedures, DTC mails an omnibus
proxy to the issuer as soon as possible after the record date, which assigns
Cede & Co.'s consenting or voting rights to those DTC Participants to whose
accounts the Certificates are credited on the record date (identified in a
listing attached thereto). Principal and interest payments on the Certificates
will be made to DTC. DTC's practice is to credit DTC Participants' accounts on
the Distribution Date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on the Distribution Date. Payments by DTC Participants to Certificate Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such DTC
Participant and not of DTC, the Trustee or the Transferor, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the Trustee,
disbursement of such payments to DTC Participants shall be the responsibility of
DTC, and disbursement of such payments to the Certificate Owners shall be the
responsibility of DTC Participants and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Certificates at any time by giving reasonable notice to the
Transferor or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Definitive Certificates are
required to be printed and delivered. The Transferor may decide to discontinue
use of the system of book-entry transfers through DTC (or a successor securities
depository). In that event, Definitive Certificates will be printed and
delivered.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Transferor believes to be reliable, but
the Transferor takes no responsibility for the accuracy thereof.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the clearance
and settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled by Cedel in any of 36 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulations by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters of any Series.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies, that clear through or maintain a custodial
relationship with a Cedel Participant, either directly or indirectly.
The Euroclear System (the "Euroclear System") was created in 1968 to hold
securities for participants in 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 34 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 the Brussels, Belgium office of Morgan Guaranty Trust
Company of New York (the "Euroclear Operator" or "Euroclear") under a contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear system on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters of any Series. 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, withdrawal of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Cedel or the Euroclear Operator, as the case may be, will take any other action
permitted to be taken by a Certificateholder under the Agreement on behalf of a
Cedel Participant or a Euroclear Participant only in accordance with its
relevant rules and procedures and subject to its Depositary's ability to effect
such actions on its behalf through DTC.
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Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of the Certificates among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Certificates of each Class will be issued in fully registered,
certificated form to the Certificate Owners of such Class or their nominees
("Definitive Certificates"), rather than to DTC or its nominee (together with
any successor depository selected by the Transferor, the "Depository"), only if
(i) the Transferor advises the Trustee in writing that the Depository is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to the Certificates of such Class, and the Trustee or the
Transferor is unable to locate a qualified successor, (ii) the Transferor, at
its option, advises the Trustee in writing that it elects to terminate the
book-entry system through the Depository or (iii) after the occurrence of a
Servicer Default, Certificate Owners representing not less than 50% of the
invested amount of Series 1998-1 advise the Trustee and the Depository through
its participating organizations in writing that the continuation of a book-entry
system through the Depository is no longer in the best interest of the
Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Depository is required to notify its participating
organizations of the availability through the Depository of Definitive
Certificates. Upon surrender by the Depository of the definitive certificate
representing the Certificates of the affected Class and instructions for
registration, the Trustee will issue the Certificates of such Class as
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as Certificateholders under the Agreement.
Distribution of principal and interest on the Certificates will be made by
the Trustee directly to Certificateholders in accordance with the procedures set
forth herein and in the Agreement. Interest payments and any principal payments
on each Distribution Date will be made to the Certificateholders in whose names
the Definitive Certificates were registered at the close of business on the
related Record Date. Distributions will be made by check mailed to the address
of such Certificateholder as it appears on the register maintained by the
Trustee. The final payment on any Certificate, however, will be made only upon
presentation and surrender of such Certificate at the office or agency specified
in the notice of final distribution to Certificateholders. The Trustee will
provide such notice to registered Certificateholders mailed not later than the
fifth day of the month of such final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the transfer agent and registrar, which initially will be the Trustee
(in such capacity, the "Transfer Agent and Registrar"). No service charge will
be imposed for any registration of transfer or exchange, but the Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith. The Transfer Agent and
Registrar will not be required to register the transfer or exchange of
Definitive Certificates for the period from the Record Date preceding the due
date for any payment to the Distribution Date with respect to such Definitive
Certificates.
INTEREST PAYMENTS
Interest on the Class A Certificates and the Class B Certificates will
accrue during each Interest Period at the applicable Class A Certificate Rate
and the applicable Class B Certificate Rate, respectively. Interest will be
distributed on the Distribution Date, and on each Distribution Date
thereafter, to Certificateholders in whose names the Certificates were
registered at the close of business on the last day of the month preceding the
date of such distribution (each, a "Record Date"). "Interest Period" means, with
respect to any Distribution Date, the period from and including the previous
Distribution Date through and including the day preceding such Distribution
Date, except that the initial Interest Period will be the period from and
including the Closing Date through and including the day preceding the initial
Distribution Date.
The Class A Certificates will bear interest for the period from the Closing
Date through the day preceding the Distribution Date and with respect
to each Interest Period thereafter at the rate of % above LIBOR prevailing on
the related LIBOR Determination Date with respect to such period (the
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"Class A Certificate Rate"). Interest on the Class A Certificates will be
distributed on each Distribution Date in an amount equal to the product of (i)
the Class A Certificate Rate for the related Interest Period, (ii) a fraction,
the numerator of which is the actual number of days in such Interest Period and
the denominator of which is 360, and (iii) the outstanding principal amount of
the Class A Certificates as of the preceding Record Date (or, in the case of the
first Distribution Date, as of the Closing Date).
The Class B Certificates will bear interest for the period from the Closing
Date through the day preceding the Distribution Date and with respect
to each Interest Period thereafter at the rate of % above LIBOR prevailing on
the related LIBOR Determination Date with respect to such period (the "Class B
Certificate Rate"). Interest on the Class B Certificates will be distributed on
each Distribution Date in an amount equal to the product of (i) the Class B
Certificate Rate for the related Interest Period, (ii) a fraction, the numerator
of which is the actual number of days in such Interest Period and the
denominator of which is 360, and (iii) the outstanding principal amount of the
Class B Certificates as of the preceding Record Date (or, in the case of the
first Distribution Date, as of the Closing Date).
Interest on the Class A Certificates or the Class B Certificates due but
not paid on any Distribution Date will be payable on the next succeeding
Distribution Date, together with additional interest on such amount at the Class
A Certificate Rate or the Class B Certificate Rate, as applicable, plus 2.00%
per annum.
The Trustee will determine LIBOR with respect to the Certificates on
1998 for the initial Interest Period and on the second business day preceding
the commencement of each Interest Period for each Interest Period thereafter
(each, a "LIBOR Determination Date"). For purposes of calculating LIBOR, a
business day is any business day on which dealings in deposits in United States
dollars are transacted in the London interbank market.
"LIBOR" means, as of any LIBOR Determination Date, the rate for deposits in
United States dollars for a one-month period which appears on Telerate Page 3750
as of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate
does not appear on Telerate Page 3750, the rate for that LIBOR Determination
Date will be determined on the basis of the rates at which deposits in United
States dollars are offered by the Reference Banks at approximately 11:00 a.m.,
London time, on that day to prime banks in the London interbank market for a
one-month period. The Trustee 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 that LIBOR Determination Date will be the
arithmetic mean of such quotations. If fewer than two quotations are provided,
the rate for that LIBOR Determination Date 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 United
States dollars to leading European banks for a one-month 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 the principal London offices of four major banks in
the London interbank market selected by the Servicer upon notice to the Trustee.
The Class A Certificate Rate and the Class B Certificate Rate applicable to
the then current and immediately preceding Interest Periods may be obtained by
telephoning the Trustee at (800) 665-9343.
Payments of Class A Monthly Interest and any overdue Class A Monthly
Interest for any Distribution Date will be funded from Class A Available Funds
for the preceding Collection Period. To the extent Class A Available Funds are
insufficient to pay such interest, Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1998-1, amounts on deposit in the Cash
Collateral Account, if any, and Reallocated Principal Collections will be used
to make such payments.
"Class A Available Funds" means, for any Collection Period, the sum of (i)
the Class A Floating Allocation Percentage (with respect to any Collection
Period during the Revolving Period or the Accumulation Period) or the Class A
Fixed Allocation Percentage (with respect to any Collection Period during the
Early Amortization Period) of Finance Charge Collections with respect to such
Collection Period (including
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net investment earnings, if any, on funds on deposit in the Excess Funding
Account that are to be treated as Finance Charge Collections in accordance with
the Series 1998-1 Supplement) plus (ii) if the Distribution Date immediately
following such Collection Period occurs before the Class B Principal
Commencement Date, the Principal Funding Investment Proceeds, if any, to be
withdrawn from the Principal Funding Account on such Distribution Date plus
(iii) the amount, if any, to be withdrawn from the Reserve Account and included
in Class A Available Funds on such Distribution Date pursuant to the Series
1998-1 Supplement plus (iv) the net investment earnings, if any, on funds on
deposit in the Reserve Account to be withdrawn from the Reserve Account and
included in Class A Available Funds on such Distribution Date pursuant to the
Series 1998-1 Supplement.
"Class B Principal Commencement Date" means the Class B Expected Final
Distribution Date or, if the Early Amortization Period has commenced, the date
on which the Class A Certificates have been paid in full.
Payments of Class B Monthly Interest and any overdue Class B Monthly
Interest for any Distribution Date will be funded from Class B Available Funds
for the preceding Collection Period. To the extent Class B Available Funds are
insufficient to pay such interest, Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1998-1, amounts on deposit in the Cash
Collateral Account, if any, and Reallocated Principal Collections (in each case
after application of such amounts in respect of the Class A Certificates), other
than Class B Subordinated Principal Collections, will be used to make such
payments.
"Class B Available Funds" means, for any Collection Period, the sum of (i)
the Class B Floating Allocation Percentage (with respect to any Collection
Period during the Revolving Period or the Accumulation Period) or the Class B
Fixed Allocation Percentage (with respect to any Collection Period during the
Early Amortization Period) of Finance Charge Collections with respect to such
Collection Period (including net investment earnings, if any, on funds on
deposit in the Excess Funding Account that are to be treated as Finance Charge
Collections in accordance with the Series 1998-1 Supplement) plus (ii) if the
Distribution Date immediately following such Collection Period occurs on or
after the Class B Principal Commencement Date, the Principal Funding Investment
Proceeds, if any, to be withdrawn from the Principal Funding Account on such
Distribution Date plus (iii) the amount, if any, to be withdrawn from the
Reserve Account and included in Class B Available Funds on such Distribution
Date pursuant to the Series 1998-1 Supplement plus (iv) the net investment
earnings, if any, on funds on deposit in the Reserve Account to be withdrawn
from the Reserve Account and included in Class B Available Funds on such
Distribution Date pursuant to the Series 1998-1 Supplement.
PRINCIPAL PAYMENTS
During the Revolving Period, which will commence on the Closing Date and
end on the earlier of the commencement of the Accumulation Period and the
commencement of the Early Amortization Period, Available Principal Collections
will, subject to certain limitations described herein, be treated as Shared
Principal Collections and applied to cover principal payments due to or for the
benefit of other Series included in Group One (to the extent provided in the
Series Supplements for such other Series), be deposited in the Excess Funding
Account, be paid to the holder of the Exchangeable Transferor Certificate or,
under certain limited circumstances described herein, be paid to the Class D
Certificateholders. During the Accumulation Period (on or prior to the Class A
Expected Final Distribution Date or the Class B Expected Final Distribution
Date, as applicable), Available Principal Collections will be deposited in the
Principal Funding Account and principal payments will be made to the
Certificateholders as described below. During the Early Amortization Period,
which will commence upon the occurrence of an Early Amortization Event,
principal payments will be made to the Certificateholders as described below.
On each Distribution Date with respect to the Class A Accumulation Period,
the Trustee will deposit in the Principal Funding Account an amount equal to the
least of (i) the Available Principal Collections for such Distribution Date,
(ii) the applicable Controlled Deposit Amount for such Distribution Date and
(iii) the Class A Invested Amount on such Distribution Date (before giving
effect to such deposit). Unless an Early Amortization Event has occurred,
amounts on deposit in the Principal Funding Account will be paid to the Class A
Certificateholders on the Class A Expected Final Distribution Date. On each
Distribution Date with
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respect to the Class B Accumulation Period, the Trustee will deposit in the
Principal Funding Account an amount equal to the least of (i) the Available
Principal Collections for such Distribution Date (minus any portion thereof
applied to Class A Monthly Principal on such Distribution Date), (ii) the
applicable Controlled Deposit Amount for such Distribution Date and (iii) the
Class B Invested Amount on such Distribution Date (before giving effect to such
deposit). Unless an Early Amortization Event has occurred, amounts on deposit in
the Principal Funding Account will be paid to the Class B Certificateholders on
the Class B Expected Final Distribution Date.
"Available Principal Collections" means, for any Distribution Date, the sum
of (i) the Floating Allocation Percentage or the Fixed Allocation Percentage, as
applicable, of Principal Collections with respect to the preceding Collection
Period plus (ii) any available Excess Spread and Shared Excess Finance Charge
Collections to be treated as Available Principal Collections as specified under
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections" below plus (iii) the amount of Shared Principal Collections
allocated to Series 1998-1 with respect to such Distribution Date plus (iv)
during the Early Amortization Period, amounts on deposit in the Excess Funding
Account allocated to Series 1998-1 with respect to such Distribution Date minus
(v) the amount of Reallocated Principal Collections required to be used with
respect to such Distribution Date.
"Controlled Deposit Amount" means, for any Distribution Date with respect
to the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Distribution Date plus any Deficit Controlled
Accumulation Amount for the immediately preceding Distribution Date.
"Controlled Accumulation Amount" means (i) for any Distribution Date with
respect to the Class A Accumulation Period, $33,500,000; provided, however, that
if the commencement of the Accumulation Period is postponed as described below
under "-- Postponement of Accumulation Period," the Controlled Accumulation
Amount will be higher and (ii) for any Distribution Date with respect to the
Class B Accumulation Period, $45,000,000.
"Deficit Controlled Accumulation Amount" means (i) on the first
Distribution Date with respect to the Class A Accumulation Period or the Class B
Accumulation Period, as applicable, the excess, if any, of the applicable
Controlled Accumulation Amount for such Distribution Date over the amount
deposited in the Principal Funding Account as Class A Monthly Principal or Class
B Monthly Principal, as applicable, for such Distribution Date and (ii) on each
subsequent Distribution Date with respect to the Class A Accumulation Period or
the Class B Accumulation Period, as applicable, the excess, if any, of the
applicable Controlled Deposit Amount for such subsequent Distribution Date over
the amount deposited in the Principal Funding Account as Class A Monthly
Principal or Class B Monthly Principal, as applicable, for such subsequent
Distribution Date.
If the Available Principal Collections with respect to any Distribution
Date exceed the Controlled Deposit Amount for such Distribution Date, the
Controlled Deposit Amount will be deposited in the Principal Funding Account and
such excess may be paid to the Class D Certificateholders to the extent that the
Available Enhancement Amount exceeds the Required Enhancement Amount and any
remaining excess will be applied as Shared Principal Collections. Although it is
expected that a single principal payment will be made to the Class A
Certificateholders on the Class A Expected Final Distribution Date and that a
single principal payment will be made to the Class B Certificateholders on the
Class B Expected Final Distribution Date, there can be no assurance that such
payments will be made. See "Maturity Considerations" and "--Application of
Collections" below.
On each Distribution Date with respect to the Early Amortization Period,
Available Principal Collections will be paid to the Class A Certificateholders
until the Class A Certificates have been paid in full or the Stated Series
Termination Date occurs. On each Distribution Date with respect to the Early
Amortization Period after payment in full of the Class A Certificates, Available
Principal Collections will be paid to the Class B Certificateholders until the
Class B Certificates have been paid in full or the Stated Series Termination
Date occurs.
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POSTPONEMENT OF ACCUMULATION PERIOD
The Accumulation Period is scheduled to commence at the close of business
on the last day of the Collection Period. Upon written notice to the
Trustee, the Servicer may elect to postpone the commencement of the 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 Accumulation Period Length (determined as described below) is less
than 12 months. On each Determination Date prior to the commencement of the
Accumulation Period, the Servicer will determine the Accumulation Period Length.
If the Accumulation Period Length is less than 12 months, the Servicer may, at
its sole option, postpone the commencement of the Accumulation Period such that
the number of months included in the Class A Accumulation Period will equal or
exceed the Accumulation Period Length. The effect of the Accumulation Period
Length calculation is to permit the reduction of the length of the Class A
Accumulation Period based on (i) the invested amounts of certain other Series
which are scheduled to be in their revolving periods during the Class A
Accumulation Period and (ii) increases in the principal payment rate occurring
after the Closing Date. The length of the Class A Accumulation Period will not
be less than one month. If the commencement of the Accumulation Period is
postponed as described above, and if an Early Amortization Event occurs after
the date on which the Accumulation Period was originally scheduled to commence,
the Certificateholders may receive some of their principal later than if the
commencement of the Accumulation Period had not been postponed.
"Accumulation Period Length" means, as of any date of determination, the
number of months expected to be required to fund the Principal Funding Account
up to the Class A Initial Invested Amount no later than the Class A Expected
Final Distribution Date, based on (i) the monthly Principal Collections expected
to be distributable to the holders of the Investor Certificates of all then
outstanding 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 the holders of the Investor Certificates of all
then outstanding Series (excluding certain other Series) which are not expected
to be in their revolving periods during the Accumulation Period.
PAIRED SERIES
The Series 1998-1 Certificates may be paired with one or more other Series
(each a "Paired Series"). If a Paired Series is issued with respect to Series
1998-1, the invested amount of such Paired Series will increase during the
Accumulation Period as and to the extent that amounts are deposited in the
Principal Funding Account. The issuance of a Paired Series therefore allows the
Transferor to finance the increase in the Transferor Amount that would otherwise
result from the deposit of amounts into the Principal Funding Account and
provides the Transferor with a constant level of funding during the Accumulation
Period.
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 will be funded 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 the 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 Transferor) or
(ii) in the case of a Paired Series having a variable principal amount, an
interest in such variable Paired Series in an equal or lesser amount may be sold
by the Trust (and the proceeds thereof will be distributed to the Transferor)
and, in either case, the invested amount 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 on the Closing Date.
The issuance of a Paired Series will be subject to the satisfaction of the
Rating Agency Condition as well as the other conditions applicable to the
issuance of a new Series. There can be no assurance, however, that the terms of
any Paired Series might not affect the timing or amount of payments received by
the
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Certificateholders. If the Series 1998-1 Certificates are paired with a Paired
Series and the early amortization period commences with respect to such Paired
Series, the Transferor may, by written notice to the Trustee and the Servicer,
reduce the numerator used to determine the percentage used to allocate Principal
Collections to the Certificateholders (provided that, after giving effect to
such reduction, such numerator may not be less than the Invested Amount as of
the last day of the revolving period with respect to such Paired Series). If the
numerator used to determine the principal allocation percentage is reduced, the
amount of Principal Collections allocated to the Certificateholders will be
reduced and principal on the Certificates might be paid later than expected. See
"Risk Factors -- Master Trust Considerations -- Issuance of Paired Series Could
Affect Certificate Payments," "Maturity Considerations," "Description of the
Agreement -- Exchanges" and "-- Allocation of Collections and Default Amounts."
SUBORDINATION OF THE CLASS B CERTIFICATES, THE COLLATERALIZED TRUST OBLIGATIONS
AND THE CLASS D CERTIFICATES
The Class B Certificates, the Collateralized Trust Obligations and the
Class D Certificates will be subordinated to the extent necessary to fund
certain payments with respect to the Class A Certificates. In addition, the
Collateralized Trust Obligations and the Class D Certificates will be
subordinated to the extent necessary to fund certain payments with respect to
the Class B Certificates. Certain Principal Collections otherwise allocable to
the Class B Certificateholders ("Class B Subordinated Principal Collections")
may be reallocated to the Class A Certificateholders and the Class B Invested
Amount reduced accordingly. Similarly, certain Principal Collections allocated
to the Class D Certificates and the Collateralized Trust Obligations may be
reallocated to the Class A Certificateholders and the Class B Certificateholders
and the Class D Invested Amount and the CTO Invested Amount reduced accordingly.
To the extent the Class B Invested Amount is reduced, the percentage of Finance
Charge Collections allocated to the Class B Certificateholders in subsequent
Collection Periods will be reduced. Moreover, to the extent the amount of such
reduction in the Class B Invested Amount is not reimbursed, the amount of
principal distributable to the Class B Certificateholders will be reduced. See
"-- Allocation of Collections and Default Amounts," "-- Reallocation of Cash
Flows" and "-- Application of Collections -- Excess Spread; Shared Excess
Finance Charge Collections."
ALLOCATION OF COLLECTIONS AND DEFAULT AMOUNTS
The Servicer will allocate Finance Charge Collections, Principal
Collections and Default Amounts with respect to each Collection Period among
Series 1998-1, the interests of the Previously Issued Series, the interests of
all other then outstanding Series, the interests of any Enhancement Providers,
if applicable, and the Transferor Interest.
Finance Charge Collections with respect to any Collection Period during the
Revolving Period or the Accumulation Period, Principal Collections with respect
to any Collection Period during the Revolving Period and Default Amounts with
respect to any Collection Period will be allocated to Series 1998-1 based on the
Floating Allocation Percentage. The "Floating Allocation Percentage" means, with
respect to any Collection Period, the sum of the Class A Floating Allocation
Percentage, the Class B Floating Allocation Percentage, the CTO Floating
Allocation Percentage and the Class D Floating Allocation Percentage.
"Class A Floating Allocation Percentage" means, with respect to any
Collection Period, the percentage equivalent of a fraction the numerator of
which is equal to the Class A Invested Amount as of the end of the last day of
the immediately preceding Collection Period (or the Class A Initial Invested
Amount, in the case of the first Collection Period applicable to Series 1998-1)
and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of such immediately
preceding Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
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"Class B Floating Allocation Percentage" means, with respect to any
Collection Period, the percentage equivalent of a fraction the numerator of
which is equal to the Class B Invested Amount as of the end of the last day of
the immediately preceding Collection Period (or the Class B Initial Invested
Amount, in the case of the first Collection Period applicable to Series 1998-1)
and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of such immediately
preceding Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
"CTO Floating Allocation Percentage" means, with respect to any Collection
Period, the percentage equivalent of a fraction the numerator of which is equal
to the CTO Invested Amount as of the end of the last day of the immediately
preceding Collection Period (or the initial CTO Invested Amount, in the case of
the first Collection Period applicable to Series 1998-1) and the denominator of
which is equal to the greater of (i) the Aggregate Principal Receivables as of
the end of the last day of such immediately preceding Collection Period (or as
of the Closing Date, in the case of the first Collection Period applicable to
Series 1998-1) plus the amount on deposit in the Excess Funding Account as of
the end of such last day and (ii) the sum of the numerators used to calculate
the corresponding allocation percentages for all Series outstanding as of the
date on which such determination is being made.
"Class D Floating Allocation Percentage" means, with respect to any
Collection Period, the percentage equivalent of a fraction the numerator of
which is equal to the Class D Invested Amount as of the end of the last day of
the immediately preceding Collection Period (or the initial Class D Invested
Amount, in the case of the first Collection Period applicable to Series 1998-1)
and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of such immediately
preceding Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
Finance Charge Collections with respect to any Collection Period during the
Early Amortization Period and Principal Collections with respect to any
Collection Period during the Accumulation Period or the Early Amortization
Period will be allocated to Series 1998-1 based on the Fixed Allocation
Percentage. The "Fixed Allocation Percentage" means, with respect to any
Collection Period, the sum of the Class A Fixed Allocation Percentage, the Class
B Fixed Allocation Percentage, the CTO Fixed Allocation Percentage and the Class
D Fixed Allocation Percentage.
"Class A Fixed Allocation Percentage" means, with respect to any Collection
Period, the percentage equivalent of a fraction the numerator of which is equal
to the Class A Invested Amount as of the end of the last day of the Revolving
Period and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of the immediately preceding
Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
"Class B Fixed Allocation Percentage" means, with respect to any Collection
Period, the percentage equivalent of a fraction the numerator of which is equal
to the Class B Invested Amount as of the end of the last day of the Revolving
Period and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of the immediately preceding
Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
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"CTO Fixed Allocation Percentage" means, with respect to any Collection
Period, the percentage equivalent of a fraction the numerator of which is equal
to the CTO Invested Amount as of the end of the last day of the Revolving Period
and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of the immediately preceding
Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
"Class D Fixed Allocation Percentage" means, with respect to any Collection
Period, the percentage equivalent of a fraction the numerator of which is equal
to the Class D Invested Amount as of the end of the last day of the Revolving
Period and the denominator of which is equal to the greater of (i) the Aggregate
Principal Receivables as of the end of the last day of the immediately preceding
Collection Period (or as of the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus the amount on deposit in the
Excess Funding Account as of the end of such last day and (ii) the sum of the
numerators used to calculate the corresponding allocation percentages for all
Series outstanding as of the date on which such determination is being made.
"Class A Invested Amount" means, on any date of determination, an amount
equal to (a) the Class A Initial Invested Amount minus (b) the Principal Funding
Account Balance on such date minus (c) the aggregate amount of principal
payments made to the Class A Certificateholders prior to such date minus (d) the
excess, if any, of the aggregate amount of Class A Investor Charge-Offs for all
prior Distribution Dates over the sum of the aggregate amount of reimbursed
Class A Investor Charge-Offs and, without duplication, reductions of the Class A
Adjustment Amount, in each case for all prior Distribution Dates; provided,
however, that the Class A Invested Amount may not be reduced below zero.
"Class B Invested Amount" means, on any date of determination, an amount
equal to (a) the Class B Initial Invested Amount minus (b) after the Class A
Certificates have been paid in full, the Principal Funding Account Balance on
such date minus (c) the aggregate amount of principal payments made to the Class
B Certificateholders prior to such date minus (d) the aggregate amount of Class
B Investor Charge-Offs for all prior Distribution Dates minus (e) the amount of
Reallocated Principal Collections used to make payments in respect of the Class
A Certificates on all prior Distribution Dates that have not resulted in a
reduction of the Class D Invested Amount or the CTO Invested Amount minus (f) an
amount equal to the amount by which the Class B Invested Amount has been reduced
on all prior Distribution Dates in respect of the Class A Allocable Amount plus
(g) the sum of the amount of Excess Spread and Shared Excess Finance Charge
Collections allocated and available on all prior Distribution Dates for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (d),
(e) and (f) and, without duplication, reductions of the Class B Adjustment
Amount for all prior Distribution Dates; provided, however, that the Class B
Invested Amount may not be reduced below zero.
"CTO Invested Amount" means, on any date of determination, an amount equal
to (a) the initial CTO Invested Amount minus (b) the aggregate amount of
principal payments made to the CTO Securityholders prior to such date minus (c)
the amount of Reallocated Principal Collections used to make payments in respect
of the Certificates on all prior Distribution Dates that have not resulted in a
reduction of the Class D Invested Amount minus (d) an amount equal to the amount
by which the CTO Invested Amount has been reduced on all prior Distribution
Dates in respect of the Class A Allocable Amount, the Class B Allocable Amount
and the CTO Allocable Amount plus (e) the sum of the amount of Excess Spread and
Shared Excess Finance Charge Collections allocated and available on all prior
Distribution Dates for the purpose of reimbursing amounts deducted pursuant to
the foregoing clauses (c) and (d) and, without duplication, reductions of the
CTO Adjustment Amount for all prior Distribution Dates; provided, however, that
the CTO Invested Amount may not be reduced below zero.
"Class D Invested Amount" means, on any date of determination, an amount
equal to (a) the initial Class D Invested Amount (plus the initial principal
amount of any additional Class D Certificates issued, at the sole option of the
Transferor, on or prior to such Distribution Date) minus (b) the aggregate
amount of
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principal payments made to the Class D Certificateholders prior to such date
minus (c) the amount of Reallocated Principal Collections used to make payments
in respect of the Certificates and the Collateralized Trust Obligations on all
prior Distribution Dates minus (d) an amount equal to the amount by which the
Class D Invested Amount has been reduced on all prior Distribution Dates in
respect of the Class A Allocable Amount, the Class B Allocable Amount, the CTO
Allocable Amount and the Class D Allocable Amount plus (e) the sum of the amount
of Excess Spread and Shared Excess Finance Charge Collections allocated and
available on all prior Distribution Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c) and (d) and, without duplication,
reductions of the Class D Adjustment Amount for all prior Distribution Dates;
provided, however, that the Class D Invested Amount may not be reduced below
zero.
"Invested Amount" means, on any date of determination, the sum of the Class
A Invested Amount, the Class B Invested Amount, the CTO Invested Amount and the
Class D Invested Amount.
PRINCIPAL FUNDING ACCOUNT
The Servicer will establish and maintain with an Eligible Institution in
the name of the Trustee, on behalf of the Trust, a segregated trust account (the
"Principal Funding Account") for the benefit of the Certificateholders. During
the Accumulation Period, the Servicer will transfer Available Principal
Collections from the Collection Account to the Principal Funding Account as
described under "-- Application of Collections -- Payment of Principal."
The principal amount 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 by the Trustee, at the
direction of the Servicer, in Eligible Investments that mature prior to the
following Distribution Date. On each Distribution Date with respect to the
Accumulation Period (on or prior to the date on which principal on the
Collateralized Trust Obligations is scheduled to be paid), all interest and
other investment earnings (net of losses and investment expenses) on funds on
deposit in the Principal Funding Account received during the preceding Interest
Period (the "Principal Funding Investment Proceeds") will be withdrawn from the
Principal Funding Account and treated as a portion of Class A Available Funds
(until the Class A Certificates have been paid in full), Class B Available Funds
(after the Class A Certificates have been paid in full and until the Class B
Certificates have been paid in full) or CTO Available Funds (after the Class B
Certificates have been paid in full). If such investments during any Interest
Period yield less than the Class A Certificate Rate or the Class B Certificate
Rate, as applicable, for such Interest Period, the Principal Funding Investment
Proceeds with respect to the following Distribution Date will be less than the
Covered Amount for such Distribution Date. It is intended that any such
shortfall will be funded from Class A Available Funds or Class B Available
Funds, as applicable (including a withdrawal from the Reserve Account, if
necessary, as described below under "-- Reserve Account"), from Excess Spread
and Shared Excess Finance Charge Collections allocated to Series 1998-1 (to the
extent available as described below under "-- Application of Collections"), from
a withdrawal from the Cash Collateral Account as described below under "-- Cash
Collateral Account" or from Reallocated Principal Collections to the extent
available therefor. The Available Reserve Account Amount and the amount on
deposit in the Cash Collateral Account at any time will be limited and may be
zero, and there can be no assurance that sufficient funds will be available to
fund any such shortfall.
"Covered Amount" means (i) for any Distribution Date with respect to the
Class A Accumulation Period or the first Distribution Date with respect to the
Early Amortization Period, if such Distribution Date occurs before the Class B
Principal Commencement Date, an amount equal to the product of (A) a fraction,
the numerator of which is the actual number of days in the related Interest
Period and the denominator of which is 360 and (B) the Class A Certificate Rate
for such Interest Period and (C) the Principal Funding Account Balance, if any,
as of the preceding Distribution Date and (ii) for any Distribution Date with
respect to the Class B Accumulation Period or the first Distribution Date with
respect to the Early Amortization Period, if such Distribution Date occurs on or
after the date on which the Class A Certificates have been paid in full, an
amount equal to the product of (A) a fraction, the numerator of which is the
actual number of days
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in the related Interest Period and the denominator of which is 360 and (B) the
Class B Certificate Rate for such Interest Period and (C) the Principal Funding
Account Balance, if any, as of the preceding Distribution Date.
RESERVE ACCOUNT
The Servicer will establish and maintain with an Eligible Institution in
the name of the Trustee, on behalf of the Trust, a segregated trust account (the
"Reserve Account") for the benefit of the Certificateholders. The Reserve
Account is intended to help assure the payment of interest on the Certificates
during the Accumulation Period. On each Distribution Date from and after the
Reserve Account Funding Date, but prior to the termination of the Reserve
Account, the Trustee will apply Excess Spread and Shared Excess Finance Charge
Collections allocated to Series 1998-1 (to the extent available as described
below under "-- Application of Collections") to increase the amount on deposit
in the Reserve Account (to the extent such amount is less than the Required
Reserve Account Amount). On each Distribution Date, after giving effect to any
deposits to, or withdrawals from, the Reserve Account to be made 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 such excess will not be available
to the Certificateholders.
"Reserve Account Funding Date" means the Distribution Date following the
Collection Period which commences three months prior to the commencement of the
Class A Accumulation Period (or earlier under certain circumstances relating to
the yield on the Receivables).
"Required Reserve Account Amount" means, for any Distribution Date on or
after the Reserve Account Funding Date, an amount equal to 0.50% of the sum of
the Invested Amount and the Principal Funding Account Balance or any other
amount designated by the Transferor; provided, however, that, if such
designation is of a lesser amount, the Rating Agency Condition shall have been
satisfied and the Transferor 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 such officer, such designation
will not cause an Early Amortization Event or an event that, after the giving of
notice or the lapse of time, would constitute an Early Amortization Event to
occur.
The principal amount 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 by the Trustee,
at the direction of the Servicer, in Eligible Investments that mature prior to
the following Distribution Date. All interest and other investment earnings (net
of losses and investment expenses) on funds on deposit in the Reserve Account
will be retained in the Reserve Account (to the extent the amount on deposit
therein is less than the Required Reserve Account Amount) or treated as a
portion of Class A Available Funds (until the Class A Certificates have been
paid in full), Class B Available Funds (after the Class A Certificates have been
paid in full and until the Class B Certificates have been paid in full) or CTO
Available Funds (after the Class B Certificates have been paid in full).
On or before each Distribution Date with respect to the Accumulation Period
(on or prior to the date on which principal on the Collateralized Trust
Obligations is scheduled to be paid) and on or before the first Distribution
Date with respect to the Early Amortization Period, 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 (until the Class
A Certificates have been paid in full) or Class B Available Funds (after the
Class A Certificates have been paid in full) in an amount equal to the lesser of
(i) the Available Reserve Account Amount with respect to such Distribution Date
and (ii) the excess, if any, of the Covered Amount with respect to such
Distribution Date over the Principal Funding Investment Proceeds with respect to
such Distribution 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 deposits to, or withdrawals from, the Reserve Account to be
made on such Distribution Date) and the Required Reserve Account Amount for such
Distribution Date.
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The Reserve Account will be terminated following the earliest of (i) the
termination of the Trust pursuant to the Agreement, (ii) the date on which the
Series 1998-1 Certificates are paid in full and (iii) if the Accumulation Period
has not commenced, the occurrence of an Early Amortization Event or, if the
Accumulation Period has commenced, the earlier of the first Distribution Date
with respect to the Early Amortization Period and the date on which principal on
the Collateralized Trust Obligations is scheduled to be paid.
REALLOCATION OF CASH FLOWS
On or before each Distribution Date, the Servicer will determine the Class
A Required Amount for such Distribution Date. If the Class A Required Amount is
greater than zero, Excess Spread and Shared Excess Finance Charge Collections
allocable to Series 1998-1 and available for such purpose will be used to fund
the Class A Required Amount. If such Excess Spread and Shared Excess Finance
Charge Collections are insufficient to fund 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 Shared
Excess Finance Charge Collections and amounts, if any, on deposit in the Cash
Collateral Account are insufficient to fund the Class A Required Amount,
Principal Collections allocated first to the Class D Certificates, then to the
Collateralized Trust Obligations and then to the Class B Certificates for the
preceding Collection Period ("Reallocated Principal Collections") will then be
used to fund the remaining Class A Required Amount. If such Reallocated
Principal Collections are insufficient to fund the remaining Class A Required
Amount, then certain reductions of the Invested Amount will occur. See
"-- Allocation of Investor Default Amount; Allocation of Series Adjustment
Amount; Investor Charge-Offs."
"Class A Required Amount" means, for any Distribution Date, the amount, if
any, by which (i) the sum of (A) the Class A Monthly Interest for such
Distribution Date, (B) any Class A Monthly Interest previously due but not paid
to the Class A Certificateholders on a prior Distribution Date, (C) any Class A
Additional Interest for such Distribution Date and any Class A Additional
Interest previously due but not paid to the Class A Certificateholders on a
prior Distribution Date, (D) the Class A Allocable Amount, if any, for such
Distribution Date and (E) if FNANB is no longer the Servicer, the Class A
Servicing Fee for such Distribution Date and any unpaid Class A Servicing Fee
for a prior Distribution Date exceeds (ii) the Class A Available Funds for the
preceding Collection Period.
On or before each Distribution Date, the Servicer will determine the Class
B Required Amount for such Distribution Date. If the Class B Required Amount is
greater than zero, Excess Spread and Shared Excess Finance Charge Collections
allocable to Series 1998-1 and not required to fund the Class A Required Amount
or reimburse Class A Investor Charge-Offs will be used to fund the Class B
Required Amount. If such Excess Spread and Shared Excess Finance Charge
Collections are insufficient to fund the Class B Required Amount, amounts, if
any, on deposit in the Cash Collateral Account and 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 Shared Excess Finance Charge Collections and
amounts, if any, available in the Cash Collateral Account are insufficient to
fund the Class B Required Amount, Reallocated Principal Collections allocated
first to the Class D Certificates and then to the Collateralized Trust
Obligations and not required to fund the Class A Required Amount will then be
used to fund the remaining Class B Required Amount. If such Reallocated
Principal Collections are insufficient to fund the remaining Class B Required
Amount, then certain reductions of the Invested Amount will occur. See
"-- Allocation of Investor Default Amount; Allocation of Series Adjustment
Amount; Investor Charge-Offs."
"Class B Required Amount" means, for any Distribution Date, the amount, if
any, by which (i) the sum of (A) the Class B Monthly Interest for such
Distribution Date, (B) any Class B Monthly Interest previously due but not paid
to the Class B Certificateholders on a prior Distribution Date, (C) any Class B
Additional Interest for such Distribution Date and any Class B Additional
Interest previously due but not paid to the Class B Certificateholders on a
prior Distribution Date and (D) if FNANB is no longer the Servicer, the Class B
Servicing Fee for such Distribution Date and any unpaid Class B Servicing Fee
for a prior Distribution Date exceeds (ii) the Class B Available Funds for the
preceding Collection Period plus the amount, if any, by which the Class B
Allocable Amount, if any, for such Distribution Date exceeds the amount of
Excess Spread
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and Shared Excess Finance Charge Collections allocable to Series 1998-1
available on such Distribution Date as specified in clause (d) under
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections" below.
Reductions of the Class A Invested Amount or Class B Invested Amount will
thereafter be reimbursed and the Class A Invested Amount or Class B Invested
Amount, as applicable, increased to the extent of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-1 and available for
such purpose on each Distribution Date. In addition, to the extent that such
reductions are due to the allocation of Adjustment Amounts, such reductions may
be reimbursed as a result of deposits in the Excess Funding Account, increases
in the Aggregate Principal Receivables, certain decreases in the Aggregate
Invested Amount and subsequent Adjustment Payments.
On or before each Distribution Date, the Servicer will determine the CTO
Required Amount for such Distribution Date. If the CTO Required Amount is
greater than zero, amounts, if any, on deposit in the Cash Collateral Account
and not required to fund the Class A Required Amount or the Class B Required
Amount or pay certain other amounts will be used to fund the CTO Required
Amount. If amounts, if any, available in the Cash Collateral Account are
insufficient to fund the CTO Required Amount, Reallocated Principal Collections
allocated to the Class D Certificates and not required to fund the Class A
Required Amount or the Class B Required Amount will then be used to fund the
remaining CTO Required Amount. If such Reallocated Principal Collections are
insufficient to fund the remaining CTO Required Amount, then certain reductions
in the Invested Amount will occur.
"CTO Required Amount" means, for any Distribution Date, the amount, if any,
by which (i) the sum of (A) the CTO Monthly Interest for such Distribution Date,
(B) any CTO Monthly Interest previously due but not paid to the CTO
Securityholders on a prior Distribution Date, (C) any CTO Additional Interest
for such Distribution Date and any CTO Additional Interest previously due but
not paid to the CTO Securityholders on a prior Distribution Date and (D) if
FNANB is no longer the Servicer, the CTO Servicing Fee for such Distribution
Date and any unpaid CTO Servicing Fee for a prior Distribution Date exceeds (ii)
the CTO Available Funds and any Excess Spread and Shared Excess Finance Charge
Collections for the preceding Collection Period available to make payments with
respect thereto plus the amount, if any, by which the CTO Allocable Amount, if
any, for such Distribution Date exceeds the amount of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-1 available on such
Distribution Date as specified in clause (h) under "-- Application of
Collections -- Excess Spread; Shared Excess Finance Charge Collections" below.
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, CTO Available Funds and Class D
Available Funds for the preceding Collection Period as follows:
(A) On each Distribution Date, an amount equal to the Class A
Available Funds for the preceding Collection Period will be distributed in
the following priority:
(i) an amount equal to the Class A Monthly Interest for such
Distribution Date, plus the amount of any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to the Class A Certificateholders on
a prior Distribution Date at a rate equal to the Class A Certificate
Rate for the related Interest Period plus 2.00% per annum ("Class A
Additional Interest"), will be distributed to the Class A
Certificateholders;
(ii) if FNANB is no longer the Servicer, 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 paid to the Servicer on a
prior Distribution Date, will be distributed to the Servicer;
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(iii) an amount equal to the Class A Allocable Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payment of
Principal" below; and
(iv) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections" below.
(B) On each Distribution Date, an amount equal to the Class B
Available Funds for the preceding Collection Period will be distributed in
the following priority:
(i) an amount equal to the Class B Monthly Interest for such
Distribution Date, plus the amount of any Class B Monthly Interest
previously due but not paid to the Class B Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to the Class B Certificateholders on
a prior Distribution Date at a rate equal to the Class B Certificate
Rate for the related Interest Period plus 2.00% per annum ("Class B
Additional Interest"), will be distributed to the Class B
Certificateholders;
(ii) if FNANB is no longer the Servicer, 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 paid to the Servicer on a
prior Distribution Date, will be distributed to the Servicer; and
(iii) the balance, if any, will constitute Excess Spread and will
be allocated and distributed as described under "-- Excess Spread;
Shared Excess Finance Charge Collections" below.
(C) On each Distribution Date, an amount equal to the CTO Available
Funds for the preceding Collection Period will be distributed in the
following priority:
(i) if FNANB is no longer the Servicer, an amount equal to the CTO
Servicing Fee for such Distribution Date, plus the amount of any CTO
Servicing Fee previously due but not paid to the Servicer on a prior
Distribution Date, will be distributed to the Servicer; and
(ii) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections" below.
(D) On each Distribution Date, an amount equal to the Class D
Available Funds for the preceding Collection Period will be distributed in
the following priority:
(i) if FNANB is no longer the Servicer, an amount equal to the
Class D Servicing Fee for such Distribution Date, plus the amount of any
Class D Servicing Fee previously due but not paid to the Servicer on a
prior Distribution Date, will be distributed to the Servicer; and
(ii) the balance, if any, will constitute Excess Spread and will be
allocated and distributed as described under "-- Excess Spread; Shared
Excess Finance Charge Collections" below.
"Class A Monthly Interest" means, for any Distribution Date, an amount
equal to the product of (i) the Class A Certificate Rate for the related
Interest Period, (ii) a fraction, the numerator of which is the actual number of
days in such Interest Period and the denominator of which is 360, and (iii) the
outstanding principal amount of the Class A Certificates as of the preceding
Record Date (or, in the case of the first Distribution Date, as of the Closing
Date).
"Class B Monthly Interest" means, for any Distribution Date, an amount
equal to the product of (i) the Class B Certificate Rate for the related
Interest Period, (ii) a fraction, the numerator of which is the actual number of
days in such Interest Period and the denominator of which is 360, and (iii) the
outstanding principal amount of the Class B Certificates as of the preceding
Record Date (or, in the case of the first Distribution Date, as of the Closing
Date).
"CTO Available Funds" means, for any Collection Period, the sum of (i) the
CTO Floating Allocation Percentage (with respect to any Collection Period during
the Revolving Period or the Accumulation Period) or the CTO Fixed Allocation
Percentage (with respect to any Collection Period during the Early Amortization
Period) of Finance Charge Collections with respect to such Collection Period
(including net investment
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earnings, if any, on funds on deposit in the Excess Funding Account that are to
be treated as Finance Charge Collections in accordance with the Series 1998-1
Supplement) plus (ii) if the Distribution Date immediately following such
Collection Period occurs on or after the CTO Principal Commencement Date, the
Principal Funding Investment Proceeds, if any, to be withdrawn from the
Principal Funding Account on such Distribution Date plus (iii) the amount, if
any, to be withdrawn from the Reserve Account and included in CTO Available
Funds on such Distribution Date pursuant to the Series 1998-1 Supplement plus
(iv) the net investment earnings, if any, on funds on deposit in the Reserve
Account to be withdrawn from the Reserve Account and included in CTO Available
Funds on such Distribution Date pursuant to the Series 1998-1 Supplement.
"Class D Available Funds" means, for any Collection Period, an amount equal
to the Class D Floating Allocation Percentage (with respect to any Collection
Period during the Revolving Period or the Accumulation Period) or the Class D
Fixed Allocation Percentage (with respect to any Collection Period during the
Early Amortization Period) of Finance Charge Collections with respect to such
Collection Period.
"Excess Spread" means, with respect to any Distribution Date, an amount
equal to the sum of the amounts described in clauses (A) (iv), (B) (iii), (C)
(ii) and (D) (ii) above plus the net investment earnings, if any, on funds on
deposit in the Cash Collateral Account received during the preceding Collection
Period.
Excess Spread; Shared Excess Finance Charge Collections. On each
Distribution Date, the Trustee, acting pursuant to the Servicer's instructions,
will apply Excess Spread and Shared Excess Finance Charge Collections allocable
to Series 1998-1 with respect to the preceding Collection Period to make the
following distributions in the following priority:
(a) an amount up 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) under "-- Payment of Interest, Fees and
Other Items" above, in that order of priority;
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed will be treated as a
portion of Available Principal Collections for such Distribution Date as
described under "-- Payment of Principal" below;
(c) an amount up to the Class B Required Amount, if any, with respect
to such Distribution Date will be used to fund any deficiency pursuant to
clauses (B) (i) and (ii) under "-- Payment of Interest, Fees and Other
Items" above, in that order of priority;
(d) an amount equal to the Class B Allocable Amount, if any, for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payment of
Principal" below;
(e) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (d), (e) and (f) of
the definition of "Class B Invested Amount" under "-- Allocation of
Collections and Default Amounts" above (but not in excess of the aggregate
amount of such reductions which have not been previously reimbursed) will
be treated as a portion of Available Principal Collections for such
Distribution Date as described under "-- Payment of Principal" below;
(f) an amount equal to the CTO Monthly Interest for such Distribution
Date, plus the amount of any CTO Monthly Interest previously due but not
paid to the CTO Securityholders on a prior Distribution Date, plus any
additional interest with respect to interest amounts that were due but not
paid to the CTO Securityholders on a prior Distribution Date at a rate
equal to the CTO Interest Rate plus 2.00% per annum ("CTO Additional
Interest"), will be distributed to the CTO Securityholders;
(g) if FNANB is the Servicer, an amount equal to the Class A Servicing
Fee, the Class B Servicing Fee and the CTO Servicing Fee for such
Distribution Date (or, if FNANB is no longer the Servicer, the portion
thereof remaining unpaid), plus the amount of any Class A Servicing Fee,
Class B Servicing Fee or CTO Servicing Fee previously due but not paid to
the Servicer on a prior Distribution Date, will be distributed to the
Servicer;
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(h) an amount equal to the CTO Allocable Amount, if any, for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payment of
Principal" below;
(i) an amount equal to the aggregate amount by which the CTO Invested
Amount has been reduced pursuant to clauses (c) and (d) of the definition
of "CTO Invested Amount" under "-- Allocation of Collections and Default
Amounts" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) will be treated as a
portion of Available Principal Collections for such Distribution Date as
described under "-- Payment of Principal" below;
(j) an amount equal to the excess, if any, of the Required Cash
Collateral Account Amount over the amount on deposit in the Cash Collateral
Account (without giving effect to any deposit made on such date under the
Agreement and after giving effect to any payment of Class D Monthly
Principal being made on such date) will be deposited in the Cash Collateral
Account;
(k) an amount equal to the Class D Monthly Interest for such
Distribution Date, plus the amount of any Class D Monthly Interest
previously due but not paid to the Class D Certificateholders on a prior
Distribution Date, plus any additional interest with respect to interest
amounts that were due but not paid to the Class D Certificateholders on a
prior Distribution Date at a rate equal to the Class D Certificate Rate
plus 2.00% per annum ("Class D Additional Interest"), will be distributed
to the Class D Certificateholders;
(l) if FNANB is the Servicer, an amount equal to the Class D Servicing
Fee for such Distribution Date (or, if FNANB is no longer the Servicer, the
portion thereof remaining unpaid), plus the amount of any Class D Servicing
Fee previously due but not paid to the Servicer on a prior Distribution
Date, will be distributed to the Servicer;
(m) an amount equal to the Class D Allocable Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date as described under "-- Payment of
Principal" below;
(n) an amount equal to the aggregate amount by which the Class D
Invested Amount has been reduced pursuant to clauses (c) and (d) of the
definition of "Class D Invested Amount" under "-- Allocation of Collections
and Default Amounts" above (but not in excess of the aggregate amount of
such reductions which have not been previously reimbursed) will be treated
as a portion of Available Principal Collections for such Distribution Date
as described under "-- Payment of Principal" below;
(o) an amount equal to the excess, if any, of the Required Reserve
Account Amount over the Available Reserve Account Amount will be deposited
in the Reserve Account;
(p) if applicable, an amount equal to the aggregate of any other
amounts then due to the CTO Securityholders pursuant to the Series 1998-1
Supplement will be applied in accordance with the Series 1998-1 Supplement;
and
(q) the balance, if any, will constitute "Shared Excess Finance Charge
Collections" with respect to Group One and will be applied with respect to
other Series in Group One or deposited in the Excess Funding Account in
accordance with the Agreement.
"CTO Monthly Interest" means, for any Distribution Date, an amount equal to
the product of (i) the CTO Interest Rate for the related Interest Period, (ii) a
fraction, the numerator of which is the actual number of days in such Interest
Period and the denominator of which is 360, and (iii) the outstanding principal
amount of the Collateralized Trust Obligations as of the preceding Record Date
(or, in the case of the first Distribution Date, as of the Closing Date).
"CTO Interest Rate" means the rate applicable to the Collateralized Trust
Obligations. The weighted average of the CTO Interest Rate and the Class D
Certificate Rate will not exceed LIBOR plus 1.25% per annum.
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"Class D Monthly Interest" means, for any Distribution Date, an amount
equal to the product of (i) the Class D Certificate Rate for the related
Interest Period, (ii) a fraction, the numerator of which is the actual number of
days in such Interest Period and the denominator of which is 360, and (iii) the
outstanding principal amount of the Class D Certificates as of the preceding
Record Date (or, in the case of the first Distribution Date, as of the Closing
Date).
"Class D Certificate Rate" means the rate applicable to the Class D
Certificates. The weighted average of the CTO Interest Rate and the Class D
Certificate Rate will not exceed LIBOR plus 1.25% per annum.
Payment of Principal. On each Distribution Date, the Trustee, acting
pursuant to the Servicer's instructions, will apply Available Principal
Collections as follows:
(A) On each Distribution Date with respect to the Revolving Period,
all Available Principal Collections (less, if applicable, any portion
thereof allocated as part of Class D Monthly Principal to make a payment
with respect to the Class D Invested Amount (subject to maintaining the
Required Enhancement Amount and subject to any other restrictions specified
in the Series 1998-1 Supplement)) will constitute Shared Principal
Collections with respect to other Series in Group One or be deposited in
the Excess Funding Account as described under "Description of the
Agreement -- Shared Principal Collections;" and
(B) On each Distribution Date with respect to the Accumulation Period
or the Early Amortization Period, all Available Principal Collections will
be deposited or distributed in the following priority:
(i) an amount equal to the Class A Monthly Principal for such
Distribution Date will, during the Class A Accumulation Period, be
deposited in the Principal Funding Account for payment to the Class A
Certificateholders on the earlier to occur of the Class A Expected Final
Distribution Date and the first Distribution Date with respect to the
Early Amortization Period and, during the Early Amortization Period, be
paid to the Class A Certificateholders until the Class A Certificates
have been paid in full;
(ii) an amount equal to the Class B Monthly Principal for such
Distribution Date will, during the Class B Accumulation Period, be
deposited in the Principal Funding Account for payment to the Class B
Certificateholders on the earlier to occur of the Class B Expected Final
Distribution Date and the first Distribution Date with respect to the
Early Amortization Period and, during the Early Amortization Period, be
paid to the Class B Certificateholders until the Class B Certificates
have been paid in full;
(iii) an amount equal to the CTO Monthly Principal for such
Distribution Date will be applied in accordance with the Series 1998-1
Supplement;
(iv) an amount equal to the Class D Monthly Principal for such
Distribution Date will be distributed to the Class D Certificateholders;
and
(v) the balance, if any, will constitute Shared Principal
Collections with respect to other Series in Group One or be deposited in
the Excess Funding Account as described under "Description of the
Agreement -- Shared Principal Collections."
"Class A Monthly Principal" means, for any Distribution Date with respect
to the Accumulation Period or the Early Amortization Period, the least of (i)
the Available Principal Collections for such Distribution Date, (ii) for any
Distribution Date with respect to the Accumulation Period, the Controlled
Deposit Amount for such Distribution Date and (iii) the Class A Invested Amount
on such Distribution Date.
"Class B Monthly Principal" means, for any Distribution Date with respect
to the Accumulation Period or the Early Amortization Period, the least of (i)
the Available Principal Collections for such Distribution Date (minus any
portion of such Available Principal Collections applied to Class A Monthly
Principal on such Distribution Date), (ii) for any Distribution Date with
respect to the Accumulation Period, after the Class A Certificates have been
paid in full, the Controlled Deposit Amount for such Distribution Date and (iii)
the Class B Invested Amount on such Distribution Date.
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"CTO Monthly Principal" means, for any Distribution Date after the Class B
Certificates have been paid in full, the least of (i) the Available Principal
Collections for such Distribution Date (minus any portion of such Available
Principal Collections applied to Class A Monthly Principal or Class B Monthly
Principal on such Distribution Date), (ii) the initial CTO Invested Amount and
(iii) the CTO Invested Amount on such Distribution Date.
"Class D Monthly Principal" means, for any Distribution Date prior to the
payment in full of the Collateralized Trust Obligations, the least of (i) the
Available Principal Collections for such Distribution Date (minus the portion of
such Available Principal Collections applied to Class A Monthly Principal, Class
B Monthly Principal or CTO Monthly Principal on such Distribution Date), (ii)
the Enhancement Surplus on such Distribution Date and (iii) the CTO Enhancement
Surplus on such Distribution Date (provided, in each case, that the Transferor
shall have elected to pay such Class D Monthly Principal) and, for any
Distribution Date after the Collateralized Trust Obligations have been paid in
full, the lesser of (i) the Available Principal Collections for such
Distribution Date (minus the portion of such Available Principal Collections
applied to Class A Monthly Principal, Class B Monthly Principal or CTO Monthly
Principal on such Distribution Date) and (ii) the Class D Invested Amount on
such Distribution Date. The "CTO Enhancement Surplus" will be determined in
accordance with the Series 1998-1 Supplement.
"Enhancement Surplus" means, with respect to any Distribution Date, the
excess, if any, of (i) the sum of the amount on deposit in the Cash Collateral
Account (after giving effect to any deposits or withdrawals from the Cash
Collateral Account on such Distribution Date), the CTO Invested Amount and the
Class D Invested Amount over (ii) the Required Enhancement Amount.
"Required Enhancement Amount" means, with respect to any Distribution Date,
an amount equal to the product of the Invested Amount and 18%, but not less than
$18,000,000; provided, however, that (i) if an Early Amortization Event occurs,
then the Required Enhancement Amount will equal the Required Enhancement Amount
on the Distribution Date immediately preceding the occurrence of such Early
Amortization Event, (ii) in no event will the Required Enhancement Amount exceed
the sum of the Class A Invested Amount and the Class B Invested Amount on such
Distribution Date and (iii) the Required Enhancement Amount may be reduced
without the consent of the Certificateholders if (x) the Rating Agency Condition
shall have been satisfied, (y) the Transferor shall have delivered to the
Trustee an officer's certificate to the effect that, based on the facts known to
such officer at such time, in the reasonable belief of such officer, such
reduction will not cause an Early Amortization Event, or an event that, after
the giving of notice or the lapse of time, would constitute an Early
Amortization Event, to occur and (z) the Transferor shall have delivered an
opinion of counsel, acceptable to the Trustee, to the effect that such reduction
will not (a) adversely affect the tax characterization as debt of the
certificates of any outstanding Series or Class with respect to which an opinion
of counsel was delivered at the time of their issuance that such certificates
would be characterized as debt, (b) cause the Trust to be classified, for
federal income tax purposes, as an association (or publicly traded partnership)
taxable as a corporation or (c) cause or constitute an event in which gain or
loss would be recognized by any Certificateholder.
CASH COLLATERAL ACCOUNT
The Trustee will establish and maintain with an Eligible Institution in the
name of the Trustee, on behalf of the Trust, a segregated trust account (the
"Cash Collateral Account") for the benefit of the Certificateholders, the CTO
Securityholders and the Class D Certificateholders, as their interests appear in
the Series 1998-1 Supplement (which interest, in the case of the CTO
Securityholders and the Class D Certificateholders, will be subordinated to the
interests of the Certificateholders as provided in the Series 1998-1
Supplement). The Cash Collateral Account will have a beginning balance of zero,
which balance may be increased to the extent Excess Spread and Shared Excess
Finance Charge Collections allocated to Series 1998-1 are required to be or are
otherwise deposited therein. The principal amount on deposit in the Cash
Collateral Account on any Distribution Date will be invested by the Trustee, at
the direction of the Servicer, in Eligible Investments that mature on or prior
to the following Distribution Date. On each Distribution Date, all interest and
other investment earnings (net of losses and investment expenses) on funds
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on deposit in the Cash Collateral Account received during the preceding Interest
Period will be withdrawn from the Cash Collateral Account and treated as a
portion of Excess Spread.
On each Distribution Date, one or more withdrawals may be made from the
Cash Collateral Account in an amount up to the amount on deposit therein to fund
the amounts specified in clauses (a) through (f) and clause (h) under
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections" above in the order of priority specified therein.
On each Distribution Date, the Servicer or the Trustee, acting pursuant to
the Servicer's instructions, will apply Excess Spread and Shared Excess Finance
Charge Collections allocable to Series 1998-1 (to the extent available as
described above under "-- Application of Collections -- Excess Spread; Shared
Excess Finance Charge Collections") to increase the amount on deposit in the
Cash Collateral Account up to the Required Cash Collateral Account Amount. The
"Required Cash Collateral Account Amount" will be determined in accordance with
the Series 1998-1 Supplement.
ALLOCATION OF INVESTOR DEFAULT AMOUNT; ALLOCATION OF SERIES ADJUSTMENT AMOUNT;
INVESTOR CHARGE-OFFS
On each Determination Date, the Servicer will calculate the Investor
Default Amount, if any, for the preceding Collection Period. "Investor Default
Amount" means, for any Collection Period, the product of (i) the Floating
Allocation Percentage with respect to such Collection Period and (ii) the
Default Amount for such Collection 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 (i) the Class A Floating Allocation Percentage with respect to the
preceding Collection Period and (ii) the Default Amount for such Collection
Period. A portion of the Investor Default Amount will be allocated to the Class
B Certificateholders (the "Class B Investor Default Amount") on each
Distribution Date in an amount equal to the product of (i) the Class B Floating
Allocation Percentage with respect to the preceding Collection Period and (ii)
the Default Amount for such Collection Period. A portion of the Investor Default
Amount will be allocated to the CTO Securityholders (the "CTO Investor Default
Amount") on each Distribution Date in an amount equal to the product of (i) the
CTO Floating Allocation Percentage with respect to the preceding Collection
Period and (ii) the Default Amount for such Collection Period. A portion of the
Investor Default Amount will be allocated to the Class D Certificateholders (the
"Class D Investor Default Amount") on each Distribution Date in an amount equal
to the product of (i) the Class D Floating Allocation Percentage with respect to
the preceding Collection Period and (ii) the Default Amount for such Collection
Period.
On each Determination Date, the Servicer will also calculate the Series
Adjustment Amount, if any, for the preceding Collection Period. "Series
Adjustment Amount" means, for any Collection Period, the product of (i) the
percentage equivalent of a fraction the numerator of which is the Invested
Amount as of the last day of such Collection Period and the denominator of which
is the Aggregate Invested Amount as of the last day of such Collection Period
and (ii) the Adjustment Amount as of such last day. A portion of the Series
Adjustment Amount will be allocated to the Class A Certificateholders (the
"Class A Adjustment Amount") on each Distribution Date in an amount equal to the
product of (i) the percentage equivalent of a fraction the numerator of which is
the Class A Floating Allocation Percentage with respect to the preceding
Collection Period and the denominator of which is the Floating Allocation
Percentage with respect to such Collection Period and (ii) the Series Adjustment
Amount as of the end of such Collection Period. A portion of the Series
Adjustment Amount will be allocated to the Class B Certificateholders (the
"Class B Adjustment Amount") on each Distribution Date in an amount equal to the
product of (i) the percentage equivalent of a fraction the numerator of which is
the Class B Floating Allocation Percentage with respect to the preceding
Collection Period and the denominator of which is the Floating Allocation
Percentage with respect to such Collection Period and (ii) the Series Adjustment
Amount as of the end of such Collection Period. A portion of the Series
Adjustment Amount will be allocated to the CTO Securityholders (the "CTO
Adjustment Amount") on each Distribution Date in an amount equal to the product
of (i) the percentage equivalent of a fraction the numerator of which is the CTO
Floating Allocation Percentage with respect to the preceding Collection Period
and the denominator of which is the Floating Allocation Percentage with respect
to such Collection Period and (ii) the Series Adjustment Amount as of the end of
such Collection Period. A portion of the Series
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Adjustment Amount will be allocated to the Class D Certificateholders (the
"Class D Adjustment Amount") on each Distribution Date in an amount equal to the
product of (i) the percentage equivalent of a fraction the numerator of which is
the Class D Floating Allocation Percentage with respect to the preceding
Collection Period and the denominator of which is the Floating Allocation
Percentage with respect to such Collection Period and (ii) the Series Adjustment
Amount as of the end of such Collection Period. An Adjustment Amount will be
reduced to the extent that amounts are deposited in the Excess Funding Account,
the Aggregate Principal Receivables increase, certain decreases occur in the
Aggregate Invested Amount or the Transferor subsequently makes required
Adjustment Payments. Reductions in a Series Adjustment Amount will be allocated
first to the Class A Certificates, then to the Class B Certificates, then to the
Collateralized Trust Obligations and finally to the Class D Certificates, in
each case to the extent of any reductions in the Class A Invested Amount, the
Class B Invested Amount, the CTO Invested Amount or the Class D Invested Amount,
as applicable, attributable to a Series Adjustment Amount.
"Class A Allocable Amount" means, for any Distribution Date, the sum of the
Class A Investor Default Amount and the Class A Adjustment Amount for such
Distribution Date. "Class B Allocable Amount" means, for any Distribution Date,
the sum of the Class B Investor Default Amount and the Class B Adjustment Amount
for such Distribution Date. "CTO Allocable Amount" means, for any Distribution
Date, the sum of the CTO Investor Default Amount and the CTO Adjustment Amount
for such Distribution Date. "Class D Allocable Amount" means, for any
Distribution Date, the sum of the Class D Investor Default Amount and the Class
D Adjustment Amount for such Distribution Date.
An amount equal to the Class A Allocable Amount for each Distribution Date
will be funded with Class A Available Funds, Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1998-1, amounts, if any, on
deposit in the Cash Collateral Account and Reallocated Principal Collections
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 Allocable Amount for each Distribution Date will be funded
with Class B Available Funds, Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1998-1, amounts, if any, on deposit in the Cash
Collateral Account and Reallocated Principal Collections applied as described
above in "-- Application of Collections -- Payment of Interest, Fees and Other
Items" and "-- Reallocation of Cash Flows."
On each Distribution Date, if the Class A Required Amount for such
Distribution Date exceeds the sum of the amount of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-1, amounts, if any,
on deposit in the Cash Collateral Account and Reallocated Principal Collections,
then the Class D Invested Amount will be reduced by the amount of such excess,
but not by more than the unfunded portion of the Class A Allocable Amount for
such Distribution Date. In the event that such reduction would cause the Class D
Invested Amount to be a negative number, the Class D Invested Amount will be
reduced to zero and the CTO Invested Amount will be reduced by the amount by
which the Class D Invested Amount would have been reduced below zero. In the
event that such reduction would cause the CTO Invested Amount to be a negative
number, the CTO Invested Amount will be reduced to zero and the Class B Invested
Amount will be reduced by the amount by which the CTO Invested Amount would have
been reduced below zero. 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 (a "Class A
Investor Charge-Off"). Any such reduction in the Class A Invested Amount 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 Shared Excess Finance
Charge Collections allocable to Series 1998-1 and available for such purpose as
described above in "-- Application of Collections -- Excess Spread; Shared
Excess Finance Charge Collections." In addition, to the extent that such
reduction is due to the allocation of Adjustment Amounts, such reduction may be
reimbursed as a result of deposits in the Excess Funding Account, increases in
the Aggregate Principal Receivables, certain decreases in the Aggregate Invested
Amount or subsequent Adjustment Payments.
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On each Distribution Date, if the Class B Required Amount for such
Distribution Date exceeds the sum of the amount of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-1 not required to pay
the Class A Required Amount or reimburse Class A Investor Charge-Offs, amounts,
if any, on deposit in the Cash Collateral Account not required to pay the Class
A Required Amount and Reallocated Principal Collections (exclusive of Class B
Subordinated Principal Collections) not required to pay the Class A Required
Amount, then the Class D Invested Amount remaining after any reduction for the
benefit of the Class A Certificates will be reduced by the amount of such
excess, but not by more than the unfunded portion of the Class B Allocable
Amount for such Distribution Date. In the event that such reduction would cause
the Class D Invested Amount to be a negative number, the Class D Invested Amount
will be reduced to zero and the CTO Invested Amount remaining after any
reduction for the benefit of the Class A Certificates will be reduced by the
amount by which the Class D Invested Amount would have been reduced below zero.
In the event that such reduction would cause the CTO Invested Amount to be a
negative number, the CTO Invested Amount will be reduced to zero and the Class B
Invested Amount will be reduced by the amount by which the CTO Invested Amount
would have been reduced below zero (a "Class B Investor Charge-Off"). Any such
reduction in the Class B Invested Amount will have the effect of slowing or
reducing the return of principal to the Class B Certificateholders. 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 Shared Excess Finance Charge Collections allocable
to Series 1998-1 and available for such purpose as described above in
"-- Application of Collections -- Excess Spread; Shared Excess Finance Charge
Collections." In addition, to the extent that such reduction is due to the
allocation of Adjustment Amounts, such reduction may be reimbursed as a result
of deposits in the Excess Funding Account, increases in the Aggregate Principal
Receivables, certain decreases in the Aggregate Invested Amount or subsequent
Adjustment Payments.
On each Distribution Date, if the CTO Allocable Amount for such
Distribution Date exceeds the sum of the amount of Excess Spread and Shared
Excess Finance Charge Collections allocable to Series 1998-1 not required to pay
the Class A Required Amount or the Class B Required Amount or to pay certain
other amounts, amounts if any, on deposit in the Cash Collateral Account not
required to pay the Class A Required Amount or the Class B Required Amount or to
pay certain other amounts and Reallocated Principal Collections (exclusive of
Class B Subordinated Principal Collections and Principal Collections allocated
to the CTO Securityholders) not required to pay the Class A Required Amount or
the Class B Required Amount, then the Class D Invested Amount remaining after
any reduction for the benefit of the Class A Certificates or the Class B
Certificates will be reduced by the amount of such excess, but not by more than
the unfunded portion of the CTO Allocable Amount for such Distribution Date. In
the event that such reduction would cause the Class D Invested Amount to be a
negative number, the Class D Invested Amount will be reduced to zero and the CTO
Invested Amount remaining after any reduction for the benefit of the Class A
Certificates or the Class B Certificates will be reduced by the amount by which
the Class D Invested Amount would have been reduced below zero.
On each Distribution Date, if the Class D Allocable Amount exceeds the
amount of Excess Spread and Shared Excess Finance Charge Collections allocable
to Series 1998-1 available on such Distribution Date as specified in clause (m)
under "-- Application of Collections -- Excess Spread; Shared Excess Finance
Charge Collections" above, then the Class D Invested Amount will be reduced by
the amount of such excess.
EARLY AMORTIZATION EVENTS
The Revolving Period will continue through the last day of the
Collection Period (or such later date determined as described above under
"-- Postponement of Accumulation Period") unless an Early Amortization Event
occurs prior to such date. "Early Amortization Event" means any of the following
events (subject to certain notice requirements described in the following
paragraph):
(a) the Transferor shall fail to make any payment or deposit on the
date required under the Agreement or the Series 1998-1 Supplement or within
five business days thereafter;
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(b) the Transferor shall fail to observe or perform in any material
respect any other covenants or agreements of the Transferor set forth in
the Agreement or the Series 1998-1 Supplement and such failure shall
continue unremedied for a period of 60 days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been
given to the Transferor by the Trustee, or to the Transferor and the
Trustee by the holders of not less than 50% of the Invested Amount, which
failure has a material adverse effect on the interests of the
Certificateholders;
(c) any representation or warranty made by the Transferor in the
Agreement or the Series 1998-1 Supplement shall prove to have been
incorrect in any material respect when made and shall continue to be
incorrect in any material respect for a period of 60 days after the date on
which written notice of such breach, requiring the same to be remedied,
shall have been given to the Transferor by the Trustee, or to the
Transferor and the Trustee by the holders of not less than 50% of the
Invested Amount, which incorrectness has a material adverse effect on the
interests of the Certificateholders; provided, however, that if the
representation or warranty which was breached relates to any particular
Receivable or group of Receivables an Early Amortization Event will not be
deemed to have occurred if the Transferor has accepted reassignment of such
Receivable or group of Receivables during such period (or such longer
period as may be agreed upon by the Trustee, not to exceed an additional
120 days) in accordance with the provisions of the Agreement and the Series
1998-1 Supplement;
(d) certain events of insolvency or receivership shall occur with
respect to FNANB or any holder of the Exchangeable Transferor Certificate;
(e) either the Transferor or the Trust shall become an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended;
(f) the Transferor shall become unable for any reason to transfer
Receivables to the Trust in accordance with the provisions of the
Agreement;
(g) any Servicer Default shall occur which has a material adverse
effect on the interests of the Certificateholders;
(h) the Transferor shall fail to designate Supplemental Accounts when
required pursuant to the Agreement;
(i) the average of the Portfolio Yields for any three consecutive
Collection Periods shall be less than the average of the Base Rates for
such Collection Periods plus 2.00%;
(j) the Class A Certificates shall not be paid in full on or before
the Class A Expected Final Distribution Date, the Class B Certificates
shall not be paid in full on or before the Class B Expected Final
Distribution Date or the Collateralized Trust Obligations shall not be paid
in full on or before the date on which principal on the Collateralized
Trust Obligations is scheduled to be paid; or
(k) the Retained Percentage shall be equal to or less than 2.00% as of
the last day of any Collection Period.
In the case of any event described in clause (a), (b), (c) or (g) above, an
Early Amortization Event will be deemed to have occurred with respect to the
Certificates only if, after any applicable grace period, either the Trustee or
holders of more than 50% of the Invested Amount, by written notice to the
Transferor and the Servicer (and to the Trustee, if given by the
Certificateholders), declare that an Early Amortization Event has occurred with
respect to the Certificates as of the date of such notice. In the case of any
event described in clause (d), (e) or (f) above, an Early Amortization Event
with respect to all Series, and in the case of any event described in clause
(h), (i), (j) or (k) above, an Early Amortization Event with respect to only the
Certificates, will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Certificateholders or the holders of the
Investor Certificates of any other then outstanding Series, as applicable,
immediately upon the occurrence of such event. The Early Amortization Period
will commence on the date on which an Early Amortization Event is deemed to have
occurred.
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"Base Rate" means, for any Collection Period, the sum of (i) the annualized
percentage equivalent of a fraction the numerator of which is equal to the sum
of the Class A Monthly Interest, the Class B Monthly Interest, the CTO Monthly
Interest and the Class D Monthly Interest for the following Distribution Date
and the denominator of which is the Adjusted Invested Amount as of the last day
of the preceding Collection Period and (ii) the product of (A) 2.00% per annum
and (B) a fraction the numerator of which is equal to the Invested Amount as of
the last day of such preceding Collection Period and the denominator of which is
equal to the Adjusted Invested Amount as of the last day of such preceding
Collection Period.
"Adjusted Invested Amount" means, as of any date, the Invested Amount as of
such date plus the Principal Funding Account Balance as of such date.
"Portfolio Yield" means, for any Collection Period, the annualized
percentage equivalent of a fraction the numerator of which is equal to (i) the
Finance Charge Collections allocated to Series 1998-1 with respect to such
Collection Period (including interest and other investment earnings (net of
losses and investment expenses) on funds on deposit in the Excess Funding
Account allocable to Series 1998-1) plus (ii) Shared Excess Finance Charge
Collections allocated to Series 1998-1 with respect to such Collection Period
plus (iii) Principal Funding Investment Proceeds and the amounts withdrawn from
the Reserve Account and deposited in the Collection Account to be included as
Class A Available Funds or Class B Available Funds with respect to such
Collection Period plus (iv) interest and other investment earnings (net of
losses and investment expenses) on funds on deposit in the Cash Collateral
Account deposited in the Collection Account with respect to such Collection
Period minus (v) the Investor Default Amount for the Distribution Date
immediately following such Collection Period and the denominator of which is the
Adjusted Invested Amount as of the last day of such Collection Period.
"Retained Percentage" means, on any date of determination, the percentage
equivalent of a fraction the numerator of which is the Retained Interest on such
date and the denominator of which is the Aggregate Principal Receivables on such
date plus all amounts then on deposit in the Excess Funding Account (not
including interest and other investment earnings on such amounts).
"Retained Interest" means, on any date of determination, the sum of the
Transferor Amount on such date and the invested amount of each Class of Investor
Certificates retained by the Transferor on such date.
If, because of the occurrence of an Early Amortization Event, the Early
Amortization Period commences earlier than the Class A Expected Final
Distribution Date or the Class B Expected Final Distribution Date, as
applicable, the Class A Certificateholders or the Class B Certificateholders, as
applicable, will begin receiving distributions of principal earlier than they
otherwise would have, which may shorten the average life of the Certificates. If
the only Early Amortization Event to occur were either the insolvency or
receivership of the Transferor or the appointment of a conservator or receiver
for the Transferor, the conservator or receiver might have the power to delay or
prevent commencement of the Early Amortization Period.
In addition to the consequences of an Early Amortization Event discussed
above, if the Transferor voluntarily enters liquidation or any person is
appointed as conservator or receiver for the Transferor, the Transferor will
promptly give notice of such event to the Trustee and will, on the day of such
liquidation or appointment, immediately cease to transfer Receivables to the
Trust. Within 15 days of its receipt of such notice, the Trustee will (i)
publish a notice of such liquidation or appointment stating that the Trustee
intends to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and (ii) send written notice to the holders of
the Investor Certificates of all then outstanding Series and any Enhancement
Provider entitled thereto describing the applicable provisions of the Agreement
and requesting instructions as to the action to be taken. If, after 90 days
after the day notice pursuant to clause (i) above is first published, the
Trustee is not otherwise instructed by holders representing undivided interests
aggregating more than 50% of the invested amount of each Series (or, in the case
of any Series having more than one Class, each Class of such Series), including
a majority in interest in each collateral indebtedness interest, each holder of
an interest in the Transferor Interest (other than the Transferor) and any other
person specified in any Series Supplement, the Trustee will sell, dispose of or
otherwise liquidate the Receivables in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from the sale, disposition or other
liquidation of the Receivables will be treated as amounts collected in respect
of the Receivables and such
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proceeds will be distributed to the holders of the Investor Certificates of such
Series and other holders of interests in the Trust, if applicable. If the
Trustee is instructed not to sell a portion of the Receivables allocable to a
Series as described above, then the Trust will continue with respect to such
Series pursuant to the terms of the Agreement and the applicable Series
Supplement. See "Certain Legal Aspects of the Receivables -- Certain Matters
Relating to Receivership."
SERVICING COMPENSATION
The share of the Servicing Fee allocable to Series 1998-1 with respect to
any Distribution Date (the "Investor Monthly Servicing Fee") will be equal to
one-twelfth of the product of 2.00% and the Invested Amount as of the last day
of the second preceding Collection Period; provided, however, that, with respect
to the first Distribution Date, the Investor Monthly Servicing Fee will be equal
to $ . The share of the Investor Monthly Servicing Fee allocable to the
Class A Certificates with respect to any Distribution Date (the "Class A
Servicing Fee") will be equal to one-twelfth of the product of 2.00% and the
Class A Invested Amount as of the last day of the second preceding Collection
Period; provided, however, that, with respect to the first Distribution Date,
the Class A Servicing Fee will be equal to $ . The share of the
Investor Monthly Servicing Fee allocable to the Class B Certificates with
respect to any Distribution Date (the "Class B Servicing Fee") will be equal to
one-twelfth of the product of 2.00% and the Class B Invested Amount as of the
last day of the second preceding Collection Period; provided, however, that,
with respect to the first Distribution Date, the Class B Servicing Fee will be
equal to $ . The share of the Investor Monthly Servicing Fee allocable
to the Collateralized Trust Obligations with respect to any Distribution Date
(the "CTO Servicing Fee") will be equal to one-twelfth of the product of 2.00%
and the CTO Invested Amount as of the last day of the second preceding
Collection Period; provided, however, that, with respect to the first
Distribution Date, the CTO Servicing Fee will be equal to $ . The share
of the Investor Monthly Servicing Fee allocable to the Class D Certificates with
respect to any Distribution Date (the "Class D Servicing Fee") will be equal to
one-twelfth of the product of 2.00% and the Class D Invested Amount as of the
last day of the second preceding Collection Period; provided, however, that,
with respect to the first Distribution Date, the Class D Servicing Fee will be
equal to $ . The Class A Servicing Fee, the Class B Servicing Fee, the
CTO Servicing Fee and the Class D Servicing Fee will be payable solely to the
extent amounts are available for distribution in respect thereof as described
above in "-- Application of Collections." The remainder of the Servicing Fee
will be paid by the Transferor or from amounts allocable to other Series (as
provided in the Agreement and the Series Supplements relating to such other
Series) and in no event will the Trust, the Trustee or the Certificateholders be
liable for the share of the Servicing Fee to be paid by the Transferor or from
amounts allocable to such other Series.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, a paying agent appointed pursuant to the
Agreement (the "Paying Agent"), on behalf of the Trustee, will forward to each
Certificateholder of record a statement (the "Distribution Date Statement")
prepared by the Servicer setting forth the information with respect to the
Certificates set forth in the Monthly Servicer Report supplied to the Trustee
since the preceding Distribution Date and the following additional information
(which, in the case of (i), (ii) and (iii) below, will be stated on the basis of
an original principal amount of $1,000 per Certificate): (i) the total amount
distributed on such Distribution Date; (ii) the amount of such distribution
allocable to principal; (iii) the amount of such distribution allocable to
interest; and (iv) the amount, if any, by which the principal balance of the
Certificates exceeds the Invested Amount as of the related Record Date.
The fiscal year of the Trust will end on February 28 or 29 in each year. On
or before January 31 of each 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 (or, if so provided in
applicable Treasury regulations, make available to the Certificate Owners) a
statement prepared by the Servicer containing the information required to be
provided by an issuer of indebtedness under the Code for such calendar year or
the applicable portion thereof during which such person was a Certificateholder
as the Servicer deems necessary or desirable to enable the Certificateholders to
prepare their tax returns.
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OPTIONAL REPURCHASE
The Transferor may, at its sole option and subject to certain conditions
set forth in the Agreement, repurchase the Series 1998-1 Certificates on any
Distribution Date on or after which the Invested Amount is reduced to an amount
less than or equal to 5% of the initial Invested Amount by depositing into the
Collection Account, on such Distribution Date, an amount equal to the Invested
Amount plus interest on all outstanding Series 1998-1 Certificates accrued
through the last day of the immediately preceding Interest Period. The amount
deposited in connection with any such repurchase will be paid to the holders of
the Series 1998-1 Certificates in accordance with the Agreement on the
Distribution Date following the date of such deposit.
FINAL PAYMENT OF PRINCIPAL
The Certificates will be retired on the day following the Distribution Date
on which the final payment of principal is scheduled to be made to the
Certificateholders, whether as a result of an optional repurchase by the
Transferor or otherwise. If the Invested Amount is greater than zero on the
Stated Series Termination Date, the Servicer will sell or cause to be sold on or
prior to the following Distribution Date an amount of Receivables or interests
in Receivables up to 110% of the Invested Amount at the close of business on
such date in the manner provided in the Agreement. The proceeds of any such sale
will be treated as amounts collected in respect of the Receivables and will be
allocated and applied in accordance with the Agreement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
The Transferor represents and warrants in the Agreement that the transfer
of the Receivables to the Trust constitutes either a valid transfer and
assignment to the Trust of all right, title and interest of the Transferor in
and to the Receivables, except for the interest of the holder of the
Exchangeable Transferor Certificate, or a grant to the Trust of a security
interest in the Receivables. The Transferor also represents and warrants in the
Agreement that, in the event the transfer of the Receivables to the Trust is
deemed to be a grant to the Trust of a security interest in the Receivables
under the UCC and assuming that the Transferor is not at the time the subject of
any insolvency proceedings, there exists a valid, subsisting and enforceable
first priority perfected security interest in the Receivables in existence since
the time of the formation of the Trust in favor of the Trust and there will
exist a valid, subsisting and enforceable first priority perfected security
interest in the Receivables created thereafter and, with certain exceptions, and
for certain limited time periods, the proceeds thereof, in favor of the Trust on
and after their creation, subject in each case to certain tax and other
governmental liens. UCC searches have been and will be conducted in the records
of the Georgia Central Filing Office and certain local filing offices to
determine what UCC financing statements have been filed there with respect to
the Transferor as debtor or seller.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the date on
which such Receivables are transferred to the Trust could have an interest in
such Receivables with priority over the Trust's interest. A tax or other
governmental lien on property of the Transferor arising before a Receivable
comes into existence may also have priority over the interest of the Trust in
such Receivable. The Transferor covenants in the Agreement to accept the
reassignment of any Receivable transferred to the Trust that is not free and
clear of the lien of any third party (other than certain tax and other
governmental liens). In addition, the Transferor covenants that it will not
sell, pledge, assign, transfer or grant any lien on any Receivable (or any
interest therein) other than to the Trust.
Unless continuation statements are filed within the time periods specified
in the UCC in respect of the security interest of the Trust in the Receivables,
the perfection of such interest will lapse.
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CERTAIN MATTERS RELATING TO RECEIVERSHIP
The Federal Deposit Insurance Act ("FDIA"), as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), which
became effective August 9, 1989, sets forth certain powers that the FDIC could
exercise if it were appointed as conservator or receiver for the Transferor.
To the extent that (i) the Transferor has granted a security interest in
the Receivables to the Trust, (ii) such interest is validly perfected before the
Transferor's insolvency and is not taken in contemplation of insolvency or with
the intent to hinder, delay or defraud the Transferor or its creditors, (iii)
the Agreement is continuously a record of the Transferor and (iv) the Agreement
represents a bona fide and arm's length transaction undertaken for adequate
consideration in the ordinary course of business and the Trustee is not an
insider or affiliate of the Transferor, such valid perfected security interest
of the Trustee should be enforceable (to the extent of the Trust's "actual
direct compensatory damages" (as described below)) notwithstanding the
insolvency of, or the appointment of a conservator or receiver for, the
Transferor and payments to the Trust with respect to the Receivables (up to the
amount of such damages) should not be subject to an automatic stay of payment or
to recovery by the Federal Deposit Insurance Corporation (the "FDIC") as
conservator or receiver of the Transferor. If, however, the FDIC were to assert
that the security interest was unperfected or unenforceable, or were to require
the Trust to establish its right to those payments by submitting to and
completing the administrative claims procedure established under FIRREA, or the
FDIC were to request a stay of proceedings with respect to the Transferor as
provided under FIRREA, delays in payments to the Trust and on the Certificates
and possible reductions in the amount of those payments could occur. In the
event of a repudiation of obligations by a conservator or receiver, FIRREA
provides that a claim for the repudiated obligation is limited to "actual direct
compensatory damages" determined as of the date of the appointment of the
conservator or receiver. The FDIA does not define the term "actual direct
compensatory damages." On April 10, 1990, the Resolution Trust Corporation (the
"RTC"), which administered the resolution of failed savings associations under
the FDIA and which is no longer in existence, adopted a statement of policy with
respect to the payment of interest on collateralized borrowings. The RTC policy
statement states that interest on such borrowings will be payable at the
contract rate up to the date of the redemption or payment by the conservator,
receiver, or trustee of an amount equal to the principal owed plus the contract
rate of interest up to the date of such payment or redemption, plus any expenses
of liquidation if provided for in the contract, to the extent secured by the
collateral. In a 1993 case involving zero-coupon bonds, however, a United States
federal district court held that "actual direct compensatory damages" in the
case of a marketable security meant the value of the repudiated bonds as of the
date of repudiation. The FDIC itself has not adopted a policy statement on
payment of interest on collateralized borrowings.
The Agreement provides that, upon the insolvency of the Transferor or the
appointment of a receiver or conservator for the Transferor, the Transferor will
promptly give notice thereof to the Trustee and an Early Amortization Event with
respect to all Series will occur. Under the Agreement, no new Receivables will
be transferred to the Trust and, unless otherwise instructed within a specified
period by the holders of interests in the Trust as described under "Description
of the Certificates -- Early Amortization Events," or unless otherwise required
by the receiver or conservator for the Transferor, the Trustee will proceed to
sell, dispose of or otherwise liquidate the Receivables in a commercially
reasonable manner and on commercially reasonable terms. The proceeds from the
sale of the Receivables would then be treated by the Trustee as amounts
collected in respect of the Receivables and would be distributed to the holders
of the Investor Certificates as described in the Agreement. If the only Early
Amortization Event to occur is either the insolvency of the Transferor or the
appointment of a receiver or conservator for the Transferor, such receiver or
conservator may have the power to require the Transferor to continue to transfer
new Receivables to the Trust and to prevent the early sale, liquidation or
disposition of the Receivables and the commencement of the Early Amortization
Period.
CONSUMER AND DEBTOR PROTECTION LAWS
The relationship between the cardholder and credit card issuer is
extensively regulated by federal and state consumer protection laws. With
respect to credit cards issued by the Transferor the most significant federal
laws include the Federal Truth-In-Lending and Equal Credit Opportunity Acts, the
Fair Debt
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Collection Practices Act and the Fair Credit Reporting Act. These statutes and
certain state laws impose disclosure requirements when a credit card account is
advertised, when an account is opened, at the end of monthly billing cycles,
upon account renewal for accounts on which annual fees are assessed and at
year-end and, in addition, limit cardholder liability for unauthorized use,
prohibit certain discriminatory practices in extending credit, impose certain
limitations on the type of account-related charges that may be issued and
regulate collection practices. In addition, cardholders are entitled under these
laws to have payments and credits applied to the credit card account 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, either as assignee from the Transferor with
respect to obligations arising before the transfer of the Receivables to the
Trust or as the party directly responsible for obligations arising after such
transfer. In addition, a cardholder may be entitled to assert such violations by
way of set off against such cardholder's obligation to pay the amount of
Receivables owing. The Transferor has agreed in the Agreement to accept the
transfer of all Receivables that were not created in compliance in all material
respects with the requirements of such laws. The Servicer has also agreed in the
Agreement to indemnify the Trust, among other things, for any liability arising
from such violations. See "Description of the Agreement -- Representations and
Warranties."
Various proposed federal and state laws and amendments to existing laws
have from time to time been introduced in Congress and certain state and local
legislatures that, if enacted, would further regulate the credit card industry,
certain of which would, among other things, impose a ceiling on the rate at
which a financial institution may assess finance charges and fees on credit card
accounts that would be substantially below the rates of the finance charges and
fees the Transferor currently assesses on the Accounts. In particular, on June
19, 1997, a proposal to amend the Federal Truth-in-Lending Act was introduced to
the House of Representatives and referred to the Committee on Banking and
Financial Services which would, among other things, prohibit the imposition of
certain minimum finance charges and other fees, prohibit certain methods of
calculating finance charges, require prior notice of any increase in the
interest rate assessed with respect to a credit card account and limit the
amount of certain fees. Although such proposed legislation has not been enacted,
there can be no assurance that such a bill will not become law in the future.
The potential effect of any legislation which limits the amount of finance
charges and fees that may be charged on credit cards could be to reduce the
portfolio yield on the Accounts. Any failure by the Transferor or the Servicer
to comply with such legal requirements also could adversely affect the Trust's
ability to collect the full amount of the Receivables.
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 to 6% per annum. 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 stay.
The application of federal and state bankruptcy and debtor relief laws to
the obligations represented by the Receivables could adversely affect the
interests of the Certificateholders if such laws result in any Receivables being
charged off as uncollectible. See "Description of the Certificates -- Allocation
of Investor Default Amount; Allocation of Series Adjustment Amount; Investor
Charge-Offs."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, summarizing the material United States federal
income tax consequences of the purchase, ownership and disposition of the
Certificates, is based upon the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury regulations promulgated thereunder, and
published rulings and court decisions in effect as of the date hereof, all of
which are subject to change, possibly retroactively. This discussion is directed
to prospective purchasers who purchase Certificates in the initial distribution
thereof, who are citizens or residents of the United States, including domestic
corporations and partnerships, and who hold the Certificates as "capital assets"
within the meaning of section 1221 of the Code. This discussion does not address
every aspect of the federal income tax laws that may be relevant to Certificate
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Owners in light of their personal investment circumstances or to certain types
of Certificate Owners subject to special treatment under the federal income tax
laws (banks and other financial institutions, dealers in securities, insurance
companies and tax-exempt organizations). Furthermore, legislative, judicial or
administrative changes may occur, perhaps with retroactive effect, which could
affect the accuracy of the statements and conclusions set forth herein as well
as the tax consequences to Certificate Owners. As provided in the following
discussion, McGuire, Woods, Battle & Boothe LLP, special tax counsel to the
Transferor ("Special Tax Counsel"), is of the opinion that, under existing law,
(i) the Certificates will be treated as indebtedness for federal income tax
purposes and (ii) the Trust will not be subject to federal income tax at the
entity level.
IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT THEIR OWN TAX ADVISORS
WITH REGARD TO THE FEDERAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR
DISPOSITION OF INTERESTS IN THE CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY, FOREIGN COUNTRY, OR OTHER TAXING
JURISDICTION.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Special Tax Counsel has rendered an opinion that the Certificates will be
treated as indebtedness for federal income tax purposes. However, opinions of
counsel are not binding on the Internal Revenue Service (the "IRS") and there
can be no assurance that the IRS could not successfully challenge this
conclusion.
FNANB expresses in the Agreement the intent that, for federal, state and
local income and franchise tax purposes, the Certificates will be indebtedness.
FNANB agrees and each Certificateholder and Certificate Owner, by acquiring an
interest in a Certificate, will be deemed to agree to treat the Certificates as
indebtedness of FNANB for federal, state and local income and franchise tax
purposes (except to the extent that different treatment is explicitly required
under state or local tax statutes). However, because different criteria are used
to determine the non-tax accounting characterization of the transaction, FNANB
expects to treat such transaction, for regulatory and financial accounting
purposes, as a sale of an ownership interest in the Receivables and not as a
debt obligation.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
the property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured indebtedness for federal income tax purposes,
the primary factors in making this determination are whether the transferee has
assumed the risk of loss or other economic burdens relating to the property and
has obtained the benefits of ownership thereof. Special Tax Counsel will express
the opinion that the ownership of the Receivables has not been transferred for
federal income tax purposes to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by a
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Special Tax Counsel is of the opinion
that the rationale of those cases will not apply to this transaction.
TREATMENT OF THE TRUST
The Trust could be viewed for federal income tax purposes either as (i) a
collateral arrangement for debt issued directly by FNANB and other holders of
equity interests in the Trust or (ii) a separate entity issuing its own debt and
owned by FNANB and all other holders of equity interests in the Trust. However,
in the opinion of Special Tax Counsel, in the former event the Trust will be
disregarded for federal income tax purposes and in the latter event the Trust
would be a partnership rather than an association (or publicly traded
partnership) taxable as a corporation. Therefore, in the opinion of Special Tax
Counsel, the Trust will not be subject to federal income tax at the entity
level.
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<PAGE> 87
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
It is possible that the IRS could assert that, for purposes of the Code,
some or all of the Certificates are not debt obligations for federal income tax
purposes and that the proper classification of the legal relationship between
FNANB, any other holders of equity interests in the Trust, and the Certificate
Owners resulting from the transaction is that of a partnership, a publicly
traded partnership taxable as a corporation, or an association taxable as a
corporation.
If some or all of the Certificates were treated as equity interests in a
partnership (other than a "publicly traded partnership"), the partnership itself
would not be subject to federal income tax; rather, the partners of such
partnership, including the Certificate Owners, would be taxed individually on
their respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deductions
of a Certificate Owner could differ if the Certificates were held to constitute
partnership interests, rather than indebtedness. Moreover, an individual's share
of expenses of the partnership would be miscellaneous itemized deductions that,
in the aggregate, are allowed as deductions only to the extent they exceed two
percent of the individual's adjusted gross income, and would be subject to
reduction under section 68 of the Code if the individual's adjusted gross income
exceeded certain limits. As a result, the individual might be taxed on a greater
amount of income than the stated rate on the Certificates. Furthermore, if any
Certificates were treated as equity interests in a partnership, all or a portion
of such income in subsequent years allocated to a Certificate Owner that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) might constitute "unrelated
business taxable income" generally taxable to such investor under the Code.
Finally, if any Certificates were treated as equity interests in a partnership
in which other interests were debt, all or part of a tax-exempt investor's share
of income from the Certificates that were treated as equity would be treated
under the Code as unrelated debt-financed income taxable to the investor.
If the Trust were treated in whole or in part as a partnership in which
some or all Certificate Owners were partners, that partnership could be
classified as a publicly traded partnership taxable as a corporation. A
partnership will be classified as a publicly traded partnership taxable as a
corporation if equity interests therein are traded on an "established securities
market," or are "readily tradable" on a "secondary market" or its "substantial
equivalent" unless certain exceptions apply. One such exception would apply if
the Trust is not engaged in a "financial business" and 90% or more of its income
consists of interest and certain other types of passive income. Because Treasury
regulations do not clarify the meaning of a "financial business" for this
purpose, it is unclear whether this exception applies. FNANB has taken and
intends to take measures designed to reduce the risk that the Trust could be
classified as a publicly traded partnership taxable as a corporation. However,
there can be no assurance that the Trust could not become a publicly traded
partnership, because certain of the actions necessary to comply with such
exceptions are not fully within the control of FNANB.
If it were determined that a transaction created an entity classified as a
corporation (including a publicly traded partnership taxable as a corporation),
the Trust would be subject to federal income tax at corporate income tax rates
on the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Certificate Owners. Such classification might
also have adverse state and local tax consequences that would further reduce
amounts available for distribution to Certificate Owners. Cash distributions to
the Certificate Owners (except any Class not recharacterized as an equity
interest in an association) generally would be treated as dividends for tax
purposes to the extent of such deemed corporation's earnings and profits, and in
the case of Certificate Owners that are non-United States persons, would be
subject to withholding tax.
Because FNANB will treat the Certificates as indebtedness for federal
income tax purposes, the Trustee will not comply with the federal income tax
reporting requirements that would apply under the foregoing alternative
characterizations of the Certificates.
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<PAGE> 88
TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
As set forth above, Special Tax Counsel has rendered an opinion that the
Certificates will be treated as indebtedness for federal income tax purposes.
Interest on the Certificates meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID Regulations") relating to
original issue discount ("OID"), and any OID on the Certificates (i.e., any
excess of the principal amount of the Certificates over their issue price) does
not exceed a de minimis amount (i.e., 1/4% of the principal amount multiplied
by the number of full years until maturity), all within the meaning of the OID
Regulations. Except as discussed below, the Certificates will not be issued with
OID and, accordingly, interest thereon will be includable in income by
Certificate Owners as ordinary income when received (in the case of a cash basis
taxpayer) or accrued (in the case of an accrual basis taxpayer) in accordance
with their respective methods of tax accounting. Under the OID Regulations, a
holder of a Certificate issued with a de minimis amount of OID must include any
such OID in income, on a pro rata basis, as principal payments are made on the
Certificate. Interest received on the Certificates may also constitute
"investment income" for purposes of certain limitations of the Code concerning
the deductibility of investment interest expense.
A subsequent holder who purchases a Certificate at a discount may be
subject to the "market discount" rules of the Code. These rules provide, in
part, for the treatment of gain attributable to accrued market discount as
ordinary income upon the receipt of partial principal payments or on the sale or
other disposition of the Certificate, and for the deferral of certain interest
deductions with respect to debt incurred to acquire or carry the market discount
Certificate.
A subsequent holder who purchases a Certificate at a premium may elect to
amortize and deduct this premium over the Certificate in accordance with rules
set forth in Section 171 of the Code.
DISPOSITION OF A CERTIFICATE
In general, a Certificate Owner will recognize gain or loss upon the sale,
exchange, redemption, or other taxable disposition of a Certificate measured by
the difference between (i) the amount of cash and the fair market value of any
property received (other than amounts attributable to, and taxable as, accrued
interest) and (ii) the Certificate Owner's tax basis in the Certificate (as
increased by any OID or market discount previously included in income by the
holder and decreased by any deductions previously allowed for amortizable bond
premium and by any payments reflecting principal or OID received with respect to
such Certificate). Subject to the market discount rules discussed above and to
the holding requirement for long-term capital gain treatment, any such gain or
loss generally will be long-term capital gain or loss, provided that the
Certificate was held as a capital asset. Under the Taxpayer Relief Act of 1997,
the holding requirement for long-term capital gain or loss treatment for
individuals was increased to 18 months. Individuals who have held the
Certificates for more than 18 months are subject to a maximum long-term capital
gain rate of 20 percent. The maximum ordinary income rate for individuals,
estates, and trusts exceeds the maximum long-term capital gains rate for such
taxpayers. In addition, capital losses generally may be used by corporate
taxpayers only to offset capital gains and by individual taxpayers only to the
extent of capital gains plus $3,000 of other income.
RECENT LEGISLATION
Recently enacted provisions of the Code provide for the creation of a new
type of entity for federal income tax purposes, the "financial asset
securitization investment trust" ("FASIT"). However, these provisions were not
effective until September 1, 1997, and many technical issues concerning FASITs
must be addressed by Treasury regulations that have yet to be issued. Although
transition rules permit an entity in existence on August 31, 1997, such as the
Trust, to elect FASIT status, at the present time it is not clear how
outstanding interests of such an entity would be treated subsequent to such an
election. In particular, it is not clear whether Certificates outstanding on
August 31, 1997 would be treated as "regular interests" in a FASIT if FNANB were
to elect FASIT status for the Trust after that date. The Transferor might elect
FASIT status for the Trust if such an election would provide additional tax
benefits, such as certainty of tax treatment to the Certificate Owners, the
Trust and the Transferor.
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<PAGE> 89
FOREIGN INVESTORS
As set forth above, Special Tax Counsel will render an opinion, upon
issuance, that the Certificates will be treated as indebtedness for federal
income tax purposes. The following information describes the federal income tax
treatment of investors that are not U.S. persons if the Certificates are treated
as indebtedness. The term "Foreign Investor" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity organized in or under the laws of the United States or any
political subdivision thereof or (iii) an estate or trust the income of which is
includable in gross income for U.S. federal income tax purposes, regardless of
its source (except, with respect to the tax year of any trust that begins after
December 31, 1996, a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
fiduciaries who have authority to control all substantial decisions of the
trust).
Interest, including OID, paid to a Foreign Investor will be subject to U.S.
withholding taxes at a rate of 30% unless (i) the income is "effectively
connected" with the conduct by such Foreign Investor of a trade or business
carried on in the United States and the investor evidences this fact by
delivering an IRS Form 4224 or (ii) the Foreign Investor and each securities
clearing organization, bank, or other financial institution that holds the
Certificates on behalf of such Foreign Investor in the ordinary course of its
trade or business, in the chain between the Certificate Owner and the U.S.
person otherwise required to withhold the U.S. tax, complies with applicable
identification requirements (and the Certificate Owner does not actually or
constructively own 10% or more of the voting stock of FNANB (or, upon the
issuance of an interest in the Trust that is treated as a partnership interest,
any holder of such interest) and is not a controlled foreign corporation with
respect to FNANB (or the holder of such an interest). Applicable identification
requirements generally will be satisfied if there is delivered to a securities
clearing organization (i) IRS Form W-8 signed under penalties of perjury by the
Certificate Owner, stating that the Certificate Owner is not a U.S. person and
providing such Certificate Owner's name and address or (ii) IRS Form 1001,
signed by the Certificate Owner or such Certificate Owner's agent, claiming
exemption from withholding under an applicable tax treaty; provided that in any
such case (x) the applicable form is delivered pursuant to applicable procedures
and is properly transmitted to the United States entity otherwise required to
withhold tax and (y) none of the entities receiving the form has actual
knowledge that the Certificate Owner is a U.S. person. Recently issued Treasury
regulations provide alternative methods for satisfying the identification
requirements described above. In the case of Certificates held by a foreign
partnership, the new regulations require that (i) certification be provided (x)
by the partners of the foreign partnership or (y) by the foreign partnership if
it has entered into an agreement with the IRS to be treated as a "withholding
foreign partnership" and (ii) the foreign partnership provide certain
information, including a United States taxpayer identification number. A
look-through rule applies in the case of tiered partnerships. The new
regulations are effective for payments made after December 31, 1998.
A Certificate Owner that is a nonresident alien or foreign corporation will
not be subject to U.S. federal income tax on gain realized upon the sale,
exchange, or redemption of a Certificate, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States, (ii) in the case of a Certificate Owner that is an individual, such
Certificate Owner is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange, or redemption occurs, and
(iii) in the case of gain representing accrued interest, the conditions
described in the immediately preceding paragraph are satisfied.
If the interests of the Certificate Owners were reclassified as interests
in a partnership (not taxable as a corporation), such recharacterization could
cause a Foreign Investor to be treated as engaged in a trade or business in the
United States. In such event the Certificate Owner would be required to file a
federal income tax return and, in general, would be subject to federal income
tax, including branch profits tax in the case of a Certificate Owner that is a
corporation (unless eliminated under an applicable tax treaty), on its net
income from the partnership. Further, the partnership would be required, on a
quarterly basis, to pay withholding tax equal to the sum, for each foreign
partner, of such foreign partner's distributive share of "effectively connected"
income of the partnership multiplied by the highest rate of tax applicable to
that foreign partner.
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<PAGE> 90
The tax withheld from each foreign partner would be credited against such
foreign partner's U.S. income tax liability.
If the Trust were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless such rate were reduced by an applicable
tax treaty.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Certificates if the Certificate
Owner, upon issuance, fails to supply the Trustee or its broker with its
taxpayer identification number, furnishes an incorrect taxpayer identification
number, fails to report interest, dividends, or other "reportable payments" (as
defined in the Code) properly, or, under certain circumstances, fails to provide
the Trustee or broker with a certified statement, under penalty of perjury, that
the Certificate Owner is not subject to backup withholding. Information returns
will be sent annually to the IRS and to each Certificate Owner setting forth the
amount of interest paid on the Certificates and the amount of tax withheld
thereon.
IT IS RECOMMENDED THAT PROSPECTIVE INVESTORS CONSULT WITH THEIR OWN TAX
ADVISORS WITH REGARD TO THE STATE AND LOCAL INCOME AND FRANCHISE TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN THE
CERTIFICATES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code impose certain restrictions on (i) employee benefit plans (as
defined in Section 3(3) of ERISA), (ii) plans described in Section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh plans, (iii)
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities and (iv) persons who have certain specified
relationships to such plans. Section 406 of ERISA prohibits employee benefit
plans described in Section 401 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 certain
transactions with persons who are "disqualified persons" unless a statutory or
administrative exemption applies. Moreover, based on the reasoning of the United
States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav.
Bank, 510 U.S. 86 (1993), an insurance company's general account may be deemed
to include assets of the employee benefit plans investing in the general account
(e.g., through the purchase of an annuity contract), and the insurance company
might be treated as a party in interest with respect to a plan by virtue of such
investment. In addition, ERISA imposes certain duties on persons who are
fiduciaries of plans subject to ERISA. Under ERISA, a person who exercises
discretionary authority or control respecting the management or disposition of
the assets of a plan, renders investment advice or has the authority to render
investment advice to a plan for a fee or other compensation, or has any
discretionary authority or responsibility with respect to the administration of
a plan is generally considered to be a fiduciary of such plan. Fiduciaries,
parties in interest and disqualified persons with respect to employee benefit
plans described in Section 401 of ERISA and plans described in Section
4975(e)(1) of the Code (collectively, "Benefit Plans"), may be subject to excise
taxes, civil fines and other liabilities for violating the fiduciary
responsibility and prohibited transaction rules of Section 406 of ERISA and
Section 4975 of the Code.
Benefit Plan fiduciaries should determine whether the acquisition and
holding of the Certificates and the operations of the Trust would result in
direct or indirect prohibited transactions under ERISA and the Code. The
operations of the Trust could result in prohibited transactions if Benefit Plans
that purchase the Certificates are deemed to own an interest in the underlying
assets of the Trust. There may also be an improper delegation of the fiduciary
responsibility to manage Benefit Plan assets if Benefit Plans that purchase the
Certificates are deemed to own an interest in the underlying assets of the
Trust.
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<PAGE> 91
Pursuant to a final regulation (the "Final Regulation") issued by the
Department of Labor (the "DOL") concerning the definition of what constitutes
the "plan assets" of a Benefit Plan, the assets and properties of certain
entities in which a Benefit Plan makes an equity investment could be deemed to
be assets of the Benefit Plan in certain circumstances. Accordingly, if Benefit
Plans purchase the Certificates, the Trust could be deemed to hold plan assets
unless one of the exceptions under the Final Regulation is applicable to the
Certificates and the Trust.
The Final Regulation applies to the purchase by a Benefit Plan of an
"equity interest" in an entity. Assuming that interests in the Class A
Certificates are equity interests for purposes of the Final Regulation, the
Final Regulation contains an exception that may apply to the purchase of the
Class A Certificates by a Benefit Plan. Under this exception, the issuer of a
security is not deemed to hold plan 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 Securities Act and the class of securities of which such security is a
part is registered under the Exchange Act within 120 days (or such later time as
may be allowed by the Commission) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred.
In addition to the exception described above for publicly-offered
securities, the Final Regulation generally provides that if at all times more
than 75% of the value of all classes of equity interests in the Trust are held
by investors other than "benefit plan investors" the assets of a Benefit Plan
holding the Certificates will not include any of the underlying assets of the
Trust. For purposes of the Final Regulation, a "benefit plan investor" includes
any employee benefit plan within the meaning of Section 3(3) of ERISA (whether
or not it is subject to ERISA), a plan described in Section 4975(e)(1) of the
Code, and any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity.
It is anticipated that interests in the Class A Certificates will meet the
criteria of publicly-offered securities as set forth above. The Underwriters of
the Class A Certificates expect (although no assurances can be given) that
interests in the Class A Certificates will be held by at least 100 investors
independent of the Transferor and of one another at the conclusion of the
offering of the Certificates, that there will be no restrictions imposed on the
transfer of interests in the Class A Certificates, and that interests in the
Class A Certificates will be sold as part of an offering pursuant to an
effective registration statement under the Securities Act and then will be
timely registered under the Exchange Act. The Underwriter of the Class B
Certificates does not expect that the Class B Certificates will qualify as
publicly-offered securities. The Underwriters can provide no assurances that
more than 75% of the value of any class of equity interest in the Trust will at
all times be held by investors who are not "benefit plan investors" within the
meaning of the Final Regulation.
If interests in the Certificates fail to meet the criteria of
publicly-offered securities or are held to a significant extent by benefit plan
investors, and the Trust's assets are deemed to include assets of Benefit Plans
that are Certificateholders, transactions involving the Trust and parties in
interest or disqualified persons with respect to such Benefit Plans might be
prohibited under Section 406 of ERISA and Section 4975 of the Code unless an
exemption is applicable. In addition, the Transferor or any Underwriter may be
considered to be a party in interest, disqualified person or fiduciary with
respect to an investing Benefit Plan. Accordingly, an investment by a Benefit
Plan in the Certificates may be a prohibited transaction under ERISA and the
Code unless such investment is subject to a statutory or administrative
exemption.
There are five class exemptions issued by the DOL that could apply to the
purchase, holding and resale of the Class B Certificates by a Benefit Plan: DOL
Prohibited Transaction Exemption 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
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), 95-60 (Class Exemption for Certain
Transactions Involving Insurance Company General Accounts) and 96-23 (Class
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<PAGE> 92
Exemption for Plan Asset Transactions Determined by In-House Asset Managers).
There can be no assurance, however, that these exemptions, even if all of the
conditions specified therein are satisfied, will apply to transactions involving
the Certificates.
It should be noted that the Small Business Job Protection Act of 1996 added
new Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the DOL is required to issue final regulations (the "General
Account Regulations") with respect to insurance policies issued on or before
December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are to provide guidance on which assets held by the
insurer constitute "plan assets" of a Benefit Plan for purposes of the fiduciary
responsibility provisions of ERISA and Section 4975 of the Code. Section 401(c)
also provides that, except in the case of avoidance of the General Account
Regulations and actions brought by the Secretary of Labor relating to certain
breaches of fiduciary duties that also constitute breaches of state or federal
criminal law, until the date that is 18 months after the General Account
Regulations become final, no liability under the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 may result on the
basis of a claim that the assets of the general account of an insurance company
constitute the plan assets of a Benefit Plan. The Department of Labor issued
proposed General Account Regulations on December 22, 1997 (see 6Z Fed. Reg.
66908). The plan asset status of insurance company separate accounts is
unaffected by new Section 401(c) of ERISA, and separate account assets continue
to be treated as the plan assets of a Benefit Plan invested in a separate
account.
As discussed above, while it is expected that the Certificates will be
treated as indebtedness for federal income tax purposes, if any Certificates
were instead treated as equity interests in a partnership, 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 Certificates were treated as equity interests in a
partnership in which other interests were debt, all or part of a tax-exempt
investor's share of income from the Certificates that were treated as equity
probably would be treated under the Code as unrelated debt-financed income
taxable to the investor.
In light of the foregoing, fiduciaries of a Benefit Plan considering the
purchase of interests in the Certificates should consult their own counsel as to
whether the acquisition of the Certificates would be a prohibited transaction,
whether the assets of the Trust which are represented by such interests would be
considered plan assets, and whether, under the general fiduciary standards of
investment prudence and diversification, an investment in the Certificates is
appropriate for the Benefit Plan taking into account the overall investment
policy of the Benefit Plan and the composition of the Benefit Plan's investment
portfolio. In addition, fiduciaries should consider the consequences that would
apply if the Trust's assets were considered plan assets, the applicability of
exemptive relief from the prohibited transaction rules and whether all
conditions for such exemptive relief would be satisfied.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated as of , 1998 (the "Underwriting Agreement") between the
Transferor and the underwriters named below (the "Underwriters"), the Transferor
has agreed to sell to the Underwriters, and each of the Underwriters has
severally agreed to purchase from the Transferor, the principal amount of the
Class A Certificates and Class B Certificates set forth opposite its name.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A CERTIFICATES
- ------------ --------------------
<S> <C>
NationsBanc Montgomery Securities LLC....................... $
Goldman, Sachs & Co.........................................
Deutsche Morgan Grenfell....................................
First Union Capital Markets.................................
------------
Total.................................................. $402,000,000
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS B CERTIFICATES
- ------------ --------------------
<S> <C>
NationsBanc Montgomery Securities LLC....................... $
Goldman, Sachs & Co. .......................................
------------
Total............................................. $ 90,000,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates if
any of the Certificates are purchased.
The Underwriters of the Class A Certificates propose initially to offer the
Class A Certificates to the public at the price set forth on the cover page
hereof and to certain dealers at such price less concessions not in excess of
% of the principal amount of the Class A Certificates. The Underwriters of
the Class A Certificates may allow, and such dealers may reallow, concessions
not in excess of % of the principal amount of the Class A Certificates to
certain brokers and dealers. After the initial public offering, the public
offering price and other selling terms applicable to the Class A Certificates
may be changed by the Underwriters of the Class A Certificates.
The Underwriters of the Class B Certificates propose initially to offer the
Class B Certificates to the public at the price set forth on the cover page
hereof and to certain dealers at such price less concessions not in excess of
% of the principal amount of the Class B Certificates. The Underwriters of
the Class B Certificates 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 applicable to the Class B Certificates
may be changed by the Underwriters of the Class B Certificates.
Until the distribution of the Certificates is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Certificates. As an exception to these
rules, the Underwriters are permitted to engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Certificates in accordance with Regulation M under the Exchange
Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Certificates as long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the Certificates
originally sold by such syndicate member are purchased in a syndicate covering
transaction.
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Certificates
to be higher than they would otherwise be in the absence of such transactions.
Neither the Transferor nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the
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Certificates. In addition, neither the Transferor nor any of the Underwriters
represents that any of the Underwriters will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without notice.
Each Underwriter has represented and agreed that (i) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Certificates to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as amended) or who is a
person to whom the document may otherwise lawfully be issued or passed on, (ii)
it has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the
Certificates in, from or otherwise involving the United Kingdom and (iii) if
that Underwriter is an authorized person under the Financial Services Act 1986,
it has only promoted and will only promote (as that term is defined in
Regulation 1.02 of the Financial Services (Promotion of Unregulated Schemes)
Regulations 1991) to any person in the United Kingdom the scheme described
herein 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.
The Transferor will indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to payments the
Underwriters may be required to make in respect thereof.
In the ordinary course of business, the Underwriters and their affiliates
have engaged and may engage in investment banking and/or commercial banking
transactions with the Transferor, the Trust and their respective affiliates.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates, and the
federal tax consequences of such issuance, will be passed upon for the
Transferor by McGuire, Woods, Battle & Boothe LLP. Certain legal matters
relating to the issuance of the Certificates will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP.
93
<PAGE> 95
INDEX TO LOCATION OF DEFINED TERMS
<TABLE>
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Accounts.................................................... 1, 6, 38
Accumulation Period......................................... 11
Accumulation Period Length.................................. 63
Addition Cut-Off Date....................................... 30
Adjusted Invested Amount.................................... 80
Adjustment.................................................. 49
Adjustment Amount........................................... 49
Adjustment Payment.......................................... 49
Aggregate Invested Amount................................... 44
Aggregate Principal Receivables............................. 44
Agreement................................................... 1, 4, 5, 38
Automatic Additional Accounts............................... 7, 43
Available Enhancement Amount................................ 14
Available Principal Collections............................. 62
Available Reserve Account Amount............................ 68
Bank Portfolio.............................................. 27
Base Rate................................................... 80
Benefit Plans............................................... 89
Cash Collateral Account..................................... 15, 75
Cedel....................................................... 58
Cedel Participants.......................................... 58
Certificateholders.......................................... 3
Certificate Owners.......................................... 3
Certificates................................................ 1, 4
Circuit City................................................ 24
Class....................................................... 5, 38
Class A Accumulation Period................................. 11
Class A Additional Interest................................. 70
Class A Adjustment Amount................................... 76
Class A Allocable Amount.................................... 77
Class A Available Funds..................................... 60
Class A Certificate Rate.................................... 2, 60
Class A Certificateholders.................................. 9
Class A Certificates........................................ 1, 4
Class A Expected Final Distribution Date.................... 2, 34
Class A Fixed Allocation Percentage......................... 65
Class A Floating Allocation Percentage...................... 64
Class A Initial Invested Amount............................. 9
Class A Invested Amount..................................... 9, 66
Class A Investor Charge-Off................................. 77
Class A Investor Default Amount............................. 76
Class A Monthly Interest.................................... 71
Class A Monthly Principal................................... 74
Class A Required Amount..................................... 69
Class A Servicing Fee....................................... 81
Class B Accumulation Period................................. 11
</TABLE>
94
<PAGE> 96
<TABLE>
<CAPTION>
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Class B Additional Interest................................. 71
Class B Adjustment Amount................................... 76
Class B Allocable Amount.................................... 77
Class B Available Funds..................................... 61
Class B Certificate Rate.................................... 2, 60
Class B Certificateholders.................................. 9
Class B Certificates........................................ 1, 4
Class B Expected Final Distribution Date.................... 2, 34
Class B Fixed Allocation Percentage......................... 65
Class B Floating Allocation Percentage...................... 65
Class B Initial Invested Amount............................. 10
Class B Invested Amount..................................... 10, 66
Class B Investor Charge-Off................................. 78
Class B Investor Default Amount............................. 76
Class B Monthly Interest.................................... 71
Class B Monthly Principal................................... 74
Class B Principal Commencement Date......................... 61
Class B Required Amount..................................... 69
Class B Servicing Fee....................................... 81
Class B Subordinated Principal Collections.................. 64
Class D Additional Interest................................. 73
Class D Adjustment Amount................................... 77
Class D Allocable Amount.................................... 77
Class D Available Funds..................................... 72
Class D Certificate Rate.................................... 74
Class D Certificateholders.................................. 11
Class D Certificates........................................ 5
Class D Fixed Allocation Percentage......................... 66
Class D Floating Allocation Percentage...................... 65
Class D Invested Amount..................................... 66
Class D Investor Default Amount............................. 76
Class D Monthly Interest.................................... 74
Class D Monthly Principal................................... 75
Class D Servicing Fee....................................... 81
Closing Date................................................ 2
Code........................................................ 84
Collateralized Trust Obligations............................ 5
Collection Account.......................................... 8, 45
Collection Period........................................... 4
Commission.................................................. 3
Controlled Accumulation Amount.............................. 62
Controlled Deposit Amount................................... 12, 62
Cooperative................................................. 58
Covered Amount.............................................. 67
CTO Additional Interest..................................... 72
CTO Adjustment Amount....................................... 76
CTO Allocable Amount........................................ 77
</TABLE>
95
<PAGE> 97
<TABLE>
<CAPTION>
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<S> <C>
CTO Available Funds......................................... 71
CTO Enhancement Surplus..................................... 75
CTO Fixed Allocation Percentage............................. 65
CTO Floating Allocation Percentage.......................... 66
CTO Invested Amount......................................... 66
CTO Investor Default Amount................................. 76
CTO Interest Rate........................................... 73
CTO Monthly Interest........................................ 73
CTO Monthly Principal....................................... 75
CTO Required Amount......................................... 70
CTO Securityholders......................................... 15
CTO Servicing Fee........................................... 81
Cut-Off Date................................................ 7, 38
Default Amount.............................................. 48
Defaulted Account........................................... 49
Deficit Controlled Accumulation Amount...................... 62
Definitive Certificates..................................... 59
Depositaries................................................ 56
Depository.................................................. 59
Determination Date.......................................... 53
Discount Option Receivable Collections...................... 46
Discount Option Receivables................................. 46
Discount Percentage......................................... 46
Distribution Date........................................... 2
Distribution Date Statement................................. 81
DOL......................................................... 90
DTC......................................................... 3
DTC Participants............................................ 56
Early Amortization Event.................................... 78
Early Amortization Period................................... 12
Enhancement................................................. 39
Enhancement Provider........................................ 39
Enhancement Surplus......................................... 75
Eligible Account............................................ 42
Eligible Institution........................................ 45
Eligible Investments........................................ 45
Eligible Receivable......................................... 42
ERISA....................................................... 89
Euroclear................................................... 58
Euroclear Operator.......................................... 58
Euroclear Participants...................................... 58
Euroclear System............................................ 58
Excess Funding Account...................................... 48
Excess Spread............................................... 72
Exchange.................................................... 39
Exchange Act................................................ 3
Exchangeable Transferor Certificate......................... 5, 38
</TABLE>
96
<PAGE> 98
<TABLE>
<CAPTION>
TERM PAGE
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<S> <C>
FASIT....................................................... 87
FDIA........................................................ 83
FDIC........................................................ 83
Final Regulation............................................ 15, 90
Final Termination Date...................................... 55
Finance Charge Collections.................................. 9
Finance Charge Receivables.................................. 6, 30
FIRREA...................................................... 17, 83
Fixed Allocation Percentage................................. 65
Floating Allocation Percentage.............................. 64
FNANB....................................................... 24
Foreign Investor............................................ 88
General Account Regulations................................. 91
Global Securities........................................... 100
Group....................................................... 5, 38
Group One................................................... 5
Indirect Participants....................................... 56
Ineligible Receivable....................................... 41
Interchange................................................. 6, 30, 38
Interest Period............................................. 10, 59
Invested Amount............................................. 67
Investor Certificates....................................... 5, 38
Investor Default Amount..................................... 76
Investor Monthly Servicing Fee.............................. 8, 81
Investor Servicing Fee...................................... 51
IRS......................................................... 85
LIBOR....................................................... 2, 60
LIBOR Determination Date.................................... 2, 60
Minimum Aggregate Principal Receivables..................... 44
Minimum Transferor Amount................................... 44
Minimum Transferor Percentage............................... 44
Monthly Servicer Report..................................... 53
OID......................................................... 87
OID Regulations............................................. 87
Paired Series............................................... 63
Paying Agent................................................ 81
Portfolio Yield............................................. 80
Previously Issued Series.................................... 5
Principal Collections....................................... 9
Principal Funding Account................................... 11, 67
Principal Funding Account Balance........................... 67
Principal Funding Investment Proceeds....................... 67
Principal Receivables....................................... 6, 30
Principal Terms............................................. 39
Rating Agency............................................... 16
Rating Agency Condition..................................... 40
Reallocated Principal Collections........................... 69
</TABLE>
97
<PAGE> 99
<TABLE>
<CAPTION>
TERM PAGE
- ---- -----------
<S> <C>
Receivables................................................. 1, 6, 38
Record Date................................................. 59
Recoveries.................................................. 6, 38
Reference Banks............................................. 60
Removed Accounts............................................ 7, 44
Required Cash Collateral Account Amount..................... 76
Required Enhancement Amount................................. 14, 75
Required Investor Certificateholders........................ 41
Required Reserve Account Amount............................. 68
Reserve Account............................................. 12, 68
Reserve Account Funding Date................................ 68
Retained Interest........................................... 80
Retained Percentage......................................... 80
Revolving Period............................................ 10
RTC......................................................... 83
Securities Act.............................................. 3
Series...................................................... 5, 38
Series 1998-1............................................... 5
Series 1998-1 Certificates.................................. 5
Series 1998-1 Supplement.................................... 5
Series Adjustment Amount.................................... 76
Series Supplement........................................... 5
Service Transfer............................................ 52
Servicer.................................................... 1, 4, 38
Servicer Default............................................ 52
Servicing Fee............................................... 8, 51
Shared Excess Finance Charge Collections.................... 47
Shared Principal Collections................................ 48
Special Tax Counsel......................................... 85
Stated Series Termination Date.............................. 10
Supplemental Accounts....................................... 7, 43
Tax Opinion................................................. 40
Telerate Page 3750.......................................... 60
Terms and Conditions........................................ 58
Transfer Agent and Registrar................................ 59
Transferor.................................................. 1, 4, 38
Transferor Amount........................................... 44
Transferor Interest......................................... 9, 46
Trust....................................................... 1, 4
Trust Portfolio............................................. 30
Trust Property.............................................. 6, 38
Trustee..................................................... 1, 5, 38
TSYS........................................................ 29
UCC......................................................... 17
Underwriters................................................ 92
Underwriting Agreement...................................... 92
U.S. Person................................................. 102
</TABLE>
98
<PAGE> 100
ANNEX A
PREVIOUSLY ISSUED SERIES
The Trust has previously issued Series 1997-1 and Series 1997-2. The tables
below set forth the principal characteristics of Series 1997-1 and Series
1997-2. For more specific information with respect to Series 1997-1 or Series
1997-2, any prospective investor should contact the Transferor at (770)
792-4600.
SERIES 1997-1 (VARIABLE FUNDING CERTIFICATES) (GROUP ONE)
<TABLE>
<S> <C>
Initial Invested Amount.................. $1,576,000,000
Invested Amount as of August 31, 1998.... $703,000,000
Expected Invested Amount as of end of
Closing Date........................... $
Certificate Rate......................... Floating (Uncapped)
Annual Servicing Fee Percentage.......... 2.00%
Enhancement.............................. Guaranty
Stated Series Termination Date........... 43rd Distribution Date after Termination
Date
Issuance Date............................ October 30, 1997
</TABLE>
SERIES 1997-2 (GROUP ONE)
CLASS A CERTIFICATES
<TABLE>
<S> <C>
Initial Invested Amount.................. $603,000,000
Certificate Rate......................... Floating (Uncapped)
Controlled Accumulation Amount (subject
to adjustment)......................... $50,250,000
Commencement of Controlled Accumulation
Period (subject to adjustment)......... October 31, 2001
Annual Servicing Fee Percentage.......... 2.00%
Initial Collateral Indebtedness Amount... $63,000,000
Initial Class D Invested Amount.......... $99,000,000
Other Enhancement........................ Subordination of Class B Certificates
Expected Final Distribution Date......... November 2002 Distribution Date
Stated Series Termination Date........... March 2006 Distribution Date
Issuance Date............................ November 25, 1997
</TABLE>
CLASS B CERTIFICATES
<TABLE>
<S> <C>
Initial Invested Amount.................. $135,000,000
Certificate Rate......................... Floating (Uncapped)
Controlled Accumulation Amount (subject
to adjustment)......................... $67,500,000
Commencement of Controlled Accumulation
Period (subject to adjustment)......... Distribution Date on which Class A
Certificates are paid in full
Annual Servicing Fee Percentage.......... Same as above for Class A Certificates
Initial Collateral Indebtedness Amount... Same as above for Class A Certificates
Initial Class D Invested Amount.......... Same as above for Class A Certificates
Expected Final Distribution Date......... January 2003 Distribution Date
Stated Series Termination Date........... Same as above for Class A Certificates
Issuance Date............................ Same as above for Class A Certificates
</TABLE>
99
<PAGE> 101
ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered FNANB Credit
Card Master Trust Floating Rate Asset Backed Certificates (the "Global
Securities") to be issued from time to time will be available only in book-entry
form. 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 Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing corporation
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,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear
100
<PAGE> 102
Participant, the purchaser will send instructions to Cedel or Euroclear through
a Cedel Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the respective depositary 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 (on the basis of actual days elapsed and a
360-day year). Payment will then be made by the respective Depositary 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 pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the 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, Cedel Participants or Euroclear Participants can elect not to pre-position
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 the
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC 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 Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the 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 (on the basis of actual
days elapsed and a 360-day year). The payment will then be reflected in the
account of the Cedel Participant or the Euroclear Participant the following day,
and receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in 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 Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would
101
<PAGE> 103
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(1) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
accounts 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 the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) or registered debt issued by U.S.
Persons unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Certificates that are non-U.S. Persons 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 Certificate Owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate). If the treaty provides only for a
reduced rate, withholding tax will be imposed at that rate unless the filer
alternatively files Form W-8. Form 1001 may be filed by the beneficial owner or
his agent.
Exemption for U.S. Person (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Global Securities.
102
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- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
TRANSFEROR OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE TRANSFEROR OR THE RECEIVABLES SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Certificateholders........ 3
Available Information................ 3
Incorporation of Certain Documents by
Reference.......................... 3
Prospectus Summary................... 4
Risk Factors......................... 17
First North American National Bank... 24
First North American National Bank
Credit Card Operations............. 24
The Receivables...................... 30
Maturity Considerations.............. 34
Yield Considerations................. 36
The Trust............................ 37
Use of Proceeds...................... 37
Description of the Agreement......... 38
Description of the Certificates...... 56
Certain Legal Aspects of the
Receivables........................ 82
Material Federal Income Tax
Consequences....................... 84
ERISA Considerations................. 89
Underwriting......................... 92
Legal Matters........................ 93
Index to Location of Defined Terms... 94
Annex A (Previously Issued Series)... 99
Annex B (Global Clearance, Settlement
and Tax Documentation
Procedures)........................ 100
</TABLE>
---------------------
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
FNANB CREDIT CARD
MASTER TRUST
$402,000,000 CLASS A
FLOATING RATE
ASSET BACKED
CERTIFICATES, SERIES 1998-1
$90,000,000 CLASS B
FLOATING RATE
ASSET BACKED
CERTIFICATES, SERIES 1998-1
FNANB CREDIT
CARD MASTER TRUST
ISSUER
FIRST NORTH AMERICAN
NATIONAL BANK
TRANSFEROR AND SERVICER
------------------------
PROSPECTUS
------------------------
UNDERWRITERS OF THE CLASS A CERTIFICATES
NATIONSBANC MONTGOMERY
SECURITIES LLC
GOLDMAN, SACHS & CO.
DEUTSCHE MORGAN GRENFELL
FIRST UNION CAPITAL MARKETS
UNDERWRITERS OF THE CLASS B CERTIFICATES
NATIONSBANC MONTGOMERY
SECURITIES LLC
GOLDMAN, SACHS & CO.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 105
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................ $118,590
Printing and Engraving...................................... 85,000
Trustee's Fees.............................................. 12,000
Legal Fees and Expenses..................................... 240,000
Blue Sky Fees and Expenses.................................. 10,000
Accountants' Fees and Expenses.............................. 22,000
Rating Agency Fees.......................................... 234,000
Miscellaneous Fees.......................................... 30,000
--------
Total............................................. $751,590
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article ELEVENTH of FNANB's Articles of Association provides that FNANB
shall indemnify any person who was or is made a party or is threatened to be
made a party to any threatened, pending or completed action, suit, proceeding or
appeal, whether civil, criminal, administrative or investigative and whether
formal or informal, because he or she is or was a director or officer of FNANB
or, while a director or officer of FNANB, is or was serving any other legal
entity in any capacity at the request of FNANB against all judgments,
settlements, penalties, fines or other obligations and reasonable expenses
incurred in such action, suit, proceeding or appeal except such obligations and
expenses as are incurred because of the indemnitee's willful misconduct or
knowing violation of criminal law (regardless of whether such action, suit,
proceeding or appeal is by or in the right of FNANB). FNANB is obligated to make
advances and reimbursements for expenses incurred by an indemnitee in any such
action, suit, proceeding or appeal upon receipt of an undertaking (which
undertaking may be an unlimited, unsecured general obligation of the indemnitee
and shall be accepted by FNANB without reference to the indemnitee's ability to
make repayment) from the indemnitee to repay the same if it is ultimately
determined that the indemnitee is not entitled to indemnification.
Article ELEVENTH also provides that FNANB may, to a lesser extent or to the
same extent that it is required to provide indemnification and make advances and
reimbursements for expenses to its directors and officers, provide
indemnification and make advances and reimbursements for expenses to its
employees and agents, the directors, officers, employees and agents of its
subsidiaries and predecessor entities, and any person serving any other legal
entity in any capacity at the request of FNANB and, if authorized by FNANB's
board of directors, may contract in advance to do so.
The determination that indemnification is permissible and the evaluation as
to reasonableness of expenses shall be made, in the case of a director, as
provided by law and, in the case of an officer, as authorized from time to time
by FNANB's board of directors (which authorization may be made before or after
the claim for indemnification is made) or as otherwise provided by law. If,
however, in either case, a majority of the directors serving on the board of
directors has changed after the date of the alleged conduct giving rise to a
claim for indemnification, such determination and evaluation shall, at the
option of the indemnitee, be made by special legal counsel agreed upon by the
board of directors and such indemnitee. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that an indemnitee acted in
such a manner as to make him or her ineligible for indemnification.
Article ELEVENTH provides that the indemnification provided thereby shall
not be exclusive of any other right of indemnification to which an indemnitee
may be entitled including indemnification pursuant to a valid contract,
indemnification by legal entities other than FNANB and indemnification under
policies of
II-1
<PAGE> 106
insurance purchased and maintained by FNANB or others; provided, however, that
no indemnitee shall be entitled to indemnification by FNANB to the extent he or
she is indemnified by another, including an insurer.
FNANB is authorized under Article ELEVENTH to purchase and maintain
insurance against any liability it may have under Article ELEVENTH or to protect
any indemnitee against any liability arising from his or her service to FNANB or
to any other legal entity at the request of FNANB regardless of FNANB's power to
indemnify against such liability.
Article ELEVENTH does not permit (i) the indemnification of directors,
officers or employees of FNANB against expenses, penalties or other payments
incurred in any administrative proceeding or action instituted by an appropriate
bank regulatory agency which proceeding or action results in a final order
assessing civil money penalties or requires affirmative action by an individual
or individuals in the form of payment to FNANB or (ii) insurance coverage for a
formal order assessing civil money penalties against a director or employee of
FNANB.
In the Underwriting Agreement, a proposed form of which is attached as
Exhibit 1.1 hereto, the Underwriters will agree to indemnify, under certain
conditions, the Registrant, its directors, certain of its officers and persons
who control the Registrant within the meaning of the Securities Act against
certain liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits
<TABLE>
<C> <C> <S>
1.1 -- Form of Underwriting Agreement (Incorporated by reference to
Exhibit 1.1 to Registration Statement 333-32591).
3.1 -- Articles of Association (Incorporated by reference to
Exhibit 3.1 to Registration Statement 333-32591).
3.2 -- Bylaws (Incorporated by reference to Exhibit 3.2 to
Registration Statement 333-32591).
4.1 -- Master Pooling and Servicing Agreement dated as of October
30, 1997 between First North American National Bank, as
transferor and servicer, and the Trustee (Incorporated by
reference to Exhibit 4.1 to Registration Statement
333-32591).
4.2 -- Form of Series 1998-1 Supplement (including form of
Certificates).
5.1 -- Opinion of McGuire, Woods, Battle & Boothe LLP with respect
to legality.
8.1 -- Opinion of McGuire, Woods, Battle & Boothe LLP with respect
to tax matters.
23.1 -- Consent of McGuire, Woods, Battle & Boothe LLP (included in
its opinion filed as Exhibit 5.1).
23.2 -- Consent of McGuire, Woods, Battle & Boothe LLP (included in
its opinion filed as Exhibit 8.1).
</TABLE>
- ---------------
(b) Financial Statements
All financial statements, schedules and historical financial information
have been omitted as they are not applicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 107
(b) To provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 15 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(e) That, for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Richmond, Commonwealth of Virginia, on
October 5, 1998.
FIRST NORTH AMERICAN NATIONAL BANK
as originator of the Trust and
Co-Registrant and as Servicer on
behalf of the Trust as Co-Registrant
By: /s/ MICHAEL T. CHALIFOUX
------------------------------------
Michael T. Chalifoux
President and Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed on October 5,
1998 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL T. CHALIFOUX President, Chairman and October 5, 1998
- ----------------------------------------------------- Director (Principal
Michael T. Chalifoux Executive Officer)
/s/ KERRY VERSTREATE Chief Financial Officer October 5, 1998
- ----------------------------------------------------- (Principal Financial Officer
Kerry Verstreate and Principal Accounting
Officer)
/s/ PHILIP J. DUNN Director October 5, 1998
- -----------------------------------------------------
Philip J. Dunn
/s/ MARK A. ARENSMEYER Director October 5, 1998
- -----------------------------------------------------
Mark A. Arensmeyer
Director October , 1998
- -----------------------------------------------------
Merle Worsham
/s/ ANGIE SCHWARZ Director October 5, 1998
- -----------------------------------------------------
Angie Schwarz
</TABLE>
II-4
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
FIRST NORTH AMERICAN NATIONAL BANK,
as Transferor and Servicer
and
FIRST UNION NATIONAL BANK,
as Trustee
on behalf of the Certificateholders
------------------------------
SERIES 1998-1 SUPPLEMENT
Dated as of October [___], 1998
to
MASTER POOLING AND SERVICING AGREEMENT
Dated as of October 30, 1997
------------------------------
$600,000,000
FNANB CREDIT CARD MASTER TRUST
SERIES 1998-1
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. Designation ....................................................................................1
SECTION 2. Definitions ...................................................................................2
SECTION 3. Minimum Transferor Interest Percentage and Minimum Aggregate Principal Receivables ............28
SECTION 4. Reassignment and Transfer Terms ...............................................................28
SECTION 5. Delivery and Payment for the Certificates .....................................................28
SECTION 6. Form of Delivery of the Series 1998-1 Certificates ............................................29
SECTION 7. Servicing Compensation ........................................................................29
SECTION 8. Article IV of the Agreement ...................................................................30
ARTICLE IV
RIGHTS OF SERIES 1998-1 CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.2 Collections and Allocations ...................................................................30
Section 4.3 Determination of Monthly Interest .............................................................32
Section 4.3A Determination of LIBOR.........................................................................35
Section 4.4 Determination of Monthly Principal ............................................................35
Section 4.5 Required Amount. ..............................................................................37
Section 4.6 Application of Class A Available Funds, Class B Available Funds,
CTO Available Funds, Class D Available Funds and Collections of
Principal Receivables .........................................................................39
Section 4.7 Defaulted Amounts; Adjustment Amounts;
Investor Charge Offs; Reductions of Adjustment Amounts ........................................42
Section 4.8 Excess Spread; Shared Excess Finance Charge Collections .......................................46
Section 4.9 Reallocated Principal Collections .............................................................49
Section 4.10 Principal Shortfall ...........................................................................50
Section 4.11 Finance Charge Shortfall ......................................................................51
Section 4.12 Cash Collateral Account .......................................................................51
Section 4.13 Principal Funding Account .....................................................................53
Section 4.14 Reserve Account ...............................................................................54
Section 4.15 Postponement of Accumulation Period ...........................................................56
Section 4.16 Additional Issuances of Class D Certificates ..................................................56
Section 4.17 Application of Recoveries......................................................................58
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 9. Article V of the Agreement ...................................................................58
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Section 5.1 Distributions ................................................................................58
Section 5.2 Statements to Series 1998-1 Certificateholders ...............................................60
SECTION 10. Early Amortization Events.....................................................................61
SECTION 10A. CTO Defaults..................................................................................63
SECTION 11. Restrictions on Transfer .....................................................................64
SECTION 12. Tax Characterization of the Collateralized Trust Obligations and the Class D
Certificates..................................................................................69
SECTION 13. Ratification of Master Pooling and Servicing Agreement .......................................70
SECTION 14. Counterparts .................................................................................70
SECTION 15. Governing Law ................................................................................70
SECTION 16. Subordination of Certain Termination Payments ................................................70
SECTION 17. Third-Party Beneficiaries ....................................................................70
SECTION 18. FASIT Election................................................................................71
SECTION 19. Paired Series.................................................................................71
Exhibit A Form of Class A Certificate
Exhibit B Form of Class B Certificate
Exhibit C Form of Collateralized Trust Obligation
Exhibit D Form of Class D Certificate
Exhibit E Form of Monthly Servicer's Certificate
Exhibit F Form of Monthly Certificateholder's Statement
Exhibit G Form of Transfer Certification
</TABLE>
ii
<PAGE> 4
SERIES 1998-1 SUPPLEMENT, dated as of October [___], 1998
(this "Series Supplement"), by and among FIRST NORTH AMERICAN NATIONAL BANK, a
national banking association, as transferor and servicer (together with its
successors and permitted assigns in such capacities, the "Transferor" and the
"Servicer"), and FIRST UNION NATIONAL BANK, a national banking association, as
trustee (together with its successors in trust thereunder as provided in the
Agreement referred to below, the "Trustee") under the Master Pooling and
Servicing Agreement, dated as of October 30, 1997 (the "Agreement").
PRELIMINARY STATEMENTS
Section 6.9 of the Agreement provides, among other things,
that the Transferor and the Trustee may at any time and from time to time enter
into one or more Supplements to the Agreement for the purpose of authorizing the
issuance by the Trustee on behalf of the Trust to the Transferor, for execution
and redelivery to the Trustee for authentication, of one or more Series of
Certificates. The Transferor and the Servicer each hereby enter into this Series
Supplement with the Trustee as required by Section 6.9(c) of the Agreement to
provide for the issuance, authentication and delivery of the Investor
Certificates of Series 1998-1.
Pursuant to this Series Supplement, the Transferor and the
Trustee shall create a new Series of Investor Certificates and shall specify the
Principal Terms thereof. The Series 1998-1 Certificates shall not be
subordinated to any other Series. The Series 1998-1 Certificates shall be in
Group One and shall be a Principal Sharing Series.
In the event that any term or provision contained herein shall
conflict with or be inconsistent with any term or provision contained in the
Agreement, the terms and provisions of this Series Supplement shall govern.
SECTION 1. Designation. The Certificates issued hereunder
shall be designated generally as the Series 1998-1 Certificates. The Investor
Certificates of Series 1998-1 (collectively, the "Series 1998-1 Certificates")
shall be issued initially in four certificated Classes, which shall be
designated generally as the Class A Floating Rate Asset Backed Certificates,
Series 1998-1, the Class B Floating Rate Asset Backed Certificates, Series
1998-1, the Collateralized Trust Obligations, Series 1998-1, and the Class D
Floating Rate Asset Backed Certificates, Series 1998-1. Notwithstanding the
foregoing, the provisions of Section 6.9(b) of the Agreement with respect to the
delivery of an Opinion of Counsel to the effect that a newly issued Series of
Investor Certificates will be characterized as either indebtedness or an
interest in a
<PAGE> 5
partnership (that is not taxable as a corporation) under existing law for
Federal income tax purposes shall not be applicable to the Class D Certificates.
SECTION 2. Definitions. All capitalized terms not otherwise
defined herein are defined in the Agreement. All Article, Section or subsection
references herein shall mean Articles, Sections or subsections of the Agreement,
except as otherwise provided herein. Unless otherwise stated herein, as the
context otherwise requires or if such term is otherwise defined in the
Agreement, each capitalized term used or defined herein shall relate only to the
Series 1998-1 Certificates and to no other Series of Certificates issued by the
Trust.
The following words and phrases shall have the following
meanings with respect to the Series 1998-1 Certificates and the definitions of
such terms are applicable to the singular as well as the plural form of such
terms and to the masculine as well as the feminine and neuter genders of such
terms:
"Accumulation Period" shall mean the Class A Accumulation
Period, the Class B Accumulation Period and the CTO Accumulation Period.
"Accumulation Period Factor" shall mean, for any Collection
Period, a fraction, the numerator of which is equal to the sum of the initial
invested amounts of all outstanding Series, and the denominator of which is
equal to the sum of (a) the Initial Invested Amount (plus the aggregate initial
principal amount of any Additional Class D Certificates), (b) the initial
invested amounts of all outstanding Series (other than Series 1998-1) which are
not expected to be in their revolving periods during such Collection Period and
(c) the initial invested amounts of all other outstanding Series which are not
allocating Shared Principal Collections to other Series and are expected to be
in their revolving periods during such Collection Period.
"Accumulation Period Length" shall have the meaning specified
In Section 4.15.
"Additional Class D Certificates" shall mean an additional
principal amount of Class D Certificates issued pursuant to Section 4.16(a) or
Section 4.16(b).
"Adjusted Invested Amount" shall mean, as of any date, the
Invested Amount as of such date plus the Principal Funding Account Balance as of
such date.
"Amortization Period" shall mean, with respect to the Series
1998-1 Certificates, the period commencing on the earlier
2
<PAGE> 6
of (a) the first day of the Accumulation Period and (b) the first day of the
Early Amortization Period and ending on the earlier of (i) the payment in full
to the Class A Certificateholders of the Class A Adjusted Invested Amount, to
the Class B Certificateholders of the Class B Adjusted Invested Amount, to the
CTO Securityholders of the CTO Adjusted Invested Amount and to the Class D
Certificateholders of the Class D Invested Amount and (ii) the Stated Series
Termination Date.
"Available Cash Collateral Account Amount" shall mean, with
respect to any Distribution Date, the amount on deposit in and available to be
withdrawn from the Cash Collateral Account on such date (before giving effect to
any deposit to, or withdrawal from, the Cash Collateral Account to be made with
respect to such date).
"Available CTO Enhancement Amount" shall mean, for any
Distribution Date, an amount equal to the sum of the Available Cash Collateral
Account Amount with respect to such Distribution Date and the Class D Invested
Amount on such Distribution Date.
"Available Enhancement Amount" shall mean, for any
Distribution Date, an amount equal to the sum of the Available Cash Collateral
Account Amount with respect to such Distribution Date, the CTO Invested Amount
on such Distribution Date and the Class D Invested Amount on such Distribution
Date.
"Available Principal Collections" shall mean, with respect to
any Distribution Date, an amount equal to (a) the applicable Invested Percentage
of Collections of Principal Receivables for the preceding Collection Period,
plus (b) amounts designated as Available Principal Collections pursuant to
Section 4.6 and Section 4.8, plus (c) Shared Principal Collections allocated to
Series 1998-1, plus (d) during the Early Amortization Period, any amounts
allocated to Series 1998-1 as described in Section 4.10, minus (e) Reallocated
Principal Collections applied pursuant to Section 4.9 for the preceding
Collection Period.
"Available Reserve Account Amount" shall mean, with respect to
any Distribution Date, the lesser of (a) the amount on deposit in and available
to be withdrawn from the Reserve Account on such Distribution Date (before
giving effect to any deposit to, or withdrawal from, the Reserve Account on such
date) and (b) the Required Reserve Account Amount for such Distribution Date.
"Average Excess Spread Percentage" shall mean, as of any
Distribution Date, the average of the Excess Spread Percentages for the three
consecutive Collection Periods preceding such Distribution Date.
3
<PAGE> 7
"Base Rate" shall mean, with respect to any Collection Period,
the sum of (a) the annualized percentage equivalent of a fraction, the numerator
of which is equal to the Monthly Interest distributable on the Distribution Date
immediately following the last day of such Collection Period and the denominator
of which is the Adjusted Invested Amount as of the last day of the preceding
Collection Period and (b) the product of (i) 2.00% per annum and (ii) a
fraction, the numerator of which is equal to the Invested Amount and the
denominator of which is equal to the Adjusted Invested Amount, in each case
determined as of the last day of such preceding Collection Period.
"Business Day" shall have the meaning specified in the
Agreement.
"Cash Collateral Account" shall have the meaning specified in
Section 4.12(a).
"Cash Enhancement Surplus" shall mean, as of any date of
determination, the lesser of (a) the Enhancement Surplus and (b) the excess of
the amount on deposit in the Cash Collateral Account (after giving effect to all
deposits to and withdrawals from the Cash Collateral Account with respect to
such date) over the Required Cash Collateral Account Amount.
"Circuit City" shall mean Circuit City Stores, Inc., a
Virginia corporation.
"Class A Accumulation Period" shall mean, unless an Early
Amortization Event with respect to Series 1998-1 shall have occurred prior
thereto, the period commencing at the close of business on the last day of the
[_________] Collection Period, or such later date as shall be determined in
accordance with Section 4.15, and ending on the first to occur of (a) the
commencement of the Early Amortization Period, (b) the payment in full to Class
A Certificateholders of the Class A Adjusted Invested Amount or (c) the Stated
Series Termination Date.
"Class A Additional Interest" shall have the meaning specified
in Section 4.3(a).
"Class A Adjusted Invested Amount" shall mean, on any date of
determination, the Class A Invested Amount on such date plus the amount on
deposit in the Principal Funding Account with respect to the Class A
Certificates on such date.
"Class A Adjustment Amount" shall mean, with respect to any
Distribution Date, an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-1 as of the end of the preceding Collection Period and
(ii) the percentage equivalent of
4
<PAGE> 8
a fraction, the numerator of which is the Class A Invested Amount and the
denominator of which is the Invested Amount, each as of the last day of the
Collection Period preceding such preceding Collection Period.
"Class A Allocable Amount" shall mean, with respect to any
Distribution Date, the sum of the Class A Investor Default Amount and the Class
A Adjustment Amount, in each case with respect to such Distribution Date.
"Class A Available Funds" shall mean, with respect to any
Collection Period, the sum of (i) the Class A Floating Allocation Percentage
(with respect to any Collection Period during the Revolving Period or the
Accumulation Period) or the Class A Fixed Allocation Percentage (with respect to
any Collection Period during the Early Amortization Period) of Collections of
Finance Charge Receivables and any other amounts, including interest and other
investment earnings, if any (net of losses and investment expenses), on funds on
deposit in the Excess Funding Account, that are to be treated as Collections of
Finance Charge Receivables in accordance with the Agreement, plus (ii) if the
Distribution Date immediately following the last day of such Collection Period
occurs before the Class B Principal Commencement Date, the Principal Funding
Investment Proceeds, if any, to be withdrawn from the Principal Funding Account
on such Distribution Date, plus (iii) the amount, if any, to be withdrawn from
the Reserve Account on such Distribution Date and included in Class A Available
Funds pursuant to Section 4.14(d) plus (iv) the investment earnings, if any (net
of losses and investment expenses), on funds on deposit in the Reserve Account
to be withdrawn from the Reserve Account on such Distribution Date and included
in Class A Available Funds pursuant to Section 4.14(b).
"Class A Certificate Rate" shall mean, with respect to the
Class A Certificates and each Interest Period, a per annum rate of [____]% in
excess of LIBOR, as determined on the related LIBOR Determination Date.
"Class A Certificateholder" shall mean the Person in whose
name a Class A Certificate is registered in the Certificate Register.
"Class A Certificates" shall mean any one of the Certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A.
"Class A Expected Final Distribution Date" shall mean the
[_________] Distribution Date.
5
<PAGE> 9
"Class A Fixed Allocation Percentage" shall mean, with respect
to any Collection Period, the percentage equivalent of a fraction, the numerator
of which is equal to the Class A Invested Amount as of the last day of the
Revolving Period and the denominator of which is equal to the greater of (i) the
sum of (a) the Aggregate Principal Receivables in the Trust as of the last day
of the immediately preceding Collection Period (or the Closing Date, in the case
of the first Collection Period applicable to Series 1998-1) plus (b) the Excess
Funding Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and after the Supplemental Closing Date applicable
to such Supplemental Accounts; and, provided further, that if the Series 1998-1
Certificates are paired with a Paired Series and the Early Amortization Period
(as defined in the Supplement for such Paired Series) commences, the Transferor
may, by written notice to the Trustee and Servicer, designate a different
numerator to be used to determine such percentage (provided that such numerator
is not less than the Class A Invested Amount as of the last day of the Revolving
Period (as defined in the Supplement for such Paired Series)).
"Class A Floating Allocation Percentage" shall mean, with
respect to any Collection Period, the percentage equivalent of a fraction, the
numerator of which is equal to the Class A Invested Amount as of the last day of
the immediately preceding Collection Period (or the Class A Initial Invested
Amount, in the case of the first Collection Period applicable to Series 1998-1)
and the denominator of which is equal to the greater of (i) the sum of (a) the
Aggregate Principal Receivables in the Trust as of the last day of the
immediately preceding Collection Period (or the Closing Date, in the case of the
first Collection Period applicable to Series 1998-1) plus (b) the Excess Funding
Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and
6
<PAGE> 10
after the Supplemental Closing Date applicable to such Supplemental Accounts.
"Class A Initial Invested Amount" shall mean the aggregate
initial principal amount of the Class A Certificates, which is $402,000,000.
"Class A Interest Shortfall" shall have the meaning specified
in Section 4.3(a).
"Class A Invested Amount" shall mean, on any date of
determination, an amount equal to (a) the Class A Initial Invested Amount, minus
(b) the Principal Funding Account Balance on such date, minus (c) the aggregate
amount of principal payments made to the Class A Certificateholders prior to
such date, minus (d) the excess, if any, of the aggregate amount of Class A
Investor Charge Offs for all prior Distribution Dates over the sum of the
aggregate amount of Class A Investor Charge Offs reimbursed pursuant to Section
4.8(b) and, without duplication, the aggregate amount of the reductions of the
Series Adjustment Amounts allocable to the Class A Invested Amount pursuant to
Section 4.7(f) prior to such date; provided, however, that the Class A Invested
Amount may not be reduced below zero.
"Class A Investor Charge Offs" shall have the meaning
specified in Section 4.7(a).
"Class A Investor Default Amount" shall mean, with respect to
any Distribution Date, an amount equal to the product of (i) the Default Amount
for the preceding Collection Period and (ii) the Class A Floating Allocation
Percentage with respect to such Collection Period.
"Class A Monthly Interest" shall have the meaning specified in
Section 4.3(a).
"Class A Monthly Principal" shall have the meaning specified
in Section 4.4(a).
"Class A Penalty Rate" shall mean the sum of the Class A
Certificate Rate and 2.00% per annum.
"Class A Required Amount" shall have the meaning specified in
Section 4.5(a).
"Class A Servicing Fee" shall have the meaning specified in
Section 7 of this Supplement.
"Class B Accumulation Period" shall mean, unless an Early
Amortization Event with respect to Series 1998-1 shall have
7
<PAGE> 11
occurred prior thereto, the period commencing on the Distribution Date on which
the Class A Adjusted Invested Amount is paid in full or, if the Class A Adjusted
Invested Amount is paid in full on the Class A Expected Final Distribution Date,
at the close of business on the Class A Expected Final Distribution Date, and
ending on the first to occur of (a) the commencement of the Early Amortization
Period, (b) the payment in full to the Class B Certificateholders of the Class B
Adjusted Invested Amount or (c) the Stated Series Termination Date.
"Class B Additional Interest" shall have the meaning specified
in Section 4.3(b).
"Class B Adjusted Invested Amount" shall mean, on any date of
determination, an amount equal to the Class B Invested Amount on such date plus,
after the Class A Invested Amount has been paid in full, the Principal Funding
Account Balance on such date.
"Class B Adjustment Amount" shall mean, with respect to any
Distribution Date, an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-1 as of the end of the preceding Collection Period and
(ii) the percentage equivalent of a fraction, the numerator of which is the
Class B Invested Amount and the denominator of which is the Invested Amount,
each as of the last day of the Collection Period preceding such preceding
Collection Period.
"Class B Allocable Amount" shall mean, with respect to any
Distribution Date, the sum of the Class B Investor Default Amount and the Class
B Adjustment Amount, in each case with respect to such Distribution Date.
"Class B Available Funds" shall mean, with respect to any
Collection Period, the sum of (i) the Class B Floating Allocation Percentage
(with respect to any Collection Period during the Revolving Period or the
Accumulation Period) or the Class B Fixed Allocation Percentage (with respect to
any Collection Period during the Early Amortization Period) of Collections of
Finance Charge Receivables and any other amounts, including interest and other
investment earnings, if any (net of losses and investment expenses), on funds on
deposit in the Excess Funding Account, that are to be treated as Collections of
Finance Charge Receivables in accordance with the Agreement, plus (ii) if the
Distribution Date immediately following the last day of such Collection Period
occurs on or after the Class B Principal Commencement Date, the Principal
Funding Investment Proceeds, if any, to be withdrawn from the Principal Funding
Account on such Distribution Date, plus (iii) the amount, if any, to be
withdrawn from the Reserve Account on such Distribution
8
<PAGE> 12
Date and included in Class B Available Funds pursuant to Section 4.14(d) plus
(iv) the investment earnings, if any (net of losses and investment expenses), on
funds on deposit in the Reserve Account to be withdrawn from the Reserve Account
on such Distribution Date and included in Class A Available Funds pursuant to
Section 4.14(b).
"Class B Certificate Rate" shall mean, with respect to the
Class B Certificates and each Interest Period, a per annum rate of [____]% in
excess of LIBOR, as determined on the related LIBOR Determination Date.
"Class B Certificateholder" shall mean the Person in whose
name a Class B Certificate is registered in the Certificate Register.
"Class B Certificates" shall mean any one of the Certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit B.
"Class B Expected Final Distribution Date" shall mean the
[__________] Distribution Date.
"Class B Fixed Allocation Percentage" shall mean, with respect
to any Collection Period, the percentage equivalent of a fraction, the numerator
of which is equal to the Class B Invested Amount as of the last day of the
Revolving Period and the denominator of which is equal to the greater of (i) the
sum of (a) the Aggregate Principal Receivables in the Trust as of the last day
of the immediately preceding Collection Period (or the Closing Date, in the case
of the first Collection Period applicable to Series 1998-1) plus (b) the Excess
Funding Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and after the Supplemental Closing Date applicable
to such Supplemental Accounts; and, provided further, that if the Series 1998-1
Certificates are paired with a Paired Series and the Early Amortization Period
(as defined in the Supplement for such Paired Series) commences, the Transferor
may, by written notice to the Trustee and Servicer, designate a different
numerator to be used to determine such percentage (provided that such numerator
is not less than the Class B Invested Amount as of the last day of the
9
<PAGE> 13
Revolving Period (as defined in the Supplement for such Paired Series)).
"Class B Floating Allocation Percentage" shall mean, with
respect to any Collection Period, the percentage equivalent of a fraction, the
numerator of which is equal to the Class B Invested Amount as of the last day of
the immediately preceding Collection Period (or the Class B Initial Invested
Amount, in the case of the first Collection Period applicable to Series 1998-1)
and the denominator of which is equal to the greater of (i) the sum of (a) the
Aggregate Principal Receivables in the Trust as of the last day of the
immediately preceding Collection Period (or the Closing Date, in the case of the
first Collection Period applicable to Series 1998-1) plus (b) the Excess Funding
Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and after the Supplemental Closing Date applicable
to such Supplemental Accounts.
"Class B Initial Invested Amount" shall mean the aggregate
initial principal amount of the Class B Certificates, which is $90,000,000.
"Class B Interest Shortfall" shall have the meaning specified
in Section 4.3(b).
"Class B Invested Amount" shall mean, on any date of
determination, an amount equal to (a) the Class B Initial Invested Amount, minus
(b) after the Class A Adjusted Invested Amount has been paid in full, the
Principal Funding Account Balance on such date, minus (c) the aggregate amount
of principal payments made to the Class B Certificateholders prior to such date,
minus (d) the aggregate amount of Class B Investor Charge Offs for all prior
Distribution Dates, minus (e) the amount of Class B Subordinated Principal
Collections allocated on all prior Distribution Dates pursuant to Section
4.9(a), minus (f) an amount equal to the amount by which the Class B Invested
Amount has been reduced on all prior Distribution Dates pursuant to Section
4.7(a), plus (g) the sum of the amount of Excess Spread and Shared Excess
Finance Charge Collections allocated and available on all prior Distribution
Dates pursuant to Section 4.8(e) for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (d), (e) and (f) and, without
10
<PAGE> 14
duplication, the aggregate amount of the reductions of the Series Adjustment
Amounts allocable to the Class B Invested Amount pursuant to Section 4.7(f)
prior to such date; provided, however, that the Class B Invested Amount may not
be reduced below zero.
"Class B Investor Charge Offs" shall have the meaning
specified in Section 4.7(b).
"Class B Investor Default Amount" shall mean, with respect to
any Distribution Date, an amount equal to the product of (i) the Default Amount
for the preceding Collection Period and (ii) the Class B Floating Allocation
Percentage with respect to such Collection Period.
"Class B Monthly Interest" shall have the meaning specified in
Section 4.3(b).
"Class B Monthly Principal" shall have the meaning specified
in Section 4.4(b).
"Class B Penalty Rate" shall mean the sum of the Class B
Certificate Rate and 2.00% per annum.
"Class B Principal Commencement Date" shall mean the
Distribution Date on which the Class A Adjusted Invested Amount is paid in full
or, if the Class A Adjusted Invested Amount is paid in full on the Class A
Expected Final Distribution Date and the Early Amortization Period has not
commenced, the Distribution Date following the Class A Expected Final
Distribution Date.
"Class B Required Amount" shall have the meaning specified in
Section 4.5(b).
"Class B Servicing Fee" shall have the meaning specified in
Section 7 of this Supplement.
"Class B Subordinated Principal Collections" shall mean, with
respect to any Collection Period, an amount equal to the product of (i) the
Class B Floating Allocation Percentage with respect to any Collection Period
during the Revolving Period or the Class B Fixed Allocation Percentage with
respect to any Collection Period during the Amortization Period and (ii) the
aggregate amount of Collections of Principal Receivables for such Collection
Period.
"Class D Additional Interest" shall have the meaning specified
in Section 4.3(d).
"Class D Adjustment Amount" shall mean, with respect to any
Distribution Date, an amount equal to the product of (i) the
11
<PAGE> 15
Series Adjustment Amount for Series 1998-1 as of the end of the preceding
Collection Period and (ii) the percentage equivalent of a fraction, the
numerator of which is the Class D Invested Amount and the denominator of which
is the Invested Amount, each as of the last day of the Collection Period
preceding such preceding Collection Period.
"Class D Allocable Amount" shall mean, with respect to any
Distribution Date, the sum of the Class D Investor Default Amount and the Class
D Adjustment Amount, in each case with respect to such Distribution Date.
"Class D Available Funds" shall mean, with respect to any
Collection Period, the Class D Floating Allocation Percentage (with respect to
any Collection Period during the Revolving Period or the Accumulation Period) or
the Class D Fixed Allocation Percentage (with respect to any Collection Period
during the Early Amortization Period) of Collections of Finance Charge
Receivables and any other amounts, including interest and other investment
earnings, if any (net of losses and investment expenses), on funds on deposit in
the Excess Funding Account, that are to be treated as Collections of Finance
Charge Receivables in accordance with the Agreement.
"Class D Certificate Rate" shall mean, with respect to the
Class D Certificates and each Interest Period, a per annum rate of [____]% in
excess of LIBOR, as determined on the related LIBOR Determination Date, or such
lesser rate as may be designated by the Transferor.
"Class D Certificateholder" shall mean the Person in whose
name a Class D Certificate is registered in the Certificate Register.
"Class D Certificates" shall mean any one of the Certificates
executed by the Transferor and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit D.
"Class D Fixed Allocation Percentage" shall mean, with respect
to any Collection Period, the percentage equivalent of a fraction, the numerator
of which is equal to the Class D Invested Amount as of the last day of the
Revolving Period and the denominator of which is equal to the greater of (i) the
sum of (a) the Aggregate Principal Receivables in the Trust as of the last day
of the immediately preceding Collection Period (or the Closing Date, in the case
of the first Collection Period applicable to Series 1998-1) plus (b) the Excess
Funding Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which
12
<PAGE> 16
such determination is being made; provided, however, that, with respect to any
Collection Period during which Supplemental Accounts are included as Accounts
pursuant to Section 2.6(a) or Section 2.6(b), the denominator in clause (i)
above shall be increased by the amount of Principal Receivables in such
Supplemental Accounts as of the Supplemental Cut-Off Date on and after the
Supplemental Closing Date applicable to such Supplemental Accounts; and,
provided further, that if the Series 1998-1 Certificates are paired with a
Paired Series and the Early Amortization Period (as defined in the Supplement
for such Paired Series) commences, the Transferor may, by written notice to the
Trustee and Servicer, designate a different numerator to be used to determine
such percentage (provided that such numerator is not less than the Class D
Invested Amount as of the last day of the Revolving Period (as defined in the
Supplement for such Paired Series)).
"Class D Floating Allocation Percentage" shall mean, with
respect to any Collection Period, the percentage equivalent of a fraction, the
numerator of which is equal to the Class D Invested Amount as of the last day of
the immediately preceding Collection Period (or the Class D Initial Invested
Amount, in the case of the first Collection Period applicable to Series 1998-1)
and the denominator of which is equal to the greater of (i) the sum of (a) the
Aggregate Principal Receivables in the Trust as of the last day of the
immediately preceding Collection Period (or the Closing Date, in the case of the
first Collection Period applicable to Series 1998-1) plus (b) the Excess Funding
Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and after the Supplemental Closing Date applicable
to such Supplemental Accounts.
"Class D Initial Invested Amount" shall mean the aggregate
initial principal amount of the Class D Certificates, which is $60,000,000.
"Class D Interest Shortfall" shall have the meaning specified
in Section 4.3(d).
"Class D Invested Amount" shall mean, on any date of
determination, an amount equal to (a) the Class D Initial Invested Amount (plus
the aggregate initial principal amount of
13
<PAGE> 17
any Additional Class D Certificates issued on or prior to such date), minus (b)
the aggregate amount of principal payments made to the Class D
Certificateholders prior to such date, minus (c) the amount of Class D
Subordinated Principal Collections allocated on all prior Distribution Dates
pursuant to Section 4.9(a), (b) and (c), minus (d) an amount equal to the amount
by which the Class D Invested Amount has been reduced on all prior Distribution
Dates pursuant to Section 4.7(a), (b), (c) and (d), plus (e) the sum of the
amount of Excess Spread and Shared Excess Finance Charge Collections allocated
and available on all prior Distribution Dates pursuant to Section 4.8(n) for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c)
and (d) and, without duplication, the aggregate amount of the reductions of the
Series Adjustment Amounts allocable to the Class D Invested Amount pursuant to
Section 4.7(f) prior to such date; provided, however, that the Class D Invested
Amount may not be reduced below zero.
"Class D Investor Charge Offs" shall have the meaning
specified in Section 4.7(d).
"Class D Investor Default Amount" shall mean, with respect to
any Distribution Date, an amount equal to the product of (i) the Default Amount
for the preceding Collection Period and (ii) the Class D Floating Allocation
Percentage with respect to such Collection Period.
"Class D Monthly Interest" shall have the meaning specified in
Section 4.3(d).
"Class D Monthly Principal" shall have the meaning specified
in Section 4.4(d).
"Class D Penalty Rate" shall mean, for any Interest Period,
the sum of the Class D Certificate Rate for such Interest Period and 2.00% per
annum.
"Class D Servicing Fee" shall have the meaning specified in
Section 7 of this Series Supplement.
"Class D Subordinated Principal Collections" shall mean, with
respect to any Collection Period, an amount equal to the product of (i) the
Class D Floating Allocation Percentage with respect to any Collection Period
during the Revolving Period or the Class D Fixed Allocation Percentage with
respect to any Collection Period during the Amortization Period and (ii) the
aggregate amount of Collections of Principal Receivables for such Collection
Period.
"Closing Date" shall mean October [___], 1998.
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<PAGE> 18
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateralized Trust Obligations" shall mean any one of the
Certificates executed by the Transferor and authenticated by or on behalf of the
Trustee, substantially in the form of Exhibit C.
"Controlled Accumulation Amount" shall mean (a) for any
Distribution Date with respect to the Class A Accumulation Period, $33,500,000;
provided, however, if the Accumulation Period Length shall be determined to be
less than 12 months in accordance with Section 4.15, the Controlled Accumulation
Amount with respect to the Class A Certificates shall be equal to (i) the
product of (x) the Class A Initial Invested Amount and (y) the Accumulation
Period Factor for such Collection Period divided by (ii) the Required
Accumulation Factor Number, (b) for any Distribution Date with respect to the
Class B Accumulation Period, $45,000,000 and (c) for any Distribution Date with
respect to the CTO Accumulation Period, $48,000,000.
"Controlled Deposit Amount" shall mean, for any Distribution
Date with respect to the Accumulation Period, an amount equal to the sum of the
Controlled Accumulation Amount for such Distribution Date plus any Deficit
Controlled Accumulation Amount for the immediately preceding Distribution Date.
"Covered Amount" shall mean (a) for any Distribution Date with
respect to the Class A Accumulation Period or the first Special Distribution
Date, if such Special Distribution Date occurs before the Class B Principal
Commencement Date, an amount equal to the product of (i) a fraction, the
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, (ii) the Class A Certificate Rate and (iii)
the Principal Funding Account Balance, if any, as of the preceding Distribution
Date, (b) for any Distribution Date with respect to the Class B Accumulation
Period or the first Special Distribution Date, if such Special Distribution Date
occurs after the Distribution Date on which the Class A Adjusted Invested Amount
has been paid in full and before the CTO Principal Commencement Date, an amount
equal to the product of (i) a fraction, the numerator of which is the actual
number of days in the related Interest Period and the denominator of which is
360, (ii) the Class B Certificate Rate and (iii) the Principal Funding Account
Balance, if any, as of the preceding Distribution Date, and (c) for any
Distribution Date with respect to the CTO Accumulation Period or the first
Special Distribution Date, if such Special Distribution Date occurs after the
Distribution Date on which the Class B Adjusted Invested Amount has been paid in
full, an amount equal to the product of (i) a fraction, the
15
<PAGE> 19
numerator of which is the actual number of days in the related Interest Period
and the denominator of which is 360, (ii) the CTO Interest Rate and (iii) the
Principal Funding Account Balance, if any, as of the preceding Distribution
Date.
"CTO Accumulation Period" shall mean, unless an Early
Amortization Event with respect to Series 1998-1 shall have occurred prior
thereto, the period commencing on the Distribution Date on which the Class B
Adjusted Invested Amount is paid in full or, if the Class B Adjusted Invested
Amount is paid in full on the Class B Expected Final Distribution Date, at the
close of business on the Class B Expected Final Distribution Date, and ending on
the first to occur of (a) the commencement of the Early Amortization Period, (b)
the payment in full to the CTO Securityholders of the CTO Adjusted Invested
Amount or (c) the Stated Series Termination Date.
"CTO Additional Interest" shall have the meaning specified in
Section 4.3(c).
"CTO Adjusted Invested Amount" shall mean, on any date of
determination, an amount equal to the CTO Invested Amount on such date plus,
after the Class B Invested Amount has been paid in full, the Principal Funding
Account Balance on such date.
"CTO Adjustment Amount" shall mean, with respect to any
Distribution Date, an amount equal to the product of (i) the Series Adjustment
Amount for Series 1998-1 as of the end of the preceding Collection Period and
(ii) the percentage equivalent of a fraction, the numerator of which is the CTO
Invested Amount and the denominator of which is the Invested Amount, each as of
the last day of the Collection Period preceding such preceding Collection
Period.
"CTO Allocable Amount" shall mean, with respect to any
Distribution Date, the sum of the CTO Investor Default Amount and the CTO
Adjustment Amount.
"CTO Available Funds" shall mean, with respect to any
Collection Period, the sum of (i) the CTO Floating Allocation Percentage (with
respect to any Collection Period during the Revolving Period or the Accumulation
Period) or the CTO Fixed Allocation Percentage (with respect to any Collection
Period during the Early Amortization Period) of Collections of Finance Charge
Receivables and any other amounts, including interest and other investment
earnings, if any (net of losses and investment expenses), on funds on deposit in
the Excess Funding Account, that are to be treated as Collections of Finance
Charge Receivables in accordance with the Agreement, plus (ii) if the
Distribution Date immediately following the last day of such
16
<PAGE> 20
Collection Period occurs on or after the CTO Principal Commencement Date, the
Principal Funding Investment Proceeds, if any, to be withdrawn from the
Principal Funding Account on such Distribution Date, plus (iii) the amount, if
any, to be withdrawn from the Reserve Account on such Distribution Date and
included in CTO Available Funds pursuant to Section 4.14(d) plus (iv) the
investment earnings, if any (net of losses and investment expenses), on funds on
deposit in the Reserve Account to be withdrawn from the Reserve Account on such
Distribution Date and included in CTO Available Funds pursuant to Section
4.14(b).
"CTO Default" shall mean a CTO Default as specified in Section
10A of this Series Supplement.
"CTO Enhancement Surplus" shall mean, with respect to any
Distribution Date, the excess, if any, of the Available CTO Enhancement Amount
(after giving effect to deposits to or withdrawals from the Cash Collateral
Account on such Distribution Date) over the Required CTO Enhancement Amount, in
each case for such Distribution Date.
"CTO Expected Final Distribution Date" shall mean the
[_________] Distribution Date.
"CTO Fixed Allocation Percentage" shall mean, with respect to
any Collection Period, the percentage equivalent of a fraction, the numerator of
which is equal to the CTO Invested Amount as of the last day of the Revolving
Period and the denominator of which is equal to the greater of (i) the sum of
(a) the Aggregate Principal Receivables in the Trust as of the last day of the
immediately preceding Collection Period (or the Closing Date, in the case of the
first Collection Period applicable to Series 1998-1) plus (b) the Excess Funding
Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and after the Supplemental Closing Date applicable
to such Supplemental Accounts; and, provided further, that if the Series 1998-1
Certificates are paired with a Paired Series and the Early Amortization Period
(as defined in the Supplement for such Paired Series) commences, the Transferor
may, by written notice to the Trustee and Servicer, designate a different
numerator to be used to determine such percentage (provided that such numerator
is not less than the CTO Invested Amount as of the last day of the
17
<PAGE> 21
Revolving Period (as defined in the Supplement for such Paired Series)).
"CTO Floating Allocation Percentage" shall mean, with respect
to any Collection Period, the percentage equivalent of a fraction, the numerator
of which is equal to the CTO Invested Amount as of the last day of the
immediately preceding Collection Period (or the CTO Initial Invested Amount, in
the case of the first Collection Period applicable to Series 1998-1) and the
denominator of which is equal to the greater of (i) the sum of (a) the Aggregate
Principal Receivables in the Trust as of the last day of the immediately
preceding Collection Period (or the Closing Date, in the case of the first
Collection Period applicable to Series 1998-1) plus (b) the Excess Funding
Amount at the end of such day and (ii) the sum of the numerators used to
calculate the corresponding Invested Percentages with respect to all Classes of
all Series outstanding as of the date on which such determination is being made;
provided, however, that, with respect to any Collection Period during which
Supplemental Accounts are included as Accounts pursuant to Section 2.6(a) or
Section 2.6(b), the denominator in clause (i) above shall be increased by the
amount of Principal Receivables in such Supplemental Accounts as of the
Supplemental Cut-Off Date on and after the Supplemental Closing Date applicable
to such Supplemental Accounts.
"CTO Initial Invested Amount" shall mean the aggregate initial
principal amount of the Collateralized Trust Obligations, which is $48,000,000.
"CTO Interest Rate" shall mean, with respect to the
Collateralized Trust Obligations and each Interest Period, a per annum rate of
[____]% in excess of LIBOR, as determined on the related LIBOR Determination
Date.
"CTO Interest Shortfall" shall have the meaning specified in
Section 4.3(c).
"CTO Invested Amount" shall mean, on any date of
determination, an amount equal to (a) the CTO Initial Invested Amount, minus (b)
the aggregate amount of principal payments made to the CTO Securityholders on or
prior to such date, minus (c) the amount of CTO Subordinated Principal
Collections allocated on all prior Distribution Dates pursuant to Section 4.9(a)
and (b), minus (d) an amount equal to the amount by which the CTO Invested
Amount has been reduced on all prior Distribution Dates pursuant to Section
4.7(a), (b) and (c), plus (e) the sum of the amount of Excess Spread and Shared
Excess Finance Charge Collections allocated and available on all prior
Distribution Dates pursuant to Section 4.8(i) for the purpose of reimbursing
amounts deducted
18
<PAGE> 22
pursuant to the foregoing clauses (c) and (d) and, without duplication, the
aggregate amount of the reductions of the Series Adjustment Amounts allocable to
the CTO Invested Amount pursuant to Section 4.7(f) prior to such date; provided,
however, that the CTO Invested Amount may not be reduced below zero.
"CTO Investor Charge Offs" shall have the meaning specified in
Section 4.7(c).
"CTO Investor Default Amount" shall mean, with respect to any
Distribution Date, an amount equal to the product of (i) the Default Amount for
the preceding Collection Period and (ii) the CTO Floating Allocation Percentage
for such Collection Period.
"CTO Monthly Interest" shall have the meaning specified
in Section 4.3(c).
"CTO Monthly Principal" shall have the meaning specified in
Section 4.4(c).
"CTO Penalty Rate" shall mean, for any Interest Period, the
sum of the CTO Interest Rate for such Interest Period and 2.00% per annum.
"CTO Principal Commencement Date" shall mean the Distribution
Date on which the Class B Adjusted Invested Amount is paid in full or, if the
Class B Adjusted Invested Amount is paid in full on the Class B Expected Final
Distribution Date and the Early Amortization Period has not commenced, the
Distribution Date following the Class B Expected Final Distribution Date.
"CTO Required Amount" shall have the meaning specified
in Section 4.5(c).
"CTO Securityholder" shall mean the Person in whose name a
Collateralized Trust Obligation is registered in the Certificate Register.
"CTO Servicing Fee" shall have the meaning specified in
Section 7 of this Series Supplement.
"CTO Subordinated Principal Collections" shall mean, with
respect to any Collection Period, an amount equal to the product of (i) the CTO
Floating Allocation Percentage with respect to any Collection Period during the
Revolving Period or the CTO Fixed Allocation Percentage with respect to any
Collection Period during the Amortization Period and (ii) the aggregate amount
of Collections of Principal Receivables for such Collection Period.
19
<PAGE> 23
"Deficit Controlled Accumulation Amount" shall mean (a) on the
first Distribution Date with respect to the Class A Accumulation Period, the
Class B Accumulation Period or the CTO Accumulation Period, as applicable, the
excess, if any, of the applicable Controlled Accumulation Amount for such
Distribution Date over the amount deposited into the Principal Funding Account
as Class A Monthly Principal, Class B Monthly Principal or CTO Monthly
Principal, as the case may be, for such Distribution Date and (b) on each
subsequent Distribution Date with respect to the Class A Accumulation Period,
the Class B Accumulation Period or the CTO Accumulation Period, the excess, if
any, of the applicable Controlled Deposit Amount for such subsequent
Distribution Date over the amount deposited into the Principal Funding Account
as Class A Monthly Principal, Class B Monthly Principal or CTO Monthly
Principal, as applicable, for such subsequent Distribution Date.
"Distribution Date" shall mean the fifteenth day of each
month, or, if such fifteenth day is not a Business Day, the next succeeding
Business Day, commencing with [__________], 1998.
"Early Amortization Event" shall mean an Early Amortization
Event as specified in Section 9.1 of the Agreement or Section 10 of this Series
Supplement.
"Early Amortization Period" shall mean the period commencing
at the close of business on the day on which an Early Amortization Event with
respect to Series 1998-1 is deemed to have occurred, and ending on the first to
occur of (a) the payment in full of the Class A Adjusted Invested Amount, the
Class B Adjusted Invested Amount, the CTO Adjusted Invested Amount and the Class
D Invested Amount, respectively, or (b) the Stated Series Termination Date.
"Enhancement" shall mean (a) with respect to the Class A
Certificates, the subordination of the Class B Certificates, the Collateralized
Trust Obligations and the Class D Certificates and amounts allocated to the
Class A Certificates from the Available Cash Collateral Account Amount, (b) with
respect to the Class B Certificates, the subordination of the Collateralized
Trust Obligations and the Class D Certificates and amounts allocated to the
Class B Certificates from the Available Cash Collateral Account Amount and (c)
with respect to the Collateralized Trust Obligations, the subordination of the
Class D Certificates and amounts allocated to the Collateralized Trust
Obligations from the Available Cash Collateral Account Amount.
"Enhancement Percentage" shall mean, as of any Distribution
Date, (a) if the Average Excess Spread Percentage as of such Distribution Date
is greater than or equal to 5.0%,
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10.0%, (b) if the Average Excess Spread Percentage as of such Distribution Date
is less than 5.0% but greater than or equal to 4.0%, 11.0%, (c) if the Average
Excess Spread Percentage as of such Distribution Date is less than 4.0% but
greater than or equal to 3.0%, 12.0%, (d) if the Average Excess Spread
Percentage as of such Distribution Date is less than 3.0% but greater than or
equal to 2.0%, 13.0%, and (e) if the Average Excess Spread Percentage as of such
Distribution Date is less than 2.0%, the sum of (i) the percentage equivalent of
a fraction, the numerator of which is the CTO Invested Amount on such
Distribution Date and the denominator of which is the Invested Amount as of such
Distribution Date and (ii) 10%; provided, however, that any reduction in the
Enhancement Percentage resulting from an increase in the Average Excess Spread
Percentage shall not take effect until the Available CTO Enhancement Amount is
greater than or equal to the Required CTO Enhancement Amount for three
consecutive Distribution Dates (in which case such reduction shall take effect
on the last of such Distribution Dates).
"Enhancement Provider" shall mean the CTO
Securityholders.
"Enhancement Surplus" shall mean, with respect to any
Distribution Date, the excess, if any, of the Available Enhancement Amount
(after giving effect to deposits to or withdrawals from the Cash Collateral
Account on such Distribution Date) over the Required Enhancement Amount.
"Excess Spread" shall mean, with respect to any Distribution
Date, the sum of the amounts, if any, specified pursuant to Sections 4.6(a)(iv),
4.6(b)(iii), 4.6(c)(ii), 4.6(d)(ii) and 4.12(b) with respect to such
Distribution Date plus the amount of interest and other investment earnings, if
any (net of losses and investment expenses), on funds on deposit in the Cash
Collateral Account.
"Excess Spread Percentage" shall mean, for any Collection
Period, the amount (expressed as a percentage), if any, by which the Portfolio
Yield with respect to such Collection Period exceeds the Base Rate with respect
to such Collection Period.
"FASIT" shall have the meaning specified in Section 18 of this
Series Supplement.
"Finance Charge Shortfall" shall have the meaning specified in
Section 4.11.
"Fixed Allocation Percentage" shall mean, with respect
to any Collection Period, the sum of the Class A Fixed Allocation
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Percentage, the Class B Fixed Allocation Percentage, the CTO Fixed Allocation
Percentage and the Class D Fixed Allocation Percentage, in each case with
respect to such Collection Period.
"Floating Allocation Percentage" shall mean, with respect to
any Collection Period, the sum of the Class A Floating Allocation Percentage,
the Class B Floating Allocation Percentage, the CTO Floating Allocation
Percentage and the Class D Floating Allocation Percentage, in each case with
respect to
such Collection Period.
"Group One" shall mean Series 1998-1 and each other Series
specified in the related Supplement to be included in Group One.
"Initial Invested Amount" shall mean the aggregate initial
principal amount of the Series 1998-1 Certificates, which is $600,000,000.
"Interest Period" shall mean, with respect to any Distribution
Date, the period from and including the Distribution Date immediately preceding
such Distribution Date (or, in the case of the first Distribution Date, from and
including the Closing Date) to but excluding such Distribution Date.
"Invested Amount" shall mean, as of any date of determination,
an amount equal to the sum of the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount and the Class D Invested Amount, in each case as
of such date.
"Invested Percentage" shall mean, with respect to any
Collection Period, (a) when used with respect to Principal Receivables during
the Revolving Period or Finance Charge Receivables during the Revolving Period
or the Accumulation Period, the Floating Allocation Percentage with respect to
such Collection Period, (b) when used with respect to Principal Receivables
during the Amortization Period or Finance Charge Receivables during the Early
Amortization Period, the Fixed Allocation Percentage with respect to such
Collection Period, and (c) when used with respect to the Default Amount or the
Series Adjustment Amount at any time, the Floating Allocation Percentage with
respect to such Collection Period.
"Investor Charge Offs" shall mean, as of any date of
determination, the sum of the Class A Investor Charge Offs, the Class B Investor
Charge Offs, the CTO Investor Charge Offs and the Class D Investor Charge Offs,
in each case as of such date.
"Investor Default Amount" shall mean, with respect to any
Distribution Date, an amount equal to the product of (a) the
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Default Amount for the immediately preceding Collection Period and (b) the
Floating Allocation Percentage with respect to such Collection Period.
"Investor Monthly Servicing Fee" shall have the meaning
specified in Section 7 of this Series Supplement.
"LIBOR" shall mean, for any Interest Period, the London
interbank offered rate for one-month dollar deposits determined by the Trustee
for each Interest Period in accordance with the provisions of Section 4.3A.
"LIBOR Determination Date" shall mean, with respect to any
Interest Period, the second Business Day prior to the Distribution Date on which
such Interest Period commences; provided, however, that LIBOR Determination Date
shall mean [__________], 1998 with respect to the initial Interest Period. For
purposes of this definition, a Business Day is any Business Day on which
dealings in deposits in United States dollars are transacted in the London
interbank market.
"Minimum Aggregate Principal Receivables" shall have the
meaning specified in Section 3 of this Series Supplement.
"Minimum Transferor Interest Percentage" shall have the
meaning specified in Section 3 of this Series Supplement.
"Monthly Interest" shall mean, with respect to any
Distribution Date, the sum of the Class A Monthly Interest, the Class B Monthly
Interest, the CTO Monthly Interest and the Class D Monthly Interest for such
Distribution Date.
"Paired Series" shall have the meaning specified in Section 19
of this Series Supplement.
"Portfolio Adjusted Yield" shall mean, with respect to any
Collection Period, the Portfolio Yield with respect to such Collection Period
minus the Base Rate with respect to such Collection Period.
"Portfolio Yield" shall mean, with respect to any Collection
Period, the annualized percentage equivalent of a fraction, the numerator of
which is equal to (a) an amount equal to the amount of Collections of Finance
Charge Receivables that are allocated to Series 1998-1 with respect to such
Collection Period (including interest and other investment earnings on funds on
deposit in the Excess Funding Account applied as Collections of Finance Charge
Receivables allocable to Series 1998-1), plus (b) any Shared Excess Finance
Charge Collections that are allocated to Series 1998-1 with respect to such
Collection
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Period, plus (c) any Principal Funding Investment Proceeds to be included as
Class A Available Funds or Class B Available Funds with respect to such
Collection Period, plus (d) interest and other investment earnings on funds on
deposit in the Reserve Account to be included as Class A Available Funds or
Class B Available Funds with respect to such Collection Period, plus (e) the
Reserve Draw Amount with respect to such Collection Period, plus (f) interest
and other investment earnings on funds on deposit in the Cash Collateral Account
deposited in the Collection Account with respect to such Collection Period,
minus (g) the Investor Default Amount with respect to the Distribution Date
immediately following the last day of such Collection Period, and the
denominator of which is the Adjusted Invested Amount as of the last day of the
preceding Collection Period.
"Principal Funding Account" shall have the meaning specified
in Section 4.13(a).
"Principal Funding Account Balance" shall mean, with respect
to any date of determination during the Accumulation Period, the principal
amount, if any, of funds on deposit in the Principal Funding Account on such
date of determination.
"Principal Funding Investment Proceeds" shall have the meaning
specified in Section 4.13(b).
"Principal Shortfall" shall have the meaning specified in
Section 4.10.
"Rating Agencies" shall mean Moody's and Standard & Poor's.
"Reallocated Principal Collections" shall mean, with respect
to any Collection Period, an amount equal to the sum of Class B Subordinated
Principal Collections, CTO Subordinated Principal Collections and Class D
Subordinated Principal Collections, in each case for such Collection Period.
"Reference Banks" shall mean four major banks in the London
interbank market selected by the Servicer upon notice to the Trustee.
"Required Accumulation Factor Number" shall be a fraction,
rounded upwards to the nearest whole number, the numerator of which is one and
the denominator of which is equal to the lowest monthly principal payment rate
on the Accounts for the 12 months preceding the date of such calculation (or any
lower monthly principal payment rate selected by the Servicer at its option in
its sole discretion), expressed as a decimal.
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<PAGE> 28
"Required Cash Collateral Account Amount" shall mean, with
respect to any Distribution Date, an amount equal to the greater of (i) the
amount, if any, by which the Required CTO Enhancement Amount for such
Distribution Date exceeds the Class D Invested Amount on such Distribution Date
(after giving effect to any Additional Class D Certificates issued on such
Distribution Date in accordance with Section 4.16(b)), (ii) the amount, if any,
by which the Required Enhancement Amount for such Distribution Date exceeds the
Available Enhancement Amount for such Distribution Date and (iii) if the Average
Excess Spread Percentage as of such Distribution Date is less than 2.0%, an
amount equal to the CTO Invested Amount on such Distribution Date.
"Required CTO Enhancement Amount" shall mean, for any
Distribution Date, an amount equal to the product of the Enhancement Percentage
and the Invested Amount, in each case as of such Distribution Date after taking
into account all distributions made on such date.
"Required Draw Amount" shall have the meaning specified
in Section 4.12(c).
"Required Enhancement Amount" shall mean for any Distribution
Date, an amount equal to the greater of (a) $18,000,000 and (b) 18% of the
Invested Amount, in each case as of such Distribution Date after taking into
account all distributions made on such date; provided, however, that (i) if an
Early Amortization Event shall have occurred, the Required Enhancement Amount
for each Distribution Date thereafter (subject to clause (ii) below) shall equal
the Required Enhancement Amount for the Distribution Date immediately preceding
the occurrence of such Early Amortization Event, (ii) in no event shall the
Required Enhancement Amount exceed the sum of the Class A Invested Amount and
the Class B Invested Amount on such date and (iii) the Required Enhancement
Amount may be reduced at any time without the consent of the Series 1998-1
Certificateholders if (x) the Rating Agency Condition shall have been satisfied
with respect to Series 1998-1, (y) the Transferor shall have delivered to the
Trustee an Officer's Certificate to the effect that, based on the facts known to
such officer at such time, in the reasonable belief of such officer, such
reduction will not cause an Early Amortization Event or an event that, after the
giving of notice or the lapse of time, would constitute an Early Amortization
Event to occur and (z) the Transferor shall have provided an Opinion of Counsel,
addressed to the Trustee, dated the date of such reduction, that such reduction
will not adversely affect the tax characterization of any outstanding Series or
Class with respect to which an Opinion of Counsel addressed to the Trustee was
delivered at the time of their
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<PAGE> 29
issuance that such Investor Certificates would be characterized as debt, cause
the Trust to be classified, for federal income tax purposes, as an association
(or publicly traded partnership) taxable as a corporation and cause or
constitute an event in which gain or loss would be recognized by any
Certificateholder.
"Required Reserve Account Amount" shall mean, with respect to
any Distribution Date prior to the Reserve Account Funding Date, $0, and on or
after the Reserve Account Funding Date, an amount equal to (a) 0.50% of the
Adjusted Invested Amount as of the preceding Distribution Date (after giving
effect to all changes therein on such date) or (b) any other amount designated
by the Transferor; provided, however, that if such designation pursuant to
clause (b) above is of a lesser amount, (i) the Rating Agency Condition shall
have been satisfied and (ii) the Transferor shall have delivered to the Trustee
an Officer's Certificate to the effect that, based on the facts known to such
officer at such time, in the reasonable belief of such officer, such designation
will not cause an Early Amortization Event or an event that, after the giving of
notice or the lapse of time, would constitute an Early Amortization Event to
occur.
"Reserve Account" shall have the meaning specified in Section
4.14(a).
"Reserve Account Funding Date" shall mean the Distribution
Date following the Collection Period which commences no later than three months
prior to the commencement of the Class A Accumulation Period; provided, however,
that the Reserve Account Funding Date shall be accelerated to (a) the
Distribution Date following the Collection Period which commences four months
prior to the commencement of the Class A Accumulation Period if the average of
the Portfolio Adjusted Yields for any three consecutive Collection Periods shall
be less than 4.00%; (b) the Distribution Date following the Collection Period
which commences six months prior to the commencement of the Class A Accumulation
Period if the average of the Portfolio Adjusted Yields for any three consecutive
Collection Periods shall be less than 3.00%; or (c) the Distribution Date
following the Collection Period which commences 12 months prior to the
commencement of the Class A Accumulation Period if the average of the Portfolio
Adjusted Yields for any three consecutive Collection Periods shall be less than
2.50%.
"Reserve Account Surplus" shall mean, as of any date of
determination, the amount, if any, by which the amount on deposit in and
available to be withdrawn from the Reserve Account exceeds the Required Reserve
Account Amount.
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<PAGE> 30
"Reserve Draw Amount" shall have the meaning specified in
Section 4.14(c).
"Retained Interest" shall mean, on any date of determination,
the sum of the Transferor Amount on such date and the Invested Amount of each
Class of Investor Certificates retained by the Transferor on such date.
"Retained Percentage" shall mean, on any date of
determination, the percentage equivalent of a fraction, the numerator of which
is the Retained Interest on such date and the denominator of which is the
Aggregate Principal Receivables at the end of such date plus the Excess Funding
Amount (not including interest and other investment earnings) on such date.
"Revolving Period" shall mean the period beginning on the
Closing Date and ending on the earlier of (a) the close of business on the day
preceding the commencement of the Class A Accumulation Period and (b) the close
of business on the day preceding the commencement of the Early Amortization
Period.
"Series 1998-1" shall mean the Series the terms of which are
specified in this Series Supplement.
"Series 1998-1 Certificate" shall have the meaning specified
in Section 1 of this Series Supplement.
"Series 1998-1 Certificateholder" shall mean a holder of a
Series 1998-1 Certificate.
"Servicer" shall have the meaning specified in the preamble to
this Series Supplement.
"Servicing Fee Percentage" shall mean 2.00%.
"Shared Excess Finance Charge Collections" shall mean, with
respect to any Collection Period, the aggregate amount for all outstanding
Series in Group One of Collections of Finance Charge Receivables which the
related Supplements specify are to be treated as "Shared Excess Finance Charge
Collections" for such Collection Period.
"Shared Principal Collections" shall mean, with respect to any
Collection Period, the aggregate amount for all outstanding Series in Group One
of Collections of Principal Receivables which the related Supplements specify
are to be treated as "Shared Principal Collections" for such Collection Period.
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"Special Distribution Date" shall mean each Distribution Date
with respect to the Early Amortization Period.
"Stated Series Termination Date" shall mean the [________]
Distribution Date.
"Telerate Page 3750" shall mean 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).
"Transfer" shall have the meaning specified in Section 11 of
this Series Supplement.
"Transfer Date" shall mean the Business Day preceding each
Distribution Date.
"Transferor" shall have the meaning specified in the preamble
to this Series Supplement.
"Trustee" shall have the meaning specified in the preamble to
this Series Supplement.
SECTION 3. Minimum Transferor Interest Percentage and Minimum
Aggregate Principal Receivables. The Minimum Transferor Interest Percentage
applicable to the Series 1998-1 Certificates shall be 0%; provided, however,
that the Transferor may, at its option and in its sole discretion, designate a
higher percentage as the Minimum Transferor Interest Percentage so long as,
after giving effect to such designation and any repurchase of Investor
Certificates or designation of Supplemental Accounts, the Transferor Amount
shall equal or exceed the Minimum Transferor Amount. The Minimum Aggregate
Principal Receivables applicable to the Series 1998-1 Certificates shall be the
Initial Invested Amount plus the principal amount of any Additional Class D
Certificates that may be issued or, subject to the Rating Agency Condition, such
lesser amount designated by the Transferor.
SECTION 4. Reassignment and Transfer Terms. The Series 1998-1
Certificates may be reassigned and transferred to the Transferor at the option
of the Transferor on any Distribution Date during the Amortization Period on or
after which the Invested Amount is reduced to an amount less than or equal to 5%
of the Initial Invested Amount, subject to the provisions of Section 12.2 of the
Agreement.
SECTION 5. Delivery and Payment for the Certificates. The
Trustee shall deliver the Series 1998-1 Certificates upon the written order of
the Transferor when authenticated in accordance with Section 6.2 of the
Agreement.
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SECTION 6. Form of Delivery of the Series 1998-1 Certificates.
(a) The Class A Certificates and the Class B Certificates shall be delivered as
Book-Entry Certificates as provided in Section 6.11 of the Agreement and shall
be issued in minimum denominations of $1,000 and in integral multiples of $1,000
in excess thereof. The Collateralized Trust Obligations shall be delivered as
Book-Entry Certificates as provided in Section 6.11 of the Agreement and shall
be issued in minimum denominations of $250,000 and integral multiples thereof.
The Class D Certificates shall be delivered as Registered Certificates as
provided in Section 6.1 of the Agreement and shall be issued in minimum
denominations of $500,000 and in integral multiples of $1,000 in excess thereof.
(b) The Class A Certificates, the Class B Certificates and the
Collateralized Trust Obligations shall initially be registered in the name of
Cede & Co., as nominee for The Depository Trust Company. The Class A
Certificates, the Class B Certificates and the Collateralized Trust Obligations
will initially be held by the Trustee as custodian for The Depository Trust
Company.
SECTION 7. Servicing Compensation. The share of the Monthly
Servicing Fee allocable to the Series 1998-1 Certificateholders with respect to
any Distribution Date (the "Investor Monthly Servicing Fee") shall be equal to
one-twelfth of the product of (a) the Servicing Fee Percentage and (b) the
Invested Amount as of the last day of the second preceding Collection Period;
provided, however, that with respect to the first Distribution Date, the
Investor Monthly Servicing Fee shall be equal to $[_______]. The share of the
Investor Monthly Servicing Fee allocable to the Class A Certificateholders 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 Invested Amount as of the last day
of the second preceding Collection Period and (b) the Servicing Fee Percentage;
provided, however, that with respect to the first Distribution Date, the Class A
Servicing Fee shall be equal to $[_______]. The share of the Investor Monthly
Servicing Fee allocable to the Class B Certificateholders 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 Invested Amount as of the last day of the second
preceding Collection Period and (b) the Servicing Fee Percentage; provided,
however, that with respect to the first Distribution Date, the Class B Servicing
Fee shall be equal to $[______]. The share of the Investor Monthly Servicing Fee
allocable to the CTO Securityholders with respect to any Distribution Date (the
"CTO Servicing Fee") shall be equal to one-twelfth of the product of (a) the CTO
Invested Amount as of the last day of the second preceding Collection Period and
(b)
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<PAGE> 33
the Servicing Fee Percentage; provided, however, that with respect to the first
Distribution Date, the CTO Servicing Fee shall be equal to $[______]. The share
of the Investor Monthly Servicing Fee allocable to the Class D
Certificateholders with respect to any Distribution Date (the "Class D Servicing
Fee") shall be equal to one-twelfth of the product of (a) the Class D Invested
Amount as of the last day of the second preceding Collection Period and (b) the
Servicing Fee Percentage; provided, however, that with respect to the first
Distribution Date, the Class D Servicing Fee shall be equal to $[______]. The
Class A Servicing Fee, the Class B Servicing Fee, the CTO Servicing Fee and the
Class D Servicing Fee shall be payable solely to the extent amounts are
available for distribution in respect thereof pursuant to this Series
Supplement. The remainder of the Monthly Servicing Fee shall be paid by the
Transferor or from amounts allocable to other Series (as provided in the
Agreement and the Supplements relating to such other Series) and in no event
shall the Trust, the Trustee or the Series 1998-1 Certificateholders be liable
for the share of the Monthly Servicing Fee to be paid by the Transferor or from
amounts allocable to any other Series.
SECTION 8. Article IV of the Agreement. Any provisions of
Article IV of the Agreement which distribute Collections to the Transferor on
the basis of the Transferor Percentage shall continue to apply irrespective of
the issuance of the Series 1998-1 Certificates. Section 4.1 of the Agreement
shall read in its entirety as provided in the Agreement. Article IV of the
Agreement (except for Section 4.1) as it relates to Series 1998-1 shall read in
its entirety as follows:
ARTICLE IV
RIGHTS OF SERIES 1998-1 CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.2 Collections and Allocations. (a) The Servicer
shall apply, or shall instruct the Trustee to apply, all Collections and other
funds on deposit in the Collection Account that are allocated to the Series
1998-1 Certificates as described in this Article IV. Collections of Finance
Charge Receivables (including interest and other investment earnings, if any
(net of losses and investment expenses), on funds on deposit in the Excess
Funding Account) with respect to any Collection Period shall be allocated to
Series 1998-1 in an amount equal to the product of such Collections and the
applicable Invested Percentage for such Collection Period. Collections of
Principal Receivables with respect to any Collection Period shall be allocated
to Series 1998-1 in an amount equal to the product of
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<PAGE> 34
such Collections and the applicable Invested Percentage for such Collection
Period.
(b) During the Revolving Period or the Amortization Period
(other than an Early Amortization Period), if daily deposits of Collections of
Finance Charge Receivables are required pursuant to Section 4.1(e), the Servicer
shall deposit Collections of Finance Charge Receivables allocable to Series
1998-1 into the Collection Account in accordance with Section 4.1(e). During the
Early Amortization Period, the Servicer shall deposit Collections of Finance
Charge Receivables allocable to Series 1998-1 into the Collection Account on a
daily basis in accordance with Section 4.1(e). If daily deposits are not
required pursuant to Section 4.1(e), the Servicer shall, subject to Section
4.1(i), deposit Collections of Finance Charge Receivables allocable to Series
1998-1 with respect to any Collection Period into the Collection Account on the
following Transfer Date.
(c) During the Revolving Period, so long as the Available
Enhancement Amount is not less than the Required Enhancement Amount and the
Available CTO Enhancement Amount is not less than the Required CTO Enhancement
Amount, the Servicer need not deposit Collections of Principal Receivables
allocable to Series 1998-1 into the Collection Account on a daily basis and may
distribute such Collections to the Transferor; provided, however, that such
Collections of Principal Receivables shall be deposited in the Excess Funding
Account in accordance with Section 4.1(f); and, provided further, that if the
Aggregate Invested Amount exceeds the sum of the Aggregate Principal Receivables
and the Excess Funding Amount on any Business Day, the Servicer shall deposit
Collections of Principal Receivables that would otherwise be distributed to the
Transferor on such day into the Excess Funding Account on such day in an amount
equal to such excess. During the Accumulation Period, after an amount of
Collections of Principal Receivables allocable to Series 1998-1 equal to the
Controlled Deposit Amount for the applicable Distribution Date has been
deposited into the Collection Account, and so long as the Available Enhancement
Amount is not less than the Required Enhancement Amount and the Available CTO
Enhancement Amount is not less than the Required CTO Enhancement Amount, the
Servicer need not deposit Collections of Principal Receivables allocable to
Series 1998-1 into the Collection Account on a daily basis and may distribute
such Collections to the Transferor; provided, however, that such Collections of
Principal Receivables shall be deposited in the Excess Funding Account in
accordance with Section 4.1(f); and, provided further, that if the Aggregate
Invested Amount exceeds the sum of the Aggregate Principal Receivables and the
Excess Funding Amount on any Business Day, the Servicer shall deposit
Collections of Principal Receivables
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<PAGE> 35
that would otherwise be distributed to the Transferor on such day into the
Excess Funding Account on such day in an amount equal to such excess. If and for
so long as the Required Enhancement Amount exceeds the Available Enhancement
Amount or the Required CTO Enhancement Amount exceeds the Available CTO
Enhancement Amount, the Servicer shall deposit Collections of Principal
Receivables allocable to Series 1998-1 into the Collection Account on a daily
basis. If daily deposits are not required pursuant to Section 4.1(e) or this
Section 4.2(c), the Servicer shall, subject to Section 4.1(i), deposit
Collections of Principal Receivables allocable to Series 1998-1 with respect to
any Collection Period into the Collection Account on the following Transfer
Date.
(d) Notwithstanding the foregoing, the Servicer need not make
daily deposits of Collections into the Collection Account at any time when the
requirements of Section 4.1(e) are satisfied.
Section 4.3 Determination of Monthly Interest. (a) The amount
of monthly interest ("Class A Monthly Interest") distributable from the
Collection Account with respect to the Class A Certificates on any Distribution
Date shall be an amount equal to the product of (i) the Class A Certificate Rate
for the related Interest Period, (ii) the outstanding principal amount of the
Class A Certificates as of the preceding Record Date and (iii) a fraction, the
numerator of which is the actual number of days in such Interest Period and the
denominator of which is 360; provided, however, that, with respect to the first
Distribution Date, Class A Monthly Interest shall be equal to $[____________].
On the Determination Date preceding each Distribution Date,
the Servicer shall determine the excess, if any (the "Class A Interest
Shortfall"), of (x) the Class A Monthly Interest for such Distribution Date over
(y) the aggregate amount of funds allocated and available to pay such Class A
Monthly Interest on such Distribution Date. If the Class A Interest Shortfall
with respect to any Distribution Date is greater than zero, an additional amount
("Class A Additional Interest") equal to the product of (i) the Class A Penalty
Rate for the related Interest Period, (ii) such Class A Interest Shortfall (or
the portion thereof which has not theretofore been paid to the Class A
Certificateholders) and (iii) a fraction, the numerator of which is the actual
number of days in such Interest Period and the denominator of which is 360 shall
be payable as provided herein with respect to the Class A Certificates on each
Distribution Date following such Distribution Date to and including the
Distribution Date on which such Class A Interest Shortfall is paid to Class A
Certificateholders. Notwithstanding anything to the contrary herein, Class A
Additional Interest shall be payable
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<PAGE> 36
or distributed to Class A Certificateholders only to the extent permitted by
applicable law.
(b) The amount of monthly interest ("Class B Monthly
Interest") distributable from the Collection Account with respect to the Class B
Certificates on any Distribution Date shall be an amount equal to the product of
(i) the Class B Certificate Rate for the related Interest Period, (ii) the
outstanding principal amount of the Class B Certificates as of the preceding
Record Date and (iii) a fraction, the numerator of which is the actual number of
days in such Interest Period and the denominator of which is 360; provided,
however, that, with respect to the first Distribution Date, Class B Monthly
Interest shall be equal to $[___________].
On the Determination Date preceding each Distribution Date,
the Servicer shall determine the excess, if any (the "Class B Interest
Shortfall"), of (x) the Class B Monthly Interest for such Distribution Date over
(y) the aggregate amount of funds allocated and available to pay such Class B
Monthly Interest on such Distribution Date. If the Class B Interest Shortfall
with respect to any Distribution Date is greater than zero, an additional amount
("Class B Additional Interest") equal to the product of (i) the Class B Penalty
Rate for the related Interest Period, (ii) such Class B Interest Shortfall (or
the portion thereof which has not theretofore been paid to the Class B
Certificateholders) and (iii) a fraction, the numerator of which is the actual
number of days in such Interest Period and the denominator of which is 360 shall
be payable as provided herein with respect to the Class B Certificates on each
Distribution Date following such Distribution Date to and including the
Distribution Date on which such Class B Interest Shortfall is paid to Class B
Certificateholders. Notwithstanding anything to the contrary herein, Class B
Additional Interest shall be payable or distributed to Class B
Certificateholders only to the extent permitted by applicable law.
(c) The amount of monthly interest ("CTO Monthly Interest")
distributable from the Collection Account with respect to the Collateralized
Trust Obligations on any Distribution Date shall be an amount equal to the
product of (i) the CTO Interest Rate for the related Interest Period, (ii) the
outstanding principal amount of the Collateralized Trust Obligations as of the
preceding Record Date and (iii) a fraction, the numerator of which is the actual
number of days in such Interest Period and the denominator of which is 360.
On the Determination Date preceding each Distribution Date,
the Servicer shall determine the excess, if any (the "CTO Interest Shortfall"),
of (x) the CTO Monthly Interest for such
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<PAGE> 37
Distribution Date over (y) the aggregate amount of funds allocated and available
to pay such CTO Monthly Interest on such Distribution Date. If the CTO Interest
Shortfall with respect to any Distribution Date is greater than zero, an
additional amount ("CTO Additional Interest") equal to the product of (i) the
CTO Penalty Rate for the related Interest Period, (ii) such CTO Interest
Shortfall (or the portion thereof which has not theretofore been paid to the CTO
Securityholders) and (iii) a fraction, the numerator of which is the actual
number of days in such Interest Period and the denominator of which is 360 shall
be payable as provided herein with respect to the Collateralized Trust
Obligations on each Distribution Date following such Distribution Date to and
including the Distribution Date on which such CTO Interest Shortfall is paid to
the CTO Securityholders. Notwithstanding anything to the contrary herein, CTO
Additional Interest shall be payable or distributed to the CTO Securityholders
only to the extent permitted by applicable law.
(d) The amount of monthly interest ("Class D Monthly
Interest") distributable from the Collection Account with respect to the Class D
Certificates on any Distribution Date shall be an amount equal to the product of
(i) the Class D Certificate Rate for the related Interest Period, (ii) the
outstanding principal amount of the Class D Certificates as of the preceding
Record Date and (iii) a fraction, the numerator of which is the actual number of
days in such Interest Period and the denominator of which is 360; provided,
however, that, with respect to the first Distribution Date, Class D Monthly
Interest shall be equal to $[____________].
On the Determination Date preceding each Distribution Date,
the Servicer shall determine the excess, if any (the "Class D Interest
Shortfall"), of (x) the Class D Monthly Interest for such Distribution Date over
(y) the aggregate amount of funds allocated and available to pay such Class D
Monthly Interest on such Distribution Date. If the Class D Interest Shortfall
with respect to any Distribution Date is greater than zero, an additional amount
("Class D Additional Interest") equal to the product of (i) the Class D Penalty
Rate for the related Interest Period, (ii) such Class D Interest Shortfall (or
the portion thereof which has not theretofore been paid to the Class D
Certificateholders) and (iii) a fraction, the numerator of which is the actual
number of days in such Interest Period and the denominator of which is 360 shall
be payable as provided herein with respect to the Class D Certificates on each
Distribution Date following such Distribution Date to and including the
Distribution Date on which such Class D Interest Shortfall is paid to Class D
Certificateholders. Notwithstanding anything to the contrary herein, Class D
Additional Interest shall be payable
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or distributed to Class D Certificateholders only to the extent permitted by
applicable law.
Section 4.3A Determination of LIBOR. (a) On each LIBOR
Determination Date, the Trustee shall determine LIBOR for the following Interest
Period on the basis of the rate for deposits in United States dollars for a
one-month 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 LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, LIBOR
for such Interest Period shall be determined on the basis of the rates at which
deposits in United States dollars are offered by the Reference Banks at
approximately 11:00 a.m., London time, on such LIBOR Determination Date to prime
banks in the London interbank market for a one-month period (commencing on the
first day of such Interest Period). The Trustee shall 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 that LIBOR
Determination Date shall be the arithmetic mean of all of the provided
quotations. If fewer than two quotations are provided as requested, the rate for
that LIBOR Determination Date shall 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 United States dollars
to leading European banks for a one-month period (commencing on the first day of
such Interest Period).
(b) The Class A Certificate Rate, the Class B Certificate Rate
and the CTO Interest Rate applicable to the then current and the immediately
preceding Interest Periods may be obtained by any Series 1998-1
Certificateholder by telephoning the Trustee at its Corporate Trust Office at
(704)383-9568.
(c) On each LIBOR Determination Date, the Trustee shall send
to the Servicer by facsimile notification of LIBOR for the following Interest
Period.
Section 4.4 Determination of Monthly Principal. (a)
The amount of monthly principal ("Class A Monthly Principal") distributable or
available for deposit into the Principal Funding Account from the Collection
Account with respect to the Class A Certificates on each Distribution Date,
beginning with the Distribution Date in the month following the month in which
the Amortization Period begins, shall be equal to the least of (x) the Available
Principal Collections on deposit in the Collection Account and available for
distribution with respect to such Distribution Date, (y) for each Distribution
Date with respect to the Class A Accumulation Period prior to the Class A
Expected Final Distribution Date, the Controlled Deposit Amount for such
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Distribution Date and (z) the Class A Invested Amount on such Distribution Date.
(b) The amount of monthly principal ("Class B Monthly
Principal") distributable or available for deposit into the Principal Funding
Account from the Collection Account with respect to the Class B Certificates on
each Distribution Date, beginning with the Class B Principal Commencement Date,
shall be equal to the least of (x) the Available Principal Collections on
deposit in the Collection Account and available for distribution with respect to
such Distribution Date minus the portion of such Available Principal Collections
applied to any Class A Monthly Principal on such Distribution Date, (y) for each
Distribution Date with respect to the Class B Accumulation Period prior to the
Class B Expected Final Distribution Date, the Controlled Deposit Amount for such
Distribution Date and (z) the Class B Invested Amount on such Distribution Date.
(c) The amount of monthly principal ("CTO Monthly Principal")
distributable or available for deposit into the Principal Funding Account from
the Collection Account with respect to the Collateralized Trust Obligations on
each Distribution Date, beginning with the CTO Principal Commencement Date,
shall be equal to the least of (x) the Available Principal Collections on
deposit in the Collection Account and available for distribution with respect to
such Distribution Date minus the portion of such Available Principal Collections
applied to any Class A Monthly Principal or Class B Monthly Principal on such
Distribution Date, (y) for each Distribution Date with respect to the CTO
Accumulation Period prior to the CTO Expected Final Distribution Date, the
Controlled Deposit Amount for such Distribution Date and (z) the CTO Invested
Amount on such Distribution Date.
(d) The amount of monthly principal ("Class D Monthly
Principal") distributable with respect to the Class D Certificates for any
Distribution Date prior to the Distribution Date on which the CTO Adjusted
Invested Amount has been paid in full, shall be equal to the least of (x) the
Available Principal Collections on deposit in the Collection Account and
available for distribution with respect to such Distribution Date minus the
portion of such Available Principal Collections applied to any Class A Monthly
Principal, Class B Monthly Principal or CTO Monthly Principal on such
Distribution Date, (y) the Enhancement Surplus on such Distribution Date (after
giving effect to any increase in the amount on deposit in the Cash Collateral
Account on such Distribution Date) and (z) the CTO Enhancement Surplus on such
Distribution Date (provided, in each case, that the Transferor shall have
elected to pay such Class D Monthly Principal) and, for any Distribution Date
after the CTO Adjusted
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Invested Amount has been paid in full, shall be equal to the lesser of (x) the
Available Principal Collections on deposit in the Collection Account and
available for distribution with respect to such Distribution Date minus the
portion of such Available Principal Collections applied to any Class A Monthly
Principal, Class B Monthly Principal or CTO Monthly Principal on such
Distribution Date, and (y) the Class D Invested Amount on such Distribution
Date.
Section 4.5 Required Amount. (a) On each Determination Date,
the Servicer shall determine the amount (the "Class A Required Amount"), if any,
by which (a) the sum of (i) Class A Monthly Interest for the following
Distribution Date, (ii) any Class A Monthly Interest previously due but not paid
to the Class A Certificateholders on a prior Distribution Date, (iii) any Class
A Additional Interest for the following Distribution Date and any Class A
Additional Interest previously due but not paid to Class A Certificateholders on
a prior Distribution Date, (iv) the Class A Allocable Amount, if any, for the
following Distribution Date and (v) if First North American National Bank is no
longer the Servicer, the Class A Servicing Fee for the following Distribution
Date and the amount of any Class A Servicing Fee previously due but not
distributed to the Servicer on a prior Distribution Date exceeds (b) Class A
Available Funds with respect to the preceding Collection Period. In the event
that the Class A Required Amount for any Distribution Date is greater than zero,
the Servicer shall give written notice to the Trustee of such positive Class A
Required Amount on the date of computation and all or a portion of the Excess
Spread and the Shared Excess Finance Charge Collections allocable to Series
1998-1 pursuant to Section 4.1(h) with respect to the preceding Collection
Period shall be distributed from the Collection Account on such Distribution
Date pursuant to Section 4.8(a). In the event that the Class A Required Amount
for such Distribution Date exceeds the amount of the Excess Spread and the
Shared Excess Finance Charge Collections allocable to Series 1998-1 with respect
to the preceding Collection Period, all or a portion of the Available Cash
Collateral Account Amount with respect to such Distribution Date in an amount
equal to such excess shall be applied to fund the Class A Required Amount. In
the event that the Class A Required Amount for such Distribution Date exceeds
the amount of the Excess Spread, the Shared Excess Finance Charge Collections
allocable to Series 1998-1 with respect to the preceding Collection Period and
the Available Cash Collateral Account Amount with respect to such Distribution
Date, all or a portion of the Reallocated Principal Collections with respect to
such Collection Period in an amount equal to such excess shall be distributed
from the Collection Account on such Distribution Date pursuant to Section
4.9(a).
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(b) On each Determination Date, the Servicer shall determine
the amount (the "Class B Required Amount"), if any, equal to the sum of (x) the
amount, if any, by which the sum of (i) Class B Monthly Interest for the
following Distribution Date, (ii) any Class B Monthly Interest previously due
but not paid to the Class B Certificateholders on a prior Distribution Date,
(iii) any Class B Additional Interest for the following Distribution Date and
any Class B Additional Interest previously due but not paid to Class B
Certificateholders on a prior Distribution Date and (iv) if First North American
National Bank is no longer the Servicer, the Class B Servicing Fee for the
following Distribution Date and the amount of any Class B Servicing Fee
previously due but not distributed to the Servicer on a prior Distribution Date
exceeds Class B Available Funds with respect to the preceding Collection Period
and (y) the amount, if any, by which the Class B Allocable Amount, if any, for
the following Distribution Date exceeds the amount available to make payments
with respect thereto pursuant to Section 4.8(d). In the event that the Class B
Required Amount for any Distribution Date is greater than zero, the Servicer
shall give written notice to the Trustee of such positive Class B Required
Amount on the date of computation and all or a portion of the Excess Spread and
the Shared Excess Finance Charge Collections allocable to Series 1998-1 pursuant
to Section 4.1(h) with respect to the preceding Collection Period shall be
distributed from the Collection Account on such Distribution Date pursuant to
Sections 4.8(c) and (d). In the event that the Class B Required Amount for such
Distribution Date exceeds the amounts distributed pursuant to Sections 4.8(c)
and (d), all or a portion of the Available Cash Collateral Account Amount with
respect to such Distribution Date (other than that portion of the Available Cash
Collateral Account Amount applied pursuant to Section 4.12(c) to fund the
amounts described in Sections 4.8(a) and (b) with respect to such Distribution
Date) in an amount equal to such excess shall be applied to fund the Class B
Required Amount. In the event that the Class B Required Amount for such
Distribution Date exceeds such portion of the Available Cash Collateral Account
Amount and the amounts distributed pursuant to Sections 4.8(c) and (d), all or a
portion of the Reallocated Principal Collections with respect to the preceding
Collection Period (other than the portion of the Reallocated Principal
Collections applied to fund the Class A Required Amount and other than Class B
Subordinated Principal Collections) in an amount equal to such excess shall be
distributed from the Collection Account on such Distribution Date pursuant to
Section 4.9(b).
(c) On each Determination Date, the Servicer shall determine
the amount (the "CTO Required Amount"), if any, equal to the sum of (x) the
amount, if any, by which the sum of (i) CTO Monthly Interest for the following
Distribution Date, (ii) any
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CTO Monthly Interest previously due but not paid to the CTO Securityholders on a
prior Distribution Date, (iii) any CTO Additional Interest for the following
Distribution Date and any CTO Additional Interest previously due but not paid to
the CTO Securityholders on a prior Distribution Date and (iv) if First North
American National Bank is no longer the Servicer, the CTO Servicing Fee for the
following Distribution Date and the amount of any CTO Servicing Fee previously
due but not distributed to the Servicer on a prior Distribution Date exceeds the
amount available to make payments with respect thereto pursuant to Sections
4.6(c)(i) and 4.8(f) with respect to the preceding Collection Period and (y) the
amount, if any, by which the CTO Allocable Amount, if any, for the following
Distribution Date exceeds the amount available to make payments with respect
thereto pursuant to Section 4.8(h). In the event that the CTO Required Amount
for any Distribution Date is greater than zero, the Servicer shall give written
notice to the Trustee of such positive CTO Required Amount on the date of
computation and all or a portion of the Available Cash Collateral Account Amount
with respect to such Distribution Date (other than that portion of the Available
Cash Collateral Account Amount applied pursuant to Section 4.12(c) to fund the
amounts described in Sections 4.8(a), (b), (c) and (d) with respect to such
Distribution Date) in an amount equal to such excess shall be applied to fund
the CTO Required Amount. In the event that the CTO Required Amount for such
Distribution Date exceeds the portion of the Available Cash Collateral Account
Amount with respect to such Distribution Date not used to fund the amounts
described in Sections 4.8(a), (b), (c) and (d) with respect to such Distribution
Date, all or a portion of the Reallocated Principal Collections with respect to
the preceding Collection Period (other than the portion of the Reallocated
Principal Collections applied to fund the Class A Required Amount or the Class B
Required Amount and other than Class B Subordinated Principal Collections or CTO
Subordinated Principal Collections) in an amount equal to such excess shall be
distributed from the Collection Account on such Distribution Date pursuant to
Section 4.9(c).
Section 4.6 Application of Class A Available Funds, Class B
Available Funds, CTO Available Funds, Class D Available Funds and Collections of
Principal Receivables. The Servicer shall apply or shall instruct the Trustee to
apply, on each Distribution Date, Class A Available Funds, Class B Available
Funds, CTO Available Funds, Class D Available Funds and Collections of Principal
Receivables allocable to Series 1998-1 on deposit in the Collection Account with
respect to the Collection Period immediately preceding such Distribution Date to
make the following distributions:
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(a) On each Distribution Date, Class A Available Funds with
respect to the Collection Period immediately preceding such Distribution Date
shall be applied in the following priority:
(i) an amount equal to Class A Monthly Interest for
such Distribution Date, plus the amount of any Class A Monthly Interest
previously due but not distributed to Class A Certificateholders on a
prior Distribution Date, plus the amount of any Class A Additional
Interest for such Distribution Date and any Class A Additional Interest
previously due but not distributed to Class A Certificateholders on a
prior Distribution Date, shall be distributed to the Paying Agent for
payment to the Class A Certificateholders;
(ii) if First North American National Bank is no
longer the Servicer, 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, shall be distributed to the Servicer;
(iii) an amount equal to the Class A Allocable Amount
for such Distribution Date shall be treated as a portion of Available
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess
Spread and shall be allocated and distributed as set forth in Section
4.8.
(b) On each Distribution Date, Class B Available Funds with
respect to the Collection Period immediately preceding such Distribution Date
shall be applied in the following priority:
(i) an amount equal to Class B Monthly Interest for
such Distribution Date plus the amount of any Class B Monthly Interest
previously due but not distributed to Class B Certificateholders on a
prior Distribution Date, plus the amount of any Class B Additional
Interest for such Distribution Date and any Class B Additional Interest
previously due but not distributed to Class B Certificateholders on a
prior Distribution Date, shall be distributed to the Paying Agent for
payment to the Class B Certificateholders;
(ii) if First North American National Bank is no
longer the Servicer, 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
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to the Servicer on a prior Distribution Date, shall be distributed to
the Servicer; and
(iii) the balance, if any, shall constitute Excess
Spread and shall be allocated and distributed as set forth in Section
4.8.
(c) On each Distribution Date, CTO Available Funds with
respect to the Collection Period immediately preceding such Distribution Date
shall be applied in the following priority:
(i) if First North American National Bank is no
longer the Servicer, an amount equal to the CTO Servicing Fee for such
Distribution Date, plus the amount of any CTO Servicing Fee previously
due but not distributed to the Servicer on a prior Distribution Date,
shall be distributed to the Servicer; and
(ii) the balance, if any, shall constitute Excess
Spread and shall be allocated and distributed as set forth in Section
4.8.
(d) On each Distribution Date, Class D Available Funds with
respect to the Collection Period immediately preceding such Distribution Date
shall be applied in the following priority:
(i) if First North American National Bank is no
longer the Servicer, an amount equal to the Class D Servicing Fee for
such Distribution Date, plus the amount of any Class D Servicing Fee
previously due but not distributed to the Servicer on a prior
Distribution Date, shall be distributed to the Servicer; and
(ii) the balance, if any, shall constitute Excess
Spread and shall be allocated and distributed as set forth in Section
4.8.
(e) On each Distribution Date with respect to the Revolving
Period, Available Principal Collections shall be applied in the following
priority:
(i) an amount equal to Class D Monthly Principal
for such Distribution Date shall be distributed to the Paying Agent for
payment to the Class D Certificateholders; and
(ii) the balance, if any, shall constitute "Shared
Principal Collections" with respect to Group One and shall be applied
in accordance with Section
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4.1(g) (and be retained in the Excess Funding Account if required by
such provision).
(f) On each Distribution Date following the commencement
of the Amortization Period, Available Principal Collections shall be applied in
the following priority:
(i) an amount equal to Class A Monthly Principal
for such Distribution Date shall, during the Class A Accumulation
Period, be deposited into the Principal Funding Account for payment to
Class A Certificateholders on the earlier to occur of the Class A
Expected Final Distribution Date and the first Special Distribution
Date and, during the Early Amortization Period, be distributed to the
Paying Agent for payment to the Class A Certificateholders;
(ii) an amount equal to Class B Monthly Principal
for such Distribution Date shall, during the Class B Accumulation
Period, be deposited into the Principal Funding Account for payment to
Class B Certificateholders on the earlier to occur of the Class B
Expected Final Distribution Date and the first Special Distribution
Date and, during the Early Amortization Period, be distributed to the
Paying Agent for payment to the Class B Certificateholders;
(iii) an amount equal to CTO Monthly Principal for
such Distribution Date shall, during the CTO Accumulation Period, be
deposited into the Principal Funding Account for payment to CTO
Securityholders on the earlier to occur of the CTO Expected Final
Distribution Date and the first Special Distribution Date and, during
the Early Amortization Period, be distributed to the Paying Agent for
payment to the CTO Securityholders;
(iv) an amount equal to Class D Monthly Principal
for such Distribution Date shall be distributed to the Paying Agent for
payment to the Class D Certificateholders; and
(v) the balance, if any, shall constitute "Shared
Principal Collections" with respect to Group One and shall be applied
in accordance with Section 4.1(g) (and be retained in the Excess
Funding Account if required by such provision).
Section 4.7 Defaulted Amounts; Adjustment Amounts; Investor
Charge Offs; Reductions of Adjustment Amounts. (a) On each Determination Date,
the Servicer shall calculate the Class A Required Amount, if any, for the
related Distribution Date. If, on any Distribution Date, the Class A Required
Amount for such
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Distribution Date exceeds the sum of (x) the amount of Excess Spread and the
Shared Excess Finance Charge Collections allocable to Series 1998-1 with respect
to such Distribution Date, (y) the Available Cash Collateral Account Amount with
respect to such Distribution Date and (z) the amount of Reallocated Principal
Collections available pursuant to Section 4.9(a) with respect to the preceding
Collection Period, then the Class D Invested Amount (after giving effect to any
reduction thereof pursuant to Section 4.7(d)) shall be reduced by the amount of
such excess, but not by more than the excess of the Class A Allocable Amount for
such Distribution Date over the amount of Excess Spread and Shared Excess
Finance Charge Collections, the amount withdrawn from the Cash Collateral
Account and the amount of Reallocated Principal Collections used to fund the
Class A Allocable Amount for such Distribution Date. In the event that such
reduction would cause the Class D Invested Amount to be a negative number, the
Class D Invested Amount shall be reduced to zero and the CTO Invested Amount
(after giving effect to any reduction thereof pursuant to Section 4.7(c)) shall
be reduced by the amount by which the Class D Invested Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class A
Allocable Amount for such Distribution Date over the amount of such reduction,
if any, of the Class D Invested Amount with respect to such Distribution Date
and the amount of Excess Spread and Shared Excess Finance Charge Collections,
the amount withdrawn from the Cash Collateral Account and the amount of
Reallocated Principal Collections used to fund the Class A Allocable Amount for
such Distribution Date. In the event that such reduction would cause the CTO
Invested Amount to be a negative number, the CTO Invested Amount shall be
reduced to zero and the Class B Adjusted Invested Amount (after giving effect to
any reduction thereof pursuant to Section 4.7(b)) shall be reduced by the amount
by which the CTO Invested Amount would have been reduced below zero, but not by
more than the excess, if any, of the Class A Allocable Amount for such
Distribution Date over the aggregate amount of the reductions, if any, of the
Class D Invested Amount and the CTO Invested Amount with respect to such
Distribution Date and the amount of Excess Spread and Shared Excess Finance
Charge Collections, the amount withdrawn from the Cash Collateral Account and
the amount of Reallocated Principal Collections used to fund the Class A
Allocable Amount for such Distribution Date. In the event that such reduction
would cause the Class B Adjusted Invested Amount to be a negative number, the
Class B Adjusted Invested Amount shall be reduced to zero, and the Class A
Adjusted Invested Amount shall be reduced by the amount by which the Class B
Adjusted Invested Amount would have been reduced below zero, but not by more
than the excess, if any, of the Class A Allocable Amount for such Distribution
Date over the aggregate amount of the reductions, if any, of the Class D
Invested Amount, the CTO Invested Amount and the Class B Adjusted Invested
Amount
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with respect to such Distribution Date and the amount of Excess Spread and
Shared Excess Finance Charge Collections, the amount withdrawn from the Cash
Collateral Account and the amount of Reallocated Principal Collections used to
fund the Class A Allocable Amount for such Distribution Date (a "Class A
Investor Charge Off"). Class A Investor Charge Offs shall thereafter be
reimbursed and the Class A Adjusted Invested Amount increased (but not by an
amount in excess of the aggregate unreimbursed Class A Investor Charge Offs) on
any Distribution Date by (i) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocated and available for that purpose pursuant to
Section 4.8(b), and (ii) without duplication, the aggregate amount of the
reductions of the Series Adjustment Amounts allocable to the Class A Invested
Amount pursuant to Section 4.7(f).
(b) On each Determination Date, the Servicer shall calculate
the Class B Required Amount, if any, for the related Distribution Date. If, on
any Distribution Date, the Class B Required Amount for such Distribution Date
exceeds the sum of (x) the amount of Excess Spread and the Shared Excess Finance
Charge Collections allocable to Series 1998-1 with respect to such Distribution
Date which are not used to fund the Class A Required Amount or reimburse Class A
Investor Charge Offs on the related Distribution Date, (y) the portion, if any,
of the Available Cash Collateral Account Amount which is remaining after
applying the Available Cash Collateral Account Amount to fund the Class A
Required Amount with respect to such Distribution Date and (z) the amount of
Reallocated Principal Collections which are available to fund the Class B
Required Amount on such Distribution Date pursuant to Section 4.9(b), then the
Class D Invested Amount (after giving effect to any reduction thereof pursuant
to Sections 4.7(a) and (d)) shall be reduced by the amount of such excess, but
not by more than the excess of the Class B Allocable Amount for such
Distribution Date over the amount of Excess Spread and Shared Excess Finance
Charge Collections, the amount withdrawn from the Cash Collateral Account and
the amount of Reallocated Principal Collections used to fund the Class B
Allocable Amount for such Distribution Date. In the event that such reduction
would cause the Class D Invested Amount to be a negative number, the Class D
Invested Amount shall be reduced to zero and the CTO Invested Amount (after
giving effect to any reduction thereof pursuant to Sections 4.7(a) and (c))
shall be reduced by the amount by which the Class D Invested Amount would have
been reduced below zero, but not by more than the excess, if any, of the Class B
Allocable Amount for such Distribution Date over the amount of such reduction,
if any, of the Class D Invested Amount with respect to such Distribution Date
and the amount of Excess Spread and Shared Excess Finance Charge Collections,
the amount withdrawn from the Cash Collateral
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Account and the amount of Reallocated Principal Collections used to fund the
Class B Allocable Amount for such Distribution Date. In the event that such
reduction would cause the CTO Invested Amount to be a negative number, the CTO
Invested Amount shall be reduced to zero and the Class B Adjusted Invested
Amount (after giving effect to any reduction thereof pursuant to Section 4.7(a))
shall be reduced by the amount by which the CTO Invested Amount would have been
reduced below zero, but not by more than the excess, if any, of the Class B
Allocable Amount for such Distribution Date over the aggregate amount of the
reductions, if any, of the Class D Invested Amount and the CTO Invested Amount
with respect to such Distribution Date and the amount of Excess Spread and
Shared Excess Finance Charge Collections, the amount withdrawn from the Cash
Collateral Account and the amount of Reallocated Principal Collections used to
fund the Class B Allocable Amount for such Distribution Date (a "Class B
Investor Charge Off"). Class B Investor Charge Offs shall thereafter be
reimbursed and the Class B Adjusted Invested Amount increased (but not by an
amount in excess of the aggregate unreimbursed Class B Investor Charge Offs) on
any Distribution Date by (i) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocated and available for that purpose pursuant to
Section 4.8(e), and (ii) without duplication, the aggregate amount of the
reductions of the Series Adjustment Amounts allocable to the Class B Invested
Amount pursuant to Section 4.7(f).
(c) On each Determination Date, the Servicer shall calculate
the CTO Allocable Amount, if any, for the related Distribution Date. If, on any
Distribution Date, the CTO Allocable Amount exceeds the sum of (x) the amount of
Excess Spread and Shared Excess Finance Charge Collections available to fund the
CTO Allocable Amount on such Distribution Date pursuant to Section 4.8(h), (y)
the portion, if any, of the Available Cash Collateral Account Amount available
to fund the CTO Allocable Amount on such Distribution Date pursuant to Section
4.12(c) and (z) the amount of Reallocated Principal Collections available to
fund the CTO Allocable Amount on such Distribution Date pursuant to Section
4.9(c), then the Class D Invested Amount (after giving effect to any reduction
thereof pursuant to Sections 4.7(a), (b) and (d)) shall be reduced by the amount
of such excess. In the event that such reduction would cause the Class D
Invested Amount to be a negative number, the Class D Invested Amount shall be
reduced to zero and the CTO Invested Amount shall be reduced by the amount by
which the Class D Invested Amount would have been reduced below zero (a "CTO
Investor Charge Off"); provided, however, that the CTO Invested Amount shall not
be reduced below zero. CTO Investor Charge Offs shall thereafter be reimbursed
and the CTO Invested Amount increased (but not by an amount in excess of the
aggregate unreimbursed CTO Investor Charge Offs) on
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any Distribution Date by (i) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocated and available for that purpose pursuant to
Section 4.8(i), and (ii) without duplication, the aggregate amount of the
reductions of the Series Adjustment Amounts allocable to the CTO Invested Amount
pursuant to Section 4.7(f).
(d) On each Determination Date, the Servicer shall calculate
the Class D Allocable Amount, if any, for the related Distribution Date. If, on
any Distribution Date, the Class D Allocable Amount exceeds the amount of Excess
Spread and Shared Excess Finance Charge Collections available to fund the Class
D Allocable Amount on such Distribution Date pursuant to Section 4.8(m), then
the Class D Invested Amount shall be reduced by the amount of such excess (a
"Class D Investor Charge Off"); provided, however, that the Class D Invested
Amount shall not be reduced below zero. Class D Investor Charge Offs shall
thereafter be reimbursed and the Class D Invested Amount increased (but not by
an amount in excess of the aggregate unreimbursed Class D Investor Charge Offs)
on any Distribution Date by (i) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocated and available for that purpose pursuant to
Section 4.8(n), and (ii) without duplication, the aggregate amount of the
reductions of the Series Adjustment Amounts allocable to the Class D Invested
Amount pursuant to Section 4.7(f).
(e) Whenever funds or other amounts are available hereunder in
respect of the Class A Allocable Amount, the Class B Allocable Amount, the CTO
Allocable Amount or the Class D Allocable Amount, as the case may be, such funds
or other amounts shall be applied first to the elimination of any deficiency
resulting from Default Amounts and then to any deficiency resulting from Series
Adjustment Amounts.
(f) Any reduction of the Series Adjustment Amount for Series
1998-1 as a result of the deposit of funds into the Excess Funding Account, the
repurchase or other repayment of Investor Certificates or the increase of the
Principal Receivables in the Trust shall be allocated first to the Class A
Certificates, then to the Class B Certificates, then to the Collateralized Trust
Obligations and finally to the Class D Certificates, in each case to the extent
of any unreimbursed reduction of the Invested Amount thereof attributable to
Series Adjustment Amounts.
Section 4.8 Excess Spread; Shared Excess Finance Charge
Collections. The Servicer shall apply, or shall instruct the Trustee to apply,
on each Distribution Date, Excess Spread and Shared Excess Finance Charge
Collections allocable to Series 1998-1 pursuant to Section 4.1(h) with respect
to the preceding
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Collection Period, to make the following distributions in the following
priority:
(a) an amount up to the Class A Required Amount, if
any, with respect to such Distribution Date shall be distributed by the
Trustee to fund any deficiency pursuant to Sections 4.6(a)(i), (ii) and
(iii), in that order of priority;
(b) an amount equal to the aggregate amount of Class
A Investor Charge Offs which have not been previously reimbursed shall
be treated as a portion of Available Principal Collections for such
Distribution Date;
(c) an amount up to the Class B Required Amount, if
any, with respect to such Distribution Date shall be distributed by the
Trustee to fund any deficiency pursuant to Sections 4.6(b)(i) and (ii),
in that order of priority;
(d) an amount equal to the Class B Allocable Amount,
if any, for such Distribution Date shall be treated as a portion of
Available Principal Collections for such Distribution Date;
(e) an amount equal to the aggregate amount by which
the Class B Invested Amount has been reduced pursuant to clauses (d),
(e) and (f) of the definition of "Class B Invested Amount" (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
Principal Collections for such Distribution Date;
(f) an amount equal to CTO Monthly Interest for such
Distribution Date, plus the amount of CTO Monthly Interest previously
due but not distributed to the CTO Securityholders on a prior
Distribution Date, plus the amount of CTO Additional Interest for such
Distribution Date and any CTO Additional Interest previously due but
not distributed to the CTO Securityholders shall be distributed to the
CTO Securityholders;
(g) if First North American National Bank is the
Servicer, an amount equal to the Class A Servicing Fee, the Class B
Servicing and the CTO Servicing Fee for such Distribution Date (or, if
First North American National Bank is no longer the Servicer, the
portion thereof not paid pursuant to Section 4.6 (a),(b) or (c)), plus
the amount of any Class A Servicing Fee, Class B Servicing Fee or CTO
Servicing Fee previously due but not distributed to the
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Servicer on a prior Distribution Date, shall be distributed
to the Servicer;
(h) an amount equal to the CTO Allocable Amount, if any, for
such Distribution Date shall be treated as a portion of Available
Principal Collections for such Distribution Date;
(i) an amount equal to the aggregate amount by which the CTO
Invested Amount has been reduced pursuant to clauses (c) and (d) of the
definition of "CTO Invested Amount" (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 Principal Collections for
such Distribution Date;
(j) an amount equal to the excess, if any, of the Required
Cash Collateral Account Amount over the Available Cash Collateral
Account Amount (without giving effect to any deposit made on such date
hereunder and after giving effect to any payment of Class D Monthly
Principal being made on such date) shall be deposited into the Cash
Collateral Account;
(k) an amount equal to Class D Monthly Interest for such
Distribution Date, plus the amount of Class D Monthly Interest
previously due but not distributed to the Class D Certificateholders on
a prior Distribution Date, plus the amount of Class D Additional
Interest for such Distribution Date and any Class D Additional Interest
previously due but not distributed shall be distributed to the Paying
Agent for payment to the Class D Certificateholders;
(l) if First North American National Bank is the Servicer, an
amount equal to the Class D Servicing Fee for such Distribution Date
(or, if First North American National Bank is no longer the Servicer,
the portion of the Class D Servicing Fee for such Distribution Date not
paid pursuant to Section 4.6(d)(i)), plus the amount of any Class D
Servicing Fee previously due but not distributed to the Servicer on a
prior Distribution Date, shall be distributed to the Servicer;
(m) an amount equal to the Class D Allocable Amount for such
Distribution Date shall be treated as a portion of Available Principal
Collections for such Distribution Date;
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(n) an amount equal to the aggregate amount by which the Class
D Invested Amount has been reduced pursuant to clauses (c) and (d) of
the definition of "Class D Invested Amount" (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 Principal
Collections for such Distribution Date;
(o) an amount equal to the excess, if any, of the Required
Reserve Account Amount over the amount on deposit in the Reserve
Account shall be deposited into the Reserve Account; and
(p) the balance, if any, shall constitute "Shared Excess
Finance Charge Collections" with respect to Group One and shall be
applied in accordance with Section 4.1(h).
Section 4.9 Reallocated Principal Collections. The Servicer shall
apply, or shall instruct the Trustee to apply, on each Distribution Date,
Reallocated Principal Collections (applying all Class D Subordinated Principal
Collections prior to applying any CTO Subordinated Principal Collections, and
applying all CTO Subordinated Principal Collections prior to applying any Class
B Subordinated Principal Collections, and applying no Class B Subordinated
Principal Collections with respect to the Class B Required Amount pursuant to
clause (b) below and applying no Class B Subordinated Principal Collections or
CTO Subordinated Principal Collections with respect to the CTO Required Amount
pursuant to clause (c) below) with respect to such Distribution Date, to make
the following distributions in the following priority:
(a) an amount equal to the excess, if any, of (i) the Class A
Required Amount, if any, with respect to such Distribution Date over
(ii) the sum of (x) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1998-1 with respect to
the preceding Collection Period pursuant to Section 4.8(a) and (y) the
Available Cash Collateral Account Amount with respect to such
Distribution Date shall be distributed by the Trustee to fund any
deficiency pursuant to Sections 4.6(a)(i), (ii) and (iii), in that
order of priority;
(b) an amount equal to the excess, if any, of (i) the Class B
Required Amount, if any, with respect to such Distribution Date over
(ii) the sum of (x) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1998-1 with respect to
the preceding Collection Period available in respect of the Class B
Required Amount pursuant to Section 4.8(c) and (d) on such
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Distribution Date and (y) the amount withdrawn from the Cash Collateral
Account in respect of the Class B Required Amount with respect to such
Distribution Date shall be distributed by the Trustee to fund any
deficiency pursuant to Sections 4.8(c) and (d), in that order of
priority; and
(c) an amount equal to the excess, if any, of (i) the CTO
Required Amount, if any, with respect to such Distribution Date over
(ii) the sum of (x) the amount of Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1998-1 with respect to
the preceding Collection Period available in respect of the CTO
Required Amount pursuant to Sections 4.8(f) and (h) on such
Distribution Date and (y) the amount withdrawn from the Cash Collateral
Account in respect of the CTO Required Amount with respect to such
Distribution Date shall be distributed by the Trustee to fund any
deficiency pursuant to Section 4.6(c)(i) and Sections 4.8(f) and (h),
in that order of priority.
Section 4.10 Principal Shortfall. The "Principal Shortfall" for Series
1998-1 shall be equal to (a) for any Distribution Date with respect to the
Revolving Period, zero or such higher amount designated by the Servicer in an
Officer's Certificate, (b) for any Distribution Date with respect to the
Accumulation Period (on or prior to the CTO Expected Final Distribution Date),
the excess, if any, of the Controlled Deposit Amount with respect to such
Distribution Date over the amount of Available Principal Collections for such
Distribution Date (excluding any portion thereof attributable to Shared
Principal Collections), (c) for any Distribution Date with respect to the Early
Amortization Period, unless and until the Class A Adjusted Invested Amount, the
Class B Adjusted Invested Amount and the CTO Adjusted Invested Amount shall have
been paid in full, the excess, if any, of the Invested Amount as of the end of
the preceding Collection Period over the amount of Available Principal
Collections for such Distribution Date (excluding any portion thereof
attributable to Shared Principal Collections) and (d) for each Distribution Date
after the Class A Adjusted Invested Amount, the Class B Adjusted Invested Amount
and the CTO Adjusted Invested Amount have been paid in full, the excess, if any,
of the Invested Amount over the amount of Available Principal Collections for
such Distribution Date, or such lesser amount as may be designated by the
Servicer.
On each Distribution Date during the Early Amortization Period, there
shall be withdrawn from the Excess Funding Account an amount equal to the
product of (i) the amount on deposit in the Excess Funding Account, if any, and
(ii) a fraction, the numerator of which is the Principal Shortfall with respect
to
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Series 1998-1 and the denominator of which is equal to the aggregate Principal
Shortfalls of all Series then outstanding. Such amount shall be deposited in the
Collection Account and be considered as part of Available Principal Collections
with respect to Series 1998-1.
Section 4.11 Finance Charge Shortfall. The "Finance Charge
Shortfall" for Series 1998-1 for any Distribution Date shall be equal to the
excess, if any, of (a) the full amount required to be paid, without duplication,
pursuant to Sections 4.6(a), 4.6(b), 4.6(c) and 4.6(d) and Section 4.8 (a)-(o)
on such Distribution Date over (b) the applicable Invested Percentage of
Collections of Finance Charge Receivables with respect to the preceding
Collection Period.
Section 4.12 Cash Collateral Account. (a) The Servicer shall
establish and maintain, in the name of the Trustee, for the benefit of the
Series 1998-1 Certificateholders, with an Eligible Institution a segregated
trust account (the "Cash Collateral Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Series 1998-1 Certificateholders. The Cash Collateral Account shall initially be
established with the Trustee. The Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Cash Collateral
Account and in all proceeds thereof. The Cash Collateral Account shall be under
the sole dominion and control of the Trustee for the benefit of the Series
1998-1 Certificateholders. If, at any time, the institution holding the Cash
Collateral Account ceases to be an Eligible Institution, the Trustee (or the
Servicer on its behalf) shall within five Business Days establish a new Cash
Collateral Account meeting the conditions specified above with an Eligible
Institution and shall transfer any cash and/or any investments to such new Cash
Collateral Account. The Trustee, at the direction of the Servicer, shall make
deposits to and withdrawals from the Cash Collateral Account in the amounts and
at the times set forth in this Agreement. All withdrawals from the Cash
Collateral Account shall be made in the priority set forth below. The interest
of the CTO Securityholders in the Cash Collateral Account shall be subordinated
to the interests of the Class A Certificateholders and the Class B
Certificateholders as provided herein.
(b) Funds on deposit in the Cash Collateral Account shall be
invested at the direction of the Servicer by the Trustee in Eligible
Investments. Funds on deposit in the Cash Collateral Account on any Distribution
Date, after giving effect to any withdrawals from the Cash Collateral Account on
such Distribution Date, shall be invested in such investments that will mature
so that such funds will be available for withdrawal on or prior to
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the following Distribution Date. No Eligible Investment shall be disposed of
prior to its maturity; provided, however, that the Trustee may sell, liquidate
or dispose of an Eligible Investment before its maturity, if so directed by the
Servicer, the Servicer having reasonably determined that the interest of the
1998-1 Certificateholders may be adversely affected if such Eligible Investment
is held to its maturity. The proceeds of any such investments shall be invested
in such investments that will mature so that such funds will be available for
withdrawal on or prior to the Distribution Date immediately following the date
of such investment. The Trustee shall maintain for the benefit of the Series
1998-1 Certificateholders possession of the negotiable instruments or
securities, if any, evidencing such Eligible Investments. On each Distribution
Date, all interest and earnings (net of losses and investment expenses) on funds
on deposit in the Cash Collateral Account shall be treated as a portion of
Excess Spread for such Distribution Date and applied in accordance with Section
4.8.
(c) On each Determination Date, the Servicer shall calculate
the amount (the "Required Draw Amount") by which the amounts specified in
clauses (a) through (f) and clause (h) of Section 4.8 with respect to the
related Distribution Date exceed the amount of Excess Spread and Shared Excess
Finance Charge Collections allocable to Series 1998-1 with respect to the
preceding Collection Period available to pay such specified amounts. In the
event that for any Distribution Date the Required Draw Amount is greater than
zero, the Servicer shall give written notice to the Trustee of such positive
Required Draw Amount on the related Determination Date. On the Distribution
Date, the Required Draw Amount, if any, up to the Available Cash Collateral
Account Amount, shall be withdrawn from the Cash Collateral Account and
distributed to fund any deficiency pursuant to clauses (a) through (f) and
clause (h) of Section 4.8 (in the order of priority set forth in Section 4.8).
(d) In the event that the Cash Enhancement Surplus on any
Distribution Date, after giving effect to all deposits to and withdrawals from
the Cash Collateral Account and all payments of principal to Series 1998-1
Certificateholders with respect to such Distribution Date, is greater than zero
and the Average Excess Spread Percentage as of such Distribution Date is greater
than or equal to 4.0%, the Trustee, acting in accordance with the instructions
of the Servicer, shall withdraw from the Cash Collateral Account, and pay to the
Transferor, an amount equal to such Cash Enhancement Surplus; provided, however,
that the Transferor, at its option, to be exercised in its sole discretion, may
instruct the Servicer not to instruct the Trustee to withdraw such Cash
Enhancement Surplus (or any portion thereof), in which event the Trustee shall
not withdraw such Cash
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Enhancement Surplus (or portion thereof) from the Cash Collateral Account.
Section 4.13 Principal Funding Account. (a) The Servicer shall
establish and maintain, in the name of the Trustee, for the benefit of the
Series 1998-1 Certificateholders, with an Eligible Institution a segregated
trust account (the "Principal Funding Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Series 1998-1 Certificateholders. The Principal Funding Account shall initially
be established with the Trustee. The Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Principal Funding
Account and in all proceeds thereof. The Principal Funding Account shall be
under the sole dominion and control of the Trustee for the benefit of the Series
1998-1 Certificateholders. If, at any time, the institution holding the
Principal Funding Account ceases to be an Eligible Institution, the Trustee (or
the Servicer on its behalf) shall within five Business Days establish a new
Principal Funding Account meeting the conditions specified above with an
Eligible Institution and shall transfer any cash and/or any investments to such
new Principal Funding Account. Pursuant to the authority granted to the Servicer
in Section 3.1(b), the Servicer shall have the power, revocable by the Trustee,
to make withdrawals and payments or to instruct the Trustee to make withdrawals
and payments from the Principal Funding Account for the purposes of carrying out
the Servicer's or the Trustee's duties hereunder.
(b) Funds on deposit in the Principal Funding Account shall be invested
at the direction of the Servicer by the Trustee in Eligible Investments. All
such Eligible Investments shall be held by the Trustee for the benefit of the
Series 1998-1 Certificateholders; provided, however, that on each Distribution
Date all interest and other investment income (net of losses and investment
expenses) ("Principal Funding Investment Proceeds") on funds on deposit therein
shall be applied as set forth in Section 4.13(c) below. Funds on deposit in the
Principal Funding Account shall be invested in Eligible Investments that will
mature so that such funds will be available for withdrawal on or prior to the
following Distribution Date. No Eligible Investment shall be disposed of prior
to its maturity; provided, however, that the Trustee may sell, liquidate or
dispose of an Eligible Investment before its maturity, if so directed by the
Servicer, the Servicer having reasonably determined that the interest of the
1998-1 Certificateholders may be adversely affected if such Eligible Investment
is held to its maturity.
(c) On each Distribution Date with respect to the Accumulation Period,
the Servicer shall direct the Trustee to
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withdraw from the Principal Funding Account and deposit into the Collection
Account all Principal Funding Investment Proceeds then on deposit in the
Principal Funding Account and such Principal Funding Investment Proceeds shall
be treated as a portion of (x) prior to the payment in full of the Class A
Adjusted Invested Amount, Class A Available Funds, (y) thereafter but prior to
payment in full of the Class B Adjusted Invested Amount, Class B Available Funds
and (z) thereafter, CTO Available Funds, in each case for such Distribution
Date.
(d) Reinvested interest and other investment income on funds
deposited in the Principal Funding Account shall not be considered to be
principal amounts on deposit therein for purposes of this Agreement.
Section 4.14 Reserve Account. (a) The Servicer shall establish
and maintain, in the name of the Trustee, for the benefit of the Series 1998-1
Certificateholders, with an Eligible Institution a segregated trust account (the
"Reserve Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Series 1998-1
Certificateholders. The Reserve Account shall initially be established with the
Trustee. The Trustee shall possess all right, title and interest in all funds on
deposit from time to time in the Reserve Account and in all proceeds thereof.
The Reserve Account shall be under the sole dominion and control of the Trustee
for the benefit of the Series 1998-1 Certificateholders. If at any time the
institution holding the Reserve Account ceases to be an Eligible Institution,
the Trustee (or the Servicer on its behalf) shall within five Business Days
establish a new Reserve Account meeting the conditions specified above with an
Eligible Institution, and shall transfer any cash and/or any investments to such
new Reserve Account. The Trustee, at the direction of the Servicer, shall (i)
make withdrawals from the Reserve Account from time to time in an amount up to
the Available Reserve Account Amount at such time, for the purposes set forth in
this Agreement, and (ii) on each Distribution Date (from and after the Reserve
Account Funding Date) prior to the termination of the Reserve Account, make a
deposit into the Reserve Account in the amount specified in, and otherwise in
accordance with, Section 4.8(o).
(b) Funds on deposit in the Reserve Account shall be invested
at the direction of the Servicer by the Trustee in Eligible Investments. Funds
on deposit in the Reserve Account on any Distribution Date, after giving effect
to any withdrawals from the Reserve Account on such Distribution Date, shall be
invested in such investments that will mature so that such funds will be
available for withdrawal on or prior to the following Distribution Date. The
Trustee shall maintain for the benefit of
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the Series 1998-1 Certificateholders possession of the negotiable instruments or
securities, if any, evidencing such Eligible Investments. No Eligible Investment
shall be disposed of prior to its maturity; provided, however, that the Trustee
may sell, liquidate or dispose of an Eligible Investment before its maturity, if
so directed by the Servicer, the Servicer having reasonably determined that the
interest of the Series 1998-1 Certificateholders may be adversely affected if
such Eligible Investment is held to its maturity. On each Distribution Date, all
interest and earnings (net of losses and investment expenses) on funds on
deposit in the Reserve Account shall be retained in the Reserve Account (to the
extent that the Available Reserve Account Amount is less than the Required
Reserve Account Amount) and the balance, if any, shall be deposited in the
Collection Account and treated as a portion of (x) until the payment in full of
the Class A Adjusted Invested Amount, Class A Available Funds, (y) thereafter,
until the payment in full of the Class B Adjusted Invested Amount, Class B
Available Funds and (z) thereafter, CTO Available Funds, in each case for such
Distribution Date. For purposes of determining the availability of funds or the
balance in the Reserve Account for any reason under this Agreement, except as
otherwise provided in the preceding sentence, investment earnings on such funds
shall be deemed not to be available or on deposit.
(c) On the Determination Date preceding each Distribution Date with
respect to the Accumulation Period (prior to the CTO Expected Final Distribution
Date) and the first Special Distribution Date, the Servicer shall calculate the
"Reserve Draw Amount" which shall be equal to the excess, if any, of the Covered
Amount with respect to such Distribution Date or Special Distribution Date over
the Principal Funding Investment Proceeds with respect to such Distribution Date
or Special Distribution Date.
(d) In the event that for any Distribution Date the Reserve Draw Amount
is greater than zero, the Reserve Draw Amount, up to the Available Reserve
Account Amount, shall be withdrawn from the Reserve Account on such Distribution
Date by the Trustee (acting in accordance with the instructions of the
Servicer), deposited into the Collection Account and included in (i) until the
payment in full of the Class A Adjusted Invested Amount, Class A Available
Funds, (ii) thereafter, until the payment in full of the Class B Adjusted
Invested Amount, Class B Available Funds and (iii) thereafter, CTO Available
Funds, in each case for such Distribution Date.
(e) In the event that the Reserve Account Surplus on any Distribution
Date, after giving effect to all deposits to and withdrawals from the Reserve
Account with respect to such
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Distribution Date, is greater than zero, the Trustee, acting in accordance with
the instructions of the Servicer, shall withdraw from the Reserve Account and
pay to the holder of the Exchangeable Transferor Certificate an amount equal to
such Reserve Account Surplus.
(f) Upon the earliest to occur of (i) the termination of the Trust
pursuant to Article XII of the Agreement, (ii) the day on which the Class A
Adjusted Invested Amount, Class B Adjusted Invested Amount and CTO Adjusted
Invested Amount have been paid in full, (iii) if the Accumulation Period has not
commenced, the occurrence of an Early Amortization Event with respect to Series
1998-1 and (iv) if the Accumulation Period has commenced, the earlier of the
first Special Distribution Date and the CTO Expected Final Distribution Date,
the Trustee, acting in accordance with the instructions of the Servicer, after
the prior payment of all amounts owing to the Series 1998-1 Certificateholders
which are payable from the Reserve Account as provided herein, shall withdraw
from the Reserve Account and pay to the holder of the Exchangeable Transferor
Certificate all amounts, if any, on deposit in the Reserve Account, and the
Reserve Account shall be deemed to have terminated for all purposes of the
Agreement.
Section 4.15. Postponement of Accumulation Period. The Accumulation
Period is scheduled to commence at the end of the day on the last day of the
[_________] Collection Period; provided, however, that, if the Accumulation
Period Length (determined as described below) shall be less than 12 months, the
date on which the Accumulation Period actually commences may, at the option of
the Transferor, be delayed to the first day of any month that is a number of
whole months prior to the Class A Expected Final Distribution Date at least
equal to the Accumulation Period Length and, as a result, the number of
Collection Periods in the Accumulation Period shall at least equal the
Accumulation Period Length. On each Determination Date until the Accumulation
Period begins, the Servicer shall determine the "Accumulation Period Length,"
which shall equal the number of whole months such that the sum of the
Accumulation Period Factors for each month during such period will be equal to
or greater than the Required Accumulation Factor Number; provided, however, that
the Accumulation Period Length shall not be determined to be less than one
month.
Section 4.16 Additional Issuances of Class D Certificates. (a) On any
day in the Revolving Period, the Trustee shall issue to the Transferor for
execution, upon the Transferor's request, and the Trustee shall authenticate and
deliver, in accordance with the Transferor's instructions, Additional Class D
Certificates as provided below.
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(b) The Transferor shall cause the Trustee to issue to the Transferor
for execution, and the Trustee shall authenticate and deliver, in accordance
with the Transferor's instructions, Additional Class D Certificates on any
Distribution Date on which the Available CTO Enhancement Amount or the Available
Enhancement Amount is less than the Required CTO Enhancement Amount or the
Required Enhancement Amount, respectively, in each case after giving effect to
the deposit of Excess Spread and Shared Excess Finance Charge Collections to the
Cash Collateral Account pursuant Section 4.8(j); provided, however, that (i)
such Additional Class D Certificates may be issued, executed and delivered only
upon satisfaction of the condition specified in Section 4.16(c)(i) and (ii) the
Transferor shall not be required to increase the Aggregate Principal Receivables
or decrease the Aggregate Invested Amount to permit such issuance.
(c) Additional Class D Certificates may be issued, executed and
delivered pursuant to Section 4.16(a) upon satisfaction of the following
conditions:
(i) after giving effect to the issuance of such
Additional Class D Certificates, the Transferor Amount shall be at
least equal to the Minimum Transferor Amount and the Aggregate
Principal Receivables shall be at least equal to the Minimum Aggregate
Principal Receivables;
(ii) the Transferor shall have given notice, by
10:00 A.M., New York City time, on the date such Additional Class D
Certificates are to be issued, to the Trustee and the Paying Agent of
the proposed issuance of such Additional Class D Certificates;
(iii) on or before the date on which such Additional
Class D Certificates are issued, the Transferor shall have delivered an
Opinion of Counsel addressed to the Trustee, dated the date of such
issuance, to the effect that such issuance will not adversely affect
the tax characterization as debt of Investor Certificates of any
outstanding Series or Class with respect to which an Opinion of Counsel
addressed to the Trustee was delivered at the time of their issuance
that such Investor Certificates would be characterized as debt, cause
the Trust to be classified, for federal income tax purposes, as an
association (or publicly traded partnership) taxable as a corporation,
or cause or constitute an event in which gain or loss would be
recognized by any Certificateholder; and
(iv) on or before the date such Additional Class D
Certificates are issued, the Transferor shall deliver to the Trustee an
Officer's Certificate confirming the item set forth in clause (i)
above. The Trustee may conclusively
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rely on such certificate, shall have no duty to make inquiries with
regard to matters set forth therein and shall incur no liability in so
relying.
(d) On any Distribution Date on which the Available
Enhancement Amount is less than the Required Enhancement Amount or the Available
CTO Enhancement Amount is less than the Required CTO Enhancement Amount, the
Transferor shall have the option to either cause the issuance of Additional
Class D Certificates or to permit the deposit of Excess Spread and Shared Excess
Finance Charge Collections to the Cash Collateral Account pursuant to Section
4.8(j) in order to cure such deficiency; provided, however, that in the event
that the Average Excess Spread Percentage as of such Distribution Date is less
than or equal to 4.0%, deposits of Excess Spread and Shared Excess Finance
Charge Collections to the Cash Collateral Account pursuant to Section 4.8(j)
will be utilized first to cure such deficiency.
Section 4.17 Application of Recoveries. Notwithstanding any
other provision of this Agreement, (i) Collections of Finance Charge Receivables
with respect to any Collection Period shall be deemed to include Recoveries
received during such Collection Period only to the extent that such Recoveries
exceed the Investor Default Amount with respect to the following Distribution
Date and (ii) Collections of Principal Receivables with respect to any
Collection Period shall be deemed to include all Recoveries received during such
Collection Period and not included as Collections of Finance Charge Receivables
in accordance with clause (i) above.
[END OF ARTICLE IV]
SECTION 9. Article V of the Agreement. Article V of the
Agreement as it relates to Series 1998-1 shall read in its entirety as follows:
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS
Section 5.1 Distributions. (a) On each Determination
Date, the Servicer shall deliver to the Trustee and Paying Agent
a certificate substantially in the form of Exhibit E prepared by
the Servicer.
(b) On each Distribution Date, the Paying Agent shall
distribute to each Class A Certificateholder of record as of the preceding
Record Date (other than as provided in Section 12.2
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respecting a final distribution) such Class A Certificateholder's pro rata share
of the amounts that are available on such Distribution Date to pay interest on
the Class A Certificates pursuant to this Agreement.
(c) On the Class A Expected Final Distribution Date and each
Special Distribution Date, the Paying Agent shall distribute to each Class A
Certificateholder of record as of the preceding Record Date (other than as
provided in Section 12.2 respecting a final distribution) such Class A
Certificateholder's pro rata share of the amounts that are available on such
date to pay principal of the Class A Certificates pursuant to this Agreement.
(d) On each Distribution Date, the Paying Agent shall
distribute to each Class B Certificateholder of record as of the preceding
Record Date (other than as provided in Section 12.2 respecting a final
distribution) such Class B Certificateholder's pro rata share of the amounts
that are available on such Distribution Date to pay interest on the Class B
Certificates pursuant to this Agreement.
(e) On the Class B Expected Final Distribution Date and each
Special Distribution Date, the Paying Agent shall distribute to each Class B
Certificateholder of record as of the preceding Record Date (other than as
provided in Section 12.2 respecting a final distribution) such Class B
Certificateholder's pro rata share of the amounts that are available on such
date to pay principal of the Class B Certificates pursuant to this Agreement.
(f) On each Distribution Date, the Paying Agent shall
distribute to each CTO Securityholder of record as of the preceding Record Date
(other than as provided in Section 12.2 respecting a final distribution) such
CTO Securityholder's pro rata share of the amounts that are available on such
Distribution Date to pay interest on the Collateralized Trust Obligations
pursuant to this Agreement.
(g) On the CTO Expected Final Distribution Date and each
Special Distribution Date, the Paying Agent shall distribute to each CTO
Securityholder of record as of the preceding Record Date (other than as provided
in Section 12.2 respecting a final distribution) such CTO Securityholder's pro
rata share of the amounts that are available on such date to pay principal of
the Collateralized Trust Obligations pursuant to this Agreement.
(h) On each Distribution Date, the Paying Agent shall
distribute to each Class D Certificateholder of record as of the preceding
Record Date (other than as provided in Section 12.2
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respecting a final distribution) such Class D Certificateholder's pro rata share
of the amounts that are available on such Distribution Date to pay interest on
the Class D Certificates pursuant to this Agreement.
(i) On each Distribution Date, the Paying Agent shall
distribute to each Class D Certificateholder of record as of the preceding
Record Date (other than as provided in Section 12.2 respecting a final
distribution) such Class D Certificateholder's pro rata share of the amounts
that are available on such Distribution Date to pay principal of the Class D
Certificates pursuant to this Agreement.
(j) The Paying Agent shall make each distribution required by
subsections (a) through (i) above in accordance with the certificate delivered
on the preceding Determination Date pursuant to Section 5.1(a).
(k) Except as provided in Section 12.2 with respect to a final
distribution and Section 5.3, distributions to Series 1998-1 Certificateholders
hereunder shall be made by check mailed to each such Certificateholder at such
Certificateholder's address appearing in the Certificate Register without
presentation or surrender of any such Series 1998-1 Certificate or the making of
any notation thereon; provided, however, that with respect to such Certificates
registered in the name of a Clearing Agency, such distributions shall be made to
such Clearing Agency in immediately available funds.
Section 5.2 Statements to Series 1998-1 Certificateholders. On
each Distribution Date, the Paying Agent, on behalf of the Trustee, shall
forward to each Series 1998-1 Certificateholder a statement substantially in the
form of Exhibit F prepared by the Servicer setting forth certain information
relating to the Trust and the Series 1998-1 Certificates.
On or before January 31 of each calendar year, beginning with
1999, the Paying Agent, on behalf of the Trustee, shall furnish or cause to be
furnished to each Person who at any time during the preceding calendar year was
a Series 1998-1 Certificateholder a statement prepared by the Servicer
containing the information which is required to be contained in the monthly
statement referred to in the preceding paragraph, aggregated for such calendar
year or the applicable portion thereof during which such Person was a
Certificateholder of such Series, together with other information as is required
to be provided by an issuer of indebtedness under the Internal Revenue Code and
such other customary information as is necessary to enable the
Certificateholders of such Series to prepare their tax returns.
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Such obligation of the Servicer shall be deemed to have been satisfied to the
extent that substantially comparable information shall have been provided by the
Paying Agent pursuant to any requirements of the Internal Revenue Code as from
time to time in effect.
[END OF ARTICLE V]
SECTION 10. Early Amortization Events. If any one of the
events specified in Section 9.1 of the Agreement or any one of the following
events shall occur during either the Revolving Period or the Accumulation Period
with respect to the Series 1998-1 Certificates:
(a) failure on the part of the Transferor (x) to make
any payment or deposit required by the terms of the Agreement or this
Series Supplement on or before the date occurring five Business Days
after the date such payment or deposit is required to be made; or (y)
duly to observe or perform in any material respect any other covenants
or agreements of the Transferor set forth in the Agreement or this
Series Supplement that continues unremedied for a period of 60 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Transferor by the
Trustee, or to the Transferor and the Trustee by the Holders of Series
1998-1 Certificates evidencing not less than 50% of the Invested
Amount, and as a result of which the interests of the Series 1998-1
Certificateholders are materially and adversely affected;
(b) any representation or warranty made by the
Transferor in the Agreement or this Series Supplement shall prove to
have been incorrect in any material respect when made that continues to
be incorrect in any material respect for a period of 60 days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee, or to
the Transferor and the Trustee by the Holders of Series 1998-1
Certificates evidencing not less than 50% of the Invested Amount, and
as a result of which the interests of the Series 1998-1
Certificateholders are materially and adversely affected; provided,
however, that if the representation or warranty which was breached
relates to any particular Receivable or group of Receivables, an Early
Amortization Event shall not be deemed to have occurred hereunder if
the Transferor shall have accepted reassignment of such Receivable, or
all of such Receivables, if applicable, during such period (or such
longer period not to
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exceed a total of 180 days as the Trustee may specify) in
accordance with the provisions hereof and of the Agreement;
(c) the Holder of the Exchangeable Transferor
Certificate shall consent to the appointment of a trustee, conservator,
receiver, liquidator, custodian or other similar official in any
bankruptcy, insolvency, readjustment of debt, marshalling of assets and
liabilities, receivership, conservatorship or similar proceedings of or
relating to such Holder or of or relating to all or substantially all
of its property; or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a trustee, conservator, receiver, liquidator, custodian
or other similar official in any bankruptcy, insolvency, readjustment
of debt, marshalling of assets and liabilities, receivership,
conservatorship or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against such Holder
and such decree or order shall have remained in force undischarged or
unstayed for a period of 30 days; such Holder shall admit in writing
its inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable bankruptcy, insolvency,
receivership, conservatorship or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or an involuntary proceeding shall be
commenced or an involuntary petition shall be filed with respect to
such Holder in a court of competent jurisdiction seeking to take
advantage of any applicable bankruptcy, insolvency, receivership,
conservatorship or reorganization statute and such proceeding or
petition shall continue undismissed for 60 days;
(d) any Servicer Default shall occur which has a
material adverse effect on the interests of the Series 1998-1
Certificateholders;
(e) the Transferor shall fail to designate
Supplemental Accounts in an amount and within the time period required
by Section 2.6(a) of the Agreement;
(f) the average of the Portfolio Yields for any three
consecutive Collection Periods shall be less than the average of the
Base Rates for such Collection Periods plus 2.00%;
(g) the Class A Invested Amount shall not be paid in
full on the Class A Expected Final Distribution Date, the Class B
Invested Amount shall not be paid in full on the
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Class B Expected Final Distribution Date or the CTO Invested Amount
shall not be paid in full on the CTO Expected Final Distribution Date;
or
(h) the Retained Percentage shall be equal to or less
than 2.00% as of the last day of any Collection Period;
then, in the case of any event described in clause (a), (b) or (d), an Early
Amortization Event will be deemed to have occurred with respect to the Series
1998-1 Certificates only if, after any applicable grace period described in the
clauses, either the Trustee or Series 1998-1 Certificateholders evidencing more
than 50% of the Invested Amount of such Series, by written notice to the
Transferor and the Servicer (and to the Trustee, if given by such
Certificateholders) declare that an Early Amortization Event has occurred as of
the date of such notice, and, in the case of any event described in Section 9.1
of the Agreement or in clause (c), an Early Amortization Event with respect to
all Series, and in the case of any event described in clause (e), (f), (g), or
(h), an Early Amortization Event with respect to only the Series 1998-1
Certificates, will be deemed to have occurred without any notice or other action
on the part of the Trustee or the Certificateholders or all certificateholders,
as appropriate, immediately upon the occurrence of such event.
SECTION 10A. CTO Defaults. If any one of the following events
shall occur with respect to the Collateralized Trust Obligations:
(a) accrued but unpaid CTO Monthly Interest is not
paid in full to the CTO Securityholders on two consecutive Distribution
Dates; or
(b) there is a CTO Investor Charge Off on three
consecutive Distribution Dates;
then a CTO Default will be deemed to have occurred with respect to the
Collateralized Trust Obligations. If a CTO Default has occurred and is
continuing, upon the direction of CTO Securityholders holding more than 50% of
the CTO Invested Amount, (i) before the payment in full of the Class A
Certificates and the Class B Certificates, the Enhancement Percentage thereafter
will equal the sum of (a) the percentage equivalent of a fraction, the numerator
of which is the CTO Invested Amount on such Distribution Date and the
denominator of which is the Invested Amount as of such Distribution Date and (b)
10% and (ii) following the payment in full of the Class A Certificates and the
Class B Certificates, the Trustee will sell or cause to be sold an amount of
Principal Receivables and the related Finance Charge Receivables (or interests
therein) up to 110% of the Invested
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Amount at the close of business on the date of such sale and pay the proceeds of
such sale to the holders of the Series 1998-1 Certificates in final payment of
all principal of and accrued interest on Series 1998-1 (which proceeds will be
applied first to the CTO Invested Amount until the Collateralized Trust
Obligations have been paid in full and then to the Class D Invested Amount until
the Class D Certificates have been paid in full); provided, however, that the
amount of such Principal Receivables shall not exceed the sum of (1) the product
of (A) the Transferor Amount on such date and (B) a fraction, the numerator of
which is the Invested Amount on such date and the denominator of which is the
Aggregate Invested Amount on such date and (2) the Invested Amount on such date.
The Transferor will be permitted to purchase such Receivables in such case and
will have a right of first refusal with respect thereto to the extent of a bona
fide offer by an unrelated third party for fair value. Any proceeds of such sale
in excess of such principal and interest paid will be paid to the Transferor.
SECTION 11. Restrictions on Transfer. (a) Each
Collateralized Trust Obligation will bear a legend or legends
substantially in the following form:
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF
FIRST NORTH AMERICAN NATIONAL BANK AND THE TRUSTEE THAT SUCH PURCHASER IS NOT
(I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO
THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(e)(1)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III) A
GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL,
STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101)
BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING "PLAN
ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN (INCLUDING, FOR
PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL CONTRACTS (WITHIN
THE MEANING OF SECTION 401(c) OF ERISA), BUT EXCLUDING ANY ENTITY REGISTERED
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
THIS COLLATERALIZED TRUST OBLIGATION HAS NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS
COLLATERALIZED TRUST OBLIGATION, AGREES THAT THIS COLLATERALIZED TRUST
OBLIGATION MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN
COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO THE
TRANSFEROR OR (2) IN RELIANCE ON RULE 144A UNDER
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THE SECURITIES ACT TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" WITHIN THE MEANING OF RULE 144A ("QIB")
PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB,
WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A. EACH CERTIFICATE OWNER OF
A COLLATERALIZED TRUST OBLIGATION BY ACCEPTING A BENEFICIAL INTEREST IN THIS
COLLATERALIZED TRUST OBLIGATION, IF SUCH PERSON ACQUIRED THIS COLLATERALIZED
TRUST OBLIGATION IN A TRANSFER DESCRIBED IN CLAUSE (2) ABOVE, IS DEEMED TO
REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT OR A QIB
PURCHASING FOR THE ACCOUNT OF ANOTHER QIB.
(b) Upon surrender for registration of transfer of a
Collateralized Trust Obligation at the office of the Transfer Agent and
Registrar, accompanied by a certification by the CTO Securityholder
substantially in the form attached as Exhibit G, executed by the registered
owner, in person or by such CTO Securityholder's attorney thereunto duly
authorized in writing, such Collateralized Trust Obligation shall be transferred
upon the Certificate Register, and the Transferor shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferees one or
more new registered Collateralized Trust Obligations of any authorized
denominations and of a like aggregate principal amount and tenor. Such transfers
of Collateralized Trust Obligations shall be subject to the restrictions set
forth in this Section 11 and to such other restrictions as shall be set forth in
the text of the Collateralized Trust Obligations. Successive registrations and
registrations of transfers as aforesaid may be made from time to time as
desired, and each such registration shall be noted on the Certificate Register.
(c) The Transferor may at any time, without the consent of the
Series 1998-1 Certificateholders, (i) sell or transfer all or a portion of the
Class D Certificates, provided that (A) the Transferor shall have given notice
to the Trustee, the Servicer and the Rating Agencies of such proposed sale or
transfer of the Class D Certificates at least five Business Days prior to the
consummation of such sale or transfer; (B) the Rating Agency Condition shall
have been satisfied; (C) no Early Amortization Event shall have occurred prior
to the consummation of such proposed sale or transfer of Class D Certificates;
(D) the Transferor shall have delivered an Officer's Certificate dated the date
of the consummation of such proposed sale or transfer to the effect that, in the
reasonable belief of the Transferor, such action will not, based on the facts
known to such officer at the time of such certification, cause an Early
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Amortization Event to occur with respect to any Series, and (E) the Transferor
shall have provided an Opinion of Counsel addressed to the Trustee, dated the
date of such certificate with respect to such action, that such proposed sale or
transfer will not (x) adversely affect the tax characterization as debt of
Investor Certificates of any outstanding Series or Class with respect to which
an Opinion of Counsel addressed to the Trustee was delivered at the time of
their issuance that such Investor Certificates would be characterized as debt,
(y) cause the Trust to be classified, for federal income tax purposes, as an
association (or publicly traded partnership) taxable as a corporation and (z)
cause or constitute an event in which gain or loss would be recognized by any
Certificateholder.
(d) No Class D Certificate or any interest therein may be
Transferred except in accordance with this Section 11. Any sale, conveyance,
assignment, hypothecation, pledge, participation or other transfer (each, a
"Transfer") of a Class D Certificate otherwise permitted by this Section 11 will
be permitted only if it consists of a pro rata percentage interest in all
payments made with respect to such holder's Class D Certificates. No Class D
Certificate or any interest therein may be Transferred to any Person (each, an
"Assignee") unless the Assignee shall have executed and delivered the
certification referred to in subsection 11(e) below and each of the Transferor
and the Servicer shall have granted its prior consent thereto. The consent of
the Transferor and the Servicer shall be granted unless the Transferor
reasonably determines that such Transfer would create a risk that the Trust
would be classified for federal or any applicable state tax purposes as an
association or publicly traded partnership taxable as a corporation; provided,
however, that any attempted Transfer that would cause the number of Targeted
Holders to exceed ninety-nine shall be void.
(e) Each initial purchaser of a Class D Certificate or any
interest therein and any Assignee thereof shall certify to the Transferor, the
Servicer and the Trustee that it is either (x)(A) a citizen or resident of the
United States, (B) a corporation, partnership or other entity organized in or
under the laws of the United States or any political subdivision thereof which,
if such entity is a tax-exempt entity, recognizes that payments with respect to
the Class D Certificates may constitute unrelated business taxable income or (C)
a person not described in (A) or (B) whose ownership of the Class D Certificates
is effectively connected with the conduct of a trade or business within the
United States (within the meaning of the Code) and whose ownership of any
interest in a Class D Certificate will not result in any withholding obligation
with respect to any payments with respect to the Class D Certificates by any
person and who will furnish to the Certificateholder
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making the Transfer, the Servicer and the Trustee, a properly executed United
States Internal Revenue Service Form 4224 (and agree to provide a new Form 4224
upon the expiration or obsolescence of any previously delivered form and
comparable statements in accordance with applicable United States laws) or (y)
an estate or trust the income of which is includible in gross income for United
States federal income tax purposes.
(f) Each initial purchaser of a Class D Certificate or any
interest therein and any Assignee thereof shall further certify to the
Transferor, the Servicer and the Trustee that it has neither acquired nor will
it sell, trade or transfer any interest in a Class D Certificate or cause an
interest in a Class D Certificate to be marketed on or through (i) an
"established securities market" within the meaning of Section 7704(b)(1) of the
Code and any treasury regulation thereunder, including, without limitation, an
over-the-counter-market or an interdealer quotation system that regularly
disseminates firm buy or sell quotations or (ii) a "secondary market" within the
meaning of Section 7704(b)(2) of the Code and any treasury regulation
thereunder, including, without limitation, a market wherein interests in the
Class D Certificates are regularly quoted by any Person making a market in such
interests and a market wherein any Person regularly makes available bid or offer
quotes with respect to interests in the Class D Certificates and stands ready to
effect buy or sell transactions at the quoted price for itself or on behalf of
others. In addition, each initial purchaser of a Class D Certificate or any
interest therein and any Assignee shall certify, prior to any delivery or
Transfer to it of a Class D Certificate, that it is not and will not become, for
so long as it holds an interest in a Class D Certificate, a partnership,
Subchapter S corporation or grantor trust for United States federal income tax
purposes. If an initial purchaser of an interest in a Class D Certificate or an
Assignee cannot make the certification described in the preceding sentence, the
Transferor may, in its sole discretion, prohibit a Transfer to such entity;
provided, however, that if the Transferor agrees to permit such a Transfer, the
Transferor may require additional certifications in order to prevent the Trust
from being treated as a publicly traded partnership. Each Holder acknowledges
that special tax counsel to the Transferor may render Opinions of Counsel from
time to time to the Transferor and others that the Trust will not be treated as
a publicly traded partnership taxable as a corporation, and that such Opinions
of Counsel will rely in part on the accuracy of the certifications in this
subsection 11(c).
(g) Each Class D Certificate will bear a legend or legends
substantially in the following form:
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EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF
FIRST NORTH AMERICAN NATIONAL BANK AND THE TRUSTEE THAT SUCH PURCHASER IS NOT
(I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO
THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(e)(1)
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III) A
GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL,
STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101)
BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING "PLAN
ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN (INCLUDING, FOR
PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL CONTRACTS (WITHIN
THE MEANING OF SECTION 401(c) OF ERISA), BUT EXCLUDING ANY ENTITY REGISTERED
UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
THIS CERTIFICATE MAY NOT BE ACQUIRED, SOLD, TRADED OR
TRANSFERRED, NOR MAY AN INTEREST IN THIS CERTIFICATE BE MARKETED, ON OR THROUGH
AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF
THE CODE AND ANY TREASURY REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION,
AN OVER- THE-COUNTER-MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT REGULARLY
DISSEMINATES FIRM BUY OR SELL QUOTATIONS.
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT
THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO
THE TRANSFEROR OR (2) TO A LIMITED NUMBER OF INSTITUTIONAL "ACCREDITED
INVESTORS" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) AND IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (UPON DELIVERY OF THE DOCUMENTATION REQUIRED BY THE POOLING AND
SERVICING AGREEMENT AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL
SATISFACTORY TO THE TRUSTEE). EACH CERTIFICATE OWNER, BY ACCEPTING A BENEFICIAL
INTEREST IN THIS CERTIFICATE, IS DEEMED TO REPRESENT THAT IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT). THIS CERTIFICATE WILL NOT BE ACCEPTED FOR REGISTRATION OF
TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE TRANSFER AGENT
AND REGISTRAR THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SERIES 1998-1
SUPPLEMENT HAVE BEEN COMPLIED WITH. THIS CERTIFICATE MAY NOT BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF
EACH
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OF THE TRANSFEROR AND THE SERVICER AND UNLESS AND UNTIL THE TRUSTEE SHALL HAVE
RECEIVED THE CERTIFICATIONS REQUIRED BY THE SERIES 1998-1 SUPPLEMENT.
(h) Upon surrender for registration of transfer of a Class D
Certificate at the office of the Transfer Agent and Registrar, accompanied by a
certification by the Class D Certificateholder substantially in the form
attached as Exhibit G, executed by the registered owner, in person or by such
Class D Certificateholder's attorney thereunto duly authorized in writing, and
receipt by the Trustee of the written consent of each of the Transferor and the
Servicer to such transfer, such Class D Certificate shall be transferred upon
the Certificate Register, and the Transferor shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferees one or
more new registered Class D Certificates of any authorized denominations and of
a like aggregate principal amount and tenor. Such transfers of Class D
Certificates shall be subject to the restrictions set forth in this Section 11
and to such other restrictions as shall be set forth in the text of the Class D
Certificates. Successive registrations and registrations of transfers as
aforesaid may be made from time to time as desired, and each such registration
shall be noted on the Certificate Register.
SECTION 12. Tax Characterization of the Collateralized Trust
Obligations and the Class D Certificates. It is the intention of the parties
hereto that the Collateralized Trust Obligations and the Class D Certificates be
treated under applicable tax law as indebtedness. In the event that either the
Collateralized Trust Obligations or the Class D Certificates are not so treated,
it is the intention of the parties that the Collateralized Trust Obligations or
the Class D Certificates, as the case may be, be treated under applicable tax
law as interests in a partnership that owns the Receivables. In the event that
either the Collateralized Trust Obligations or the Class D Certificates are
treated under applicable tax law as interests in a partnership, it is the
intention of the parties that the Collateralized Trust Obligations or the Class
D Certificates, as the case may be, be treated as guaranteed payments and, if
for any reason they are not so treated, that the holders of the Collateralized
Trust Obligations or the Class D Certificates, as the case may be, be specially
allocated gross interest income equal to the interest accrued during each
Interest Period on the Collateralized Trust Obligations and on the Class D
Certificates.
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SECTION 13. Ratification of Master Pooling and Servicing
Agreement. As supplemented by this Series Supplement, the Agreement is in all
respects ratified and confirmed and the Agreement as so supplemented by this
Series Supplement shall be read, taken, and construed as one and the same
instrument; provided, however, that pursuant to Section 9.2(a) of the Agreement,
the Trustee shall sell the portion of the Receivables allocable to Series 1998-1
unless instructed not to sell, dispose of or otherwise liquidate the Receivables
by holders of interests aggregating more than 50% of each Class of each Series
(including a majority in interest in each collateral indebtedness interest),
each holder of an interest in the Transferor Interest other than the Transferor
and any other Person specified in a Supplement.
SECTION 14. Counterparts. This Series Supplement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all of such counterparts shall together constitute
but one and the same instrument.
SECTION 15. Governing Law. THIS SERIES SUPPLEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 16. Subordination of Certain Termination Payments.
Notwithstanding anything contained in Section 12.2(c) of the Agreement, upon the
sale of Receivables or interests therein as provided in Section 12.2(c) of the
Agreement, the proceeds of any such sale payable in respect of the Series 1998-1
Certificates shall be payable first to the Class A Certificateholders on a pro
rata basis until all obligations payable in respect of the Class A Certificates
are paid in full, then to the Class B Certificateholders on a pro rata basis
until all obligations payable in respect of the Class B Certificates are paid in
full, then to the CTO Securityholders until all obligations payable in respect
of the Collateralized Trust Obligations are paid in full and then to the Class D
Certificateholders on a pro rata basis until all obligations payable in respect
of the Class D Certificates are paid in full.
SECTION 17. Third-Party Beneficiaries. As provided in Section
13.12 of the Agreement, the Agreement and this Series Supplement will inure to
the benefit of the Series 1998-1 Certificateholders and their respective
successors and permitted assigns.
70
<PAGE> 74
SECTION 18. FASIT Election. Each Series 1998-1
Certificateholder, by acquiring an interest in a Series 1998-1 Certificate, is
deemed to consent to any amendment to the Agreement or this Series Supplement
necessary for the Transferor to elect for the Trust or any portion thereof to be
treated as a financial asset securitization investment trust ("FASIT") within
the meaning of Section 860L of the Code (or any successor provision thereto);
provided, however, that such election may not be made unless the Transferor
delivers to the Trustee an Opinion of Counsel to the effect that (i) the
issuance of FASIT regular interests will not adversely affect the federal or any
applicable state income tax characterization as debt of Investor Certificates of
any outstanding Series or Class with respect to which an Opinion of Counsel was
delivered at the time of their issuance that such Investor Certificates would be
characterized as debt, (ii) following such issuance, the Trust will not be
classified, for federal or any applicable state income tax purposes, as an
association (or publicly traded partnership) taxable as a corporation, and (iii)
such issuance will not cause or constitute an event in which gain or loss would
be recognized by any Investor Certificateholder.
SECTION 19. Paired Series. Subject to obtaining confirmation
by each Rating Agency of the then existing ratings of each Class of Series
1998-1 Certificates which is then rated, and prior to the commencement of the
Early Amortization Period, the Series 1998-1 Certificates may be paired with one
or more other Series (each, a "Paired Series"). Each Paired Series either will
be pre-funded with an initial deposit to a pre- funding account in an amount up
to the initial principal balance of such Paired Series and funded primarily from
the proceeds of the sale of such Paired Series or will have a variable principal
amount. Any such pre-funding account will be held for the benefit of such Paired
Series and not for the benefit of the Series 1998-1 Certificateholders. As
principal is paid or deposited into the Principal Funding Account with respect
to the Series 1998-1 Certificates, either (i) in the case of a pre- funded
Paired Series, an equal amount of funds on deposit in any pre-funding account
for such pre-funded Paired Series will be released (which funds will be
distributed to the Transferor) or (ii) in the case of a Paired Series having a
variable principal amount, an interest in such variable Paired Series in an
equal or lesser amount may be sold by the Trust (and the proceeds thereof will
be distributed to the Transferor) and, in either case, the invested amount in
the Trust of such Paired Series will increase by up to a corresponding amount.
Upon payment in full of the Certificates, assuming that there have been no
unreimbursed charge-offs with respect to any related Paired Series, the
aggregate invested amount of such related Paired Series will have been increased
by an amount up to an aggregate amount equal to
71
<PAGE> 75
the Invested Amount paid to the Series 1998-1 Certificateholders since the
issuance of such Paired Series. The issuance of a Paired Series will be subject
to the conditions described in subsection 6.9(b) of the Agreement. The numerator
of the Class A Fixed Allocation Percentage, the Class B Fixed Allocation
Percentage, the CTO Fixed Allocation Percentage and the Class D Fixed Allocation
Percentage with respect to allocations of Collections of Principal Receivables
may be changed upon the occurrence of an Early Amortization Event with respect
to (and as defined in the Supplement for) a Paired Series (provided that such
numerator is not less than the Class A Invested Amount, the Class B Invested
Amount, the CTO Invested Amount or the Class D Invested Amount, respectively, as
of the last day of the Revolving Period (as defined in the Supplement for such
Paired Series)).
72
<PAGE> 76
IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Series Supplement to be duly executed by their
respective officers thereunto duly authorized as of the day and year first above
written.
FIRST NORTH AMERICAN NATIONAL BANK,
as Transferor and Servicer
By:
--------------------------------
Name: Michael T. Chalifoux
Title: Chairman of the Board
FIRST UNION NATIONAL BANK,
as Trustee and Paying Agent
By:
--------------------------------
Name: Monique L. Green
Title: Vice President
73
<PAGE> 77
EXHIBIT A
TO SUPPLEMENT
REGISTERED $____________
No. A-_ CUSIP No. _________
Unless this Class A Certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
FNANB CREDIT CARD MASTER TRUST
CLASS A FLOATING RATE ASSET BACKED CERTIFICATE
SERIES 1998-1
Class A Expected Final Distribution Date:
[__________] Distribution Date
Each $1,000 minimum denomination represents a
1/402,000 undivided interest
in certain assets of the
FNANB CREDIT CARD MASTER TRUST
Evidencing an undivided interest in a trust, the corpus of which consists
primarily of receivables generated from time to time in a portfolio of
MasterCard(R) and VISA(R) credit card accounts of
FIRST NORTH AMERICAN NATIONAL BANK
(Not an interest in or obligation of First North
American National Bank or any affiliate thereof)
<PAGE> 78
This certifies that Cede & Co. (the "Class A
Certificateholder") is the registered owner of a fractional undivided interest
in certain assets of a trust (the "Trust") created pursuant to the Master
Pooling and Servicing Agreement, dated as of October 30, 1997 (as amended and
supplemented, the "Agreement"), as supplemented by the Series 1998-1 Supplement,
dated as of [_________], 1998 (as amended and supplemented, the "Series
Supplement"), among First North American National Bank, a national banking
association, as Transferor and Servicer, and First Union National Bank, a
national banking association, as trustee (the "Trustee"). The corpus of the
Trust consists of (i) receivables (the "Receivables") generated from time to
time in a portfolio of MasterCard(R) and VISA(R) credit card accounts identified
under the Agreement (the "Accounts") (including any Supplemental Accounts
following their designation and any Automatic Additional Accounts following
their creation but excluding any Removed Accounts following their designation),
(ii) all monies due or to become due and all amounts received with respect to
the Receivables on and after the Initial Cut-Off Date (including recoveries of
amounts previously charged off), (iii) certain interchange fees received by the
Transferor in connection with the Receivables, (iv) all monies on deposit in
certain bank accounts of the Trust (including, to the extent specified in the
related Series Supplement, investment earnings on such amounts), (v) all
proceeds of the foregoing, (vi) any Enhancement with respect to any particular
Series or Class as provided in the related Series Supplement and (vii) all other
assets and interests constituting the Trust Property. Although a summary of
certain provisions of the Agreement and the Series Supplement is set forth below
and on the Summary of Terms and Conditions attached hereto and made a part
hereof, this Class A Certificate does not purport to summarize the Agreement and
the Series Supplement and reference is made to the Agreement and the Series
Supplement for information with respect to the interests, rights, benefits,
obligations, proceeds and duties evidenced hereby and the rights, duties and
obligations of the Trustee. A copy of the Agreement and the Series Supplement
(without schedules) may be requested from the Trustee by writing to the Trustee
at the Corporate Trust Office: 800 East Main Street, Richmond, Virginia 23219,
Attention: Corporate Trust Department. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed to them in the
Agreement or the Series Supplement, as applicable.
This Class A Certificate is issued under and
is subject to the terms, provisions and conditions of the Agreement and the
Series Supplement, to which Agreement and Series Supplement, each as amended and
supplemented from time to time, the Class A Certificateholder by virtue of the
acceptance hereof assents and is bound.
2
<PAGE> 79
It is the intent of the Transferor and the Investor
Certificateholders (and Certificate Owners) that, for Federal, state and local
income and franchise tax purposes only, the Investor Certificates will qualify
as indebtedness of the Transferor secured by the Receivables (unless otherwise
specified in the related Supplement). The Class A Certificateholder (and each
Certificate Owner of a Class A Certificate), by the acceptance of this Class A
Certificate (or its interest therein), is deemed to agree to treat this Class A
Certificate for Federal, state and local income and franchise tax purposes and
any other tax imposed on or measured by income as indebtedness of the
Transferor.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Class A
Certificate shall not be entitled to any benefit under the Agreement or the
Series Supplement or be valid for any purpose.
IN WITNESS WHEREOF, the Transferor has caused this Class A
Certificate to be duly executed.
FIRST NORTH AMERICAN
NATIONAL BANK
By:
--------------------------------
Name:
Title:
Dated: [__________], 1998
3
<PAGE> 80
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates described in the
within-mentioned Agreement and Series Supplement.
FIRST UNION NATIONAL
BANK,
as Trustee
By:
--------------------------- Authorized Officer
4
<PAGE> 81
FNANB CREDIT CARD MASTER TRUST
CLASS A FLOATING RATE ASSET BACKED CERTIFICATE
SERIES 1998-1
Summary of Terms and Conditions
This Class A Certificate is one of a Series
of Certificates entitled FNANB Credit Card Master Trust, Series 1998-1
Certificates (the "Series 1998-1 Certificates"), and one of a class thereof
entitled Class A Floating Rate Asset Backed Certificates, Series 1998-1 (the
"Class A Certificates"), each of which represents a fractional undivided
interest in certain assets of the Trust. The Trust Property is allocated in part
to the Investor Certificateholders of all outstanding Series (the
"Certificateholders' Interest") and the interests, if any, of any Enhancement
Providers, with the remainder allocated to the Transferor. The aggregate
interest represented by the Class A Certificates at any time in the Principal
Receivables in the Trust shall not exceed an amount equal to the Class A
Invested Amount at such time. The Class A Initial Invested Amount is
$402,000,000. The Class A Invested Amount on any date will be an amount equal to
(a) the Class A Initial Invested Amount, minus (b) the Principal Funding Account
Balance on such date, minus (c) the aggregate amount of principal payments made
to the Class A Certificateholders prior to such date, minus (d) the excess, if
any, of the aggregate amount of Class A Investor Charge Offs for all prior
Distribution Dates over the sum of the aggregate amount of Class A Investor
Charge Offs reimbursed pursuant to the Series Supplement and, without
duplication, the aggregate amount of the reductions of the Series Adjustment
Amounts allocable to the Class A Invested Amount pursuant to the Series
Supplement prior to such date; provided, however, that the Class A Invested
Amount may not be reduced below zero. In addition, classes of the Series 1998-1
Certificates entitled Class B Floating Rate Asset Backed Certificates, Series
1998-1 (the "Class B Certificates"), Collateralized Trust Obligations, Series
1998-1 (the "Collateralized Trust Obligations") and Class D Asset Backed
Certificates, Series 1998-1 (the "Class D Certificates") will be issued. The
Exchangeable Transferor Certificate, which represents the Transferor Interest,
has been issued to First North American National Bank pursuant to the Agreement.
Subject to the terms and conditions of the
Agreement, the Transferor may from time to time direct the Trustee, on behalf of
the Trust, to issue one or more new Series of Investor Certificates, which will
represent fractional undivided interests in certain Trust Property.
<PAGE> 82
Each Class A Certificate represents the right to receive
payments of (i) interest at the rate of [____]% per annum above LIBOR (as
determined on the related LIBOR Determination Date), accruing from [_________],
1998, payable on [__________], 1998 and on the 15th day of each month thereafter
(or, if such 15th day is not a Business Day, the next succeeding Business Day)
(each, a "Distribution Date") and (ii) principal on the [__________]
Distribution Date (and on each Distribution Date thereafter, if the Class A
Certificates are not paid in full on the [__________] Distribution Date) or,
upon the occurrence of an Early Amortization Event, on each Distribution Date
relating to the Early Amortization Period, in each case funded from a percentage
of the payments received with respect to the Receivables and certain other
funds, all as more fully described in the Agreement and the Series Supplement.
Interest on the Class A Certificates will be calculated on the basis of a
360-day year and the actual number of days in the relevant Interest Period.
The Class B Certificates, the Collateralized Trust Obligations
and the Class D Certificates are subordinated to the Class A Certificates to the
extent set forth in the Series Supplement.
On each Distribution Date, the Paying Agent shall distribute
to each Class A Certificateholder of record on the last day of the preceding
calendar month (each, a "Record Date") such Class A Certificateholder's pro rata
share of such amounts (including amounts on deposit in the Principal Funding
Account) as are payable to the Class A Certificateholders pursuant to the
Agreement and the Series Supplement. Distributions with respect to this Class A
Certificate will be made by the Paying Agent by check mailed to the address of
the Class A Certificateholder of record appearing in the Certificate Register
without the presentation or surrender of this Class A Certificate or the making
of any notation thereon (except for the final distribution in respect of this
Class A Certificate), except that with respect to Class A Certificates
registered in the name of Cede & Co., the nominee for The Depository Trust
Company, distributions will be made in the form of immediately available funds.
Final payment of this Class A Certificate will be made only upon presentation
and surrender of this Class A Certificate at the office or agency specified in
the notice of final distribution delivered by the Trustee in accordance with the
Agreement and the Series Supplement.
On any Distribution Date occurring on or after the day on
which the Invested Amount is reduced to an amount less than or equal to 5% of
the Initial Invested Amount, the Class A Certificates are subject to retransfer
to the
2
<PAGE> 83
Transferor. The retransfer price will be equal to the Class A Invested Amount
plus accrued but unpaid interest thereon.
Subject to certain conditions in the Agreement, if the
Invested Amount is greater than zero on the [__________] Distribution Date (the
"Stated Series Termination Date"), the Trustee shall sell or cause to be sold an
amount of Receivables up to 110% of the Invested Amount at the close of business
on such date, but not more than the total amount of Receivables allocable to the
Series 1998-1 Certificates, and apply the proceeds of such sale as provided in
the Agreement and the Series Supplement.
This Class A Certificate does not represent a recourse
obligation of, or an interest in, the Transferor, the Servicer, Circuit City
Stores, Inc. or any affiliate of any of them and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other governmental agency or
instrumentality. This Class A Certificate is limited in right of payment to
certain Collections with respect to the Receivables (and certain other amounts),
all as more specifically set forth hereinabove and in the Agreement and the
Series Supplement
The Agreement and any Supplement may be amended from time to
time by the Servicer, the Transferor and the Trustee, without the consent of any
of the Investor Certificateholders, to cure any ambiguity, to correct or
supplement any provisions therein which may be inconsistent with any other
provisions therein or to add other identifying code numbers to the definition of
Account or to add any other provisions with respect to matters or questions
raised under the Agreement which shall not be inconsistent with the provisions
of the Agreement; provided, however, that such action shall not adversely affect
in any material respect the interests of any of the Investor Certificateholders.
In addition, the Agreement and any Supplement may be amended from time to time
by the Servicer, the Transferor and the Trustee, without the consent of any of
the Investor Certificateholders, to add to or change any of the provisions of
the Agreement to enable Bearer Certificates to be issued in conformity with the
Bearer Rules, to provide that Bearer Certificates may be registrable as to
principal, to change or eliminate any restrictions on the payment of principal
(or premium, if any) or any interest on Bearer Certificates to comply with the
Bearer Rules, to permit Bearer Certificates to be issued in exchange for
Registered Certificates (if then permitted by the Bearer Rules), to permit
Bearer Certificates to be issued in exchange for Bearer Certificates of other
authorized denominations or to permit the issuance of Investor Certificates in
uncertificated form, provided any such action shall not adversely affect the
interest of the Holders of Bearer
3
<PAGE> 84
Certificates of any Series or any related Coupons in any material respect unless
such amendment is necessary to comply with the Bearer Rules.
The Agreement and any Supplement may also be amended from time
to time by the Servicer, the Transferor and the Trustee, without the consent of
any of the Investor Certificateholders, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Agreement, or of modifying in any manner the rights of the Holders of Investor
Certificates; provided, however, that (i) the Servicer shall have provided an
Opinion of Counsel to the Trustee to the effect that such amendment will not
materially and adversely affect the interests of the Investor Certificateholders
of any outstanding Series, which Opinion of Counsel may rely solely on the
rating confirmation referred to in clause (iii) below (or 100% of the class of
Certificateholders so affected shall have consented), (ii) such amendment shall
not, as evidenced by an Opinion of Counsel, cause any outstanding Series as to
which an opinion that it was debt was given on its Closing Date to fail to
qualify as debt for Federal income tax purposes, cause the Trust to be
characterized for Federal income tax purposes as an association taxable as a
corporation or otherwise have any material adverse impact on the Federal income
taxation characterization of any outstanding Series of Investor Certificates or
the Federal income taxation of any Investor Certificateholder or any Certificate
Owner and (iii) the Rating Agencies shall confirm that such amendment shall not
cause a reduction or withdrawal of the rating of any outstanding Series of
Certificates; and, provided further, that such amendment shall not reduce in any
manner the amount of, or delay the timing of, or change the priority of,
distributions which are required to be made on any Investor Certificate of such
Series without the consent of the related Investor Certificateholder, change the
definition of or the manner of calculating the interest of any Investor
Certificateholder of such Series without the consent of the related Investor
Certificateholder or reduce the required percentage for consents to amendments
pursuant to the following paragraph without the consent of each affected
Investor Certificateholder.
The Agreement and any Supplement may also be amended from time
to time by the Servicer, the Transferor and the Trustee with the consent of the
Holders of Investor Certificates evidencing undivided interests aggregating not
less than 66-2/3% of the Invested Amount of all Series adversely affected, for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Agreement or of modifying in any manner the rights
of the Investor Certificateholders of any Series then issued and outstanding;
4
<PAGE> 85
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, distributions which are required to be made
on any Investor Certificate of such Series without the consent of the related
Investor Certificateholders; (ii) change the definition of or the manner of
calculating the Invested Amount, the Invested Percentage, the applicable
available amount under any Enhancement or the Investor Default Amount of such
Series without the consent of the related Investor Certificateholders; or (iii)
reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the related Investor Certificateholders. Any amendment
pursuant to this paragraph shall require that each Rating Agency rating the
affected Series confirm that such amendment will not cause a reduction or
withdrawal of the rating of any outstanding Series of Certificates.
The Class A Certificates are issuable only in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof. The
transfer of this Class A Certificate shall be registered in the Certificate
Register upon surrender of this Class A Certificate for registration of transfer
at any office or agency maintained by the Transfer Agent and Registrar, and
thereupon one or more new Class A Certificates in authorized denominations
representing like aggregate undivided interests in the Trust will be issued to
the designated transferee or transferees.
As provided in the Agreement and subject to certain
limitations therein set forth, Class A Certificates are exchangeable for new
Class A Certificates in authorized denominations of like aggregate undivided
interests in the Trust as requested by the Class A Certificateholder
surrendering such Class A Certificates. No service charge may be imposed for any
transfer or exchange but the Transfer Agent and Registrar and the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
The Trustee, the Paying Agent and the Transfer Agent and
Registrar and any agent of any of them may treat the person in whose name this
Class A Certificate is registered as the owner hereof for all purposes, and
neither the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any
agent of any of them, shall be affected by notice to the contrary.
THE AGREEMENT AND THIS CLASS A CERTIFICATE SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES
5
<PAGE> 86
UNDER THE AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
6
<PAGE> 87
ASSIGNMENT
Social Security or other identifying number of assignee
- -------------------------
FOR VALUE RECEIVED, the undersigned hereby
sells, assigns and transfers unto
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints ___________________________, attorney, to transfer said
certificate on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
- ----------------------------------*
Signature Guaranteed:
- -----------------------------------
- -----------------------
(*) NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Certificate in every
particular, without alteration, enlargement or any change whatsoever.
7
<PAGE> 88
EXHIBIT B
TO SUPPLEMENT
REGISTERED $____________
No. B-1 CUSIP No. _________
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF
FIRST NORTH AMERICAN NATIONAL BANK AND THE TRUSTEE THAT SUCH PURCHASER IS NOT
(I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURI TY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT
TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION
4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III)
A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY
FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE
PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY
WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R.
2510.3-101) BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON
INVESTING "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN
(INCLUDING, FOR PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL
ACCOUNTS (WITHIN THE MEANING OF SECTION 401(c) OF ERISA), BUT EXCLUDING ANY
ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
<PAGE> 89
Unless this Class B Certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
FNANB CREDIT CARD MASTER TRUST
CLASS B FLOATING RATE ASSET BACKED CERTIFICATE
SERIES 1998-1
Class B Expected Final Distribution Date:
[_________] Distribution Date
Each $1,000 minimum denomination represents a
1/90,000 undivided interest
in certain assets of the
FNANB CREDIT CARD MASTER TRUST
Evidencing an undivided interest in a trust, the corpus of which consists
primarily of receivables generated from time to time in a portfolio of
MasterCard(R) and VISA(R) credit card accounts of
FIRST NORTH AMERICAN NATIONAL BANK
(Not an interest in or obligation of First North
American National Bank or any affiliate thereof)
This certifies that Cede & Co. (the "Class B
Certificateholder") is the registered owner of a fractional undivided interest
in certain assets of a trust (the "Trust") created pursuant to the Master
Pooling and Servicing Agreement, dated as of October 30, 1997 (as amended and
supplemented, the "Agreement"), as supplemented by the Series 1998-1 Supplement,
dated as of [__________], 1998 (as amended and supplemented, the "Series
Supplement"), among First North American National Bank, a
2
<PAGE> 90
national banking association, as Transferor and Servicer, and First Union
National Bank, a national banking association, as trustee (the "Trustee"). The
corpus of the Trust consists of (i) receivables (the "Receivables") generated
from time to time in a portfolio of MasterCard(R) and VISA(R) credit card
accounts identified under the Agreement (the "Accounts") (including any
Supplemental Accounts following their designation and any Automatic Additional
Accounts following their creation but excluding any Removed Accounts following
their designation), (ii) all monies due or to become due and all amounts
received with respect to the Receivables on and after the Initial Cut-Off Date
(including recoveries of amounts previously charged off), (iii) certain
interchange fees received by the Transferor in connection with the Receivables,
(iv) all monies on deposit in certain bank accounts of the Trust (including, to
the extent specified in the related Series Supplement, investment earnings on
such amounts), (v) all proceeds of the foregoing, (vi) any Enhancement with
respect to any particular Series or Class as provided in the related Series
Supplement and (vii) all other assets and interests constituting the Trust
Property. Although a summary of certain provisions of the Agreement and the
Series Supplement is set forth below and on the Summary of Terms and Conditions
attached hereto and made a part hereof, this Class B Certificate does not
purport to summarize the Agreement and the Series Supplement and reference is
made to the Agreement and the Series Supplement for information with respect to
the interests, rights, benefits, obligations, proceeds and duties evidenced
hereby and the rights, duties and obligations of the Trustee. A copy of the
Agreement and the Series Supplement (without schedules) may be requested from
the Trustee by writing to the Trustee at the Corporate Trust Office: 800 East
Main Street, Richmond, Virginia 23219, Attention: Corporate Trust Department. To
the extent not defined herein, the capitalized terms used herein have the
meanings ascribed to them in the Agreement or the Series Supplement, as
applicable.
This Class B Certificate is issued under and is subject to the
terms, provisions and conditions of the Agreement and the Series Supplement, to
which Agreement and Series Supplement, each as amended and supplemented from
time to time, the Class B Certificateholder by virtue of the acceptance hereof
assents and is bound.
3
<PAGE> 91
It is the intent of the Transferor and the Investor
Certificateholders (and Certificate Owners) that, for Federal, state and local
income and franchise tax purposes only, the Investor Certificates will qualify
as indebtedness of the Transferor secured by the Receivables (unless otherwise
specified in the related Supplement). The Class B Certificateholder (and each
Certificate Owner of a Class B Certificate), by the acceptance of this Class B
Certificate (or its interest therein), is deemed to agree to treat this Class B
Certificate for Federal, state and local income and franchise tax purposes and
any other tax imposed on or measured by income as indebtedness of the
Transferor.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature, this Class B
Certificate shall not be entitled to any benefit under the Agreement or the
Series Supplement or be valid for any purpose.
IN WITNESS WHEREOF, the Transferor has caused this Class B
Certificate to be duly executed.
FIRST NORTH AMERICAN
NATIONAL BANK
By:_______________________________
Name:
Title:
Dated: [_________], 1998
4
<PAGE> 92
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates described in the
within-mentioned Agreement and Series Supplement.
FIRST UNION NATIONAL
BANK,
as Trustee
By:__________________________
Authorized Officer
5
<PAGE> 93
FNANB CREDIT CARD MASTER TRUST
CLASS B FLOATING RATE ASSET BACKED CERTIFICATE
SERIES 1998-1
Summary of Terms and Conditions
This Class B Certificate is one of a Series
of Certificates entitled FNANB Credit Card Master Trust, Series 1998-1
Certificates (the "Series 1998-1 Certificates"), and one of a class thereof
entitled Class B Floating Rate Asset Backed Certificates, Series 1998-1 (the
"Class B Certificates"), each of which represents a fractional undivided
interest in certain assets of the Trust. The Trust Property is allocated in part
to the Investor Certificateholders of all outstanding Series (the
"Certificateholders' Interest") and the interests, if any, of any Enhancement
Providers, with the remainder allocated to the Transferor. The aggregate
interest represented by the Class B Certificates at any time in the Principal
Receivables in the Trust shall not exceed an amount equal to the Class B
Invested Amount at such time. The Class B Initial Invested Amount is
$90,000,000. The Class B Invested Amount on any date will be an amount equal to
(a) the Class B Initial Invested Amount, minus (b) after the Class A Adjusted
Invested Amount has been paid in full, the Principal Funding Account Balance on
such date, minus (c) the aggregate amount of principal payments made to the
Class B Certificateholders prior to such date, minus (d) the aggregate amount of
Class B Investor Charge Offs for all prior Distribution Dates, minus (e) the
amount of Class B Subordinated Principal Collections allocated on all prior
Distribution Dates pursuant to the Series Supplement, minus (f) an amount equal
to the amount by which the Class B Invested Amount has been reduced on all prior
Distribution Dates pursuant to the Series Supplement, plus (g) the sum of the
amount of Excess Spread and Shared Excess Finance Charge Collections allocated
and available on all prior Distribution Dates pursuant to the Series Supplement
for the purpose of reimbursing amounts deducted pursuant to the foregoing
clauses (d), (e) and (f) and, without duplication, the aggregate amount of the
reductions of the Series Adjustment Amounts allocable to the Class B Invested
Amount pursuant to the Series Supplement prior to such date; provided, however,
that the Class B Invested Amount may not be reduced below zero. In addition,
classes of the Series 1998-1 Certificates entitled Class A Floating Rate Asset
Backed Certificates, Series 1998-1 (the "Class A Certificates"), Collateralized
Trust Obligations, Series 1998-1 (the "Collateralized Trust Obligations") and
Class D Asset Backed Certificates, Series 1998-1 (the "Class D Certificates")
will be issued. The Exchangeable Transferor Certificate, which
<PAGE> 94
represents the Transferor Interest, has been issued to First North American
National Bank pursuant to the Agreement.
Subject to the terms and conditions of the Agreement, the
Transferor may from time to time direct the Trustee, on behalf of the Trust, to
issue one or more new Series of Investor Certificates, which will represent
fractional undivided interests in certain Trust Property.
Each Class B Certificate represents the right to receive
payments of (i) interest at the rate of [____]% per annum above LIBOR (as
determined on the related LIBOR Determination Date), accruing from [_________],
1998, payable on [_________], 1998 and on the 15th day of each month thereafter
(or, if such 15th day is not a Business Day, the next succeeding Business Day)
(each, a "Distribution Date") and (ii) principal on the [__________]
Distribution Date (and on each Distribution Date thereafter, if the Class B
Certificates are not paid in full on the [__________] Distribution Date) or,
upon the occurrence of an Early Amortization Event, on each Distribution Date
relating to the Early Amortization Period, in each case funded from a percentage
of the payments received with respect to the Receivables and certain other
funds, all as more fully described in the Agreement and the Series Supplement.
Interest on the Class B Certificates will be calculated on the basis of a
360-day year and the actual number of days in the relevant Interest Period.
The Class B Certificates are subordinated to the Class A
Certificates to the extent set forth in the Series Supplement. The
Collateralized Trust Obligations and the Class D Certificates are subordinated
to the Class A and Class B Certificates to the extent set forth in the Series
Supplement.
On each Distribution Date, the Paying Agent shall distribute
to each Class B Certificateholder of record on the last day of the preceding
calendar month (each, a "Record Date") such Class B Certificateholder's pro rata
share of such amounts (including amounts on deposit in the Principal Funding
Account) as are payable to the Class B Certificateholders pursuant to the
Agreement and the Series Supplement. Distributions with respect to this Class B
Certificate will be made by the Paying Agent by check mailed to the address of
the Class B Certificateholder of record appearing in the Certificate Register
without the presentation or surrender of this Class B Certificate or the making
of any notation thereon (except for the final distribution in respect of this
Class B Certificate), except that with respect to Class B Certificates
registered in the name of Cede & Co., the nominee for The Depository Trust
Company, distributions will be made in the form of immediately
2
<PAGE> 95
available funds. Final payment of this Class B Certificate will be made only
upon presentation and surrender of this Class B Certificate at the office or
agency specified in the notice of final distribution delivered by the Trustee in
accordance with the Agreement and the Series Supplement.
On any Distribution Date occurring on or after the day on
which the Invested Amount is reduced to an amount less than or equal to 5% of
the Initial Invested Amount, the Class B Certificates are subject to retransfer
to the Transferor. The retransfer price will be equal to the Class B Invested
Amount plus accrued but unpaid interest thereon.
Subject to certain conditions in the Agreement, if the
Invested Amount is greater than zero on the [__________] Distribution Date (the
"Stated Series Termination Date"), the Trustee shall sell or cause to be sold an
amount of Receivables up to 110% of the Invested Amount at the close of business
on such date, but not more than the total amount of Receivables allocable to the
Series 1998-1 Certificates, and apply the proceeds of such sale as provided in
the Agreement and the Series Supplement.
This Class B Certificate does not represent a recourse
obligation of, or an interest in, the Transferor, the Servicer, Circuit City
Stores, Inc. or any affiliate of any of them and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other governmental agency or
instrumentality. This Class B Certificate is limited in right of payment to
certain Collections with respect to the Receivables (and certain other amounts),
all as more specifically set forth hereinabove and in the Agreement and the
Series Supplement
The Agreement and any Supplement may be amended from time to
time by the Servicer, the Transferor and the Trustee, without the consent of any
of the Investor Certificateholders, to cure any ambiguity, to correct or
supplement any provisions therein which may be inconsistent with any other
provisions therein or to add other identifying code numbers to the definition of
Account or to add any other provisions with respect to matters or questions
raised under the Agreement which shall not be inconsistent with the provisions
of the Agreement; provided, however, that such action shall not adversely affect
in any material respect the interests of any of the Investor Certificateholders.
In addition, the Agreement and any Supplement may be amended from time to time
by the Servicer, the Transferor and the Trustee, without the consent of any of
the Investor Certificateholders, to add to or change any of the provisions of
the Agreement to enable Bearer Certificates to be issued in conformity with the
Bearer Rules, to provide that
3
<PAGE> 96
Bearer Certificates may be registrable as to principal, to change or eliminate
any restrictions on the payment of principal (or premium, if any) or any
interest on Bearer Certificates to comply with the Bearer Rules, to permit
Bearer Certificates to be issued in exchange for Registered Certificates (if
then permitted by the Bearer Rules), to permit Bearer Certificates to be issued
in exchange for Bearer Certificates of other authorized denominations or to
permit the issuance of Investor Certificates in uncertificated form, provided
any such action shall not adversely affect the interest of the Holders of Bearer
Certificates of any Series or any related Coupons in any material respect unless
such amendment is necessary to comply with the Bearer Rules.
The Agreement and any Supplement may also be amended from
time to time by the Servicer, the Transferor and the Trustee, without the
consent of any of the Investor Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Agreement, or of modifying in any manner the rights of the Holders of
Investor Certificates; provided, however, that (i) the Servicer shall have
provided an Opinion of Counsel to the Trustee to the effect that such amendment
will not materially and adversely affect the interests of the Investor
Certificateholders of any outstanding Series, which Opinion of Counsel may rely
solely on the rating confirmation referred to in clause (iii) below (or 100% of
the class of Certificateholders so affected shall have consented), (ii) such
amendment shall not, as evidenced by an Opinion of Counsel, cause any
outstanding Series as to which an opinion that it was debt was given on its
Closing Date to fail to qualify as debt for Federal income tax purposes, cause
the Trust to be characterized for Federal income tax purposes as an association
taxable as a corporation or otherwise have any material adverse impact on the
Federal income taxation characterization of any outstanding Series of Investor
Certificates or the Federal income taxation of any Investor Certificateholder or
any Certificate Owner and (iii) the Rating Agencies shall confirm that such
amendment shall not cause a reduction or withdrawal of the rating of any
outstanding Series of Certificates; and, provided further that such amendment
shall not reduce in any manner the amount of, or delay the timing of, or change
the priority of, distributions which are required to be made on any Investor
Certificate of such Series without the consent of the related Investor
Certificateholder, change the definition of or the manner of calculating the
interest of any Investor Certificateholder of such Series without the consent of
the related Investor Certificateholder or reduce the required percentage for
consents to amendments pursuant to the following paragraph without the consent
of each affected Investor Certificateholder.
4
<PAGE> 97
The Agreement and any Supplement may also be amended from
time to time by the Servicer, the Transferor and the Trustee with the consent of
the Holders of Investor Certificates evidencing undivided interests aggregating
not less than 66-2/3% of the Invested Amount of all Series adversely affected,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any manner
the rights of the Investor Certificateholders of any Series then issued and
outstanding; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, distributions which are required
to be made on any Investor Certificate of such Series without the consent of the
related Investor Certificateholders; (ii) change the definition of or the manner
of calculating the Invested Amount, the Invested Percentage, the applicable
available amount under any Enhancement or the Investor Default Amount of such
Series without the consent of the related Investor Certificateholders; or (iii)
reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the related Investor Certificateholders. Any amendment
pursuant to this paragraph shall require that each Rating Agency rating the
affected Series confirm that such amendment will not cause a reduction or
withdrawal of the rating of any outstanding Series of Certificates.
The Class B Certificates are issuable only in minimum
denominations of $1,000 and integral multiples of $1,000 in excess thereof. The
transfer of this Class B Certificate shall be registered in the Certificate
Register upon surrender of this Class B Certificate for registration of transfer
at any office or agency maintained by the Transfer Agent and Registrar, and
thereupon one or more new Class B Certificates in authorized denominations
representing like aggregate undivided interests in the Trust will be issued to
the designated transferee or transferees.
As provided in the Agreement and subject to certain
limitations therein set forth, Class B Certificates are exchangeable for new
Class B Certificates in authorized denominations of like aggregate undivided
interests in the Trust as requested by the Class B Certificateholder
surrendering such Class B Certificates. No service charge may be imposed for any
transfer or exchange but the Transfer Agent and Registrar and the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
The Trustee, the Paying Agent and the Transfer Agent and
Registrar and any agent of any of them may treat the person in whose name this
Class B Certificate is
5
<PAGE> 98
registered as the owner hereof for all purposes, and neither the Trustee, the
Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them,
shall be affected by notice to the contrary.
THE AGREEMENT AND THIS CLASS B CERTIFICATE SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES UNDER THE AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
6
<PAGE> 99
ASSIGNMENT
Social Security or other identifying number of assignee
- -------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
- ----------------------------------------------
- -----------------------------------------------------------------
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints ___________________________, attorney, to transfer said
certificate on the books kept for registration thereof, with full power of
substitution in the premises.
Dated:
*
- ----------------------------------
Signature Guaranteed:
- ----------------------------------
- -----------------------
(*) NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Certificate in every
particular, without alteration, enlargement or any change whatsoever.
7
<PAGE> 1
EXHIBIT 5.1
[MCGUIRE WOODS BATTLE & BOOTHE LLP LETTERHEAD]
October 2, 1998
First North American National Bank
225 Chastain Meadows Court
Kennesaw, Georgia 30144
FNANB Credit Card Master Trust
Floating Rate Asset Backed Certificates, Series 1998-1
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to First North American National
Bank, a national banking association ("FNANB"), in connection with the filing by
FNANB and the FNANB Credit Card Master Trust (the "Trust"), with the Securities
and Exchange Commission of a Registration Statement on Form S-3 (the
"Registration Statement") registering $492,000,000 aggregate principal amount of
Floating Rate Asset Backed Certificates, Series 1998-1 representing undivided
interests in certain assets of the Trust (the "Certificates"). The Certificates
will be issued pursuant to the Master Pooling and Servicing Agreement dated as
of October 30, 1997 (the "Pooling and Servicing Agreement") between FNANB and
First Union National Bank, as Trustee (the "Trustee"), filed as Exhibit 4.1 to
the Registration Statement, and the Series 1998-1 Supplement to the Pooling and
Servicing Agreement (the "Series Supplement") between FNANB and the Trustee, the
form of which has been filed as Exhibit 4.2 to the Registration Statement.
In connection with our engagement, we have made such legal and
factual examinations and inquiries and have examined such corporate records,
certificates and other documents as we have deemed necessary or advisable for
purposes of this opinion.
Based upon such examination and review, we are of the opinion
that when the Certificates have been duly authorized by FNANB, duly executed and
authenticated in accordance with the terms of the Pooling and Servicing
Agreement and the Series Supplement and delivered and sold as contemplated by
the Registration Statement, the Certificates will be legally issued, fully paid
and non-assessable.
<PAGE> 2
First North American National Bank
October 2, 1998
Page 2
We express no opinion as to the laws of any jurisdiction other
than the Commonwealth of Virginia and the Federal laws of the United States of
America. To the extent that the Pooling and Servicing Agreement, the Series
Supplement or the Certificates are governed by the laws of any jurisdiction
other than the Commonwealth of Virginia, we have assumed that the laws of such
jurisdiction are in conformity with the laws of the Commonwealth of Virginia.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to McGuire, Woods, Battle &
Boothe LLP under the heading "Legal Matters" in the prospectus included in the
Registration Statement. We do not admit by giving this consent that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
<PAGE> 1
EXHIBIT 8.1
[MCGUIRE WOODS BATTLE & BOOTHE LLP LETTERHEAD]
October 2, 1998
First North American National Bank
225 Chastain Meadows Court
Kennesaw, Georgia 30144
FNANB Credit Card Master Trust
Floating Rate Asset Backed Certificates, Series 1998-1
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special tax counsel to First North American
National Bank, a national banking association ("FNANB"), in connection with the
filing by FNANB and the FNANB Credit Card Master Trust (the "Trust"), with the
Securities and Exchange Commission of a Registration Statement on Form S-3 (the
"Registration Statement") registering $492,000,000 aggregate principal amount of
Floating Rate Asset Backed Certificates, Series 1998-1, representing undivided
interests in certain assets of the Trust (the "Certificates"). The Certificates
will be issued pursuant to the Master Pooling and Servicing Agreement dated as
of October 30, 1997 (the "Pooling and Servicing Agreement") between FNANB and
First Union National Bank, as Trustee (the "Trustee"), filed as Exhibit 4.1 to
the Registration Statement, and the Series 1998-1 Supplement to the Pooling and
Servicing Agreement between FNANB and the Trustee, the form of which has been
filed as Exhibit 4.2 to the Registration Statement.
We hereby confirm that the statements set forth under the
heading "Material Federal Income Tax Consequences" in the prospectus included in
the Registration Statement accurately describe the material Federal income tax
consequences to holders of the Certificates.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to McGuire, Woods, Battle &
Boothe LLP under the heading "Legal Matters" in the prospectus included in the
Registration Statement. We do not admit by giving this consent that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
