PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 10, 1997
[LOGO]
$546,000,000
PROVIDIAN MASTER TRUST
$489,000,000 FLOATING RATE CLASS A ASSET BACKED CERTIFICATES, SERIES 1997-1
$57,000,000 FLOATING RATE CLASS B ASSET BACKED CERTIFICATES, SERIES 1997-1
FIRST DEPOSIT NATIONAL BANK
SELLER AND SERVICER
PROVIDIAN NATIONAL BANK
SELLER
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The Floating Rate Class A Asset Backed Certificates, Series 1997-1 (the 'Class A
Certificates') and the Floating Rate Class B Asset Backed Certificates, Series
1997-1 (the 'Class B Certificates') offered hereby evidence undivided
interests in certain assets of the Providian Master Trust, formerly known
as the First Deposit Master Trust (the 'Trust'), formed pursuant to a
Pooling and Servicing Agreement among First Deposit National Bank
('FDNB'), as seller and servicer, Providian National Bank ('PNB';
together with FDNB, the 'Banks'), as seller, and Bankers Trust
Company, as Trustee. The property of the Trust includes receivables
(the 'Receivables') generated from time to time in a portfolio of
consumer revolving credit card accounts and other consumer
revolving credit accounts (the 'Accounts'), collections thereon
and certain other property as more fully described herein. The
Trust will also issue the Collateral Interest (as defined
herein), an uncertificated undivided interest in certain
assets of the Trust, which will be subordinated to the Class
A Certificates and the Class B Certificates as described
herein and will be issued in the initial amount of
$54,000,000. The Class A Certificates, the Class B
Certificates and the Collateral Interest together
constitute the 'Series 1997-1 Certificates'.
(Continued on next page)
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN 'RISK FACTORS' COMMENCING ON PAGE S-11 HEREIN AND ON PAGE 15 IN THE
PROSPECTUS.
THE CLASS A CERTIFICATES AND THE CLASS B CERTIFICATES WILL REPRESENT INTERESTS
IN THE TRUST ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF EITHER
BANK OR ANY AFFILIATE OF EITHER BANK. NEITHER THE CLASS A CERTIFICATES, THE
CLASS B CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR RECEIVABLES OR ANY
COLLECTIONS THEREON ARE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) THE BANKS(3)
------------- --------------- -------------
Per Class A Certificate........................................... 100.000% 0.275% 99.725%
Per Class B Certificate........................................... 100.000% 0.325% 99.675%
Total............................................................. $546,000,000 $1,530,000 $544,470,000
(1) Plus accrued interest, if any, from and including the Series Issuance Date.
(2) See 'Underwriting' herein.
(3) Before deducting expenses payable by the Banks, estimated to be $800,000.
------------------------
The Class A Certificates and the Class B Certificates are offered by the
Underwriters when, as and if issued to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
the Class A Certificates and the Class B Certificates will be offered globally
and delivered in book-entry form on or about March 20, 1997, through the
facilities of The Depository Trust Company, Cedel Bank, societe anonyme and the
Euroclear System.
Underwriters of the Class A Certificates
CREDIT SUISSE FIRST BOSTON
CITICORP SECURITIES, INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
Underwriters of the Class B Certificates
CREDIT SUISSE FIRST BOSTON LEHMAN BROTHERS
The date of this Prospectus Supplement is March 13, 1997.
The Trust has previously issued seven other Series of Certificates, six of
which are still outstanding, and expects to issue another Series of Certificates
contemporaneously with the issuance of the Series 1997-1 Certificates, each
evidencing undivided interests in certain assets of the Trust. In addition, from
time to time, the Banks may offer other Series of Certificates evidencing
undivided interests in the Trust, which may have terms significantly different
from the Series 1997-1 Certificates. Interest will be distributed on the Class A
Certificates and the Class B Certificates on April 15, 1997 and on the 15th day
of each month thereafter (or, if any such 15th day is not a business day, the
next succeeding business day) (each an 'Interest Payment Date'). Interest will
accrue on the Class A Certificates with respect to each Interest Period (as
defined herein) at the rate of 0.09% per annum above the London interbank
offered quotations rate for one-month United States Dollar deposits as
determined herein (the 'Class A Certificate Rate'). Interest will accrue on the
Class B Certificates with respect to each Interest Period (as defined herein) at
the rate of 0.28% per annum above the London interbank offered quotations rate
for one-month United States Dollar deposits as determined herein (the 'Class B
Certificate Rate'). Principal with respect to the Class A Certificates and the
Class B Certificates is scheduled to be distributed on the March 2002
Distribution Date and the May 2002 Distribution Date, respectively. Principal
may be paid earlier or later in certain circumstances, including those described
under 'Description of the Certificates--Pay-Out Events' in the Prospectus and
'Series Provisions--Pay Out Events' herein. The Class B Certificates will be
subordinated to the Class A Certificates, and the Collateral Interest will be
subordinated to the Class A Certificates and the Class B Certificates, as
described herein. Additional enhancement for the Class A Certificates and the
Class B Certificates will be provided in the form of the Cash Collateral
Account. The Class A Certificates and the Class B Certificates initially will be
represented by certificates that will be registered in the name of Cede & Co.,
the nominee of The Depository Trust Company. The interests of holders of
beneficial interests in the Class A Certificates (the 'Class A
Certificateholders') and in the Class B Certificates (the 'Class B
Certificateholders'), will be represented by book entries on the records of The
Depository Trust Company and participating members thereof. Definitive
Certificates will be available to Class A Certificateholders and Class B
Certificateholders only under the limited circumstances described under 'The
Pooling Agreement Generally--Definitive Certificates' in the Prospectus. There
currently is no secondary market for the Class A Certificates or the Class B
Certificates, and there is no assurance that one will develop or, if one does
develop, that it will continue until the Class A Certificates and the Class B
Certificates are paid in full.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE 'UNDERWRITING'.
------------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION WITH
RESPECT TO THE OFFERING OF THE CLASS A CERTIFICATES AND THE CLASS B
CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND
PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
IN FULL. SALES OF THE CLASS A CERTIFICATES AND THE CLASS B CERTIFICATES MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
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SUMMARY OF SERIES TERMS
This Summary of Series Terms sets forth and defines specific terms of the
Class A Certificates and the Class B Certificates offered by this Prospectus
Supplement and the Prospectus, but is qualified in its entirety by reference to
the detailed information appearing elsewhere in this Prospectus Supplement and
the Prospectus. Reference is made to the Glossary in each of this Prospectus
Supplement and the Prospectus for the location herein and therein of certain
capitalized terms. Certain capitalized terms used but not defined herein have
the meanings assigned thereto in the Prospectus.
Title of Securities.......................... $489,000,000 Floating Rate Class A Asset Backed Certificates,
Series 1997-1, and $57,000,000 Floating Rate Class B Asset
Backed Certificates, Series 1997-1.
Class A Initial Invested Amount.............. $489,000,000.
Class B Initial Invested Amount.............. $57,000,000.
Class A Certificate Rate..................... A rate per annum equal to LIBOR for United States Dollar deposits
for a period of one month determined as of the LIBOR
Determination Date, as described herein, plus 0.09%.
Class B Certificate Rate..................... A rate per annum equal to LIBOR for United States Dollar deposits
for a period of one month determined as of the LIBOR
Determination Date, as described herein, plus 0.28%.
Interest Payment Dates....................... The 15th day of each month (or, if any such 15th day is not a
business day, the next succeeding business day), commencing
April 15, 1997. As used herein, a 'business day' is any day
other than (a) a Saturday or a Sunday or (b) a day on which
banks are legally obligated or authorized to close in New York
City or any of the cities in New Hampshire or California in
which the Banks are headquartered or have affiliated operations
centers.
Collateral Initial Invested Amount........... $54,000,000.
Class A Controlled Accumulation
Amount..................................... For each Distribution Date with respect to the Class A
Accumulation Period, $20,375,000 (except that, if the
commencement of the Class A Accumulation Period is delayed as
described herein under 'Series Provisions--Principal', the Class
A Controlled Accumulation Amount for each Distribution Date with
respect to the Class A Accumulation Period will be determined as
described under 'Series Provisions--Application of
Collections--Payments of Principal'). See 'Description of the
Certificates--Principal' in the Prospectus.
Class B Controlled Accumulation
Amount..................................... For each Distribution Date with respect to the Class B
Accumulation Period, $28,500,000 (or such other amount as the
Servicer may determine as described under 'Series
Provisions--Application of Collections--Payments of Principal').
See 'Description of the Certificates--Principal' in the
Prospectus.
Class A Expected Final Payment
Date....................................... The March 2002 Distribution Date.
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Class B Expected Final Payment
Date....................................... The May 2002 Distribution Date.
The Class A Certificates; the Class B
Certificates; the Collateral Interest...... Each of the Class A Certificates and the Class B Certificates
offered hereby represents an undivided interest in certain Trust
Assets and, in the case of the Class A Certificates, an
undivided interest in investments and moneys on deposit in the
Principal Funding Account in respect of the Class A Certificates
and in the case of the Class B Certificates, an undivided
interest in investments and moneys on deposit in the Principal
Funding Account in respect of the Class B Certificates. In
addition, an undivided interest in certain Trust Assets (the
'Collateral Interest') will be issued in the Collateral Initial
Invested Amount, which amount will equal 9% of the sum of the
Class A Initial Invested Amount, the Class B Initial Invested
Amount and the Collateral Initial Invested Amount (together, the
'Initial Invested Amount') and will constitute a portion of the
Credit Enhancement for the Class A Certificates and the Class B
Certificates. The provider or providers of such Credit
Enhancement are referred to herein as the 'Collateral Interest
Holder'. The portion of the Trust Assets allocated to the
holders of the Series 1997-1 Certificates as described under
'Description of the Certificates' in the Prospectus will be
allocated between the holders of the Class A Certificates (the
'Class A Certificateholders' Interest'), the Class B
Certificates (the 'Class B Certificateholders' Interest') and
the Collateral Interest Holder as described herein. The Class A
Certificateholders' Interest, the Class B Certificateholders'
Interest and the Collateral Interest are sometimes collectively
referred to herein as the 'Series 1997-1 Certificateholders'
Interest'.
The principal amount of the Class A Certificateholders' Interest
may decline as a result of the allocation to the Class A
Certificateholders of Defaulted Amounts, as described herein.
The Class B Certificateholders' Interest may decline as a result
of (a) the allocation to the Class B Certificateholders'
Interest of Defaulted Amounts, including those otherwise
allocable to the Class A Certificateholders' Interest, and (b)
the reallocation of collections of Principal Receivables
otherwise allocable to the Class B Certificateholders' Interest
to fund certain payments in respect of the Class A Certificates
and certain servicing fees. The Collateral Interest may decline
as a result of (a) the allocation to the Collateral Interest of
Defaulted Amounts, including those otherwise allocable to the
Class A Certificateholders' Interest and the Class B
Certificateholders' Interest, and (b) the reallocation of
collections of Principal Receivables otherwise allocable to the
Collateral Interest or the Class B Certificates to fund certain
payments in respect of the Class A Certificates, the Class B
Certificates and certain servicing fees. Any such reductions in
the Class A Certificateholders' Interest, the Class B
Certificateholders' Interest or the Collateral Interest may be
reimbursed out of Available Finance Charge Collections, as
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described herein. For the purpose of allocating collections of
Finance Charge Receivables and the Defaulted Amount with respect
to each Monthly Period, the Class A Certificateholders' Interest
will be further reduced by the amount on deposit in the
Principal Funding Account in respect of the Class A Certificates
and the Class B Certificateholders' Interest will be further
reduced by the amount on deposit in the Principal Funding
Account in respect of the Class B Certificates (as so reduced,
the 'Class A Adjusted Invested Amount' and the 'Class B Adjusted
Invested Amount', respectively, and collectively with the
Collateral Invested Amount, the 'Adjusted Invested Amount').
The Series 1997-1 Certificateholders' Interest will include the
right to receive (but only to the extent needed to make required
payments under the Pooling Agreement and the Series 1997-1
Supplement and subject to any reallocation of such amounts as
described herein) varying percentages of the collections of
Finance Charge Receivables and Principal Receivables and will be
allocated a varying percentage of the Defaulted Amount with
respect to each Monthly Period. Finance Charge Receivables
collections and the Defaulted Amount will be allocated to the
Series 1997-1 Certificateholders' Interest based on the Floating
Allocation Percentage. The Defaulted Amount with respect to each
Monthly Period will be further allocated between the Class A
Certificates, the Class B Certificates and the Collateral
Interest as described herein. Finance Charge Receivables
collections with respect to each Monthly Period allocated to
Series 1997-1 will be applied first to pay interest on the Class
A Certificates, second to pay interest on the Class B
Certificates and then, to the extent available after making such
payments and other payments having a higher priority as
described herein, interest on the Collateral Interest. See
'Series Provisions--Application of Collections--Payments of
Interest, Fees and Other Items'. Collections of Principal
Receivables will be allocated to the Series 1997-1
Certificateholders' Interest based on the Principal Allocation
Percentage. Such percentage will vary as described herein under
'Series Provisions--Allocation Percentages' depending on whether
Series 1997-1 is in its Revolving Period, Class A Accumulation
Period, Class B Accumulation Period or Early Amortization
Period. See also 'Description of the Certificates--Allocation
Percentages' in the Prospectus. Such amounts will be further
allocated between the Class A Certificates, the Class B
Certificates and the Collateral Interest for certain purposes as
described herein. See 'Series Provisions--Allocation
Percentages'.
Interest rate swap or cap agreements may be assigned to the Trust
with respect to Series 1997-1, the payments from which would be
included in Available Finance Charge Collections. If any such
agreement is entered into, it may be discontinued or removed
from the Trust at any time. See 'Series Provisions--Interest'.
S-5
The Cash Collateral Account.................. A cash collateral account (the 'Cash Collateral Account') will be
held in the name of the Trustee, on behalf of the Trust, for the
benefit of the Class A Certificateholders and the Class B
Certificateholders. The Cash Collateral Account will have a
beginning balance of $18,000,000 which amount represents 3% of
the Initial Invested Amount). As described herein, withdrawals
will be made from the Cash Collateral Account, to the extent
available, to pay any Required Amounts. See 'Series
Provisions--Cash Collateral Account'.
Subordination; Additional Amounts
Available to Class A
Certificateholders and Class B
Certificateholders......................... The fractional undivided interest in the Trust Assets constituting
the Class B Certificateholders' Interest will be subordinated to
the extent necessary to fund certain payments with respect to
the Class A Certificates as described herein. In addition, the
fractional undivided interest in the Trust Assets constituting
the Collateral Interest will be subordinated to the extent
necessary to fund certain payments with respect to the Class A
Certificates and the Class B Certificates as described herein.
If, on any Distribution Date, Available Finance Charge
Collections are less than the sum of (a) current and overdue
Class A Monthly Interest and any Class A Additional Interest,
(b) current and overdue Class B Monthly Interest and any Class B
Additional Interest, (c) current and overdue Monthly Investor
Servicing Fee, (d) the Class A Defaulted Amount, and (e) the
Class B Defaulted Amount, as of, in each case, such Distribution
Date (such deficiency, the 'Required Amount'), then the
Available Cash Collateral Amount will be used to fund the
Required Amount. If the Available Cash Collateral Amount is less
than the Required Amount, then Reallocated Collateral Principal
Collections that would otherwise be allocable to the Collateral
Interest with respect to the related Monthly Period will be used
to fund the remaining Required Amount. If Reallocated Collateral
Principal Collections are insufficient to fund the remaining
Required Amount, then Reallocated Class B Principal Collections
that would otherwise be allocable to the Class B
Certificateholders' Interest with respect to the related Monthly
Period will be used to fund the remaining portion of the
Required Amount described in clauses (a), (c) and (d) above.
If on any Distribution Date, the Class A Defaulted Amount exceeds
the amount of Available Finance Charge Collections, the
Available Cash Collateral Amount and Reallocated Principal
Collections applied thereto on such Distribution Date, then the
Collateral Invested Amount (after giving effect to any
reductions in the Collateral Invested Amount on such
Distribution Date attributable to the Collateral Defaulted
Amount and the application of Reallocated Principal Collections)
will be reduced by the amount of such excess. If such reduction
would cause the Collateral Invested Amount to be reduced below
zero, the Class B Invested Amount (after giving effect to any
reductions in the Class B Invested Amount
S-6
on such Distribution Date attributable to the Class B Defaulted
Amount and the application of Reallocated Class B Principal
Collections) will be reduced by the amount by which the
Collateral Invested Amount would have been reduced below zero.
In the event that such reduction would cause the Class B
Invested Amount to be reduced below zero, the Class A Invested
Amount shall be reduced by the amount by which the Class B
Invested Amount would have been reduced below zero, and, in such
case, the Class A Certificateholders will bear directly the
credit and other risks associated with their undivided interest
in the Trust. See 'Series Provisions--Application of
Collections' and '--Defaulted Amounts; Charge-Offs'.
If on any Distribution Date, the Class B Defaulted Amount exceeds
the amount of Available Finance Charge Collections, the
Available Cash Collateral Amount and Reallocated Collateral
Principal Collections applied thereto on such Distribution Date,
then the Collateral Invested Amount (after giving effect to any
reductions in the Collateral Invested Amount on such
Distribution Date attributable to the Collateral Defaulted
Amount, the application of Reallocated Principal Collections and
the Class A Defaulted Amount) will be reduced by the amount of
such excess. If such reduction would cause the Collateral
Invested Amount to be reduced below zero, the Class B Invested
Amount will be reduced by the amount by which the Collateral
Invested Amount would have been reduced below zero, and, in such
case, the Class B Certificateholders will bear directly the
credit and other risks associated with their undivided interest
in the Trust. See 'Series Provisions--Application of
Collections' and
'--Defaulted Amounts; Charge-Offs'.
Credit Enhancement........................... On each Distribution Date, the amount of the Collateral Interest
and the Available Cash Collateral Amount, which collectively
constitute the Credit Enhancement for the Class A Certificates
and the Class B Certificates, will equal the lesser of (a) the
sum of the Collateral Invested Amount and the Available Cash
Collateral Amount and (b) the Required Enhancement Amount. The
Required Enhancement Amount with respect to any Distribution
Date will be, subject to certain limitations more fully
described herein, the product of (i) the Initial Invested Amount
or, in certain circumstances, the Adjusted Invested Amount and
(ii) 12%. If, as of any Distribution Date, the sum of the
Available Cash Collateral Amount and the Collateral Invested
Amount is less than the Required Enhancement Amount, Available
Finance Charge Collections remaining after making payments on
such date having a higher priority, as described herein, will be
used to increase the Available Cash Collateral Amount or the
Collateral Invested Amount to the extent of such shortfall. If,
as of any Distribution Date, the Collateral Invested Amount
exceeds the Required Collateral Invested Amount, Available
Principal Collections remaining after payment of any Class A
Monthly Principal and Class B Monthly Principal on such date
may,
S-7
under certain circumstances, be used to reduce the Collateral
Invested Amount to the Required Collateral Invested Amount. See
'Series Provisions--Application of Collections'.
Other Series................................. The Trust has previously issued seven Series of Certificates, six
of which are still outstanding, and expects to issue another
Series of Certificates (the 'Series 1997-2 Certificates')
contemporaneously with the issuance of the Series 1997-1
Certificates. See 'Annex I: Other Issuances of Certificates' for
a summary of those outstanding certificates and the Series
1997-2 Certificates. Additional Series are expected to be issued
from time to time by the Trust. See 'Description of the
Certificates--New Issuances' in the Prospectus.
Sharing of Additional Finance
Charges.................................... Upon the issuance of the Series 1997-1 Certificates and the Series
1997-2 Certificates, eight Series issued by the Trust will be
outstanding as of the Series Issuance Date and will be included
in a group of Series designated as 'Group One'. Group One is
expected to include additional Series issued from time to time.
Subject to certain limitations described under 'Description of
the Certificates--Sharing of Additional Finance Charges' in the
Prospectus, Additional Finance Charges, if any, with respect to
any Series included in Group One will be applied to cover any
shortfalls with respect to amounts payable from collections of
Finance Charge Receivables allocable to any other Series in
Group One, pro rata based upon the amount of the shortfall, if
any, with respect to each other Series in Group One. See
'Description of the Certificates--Sharing of Additional Finance
Charges' in the Prospectus.
The Receivables.............................. The aggregate amount of Receivables in the Accounts as of December
31, 1996 (including approximately $1,077,000,000 of Receivables
in Accounts added to the Trust after December 31, 1996 and on or
prior to the Series Issuance Date and excluding approximately
$156,000,000 of Receivables in Automatic Additional Accounts
added to the Trust during such period) was $5,860,930,708 of
which $5,760,562,228 were Principal Receivables and $100,368,480
were Finance Charge Receivables (which amounts include overdue
Principal Receivables and overdue Finance Charge Receivables,
respectively). The amount of such Finance Charge Receivables
will not affect the amount of the Certificateholders' Interest
represented by the Certificates or the amount of the Sellers'
Interest, which are determined on the basis of the amount of
Principal Receivables in the Trust. See 'The Accounts' in the
Prospectus and 'Composition of the Accounts' herein.
Series Cut-Off Date.......................... February 28, 1997.
Series Issuance Date......................... On or about March 20, 1997.
Revolving Period and Accumulation
Periods.................................... Unless a Pay Out Event occurs, the revolving period with respect
to the Series 1997-1 Certificates (the 'Revolving Period') will
end, and the accumulation period with respect to the
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Class A Certificates (the 'Class A Accumulation Period') will
commence, at the close of business on the last business day of
February 2000 (except that, subject to the conditions set forth
under 'Series Provisions--Principal', the day on which the
Revolving Period ends and the Class A Accumulation Period begins
may be delayed to not later than the last business day of August
2001). Unless a Pay Out Event occurs, the accumulation period
with respect to the Class B Certificates (the 'Class B
Accumulation Period') will commence at the close of business on
the last business day of the Monthly Period immediately
preceding the Class A Expected Final Payment Date or, if the
Class A Invested Amount is not paid in full on the Class A
Expected Final Payment Date, at the close of business on the
last business day of the second Monthly Period preceding the
Distribution Date on which the Class A Invested Amount is paid
in full. See 'Description of the Certificates--Principal' in the
Prospectus.
Series Servicing Fee Percentage.............. For so long as FDNB is the Servicer, 1.75% per annum or, if a
successor Servicer is appointed, a percentage determined by the
Trustee, which will not exceed 2.00% per annum. The Monthly
Investor Servicing Fee will be paid on each Distribution Date as
described under 'Series Provisions--Application of
Collections--Payment of Interest, Fees and Other Items'. See
also 'Description of the Certificates--Servicing Compensation
and Payment of Expenses' in the Prospectus.
Registration................................. The Class A Certificates and the Class B Certificates initially
will be represented by certificates registered in the name of
Cede, as nominee of DTC, and no purchaser of Class A
Certificates or Class B Certificates will be entitled to receive
a definitive certificate except under certain limited
circumstances. Class A Certificateholders and Class B
Certificateholders may elect to hold their Certificates through
DTC (in the United States) or CEDEL or Euroclear (in Europe).
See 'The Pooling Agreement Generally--Book-Entry Registration'
and '--Definitive Certificates' in the Prospectus.
Optional Repurchase.......................... On any day occurring on or after the day on which the Invested
Amount is reduced to 5% or less of the Initial Invested Amount,
the Banks will have the option to repurchase the Series 1997-1
Certificateholders' Interest and thereby retire the Series
1997-1 Certificates. The purchase price will be equal to the sum
of the Adjusted Invested Amount and accrued and unpaid interest
on the Class A Certificates, the Class B Certificates and the
Collateral Interest (and accrued and unpaid interest with
respect to interest amounts that were due but not paid on any
prior Interest Payment Date) through (a) if the day on which
such repurchase occurs is a Distribution Date, the day
immediately preceding such Distribution Date, or (b) if the day
on which such repurchase occurs is not a Distribution Date, the
day immediately preceding the Distribution Date following such
day. See 'Description of the Certificates--
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Optional Termination; Final Payment of Principal' in the
Prospectus.
Series Termination Date...................... The May 2006 Distribution Date. See 'Series Provisions--Series
Termination'.
ERISA Eligibility............................ The Class A Certificates may be eligible for purchase by Benefit
Plans. The Class B Certificates are not expected to be eligible
for purchase by Benefit Plans. See 'ERISA Considerations' in the
Prospectus.
Class A Certificate Rating................... It is a condition to the issuance of the Class A Certificates that
they be rated in the highest rating category by at least one
nationally recognized rating agency. The rating of the Class A
Certificates is based primarily on the value of the Receivables,
the Cash Collateral Account and the circumstances in which funds
otherwise allocable to the Class B Certificateholders' Interest
and the Collateral Interest may be available to the Class A
Certificateholders. The rating of the Class A Certificates is
not based on the availability of payments under any interest
rate swap or cap agreement that may be assigned to the Trust
with respect to the Series 1997-1 Certificates. See 'Risk
Factors--Limited Nature of Rating' in the Prospectus.
Class B Certificate Rating................... It is a condition to the issuance of the Class B Certificates that
they be rated in one of the three highest rating categories by
at least one nationally recognized rating agency. The rating of
the Class B Certificates is based primarily on the value of the
Receivables, the Cash Collateral Account and the circumstances
in which funds otherwise allocable to the Collateral Interest
may be available to the Class B Certificateholders. The rating
of the Class B Certificates is not based on the availability of
payments under any interest rate swap or cap agreement that may
be assigned to the Trust with respect to the Series 1997-1
Certificates. See 'Risk Factors--Limited Nature of Rating' in
the Prospectus.
S-10
RISK FACTORS
Potential investors should consider, among other things, the risk factors
discussed under 'Risk Factors' in the Prospectus and the following risk factors
in connection with the purchase of the Series 1997-1 Certificates.
Limited Amounts of Credit Enhancement. The Credit Enhancement with respect
to the Class A Certificates will be provided by the subordination of the Class B
Certificates and the Collateral Interest and the funds available in the Cash
Collateral Account, and the Credit Enhancement with respect to the Class B
Certificates will be provided by the subordination of the Collateral Interest
and the funds available in the Cash Collateral Account. In each case, the
amounts available as Credit Enhancement are limited and will be reduced by
payments or reductions that may be made pursuant to the terms of the Series
1997-1 Supplement, as described herein. If the Available Cash Collateral Amount
and the Collateral Invested Amount have been reduced to zero, Class B
Certificateholders will bear directly the credit and other risks associated with
their undivided interest in the Trust and the Class B Invested Amount may be
reduced. If the Class B Invested Amount is reduced to zero, Class A
Certificateholders will bear directly the credit and other risks associated with
their undivided interest in the Trust. Further, in the event of a reduction of
the Class B Invested Amount or the Collateral Invested Amount, the amount of
principal and interest available to make distributions with respect to the Class
A Certificates and the Class B Certificates may be reduced. Additionally, the
amount of Credit Enhancement may be reduced or the form thereof altered at the
Banks' option at any time, subject to the approval of each Rating Agency that
has rated the Class A Certificates and the Class B Certificates.
Effect of Subordination of Class B Certificates; Principal Payments.
Payments of principal and interest on the Class B Certificates are subordinated
in right of payment to the Class A Certificates. Payments of principal in
respect of the Class B Certificates will not commence until after the final
principal payment with respect to the Class A Certificates has been made as
described herein. Moreover, the Class B Invested Amount is subject to reduction
if the portion of the Required Amount for any Monthly Period attributable to the
Class A Certificates and the Monthly Investor Servicing Fee is greater than zero
and is not funded by a withdrawal from the Cash Collateral Account or a
reduction in the Collateral Invested Amount. To the extent the Class B Invested
Amount is reduced, the amount of interest distributable to Class B
Certificateholders may 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
'Series Provisions-Allocation Percentages' and '--Application of Collections'.
If the Class B Invested Amount is reduced to zero, the holders of the Class A
Certificates will bear directly the credit and other risks associated with their
undivided interest in the Trust.
MATURITY CONSIDERATIONS
The Pooling Agreement and the Series 1997-1 Supplement provide that the
Class A Invested Amount is payable to the Class A Certificateholders, to the
extent funds are available therefor in the Principal Funding Account, on the
Class A Expected Final Payment Date or earlier in the event of a Pay Out Event
which results in the commencement of an early amortization period with respect
to the Series 1997-1 Certificates (an 'Early Amortization Period'). The Class A
Certificateholders will receive payments of principal on each Distribution Date
following the Monthly Period in which a Pay Out Event occurs (each such
Distribution Date, a 'Special Payment Date') until the Class A Invested Amount
is paid in full or the Series Termination Date occurs. The Class B
Certificateholders will not begin to receive payments of principal until the
final principal payment on the Class A Certificates has been made.
On each Distribution Date with respect to the Class A Accumulation Period
(on or prior to the Class A Expected Final Payment Date), Available Principal
Collections in an amount up to the Class A Controlled Deposit Amount with
respect to such Distribution Date will be deposited in the Principal Funding
Account (as described under 'Series Provisions--Application of
Collections--Payments of Principal'), until the Principal Funding Account
Balance is equal to the Class A Invested Amount. The Class A Certificateholders
will receive the aggregate principal amount on deposit in the Principal Funding
Account on the Class A Expected Final Payment Date. Although it is anticipated
that Available Principal Collections for each Monthly Period with respect to the
Class A Accumulation Period will be sufficient to fund the deposit of the Class
A Invested Amount in the Principal Funding Account for payment to the Class A
Certificateholders on the Class A Expected Final Payment Date, no assurance can
be given in that regard. If the Class A Invested Amount is not paid in full on
the Class A Expected Final Payment Date, principal will be paid to the Class A
Certificateholders monthly on each
S-11
Distribution Date until the Class A Invested Amount is paid in full and then to
the Class B Certificateholders until the Class B Invested Amount is paid in full
or, in either case, until the Series Termination Date occurs.
If the Class A Invested Amount is paid in full on the Class A Expected
Final Payment Date, then on each Distribution Date with respect to the Class B
Accumulation Period (on or prior to the Class B Expected Final Payment Date),
Available Principal Collections in an amount up to the Class B Controlled
Deposit Amount with respect to such Distribution Date will be deposited in the
Principal Funding Account (as described under 'Series Provisions--Application of
Collections--Payments of Principal'), until the Principal Funding Account
Balance is equal to the Class B Invested Amount. The Class B Certificateholders
will receive the aggregate principal amount on deposit in the Principal Funding
Account on the Class B Expected Final Payment Date. Although it is anticipated
that Available Principal Collections for each Monthly Period with respect to the
Class B Accumulation Period will be sufficient to fund the deposit of the Class
B Invested Amount in the Principal Funding Account for payment to the Class B
Certificateholders on the Class B Expected Final Payment Date, no assurance can
be given in that regard. If the Class B Invested Amount is not paid in full on
the Class B Expected Final Payment Date, principal will be paid to the Class B
Certificateholders monthly on each Distribution Date until the Class B Invested
Amount is paid in full or until the Series Termination Date occurs.
At or after the time at which the Class A Accumulation Period commences for
Series 1997-1, the Banks may designate another Series (or some portion thereof)
as a Paired Series with respect to Series 1997-1 and may use such other Series
to finance the increase in the Sellers' Interest caused by the accumulation of
principal in the Principal Funding Account with respect to Series 1997-1. A
Paired Series is intended to be issued as a pair with a Series which is in its
Accumulation Period or Scheduled Amortization Period, and, accordingly, new
Paired Series may be excluded from the definition of Required Principal Balance
and thereby increase the aggregate Invested Amounts that may be issued by the
Trust in relation to the aggregate amount of Principal Receivables (although no
new Series may be issued if the aggregate Invested Amounts and Enhancement
Invested Amounts of the outstanding Series would exceed the aggregate amount of
Principal Receivables in the Trust plus any amounts on deposit in the Special
Funding Account and in the Principal Funding Accounts for all outstanding
Series). If a Pay Out Event occurs with respect to any Paired Series and the
Early Amortization Period for such Series overlaps the Class A Accumulation
Period, the Class B Accumulation Period or the Early Amortization Period for the
Series 1997-1 Certificates, the final payment of principal to the Series 1997-1
Certificateholders may be delayed.
If a Pay Out Event occurs with respect to the Series 1997-1 Certificates
and the Early Amortization Period commences, any amount on deposit in the
Principal Funding Account on the first Special Payment Date, and the Available
Principal Collections on each Distribution Date thereafter,will be paid to the
Class A Certificateholders until the Class A Invested Amount is paid in full and
then to the Class B Certificateholders until the Class B Invested Amount is paid
in full or, in either case, until the Series Termination Date occurs. See
'Description of the Certificates--Pay Out Events' in the Prospectus and 'Series
Provisions--Pay Out Events' herein. If the commencement of the Class A
Accumulation Period is delayed as described under 'Series Provisions--
Principal', and a Pay Out Event with respect to the Series 1997-1 Certificates
or with respect to any other Series occurs after the date originally scheduled
for the commencement of the Class A Accumulation Period, then it is probable
that the Class A Certificateholders, and consequently the Class B
Certificateholders, would receive some of their principal later than if the
Class A Accumulation Period had not been delayed.
The following table sets forth the highest and lowest accountholder monthly
payment rates for the Providian Portfolio during any month in the period shown
and the average accountholder monthly payment rates for all months during the
periods shown, in each case calculated as a percentage of total opening monthly
account balances during the applicable months. Payments shown in the table
consist of amounts that would be deemed payments of Principal Receivables and
Finance Charge Receivables with respect to the Accounts.
ACCOUNTHOLDER MONTHLY PAYMENT RATES
PROVIDIAN PORTFOLIO
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
Lowest...................................................................... 7.84% 7.31% 7.29%
Highest..................................................................... 9.35% 8.95% 8.98%
Monthly Average............................................................. 8.47% 8.01% 8.20%
S-12
The amount of outstanding Receivables and the rates of payments,
delinquencies, charge-offs and new borrowings on the Accounts depend upon a
variety of factors, including seasonal variations, the availability of other
sources of credit, legal factors, general economic conditions and consumer
spending and borrowing patterns. The Banks cannot predict, and no assurance can
be given as to, the accountholder monthly payment rates that will actually occur
in any future period. There can be no assurance that collections of Principal
Receivables with respect to the Accounts, and thus the rate at which the
Principal Funding Account could be funded during the Class A Accumulation Period
or the Class B Accumulation Period, or the rate at which Class A
Certificateholders and Class B Certificateholders could expect to receive
payments of principal on their Class A Certificates and their Class B
Certificates during the Early Amortization Period, will be similar to the
historical experience set forth above. In addition, the Trust, as a master
trust, has issued and may issue additional Series from time to time, and there
can be no assurance that the terms of any such Series might not have an impact
on the timing or amount of payments received by a Class A Certificateholder or
Class B Certificateholder. If a Pay Out Event occurs with respect to the Series
1997-1 Certificates or other Series in certain circumstances discussed above,
payments of principal on the Class A Certificates and the Class B Certificates
could be delayed. In other circumstances, if a Pay Out Event occurs with respect
to the Series 1997-1 Certificates, the average life and maturity of the Class A
Certificates and the Class B Certificates could be significantly reduced. As a
result, there can be no assurance that the actual number of months elapsed from
the date of issuance of the Class A Certificates and the Class B Certificates to
the respective final Distribution Dates with respect to the Class A Certificates
and the Class B Certificates will equal the expected number of months. See 'Risk
Factors--Payments and Maturity' in the Prospectus.
THE PROVIDIAN PORTFOLIO
GENERAL
Set forth below is certain information with respect to the Providian
Portfolio. See 'The Banks' Credit Card and Consumer Lending Business' in the
Prospectus. There can be no assurance that the yield, loss and delinquency
experience with respect to the Receivables will be comparable to that set forth
below with respect to the entire Providian Portfolio.
REVENUE EXPERIENCE
Gross revenues from monthly periodic charges and fees billed to
accountholders on accounts contained in the Providian Portfolio for each of the
three years ended December 31, 1996, 1995 and 1994 are set forth in the
following table. Revenue from the Receivables will depend on the types of fees
and charges assessed on the Accounts, and could be adversely affected by future
changes made by the Banks or the Servicer in such fees and charges or by other
factors. See 'Risk Factors-Certain Legal Aspects' and 'The Ability of the Banks
to Change Terms of the Accounts' and 'The Accounts-Billing and Payments' in the
Prospectus.
REVENUE EXPERIENCE
PROVIDIAN PORTFOLIO
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Average Receivables Outstanding(1)............................ $6,646,608 $4,810,220 $3,567,940
Finance Charge and Fee Income(2).............................. 1,233,457 975,434 743,553
Average Revenue Yield(3)...................................... 18.56% 20.28% 20.84%
- ------------------
(1) Average Receivables Outstanding for any period is equal to the average of
the Average Daily Balance for each month in such period. The Average Daily
Balance for a month is equal to the average of the Receivables outstanding
on each day in such month. Receivables outstanding on any day are the sum of
Principal Receivables and Finance Charge Receivables on such day.
(Footnotes continued on next page)
S-13
(Footnotes continued from previous page)
(2) Finance Charge and Fee Income includes Interchange and is reduced by
purchase rebates with respect to certain accounts.
(3) Average Revenue Yield is the result of dividing Finance Charge and Fee
Income by Average Receivables Outstanding during the periods indicated.
LOSS AND DELINQUENCY EXPERIENCE
The following tables set forth the delinquency and loss experience with
respect to payments by accountholders on the Providian Portfolio for each of the
periods shown. There can be no assurance, however, that the loss and delinquency
experience for the Receivables will be similar to the historical experience for
the Providian Portfolio set forth below.
DELINQUENCY EXPERIENCE
PROVIDIAN PORTFOLIO
AT DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
DELINQUENT DELINQUENT DELINQUENT
AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1) AMOUNT PERCENTAGE(1)
---------- -------------- ---------- -------------- ---------- --------------
(DOLLARS IN THOUSANDS)
31-60 days.................... $127,322 1.63% $ 81,933 1.45% $ 54,160 1.34%
61-90 days.................... 71,890 0.92 44,170 0.78 29,000 0.72
91 days or more............... 120,571 1.55 57,579 1.02 38,278 0.95
---------- ----- ---------- ----- ---------- -----
Total....................... $319,783 4.10% $183,682 3.25% $121,438 3.01%
- ------------------
(1) The percentages are the result of dividing the Delinquent Amount by the
aggregate Receivables outstanding at the dates indicated. The aggregate
Receivables outstanding at December 31, 1996, 1995, and 1994 were
$7,790,346, $5,637,675, and $4,040,238, respectively. Receivables
outstanding on any day are the sum of Principal Receivables and Finance
Charge Receivables on such day.
LOSS EXPERIENCE
PROVIDIAN PORTFOLIO
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Average Receivables Outstanding(1)...................................... $6,646,608 $4,810,220 $3,567,940
Gross Charge-offs(2).................................................... 410,614 253,367 197,936
Recoveries.............................................................. 44,570 35,555 28,283
Net Charge-offs(3)...................................................... 366,044 217,812 169,653
Net Charge-offs as a Percentage of Average Receivables.................. 5.51% 4.53% 4.75%
- ------------------
(1) Average Receivables Outstanding for any period is equal to the average of
the Average Daily Balance for each month in such period. The Average Daily
Balance for a month is equal to the average of the Receivables outstanding
on each day in such month. Receivables outstanding on any day are the sum of
Principal Receivables and Finance Charge Receivables on such day.
(2) Gross Charge-offs are Receivables charged off as uncollectible in accordance
with the Banks' customary practices (excludes reductions due to fraud,
returned goods and customer disputes for all periods shown).
(3) Gross Charge-offs less the total amount of recoveries on previously
Charged-off Accounts.
S-14
COMPOSITION OF THE ACCOUNTS
The Receivables in the Accounts as of December 31, 1996 (including
approximately $1,077,000,000 of Receivables in Accounts added to the Trust after
December 31, 1996 and on or prior to the Series Issuance Date, which Accounts
are included in all figures set forth in this paragraph, and excluding
approximately $156,000,000 of Receivables in Automatic Additional Accounts added
to the Trust during such period, which Accounts are excluded in all figures set
forth in this paragraph) included $100,368,480 of Finance Charge Receivables and
$5,760,562,229 of Principal Receivables (which amounts include overdue Finance
Charge Receivables and overdue Principal Receivables, respectively). As of
December 31, 1996, there were 3,441,354 Accounts (including 1,043,559 closed
Accounts with a zero balance and 286,367 charged-off Accounts). As of December
31, 1996, the Accounts had an average total Principal Receivables balance of
$4,280 (excluding 2,094,065 Accounts with a zero or credit balance and
charged-off Accounts) and an average credit limit of $6,708 (excluding 1,329,926
closed Accounts with a zero balance and charged-off Accounts). As of December
31, 1996, the average total Principal Receivables balance in the Accounts as a
percentage of the average credit limit with respect to the Accounts (excluding
2,094,065 Accounts with a zero or credit balance and charged-off Accounts in the
case of average total Principal Receivables balance, and with respect to average
credit limit, excluding 1,329,926 closed Accounts with a zero balance and
charged-off Accounts) was approximately 63.8%. As of December 31, 1996, the
weighted average age of the Accounts was 33.2 months. The Accounts were selected
from the Providian Portfolio in the manner described in the Prospectus under
'The Accounts--General'. See 'The Accounts' in the Prospectus.
The following tables summarize the Accounts by various criteria as of
December 31, 1996. References to 'Receivables Outstanding' in the following
tables include both Finance Charge Receivables and Principal Receivables.
Because the composition of the Accounts will change in the future, these tables
are not necessarily indicative of the future composition of the Accounts.
COMPOSITION OF ACCOUNTS BY ACCOUNT BALANCE
(AS OF DECEMBER 31, 1996)(1)
PERCENTAGE OF PERCENTAGE OF
NUMBER OF TOTAL NUMBER RECEIVABLES TOTAL RECEIVABLES
ACCOUNTS(2) OF ACCOUNTS OUTSTANDING(2) OUTSTANDING
----------- ------------- ---------------------- -----------------
(DOLLARS IN THOUSANDS)
Credit Balance(3)............................. 32,930 1.56% $ (5,830) (0.10)%
No Balance(4)................................. 731,209 34.63 -- --
$0.01 to $1,499.99............................ 369,500 17.50 175,096 2.99
$1,500.00 to $2,999.99........................ 195,508 9.26 457,081 7.80
$3,000.00 to $4,499.99........................ 217,471 10.30 805,501 13.74
$4,500.00 to $5,999.99........................ 246,813 11.69 1,269,126 21.65
$6,000.00 to $7,499.99........................ 100,971 4.78 676,276 11.54
$7,500.00 to $8,999.99........................ 67,905 3.22 553,125 9.44
$9,000.00 to $10,499.99....................... 44,868 2.13 435,581 7.43
$10,500.00 and above.......................... 104,253 4.93 1,494,975 25.51
----------- ------------- ---------------------- -------
Total....................................... 2,111,428 100.00% $5,860,931 100.00%
----------- ------------- ---------------------- -------
----------- ------------- ---------------------- -------
- ------------------------
(1) Includes approximately $1,077,000,000 of Receivables in Accounts added to
the Trust after December 31, 1996 and on or prior to the Series Issuance
Date. Excludes approximately $156,000,000 of Receivables in Automatic
Additional Accounts added to the Trust during such period.
(2) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 1,043,559 closed Accounts with a zero
balance and 286,367 charged-off Accounts. The Receivables of the charged-off
Accounts are valued at zero. However, for purposes of realizing recoveries,
the Receivables of such Accounts have been assigned to the Trust.
(3) Credit Balances are a result of accountholder payments and credit
adjustments applied in excess of an Account's unpaid balance. Accounts with
a credit balance are included, as Receivables may be generated with respect
thereto in the future.
(4) Accounts with no balance are included, as Receivables may be generated with
respect thereto in the future.
S-15
COMPOSITION OF ACCOUNTS BY CREDIT LIMIT
(AS OF DECEMBER 31, 1996)(1)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
CREDIT LIMIT ACCOUNTS(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
- ----------------------------------------------------------- ----------- --------- -------------- -----------
(DOLLARS IN THOUSANDS)
$0.00 to $1,499.99......................................... 7,914 0.37% $ 305 0.01%
$1,500.00 to $2,999.99..................................... 10,750 0.51 10,477 0.18
$3,000.00 to $4,499.99..................................... 256,028 12.13 384,250 6.56
$4,500.00 to $5,999.99..................................... 777,689 36.83 1,214,229 20.72
$6,000.00 to $7,499.99..................................... 466,439 22.09 1,045,102 17.83
$7500.00 to $8,999.99...................................... 195,938 9.28 636,978 10.87
$9,000.00 to $10,499.99.................................... 190,982 9.05 597,306 10.19
$10,500.00 and above....................................... 205,688 9.74 1,972,284 33.64
----------- --------- -------------- -----------
Total.................................................... 2,111,428 100.00% $5,860,931 100.00%
----------- --------- -------------- -----------
----------- --------- -------------- -----------
- ------------------
(1) Includes approximately $1,077,000,000 of Receivables in Accounts added to
the Trust after December 31, 1996 and on or prior to the Series Issuance
Date. Excludes approximately $156,000,000 of Receivables in Automatic
Additional Accounts added to the Trust during such period.
(2) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 1,043,559 closed Accounts with a zero
balance and 286,367 charged-off Accounts. The Receivables of the charged-off
Accounts are valued at zero. However, for purposes of realizing recoveries,
the Receivables of such Accounts have been assigned to the Trust.
COMPOSITION OF ACCOUNTS BY PAYMENT STATUS
(AS OF DECEMBER 31, 1996)(1)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
PAYMENT STATUS ACCOUNTS(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
- ----------------------------------------------------------- ----------- --------- -------------- -----------
(DOLLARS IN THOUSANDS)
Current(3)................................................. 2,069,268 98.00% $5,608,456 95.69%
31-60 Days Delinquent...................................... 17,893 0.85 102,059 1.74
61-90 Days Delinquent...................................... 9,370 0.44 56,753 0.97
91 Days Delinquent or more................................. 14,897 0.71 93,663 1.60
----------- --------- -------------- -----------
Total.................................................... 2,111,428 100.00% $5,860,931 100.00%
----------- --------- -------------- -----------
----------- --------- -------------- -----------
- ------------------
(1) Includes approximately $1,077,000,000 of Receivables in Accounts added to
the Trust after December 31, 1996 and on or prior to the Series Issuance
Date. Excludes approximately $156,000,000 of Receivables in Automatic
Additional Accounts added to the Trust during such period.
(2) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 1,043,559 closed Accounts with a zero
balance and 286,367 charged-off Accounts. The Receivables of the charged-off
Accounts are valued at zero. However, for purposes of realizing recoveries,
the Receivables of such Accounts have been assigned to the Trust.
(3) Includes Accounts on which the minimum payment has not been received prior
to the second billing date following issuance of the related billing
statement.
S-16
COMPOSITION OF ACCOUNTS BY ACCOUNT AGE
(AS OF DECEMBER 31, 1996)(1)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
AGE ACCOUNTS(2) ACCOUNTS OUTSTANDING(2) OUTSTANDING
- ----------------------------------------------------------- ----------- --------- -------------- -----------
(DOLLARS IN THOUSANDS)
0 to 6 months.............................................. 406,654 19.26% $1,256,006 21.43%
Over 6 to 12 months........................................ 296,087 14.02 787,195 13.43
Over 12 to 24 months....................................... 347,887 16.48 1,165,340 19.88
Over 24 to 36 months....................................... 232,287 11.00 670,589 11.44
Over 36 to 48 months....................................... 211,345 10.01 475,725 8.12
Over 48 months............................................. 617,168 29.23 1,506,076 25.70
----------- --------- -------------- -----------
Total.................................................... 2,111,428 100.00% $5,860,931 100.00%
----------- --------- -------------- -----------
----------- --------- -------------- -----------
- ------------------
(1) Includes approximately $1,077,000,000 of Receivables in Accounts added to
the Trust after December 31, 1996 and on or prior to the Series Issuance
Date. Excludes approximately $156,000,000 of Receivables in Automatic
Additional Accounts added to the Trust during such period.
(2) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 1,043,559 closed Accounts with a zero
balance and 286,367 charged-off Accounts. The Receivables of the charged-off
Accounts are valued at zero. However, for purposes of realizing recoveries,
the Receivables of such Accounts have been assigned to the Trust.
COMPOSITION OF ACCOUNTS BY GEOGRAPHIC DISTRIBUTION(1)
(AS OF DECEMBER 31, 1996)(2)
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
NUMBER OF NUMBER OF RECEIVABLES RECEIVABLES
STATE ACCOUNTS(3) ACCOUNTS OUTSTANDING(3) OUTSTANDING
- ----------------------------------------------------------- ----------- --------- -------------- -----------
(DOLLARS IN THOUSANDS)
California................................................. 299,341 14.18% $ 779,934 13.31%
Texas...................................................... 158,233 7.49 440,054 7.51
New York................................................... 148,632 7.04 390,856 6.67
Florida.................................................... 119,707 5.67 301,784 5.15
Pennsylvania............................................... 95,378 4.52 253,948 4.33
Ohio....................................................... 81,527 3.86 238,932 4.08
Illinois................................................... 89,134 4.22 237,381 4.05
North Carolina............................................. 59,287 2.81 191,814 3.27
Michigan................................................... 68,604 3.25 188,658 3.22
New Jersey................................................. 74,394 3.52 180,114 3.07
Georgia.................................................... 50,862 2.41 162,159 2.77
Indiana.................................................... 51,264 2.43 154,044 2.63
Washington................................................. 48,247 2.29 135,828 2.32
Missouri................................................... 44,504 2.11 130,362 2.22
Virginia................................................... 40,020 1.90 127,800 2.18
Massachusetts.............................................. 51,504 2.44 125,989 2.15
Tennessee.................................................. 40,545 1.92 125,162 2.14
Others(4)(5)............................................... 590,245 27.94 1,696,112 28.93
----------- --------- -------------- -----------
Total.................................................... 2,111,428 100.00% $5,860,931 100.00%
----------- --------- -------------- -----------
----------- --------- -------------- -----------
(Footnotes on next page)
S-17
(Footnotes from previous page)
- ------------------
(1) Determined on the basis of accountholders' telephone area codes.
(2) Includes approximately $1,077,000,000 of Receivables in Accounts added to
the Trust after December 31, 1996 and on or prior to the Series Issuance
Date. Excludes approximately $156,000,000 of Receivables in Automatic
Additional Accounts added to the Trust during such period.
(3) Receivables outstanding are the sum of Principal Receivables and Finance
Charge Receivables. Does not include 1,043,559 closed Accounts with a zero
balance and 286,367 charged-off Accounts. The Receivables of the charged-off
Accounts are valued at zero. However, for purposes of realizing recoveries,
the Receivables of such Accounts have been assigned to the Trust.
(4) No state other than those listed has more than 2.00% of the total
Receivables Outstanding, excluding Accounts for which computer records show
'unknown' in the state field.
(5) Includes Accounts representing less than 0.01% of the total Receivables
Outstanding for which computer records show 'unknown' in the state field.
THE BANKS
As of FDNB's December 31, 1996 Call Report, FDNB had total deposits of
approximately $1,985 million, total assets of approximately $2,315 million and
total equity of approximately $222 million. As of PNB's December 31, 1996 Call
Report, PNB had total deposits of approximately $1,403 million, total assets of
approximately $1,627 million and total equity of approximately $190 million. The
December 31, 1996 Call Report was required to be prepared in accordance with
regulatory accounting principles, which differ in some respects from generally
accepted accounting principles. Beginning with the March 31, 1997 Call Report,
the balance sheet, income statement and related Call Report schedules will be
prepared on the basis of generally accepted accounting principles. See 'The
Banks' in the Prospectus.
USE OF PROCEEDS
Net proceeds from the sale of the Series 1997-1 Certificates in the amount
of the Initial Invested Amount, less offering expenses, will be paid to the
Banks. The Banks will use such proceeds for general corporate purposes.
SERIES PROVISIONS
GENERAL
The Series 1997-1 Certificates will be issued pursuant to the Pooling
Agreement and a Supplement thereto relating to the Series 1997-1 Certificates
(the 'Series 1997-1 Supplement'). The Series 1997-1 Certificates will consist of
three Classes, the Class A Certificates, the Class B Certificates and the Class
comprising the Collateral Interest. Reference should be made to the Prospectus
for additional information concerning the Series 1997-1 Certificates and the
Pooling Agreement.
INTEREST
Interest will accrue on the outstanding principal amount of the Class A
Certificates at the Class A Certificate Rate. Interest will be distributed to
the Class A Certificateholders on April 15, 1997 and each Interest Payment Date
thereafter in an amount equal to the product of the Class A Certificate Rate,
the outstanding principal amount of the Class A Certificates as of the preceding
Record Date and a fraction, the numerator of which is the actual number of days
in the related Interest Period and the denominator of which is 360. Interest
with respect to the Class A Certificates due but not paid on any Interest
Payment Date will be due on the next succeeding Interest Payment Date with
additional interest on such amount at a rate equal to the Class A Certificate
Rate to the extent permitted by law.
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Interest will accrue on the Class B Invested Amount at the Class B
Certificate Rate. Interest will be distributed to the Class B Certificateholders
on April 15, 1997 and each Interest Payment Date thereafter in an amount equal
to the product of the Class B Certificate Rate, the Class B Invested Amount as
of the preceding Record Date and a fraction, the numerator of which is the
actual number of days in the related Interest Period and the denominator of
which is 360. Interest with respect to the Class B Certificates due but not paid
on any Interest Payment Date will be due on the next succeeding Interest Payment
Date with additional interest on such amount at a rate equal to the Class B
Certificate Rate to the extent permitted by law.
Interest payments on the Class A Certificates and the Class B Certificates
on any Interest Payment Date will be funded from Available Finance Charge
Collections for the related Monthly Period as described under '--Application of
Collections--Payments of Interest, Fees and Other Items'. To the extent that
Available Finance Charge Collections for such Monthly Period are insufficient to
pay interest on the Class A Certificates, the Available Cash Collateral Amount
and Reallocated Principal Collections that would otherwise be allocable to the
Collateral Invested Amount and the Class B Invested Amount will be used to make
such payments. To the extent that Available Finance Charge Collections for such
Monthly Period are insufficient to pay interest on the Class B Certificates, the
Available Cash Collateral Amount and Reallocated Collateral Principal
Collections that would otherwise be allocable to the Collateral Invested Amount
(to the extent such amounts are not needed to pay interest on the Class A
Certificates) will be used to make such payments. Although amounts available to
pay interest on the Class A Certificates and the Class B Certificates are
limited, neither the Class A Certificate Rate nor the Class B Certificate Rate
is subject to a maximum rate.
'Available Finance Charge Collections' means, with respect to any
Distribution Date, an amount equal to the sum of: (a) the product of the
Floating Allocation Percentage and the aggregate amount of collections of
Finance Charge Receivables with respect to the related Monthly Period (including
any investment earnings and certain other amounts that are to be treated as
collections of Finance Charge Receivables in accordance with the Pooling
Agreement, but excluding any investment earnings constituting Principal Funding
Investment Proceeds or Cash Collateral Investment Proceeds); (b) the Principal
Funding Investment Proceeds, if any, with respect to such Distribution Date; (c)
the Cash Collateral Investment Proceeds, if any, with respect to such
Distribution Date; (d) if the Reserve Account is funded, amounts, if any,
withdrawn from the Reserve Account that are required to be included in Available
Finance Charge Collections pursuant to the Series 1997-1 Supplement with respect
to such Distribution Date; (e) any Additional Finance Charges from other Series
in Group One that are allocated to Series 1997-1 with respect to such Monthly
Period; and (f) payments, if any, received with respect to such Distribution
Date under any interest rate swap or cap agreement assigned to the Trust for the
benefit of the Series 1997-1 Certificateholders.
The Servicer will determine LIBOR for each Interest Period as of the second
LIBOR business day before the commencement of such Interest Period (each, a
'LIBOR Determination Date'). For purposes of calculating LIBOR, a LIBOR business
day is any business day on which dealings in deposits in United States Dollars
are transacted in the London interbank market.
'LIBOR' means, with respect to each day of each Interest Period (or portion
thereof), the rate per annum shown on page 3750 of the Dow Jones & Company
Telerate screen or any successor page as the rate for United States Dollar
deposits for a period of one month as of 11:00 a.m., London time, on the LIBOR
Determination Date for such Interest Period; provided, however, that if no such
rate is shown, LIBOR will be the rate per annum (rounded upwards, if necessary,
to the nearest one-sixteenth of one percent) based on the offered rates for
United States Dollar deposits for a period of one month as displayed on page
'LIBO' of the Reuters Monitor Money Rates Service or any successor page as of
11:00 a.m., London time, on the LIBOR Determination Date for such Interest
Period, it being understood that if at least two such rates appear on such page,
the rate will be the arithmetic mean of such displayed rates; and provided
further, that (i) if fewer than two such rates are displayed, LIBOR will be the
rate per annum (rounded upwards, if necessary, to the nearest one-sixteenth of
one percent) equal to the arithmetic mean 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 the LIBOR Determination Date for such Interest Period to
prime banks in the London interbank market for a period of one month and (ii) if
fewer than two such rates are provided as requested, LIBOR will be the rate per
annum (rounded upwards, if necessary, to the nearest one-sixteenth of one
percent) equal to the arithmetic mean of the rates quoted by two or more major
banks in New York City, selected by the Servicer, at approximately 11:00 a.m.,
New York City time, on the LIBOR
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Determination Date for such Interest Period to leading European banks for United
States Dollar deposits for a period of one month. If fewer than two major banks
in New York City are quoting rates for such deposits at such time, the rate for
that day will be deemed to be the rate as determined with respect to the
preceding Interest Period.
'Reference Banks' means two or more major banks in the London interbank
market selected by the Servicer.
'Interest Period' means, with respect to any Interest Payment Date, the
period from and including the preceding Interest Payment Date to but excluding
such Interest Payment Date; provided, however, that the initial Interest Period
will commence on and include the Series Issuance Date and end on but exclude the
first Interest Payment Date following the Series Issuance Date, which first
Interest Payment Date will be April 15, 1997.
PRINCIPAL
During the Revolving Period (which begins on the Series Cut-Off Date and
ends immediately prior to the commencement of the Class A Accumulation Period
or, if earlier, the Early Amortization Period), no principal payments will be
made to Class A Certificateholders or Class B Certificateholders. On each
Distribution Date with respect to the Class A Accumulation Period (on or prior
to the Class A Expected Final Payment Date), principal will be deposited in the
Principal Funding Account in an amount up to the Class A Controlled Deposit
Amount with respect to such Distribution Date and amounts on deposit therein
will be distributed to the Class A Certificateholders on the Class A Expected
Final Payment Date. If the Class A Invested Amount is paid in full on the Class
A Expected Final Payment Date, then on each Distribution Date with respect to
the Class B Accumulation Period (on or prior to the Class B Expected Final
Payment Date), principal will be deposited in the Principal Funding Account in
an amount up to the Class B Controlled Deposit Amount with respect to such
Distribution Date and amounts on deposit therein will be distributed to the
Class B Certificateholders on the Class B Expected Final Payment Date. During
the Early Amortization Period, principal will be paid to the Class A
Certificateholders monthly on each Special Payment Date until the Class A
Invested Amount is paid in full and then to the Class B Certificateholders until
the Class B Invested Amount is paid in full or, in either case, until the Series
Termination Date occurs. If a Pay Out Event occurs with respect to the Series
1997-1 Certificates during the Class A Accumulation Period or the Class B
Accumulation Period, any amount on deposit in the Principal Funding Account will
be paid to the Class A Certificateholders or the Class B Certificateholders, as
the case may be, on the first Special Payment Date. See '--Application of
Collections--Payments of Principal' herein and see '--Pay Out Events' herein and
'Description of the Certificates--Pay Out Events' in the Prospectus for a
discussion of events that might lead to the commencement of an Early
Amortization Period. In addition, if the Class A Invested Amount is not paid in
full on the Class A Expected Final Payment Date, principal will be paid to the
Class A Certificateholders monthly on each Distribution Date until the Class A
Invested Amount is paid in full and then to the Class B Certificateholders until
the Class B Invested Amount is paid in full or, in either case, until the Series
Termination Date occurs. If the Class B Invested Amount is not paid in full on
the Class B Expected Final Payment Date, principal will be paid to the Class B
Certificateholders monthly on each Distribution Date until the Class B Invested
Amount is paid in full or until the Series Termination Date occurs.
The Class A Accumulation Period is scheduled to commence at the close of
business on the last business day of February 2000. However, the Servicer may
elect to postpone the commencement of the Class A Accumulation Period and extend
the length of the Revolving Period, subject to the conditions set forth below.
The Servicer may make such election only if the Class A Accumulation Period
Length (determined as described below) is less than twenty-four months and if no
Pay Out Event has occurred and is continuing with respect to any other Series.
On each Determination Date during the Revolving Period, the Servicer will
determine the 'Class A Accumulation Period Length', which is the number of
months expected to be required fully to fund the Class A Initial Invested Amount
no later than the Class A Expected Final Payment Date, based on (a) the expected
monthly collections of Principal Receivables allocated to all outstanding Series
(other than certain variable funding Series, including Series 1993-3), assuming
a principal payment rate no greater than the lowest monthly principal payment
rate on the Receivables for the preceding twelve months and (b) the amount of
principal expected to be distributable to the Certificateholders of all
outstanding Series (excluding any variable funding Series) that are not expected
to be in their revolving period during the Class A Accumulation Period. If
S-20
the Class A Accumulation Period Length is less than twenty-four months, the
Servicer may, at its option, postpone the commencement of the Class A
Accumulation Period such that the number of months included in the Class A
Accumulation Period will be equal to or exceed the Class A Accumulation Period
Length. The effect of the foregoing calculation is to permit the reduction of
the length of the Class A Accumulation Period based on the invested amounts of
certain other Series which are expected to be in their revolving periods during
the Class A Accumulation Period or on increases in the principal payment rate
occurring after the Series Issuance Date. The length of the Class A Accumulation
Period will not be less than six months. If the commencement of the Class A
Accumulation Period is delayed in accordance with the foregoing, and if a Pay
Out Event with respect to Series 1997-1 occurs after the date originally
scheduled as the commencement of the Class A Accumulation Period or a Pay Out
Event occurs with respect to any other Series, then it is probable that the
Class A Certificateholders, and consequently the Class B Certificateholders,
would receive some of their principal later than if the Class A Accumulation
Period had not been delayed.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, for each day during each Monthly Period,
the Servicer will allocate between the Series 1997-1 Certificateholders'
Interest, the Sellers' Interest and the Certificateholders' Interests of the
other Series issued and outstanding from time to time all collections of Finance
Charge Receivables and Principal Receivables and the Defaulted Amount with
respect to such Monthly Period. Collections of Finance Charge Receivables and
the Defaulted Amount with respect to any Monthly Period will be allocated at all
times to the Series 1997-1 Certificateholders' Interest based on the percentage
equivalent of a fraction, the numerator of which is the Adjusted Invested Amount
as of the last day of the immediately preceding Monthly Period and the
denominator of which is the sum of the total amount of Principal Receivables in
the Trust and the amount on deposit in the Special Funding Account as of the
last day of such immediately preceding Monthly Period; provided, however, that
for the first Monthly Period, the numerator will be the Initial Invested Amount
for the period from and including the Series Issuance Date through and including
the last day of such first Monthly Period and the denominator will be the sum of
the Principal Receivables in the Trust and the amount on deposit in the Special
Funding Account as of the Series Cut-Off Date (the 'Floating Allocation
Percentage'). Collections of Principal Receivables with respect to each day
during any Monthly Period at all times will be allocated to the Series 1997-1
Certificateholders' Interest based on the percentage equivalent of a fraction,
the numerator of which is (a) during the Revolving Period, the Invested Amount
as of the last day of the preceding Monthly Period and (b) during the Class A
Accumulation Period, the Class B Accumulation Period or the Early Amortization
Period, the Invested Amount as of the last day of the Revolving Period and the
denominator of which is the greater of (i) the sum of the Principal Receivables
in the Trust and the amount on deposit in the Special Funding Account as of the
last day of the preceding Monthly Period and (ii) the sum of the numerators used
to calculate the allocation percentages with respect to collections of Principal
Receivables for all Series outstanding as of the date of determination (the
'Principal Allocation Percentage').
'Invested Amount' means, with respect to any date of determination, an
amount equal to the sum of the Class A Invested Amount, the Class B Invested
Amount and the Collateral Invested Amount. 'Class A Invested Amount' means, when
used with respect to any date of determination, an amount equal to (a) the Class
A Initial Invested Amount, minus (b) the aggregate amount of principal payments
made to Class A Certificateholders prior to such date, minus (c) the excess, if
any, of the aggregate amount of Class A Charge-Offs over the aggregate amount of
Class A Charge-Offs reimbursed as described under '--Application of
Collections--Payments of Interest, Fees and Other Items' prior to such date;
provided, however, that the Class A Invested Amount will not be reduced below
zero. 'Class B Invested Amount' means, when used with respect to any date of
determination, an amount equal to (a) the Class B Initial Invested Amount, minus
(b) the aggregate amount of principal payments made to Class B
Certificateholders prior to such date, minus (c) the aggregate amount by which
the Class B Invested Amount has been reduced in respect of the application of
Reallocated Class B Principal Collections on all prior Distribution Dates as
described under '--Application of Collections--Payments of Interest, Fees and
Other Items', minus (d) the aggregate amount of Class B Charge-Offs prior to
such date, plus (e) the aggregate amount of Available Finance Charge Collections
applied on all prior Distribution Dates for the purpose of reimbursing amounts
deducted pursuant to the foregoing clauses (c) and (d) as described under '--
Application of Collections--Payments of Interest, Fees and Other Items';
provided, however, that the Class B Invested Amount will not be reduced below
zero. 'Collateral Invested Amount' means, when used with respect
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to any date of determination, an amount equal to (a) the Collateral Initial
Invested Amount, minus (b) the aggregate amount of principal payments made to
the Collateral Interest Holder prior to such date, minus (c) the aggregate
amount by which the Collateral Invested Amount has been reduced in respect of
the application of Reallocated Principal Collections on all prior Distribution
Dates as described under '--Application of Collections--Payments of Interest,
Fees and Other Items', minus (d) the aggregate amount by which the Collateral
Invested Amount has been reduced on all prior Distribution Dates as described
under '--Defaulted Amounts; Charge-Offs', plus (e) the aggregate amount of
Available Finance Charge Collections applied on all prior Distribution Dates for
the purpose of reimbursing amounts deducted pursuant to the foregoing clauses
(c) and (d) as described under '--Application of Collections--Payments of
Interest, Fees and Other Items'; provided, however, that the Collateral Invested
Amount will not be reduced below zero.
APPLICATION OF COLLECTIONS
Payments of Interest, Fees and Other Items. On each Distribution Date, the
Servicer will apply (if FDNB is the Servicer and the Collection Account is
maintained with FDNB) or will cause the Trustee to apply Available Finance
Charge Collections and Reallocated Principal Collections on deposit in the
Collection Account with respect to such Distribution Date to make the following
distributions:
(a) On each Distribution Date, Available Finance Charge Collections with
respect to such Distribution Date will be distributed in the following priority:
(i) an amount equal to Class A Monthly Interest for such Distribution
Date, plus the amount of any Class A Monthly Interest previously due but
not distributed to Class A Certificateholders on any 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 any prior Distribution
Date, will be distributed to the Paying Agent for payment to the Class A
Certificateholders;
(ii) 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 any 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 any prior Distribution
Date, will be distributed to the Paying Agent for payment to the Class B
Certificateholders;
(iii) an amount equal to the Monthly Investor Servicing Fee for such
Distribution Date, plus the amount of any Monthly Investor Servicing Fee
previously due but not distributed to the Servicer on any prior
Distribution Date, will be distributed to the Servicer (unless such amount
has been netted against deposits to the Collection Account in accordance
with the Pooling Agreement);
(iv) an amount equal to the Class A Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date;
(v) an amount equal to the aggregate amount of Class A Charge-Offs
that have not been previously reimbursed will be treated as a portion of
Available Principal Collections for such Distribution Date;
(vi) an amount equal to accrued and unpaid interest (including any
interest on amounts due but not paid pursuant to this paragraph on a prior
Distribution Date) at the Class B Certificate Rate on the excess, if any,
of the outstanding principal balance of the Class B Certificates over the
Class B Invested Amount will be distributed to the Paying Agent for payment
to the Class B Certificateholders;
(vii) an amount equal to the Class B Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date;
(viii) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (c) and (d) of the
definition of 'Class B Invested Amount' above (but not in excess of the
aggregate amount of such reductions that have not been previously
reimbursed) will be treated as a portion of Available Principal Collections
with respect to such Distribution Date;
S-22
(ix) an amount equal to Collateral Monthly Interest for such
Distribution Date, plus the amount of any Collateral Monthly Interest
previously due but not paid to the Collateral Interest Holder on any
prior Distribution Date, will be paid to the Collateral Interest
Holder for application in accordance with the Collateral Agreement;
(x) an amount equal to the Collateral Defaulted Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections with respect to such Distribution Date;
(xi) if the Reserve Account is being funded, on each Distribution
Date from and after the Reserve Account Funding Date, but prior to the
date on which the Reserve Account terminates pursuant to the Series
1997-1 Supplement, an amount up to the excess, if any, of the Required
Reserve Account Amount over the Available Reserve Account Amount will be
deposited into the Reserve Account;
(xii) an amount equal to the aggregate amount by which the
Collateral Invested Amount has been reduced pursuant to clauses (c) and
(d) of the definition of 'Collateral Invested Amount' above (but not in
excess of the aggregate amount of such reductions that have not been
previously reimbursed) will be treated as a portion of Available
Principal Collections with respect to such Distribution Date;
(xiii) an amount up to the excess, if any, of the Required Cash
Collateral Amount over the remaining Available Cash Collateral Amount
shall be deposited into the Cash Collateral Account;
(xiv) an amount equal to the aggregate of any other amounts then
due to the Collateral Interest Holder pursuant to the Collateral
Agreement (to the extent such amounts are payable pursuant to the
Collateral Agreement out of Available Non-Principal Funds (as defined in
the Collateral Agreement)) will be distributed to the Collateral
Interest Holder for application in accordance with the Collateral
Agreement; and
(xv) the balance, if any, will constitute Additional Finance
Charges for such Distribution Date and will be available for allocation
to other Series in Group One or to the Banks as described under 'Summary
of Series--Terms Sharing of Additional Finance Charges.'
'Class A Additional Interest' means, with respect to any Distribution Date
and the concurrent Interest Payment Date, if the Class A Interest Shortfall with
respect to the preceding Interest Payment Date is greater than zero, 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) such Class A Interest
Shortfall.
'Class A Defaulted Amount' means, with respect to any Distribution Date, an
amount equal to the product of (i) the Defaulted Amount for the related Monthly
Period multiplied by the Floating Allocation Percentage for such Monthly Period
and (ii) the Class A Percentage for such Monthly Period.
'Class A Interest Shortfall' means, with respect to any Interest Payment
Date, the excess, if any, of the Class A Monthly Interest for such Interest
Payment Date over the aggregate amount of funds allocated and available to pay
such Class A Monthly Interest on such Interest Payment Date.
'Class A Monthly Interest' means, with respect to any Interest Payment
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 outstanding
principal amount of the Class A Certificates as of the immediately preceding
Record Date.
'Class A Percentage' means, with respect to any Monthly Period, the
percentage equivalent of a fraction, the numerator of which is the Class A
Adjusted Invested Amount as of the last day of the immediately preceding Monthly
Period (or, in the case of the first Monthly Period, the Series Issuance Date)
and the denominator of which is the Adjusted Invested Amount as of the last day
of such immediately preceding Monthly Period (or, in the case of the first
Monthly Period, the Series Issuance Date).
'Class B Additional Interest' means, with respect to any Distribution Date
and the concurrent Interest Payment Date, if the Class B Interest Shortfall with
respect to the preceding Interest Payment Date is greater than zero, 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) such Class B Interest
Shortfall.
S-23
'Class B Defaulted Amount' means, with respect to any Distribution Date, an
amount equal to the product of (i) the Defaulted Amount for the related Monthly
Period multiplied by the Floating Allocation Percentage for such Monthly Period
and (ii) the Class B Percentage for such Monthly Period.
'Class B Interest Shortfall' means, with respect to any Interest Payment
Date, the excess, if any, of the Class B Monthly Interest for such Interest
Payment Date over the aggregate amount of funds allocated and available to pay
such Class B Monthly Interest on such Interest Payment Date.
'Class B Monthly Interest' means, with respect to any Interest Payment
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 Class B
Invested Amount as of the immediately preceding Record Date.
'Class B Percentage' means, with respect to any Monthly Period, the
percentage equivalent of a fraction, the numerator of which is the Class B
Adjusted Invested Amount as of the last day of the immediately preceding Monthly
Period (or, in the case of the first Monthly Period, the Series Issuance Date)
and the denominator of which is the Adjusted Invested Amount as of the last day
of such immediately preceding Monthly Period (or, in the case of the first
Monthly Period, the Series Issuance Date).
'Collateral Agreement' means the agreement between the Banks, the Servicer
and the Trustee, relating to the Collateral Interest, as amended, supplemented
or modified from time to time.
'Collateral Defaulted Amount' means, with respect to each Distribution
Date, an amount equal to the product of (i) the Defaulted Amount for the related
Monthly Period multiplied by the Floating Allocation Percentage for such Monthly
Period and (ii) the Collateral Percentage for such Monthly Period.
'Collateral Monthly Interest' means, with respect to any Distribution Date,
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)
LIBOR plus 1% per annum, or such lesser rate as may be designated as the
'Collateral Interest Rate' in the Collateral Agreement, and (iii) the
outstanding principal amount of the Collateral Interest as of the last business
day of the preceding Monthly Period.
'Collateral Percentage' means, with respect to any Monthly Period, 100%
minus the sum of the Class A Percentage and the Class B Percentage.
(b) On each Distribution Date, following the application of Available
Finance Charge Collections as described above and the application of the
Available Cash Collateral Amount on such Distribution Date to fund the Required
Amount, if any, as described in '--Cash Collateral Account,' Reallocated
Collateral Principal Collections for the related Monthly Period will be
distributed to fund any deficiency pursuant to paragraphs (a)(i), (a)(ii),
(a)(iii), (a)(iv), and (a)(vii) above, in the priority set forth in such
paragraphs, and the Collateral Invested Amount (after giving effect to
reductions in the Collateral Invested Amount on such Distribution Date as
described in the first paragraph under '--Defaulted Amounts; Charge-Offs' in
respect of the amount by which the Collateral Defaulted Amount exceeded the
amount of Available Finance Charge Collections available to fund the Collateral
Defaulted Amount) will be reduced by the amount so distributed; and
(c) On each Distribution Date, following the application of Available
Finance Charge Collections as described above, the application of the Available
Cash Collateral Amount on such Distribution Date to fund the Required Amount, if
any, as described in '--Cash Collateral Account,' and the application of
Reallocated Collateral Principal Collections for the related Monthly Period as
described in the immediately preceding paragraph, Reallocated Class B Principal
Collections will be distributed to fund any deficiency pursuant to paragraphs
(a)(i), (a)(iii), and (a)(iv) above, in the priority set forth in such
paragraphs and the Collateral Invested Amount (after giving effect to reductions
in the Collateral Invested Amount on such Distribution Date (i) as described in
paragraph (b) above in respect of the application of the Reallocated Collateral
Principal Collections and (ii) as described in the first paragraph under
'--Defaulted Amounts; Charge-Offs' in respect of the amount by which the
Collateral Defaulted Amount exceeded the amount of Available Finance Charge
Collections available to fund the Collateral Defaulted Amount) will be reduced
by the amount so distributed. If such reduction would cause the Collateral
Invested Amount to be reduced below zero, the Collateral Invested Amount will be
reduced to zero and the Class B Invested Amount (after giving effect to
reductions in the Class B Invested Amount on such Distribution Date (a) as
described in the third paragraph under '--Defaulted Amounts; Charge-Offs' in
respect of the amount by which the Class B Defaulted Amount exceeded the amount
of Available
S-24
Finance Charge Collections, the Available Cash Collateral Amount and Reallocated
Collateral Principal Collections available to fund the Class B Defaulted Amount)
will be reduced by the amount by which the Collateral Invested Amount would have
been reduced below zero.
'Reallocated Class B Principal Collections' means, with respect to any
Monthly Period, the lesser of (i) an amount equal to the excess, if any, of the
full amount required to be paid pursuant to paragraphs (a)(i), (a)(iii) and
(a)(iv) above over Available Finance Charge Collections, the Available Cash
Collateral Amount and Reallocated Collateral Principal Collections applied with
respect thereto for such Monthly Period and (ii) the sum for each day of the
related Monthly Period of the product obtained by multiplying (A) the Principal
Allocation Percentage with respect to such day, (B) the amount of such day's
collections of Principal Receivables and (C) the Class B Percentage as of the
last day of the immediately preceding Monthly Period.
'Reallocated Collateral Principal Collections' means, with respect to any
Monthly Period, the lesser of (i) an amount equal to the excess, if any, of the
Required Amount over the Available Cash Collateral Amount applied with respect
thereto for such Monthly Period and (ii) the sum for each day of the related
Monthly Period of the product obtained by multiplying (A) the Principal
Allocation Percentage with respect to such day, (B) the amount of such day's
collections of Principal Receivables and (C) the Collateral Percentage as of the
last day of the immediately preceding Monthly Period.
'Reallocated Principal Collections' means, with respect to any Monthly
Period, the sum of (i) Reallocated Class B Principal Collections with respect to
such Monthly Period and (ii) Reallocated Collateral Principal Collections with
respect to such Monthly Period.
Payments of Principal. On each Distribution Date, the Servicer will apply
(if FDNB is the Servicer and the Collection Account is maintained with FDNB) or
will cause the Trustee to apply Available Principal Collections then on deposit
in the Collection Account to make the following distributions:
(a) On each Distribution Date during the Revolving Period, an amount equal
to the Available Principal Collections deposited in the Collection Account for
the related Monthly Period will be distributed in the following priority:
(i) an amount equal to Collateral Monthly Principal, if any, for such
Distribution Date will be distributed to the Collateral Interest Holder for
application in accordance with the Collateral Agreement; and
(ii) the balance, if any, of Available Principal Collections then on
deposit in the Collection Account will be treated as Shared Principal
Collections and applied in accordance with the Pooling Agreement.
(b) On each Distribution Date during the period beginning on the earlier
to occur of (w) the first Distribution Date with respect to the Class A
Accumulation Period and (x) the first Special Payment Date and ending on the
earlier to occur of (y) the date on which the Invested Amount has been paid in
full to the Series 1997-1 Certificateholders and (z) the Series Termination
Date, an amount equal to the Available Principal Collections deposited in the
Collection Account for the related Monthly Period will be distributed in the
following priority:
(i) an amount equal to Class A Monthly Principal for such Distribution
Date will be deposited into the Principal Funding Account, and on the Class
A Expected Final Payment Date and each Distribution Date thereafter, and on
each Special Payment Date, such amounts will be paid to Class A
Certificateholders;
(ii) an amount equal to Class B Monthly Principal for such
Distribution Date will be deposited into the Principal Funding Account, and
on the earlier of the Class B Expected Final Payment Date and the
Distribution Date on which the Class A Invested Amount is paid in full if
such Distribution Date is after the Class A Expected Final Payment Date,
and each Distribution Date thereafter, and on each Special Payment Date,
such amounts will be paid to Class B Certificateholders;
(iii) an amount equal to the Collateral Monthly Principal, if any, for
such Distribution Date will be distributed to the Collateral Interest
Holder for application in accordance with the Collateral Agreement; and
(iv) the balance, if any, of Available Principal Collections then on
deposit in the Collection Account will be treated as Shared Principal
Collections and applied in accordance with the Pooling Agreement.
S-25
'Available Principal Collections' means, with respect to any Distribution
Date, an aggregate amount equal to (i) the sum of (x) an aggregate amount equal
to the sum for each day in the related Monthly Period of the product of the
Principal Allocation Percentage with respect to such day and the amount of such
day's collections of Principal Receivables, (y) any Shared Principal Collections
with respect to other Series that are allocated to Series 1997-1 with respect to
such Monthly Period and (z) any other amounts treated as Available Principal
Collections pursuant to the Series 1997-1 Supplement with respect to such
Distribution Date, minus (ii) Reallocated Principal Collections with respect to
such Monthly Period.
'Class A Controlled Accumulation Amount' means, for any Distribution Date
with respect to the Class A Accumulation Period, $20,375,000; provided, however,
that if the Servicer elects to postpone the commencement of the Class A
Accumulation Period as described above under '--Principal', the Class A
Controlled Accumulation Amount for each Distribution Date with respect to the
Class A Accumulation Period will be an amount determined by the Servicer such
that the sum of the Class A Controlled Accumulation Amounts for all such
Distribution Dates will not be less than the Class A Initial Invested Amount.
'Class A Controlled Deposit Amount' means, for any Distribution Date with
respect to the Class A Accumulation Period, an amount equal to the sum of the
Class A Controlled Accumulation Amount for such Distribution Date and any Class
A Deficit Controlled Accumulation Amount for the preceding Distribution Date.
'Class A Deficit Controlled Accumulation Amount' means, (i) on the first
Distribution Date with respect to the Class A Accumulation Period, the excess,
if any, of the Class A Controlled Accumulation Amount for such Distribution Date
over the amount deposited in the Principal Funding Account as Class A Monthly
Principal for such Distribution Date and (ii) on each subsequent Distribution
Date with respect to the Class A Accumulation Period, the excess, if any, of the
Class A Controlled Accumulation Amount for such subsequent Distribution Date and
any Class A Deficit Controlled Accumulation Amount for the prior Distribution
Date over the amount deposited in the Principal Funding Account as Class A
Monthly Principal on such subsequent Distribution Date.
'Class A Monthly Principal' means, beginning with the first to occur of (i)
the first Special Payment Date, if any, and (ii) the first Distribution Date
with respect to the Class A Accumulation Period, an amount equal to the least of
(x) Available Principal Collections on deposit in the Collection Account with
respect to such Distribution Date, (y) for each Distribution Date with respect
to the Class A Accumulation Period (and on or prior to the Class A Expected
Final Payment Date), the Class A Controlled Deposit Amount for such Distribution
Date and (z) the Class A Adjusted Invested Amount on such Distribution Date.
'Class B Controlled Accumulation Amount' means, for any Distribution Date
with respect to the Class B Accumulation Period, $28,500,000, or such other
amount as the Servicer may determine upon written notice to the Trustee prior to
the commencement of the Class B Accumulation Period; provided, however, that the
Class B Controlled Accumulation Amount for each Distribution Date with respect
to the Class B Accumulation Period (on or prior to the Class B Expected Final
Payment Date) will be an amount determined by the Servicer such that the sum of
the Class B Controlled Accumulation Amounts for all such Distribution Dates will
not be less than the Class B Initial Invested Amount.
'Class B Controlled Deposit Amount' means, for any Distribution Date with
respect to the Class B Accumulation Period, an amount equal to the sum of the
Class B Controlled Accumulation Amount for such Distribution Date and any Class
B Deficit Controlled Accumulation Amount for the preceding Distribution Date.
'Class B Deficit Controlled Accumulation Amount' means, (i) on the first
Distribution Date with respect to the Class B Accumulation Period, the excess,
if any, of the Class B Controlled Accumulation Amount for such Distribution Date
over the amount deposited in the Principal Funding Account as Class B Monthly
Principal for such Distribution Date and (ii) on each subsequent Distribution
Date with respect to the Class B Accumulation Period, the excess, if any, of the
Class B Controlled Accumulation Amount for such subsequent Distribution Date and
any Class B Deficit Controlled Accumulation Amount for the prior Distribution
Date over the amount deposited in the Principal Funding Account as Class B
Monthly Principal on such subsequent Distribution Date.
'Class B Monthly Principal' means, beginning with the Class B Principal
Commencement Date, an amount equal to the least of (x) Available Principal
Collections on deposit in the Collection Account with respect to such
Distribution Date (less the portion of Available Principal Collections applied
to Class A Monthly Principal on such Distribution Date), (y) for each
Distribution Date with respect to the Class B Accumulation Period (on or prior
to the Class B Expected Final Payment Date), provided that the Class A Invested
Amount was paid in full on the Class A Expected Final Payment Date, the Class B
Controlled Deposit Amount for such Distribution Date and (z) the Class B
Adjusted Invested Amount on such Distribution Date.
'Class B Principal Commencement Date' means the Distribution Date on which
the Class A Invested Amount is paid in full or, if the Class A Invested Amount
is paid in full on the Class A Expected Final Payment
S-26
Date and the Early Amortization Period has not commenced, the Distribution Date
following the Class A Expected Final Payment Date.
'Collateral Monthly Principal' means (i) for any Distribution Date prior to
the Distribution Date on which the Class A Invested Amount and the Class B
Invested Amount are paid in full, an amount equal to the lesser of (x) Available
Principal Collections not applied to Class A Monthly Principal or Class B
Monthly Principal on such Distribution Date and (y) the excess, if any, of the
Collateral Invested Amount over the Required Collateral Invested Amount (after
giving effect to any adjustments made to the Required Collateral Invested Amount
on such Distribution Date) and (ii) for any remaining Distribution Date
beginning with the Distribution Date on which the Class A Invested Amount and
the Class B Invested Amount are paid in full or, under certain circumstances,
the Distribution Date immediately thereafter, an amount equal to the lesser of
(x) Available Principal Collections (minus the portion of Available Principal
Collections applied to Class A Monthly Principal or Class B Monthly Principal on
such Distribution Date) and (y) the Collateral Invested Amount for such
Distribution Date.
'Required Collateral Invested Amount' means the excess, if any, of (i) the
Required Enhancement Amount over (ii) the Required Cash Collateral Amount.
'Required Enhancement Amount' means with respect to any Distribution Date,
12% of the Initial Invested Amount or, with the consent of the Collateral
Interest Holder, 12% of the Adjusted Invested Amount on such Distribution Date
after taking into account any adjustments to the Adjusted Invested Amount on
such Distribution Date, but not less than $18,000,000; provided, however, that
(x) if a Pay Out Event with respect to Series 1997-1 has occurred, the Required
Enhancement Amount will thereafter equal the Required Enhancement Amount for the
Distribution Date immediately preceding such Pay Out Event, (y) in no event
shall the Required Enhancement Amount exceed the outstanding principal amount of
the Class A Certificates and the Class B Certificates and (z) the Required
Enhancement Amount may be reduced at the Banks' option at any time, subject to
the approval of each Rating Agency that has rated the Class A Certificates and
the Class B Certificates and subject to certain requirements to notify the
Servicer and the Trustee and obtain the consent of the Collateral Interest
Holder.
The Series 1997-1 Supplement may be amended by the Banks to reduce the
Required Cash Collateral Amount or the Required Collateral Invested Amount
provided that (i) the Required Enhancement Amount is not reduced or (ii) the
Banks acquire an interest in the Trust that is subordinate to the Class A
Certificates and the Class B Certificates as a replacement for any such
reduction in the Required Enhancement Amount. Any such amendment to the Series
1997-1 Supplement will not require the consent of the Class A Certificateholders
or the Class B Certificateholders but will be subject to the approval of each
Rating Agency that has rated the Class A Certificates or the Class B
Certificates and the consent of the Collateral Interest Holder.
CASH COLLATERAL ACCOUNT
The Servicer will establish and maintain the Cash Collateral Account with
an Eligible Institution in the name of the Trustee, on behalf of the Trust, for
the benefit of the Class A Certificateholders and the Class B
Certificateholders. On the Series Issuance Date the Banks will deposit in the
Cash Collateral Account the Required Cash Collateral Amount. On each
Distribution Date prior to the termination of the Cash Collateral Account, the
Trustee, acting pursuant to the Servicer's instructions, will apply Available
Finance Charge Collections (to the extent described above under '--Application
of Collections--Payment of Interest, Fees and Other Items') to increase the
amount on deposit in the Cash Collateral Account (to the extent such amount is
less than the Required Cash Collateral Amount).
All amounts on deposit in the Cash Collateral Account with respect to any
Distribution Date (after giving effect to any deposits to, or withdrawals from,
the Cash Collateral Account to be made on such Distribution Date) will be
invested to the business day immediately preceding the following Distribution
Date by the Trustee at the direction of the Servicer in Eligible Investments.
The interest and other investment income (net of investment expenses and losses)
earned on such investments (the 'Cash Collateral Investment Proceeds') will be
withdrawn from the Cash Collateral Account on each Distribution Date and
included in Available Finance Charge Collections as described in '--Interest'
above. On each Distribution Date, after giving effect to any deposit to be made
to, and any withdrawal to be made from, the Cash Collateral Account on such
Distribution Date, the Trustee will withdraw from the Cash Collateral Account an
amount equal to the excess, if any, of the Available Cash Collateral Amount on
deposit in the Cash Collateral Account over the Required Cash Collateral Amount
and will distribute such excess to or at the direction of the Banks.
In the event that for any Distribution Date the Required Amount is greater
than zero, an amount equal to the lesser of the Required Amount and the
Available Cash Collateral Amount will be withdrawn from the Cash
S-27
Collateral Account and used to fund any deficiency pursuant to paragraphs
(a)(i), (a)(ii), (a)(iii), (a)(iv) and (a)(vii) in '--Application of
Collections--Payment of Interest, Fees and Other Items', in the priority set
forth in such paragraphs.
The Cash Collateral Account will be terminated following the earliest to
occur of (a) the date on which the Class A Certificates and the Class B
Certificates are paid in full, (b) the Series Termination Date and (c) the
termination of the Trust pursuant to the Pooling Agreement. Upon the termination
of the Cash Collateral Account, all amounts on deposit therein (after giving
effect to any withdrawal from the Cash Collateral Account on such date as
described above) will be distributed to or at the direction of the Banks.
'Available Cash Collateral Amount' means, with respect to any Distribution
Date, the lesser of (i) the amount on deposit in the Cash Collateral Account on
such date (before giving effect of any deposit to, or withdrawal from, the Cash
Collateral Account to be made with respect to such date) and (ii) the Required
Cash Collateral Amount as of such Distribution Date.
'Required Cash Collateral Amount' means $18,000,000.
PRINCIPAL FUNDING ACCOUNT
The Servicer will establish and maintain in the name of the Trustee, on
behalf of the Trust, an Eligible Deposit Account for the benefit of the Class A
Certificateholders and the Class B Certificateholders (the 'Principal Funding
Account'). Principal will be deposited in the Principal Funding Account on each
Distribution Date with respect to the Class A Accumulation Period, for the Class
A Certificates, and with respect to the Class B Accumulation Period, for the
Class B Certificates, as described above under
'--Application of Collections--Payments of Principal'. All amounts on deposit in
the Principal Funding Account (the 'Principal Funding Account Balance') with
respect to any Distribution Date (after giving effect to any deposits to, or
withdrawals from, the Principal Funding Account to be made before or on such
Distribution Date) will be invested to the business day immediately preceding
the following Distribution Date by the Trustee at the direction of the Servicer
in Eligible Investments.
On each Distribution Date with respect to the Class A Accumulation Period
and the Class B Accumulation Period and on the first Special Payment Date, the
interest and other investment income (net of investment expenses and losses)
earned on such investments (the 'Principal Funding Investment Proceeds') will be
withdrawn from the Principal Funding Account and will be included in Available
Finance Charge Collections as described above under '--Interest'. If such
investments for any Distribution Date with respect to the Class A Accumulation
Period or the first Special Payment Date (on or prior to the Class A Expected
Final Payment Date) yield less than the Class A Certificate Rate for the related
Interest Period, the Principal Funding Investment Proceeds with respect to such
Distribution Date will be less than the Covered Amount for such Distribution
Date. It is intended that any such shortfall will be funded from Available
Finance Charge Collections available therefor (including, if necessary, a
withdrawal from the Reserve Account, if any), the Available Cash Collateral
Amount or from Reallocated Principal Collections, as described above under
'--Application of Collections--Payments of Interest, Fees and Other Items' and
'--Cash Collateral Account'. Additionally, if such investments for any
Distribution Date with respect to the Class B Accumulation Period or the first
Special Payment Date (after the Class A Expected Final Payment Date and on or
prior to the Class B Expected Final Payment Date) yield less than the Class B
Certificate Rate for the related Interest Period, the Principal Funding
Investment Proceeds with respect to such Distribution Date will be less than the
amount of interest due Class B Certificateholders relating to amounts on deposit
in the Principal Funding Account in respect of the Class B Certificates. It is
intended that any such shortfall will be funded from Available Finance Charge
Collections available therefor, the Available Cash Collateral Amount or from
Reallocated Collateral Principal Collections, as described above under
'--Application of Collections--Payments of Interest, Fees and Other Items' and
'--Cash Collateral Account'. Such available amounts at any time will be limited
and there can be no assurance that sufficient funds will be available to fund
any such shortfall.
The Principal Funding Account Balance, if any, in respect of the Class A
Certificates will be distributed to Class A Certificateholders on the Class A
Expected Final Payment Date or, if earlier, the first Special Payment Date (on
or prior to the Class A Expected Final Payment Date) and the Principal Funding
Account Balance, if any, in respect of the Class B Certificates will be
distributed to Class B Certificateholders on the Class B Expected Final Payment
Date or, if earlier, the first Special Payment Date (after the Class A Expected
Final Payment Date and on or prior to the Class B Expected Final Payment Date),
in each case as described under '--Distributions'.
S-28
RESERVE ACCOUNT
The Servicer may establish and maintain in the name of the Trustee, on
behalf of the Trust, an Eligible Deposit Account for the benefit of the Class A
Certificateholders (the 'Reserve Account'). If the Servicer elects to fund the
Reserve Account, on each Distribution Date from and after the Reserve Account
Funding Date, but prior to the termination of the Reserve Account, the Trustee,
acting pursuant to the Servicer's instructions, will apply Available Finance
Charge Collections (to the extent described above under '--Application of
Collections--Payment of Interest, Fees and Other Items') to increase the amount
on deposit in the Reserve Account (to the extent such amount is less than the
Required Reserve Account Amount). The 'Reserve Account Funding Date', if any,
will be determined by the Servicer such that the Reserve Account may be funded
from Available Finance Charge Collections, to the extent available for such
purpose, before the beginning of the Class A Accumulation Period (as it may have
been postponed at the election of the Servicer as described under
'--Principal').
The 'Required Reserve Account Amount' for any Distribution Date after the
Reserve Account Funding Date will be equal to the product of a percentage
between 0% and 0.50% and the Class A Initial Invested Amount as of such
Distribution Date, as provided in the Servicer's instructions to the Trustee. On
each Distribution Date, after giving effect to any deposit to be made to, and
any withdrawal to be made from, the Reserve Account on such Distribution Date,
the Trustee will withdraw from the Reserve Account an amount equal to the
excess, if any, of the amount on deposit in the Reserve Account over the
Required Reserve Account Amount and will distribute such excess to or at the
direction of the Banks.
Provided that the Reserve Account has not been terminated as described
below, all amounts on deposit in the Reserve Account with respect to any
Distribution Date (after giving effect to any deposits to, or withdrawals from,
the Reserve Account to be made on such Distribution Date) will be invested to
the business day immediately preceding the following Distribution Date by the
Trustee at the direction of the Servicer in Eligible Investments. The interest
and other investment income (net of investment expenses and losses) earned on
such investments will be retained in the Reserve Account (to the extent the
amount on deposit therein is less than the Required Reserve Account Amount) or
distributed to or at the direction of the Banks.
On or before each of the Distribution Dates with respect to the Class A
Accumulation Period and the first Special Payment Date (on or prior to the Class
A Expected Final Payment Date), funds, if any, on deposit in the Reserve Account
will be withdrawn from the Reserve Account, deposited in the Collection Account
and included in Available Finance Charge Collections as described above under
'--Interest', in an amount equal to the lesser of (a) the Available Reserve
Account Amount with respect to such Distribution Date or Special Payment Date
and (b) the excess, if any, of the Covered Amount with respect to such
Distribution Date or Special Payment Date over the Principal Funding Investment
Proceeds with respect to such Distribution Date or Special Payment Date;
provided, however, that the amount of such withdrawal will be reduced to the
extent that funds otherwise would be available to be deposited in the Reserve
Account on such Distribution Date or Special Payment Date. On the business day
immediately preceding each Distribution Date, the amount available to be
withdrawn from the Reserve Account (the 'Available Reserve Account Amount') will
be equal to the lesser of the amount on deposit in the Reserve Account (before
giving effect to any deposit to be made to the Reserve Account on such
Distribution Date) and the Required Reserve Account Amount for such Distribution
Date. The 'Covered Amount' for any Distribution Date with respect to the Class A
Accumulation Period or the first Special Payment Date (on or prior to the Class
A Expected Final Payment Date) will be 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, (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.
The Reserve Account will not be available for the benefit of Class B
Certificateholders to fund any deficiency with respect to the yield on the
Principal Funding Account during the Class B Accumulation Period. The Reserve
Account will be terminated following the earliest to occur of (a) the date on
which the Class A Certificates are paid in full, (b) the business day
immediately preceding the first Special Payment Date (on or prior to the Class A
Expected Final Payment Date) and (c) the business day immediately preceding the
Class A Expected Final Payment Date. Upon the termination of the Reserve
Account, all amounts on deposit therein (after giving effect to any withdrawal
from the Reserve Account on such date as described above) will be distributed to
or at the direction of the Banks. Any amounts withdrawn from the Reserve Account
and distributed to or at the direction of the Banks as described above will not
be available for distribution to the Class A Certificateholders.
S-29
DEFAULTED AMOUNTS; CHARGE-OFFS
If, on any Distribution Date, the Collateral Defaulted Amount exceeds the
amount of Available Finance Charge Collections available to fund the Collateral
Defaulted Amount on such Distribution Date as described in paragraph (a)(x)
under '--Application of Collections--Payments of Interest, Fees and Other Items'
above, then the Collateral Invested Amount will be reduced by the amount of such
excess; provided, however, that the Collateral Invested Amount will not be
reduced below zero. Such reductions will thereafter be reimbursed and the
Collateral Invested Amount increased (but not by an amount in excess of the
aggregate unreimbursed reductions) on any Distribution Date by the amount of
Available Finance Charge Collections available for that purpose as described in
paragraph (a)(xii) under '--Application of Collections--Payments of Interest,
Fees and Other Items' above.
If, on any Distribution Date, the Class A Defaulted Amount for the related
Monthly Period exceeds the amount of Available Finance Charge Collections, the
Available Cash Collateral Amount and Reallocated Principal Collections applied
thereto on such Distribution Date, the Collateral Invested Amount (after giving
effect to reductions in the Collateral Invested Amount on such Distribution Date
(a) as described in paragraphs (b) and (c) under '--Application of
Collections--Payments of Interest, Fees and Other Items' above in respect of the
application of the Reallocated Principal Collections and (b) as described in the
immediately preceding paragraph in respect of the amount by which the Collateral
Defaulted Amount exceeded the amount of Available Finance Charge Collections
available to fund the Collateral Defaulted Amount) will be reduced by the amount
of such excess. If such reduction would cause the Collateral Invested Amount to
be reduced below zero, the Collateral Invested Amount will be reduced to zero
and the Class B Invested Amount (after giving effect to reductions in the Class
B Invested Amount on such Distribution Date (a) as described in paragraph (c)
under '--Application of Collections--Payments of Interest, Fees and Other Items'
above in respect of the application of the Reallocated Class B Principal
Collections and (b) as described in the immediately following paragraph in
respect of the amount by which the Class B Defaulted Amount exceeded the amount
of Available Finance Charge Collections, the Available Cash Collateral Amount
and Reallocated Collateral Principal Collections available to fund the Class B
Defaulted Amount) will be reduced by the amount by which the Collateral Invested
Amount would have been reduced below zero. In the event that such reduction
would cause the Class B Invested Amount to be reduced below zero, 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 Charge-Off'). Class A
Charge-Offs will thereafter be reimbursed and the Class A Invested Amount
increased (but not by an amount in excess of the aggregate unreimbursed Class A
Charge-Offs) on any Distribution Date by the amount of Available Finance Charge
Collections available for that purpose as described in paragraph (a)(v) under
'--Application of Collections--Payments of Interest, Fees and Other Items'
above.
If, on any Distribution Date, the Class B Defaulted Amount for the related
Monthly Period exceeds the amount of the Available Finance Charge Collections,
Available Cash Collateral Amount and Reallocated Collateral Principal
Collections applied thereto on such Distribution Date, the Collateral Invested
Amount (after giving effect to reductions in the Collateral Invested Amount on
such Distribution Date (a) as described in paragraphs (b) and (c) under
'--Application of Collections--Payments of Interest, Fees and Other Items' above
in respect of the application of the Reallocated Principal Collections, (b) as
described in the second immediately preceding paragraph in respect of the amount
by which the Collateral Defaulted Amount exceeded the amount of Available
Finance Charge Collections available to fund the Collateral Defaulted Amount and
(c) as described in the immediately preceding paragraph in respect of the amount
by which the Class A Defaulted Amount exceeded the amount of Available Finance
Charge Collections, the Available Cash Collateral Amount and Reallocated
Principal Collections available to fund the Class A Defaulted Amount) will be
reduced by the amount of such excess. If such reduction would cause the
Collateral Invested Amount to be reduced below zero, the Collateral Invested
Amount will be reduced to zero and the Class B Invested Amount will be reduced
by the amount by which the Collateral Invested Amount would have been reduced
below zero (any reduction in the Class B Invested Amount as described in this
paragraph or the immediately preceding paragraph, a 'Class B Charge-Off'). Class
B Charge-Offs will thereafter be reimbursed and the Class B Invested Amount
increased (but not by an amount in excess of the aggregate unreimbursed Class B
Charge-Offs) on any Distribution Date by the amount of Available Finance Charge
Collections available for that purpose as described in paragraph (a)(viii) under
'--Application of Collections--Payments of Interest, Fees and Other Items'
above.
S-30
PAY OUT EVENTS
The Pay Out Events with respect to the Series 1997-1 Certificates will
include each of the events specified in the Prospectus under 'Description of the
Certificates--Pay Out Events.'
For purposes of the Pay Out Event described in clause (f) under
'Description of the Certificates--Pay Out Events' in the Prospectus, the terms
'Base Rate' and 'Portfolio Yield' will be defined as follows with respect to the
Series 1997-1 Certificates:
'Base Rate' means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to the sum
of the Class A Monthly Interest, the Class B Monthly Interest and the Collateral
Monthly Interest and the Monthly Investor Servicing Fee based on an assumed
Series Servicing Fee Percentage of 2.00% per annum, in each case with respect to
the related Distribution Date, and the denominator of which is the Invested
Amount of the last day of the immediately preceding Monthly Period.
'Portfolio Yield' means, with respect to any Monthly Period, the annualized
percentage equivalent of a fraction, the numerator of which is equal to (a) the
Floating Allocation Percentage of collections of Finance Charge Receivables with
respect to such Monthly Period (including any investment earnings and certain
other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Pooling Agreement, but excluding any
investment earnings constituting Cash Collateral Investment Proceeds or
Principal Funding Investment Proceeds), plus (b) any Additional Finance Charges
from other Series in Group One allocated to Series 1997-1 with respect to such
Monthly Period, in each case calculated on a cash basis, plus (c) the amount of
Cash Collateral Investment Proceeds and Principal Funding Investment Proceeds,
if any, for the Distribution Date with respect to such Monthly Period, plus (d)
if the Reserve Account is funded, the amount, if any, withdrawn from the Reserve
Account and included in Available Finance Charge Collections with respect to
such Monthly Period, minus (e) the Series 1997-1 Defaulted Amount for the
Distribution Date with respect to such Monthly Period, and the denominator of
which is the Invested Amount as of the last day of the immediately preceding
Monthly Period.
DISTRIBUTIONS
Payments to the Class A Certificateholders and the Class B
Certificateholders will be made from the Collection Account and the Principal
Funding Account. The Servicer will instruct the Trustee to apply the funds on
deposit in such accounts to make the following distributions:
(a) on each Interest Payment Date and Special Payment Date with respect to
the Class A Certificates, all amounts on deposit in the Collection Account that
are allocated and available to pay interest on the Class A Certificates (as
described under '--Application of Collections') will be distributed to the Class
A Certificateholders;
(b)(i) on the first Special Payment Date (on or prior to the Class A
Expected Final Payment Date) and on the Class A Expected Final Payment Date, the
Principal Funding Account Balance, if any, and (ii) on each Special Payment Date
(on or prior to the Class B Principal Commencement Date) and on each
Distribution Date with respect to the Class A Accumulation Period following the
Class A Expected Final Payment Date, all amounts on deposit in the Collection
Account and the Principal Funding Account that are allocated and available to
pay principal of the Class A Certificates (as described under '--Application of
Collections') will be distributed to Class A Certificateholders up to a maximum
amount on any such date equal to the Class A Invested Amount on such date
(unless there has been an optional repurchase of the Series 1997-1
Certificateholders' Interest due to the failure to find a successor Servicer
upon a Servicer Default (as described in the Prospectus under 'The Pooling
Agreement Generally--Servicer Default'), in which event, the foregoing
limitation will not apply).
(c) on each Interest Payment Date and Special Payment Date with respect to
the Class B Certificates, all amounts on deposit in the Collection Account that
are allocated and available to pay interest on the Class B Certificates (as
described under '--Application of Collections') will be distributed to the Class
B Certificateholders;
(d)(i) on the first Special Payment Date (after the Class A Expected Final
Payment Date and on or prior to the Class B Expected Final Payment Date) and on
the Class B Expected Final Payment Date, the Principal Funding Account Balance,
if any, and (ii) on each Special Payment Date (on or after the Class B Principal
Commencement Date) and on each Distribution Date with respect to the Class B
Accumulation Period
S-31
commencing on the earlier of the Distribution Date following the Class A
Expected Final Payment Date if the Class A Invested Amount was not paid in full
on the Class A Expected Final Payment Date and the Distribution Date following
the Class B Expected Final Payment Date, all amounts on deposit in the
Collection Account that are allocated and available to pay principal of the
Class B Certificates (as described under '--Application of Collections') will be
distributed to Class B Certificateholders up to a maximum amount on any such
date equal to the Class B Invested Amount on such date (unless there has been an
optional repurchase of the Series 1997-1 Certificateholders' Interest due to the
failure to find a successor Servicer upon a Servicer Default (as described in
the Prospectus under 'The Pooling Agreement Generally--Servicer Default'), in
which event, the foregoing limitation will not apply).
PAIRED SERIES
The Series 1997-1 Certificates may be paired with one or more other Series
(each, a 'Paired Series') at or after the commencement of the Class A
Accumulation Period. Each Paired Series either (a) will be prefunded in whole or
in part with an initial deposit to a prefunding account in an amount up to the
initial principal balance of such Paired Series and primarily from the proceeds
of the offering of such Paired Series or (b) will have a variable principal
amount. Any such prefunding account will be held for the benefit of such Paired
Series and not for the benefit of Series 1997-1 Certificateholders. As funds are
accumulated in the Principal Funding Account, either (i) in the case of a
prefunded Paired Series, an equal or lesser amount of funds on deposit in any
prefunding account for such prefunded Paired Series may be released (which funds
will be distributed to or at the direction of the Banks) 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 or at the direction of the Banks), and,
in either case, the Invested Amount in the Trust of such Paired Series will
increase by up to a corresponding amount. In addition, it is expected that any
Paired Series will be excluded from the calculation of the Required Principal
Balance as described under 'Special Considerations--Payments and Maturity' in
the Prospectus. The issuance of a Paired Series will be subject to the
conditions described under 'Description of the Certificates--New Issuances' in
the Prospectus. There can be no assurance, however, that the terms of any Paired
Series might not have an impact on the timing or amount of payments received by
a Class A Certificateholder or a Class B Certificateholder. See 'Risk
Factors--Issuance of Additional Series' in the Prospectus.
SERIES TERMINATION
If, on the March 2006 Distribution Date, two months prior to the Series
Termination Date, the Invested Amount (after giving effect to all changes
therein on such Distribution Date) exceeds zero, the Servicer will, within the
40-day period beginning on such date, solicit bids for the sale of interests in
certain Principal Receivables, together in each case with the related Finance
Charge Receivables, in an amount equal to the Invested Amount at the close of
business on the last day of the Monthly Period preceding the Series Termination
Date (after giving effect to all distributions required to be made on the Series
Termination Date). The Banks will be entitled to participate in, and to receive
notice of each bid submitted in connection with, such bidding process. Upon the
expiration of such 40-day period, the Trustee will determine (a) which bid is
the highest cash purchase offer (the 'Highest Bid') and (b) the amount (the
'Available Final Distribution Amount') which otherwise would be available in the
Collection Account on the Series Termination Date for distribution to the Series
1997-1 Certificateholders. The Servicer will sell such Receivables on the Series
Termination Date to the bidder who provided the Highest Bid and will deposit the
proceeds of such sale in the Collection Account for allocation (together with
the Available Final Distribution Amount) to the Series 1997-1
Certificateholders' Interest.
S-32
UNDERWRITING
Each of the underwriters named below (the 'Class A Underwriters') has
severally agreed to purchase from the Banks the principal amount of the Class A
Certificates set forth opposite its name:
PRINCIPAL AMOUNT OF
CLASS A
CLASS A UNDERWRITERS CERTIFICATES
- -------------------------------------------------------------------------- -------------------
Credit Suisse First Boston Corporation.................................... $ 97,800,000
Citicorp Securities, Inc. ................................................ 97,800,000
Goldman, Sachs & Co. ..................................................... 97,800,000
Lehman Brothers Inc. ..................................................... 97,800,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................. 97,800,000
-------------------
Total................................................................... $ 489,000,000
-------------------
-------------------
The underwriting agreement (the 'Underwriting Agreement') between the Banks
and the Underwriters provides that the obligations of the Class A Underwriters
to pay for and accept delivery of the Class A Certificates are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Class A Underwriters are committed to purchase and pay for all
of the Class A Certificates if any are purchased.
The Class A Underwriters propose initially to offer the Class A
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less a concession not in excess of 0.175% of
the aggregate principal amount of the Class A Certificates. The Class A
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.125% of such aggregate principal amount to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Class A Underwriters.
Each of the underwriters named below (the 'Class B Underwriters'; and
together with the Class A Underwriters, 'the Underwriters') has severally agreed
to purchase from the Banks the principal amount of the Class B Certificates set
forth opposite its name:
PRINCIPAL AMOUNT OF
CLASS B
CLASS B UNDERWRITERS CERTIFICATES
- -------------------------------------------------------------------------- -------------------
Credit Suisse First Boston Corporation.................................... $28,500,000
Lehman Brothers Inc. ..................................................... 28,500,000
-------------------
Total................................................................... $57,000,000
-------------------
-------------------
The Underwriting Agreement provides that the obligations of the Class B
Underwriters to pay for and accept delivery of the Class B Certificates are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Class B Underwriters are committed to purchase and pay for
all of the Class B Certificates if any are purchased.
The Class B Underwriters 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 a concession not in excess of 0.200% of
the aggregate principal amount of the Class B Certificates. The Class B
Underwriters may allow, and such dealers may reallow, a concession not in excess
of 0.125% of such aggregate principal amount to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Class B Underwriters.
Each Underwriter will represent and agree that:
(a) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the Class A Certificates and the Class B Certificates in, from
or otherwise involving the United Kingdom;
(b) it has only issued, distributed or passed on and will only issue,
distribute or pass on in the United Kingdom any document received by it in
connection with the issue of the Class A Certificates and the
S-33
Class B Certificates to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued, distributed or passed on;
(c) if it is an authorized person under Chapter III of Part I of the
Financial Services Act 1986, it has only promoted and will only promote (as
that term is defined in Regulation 1.02(2) of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991) to any person in the
United Kingdom the scheme described in this Prospectus Supplement and the
Prospectus if that person is a kind described either in Section 76(2) of
the Financial Services Act 1986 or in Regulation 1.04 of the Financial
Services (Promotion of Unregulated Schemes) Regulations 1991; and
(d) it is a person of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996.
The Banks will indemnify the Underwriters against certain liabilities,
including liabilities under the 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 Banks, their affiliates and the Trust. In addition, the
Underwriters may from time to time take positions in the Certificates issued by
the Trust. Without limiting the generality of the foregoing, Credit Suisse First
Boston Corporation, subject to the terms and conditions of a Purchase Agreement
between such Underwriter and the Banks, will purchase the Collateral Interest on
the Closing Date for reoffer in one or more negotiated transactions, or
otherwise, and will receive compensation from the Banks in connection therewith.
Credit Suisse First Boston Corporation (the 'Representative'), on behalf of
the Underwriters, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Certificates offered hereby in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Representative to reclaim a selling
concession from a syndicate member when the Certificates offered hereby
originally sold by such syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
Certificates offered hereby to be higher than it would otherwise be in the
absence of such transactions.
S-34
GLOSSARY FOR PROSPECTUS SUPPLEMENT
TERM PAGE
- ----------------------------------------------- ----
Accounts....................................... S-1
Adjusted Invested Amount....................... S-5
Available Cash Collateral Amount............... S-28
Available Final Distribution Amount............ S-32
Available Finance Charge Collections........... S-19
Available Principal Collections................ S-26
Available Reserve Account Amount............... S-29
Banks.......................................... S-1
Base Rate...................................... S-31
Business Day................................... S-3
Cash Collateral Account........................ S-6
Cash Collateral Investment Proceeds............ S-27
Class A Accumulation Period.................... S-8
Class A Accumulation Period Length............. S-20
Class A Additional Interest.................... S-23
Class A Adjusted Invested Amount............... S-5
Class A Certificates........................... S-1
Class A Certificateholders..................... S-2
Class A Certificateholders' Interest........... S-4
Class A Certificate Rate....................... S-2
Class A Charge-Off............................. S-30
Class A Controlled Accumulation Amount......... S-26
Class A Controlled Deposit Amount.............. S-26
Class A Defaulted Amount....................... S-23
Class A Deficit Controlled Accumulation
Amount....................................... S-26
Class A Initial Invested Amount................ S-3
Class A Invested Amount........................ S-21
Class A Interest Shortfall..................... S-23
Class A Monthly Interest....................... S-23
Class A Monthly Principal...................... S-26
Class A Percentage............................. S-23
Class A Underwriters........................... S-33
Class B Accumulation Period.................... S-9
Class B Additional Interest.................... S-23
Class B Adjusted Invested Amount............... S-5
Class B Certificates........................... S-1
Class B Certificateholders..................... S-2
Class B Certificateholders' Interest........... S-4
Class B Certificate Rate....................... S-2
Class B Charge-Off............................. S-30
Class B Controlled Accumulation Amount......... S-26
Class B Controlled Deposit Amount.............. S-26
Class B Deficit Controlled Accumulation
Amount....................................... S-26
Class B Defaulted Amount....................... S-24
Class B Interest Shortfall..................... S-24
Class B Initial Invested Amount................ S-3
Class B Invested Amount........................ S-21
Class B Monthly Interest....................... S-24
Class B Monthly Principal...................... S-26
Class B Percentage............................. S-24
TERM PAGE
- ----------------------------------------------- ----
Class B Principal Commencement Date............ S-26
Class B Underwriters........................... S-33
Collateral Agreement........................... S-24
Collateral Defaulted Amount.................... S-24
Collateral Interest............................ S-4
Collateral Interest Holder..................... S-4
Collateral Interest Rate....................... S-24
Collateral Invested Amount..................... S-21
Collateral Monthly Interest.................... S-24
Collateral Monthly Principal................... S-27
Collateral Percentage.......................... S-24
Covered Amount................................. S-29
Early Amortization Period...................... S-11
FDNB........................................... S-1
Floating Allocation Percentage................. S-21
Highest Bid.................................... S-32
Initial Invested Amount........................ S-4
Interest Payment Date.......................... S-2
Interest Period................................ S-20
Invested Amount................................ S-21
LIBOR.......................................... S-19
LIBOR Determination Date....................... S-19
Paired Series.................................. S-32
PNB............................................ S-1
Portfolio Yield................................ S-31
Principal Allocation Percentage................ S-21
Principal Funding Account...................... S-28
Principal Funding Account Balance.............. S-28
Principal Funding Investment Proceeds.......... S-28
Reallocated Class B Principal Collections...... S-25
Reallocated Collateral Principal Collections... S-25
Reallocated Principal Collections.............. S-25
Receivables.................................... S-1
Reference Banks................................ S-20
Representative................................. S-34
Required Amount................................ S-6
Required Cash Collateral Amount................ S-28
Required Collateral Invested Amount............ S-27
Required Enhancement Amount.................... S-27
Required Reserve Account Amount................ S-29
Reserve Account................................ S-29
Reserve Account Funding Date................... S-29
Revolving Period............................... S-8
Series 1997-1 Certificateholder's Interest..... S-4
Series 1997-1 Certificates..................... S-1
Series 1997-1 Supplement....................... S-18
Series 1997-2 Certificates..................... S-8
Special Payment Date........................... S-11
Trust.......................................... S-1
Underwriting Agreement......................... S-33
S-35
ANNEX I
OTHER ISSUANCES OF CERTIFICATES
The table below sets forth the principal characteristics of the Asset
Backed Certificates, Series 1993-2, 1993-3, 1994-1, 1995-1, 1995-2 and 1996-1,
the only Series heretofore issued by the Trust and still outstanding, and Series
1997-2, which is expected to be issued contemporaneously with the issuance of
Series 1997-1. For more specific information with respect to any Series, any
prospective investor should contact the Servicer (in care of Providian Bancorp,
Inc., attention: Chief Financial Officer) at (415) 543-0404. The Servicer will
provide, without charge, to any prospective purchaser of the Class A
Certificates and the Class B Certificates a copy of the Prospectus Supplement
for any previous publicly-issued Series or concurrent publicly issued Series.
Previous Issuance of Certificates
ASSET BACKED CERTIFICATES, SERIES 1993-2.
Initial Invested Amount.................................................. $500,000,000
Certificate Rate......................................................... 5.75%
Expected Final Payment Date.............................................. June 15, 1998
Scheduled Accumulation Period Commencement Date.......................... May 31, 1996(2)
Controlled Accumulation Amount........................................... $20,833,333.34(2)
Initial Cash Collateral Amount........................................... $100,000,000
Group.................................................................... One
Series Servicing Fee Percentage.......................................... 1.75%(1)
Series Termination Date.................................................. June 15, 2001
REMARKETED ASSET BACKED CERTIFICATES, SERIES 1993-3.
Maximum Series Invested Amount........................................... $750,000,000(3)
Maximum Amount of Remarketed Certificates................................ 653,750,000
Initial Amount of Collateral Interest.................................... 96,250,000
Initial Cash Collateral Amount........................................... 20,000,000
Group.................................................................... One
Certificate Rate......................................................... Floating
Series Servicing Fee Percentage.......................................... 1.75%(1)
Initial Revolving Period Expiration Date................................. February 28, 1998(4)
Series Termination Date.................................................. October 15, 2002
ASSET BACKED CERTIFICATES, SERIES 1994-1.
Initial Invested Amount.................................................. $475,000,000
Certificate Rate......................................................... 6.90%
Expected Final Payment Date.............................................. June 15, 1997
Scheduled Accumulation Period Commencement Date.......................... May 31, 1995(2)
Controlled Accumulation Amount........................................... $19,791,667(2)
Initial Cash Collateral Amount........................................... $95,000,000
Group.................................................................... One
Series Servicing Fee Percentage.......................................... 1.75%(1)
Series Termination Date.................................................. August 15, 2001
ASSET BACKED CERTIFICATES, SERIES 1995-1.
Senior Initial Invested Amount........................................... $750,500,000
Senior Certificate Rate.................................................. Floating
Expected Final Payment Date.............................................. June 15, 2000
Scheduled Accumulation Period Commencement Date.......................... May 31, 1998(2)
Controlled Accumulation Amount........................................... $31,270,833(2)
Collateral Initial Invested Amount....................................... $199,500,000
Group.................................................................... One
Series Servicing Fee Percentage.......................................... 1.75%(1)
Series Termination Date.................................................. August 15, 2004
A-1
ASSET BACKED CERTIFICATES, SERIES 1995-2.
Senior Initial Invested Amount........................................... $445,500,000
Senior Certificate Rate.................................................. 6.05%
Expected Final Payment Date.............................................. June 15, 1998
Scheduled Accumulation Period Commencement Date.......................... May 31, 1996(2)
Controlled Accumulation Amount........................................... $18,562,500(2)
Collateral Initial Invested Amount....................................... $104,500,000
Group.................................................................... One
Series Servicing Fee Percentage.......................................... 1.75%(1)
Series Termination Date.................................................. August 15, 2002
ASSET BACKED CERTIFICATES, SERIES 1996-1.
Senior Initial Invested Amount........................................... $750,500,000
Senior Certificate Rate.................................................. Floating
Expected Final Payment Date.............................................. June 15, 2003
Scheduled Accumulation Period Commencement Date.......................... May 31, 2001(2)
Controlled Accumulation Amount........................................... $31,270,833(2)
Collateral Initial Invested Amount....................................... $199,500,000
Group.................................................................... One
Series Servicing Fee Percentage.......................................... 1.75%(1)
Series Termination Date.................................................. August 15, 2007
ASSET BACKED CERTIFICATES, SERIES 1997-2.
Class A Initial Invested Amount.......................................... $570,500,000
Class B Initial Invested Amount.......................................... $66,500,000
Class A Certificate Rate................................................. Floating
Class B Certificate Rate................................................. Floating
Class A Expected Final Payment Date...................................... March 15, 2004
Class B Expected Final Payment Date...................................... May 15, 2004
Scheduled Class A Accumulation Period Commencement Date.................. February 28, 2002(2)
Class A Controlled Accumulation Amount................................... $23,770,833(2)
Collateral Initial Invested Amount....................................... $63,000,000
Group.................................................................... One
Series Servicing Fee Percentage.......................................... 1.75%(1)
Series Termination Date.................................................. May 15, 2008
- ------------------
(1) Subject to change if FDNB is replaced as Servicer.
(2) Subject to change if the commencement of the Accumulation Period is or has
been delayed.
(3) Variable. Current amount is $750,000,000. May be decreased (and is expected
to be decreased in connection with the issuance of the Series 1997-1
Certificates and the Series 1997-2 Certificates)and may subsequently be
increased, but may not exceed $750,000,000.
(4) Subject to delay if the Series 1993-3 Revolving Period is extended.
A-2
[LOGO]
PROSPECTUS
PROVIDIAN MASTER TRUST
ASSET BACKED CERTIFICATES
FIRST DEPOSIT NATIONAL BANK
SELLER AND SERVICER
PROVIDIAN NATIONAL BANK
SELLER
------------------
First Deposit National Bank ('FDNB') and Providian National Bank ('PNB';
together with FDNB, the 'Banks'), may sell from time to time one or more series
(each a 'Series') of asset backed certificates (the 'Certificates')
evidencing undivided interests in certain assets of Providian Master
Trust, formerly known as the First Deposit Master Trust (the 'Trust').
The Trust was formed pursuant to a Pooling and Servicing Agreement (the
'Pooling Agreement') among FDNB, as seller and servicer, PNB, as
seller, and Bankers Trust Company, as trustee (the 'Trustee'). The
property of the Trust includes receivables (the 'Receivables')
generated from time to time in a portfolio of consumer revolving
credit card accounts and other consumer revolving credit accounts
(the 'Accounts'), collections thereon and certain other
property, as more fully described herein and, with respect to
any Series, in an accompanying prospectus supplement (a
'Prospectus Supplement') relating to such Series.
Certificates will be sold from time to time under this Prospectus on terms
determined for each Series at the time of the sale and described in the related
Prospectus Supplement. Each Series will consist of one or more classes of
Certificates (each a 'Class'). Each Certificate will represent an
undivided interest in the Trust and the interest of the
Certificateholders of each Class or Series will include the right to
receive a varying percentage of each month's collections with respect
to the Receivables at the times, in the manner and to the extent
described herein and, with respect to any Series offered hereby, in
the related Prospectus Supplement. Interest and principal payments
with respect to each Series offered hereby will be made as
specified in the related Prospectus Supplement. One or more
Classes of a Series offered hereby may be entitled to the
benefits of a cash collateral account, letter of credit, surety
bond, insurance policy or other form of enhancement as
specified in the Prospectus Supplement relating to such
Series. In addition, any Series offered hereby may include
one or more Classes which are subordinated in right and
priority to payment of principal of, and/or interest
on, one or more other Classes of such Series or
another Series, in each case to the extent described
in the related Prospectus Supplement.
While the specific terms of any Series in respect of which this Prospectus is
being delivered will be described in the related Prospectus Supplement, the
terms of such Series will not be subject to prior review by, or consent
of, the holders of the Certificates of any previously issued Series.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN 'RISK FACTORS' COMMENCING ON PAGE 15 HEREIN AND IN THE RELATED
PROSPECTUS SUPPLEMENT.
THE CERTIFICATES WILL REPRESENT INTERESTS IN THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF EITHER BANK OR ANY AFFILIATE OF
EITHER BANK. NEITHER THE CERTIFICATES NOR THE UNDERLYING ACCOUNTS OR
RECEIVABLES OR ANY COLLECTIONS THEREON ARE INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
Certificates may be sold by the Banks directly to purchasers, through
agents designated from time to time, through underwriting syndicates led by one
or more managing underwriters or through one or more underwriters acting alone.
If underwriters or agents are involved in the offering of the Certificates of
any Series offered hereby, the name of the managing underwriter or underwriters
or agents will be set forth in the related Prospectus Supplement. If an
underwriter, agent or dealer is involved in the offering of the Certificates of
any Series offered hereby, the underwriter's discount, agent's commission or
dealer's purchase price will be set forth in, or may be calculated from, the
related Prospectus Supplement, and the net proceeds to the Banks from such
offering will be the public offering price of such Certificates less such
discount in the case of an underwriter, the purchase price of such Certificates
less such commission in the case of an agent or the purchase price of such
Certificates in the case of a dealer, and less, in each case, the other expenses
of the Banks associated with the issuance and distribution of such Certificates.
See 'Plan of Distribution'.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES
OF ANY SERIES UNLESS ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
The date of this Prospectus is March 10, 1997.
AVAILABLE INFORMATION
The Banks, as originators of the Trust, have filed a Registration Statement
under the Securities Act of 1933, as amended (the 'Act'), with the Securities
and Exchange Commission (the 'Commission') on behalf of the Trust with respect
to the Certificates offered hereby. This Prospectus, which forms a part of the
Registration Statement, omits certain information contained in such Registration
Statement pursuant to the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement (including any
amendments thereof and exhibits thereto) and any reports and other documents
incorporated herein by reference as described below under 'Incorporation of
Certain Documents by Reference', which are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, New York, New
York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, any such reports or other documents
filed with the Commission through its Electronic Data Gathering, Analysis and
Retrieval system are publicly available through the Commission's web site
(http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, Monthly Reports, which
contain unaudited information concerning the Trust and are prepared by the
Servicer, will be sent on behalf of the Trust to Cede & Co. ('Cede'), as nominee
of The Depository Trust Company ('DTC') and registered holder of the
Certificates offered hereby, pursuant to the Pooling Agreement. See 'Description
of the Certificates--Reports' and 'The Pooling Agreement Generally--Book-Entry
Registration' and '--Evidence as to Compliance'. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Pooling Agreement will not require the sending of,
and the Banks do not intend to send, any of their financial reports to holders
of interests in Certificates (the 'Certificateholders') offered hereby. The
Servicer will file with the Commission such periodic reports with respect to the
Trust as are required under the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of the
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be part hereof. The following documents
filed with the Commission by the Servicer, on behalf of the Trust, are
incorporated in this Prospectus by reference: the Trust's Annual Report on Form
10-K for the year ended December 31, 1995 and the Current Reports on Form 8-K
filed since December 31, 1995. Any statement contained herein or in a document
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in any other subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of Certificates, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any of
or all the documents incorporated herein by reference (other than exhibits to
such documents). Written requests for such copies should be directed to First
Deposit National Bank, in care of Providian Bancorp, Inc., 201 Mission Street,
San Francisco, CA 94105, attention: Chief Financial Officer. Telephone requests
for such copies should be directed to the Servicer (in care of Providian
Bancorp, Inc., attention: Chief Financial Officer) at (tel: (415) 543-0404).
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in any
accompanying Prospectus Supplement. Reference is made to the Glossary for the
location herein of the definitions of certain capitalized terms used herein.
Unless the context requires otherwise, capitalized terms used in this Prospectus
and in any accompanying Prospectus Supplement refer only to the particular
Series being offered by such Prospectus Supplement.
Trust.......................................... Providian Master Trust, formerly known as the First Deposit
Master Trust (the 'Trust'). The Trust, as a master trust, has
issued other Series and is expected to issue additional Series
from time to time. The assets of the Trust (the 'Trust Assets')
include a portfolio of receivables (the 'Receivables') arising
under the Accounts included in the Trust from time to time,
funds collected or to be collected from accountholders in
respect of the Receivables, the right to receive certain
Interchange attributable to accountholder charges for
merchandise and services in certain of the Accounts, certain
amounts recovered with respect to Accounts in which the
Receivables have been charged-off as uncollectible, monies on
deposit in certain accounts of the Trust, any Participations
included in the Trust, funds collected or to be collected with
respect to such Participations and any Series Enhancement with
respect to a particular Series or Class. The term 'Series
Enhancement' means, with respect to any Series or Class of
Certificates, any Credit Enhancement, guaranteed rate
agreement, maturity liquidity facility, tax protection
agreement, interest rate cap agreement, interest rate swap
agreement or other similar arrangement for the benefit of
Certificateholders of such Series or Class. The Trust Assets
are expected to change over the life of the Trust as
receivables in revolving credit card accounts and other
revolving credit accounts and related assets are included in
the Trust and as receivables in accounts subject to the Trust
are charged-off or removed. See 'The Trust' and 'Description of
the Certificates--Addition of Trust Assets', '--Removal of
Accounts' and '--New Issuances'.
Banks.......................................... First Deposit National Bank ('FDNB') and Providian National Bank
('PNB'; together with FDNB, the 'Banks'), each a national
banking association, are the initial sellers of the Receivables
and originators of the Trust. Subject to certain conditions
described herein under 'The Pooling Agreement Generally--The
Banks' Certificate; Additional Sellers', the Banks may
designate one or more affiliates of the Banks to sell
Receivables or Participations to the Trust from time to time.
Additional Sellers will generally have the same rights and
obligations as those of the Banks described herein.
Trustee........................................ Bankers Trust Company (the 'Trustee').
The Accounts................................... The Accounts consist of the Initial Accounts and any Additional
Accounts but will not include any Removed Accounts. The Banks
have conveyed to the Trust all Receivables existing on a
specified date prior to the issuance of the first Series (the
3
'Trust Cut-Off Date') in certain consumer revolving credit card
accounts and other consumer revolving credit accounts (the
'Initial Accounts') and all Receivables arising in the Initial
Accounts from time to time thereafter until the termination of
the Trust. Since the Trust Cut-Off Date, the Banks have
conveyed to the Trust Receivables in certain Additional
Accounts in accordance with the provisions of the Pooling
Agreement. Pursuant to the Pooling Agreement, the Banks expect
(subject to certain limitations and conditions), and in some
circumstances will be obligated, to designate Additional
Accounts the Receivables in which will be included in the Trust
or, in lieu thereof or in addition thereto, to include
Participations in the Trust. The Banks will convey to the Trust
all Receivables in Additional Accounts, whether such
Receivables are then existing or thereafter created. The
addition to the Trust of Receivables in Additional Accounts
(other than Automatic Additional Accounts) or Participations
will be subject to certain conditions, including, among others,
that (a) such addition will not result in a Ratings Effect and
(b) the Banks shall have delivered to the Trustee and certain
providers of Series Enhancement a certificate of an authorized
officer to the effect that, in the reasonable belief of the
Banks, such addition will not, based on the facts known to such
officer at the time of such certification, cause a Pay Out
Event to occur with respect to any Series. See 'Description of
the Certificates--Addition of Trust Assets'.
Pursuant to the Pooling Agreement, each Bank will have the right
(subject to certain limitations and conditions) to remove the
Receivables in certain Accounts owned by it from the Trust
('Removed Accounts'). See 'Description of the
Certificates--Removal of Accounts'.
The Receivables................................ The Receivables consist of all amounts charged by accountholders
for merchandise and services and cash advances ('Principal
Receivables') and all related periodic finance charges, cash
advance fees, late charges and any other fees and charges
billed on the Accounts and certain Interchange attributable to
accountholder charges for goods and services in certain of the
Accounts ('Finance Charge Receivables'). The amount of
Receivables will fluctuate from day to day as new Receivables
are generated or added to the Trust and as existing Receivables
are collected, charged-off as uncollectible or otherwise
adjusted.
The Certificates............................... The Certificates will be issued in Series, each of which will
consist of one or more Classes. The specific terms of a Series
or Class will be established as described herein under
'Description of the Certificates--New Issuances'. However,
while the specific terms of any Series or Class offered hereby
will be described in the related Prospectus Supplement, the
terms of such Series or Class will not be subject to prior
review by, or consent of, the holders of the Certificates of
any previously issued Series.
4
Unless otherwise specified in the related Prospectus Supplement,
the Certificates of a Series offered hereby will be available
for purchase in minimum denominations of $1,000, and will only
be available in book-entry form except in certain limited
circumstances as described herein under 'The Pooling Agreement
Generally--Definitive Certificates'. A portion of the Trust
Assets will be allocated among the Certificateholders of a
particular Series (the 'Certificateholders' Interest'), the
Certificateholders of other Series and the interest of the
Banks and their permitted transferees (the 'Sellers'
Interest'), as described below. The aggregate principal amount
of the Certificateholders' Interest of a Series offered hereby
will, except as otherwise provided herein and in the related
Prospectus Supplement, remain fixed at the aggregate
initialprincipal amount of the Certificates of such Series. The
Certificateholders' Interest of a Series will include the right
to receive (but only to the extent needed to make required
payments under the Pooling Agreement and the related Supplement
and subject to any reallocation of such amounts if the related
Supplement so provides) varying percentages of collections of
Finance Charge Receivables and Principal Receivables and will
be allocated a varying percentage of the Defaulted Amount with
respect to each Monthly Period. If the Certificates of a Series
offered hereby include more than one Class of Certificates, the
Trust Assets allocable to the Certificateholders' Interest of
such Series may be further allocated among each Class in such
Series as described in the related Prospectus Supplement.
The Certificates of a Series will evidence undivided interests in
the Trust Assets allocated to the Certificateholders' Interest
of such Series. The Certificates represent beneficial interests
in the Trust only and do not represent interests in or
obligations of either Bank or any affiliate of either Bank.
Neither the Certificates nor the Accounts, the Receivables or
any collections thereon are insured or guaranteed by the
Federal Deposit Insurance Corporation (the 'FDIC') or any other
governmental agency or instrumentality.
The Sellers' Interest.......................... The Sellers' Interest at any time represents the right to the
Trust Assets in excess of the Certificateholders' Interest of all
Series then outstanding. The principal amount of the Sellers'
Interest will fluctuate as the amount of the Principal
Receivables held by the Trust changes from time to time. In
addition, the Banks intend to cause the issuance of additional
Series from time to time and any such issuance will have the
effect of decreasing the Sellers' Interest to the extent of the
Invested Amount of such Series. See 'Description of the
Certificates--New Issuances'. A portion of the Sellers'
Interest may be sold separately in one or more public or
private transactions. See 'The Pooling Agreement Generally--The
Banks' Certificate; Additional Sellers'.
5
The Pooling Agreement provides that the Banks will be required to
make an Addition to the Trust in the event that the Sellers'
Interest is less than the Required Sellers' Participation
Amount on the last business day of any Monthly Period. See
'Description of the Certificates--Addition of Trust Assets'.
The level of the Required Sellers' Participation Amount, which
may be reduced subject to certain conditions described under
'Description of the Certificates--Addition of Trust Assets', is
intended to enable the Sellers' Interest to absorb fluctuations
in the amount of Principal Receivables held by the Trust from
time to time (due to, among otherthings, seasonal purchase and
payment habits of accountholders or adjustments in the amount
of Principal Receivables because of rebates, refunds,
fraudulent charges or otherwise). See 'Risk Factors--Payments
and Maturity' and 'Description of the Certificates--Defaulted
Receivables; Rebates and Fraudulent Charges'.
Issuance of Additional Series.................. The Pooling Agreement authorizes the Trustee to issue three types
of certificates: (i) one or more Series of Certificates, (ii) a
certificate evidencing the Sellers' Interest in the Trust,
which initially is to be held by the Banks and (iii)
Supplemental Certificates to be held by transferees of a
portion of the certificate evidencing the Sellers' Interest in
the Trust. The certificate evidencing the Sellers' Interest in
the Trust and any Supplemental Certificates are collectively
referred to herein as the 'Banks' Certificate'. The Pooling
Agreement provides that, pursuant to any one or more
supplements to the Pooling Agreement (each a 'Supplement'), the
Banks may cause the Trustee to issue one or more new Series and
accordingly cause a reduction in the Sellers' Interest
represented by the Banks' Certificate. Under the Pooling
Agreement, the Banks may define, with respect to any Series,
the Principal Terms of such Series. See 'Description of the
Certificates--New Issuances'. The Banks mayoffer any Series to
the public or other investors under a disclosure document (a
'Disclosure Document'), which will consist of a Prospectus
Supplement in the case of a Series offered hereby, in
transactions either registered under the Securities Act or
exempt from registration thereunder, directly or through one or
more underwriters or placement agents, in fixed-price offerings
or in negotiated transactions or otherwise. See 'Plan of
Distribution'. The Banks expect to offer, from time to time,
additional Series issued by the Trust.
A new Series may only be issued upon satisfaction of the
conditions described herein under 'Description of the
Certificates--New Issuances' including, among others, that (a)
such issuance will not result in a Ratings Effect and (b) the
Banks shall have delivered to the Trustee and certain providers
of Series Enhancement a certificate of an authorized officer to
the effect that, in the reasonable belief of
6
the Banks, such issuance will not, based on the facts known to
such officer at the time of such certification, cause a Pay Out
Event to occur with respect to any Series.
Collections.................................... All collections of Receivables will be allocated by the Servicer
between amounts collected on Principal Receivables and on
Finance Charge Receivables. The Servicer will allocate between
the Certificateholders' Interest of each Series and the
Sellers' Interest all amounts collected with respect to Finance
Charge Receivables and Principal Receivables and the Defaulted
Amount with respect to each day during each Monthly Period.
Collections of Finance Charge Receivables and the Defaulted
Amount will be allocated to each Series at all times based upon
its Floating Allocation Percentage. Collections of Principal
Receivables will be allocated to each Series at all times based
upon its Principal Allocation Percentage. The Floating
Allocation Percentage and the Principal Allocation Percentage
with respect to each Series will be determined as set forth in
the related Supplement and, with respect to each Series offered
hereby, in the related Prospectus Supplement.
Interest....................................... Interest will accrue on the Invested Amount of the Certificates
of a Series or Class offered hereby at the per annum rate
either specified in or determined in the manner specified in
the related Prospectus Supplement. Except as otherwise provided
herein or in the related Prospectus Supplement, collections of
Finance Charge Receivables and certain other amounts allocable
to the Certificateholders' Interest of a Series offered hereby
will be used to make interest payments to Certificateholders of
such Series on each Interest Payment Date with respect thereto,
provided that if an Early Amortization Period commences with
respect to such Series, thereafter interest will be distributed
to such Certificateholders monthly on each Special Payment
Date. If the Interest Payment Dates for a Series or Class occur
less frequently than monthly, such collections or other amounts
(or the portion thereof allocable to such Class) will be
deposited in one or more trust accounts (each an 'Interest
Funding Account') and used to make interest payments to
Certificateholders of such Series or Class on the following
Interest Payment Date with respect thereto. If a Series has
more than one Class of Certificates, each such Class may have a
separate Interest Funding Account.
Principal...................................... The principal of the Certificates of each Series offered hereby
will be scheduled to be paid either in full on an expected date
specified in the related Prospectus Supplement (the 'Expected
Final Payment Date'), in which case such Series will have an
Accumulation Period as described below under '--Accumulation
Period', or in installments commencing on a date specified in
the related Prospectus Supplement (the 'Principal Commencement
Date'), in which case such Series will have a Scheduled
Amortization Period as described below under '--Scheduled
Amortization Period'.
7
If a Series has more than one Class of Certificates, a
different method of paying principal, Expected Final Payment
Date and/or Principal Commencement Date may be assigned to each
Class. The payment of principal with respect to the
Certificates of a Series or Class may commence earlier than the
applicable Expected Final Payment Date or Principal
Commencement Date, and the final principal payment with respect
to the Certificates of a Series or Class may be made later than
the applicable Expected Final Payment Date or other expected
date, if a Pay Out Event occurs with respect to such Series or
Class or under certain other circumstances described herein.
See 'Special Considerations--Payments and Maturity' for a
description of factors that may affect the timing of principal
payments on Certificates.
Revolving Period............................... The Certificates of each Series offered hereby will have a
revolving period (the 'Revolving Period'), which will commence
at the close of business on a date specified in the related
Prospectus Supplement (the 'Series Cut-Off Date') and continue
until the earlier of (a) the commencement of the Early
Amortization Period with respect to such Series and (b) the
date specified in the related Prospectus Supplement as the end
of the Revolving Period with respect to such Series. During the
Revolving Period with respect to a Series offered hereby,
collections of Principal Receivables and certain other amounts
otherwise allocable to the Certificateholders' Interest of such
Series will be treated as Shared Principal Collections and will
be distributed to, or for the benefit of, the
Certificateholders of other Series or the Banks. See
'Description of the Certificates--Principal' and '--Shared
Principal Collections' and see '--Pay Out Events' for a
discussion of the events which might lead to the termination of
the Revolving Period with respect to a Series prior to its
scheduled ending date.
Accumulation Period............................ If the related Prospectus Supplement so specifies, unless an
Early Amortization Period commences with respect to a Series
offered hereby, the Certificates of such Series will have an
accumulation period (the 'Accumulation Period'), which will
commence at the close of business on the date specified in such
Prospectus Supplement and continue until the earliest of (a)
the commencement of the Early Amortization Period with respect
to such Series, (b) payment in full of the Invested Amount of
the Certificates of such Series and (c) the Series Termination
Date with respect to such Series. During the Accumulation
Period of a Series, collections of Principal Receivables and
certain other amounts allocable to the Certificateholders'
Interest of such Series will be deposited on each Distribution
Date with respect to such Accumulation Period in a trust
account established for the benefit of the Certificateholders
of such Series (a 'Principal Funding Account') and used to make
principal distributions to the Certificateholders of such
Series when due. The 'Distribution Date' is the 15th day of
each
8
month (or if such 15th day is not a business day, the next
succeeding business day). The amount to be deposited in the
Principal Funding Account for any Series offered hereby on any
Distribution Date may, but will not necessarily, be limited to
an amount (the 'Controlled Deposit Amount') equal to an amount
specified in the related Prospectus Supplement (the 'Controlled
Accumulation Amount') plus any existing deficit controlled
accumulation amount arising from prior Distribution Dates. If a
Series has more than one Class of Certificates, each Class may
have a separate Principal Funding Account and Controlled
Accumulation Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such Classes
with respect to deposits of principal into such Principal
Funding Accounts.
Scheduled Amortization Period.................. If the related Prospectus Supplement so specifies, unless an
Early Amortization Period commences with respect to a Series
offered hereby, the Certificates of such Series will have an
amortization period (the 'Scheduled Amortization Period'),
which will commence at the close of business on the date
specified in such Prospectus Supplement and continue until the
earliest of (a) the commencement of the Early Amortization
Period with respect to such Series, (b) payment in full of the
Invested Amount of the Certificates of such Series and (c) the
Series Termination Date with respect to such Series. During the
Scheduled Amortization Period of a Series, collections of
Principal Receivables and certain other amounts allocable to
the Certificateholders' Interest of such Series will be used on
each Distribution Date with respect to such Scheduled
Amortization Period to make principal distributions to
Certificateholders of such Series or any Class of such Series
then scheduled to receive such distributions. The amount to be
distributed to Certificateholders of any Series offered hereby
on any Distribution Date may, but will not necessarily, be
limited to an amount (the 'Controlled Distribution Amount')
equal to an amount (the 'Controlled Amortization Amount')
specified in the related Prospectus Supplement plus any
existing deficit controlled amortization amount arising from
prior Distribution Dates. If a Series has more than one Class
of Certificates, each Class may have a separate Controlled
Amortization Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such Classes
with respect to such distributions.
Early Amortization Period...................... During the period from the day on which a Pay Out Event has
occurred with respect to a Series to the date on which the
Invested Amount of the Certificates of such Series and the
Enhancement Invested Amount, if any, with respect to such
Series have been paid in full or the related Series Termination
Date has occurred (the 'Early Amortization Period'),
collections of Principal Receivables and certain other amounts
allocable to the Certificateholders' Interest of such Series
(including Shared Principal Collections, if any,
9
allocable to such Series) will be distributed as principal
payments to the Certificateholders of such Series monthly on
each Distribution Date beginning with the first Special Payment
Date with respect to such Series. During the Early Amortization
Period of a Series, distributions of principal to
Certificateholders will not be subject to any Controlled
Deposit Amount or Controlled Distribution Amount. In addition,
upon the commencement of the Early Amortization Period with
respect to a Series, any funds on deposit in a Principal
Funding Account with respect to such Series will be paid to the
Certificateholders of the relevant Class or Series on the first
Special Payment Date with respect to such Series. See
'Description of the Certificates--Pay Out Events' for a
discussion of the events which might lead to the commencement
of the Early Amortization Period with respect to a Series.
Shared Principal Collections................... To the extent that collections of Principal Receivables and
certain other amounts that are allocated to the
Certificateholders' Interest of any Series are not needed to
make payments to the Certificateholders of such Series or
required to be deposited in a Principal Funding Account for
such Series, such collections will be applied to cover
principal payments due to or for the benefit of
Certificateholders of another Series. Any such reallocation
will not result in a reduction in the Invested Amount of the
Series to which such collections were initially allocated. See
'Description of the Certificates--Shared Principal
Collections'.
Special Funding Account........................ If on any date the Sellers' Interest is less than or equal to the
Required Sellers' Participation Amount or the amount of
Principal Receivables in the Trust is less than or equal to the
Required Principal Balance, the Servicer shall not distribute
to the Banks any Shared Principal Collections which otherwise
would be distributed to the Banks, but shall deposit such funds
in the Special Funding Account. Funds on deposit in the Special
Funding Account will be withdrawn and paid to the Banks on any
Distribution Date to the extent that, after giving effect to
such payment, the Sellers' Interest exceeds the Required
Sellers' Participation Amount and the amount of Principal
Receivables in the Trust exceeds the Required Principal Balance
on such date; provided, however, that if an Accumulation
Period, Scheduled Amortization Period or Early Amortization
Period commences with respect to any Series, any funds on
deposit in the Special Funding Account will be released and
treated as Shared Principal Collections to the extent needed to
cover principal payments due to or for the benefit of such
Series.
Sharing of Additional Finance Charges.......... Subject to certain limitations described under 'Description of
the Certificates--Sharing of Additional Finance Charges',
collections of Finance Charge Receivables and certain other
amounts allocable to the Certificateholders' Interest of any
Series which is included in a Group in excess of the amounts
10
necessary to make required payments with respect to such Series
(including payments to the provider of any related Series
Enhancement) will be applied to cover any shortfalls with
respect to amounts payable from collections of Finance Charge
Receivables allocable to any other Series included in such
Group, in each case pro rata based upon the amount of the
shortfalls, if any, with respect to such other Series. See
'Description of the Certificates--Sharing of Additional Finance
Charges'.
Funding Period................................. The Prospectus Supplement relating to a Series of Certificates
may specify that for a period beginning on the Series Issuance
Date with respect to such Series and ending ona specified date
before the commencement of the Scheduled Amortization Period or
Accumulation Period with respect to such Series (the 'Funding
Period'), the aggregate amount of Principal Receivables in the
Trust allocable to such Series may be less than the aggregate
principal amount of the Certificates of such Series. If so
specified in the related Prospectus Supplement, the amount of
such difference will be held in a trust account established
with the Trustee for the benefit of Certificateholders of such
Series (the 'Prefunding Account') pending the transfer of
additional Principal Receivables to the Trust or pending the
reduction of the Certificateholders' Interests of other Series
issued by the Trust. The related Prospectus Supplement will
specify the initial Certificateholders' Interest on the Series
Issuance Date with respect to such Series, the aggregate
principal amount of the Certificates of such Series (the
'Initial Amount') and the date by which the Certificateholders'
Interest is expected to equal the Initial Amount.
If so specified in the related Prospectus Supplement, during the
Funding Period, funds on deposit in the Prefunding Account for
a Series may or, under certain circumstances, must be withdrawn
and paid to the Sellers to effect increases in the
Certificateholders' Interest. In the event that the
Certificateholders' Interest does not equal the Initial Amount
by the end of the Funding Period, any amount remaining in the
Prefunding Account and additional amounts specified, if any, in
the related Prospectus Supplement will be payable to the
Certificateholders of such Series in a manner and at such time
as set forth in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, monies in
the Prefunding Account with respect to any Series will be
invested by the Trustee in Eligible Investments or will be
subject to a guaranteed rate or investment agreement or other
similar arrangement, and investment earnings and any applicable
payment under any such investment arrangement will be applied
to pay interest on the Certificates of such Series.
Credit Enhancement............................. The credit enhancement with respect to a Series offered hereby
(the 'Credit Enhancement') may include a letter of credit, a
11
cash collateral account, a surety bond, an insurance policy or
any other form of credit enhancement described in the related
Prospectus Supplement. Credit Enhancement may also be provided
to a Class or Classes of a Series by subordination provisions
which require that distributions of principal and/or interest
be made with respect to the Certificates of such Class or
Classes before distributions are made to one or more other
Classes of such Series.
The type, characteristics and amount of the Credit Enhancement
with respect to any Series will be determined based on several
factors, including the characteristics of the Receivables and
Accounts underlying or comprising the Trust Assets as of the
Series Issuance Date with respect thereto, and will be
established on the basis of requirements of each applicable
Rating Agency. The terms of the Credit Enhancement with respect
to any Series offered hereby will be described in the related
Prospectus Supplement. See 'Description of the
Certificates--Credit Enhancement' and 'Special
Considerations--Limited Nature of Rating'.
Servicing...................................... The Servicer (initially, FDNB) will be responsible for servicing,
managing and making collections on the Receivables. Subject to
certain exceptions described under 'Description of the
Certificates--Deposits in Collection Account', the Servicer
will deposit any collections on the Receivables in a Monthly
Period into the Collection Account within two business days of
the Date of Processing (or, in the case of Interchange, no
later than the Distribution Date) to the extent such
collections are allocable to the Certificateholders' Interest
of any Series and are required to be deposited into an account
for the benefit of, or distributed to, the Certificateholders
of any Series or the issuer of any Series Enhancement. On the
earlier of (i) the second business day following the Date of
Processing and (ii) the day on which the Servicer deposits any
collections into the Collection Account, subject to certain
exceptions described herein, the Servicer will pay to the Banks
their allocable portion of any collections then held by the
Servicer. The 'Date of Processing' is the business day a record
of any transaction is first recorded pursuant to the Servicer's
data processing procedures. On or about the third business day
preceding each Distribution Date (each, a 'Determination
Date'), the Servicer will calculate the amounts to be allocated
to the Certificateholders of each Class or Series and the Banks
as described herein in respect of collections of Receivables
received with respect to the preceding Monthly Period.
In certain limited circumstances, FDNB may resign or be removed
as Servicer, in which event either the Trustee or, so long as
it meets certain eligibility standards set forth in the Pooling
Agreement, a third-party servicer may be appointed as successor
servicer. (FDNB or any such successor servicer is referred to
herein as the 'Servicer'.) FDNB is permitted to delegate any of
its duties as Servicer to any of its affiliates
12
and to certain third-party service providers, but any such
delegation will not relieve the Servicer of its obligations
under the Pooling Agreement or any Supplement. The Servicer
will receive servicing fees payable with respect to each Series
offered hereby as servicing compensation from the Trust. See
'Description of the Certificates--Servicing Compensation and
Payment of Expenses'.
Mandatory Reassignment and Transfer
of Certain Receivables....................... Pursuant to the Pooling Agreement, as of each Series Issuance
Date (and on each date of addition) each Bank, in its capacity
as a seller, has severally made or will severally make certain
representations and warranties in the Pooling Agreement with
respect to the Accounts (or Additional Accounts) owned by such
Bank and the Receivables (or Receivables in Additional
Accounts) transferred by such Bank to the Trust. If either Bank
breaches any such representation and warranty, under certain
circumstances and subject to certain conditions described under
'The Pooling Agreement Generally--Representations and
Warranties', all Receivables with respect to the affected
Account will be reassigned to such Bank. In addition, if either
Bank breaches certain other representations and warranties
described under 'The Pooling Agreement
Generally--Representations and Warranties', all the Receivables
transferred by such Bank to the Trust may be reassigned to such
Bank. See 'The Pooling Agreement Generally--Representations and
Warranties'.
FDNB will provide certain covenants in the Pooling Agreement in
its capacity as Servicer. If the Servicer breaches any such
covenant with respect to any Receivable, subject to certain
conditions described under 'The Pooling Agreement
Generally--Servicer Covenants', all Receivables with respect to
the affected Account will be assigned to the Servicer. In the
event of a transfer of servicing obligations to a successor
servicer, such successor servicer, rather than FDNB, would be
responsible for any subsequent failure to comply with the
Servicer's covenants.
Tax Status..................................... Except to the extent otherwise provided in the related Prospectus
Supplement, in the opinion of special tax counsel for the Banks
and the Trust, the Certificates of each Series offered hereby
are properly characterized as debt for federal income tax
purposes and for California and New Hampshire tax purposes.
Each Certificateholder, by acceptance of a Certificate of such
a Series, will agree to treat the Certificates of such Series
as indebtedness of the Banks for federal, state and local
income and franchise tax purposes. See 'Tax Matters' for
additional information concerning the application of federal,
California and New Hampshire tax laws.
Income Tax Withholding......................... Interest on Certificates that are characterized as debt and that
are held by non-U.S. persons will be subject to United States
withholding tax unless the holder complies with applicable
13
IRS identification requirements. Interest on Certificates that
are characterized as debt and that are held by U.S. persons
will be subject to backup withholding unless the holder
complies with applicable IRS identification requirements. See
'Tax Matters'.
ERISA Considerations........................... Certificates of any Series offered hereby may be eligible for
purchase by Benefit Plans. See 'ERISA Considerations'.
Certificate Rating............................. Unless otherwise specified in the related Prospectus Supplement,
it will be a condition to the issuance of the Certificates of
each Series offered hereby that they be rated in one of the
four highest applicable rating categories by at least one
nationally recognized statistical rating organization selected
by the Banks (the rating agency or agencies rating any Series,
the 'Rating Agency'). The rating or ratings applicable to the
Certificates of each such Series will be as set forth in the
related Prospectus Supplement.
A security rating should be evaluated independently of similar
ratings of different types of securities. A rating is not a
recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning
Rating Agency. Each rating should be evaluated independently of
any other rating. See 'Special Considerations--Limited Nature
of Rating'.
14
RISK FACTORS
Secondary Market Trading. It is anticipated that, to the extent permitted,
the underwriters of any Series of Certificates offered hereby will make a market
in such Certificates, but in no event will any such underwriter be under an
obligation to do so. There can be no assurance that a secondary market will
develop with respect to the Certificates of any Series offered hereby or, if
such a secondary market does develop, that it will provide Certificateholders
with liquidity of investment or that it will continue for the life of such
Certificates.
Issuance of Additional Series. The Trust, as a master trust, has issued
other Series and is expected to issue additional Series from time to time. While
the terms of any Series will be specified in a Supplement, the provisions of a
Supplement and, therefore, the terms of any additional Series, will not be
subject to the prior review by, or consent of, holders of the Certificates of
any previously issued Series. Such terms may include methods for determining
applicable investor percentages and allocating collections, provisions creating
different or additional security or other Series Enhancements and any other
amendment or supplement to the Pooling Agreement which is made applicable only
to such Series. The obligation of the Trustee to issue any new Series is subject
to the following conditions, among others: (a) such issuance will not result in
any Rating Agency reducing or withdrawing its rating of the Certificates of any
outstanding Series (any such reduction or withdrawal is referred to herein as a
'Ratings Effect') and (b) each Bank shall have delivered to the Trustee and
certain providers of Series Enhancement a certificate of an authorized officer
to the effect that, in the reasonable belief of such Bank, such issuance will
not, based on the facts known to such officer at the time of such certification,
cause a Pay Out Event to occur with respect to any Series. There can be no
assurance, however, that the terms of any Series might not have an impact on the
timing or amount of payments received by a Certificateholder of another Series.
See 'Description of the Certificates--New Issuances'.
Addition of Trust Assets. The Banks expect, and in some cases will be
obligated, to designate Additional Accounts, the Receivables in which will be
conveyed to the Trust. Such Additional Accounts may include accounts originated
using criteria different from those which were applied to the Initial Accounts
because such accounts were originated at a later date or were part of a
portfolio of accounts which were not part of the Providian Portfolio as of the
Trust Cut-Off Date or which were acquired from another institution. Moreover,
Additional Accounts designated at any time may not be accounts of the same type
as those previously included in the Trust. See 'The Pooling Agreement
Generally--Representations and Warranties'. Consequently, there can be no
assurance that such Additional Accounts will be of the same credit quality as
the Initial Accounts or the Additional Accounts previously included in the
Trust. In addition, such Additional Accounts may consist of revolving credit
card accounts or other revolving credit accounts which have different terms than
the Initial Accounts and the Additional Accounts previously included in the
Trust, including lower periodic finance charges and other fees and charges,
which may have the effect of reducing the average yield on the portfolio of
Accounts included in the Trust. The designation of Additional Accounts will be
subject to the satisfaction of certain conditions described herein under
'Description of the Certificates--Addition of Trust Assets', including that (a)
such addition will not result in a Ratings Effect and (b) the Bank designating
such Additional Accounts shall have delivered to the Trustee and certain
providers of Series Enhancement a certificate of an authorized officer to the
effect that, in the reasonable belief of such Bank, such addition will not,
based on the facts known to such officer at the time of such certification, at
the time of its occurrence cause a Pay Out Event to occur with respect to any
Series. Since the Trust Cut-Off Date, the Banks have conveyed to the Trust
Receivables in Additional Accounts in accordance with the terms of the Pooling
Agreement. See 'Description of the Certificates--Addition of Trust Assets'.
Certain Legal Aspects. While the Banks have sold and will sell Receivables
to the Trust, a court could treat such a transaction as an assignment of
collateral as security for the benefit of the Certificateholders of the
outstanding Series. Each Bank warrants in the Pooling Agreement that the
transfer of Receivables by it to the Trust is either a sale of such Receivables
to the Trust or the grant to the Trust of a security interest in such
Receivables. Each Bank will take certain actions under applicable state law to
perfect the Trust's interest in the Receivables transferred to the Trust by such
Bank and, in the Pooling Agreement, each Bank warrants that, if the transfer by
such Bank to the Trust is a grant to the Trust of a security interest in the
applicable Receivables, the Trust will have a first priority perfected security
interest therein and, with certain exceptions and for certain limited periods of
time, in the proceeds thereof (subject, in each case, to certain potential tax
liens referred to under 'The Pooling Agreement Generally--Representation and
Warranties'). Nevertheless, if the transfer of
15
Receivables by a Bank to the Trust is deemed to create a security interest
therein under the California or New Hampshire Uniform Commercial Code (the
'UCC'), a tax or government lien or other nonconsensual lien on property of such
Bank arising before Receivables come into existence may have priority over the
Trust's interest in such Receivables and, if the FDIC were appointed receiver of
such Bank, the receiver's administrative expenses may also have priority over
the Trust's interest in such Receivables. In addition, while FDNB is the
Servicer, cash collections held by FDNB may, subject to certain conditions, be
commingled and used for the benefit of FDNB prior to the date on which such
collections are required to be deposited in the Collection Account as described
under 'Description of the Certificates--Deposits in Collection Account' and, in
the event of the insolvency or receivership of FDNB or, in certain
circumstances, the lapse of certain time periods, the Trust may not have a
perfected interest in such collections.
If the FDIC were appointed receiver of either of the Banks or if certain
other events relating to the bankruptcy, insolvency or receivership of either of
the Banks were to occur (an 'Insolvency Event'), then a Pay Out Event would
occur with respect to each Series and, pursuant to the terms of the Pooling
Agreement, new Principal Receivables would not be transferred to the Trust and
the Trustee would sell the Receivables (unless each other holder of the Banks'
Certificate, Certificateholders holding Certificates of each Series or, if a
Series includes more than one Class, each Class of such Series evidencing more
than 50% of the aggregate unpaid principal amount of each such Series or Class
and, to the extent provided in the Supplement for any Series, any Credit
Enhancer instruct otherwise), thereby causing early termination of the Trust and
a loss to the Certificateholders of a particular Series if the sum of (a) the
portion of the proceeds of such sale allocable to such Certificateholders and
(b) the proceeds of any collections on the Receivables in the Collection Account
allocated to the Certificateholders' Interest of such Series is insufficient to
pay such Certificateholders in full. To the extent the Banks grant a security
interest in the Receivables to the Trust, and such security interest is validly
perfected before the occurrence of an Insolvency Event and is not taken in
contemplation of insolvency or with the intent to hinder, delay or defraud the
relevant Bank or its creditors, based upon opinions issued by the general
counsel of the FDIC and a related policy statement issued by the FDIC addressing
the enforceability against the FDIC, as conservator or receiver for a depository
institution, of a security interest in collateral granted by such depository
institution, such security interest should not be subject to avoidance, and
payments to the Trust with respect to the Receivables should not be subject to
recovery, by the FDIC. However, such opinions and policy statement are not
binding on the FDIC and, if the FDIC were to assert a contrary position, certain
provisions of the FDIA which, at the request of the FDIC, have been applied in
lawsuits to avoid security interests in collateral granted by depository
institutions, would permit the FDIC to avoid such security interest, thereby
resulting in possible delays and reductions in payments to the
Certificateholders of all outstanding Series. In addition, federal law governing
receiverships of federally-insured depository institutions would be interpreted
to require compliance with certain claims procedures if a receiver were
appointed for either of the Banks before the Trustee could collect, sell,
dispose of or otherwise liquidate the Receivables, which could delay or possibly
reduce payments on the Certificates of all outstanding Series. Upon the
occurrence of an Insolvency Event, if no Pay Out Event other than such
Insolvency Event exists, the FDIC may have the power to continue to require the
Banks to transfer new Principal Receivables to the Trust and to prevent the
early sale, liquidation or disposition of the Receivables and the commencement
of an Early Amortization Period. In the event of a Servicer Default, if a
conservator, receiver or liquidator is appointed for the Servicer, and no
Servicer Default other than such conservatorship, receivership, liquidation or
insolvency of the Servicer exists, the conservator, receiver or liquidator may
have the power to prevent either the Trustee or the Certificateholders from
appointing a successor Servicer. See 'Certain Legal Aspects of the
Receivables--Transfer of Receivables' and '--Certain Matters Relating to
Receivership'.
The Accounts and Receivables are subject to numerous federal and state
consumer protection laws which impose requirements on the making, enforcement
and collection of consumer loans. The United States Congress and the states may
enact laws and amendments to existing laws to further regulate the credit card
and consumer revolving loan industry or to reduce finance charges or other fees
or charges applicable to credit card and other consumer revolving loan accounts.
Such laws, as well as any new laws or rulings which may be adopted, may
adversely affect the Servicer's ability to collect on the Receivables or
maintain the current level of periodic finance charges and other fees and
charges with respect to the Accounts. In addition, failure by the Servicer to
comply with such requirements could adversely affect the Servicer's ability to
enforce the Receivables. From time to time members of Congress have attempted
unsuccessfully, and may in the future attempt, to limit the maximum annual
percentage rate that may be assessed on credit card accounts. In addition, in
May, 1992, two
16
members of the House Banking Committee asked the United States General
Accounting Office (the 'GAO') to undertake a study of competition in the credit
card industry and particularly to address how a government-imposed limit on
credit card interest rates could affect credit availability. In Spring 1994, the
GAO released its study on competitive pricing and disclosure in the credit card
industry. The GAO did not recommend that Congress enact legislation capping
interest rates on credit cards, but did recommend monitoring of the industry.
The Banks cannot predict what action, if any, will be taken by Congress as a
result thereof. If federal legislation were enacted which contained an interest
rate cap substantially lower than the annual percentage rates currently assessed
on the Accounts, it is possible that the Portfolio Yield would be reduced and
therefore a Pay Out Event could occur with respect to the Certificates of each
Series. See 'Description of the Certificates--Pay Out Events'. In addition,
during recent years, there has been increased consumer awareness with respect to
the level of finance charges and fees and other practices of credit card issuers
and other consumer revolving loan providers. As a result of these developments
and other factors, there can be no assurance as to whether any federal or state
legislation will be promulgated which would impose additional limitations on the
monthly periodic finance charges or other fees or charges relating to the
Accounts.
Since October 1991, a number of lawsuits and administrative actions have
been filed in several states against out-of-state banks (both federally-insured
state-chartered banks and federally-insured national banks) which issue credit
cards. These actions challenge various fees and charges (such as late fees,
over-the-limit fees, returned check charges and annual membership fees) assessed
against residents of the states in which such suits were filed, based on
restrictions or prohibitions under such states' laws alleged to be applicable to
the out-of-state credit card issuers. The Supreme Courts of California, Colorado
and New Jersey have recently handed down decisions in such actions. The
California and Colorado Supreme Courts opined that federal law governed late
fees and found for the respective defendant banks, while the New Jersey Supreme
Court found that late payment fees are not interest, and that, therefore, state
law is not preempted by federal law with respect to such late fees. In June,
1996, the United States Supreme Court upheld the decision of the California
Supreme Court, holding that the late payment fees in question were 'interest'
and as such were governed by federal law, which authorizes national banks to
charge out-of-state customers an interest rate allowed by the bank's home state.
See 'Certain Legal Aspects of the Receivables--Consumer Protection Laws'.
Pursuant to the Pooling Agreement, if a Receivable fails to comply in all
material respects with applicable requirements of law, subject to certain
conditions described under 'The Pooling Agreement Generally--Representations
and Warranties', all Receivables in the affected Account will be reassigned to
the Bank that is the owner of such Account or, in some circumstances, to the
Servicer. On the Series Issuance Date with respect to each Series and on each
date of addition, each Bank has made and (with respect to future Series and
designations of Additional Accounts) will make certain representations and
warranties relating to the validity and enforceability of the Accounts owned by
such Bank and the related Receivables. The sole remedy if any such
representation or warranty is breached is that, subject to certain conditions
described herein under 'The Pooling Agreement Generally--Representations and
Warranties', the interest of Certificateholders of all Series in the Receivables
affected thereby will be reassigned to the Bank that is the owner of the related
Account or assigned to the Servicer, as the case may be. In addition, in the
event of the breach of certain representations and warranties, each Bank may be
obligated to accept the reassignment of all the Receivables transferred by it to
the Trust, which reassignment will constitute the sole remedy available to
Certificateholders with respect to any such breach. See 'The Pooling Agreement
Generally--Representations and Warranties' and '--Servicer Covenants' and
'Certain Legal Aspects of the Receivables--Consumer Protection Laws'.
Payments and Maturity. The Receivables may be paid at any time and there
is no assurance that there will be new Receivables created in the Accounts, that
Receivables will be added to the Trust or that any particular pattern of
accountholder repayments will occur. The actual rate of accumulation of
principal with respect to a Series in a Principal Funding Account during an
Accumulation Period and the rate of distribution of principal with respect to a
Series during a Scheduled Amortization Period or Early Amortization Period will
depend on, among other factors, the rate of accountholder repayments, the timing
of the receipt of repayments and the rate of default by accountholders. As a
result, no assurance can be given that the Invested Amount of a Series of
Certificates will be paid on the Expected Final Payment Date, if any, with
respect to such Series or that payments of principal during the Scheduled
Amortization Period with respect to a Series of Certificates will equal the
Controlled Amortization Amount, if any, with respect to such Series or will
follow any expected pattern. Accountholder monthly payment rates with respect to
the Accounts are dependent upon a variety of factors,
17
including seasonal purchasing and payment habits of accountholders, the
availability of other sources of credit, general economic conditions, tax laws
and the terms of the Accounts (which are subject to change by the Banks). No
assurance can be given as to the accountholder payment rates which will actually
occur in any future period.
A decline in the amount of Receivables in the Accounts for any reason
(including, the decision by accountholders to use competing sources of credit,
an economic downturn or other factors) could result in the occurrence of a Pay
Out Event with respect to a Series and the commencement of an Early Amortization
Period with respect to such Series. The Pooling Agreement provides that the
Banks will be required to make an Addition to the Trust in the event that either
(a) the Sellers' Interest is not maintained at a minimum level equal to the
Required Sellers' Percentage of the sum of (i) the aggregate amount of Principal
Receivables and (ii) the aggregate principal amount on deposit in the Special
Funding Account (the 'Required Sellers' Participation Amount') or (b) the amount
of Principal Receivables in the Trust is not maintained at a minimum level equal
to the excess of (i) the sum of the initial Invested Amounts of each Series then
outstanding (provided that certain Series may be excluded from such calculation
if the issuance of such Series will not result in a Ratings Effect) over (ii)
the aggregate principal amount on deposit in the Special Funding Account (the
'Required Principal Balance'). The 'Required Sellers' Percentage' is currently
equal to 5% but will be reduced to 4% on April 3, 1997, and may be further
reduced under certain circumstances described under 'Description of the
Certificates--Addition of Trust Assets'. In the event that the Banks fail to
make such Addition within five business days of the day on which they are
required to make such Addition pursuant to the Pooling Agreement, as described
under 'Description of the Certificates--Addition of Trust Assets', a Pay Out
Event will occur with respect to all outstanding Series.
Limited Nature of Rating. Any rating assigned to the Certificates of a
Series or a Class by a Rating Agency will reflect such Rating Agency's
assessment of the likelihood that Certificateholders of such Series or Class
will receive the payments of interest and principal required to be made under
the Pooling Agreement and the related Supplement and will be based primarily on
the value of the Receivables in the Trust and the availability of any Series
Enhancement with respect to such Series or Class. However, any such rating will
not, unless otherwise specified in the related Prospectus Supplement with
respect to any Class or Series offered hereby, address the likelihood that the
principal of, or interest on, any Certificates of such Class or Series will be
paid on a scheduled date. In addition, any such rating will not address the
possibility of the occurrence of a Pay Out Event with respect to such Class or
Series or the possibility of the imposition of United States withholding tax
with respect to non-U.S. Certificateholders. Further, the available amount of
any Credit Enhancement or other Series Enhancement with respect to any such
Series or Class will be limited and will be subject to reduction from time to
time as described in the related Prospectus Supplement. The rating of the
Certificates of a Class or Series will not be a recommendation to purchase, hold
or sell such Certificates, and such rating will not comment as to the
marketability of such Certificates, any market price or suitability for a
particular investor. There is no assurance that any rating will remain for any
given period of time or that any rating will not be lowered or withdrawn
entirely by a Rating Agency if in such Rating Agency's judgment circumstances so
warrant.
Book-Entry Registration. Unless otherwise stated in the related Prospectus
Supplement, the Certificates of each Series offered hereby initially will be
represented by one or more certificates registered in the name of Cede, the
nominee for DTC, and will not be registered in the names of the
Certificateholders or their nominees. Consequently, unless and until Definitive
Certificates are issued, Certificateholders will not be recognized by the
Trustee as 'Certificateholders' (as such term is used in the Pooling Agreement
and any Supplement). Hence, until such time, Certificateholders will only be
able to exercise the rights of Certificateholders indirectly through DTC, CEDEL
or Euroclear and their respective participating organizations. See 'The Pooling
Agreement Generally--Book Entry Registration' and '--Definitive Certificates'.
Social, Legal, Economic and Other Factors. Changes in credit use and
payment patterns by accountholders result from a variety of economic, legal and
social factors. Economic factors include the rate of inflation, unemployment
levels and relative interest rates. The use of incentive programs (e.g., gift
awards for credit usage) may affect credit use. The Banks are unable to
determine whether or to what extent changes in applicable laws or other economic
or social factors will affect credit use or repayment patterns.
Competition in the Credit Card and Consumer Revolving Loan Industry. The
credit card and consumer revolving loan industry is highly competitive and
operates in a legal and regulatory environment increasingly focused on the cost
of services charged to consumers. There is increased use of advertising, target
marketing,
18
pricing competition and incentive programs. New consumer credit providers have
entered the market and existing providers have launched strategies such as
co-branding and balance transfer programs to increase their market share. In
addition, certain consumer credit providers offer low introductory rates or
lower rates generally to increase their market share. Such rates may be lower
than those currently assessed on the Accounts. The Banks may also solicit
existing accountholders to open other revolving credit card accounts or
revolving credit accounts which offer certain benefits not available under the
Accounts, including lower periodic finance charges or reduced late charges and
other fees or charges. If accountholders choose to utilize competing sources of
credit, the rate at which new Receivables are generated in the Accounts may be
reduced and certain purchase and payment patterns with respect to the
Receivables may be affected. The Trust will be dependent upon the Banks'
continued ability to generate new Receivables. If the rate at which new
Receivables are generated declines significantly and the Banks do not add
Additional Accounts to the Trust, a Pay Out Event could occur with respect to
each Series.
The Ability of the Banks to Change Terms of the Accounts. Pursuant to the
Pooling Agreement, the Banks do not transfer to the Trust the Accounts but only
the Receivables arising in the Accounts. As owners of the Accounts, the Banks
will have the right to determine the periodic finance charge, the fees and the
other charges which will be applicable from time to time to the Accounts, to
alter the minimum monthly payment required under the Accounts and to change
various other terms with respect to the Accounts. A decrease in the periodic
finance charge or other fees or charges applicable to the Accounts would
decrease the effective yield on the Accounts and could result in the occurrence
of a Pay Out Event with respect to a Series and the commencement of an Early
Amortization Period with respect to such Series, as well as decreased protection
to Certificateholders against charged-off Accounts. Under the Pooling Agreement,
each Bank has agreed that, unless required by law or unless, in its sole
discretion, such Bank deems it necessary to maintain on a competitive basis its
lending business, it will not reduce the annual percentage rate of the monthly
periodic finance charge assessed on the Receivables or reduce other fees on the
Accounts, if as a result of such reduction, either its reasonable expectation is
that such reduction will, based on the facts known at such time, cause a Pay Out
Event to occur with respect to a Series or such reduction is not applied to any
comparable segment of consumer revolving credit accounts owned by such Bank
which have characteristics the same as or substantially similar to the Accounts.
In addition, each Bank, subject to compliance with applicable laws, may in its
sole discretion change the other terms of its Accounts, if such change is made
applicable to any comparable segment of consumer revolving credit accounts owned
by the Bank which have characteristics the same as, or substantially similar to,
such Accounts. Except as specified above, there are no restrictions on the
Banks' ability to change the terms of the Accounts. There can be no assurance
that changes in applicable law, changes in the marketplace, including recent
announcements by other credit card issuers lowering annual percentage rates, or
prudent business practice might not result in a determination by the Banks to
decrease customer finance charges or otherwise take actions which would change
any Account terms. See '--Competition in the Credit Card and Consumer Revolving
Loan Industry'. In servicing the Accounts, the Servicer is required to apply its
usual and customary servicing procedures for servicing receivables comparable to
the Receivables and to act in accordance with the Banks' written policies and
procedures relating to the operation of their consumer revolving lending
business (the 'Lending Guidelines').
Control. Subject to certain exceptions, the Certificateholders of each
Series may take certain actions, or direct certain actions to be taken, under
the Pooling Agreement or the related Supplement. However, under certain
circumstances, the consent or approval of a specified percentage of the
aggregate unpaid principal amount of the Certificates of all outstanding Series
will be required to direct certain actions, including requiring the appointment
of a successor Servicer following a Servicer Default, amending the Pooling
Agreement under certain circumstances and directing a reassignment of the entire
portfolio of Accounts. In addition, following the occurrence of an Insolvency
Event with respect to a Bank, the Trust Assets will be liquidated unless the
holders of Certificates evidencing more than 50% of the aggregate unpaid
principal amount of each Series or, if a Series includes more than one Class,
each Class of such Series (along with each other holder of the Banks'
Certificate and, to the extent provided in the Supplement for any Series, any
Credit Enhancer) direct the Trustee not to sell or otherwise liquidate the
Receivables. Further, in certain cases (including with respect to certain
amendments described under 'The Pooling Agreement Generally--Amendments'), when
determining whether the required percentage of Certificateholders of a Series
have given their approval or consent, all the Certificateholders of such Series
will be treated as a single class (whether or not such Series includes more than
one Class).
19
Accordingly, one or more Classes of Certificateholders may have the power to
determine whether any such action is taken without regard to the position or
interests of other Classes of Certificateholders relating to such action.
THE BANKS' CREDIT CARD AND CONSUMER LENDING BUSINESS
BUSINESS OVERVIEW
Each of the Banks is a national banking association and a wholly-owned
subsidiary of Providian Bancorp, Inc. The Banks and their affiliates are engaged
in secured and unsecured consumer lending nationwide and related businesses,
principally through direct mail and telemarketing. The Banks' receivables
portfolio consists primarily of unsecured consumer loans for which the credit
extension vehicle is a check or credit card. Although the Banks are members of
both VISA U.S.A. Inc. and MasterCard International Incorporated(1), they have
historically originated and serviced primarily VISA accounts. FDNB also has a
non-credit card revolving credit product ('Capital Cash'(2)), and home loan,
secured credit card and insurance premium financing products. Accounts opened
under the secured credit card, home loan and insurance premium financing
programs are not included in the Providian Portfolio discussed herein.
The portfolio of unsecured consumer credit accounts under management by the
Banks or their affiliates is referred to herein as the 'Providian Portfolio'.
Primary servicing for the Providian Portfolio is provided by Providian National
Bancorp, a wholly-owned subsidiary of Providian Bancorp, Inc. Based on the total
balances in the Providian Portfolio, the Banks are among the largest credit card
issuers in the United States.
Receivables transferred and to be transferred by the Banks to the Trust
pursuant to the Pooling Agreement are generated from transactions made and cash
advances obtained by accountholders under certain credit card accounts and
certain Capital Cash accounts. The credit card receivables currently in the
Trust were predominantly generated under the VISA U.S.A. Inc. program. Capital
Cash is an open-end revolving line of credit with a predetermined credit line
accessible primarily through checks and is designed for those individuals who
prefer using checks rather than credit cards. Its credit approval process and
product features are substantially similar to those used by the Banks for credit
cards. All credit card and Capital Cash accounts in the Providian Portfolio
(other than certain accounts purchased from third party originators, which are
not currently included in the Trust Portfolio) were originated using the Banks'
account opening procedures. Certain of the accounts were originated by First
Deposit Savings Bank, a former affiliate of the Banks.
Each of the Banks uses substantially similar account origination,
acquisition and servicing procedures. The Banks primarily use their affiliate,
Providian National Bancorp, and third party vendors in the process of
originating and servicing the accounts. Account set-up, telemarketing, customer
service, collection activities and certain data processing services are
performed primarily at operations centers located in northern California. Other
data processing functions are handled by Total System Services, Inc. ('Total
System'), a Columbus, Georgia-based company. Total System is the nation's second
largest credit card processing company. Total System is responsible for
processing merchants' credit slips (drafts), issuing and encoding cards and
authorizing accountholder purchases for merchants. Total System also sends
monthly billing statements, stores customer data files, updates master files
daily and provides master file tapes each month. The credit card and Capital
Cash accounts owned by the Banks were principally generated through direct mail
or telemarketing. These solicitations are made to a pre-screened list of
prospective accountholders, followed by credit verification and telemarketing
support. Certain telemarketing services associated with the initial solicitation
of new customers are performed by unaffiliated telemarketing companies. The
Banks' underwriting, telemarketing, customer service and collection procedures,
described below, are subject to refinement and change as the competitive
environment, industry practice, legal requirements or the Banks' business
objectives may require. In addition, the Banks or their affiliates may acquire
accounts originated by third parties from time to time in the future.
- ------------------
(1) VISA and MasterCard are registered trademarks of VISA U.S.A. Inc. and
MasterCard International Incorporated, respectively.
(2) Capital Cash is a registered servicemark of Providian Bancorp, Inc.
20
UNDERWRITING PROCEDURES
The Banks' credit screening process begins with a 'prescreening' review
which identifies consumers who are likely to be approved for a credit card or
Capital Cash account with a high credit line. These consumers generally receive
direct mail solicitations or solicitations by telephone. In order to establish
the amount of the customer's credit line, responses from applicants are subject
to a 'back-end' verification process in which an applicant's credit information
is reviewed a second time, updated and verified against criteria established by
each Bank's loan committee.
In the prescreening process, the Banks provide a set of credit criteria
directly, or indirectly through a third party, to credit bureaus. The bureaus
screen their databases and generate a list of names with the desired attributes.
The list is further refined by applying an additional set of targeting criteria
which have been derived by the Banks from a statistical modeling of previous
response patterns and charge-off experience. This final list is then
statistically verified by the Banks to ensure that the list complies with the
criteria supplied.
Those persons who receive the solicitations must respond in writing or by
telephone to initiate the back-end verification process. Once the response is
received and current credit bureau reports obtained, the applicant's credit
history and other attributes are checked against the originating Bank's
underwriting criteria. The Banks currently provide each person who responds to a
prescreened solicitation within the time period specified in the solicitation an
opportunity to accept a line of credit with a credit limit of at least $300.
Each applicant whose credit history and other attributes meet all of the
underwriting criteria is offered a higher line of credit. Each of the Initial
Accounts and the Additional Accounts previously designated pursuant to the
Pooling Agreement were opened with credit lines in excess of $300. The Banks
reserve the right to change their practices with respect to the minimum amount
of offers of credit and to deny offers of credit to prescreened applicants who
do not meet their criteria at the time of underwriting.
Each accountholder is subject to an agreement governing the terms and
conditions of the account. Pursuant to such lending agreement, the Bank that
owns the account reserves the right to change or terminate any terms,
conditions, services or features of the account (including increasing or
decreasing monthly periodic charges, other charges or minimum payments). By
their terms, the lending agreements are governed by New Hampshire law. Credit
limits are adjusted periodically based upon the relevant Bank's continuing
evaluation of an accountholder's credit behavior.
In 1991, PNB acquired a portfolio of MasterCard accounts. Those accounts
were originally opened using criteria established by the institution from which
the accounts were purchased and were selected by PNB based on a credit scoring
formula acceptable to PNB. None of the receivables in such acquired accounts are
currently included in the Receivables transferred to the Trust, although they
may be added to the Trust at some time in the future. Other portfolios of
consumer revolving credit accounts may be purchased by the Banks from other
institutions and added to the Trust from time to time, using credit screening
procedures and criteria acceptable to the acquiring Bank.
TELEMARKETING AND CUSTOMER SERVICE
The Banks believe that customer contact must be quickly established to take
advantage of additional marketing opportunities, verify application information
and assist in the collections process. Customer service is currently available
to most customers 24 hours a day, seven days a week (excluding certain
holidays). Customer service representatives have on-line access to the
customer's account history in order to immediately resolve most questions. When
charges are in dispute, each Bank's current policy is to note on the
accountholder's monthly billing statements that such portion of the balance is
in dispute, and such portion will not accrue finance charges pending resolution
of the dispute. Multiple tracking and reporting systems are employed to ensure
that service standards are achieved and maintained.
COLLECTION EFFORTS
Efforts to collect delinquent consumer credit receivables are made by the
Banks or their affiliates as well as attorneys retained in different states.
Current collection practices are characterized by quick intervention upon any
missed payments, automated calling systems which improve the efficiency of
contacting customers and close monitoring of delinquencies and charge-offs.
21
Current collection policy consists principally of the following. Statements
are sent monthly and accountholders have approximately 30 days after the
statement date to remit payments before an account is considered past-due. Risk
assessment and segmentation models are used to determine when to contact
accountholders by telephone after an account becomes past due, with an emphasis
on early intervention for those accounts with the highest risk. Arrangements may
be made with accountholders to extend or change payment schedules. If an
accountholder either refuses to make a promise to pay, or breaks a promise to
pay, collection efforts are promptly escalated to a more experienced collector,
or referred to the account recovery unit for legal action, if warranted, or
further collection efforts. No new charges are authorized after an account is
past due for 30 days and after two negative events (such as a refusal to pay or
a broken promise to pay) the account is closed. No more than 180 days after a
payment delinquency (210 days after the date of the billing statement), unless
the accountholder cures the default by making a partial payment which qualifies
under the relevant Bank's standards, the principal balance of the account is
written off. Related interest and late fee charges are written off as a reversal
of interest income. Account balances for deceased account obligors generally are
written off when verification of no estate is obtained, or 180 days after the
deliquency, whichever is earlier. Account balances for bankrupt accountholders
are written off when a determination is made that no recovery is available or
180 days after the Account becomes delinquent, whichever is earlier. Since
accountholders for whom a Bank receives notice of a bankruptcy filing are
sometimes current in their payment up to the time of notification, these
accounts may be charged off without having been delinquent.
INTERCHANGE
Members participating in the VISA and MasterCard associations receive
certain fees ('Interchange') as partial compensation for taking credit risk,
absorbing fraud losses, funding receivables and servicing accountholders for a
limited period prior to initial billing. Under the VISA and MasterCard systems,
Interchange in connection with accountholder charges for merchandise and
services is passed from the banks that clear the transactions for merchants to
the credit card-issuing banks. Interchange ranges from approximately 1% to 2% of
the transaction amount, although VISA and MasterCard may from time to time
change the amount of Interchange reimbursed to banks issuing their credit cards.
Interchange paid to the Banks will be allocated to the Trust with respect to
each Monthly Period on the basis of (i) the Interchange for all accounts in the
Providian Portfolio and (ii) the percentage equivalent of the ratio that the
amount of accountholder charges for merchandise and services for the Accounts
bears to the total amount of accountholder charges for merchandise and services
for all accounts in the Providian Portfolio, in each case for such Monthly
Period. The Banks will be required, pursuant to the terms of the Pooling
Agreement, to transfer to the Trust for the benefit of Certificateholders the
aforementioned percentage of the Interchange. This percentage is an estimate of
the actual Interchange paid to the Banks from time to time in respect of the
Accounts and may be more or less than the actual amount of Interchange so paid.
Interchange transferred to the Trust will be included in Finance Charge
Receivables pursuant to the Pooling Agreement for purposes of determining the
amount of Finance Charge Receivables and allocating collections and payments
thereof to the Certificateholders. Unless otherwise specified in the related
Supplement, Interchange attributable to the Accounts as determined above will
also be included in Finance Charge Receivables for purposes of calculating the
Portfolio Yield.
22
THE ACCOUNTS
GENERAL
The Receivables arise in certain Eligible Accounts (the 'Trust Portfolio')
selected by the Banks from the Providian Portfolio as described below.
The Banks' accounts are grouped into 'rollouts' for purposes of
administrative convenience. A rollout represents a group of accounts established
from replies to a specific solicitation program. Each rollout has a discrete set
of targeting criteria corresponding to it. Product solicitations for a
particular rollout are made within a discrete period, normally two to four weeks
in length. The Accounts currently included in the Trust generally consist of all
the accounts contained in certain rollouts designated by each of the Banks,
including Accounts for which Receivables have been charged off as uncollectible
prior to their addition to the Trust in accordance with the Banks' normal
servicing policies. Receivables in charged-off Accounts are deemed to have a
zero balance and the Trust owns only the right to receive recoveries with
respect to such Receivables.
Although the characteristics (including loss experience) of a particular
rollout may differ from those of the Providian Portfolio as a whole, the Banks
have selected the Accounts presently included in the Trust by rollouts with the
objective of obtaining a representative cross-section of the available Eligible
Accounts in the Providian Portfolio. The Banks believe that, collectively, the
Accounts currently included in the Trust are generally representative of the
Accounts in the Providian Portfolio. There can be no assurance that performance
of the Accounts included in the Trust (including but not limited to the yield,
loss and delinquency experience with respect to such Accounts) will be
comparable to that of the Accounts in the entire Providian Portfolio.
Each Bank has transferred and will transfer to the Trust all Receivables
existing in each Account owned by it on the date of transfer to the Trust and
all Receivables generated in such Accounts after such date. All monthly
calculations with respect to such Accounts are computed based on activity
occurring during a calendar month (each a 'Monthly Period'). Pursuant to the
Pooling Agreement, the Banks severally have the right, and in certain cases the
obligation (subject to certain limitations and conditions described below), to
designate from time to time additional qualifying VISA or MasterCard consumer
revolving credit card accounts, Capital Cash accounts and other consumer
revolving credit accounts owned by the designating Bank to be included as
Accounts and to convey to the Trust all Receivables in such Additional Accounts,
whether such Receivables are then existing or thereafter created. These Accounts
must be Eligible Accounts as of the date the relevant Bank designates such
accounts as Additional Accounts. Since the Trust Cut-Off Date, the Banks have
conveyed to the Trust Receivables in certain Additional Accounts in accordance
with the provisions of the Pooling Agreement. In addition, as of the Trust
Cut-Off Date (or as of the addition date) and on the date any new Receivables
are created, each Bank will represent and warrant to the Trust that each of the
Receivables in any Account or Additional Account owned by such Bank which is
conveyed to the Trust on such day meets the eligibility requirements specified
in the Pooling Agreement. See 'The Pooling Agreement Generally--Representations
and Warranties'. However, there can be no assurance that all the Accounts will
continue to meet the applicable eligibility requirements throughout the life of
the Trust.
Subject to certain limitations and restrictions, each Bank may also
designate certain Accounts owned by it the Receivables in which will be removed
from the Trust. In such case, the Receivables in the Removed Accounts will be
reassigned to such Bank. Throughout the term of the Trust, the Trust Portfolio
will consist of the Initial Accounts, plus any Additional Accounts, and minus
any Removed Accounts.
Additional Accounts designated after the date hereof may be accounts of a
different type from those previously included in the Trust. Therefore there can
be no assurance that such Additional Accounts will be of the same credit quality
as the Initial Accounts or the Additional Accounts the Receivables in which have
been conveyed previously to the Trust. Moreover, such Additional Accounts may
contain Receivables which consist of fees, charges and amounts which are
different from the fees, charges and amounts described below. Such Additional
Accounts may also be subject to different credit limits, balances and ages.
Consequently, there can be no assurance that the Accounts will continue to have
the characteristics described herein as Additional Accounts are added. In
addition, the inclusion in the Trust of Additional Accounts with lower periodic
finance charges may have the effect of reducing the Portfolio Yield. The Banks
intend to file with the Commission, on behalf of the
23
Trust, a Current Report on Form 8-K with respect to any addition of accounts
which would have a material effect on the composition of the Accounts.
BILLING AND PAYMENTS
The following is information with respect to the billing and payment
characteristics generally applicable to the accounts owned by the Banks.
Monthly billing statements are sent by the Banks to active accountholders.
All the accounts currently require a minimum monthly payment, generally equal to
at least 2% of the new balance shown on the statement, plus any amount that is
past-due and any amount by which the new balance exceeds the accountholder's
credit limit. The payment due will not be less than $15.00 (unless the new
balance is less than $15.00, in which case the payment due will be the amount of
the new balance).
Finance charges are posted to the accounts at the end of each monthly
billing cycle. A daily finance charge is calculated by multiplying the daily
balance on the account by the applicable daily periodic rate. For the majority
of accounts, there is no grace period during which accountholders may avoid
monthly periodic charges on cash advances. However, a majority of accounts do
have a grace period for purchases.
The daily balance is figured by taking the previous day's balance
(including the daily finance charge) and adding all debits and subtracting all
credits for the current day. The average daily balance can be figured by adding
each day's balance (including the daily finance charge) and dividing by the
number of days in the billing cycle. This average daily balance can be
multiplied by the number of days in the billing cycle and the daily periodic
rate to determine the total finance charge for the billing cycle.
The annual percentage rates for cash advances and purchases are fixed or
variable and generally range from 10.9% to 21.9%. The majority of balances that
have a fixed rate have an annual percentage rate of 21.9%. New accountholders
are offered a reduced annual percentage rate (which in some cases will be 0%)
for an introductory period, generally no more than three months, and the annual
percentage rate on some accounts may be lower or higher than those generally
offered by the Banks. For an additional fee, certain accountholders have
subscribed to a credit protection feature pursuant to which the accountholder's
obligation to make payments and the accrual of finance charges will be suspended
in limited circumstances.
The Banks typically charge accounts certain additional fees, generally
ranging up to $18.00, including: (i) a late fee, if the relevant Bank does not
receive the required minimum monthly payment by the statement cycle date
(approximately five days after the payment due date shown on the monthly billing
statement); (ii) a returned payment check fee, for each accountholder check
received by the relevant Bank and not paid by the accountholder's bank; (iii) an
over-limit fee (excepting Capital Cash accounts), if the new balance of an
account exceeds the accountholder's stated credit limit before addition of a new
finance charge or other fees on the billing date; and (iv) for most accounts, a
returned check fee for any check written on the account that the relevant Bank
returns unpaid. Any of these fees may be waived or modified at any time.
The Banks generally do not charge an annual fee on an accountholder's
account. However, a substantial number of accountholders obtain an initial cash
advance or transfer existing balances at the time the account is opened. The
Banks reserve the right to modify the terms of any account to charge an annual
fee or other types of fees.
Payments by accountholders to the Banks on the accounts are processed and
applied first to finance charges, then to any fees billed to the account, then
to principal, and then to any unbilled principal. Any excess creates a credit
balance. Finance charges are posted as of the last day of an account's billing
cycle. Principal receivables are posted daily. Any payments applied to principal
will generally be applied to principal receivables relating to purchases, and
then to principal receivables relating to cash advances.
Annual percentage rates, fees and other charges may increase or decrease
from current levels. The lending agreements governing the accounts permit the
Banks to change the foregoing rates and terms at any time after an applicable
notice period. There can be no assurance that annual percentage rates, fees and
other charges will remain at current levels in the future. See 'Risk
Factors--The Ability of the Banks to Change Terms of the Accounts'.
24
THE BANKS
Each of the Banks is a wholly-owned subsidiary of Providian Bancorp, Inc.
which is in turn a wholly-owned subsidiary of Providian Corporation, a publicly
owned consumer financial services company which is principally engaged in the
insurance, investment management and banking businesses. On December 28, 1996,
Providian Corporation entered into agreements to merge its insurance businesses
with AEGON USA, a subsidiary of AEGON N.V., an international insurance company
headquartered in The Netherlands, and to spin off all the outstanding shares of
common stock of Providian Bancorp, Inc. to the shareholders of Providian
Corporation. If the spin-off is successfully completed, Providian Bancorp, Inc.
will become a separate, publicly held company. The merger and spin off are
expected to occur in mid-1997 and are subject to various conditions, including
the receipt of certain regulatory approvals. No assurance can be made that the
merger and spin-off transactions will be completed as planned.
FDNB is a national bank regulated by the Office of the Comptroller of the
Currency. Under the Competitive Equality Banking Act passed in August 1987, FDNB
operates under the non-transferable grandfather rights provided its owners. PNB
is a nationally chartered credit card bank regulated by the Office of the
Comptroller of the Currency. Under the Bank Holding Company Act, PNB is
authorized to engage only in credit card operations. The principal executive
offices of FDNB are located at 295 Main Street, Tilton, New Hampshire 03276, the
principal executive offices of PNB are located at 53 Regional Drive, Concord,
New Hampshire 03301, and the principal executive offices of Providian Bancorp,
Inc. are located at 201 Mission Street, San Francisco, California 94105.
USE OF PROCEEDS
Unless otherwise specified in the related Prospectus Supplement, the net
proceeds from the sale of the Certificates of any Series offered hereby will be
paid to the Banks and will be used for the Banks' general corporate purposes.
THE TRUST
The Trust, as a master trust, previously has issued other Series and is
expected to issue additional Series from time to time. The Trust has not engaged
and will not engage in any business activity other than acquiring and holding
Trust Assets and proceeds therefrom, issuing Series of Certificates and the
Banks' Certificate and making payments thereon and related activities. As a
consequence, the Trust does not and is not expected to have any source of
capital resources other than the Trust Assets. The Trust is administered in
accordance with the laws of the State of New York.
The Banks have conveyed to the Trust, without recourse, their respective
interests in all Receivables arising under the Accounts. The Trust Assets
consist of the Receivables, all monies due or to become due thereunder, the
proceeds of the Receivables, and certain Interchange attributable to
accountholder charges for goods and services in certain of the Accounts, all
monies on deposit in the Collection Account and in certain accounts maintained
for the benefit of the Certificateholders, any Participations included in the
Trust, funds collected or to be collected with respect to such Participations
and any Series Enhancements. The Trust Assets are expected to change over the
life of the Trust as revolving credit card accounts, other revolving credit
accounts and related assets become subject to the Trust and as Accounts are
closed, charged off or removed and are no longer subject to the Trust. Pursuant
to the Pooling Agreement, the Banks will have the right (subject to certain
limitations and conditions), and in some circumstances will be obligated, to
designate as Trust Assets Receivables arising in Additional Accounts or, in lieu
thereof or in addition thereto, Participations. See 'Description of the
Certificates--Addition of Trust Assets'. In addition, the Banks will have the
right to remove from the Trust Receivables arising in designated Accounts as
described herein under 'Description of the Certificates--Removal of Accounts'.
25
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of a Series will be issued pursuant to the Pooling
Agreement, and a Supplement thereto relating to such Certificates, among the
Banks, as sellers of their respective interests in the Receivables, FDNB, as
servicer of the Accounts, and the Trustee; the Pooling Agreement and each
Supplement with respect to any Series offered hereby will be substantially in
the form filed as exhibits to the Registration Statement of which this
Prospectus is a part. See 'Description of the Certificates--New Issuances'. The
Trustee will provide a copy of the Pooling Agreement (without exhibits or
schedules), including any Supplements, to Certificateholders upon written
request. The following summary describes certain terms generally applicable to
the Certificates of each Series and is qualified in its entirety by reference to
the Pooling Agreement and the applicable Supplement.
The Certificates of each Series offered hereby will initially be
represented by one or more certificates registered in the name of the nominee of
DTC (together with any successor depository selected by the Banks, the
'Depository'), except as set forth below. Unless otherwise specified in the
related Prospectus Supplement, the Certificates of each Series offered hereby
will be available for purchase in minimum denominations of $1,000 and in
integral multiples thereof in book-entry form. The Banks have been informed by
DTC that DTC's nominee will be Cede. See 'The Pooling Agreement
Generally--Book-Entry Registration' and '--Definitive Certificates'.
The Certificates of each Series offered hereby will evidence undivided
interests in the Trust Assets allocated to the Certificateholders' Interest of
such Series, representing the right to receive from such Trust Assets funds up
to (but not in excess of) the amounts required to make payments of interest and
principal with respect thereto as described in the related Prospectus
Supplement.
INTEREST
Interest will accrue on the Invested Amount of the Certificates of a Series
or Class offered hereby at the per annum rate either specified in or determined
in the manner specified in the related Prospectus Supplement. Except as
otherwise provided herein or in the related Prospectus Supplement, collections
of Finance Charge Receivables and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby will be used to make
interest payments to Certificateholders of such Series on each Interest Payment
Date specified with respect thereto in the related Prospectus Supplement,
provided that if an Early Amortization Period commences with respect to such
Series, thereafter interest will be distributed to such Certificateholders
monthly on each Special Payment Date. If the Interest Payment Dates for a Series
or Class occur less frequently than monthly, such collections or other amounts
(or the portion thereof allocable to such Class) will be deposited in one or
more Interest Funding Accounts and used to make interest payments to
Certificateholders of such Series or Class on the following Interest Payment
Date. If a Series has more than one Class of Certificates, each such Class may
have a separate Interest Funding Account. Funds on deposit in an Interest
Funding Account will be invested in Eligible Investments. Any earnings (net of
losses and investment expenses) on funds in an Interest Funding Account will be
paid to, or at the direction of, the Banks except as otherwise specified in any
Supplement. Interest with respect to the Certificates of each Series offered
hereby will accrue and be calculated on the basis described in the related
Prospectus Supplement.
PRINCIPAL
The Certificates of each Series will have a Revolving Period during which
collections of Principal Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of such Series will be treated as
Shared Principal Collections and will be distributed to, or for the benefit of,
the Certificateholders of other Series or the Banks. Unless an Early
Amortization Period commences with respect to a Series, following the Revolving
Period with respect to such Series, such Series will have either an Accumulation
Period or a Scheduled Amortization Period.
During the Accumulation Period, if any, of a Series, collections of
Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be deposited on each
Distribution Date with respect to such Accumulation Period in a Principal
Funding Account and used to make principal
26
distributions to the Certificateholders of such Series when due. The amount to
be deposited in a Principal Funding Account for any Series offered hereby on any
Distribution Date may, but will not necessarily, be limited to a Controlled
Deposit Amount equal to a Controlled Accumulation Amount specified in the
related Prospectus Settlement plus any existing deficit controlled accumulation
amount arising from prior Distribution Dates. If a Series has more than one
Class of Certificates, each Class may have a separate Principal Funding Account
and Controlled Accumulation Amount. In addition, the related Prospectus
Supplement may describe certain priorities among such Classes with respect to
deposits of principal into such Principal Funding Accounts.
During the Scheduled Amortization Period, if any, of a Series, collections
of Principal Receivables and certain other amounts allocable to the
Certificateholders' Interest of such Series will be used on each Distribution
Date with respect to such Scheduled Amortization Period to make principal
distributions to any Class of Certificateholders then scheduled to receive such
distributions. The amount to be distributed to Certificateholders of any Series
offered hereby on any Distribution Date may, but will not necessarily, be
limited to a Controlled Distribution Amount equal to a Controlled Amortization
Amount specified in the related Prospectus Supplement plus any existing deficit
controlled amortization amount arising from prior Distribution Dates. If a
Series has more than one Class of Certificates, each Class may have a separate
Controlled Amortization Amount. In addition, the related Prospectus Supplement
may describe certain priorities among such Classes with respect to such
distributions.
During the Early Amortization Period of a Series, collections of Principal
Receivables and certain other amounts allocable to the Certificateholders'
Interest of such Series (including Shared Principal Collections, if any,
allocable to such Series) will be distributed as principal payments to the
applicable Certificateholders monthly on each Distribution Date beginning with
the first Special Payment Date. During the Early Amortization Period of a
Series, distributions of principal to Certificateholders of such Series will not
be subject to any Controlled Deposit Amount or Controlled Distribution Amount.
In addition, upon the commencement of the Early Amortization Period, any funds
on deposit in a Principal Funding Account with respect to such Series will be
paid to the Certificateholders of the relevant Class or Series on the first
Special Payment Date. See 'Series Provisions--Pay Out Events' for a discussion
of the events which might lead to the commencement of the Early Amortization
Period with respect to a Series.
Funds on deposit in any Principal Funding Account established with respect
to a Class or Series offered hereby will be invested in Eligible Investments and
may be subject to a guarantee or guaranteed investment contract or other
mechanism specified in the related Prospectus Supplement intended to assure a
minimum rate of return on the investment of such funds. In order to enhance the
likelihood of the payment in full of the principal amount of a Class of
Certificates offered hereby at the end of an Accumulation Period with respect
thereto, such Class may be subject to a maturity liquidity facility or other
similar mechanism specified in the relevant Prospectus Supplement.
ADDITION OF TRUST ASSETS
If, as of the close of business on the last business day of any Monthly
Period, either (a) the Sellers' Interest is less than the Required Sellers'
Participation Amount or (b) the amount of Principal Receivables in the Trust is
less than the Required Principal Balance, the Banks shall, on or prior to the
close of business on the 10th business day following such day, unless the
Sellers' Interest equals or exceeds the Required Sellers' Participation Amount
or the amount of Principal Receivables in the Trust equals or exceeds the
Required Principal Balance, as the case may be, as of the close of business on
any day after the last business day of such Monthly Period and prior to such
10th day, make an Addition to the Trust such that, after giving effect to such
Addition, the Sellers' Interest is at least equal to the Required Sellers'
Participation Amount and the amount of Principal Receivables in the Trust is at
least equal to the Required Principal Balance. An 'Addition' will consist of (i)
receivables arising in Eligible Accounts owned by a Bank or (ii) participations
representing undivided interests in a pool of assets primarily consisting of
revolving credit card accounts or other revolving credit accounts owned by a
Bank or any affiliate thereof and collections thereon ('Participations'). The
addition of Participations to the Trust pursuant to this paragraph will be
effected by an amendment to the Pooling Agreement which will not require the
consent of Certificateholders. The Banks may, upon 30 days' prior notice to the
Trustee, the Rating Agency and certain providers of Series Enhancement, reduce
the Required Sellers' Percentage, provided that (a) such reduction will not
result in a Ratings Effect and (b) each Bank shall have delivered to the Trustee
and certain providers of Series
27
Enhancement a certificate of an authorized officer to the effect that, in the
reasonable belief of such Bank, such reduction will not, based on the facts
known to such officer at the time of such certification, cause a Pay Out Event
to occur with respect to any Series; and provided further that the Required
Sellers' Percentage shall never be less than 2%. In addition, the Banks may from
time to time, at their sole discretion, subject to the conditions described
below, voluntarily make an Addition to the Trust.
Each Bank may designate, from time to time, at its sole discretion,
Eligible Accounts to be included as Accounts ('Automatic Additional Accounts'),
subject to the limitations specified in this paragraph. If the aggregate number
of Automatic Additional Accounts designated to be included as Accounts plus the
number of Accounts added pursuant to the preceding paragraph without prior
review by the Rating Agency with respect to any of the three consecutive Monthly
Periods beginning in January, April, July and October of each calendar year
would exceed 15% of the number of Accounts as of the first day of the calendar
year during which such Monthly Periods commence or the number of such Accounts
designated during any twelve-month period would exceed 20% of the number of
Accounts as of the first day of such twelve-month period (the 'Aggregate
Additional Limit'), then no Automatic Additional Accounts may be added during
such periods without the consent of the Rating Agency. On or before each
Distribution Date, the Banks shall have delivered to the Trustee, the Rating
Agency and certain providers of Series Enhancement an opinion of counsel with
respect to the Automatic Additional Accounts included as Accounts during the
preceding Monthly Period confirming the validity and perfection of each transfer
of such Automatic Additional Accounts. If such opinion of counsel with respect
to any Automatic Additional Accounts is not so received, the ability of the
Banks to designate Automatic Additional Accounts will be suspended until such
time as the Rating Agency otherwise consents in writing. The addition to the
Trust of Receivables in Automatic Additional Accounts will be subject to the
further condition that revolving credit card accounts or other revolving credit
accounts either (i) not originated by a Bank or any affiliate of a Bank or (ii)
of a type not included in the Accounts at the time of their addition may only be
designated as Automatic Additional Accounts upon compliance with the conditions
described below with respect to Additions. Automatic Additional Accounts and
Accounts relating to any Addition are collectively referred to herein as
'Additional Accounts'.
In connection with an Addition, the Banks will convey to the Trust the
Receivables arising in Additional Accounts and Participations subject to the
following conditions, among others (provided that the following conditions
(other than the delivery of a written assignment and a computer file or
microfiche list as described in clause (b)) shall not apply to the transfer to
the Trust of Receivables in Automatic Additional Accounts): (a) on or before the
tenth business day immediately preceding such Addition, each Bank which owns any
such Additional Account or is transferring any such Participation to the Trust
shall have given the Trustee, the Servicer, the Rating Agency and certain
providers of Series Enhancement written notice that the Receivables arising in
the Additional Accounts or Participations will be included as Trust Assets; (b)
on or before the date on which any such Receivables are added to the Trust, each
such Bank shall have delivered to the Trustee a written assignment and a
computer file or microfiche list containing a true and complete list of the
related Additional Accounts specifying for each such Account its account number,
the aggregate amount outstanding in such Account and the aggregate amount of
Principal Receivables outstanding in such Account; (c) in the case of an
Addition other than a required Addition, the Trustee shall have received
confirmation from the Rating Agency that such Addition will not result in a
Ratings Effect; (d) in the case of a required Addition which exceeds the
Aggregate Additional Limit, the Banks shall have provided the Rating Agency with
15 days, prior written notice and the Rating Agency shall not have notified the
Banks that such addition would result in a Ratings Effect; and (e) prior to or
on the date any such Receivables or Participations are added to the Trust, each
such Bank shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer stating that any related
Additional Accounts are Eligible Accounts and that such Bank reasonably believes
that (i) such Addition will not, based on the facts known to such officer at the
time of such certification, cause a Pay Out Event to occur with respect to any
Series and (ii) in the case of Additional Accounts, no selection procedure was
utilized by such Bank which would result in a selection of Additional Accounts
(from the available Eligible Accounts owned by such Bank) that would be
materially adverse to the interests of the Certificateholders of any Series as
of the date of the addition.
The Banks may direct that the Principal Receivables in the Additional
Accounts be treated as Principal Receivables outstanding on the last day of the
Monthly Period preceding the Monthly Period in which the
28
Addition is made for purposes of calculating Floating Allocation Percentages and
Principal Allocation Percentages for the Monthly Period of such Addition. Such
direction may be made on the date of addition subject to the condition that all
collections with respect to the Additional Accounts for the period from the last
day of the preceding Monthly Period through the date of addition must be
deposited in the collection Account on the date of addition. Following any such
Addition, the Servicer will allocate collections for the balance of such Monthly
Period, including the collections deposited on the date of addition, to the
Certificateholders' Interest of each Series and the Sellers' Interest so that
each interest receives the same allocations of Finance Charge Receivables,
Principal Receivables and Defaulted Amounts that it would have received if such
Additional Accounts had been included in the Trust for the entire Monthly Period
in which the Addition occurred.
Affiliates of the Banks may originate or acquire portfolios of revolving
credit card accounts or other revolving credit accounts the receivables in which
may be participated to the Banks and sold to the Trust. Such a sale of
receivables to the Trust will be subject to the conditions described above
relating to Additions.
Additional Accounts or Participations may include accounts originated using
criteria different from those which were applied to the Initial Accounts because
such accounts were originated at a later date or were part of a portfolio of
revolving credit card accounts or other revolving credit accounts which were not
part of the Providian Portfolio as of the Trust Cut-Off Date or which were
acquired from another institution. Moreover, Additional Accounts and accounts
included in Participations may not be accounts of the same type previously
included in the Trust. See 'The Pooling Agreement Generally--Representations and
Warranties'. Consequently, there can be no assurance that such Additional
Accounts or Participations will be of the same credit quality or have the same
payment characteristics as the Initial Accounts or the Additional Accounts
previously included in the Trust.
Additional Accounts of a type different than the Initial Accounts may
contain Receivables which consist of fees, charges and amounts which are
different from the fees, charges and amounts which have been designated as
Finance Charge Receivables and Principal Receivables herein and Participations
may be added to the Trust as Additions. In either case, the Servicer will
designate the portions of funds collected or to be collected in respect of such
Receivables or Participations to be treated for purposes of the Pooling
Agreement as Principal Receivables and Finance Charge Receivables.
REMOVAL OF ACCOUNTS
On any day of any Monthly Period each Bank shall have the right to require
the reassignment to it or its designee of all the Trust's right, title and
interest in, to and under the Receivables then existing and thereafter created,
all monies due or to become due and all amounts received with respect thereto
and all proceeds thereof in or with respect to the Removed Accounts owned and
designated by such Bank, upon satisfaction of the following conditions: (a) on
or before the tenth business day (the 'Removal Notice Date') immediately
preceding the date upon which the Receivables in such Accounts are to be removed
from the Trust, such Bank shall have given the Trustee, the Servicer, the Rating
Agency and certain providers of Series Enhancement written notice of such
removal specifying the date for removal of the Removed Accounts (the 'Removal
Date'); (b) on or prior to the date that is ten business days after the Removal
Date, such Bank shall have delivered to the Trustee a computer file or
microfiche list containing a true and complete list of the Removed Accounts
specifying for each such Account, as of the Removal Notice Date, its account
number, the aggregate amount outstanding in such Account and the aggregate
amount of Principal Receivables outstanding in such Account; (c) such Bank shall
have represented and warranted as of each Removal Date that the list of Removed
Accounts delivered pursuant to clause (b) above, as of the Removal Date, is true
and complete in all material respects; (d) the Trustee shall have received
confirmation from the Rating Agency that such removal will not result in a
Ratings Effect; (e) such Bank shall have delivered to the Trustee and certain
providers of Series Enhancement a certificate of an authorized officer, dated
the Removal Date, to the effect that such Bank reasonably believes that (i) such
removal will not, based on the facts known to such officer at the time of such
certification, cause a Pay Out Event to occur with respect to any Series and
(ii) no selection procedure was utilized by such Bank which would result in a
selection of Removed Accounts that would be materially adverse to the interests
of the Certificateholders of any Series as of the Removal Date; and (f) as of
the Removal Notice Date, either (i) the Receivables in the Accounts owned by
such Bank are not more than 15% delinquent by estimated principal amount and the
weighted average delinquency of such Receivables is not more than 60 days or
(ii) the Receivables in the Accounts owned by such
29
Bank are not more than 7% delinquent by estimated principal amount and the
weighted average delinquency of such Receivables does not exceed 90 days.
Upon satisfaction of the above conditions, the Trustee shall execute and
deliver to the relevant Bank a written reassignment and shall be deemed to sell,
transfer, assign, set over and otherwise convey to such Bank or its designee,
without recourse, representation or warranty, all the right, title and interest
of the Trust in and to the Receivables arising in the Removed Accounts, all
monies due and to become due and all amounts received with respect thereto and
all proceeds thereof.
NEW ISSUANCES
The Pooling Agreement provides that, pursuant to any one or more
Supplements, the Banks may direct the Trustee to issue from time to time new
Series subject to the conditions described below (each such issuance a 'New
Issuance'). Each New Issuance will have the effect of decreasing the Sellers'
Interest to the extent of the Invested Amount of such new Series. Under the
Pooling Agreement, the Banks may designate, with respect to any newly issued
Series: (i) its name or designation; (ii) its initial principal amount (or
method for calculating such amount) and its invested amount in the Trust (the
'Invested Amount'); (iii) its certificate rate (or formula for the determination
thereof); (iv) the interest payment date or dates (the 'Interest Payment Dates')
and the date or dates from which interest shall accrue; (v) the method for
allocating collections to Certificateholders of such Series; (vi) any bank
accounts to be used by such Series and the terms governing the operation of any
such bank accounts; (vii) the percentage used to calculate monthly servicing
fees; (viii) the provider and terms of any form of Series Enhancement with
respect thereto; (ix) the terms on which the Certificates of such Series may be
repurchased or remarketed to other investors; (x) the Series Termination Date;
(xi) the number of Classes of Certificates of such Series, and if such Series
consists of more than one Class, the rights and priorities of each such Class;
(xii) the extent to which the Certificates of such Series will be issuable in
temporary or permanent global form (and, in such case, the depositary for such
global certificate or certificates, the terms and conditions, if any, upon which
such global certificate may be exchanged, in whole or in part, for definitive
certificates, and the manner in which any interest payable on a global
certificate will be paid); (xiii) whether the Certificates of such Series may be
issued in bearer form and any limitations imposed thereon; (xiv) the priority of
such Series with respect to any other Series; (xv) the Group, if any, in which
such Series will be included; and (xvi) any other relevant terms (all such
terms, the 'Principal Terms' of such Series). None of the Banks, the Servicer,
the Trustee or the Trust is required or intends to obtain the consent of any
Certificateholder of any outstanding Series to issue any additional Series. The
Banks may offer any Series to the public under a Prospectus Supplement or other
Disclosure Document in transactions either registered under the Act or exempt
from registration thereunder directly, through one or more underwriters or
placement agents, in fixed-price offerings or in negotiated transactions or
otherwise. See 'Plan of Distribution'. Any such Series may be issued in fully
registered or book-entry form in minimum denominations determined by the Banks.
The Banks intend to offer, from time to time, additional Series.
The Pooling Agreement provides that the Banks may designate Principal Terms
such that each Series has an Accumulation Period or a Scheduled Amortization
Period which may have a different length and begin on a different date than such
periods for any other Series. Further, one or more Series may be in their
Accumulation Period or Scheduled Amortization Period while other Series are not.
Collections of Principal Receivables otherwise allocable to a Series which is
not amortizing or accumulating principal will be treated as Shared Principal
Collections and reallocated to a Series which is amortizing or accumulating
principal. Moreover, each Series may have the benefits of Series Enhancements
issued by enhancement providers different from the providers of Series
Enhancement with respect to any other Series. Under the Pooling Agreement, the
Trustee shall hold any such Series Enhancement only on behalf of the Series to
which such Series Enhancement relates. With respect to each such Series
Enhancement, the Banks may deliver a different form of Series Enhancement
agreement. The Banks also have the option under the Pooling Agreement to vary
among Series the terms upon which a Series may be repurchased by the Banks or
remarketed to other investors. There is no limit to the number of New Issuances
that the Banks may cause under the Pooling Agreement. The Trust will terminate
only as provided in the Pooling Agreement. There can be no assurance that the
terms of any Series might not have an impact on the timing and amount of
payments received by a Certificateholder of another Series.
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Under the Pooling Agreement and pursuant to a Supplement, a New Issuance
may only occur upon the satisfaction of certain conditions provided in the
Pooling Agreement. The obligation of the Trustee to authenticate the
Certificates of such new Series and to execute and deliver the related
Supplement is subject to the satisfaction of the following conditions: (a) on or
before the fifth business day immediately preceding the date upon which the New
Issuance is to occur, the Banks shall have given the Trustee, the Servicer, the
Rating Agency and certain providers of Series Enhancement written notice of such
New Issuance and the date upon which the New Issuance is to occur; (b) the Banks
shall have delivered to the Trustee the related Supplement, in form satisfactory
to the Trustee, executed by each party to the Pooling Agreement other than the
Trustee; (c) the Banks shall have delivered to the Trustee any related Series
Enhancement agreement executed by each of the parties to such agreement; (d) the
Trustee shall have received confirmation from the Rating Agency that such New
Issuance will not result in a Ratings Effect; (e) the Banks shall have delivered
to the Trustee and certain providers of Series Enhancement a certificate of an
authorized officer, dated the date upon which the New Issuance is to occur, to
the effect that the Banks reasonably believe that such issuance will not, based
on the facts known to such officer at the time of such certification, cause a
Pay Out Event to occur with respect to any Series; (f) the Banks shall have
delivered to the Trustee, the Rating Agency and certain providers of Series
Enhancement an opinion of counsel acceptable to the Trustee that for federal
income tax purposes (x) following such New Issuance the Trust will not be deemed
to be an association (or publicly traded partnership) taxable as a corporation,
(y) such New Issuance will not affect the tax characterization as debt of
Certificates of any outstanding Series or Class that were characterized as debt
at the time of their issuance and (z) such New Issuance will not cause or
constitute an event in which gain or loss would be recognized by any
Certificateholders or the Trust (an opinion of counsel to the effect referred to
in clauses (x), (y) and (z) with respect to any action is referred to herein as
a 'Tax Opinion'); (g) the Banks' remaining interest in Principal Receivables
shall not be less than 2% of the total amount of Principal Receivables, in each
case as of the date upon which the New Issuance is to occur after giving effect
to such issuance; (h) the sum of the Invested Amounts to be used in calculating
the Floating Allocation Percentages of all outstanding Series shall not exceed
the amount of Principal Receivables to be used in calculating such Floating
Allocation Percentages, in each case as of the date of the New Issuance and
after giving effect to such New Issuance; and (i) any other conditions specified
in any Supplement. Upon satisfaction of the above conditions, the Trustee shall
execute the Supplement and issue to the Banks the Certificates of such new
Series for execution and redelivery to the Trustee for authentication.
COLLECTION ACCOUNT
The Servicer maintains for the benefit of the Certificateholders of each
Series, in the name of the Trustee, on behalf of the Trust, an Eligible Deposit
Account bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Certificateholders of each Series (the
'Collection Account'). 'Eligible Deposit Account' means either (a) a segregated
account with an Eligible Institution or (b) a segregated trust account with the
corporate trust department of a depository institution organized under the laws
of the United States or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), and acting as a trustee for
funds deposited in such account, so long as any of the securities of such
depository institution shall have a credit rating from the Rating Agency in one
of its generic credit rating categories which signifies investment grade.
'Eligible Institution' means a depository institution (which may be the Trustee)
organized under the laws of the United States or any one of the states thereof
which at all times (a) has either (i) a long-term unsecured debt rating of A2 or
better by Moody's Investors Service, Inc. ('Moody's') or (ii) a certificate of
deposit rating of P-1 by Moody's, (b) has either (i) a long-term unsecured debt
rating of AAA by Standard & Poor's Ratings Services ('Standard & Poor's') or
(ii) a certificate of deposit rating of A-1+ by Standard & Poor's and (c) is a
member of the FDIC. The Collection Account is currently maintained with Bankers
Trust Company. If at any time the Collection Account ceases to be an Eligible
Deposit Account, the Collection Account shall be moved so that it will again be
qualified as an Eligible Deposit Account. Funds in the Collection Account
generally will be invested in (i) obligations fully guaranteed by the United
States of America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies, the commercial paper, if
any, of which has the highest rating from the Rating Agency, (iii) commercial
paper (or other short-term obligations) having, at the time of the Trust's
investment therein, a rating in the highest rating category from the Rating
Agency, (iv) demand deposits, time deposits and certificates
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of deposit which are fully insured by the FDIC, (v) notes or bankers'
acceptances issued by any depository institution or trust company described in
(ii) above, (vi) money market funds which have the highest rating from, or have
otherwise been approved in writing by, the Rating Agency, (vii) time deposits
with an entity, the commercial paper of which has the highest rating from the
Rating Agency and (viii) any other investments approved in writing by the Rating
Agency (collectively, 'Eligible Investments'). Such funds may be invested in
debt obligations of Providian Bancorp, Inc. or its affiliates so long as such
obligations qualify as Eligible Investments. Any earnings (net of losses and
investment expenses) on funds in the Collection Account will be treated as
collections of Finance Charge Receivables with respect to the last day of the
related Monthly Period except as otherwise specified in any Supplement. The
Servicer will have the revocable power to withdraw funds from the Collection
Account and to instruct the Trustee to make withdrawals and payments from the
Collection Account for the purpose of carrying out its duties under the Pooling
Agreement and any Supplement. The Paying Agent shall have the revocable power to
withdraw funds from the Collection Account for the purpose of making
distributions to the Certificateholders. The Paying Agent shall initially be the
Trustee.
ALLOCATION PERCENTAGES
Pursuant to the Pooling Agreement, the Servicer will allocate among the
Certificateholders' Interest of each Series and the Sellers' Interest all
amounts collected with respect to Finance Charge Receivables and Principal
Receivables and the Defaulted Amount with respect to each day during any Monthly
Period as follows: (a)collections of Finance Charge Receivables and the
Defaulted Amount will at all times be allocated to the Certificateholders'
Interest of a Series based on the Floating Allocation Percentage of such Series;
and (b)collections of Principal Receivables will at all times be allocated to
the Certificateholders' Interest of such Series based on the Principal
Allocation Percentage of such Series.
The 'Floating Allocation Percentage' and the 'Principal Allocation
Percentage' with respect to any Series will be determined as set forth in the
related Supplement and, with respect to each Series offered hereby, in the
related Prospectus Supplement. Amounts not allocated to the Certificateholders'
Interest of any Series as described above will be allocated to the Sellers'
Interest.
DEPOSITS IN COLLECTION ACCOUNT
For as long as (i) FDNB remains the Servicer under the Pooling Agreement
and (ii) either (x) FDNB, as the Servicer, provides to the Trustee a letter of
credit covering collection risk of the Servicer acceptable to the Rating Agency
(as evidenced by a letter from the Rating Agency to the effect that no Ratings
Effect would occur) or (y) FDNB, if the Collection Account is maintained with
FDNB, has and maintains a certificate of deposit rating of at least A-1 and P-1
(or their equivalent) by the Rating Agency, FDNB may use for its own benefit all
collections received with respect to the Receivables in each Monthly Period
until the business day preceding the related Distribution Date, at which time
FDNB will deposit all such collections, to the extent described below, into the
Collection Account, and the Servicer will make the deposits and payments to the
accounts and parties described herein and in the related Prospectus Supplement
on the date of such deposit. However, if FDNB is no longer the Servicer or fails
to maintain the required letter of credit covering collection risk or the
required certificate of deposit rating, the Servicer will make such deposits, as
described below, not later than two business days after the Date of Processing,
except in the case of collections consisting of Interchange, which will be
deposited not later than each Distribution Date. Whether the Servicer is
required to make deposits of collections pursuant to the first or the second
preceding sentence, (i) the Servicer will only be required to deposit
collections into the Collection Account up to the aggregate amount of
collections required to be deposited into an account established for any Series
or, without duplication, distributed on the related Distribution Date or Payment
Date to Certificateholders of any Series or to the issuer of any Series
Enhancement pursuant to the terms of any Supplement or Series Enhancement
agreement and (ii) if at any time prior to such Distribution Date or Payment
Date the amount of collections deposited in the Collection Account exceeds the
amount required to be deposited pursuant to clause (i) above, the Servicer will
be permitted to withdraw such excess from the Collection Account. Unless
otherwise agreed by the Rating Agency, if at any time FDNB or another eligible
affiliate of Providian Bancorp, Inc. is not the Servicer, the Collection Account
will be moved from FDNB, if then maintained there.
On the earlier of (i) the second business day after the Date of Processing
and (ii) the day on which the Servicer deposits any collections into the
Collection Account, the Servicer will pay to the Banks (a) the Banks'
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allocable portion of collections on Principal Receivables, provided that the
Sellers' Interest in Principal Receivables on such day (after giving effect to
any new Receivables transferred to the Trust on such day) is greater than zero;
and (b) the Banks' allocable portion of collections on Finance Charge
Receivables, except in the case of collections consisting of Interchange, the
Banks' allocable portion of which will be retained by the Banks. Any amount not
allocated to the Banks because the Sellers' Interest in Principal Receivables is
zero will be held in the Collection Account unallocated ('Unallocated Principal
Collections') until the Sellers' Interest in Principal Receivables is greater
than zero (at which time such amount will be allocated to the Banks) or until an
Accumulation Period, Scheduled Amortization Period or Early Amortization Period
commences for any Series (after which such amount will be treated as Shared
Principal Collections to the extent needed to cover principal payments due to or
for the benefit of such Series).
SHARED PRINCIPAL COLLECTIONS
Collections on Principal Receivables for any Monthly Period allocated to
the Certificateholders' Interest of any Series offered hereby will first be used
to cover certain amounts described in the related Prospectus Supplement
(including any required deposits into a Principal Funding Account or required
distributions to Certificateholders of such Series). The Servicer will determine
the amount of collections of Principal Receivables for any Monthly Period (plus
certain other amounts described in the related Prospectus Supplement) allocated
to such Series remaining after covering such required deposits and distributions
and any similar amount remaining for any other Series (collectively, 'Shared
Principal Collections'). The Servicer will allocate the Shared Principal
Collections to cover any principal distributions to Certificateholders and
deposits to Principal Funding Accounts for any Series which are either scheduled
or permitted and which have not been covered out of the investor principal
collections and certain other amounts for such Series ('Principal Shortfalls').
If Principal Shortfalls exceed Shared Principal Collections for any Monthly
Period, Shared Principal Collections will be allocated pro rata among the
applicable Series based on the respective Principal Shortfalls of such Series.
To the extent that Shared Principal Collections exceed Principal Shortfalls, the
balance will be allocated to the Banks, provided that (a) such Shared Principal
Collections will be distributed to the Banks only to the extent that the
Sellers' Interest in Principal Receivables is greater than zero (see '--Deposits
in Collection Account') and (b) in certain circumstances described below under
'--Special Funding Account', such Shared Principal Collections will be deposited
in the Special Funding Account. Any such reallocation of collections on
Principal Receivables will not result in a reduction in the Invested Amount of
the Series to which such collections were initially allocated. There can be no
assurance that there will be any Shared Principal Collections with respect to
any Monthly Period.
SPECIAL FUNDING ACCOUNT
If, on any date, the Sellers' Interest is less than or equal to the
Required Sellers' Participation Amount or the amount of Principal Receivables in
the Trust is less than or equal to the Required Principal Balance, the Servicer
shall not distribute to the Banks any Shared Principal Collections that
otherwise would be distributed to the Banks, but shall deposit such funds in an
Eligible Deposit Account established and maintained by the Servicer for the
benefit of the Certificateholders of each Series, in the name of the Trustee, on
behalf of the Trust, and bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders of each
Series (the 'Special Funding Account'). Funds on deposit in the Special Funding
Account will be withdrawn and paid to the Banks on any Distribution Date to the
extent that, after giving effect to such payment, the Sellers' Interest exceeds
the Required Sellers' Participation Amount and the amount of Principal
Receivables in the Trust exceeds the Required Principal Balance on such date;
provided, however, that if an Accumulation Period, Scheduled Amortization Period
or Early Amortization Period commences with respect to any Series, any funds on
deposit in the Special Funding Account will be released from the Special Funding
Account, deposited in the Collection Account and treated as Shared Principal
Collections to the extent needed to cover principal payments due to or for the
benefit of such Series.
Funds on deposit in the Special Funding Account will be invested by the
Trustee, at the direction of the Servicer, in Eligible Investments. Any earnings
(net of losses and investment expenses) earned on amounts on deposit in the
Special Funding Account during any Monthly Period will be withdrawn from the
Special Funding Account and treated as collections of Finance Charge Receivables
with respect to such Monthly Period.
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SHARING OF ADDITIONAL FINANCE CHARGES
Any Series offered hereby may be included in a group of Series (a 'Group').
Each Series in a specific Group will be entitled to share Additional Finance
Charges in the manner, and to the extent, described below with each other
Series, if any, in such Group. The Prospectus Supplement with respect to a
Series offered hereby will specify whether such Series will be included in a
Group and whether any previously issued Series have been included in such Group.
Subsequently issued Series may also be included in such Group. Collections of
Finance Charge Receivables and certain other amounts allocable to the
Certificateholders' Interest of any Series which is included in a Group in
excess of the amounts necessary to make required payments with respect to such
Series (including payments to the provider of any related Series Enhancement)
that are payable out of collections of Finance Charge Receivables ('Additional
Finance Charges') will be applied to cover any shortfalls with respect to
amounts payable from collections of Finance Charge Receivables allocable to any
other Series included in such Group, pro rata based upon the amount of the
shortfall, if any, with respect to each other Series in such Group; provided,
however, that the sharing of Additional Finance Charges among Series in any
Group will continue only until such time, if any, at which a Bank shall deliver
to the Trustee a certificate of an authorized officer to the effect that, in the
reasonable belief of such Bank, the continued sharing of Additional Finance
Charges among Series in any Group would have adverse regulatory implications
with respect to such Bank. Following the delivery by a Bank of any such
certificate to the Trustee there will not be any further sharing of Additional
Finance Charges among the Series in any Group. In all cases, any Additional
Finance Charges remaining after covering shortfalls with respect to all
outstanding Series in a Group will be paid to the Banks. While any Series
offered hereby may be included in a Group, there can be no assurance that (i)
any other Series will be included in such Group, (ii) there will be any
Additional Finance Charges with respect to such Group for any Monthly Period or
(iii) a Bank will not at any time deliver a certificate as described above.
While the Banks believe that, based upon applicable rules and regulations as
currently in effect, the sharing of Additional Finance Charges among Series in a
Group will not have adverse regulatory implications for them, there can be no
assurance that this will continue to be true in the future.
FUNDING PERIOD
For any Series, the related Prospectus Supplement may specify that during a
Funding Period, an amount (the 'Prefunding Account Balance') will be held in a
Prefunding Account pending the transfer of additional Receivables to the Trust
or pending the reduction of the Certificateholders' Interest of other Series
issued by the Trust. The related Prospectus Supplement will specify the initial
Certificateholders' Interest with respect to such Series, the Initial Amount and
the date by which the Certificateholders' Interest is expected to equal the
Initial Amount.
If so specified in the related Prospectus Supplement, during the Funding
Period, funds on deposit in the Prefunding Account for a Series may or, under
certain circumstances, must be withdrawn and paid to the Sellers to effect
increases in the Certificateholders' Interest. In the event that the
Certificateholders' Interest does not for any reason equal the Initial Amount by
the end of the Funding Period, any amount remaining in the Prefunding Account
and any additional amounts, if any, specified in the related Prospectus
Supplement will be payable to the Certificateholders of such Series in the
manner and at such time as set forth in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, monies in the
Prefunding Account will be invested by the Trustee in Eligible Investments or
will be subject to a guaranteed rate or investment agreement or other similar
arrangement, and, in connection with each Distribution Date during the Funding
Period, investment earnings on funds in the Prefunding Account during the
related Monthly Period will be withdrawn from the Prefunding Account and
deposited, together with any applicable payment under a guaranteed rate or
investment agreement or other similar arrangement, into the Collection Account
for distribution in respect of interest on the Certificates of the related
Series in the manner specified in the related Prospectus Supplement.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES
'Defaulted Receivables' for any Monthly Period are Principal Receivables
that were charged-off as uncollectible in such Monthly Period. The 'Defaulted
Amount' for any Monthly Period will be an amount (not less than zero) equal to
(a) the amount of Defaulted Receivables for such Monthly Period minus (b) the
sum of
34
(i) the amount of any Defaulted Receivables included in any Account the
Receivables in which either Bank or the Servicer becomes obligated to accept
reassignment or assignment during such Monthly Period (unless an Insolvency
Event has occurred with respect to such Bank or the Servicer, in which event the
amount of such Defaulted Receivables will not be added to the sum so
subtracted), (ii) the aggregate amount of recoveries received in such Monthly
Period with respect to both Finance Charge Receivables and Principal Receivables
previously charged-off as uncollectible and (iii) the excess, if any, for the
immediately preceding Monthly Period of the sum computed pursuant to this clause
(b) over the amount of Principal Receivables which became Defaulted Receivables
in such Monthly Period. Receivables in any Account will be charged-off as
uncollectible in accordance with the Lending Guidelines and the Servicer's
customary and usual policies and procedures for servicing revolving credit card
and other revolving credit account receivables comparable to the Receivables.
The current policy of the Banks is to charge off the receivables in an account
when that account becomes 180 days delinquent (210 days after the date of the
related billing statement), unless the accountholder cures such default by
making a partial payment which satisfies the criteria for curing delinquencies
set forth in the Lending Guidelines of the relevant Bank. If the relevant Bank
receives notice that an accountholder has filed for bankruptcy or has had a
bankruptcy petition filed against it, such Bank will generally charge off the
receivables in such account when a determination is made that no recovery is
available or when the account becomes 180 days delinquent, whichever is earlier.
If the Servicer adjusts downward the amount of any Principal Receivable
(other than Ineligible Receivables which have been, or are to be, reassigned to
a Bank) because of a rebate, refund, counterclaim, defense, error, fraudulent
charge or counterfeit charge to a cardholder or such Principal Receivable was
created in respect of merchandise which was refused or returned by a cardholder,
or if the Servicer otherwise adjusts downward the amount of any Principal
Receivable without receiving collections therefor or charging off such amount as
uncollectible, the amount of the Principal Receivables in the Trust with respect
to the Monthly Period in which such adjustment takes place will be reduced by
the amount of the adjustment. Furthermore, in the event that the exclusion of
any such Receivables would cause the Sellers' Interest in Principal Receivables
at such time to be a negative number, the Bank which transferred such Principal
Receivables to the Trust shall be required to pay an amount equal to such
deficiency into the Collection Account (each such payment an 'Adjustment
Payment' with respect to such Distribution Date). Any such Adjustment Payment
will be treated as a portion of Shared Principal Collections as described under
'--Shared Principal Collections'.
CREDIT ENHANCEMENT
General. For any Series, Credit Enhancement may be provided with respect
to one or more Classes thereof. Credit Enhancement with respect to one or more
Classes of a Series offered hereby may include a letter of credit, the
establishment of a cash collateral account, a surety bond, an insurance policy
or another form of credit enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. Credit Enhancement may also be
provided to a Class or Classes of a Series by subordination provisions which
require that distributions of principal and/or interest be made with respect to
the Certificates of such Class or Classes before distributions are made to one
or more Classes of such Series. If so specified in the related Prospectus
Supplement, any form of Credit Enhancement may be structured so as to be
available to more than one Class or Series to the extent described therein.
The presence of Credit Enhancement with respect to a Class is intended to
enhance the likelihood of receipt by Certificateholders of such Class of the
full amount of principal and interest with respect thereto and to decrease the
likelihood that such Certificateholders will experience losses. However, unless
otherwise specified in the Prospectus Supplement for a Series offered hereby,
the Credit Enhancement, if any, with respect thereto will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance of the Certificates and interest thereon. If losses occur
which exceed the amount covered by the Credit Enhancement or which are not
covered by the Credit Enhancement, Certificateholders will bear their allocable
share of deficiencies. In addition, if specific Credit Enhancement is provided
for the benefit of more than one Class or Series, Certificateholders of any such
Class or Series will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of Certificateholders of other Classes or Series.
If Credit Enhancement is provided with respect to a Series offered hereby,
the related Prospectus Supplement will include a description of (a) the amount
payable under such Credit Enhancement, (b) any
35
conditions to payment thereunder not otherwise described herein, (c) the
conditions (if any) under which the amount payable under such Credit Enhancement
may be reduced and under which such Credit Enhancement may be terminated or
replaced and (d) any material provisions of any agreement relating to such
Credit Enhancement. Additionally, in certain cases, the related Prospectus
Supplement may set forth certain information with respect to the provider of any
third-party Credit Enhancement (the 'Credit Enhancer'), including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and/or the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies which exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' or policyholders'
surplus, if applicable, as of a date specified in the Prospectus Supplement. If
so described in the related Prospectus Supplement, Credit Enhancement with
respect to a Series offered hereby may be available to pay principal of the
Certificates of such Series following the occurrence of certain Pay Out Events
with respect to such Series. In such event, the Credit Enhancer will have an
interest in certain cash flows in respect of the Receivables to the extent
described in such Prospectus Supplement (the 'Enhancement Invested Amount') and
may be entitled to the benefit of the Trustee's security interest in the
Receivables, in each case subordinated to the interest of the Certificateholders
of such Series.
Subordination. If so specified in the related Prospectus Supplement, one
or more Classes of a Series offered hereby may be subordinated to one or more
other Classes of such Series. If so specified in the related Prospectus
Supplement, the rights of the holders of the subordinated Certificates to
receive distributions of principal and/or interest on any Payment Date will be
subordinated to such rights of the holders of the Certificates which are senior
to such subordinated Certificates to the extent set forth in the related
Prospectus Supplement. The related Prospectus Supplement will also set forth
information concerning the amount of subordination of a Class or Classes of
subordinated Certificates in a Series, the circumstances in which such
subordination will be applicable, the manner, if any, in which the amount of
subordination will decrease over time, and the conditions under which amounts
available from payments that would otherwise be made to holders of such
subordinated Certificates will be distributed to holders of Certificates which
are senior to such subordinated Certificates. The amount of subordination will
decrease whenever amounts otherwise payable to the holders of subordinated
Certificates are paid to the holders of the Certificates which are senior to
such subordinated Certificates.
Letter of Credit. If so specified in the related Prospectus Supplement, a
letter of credit with respect to a Series or Class of Certificates offered
hereby may be issued by a bank or financial institution specified in the related
Prospectus Supplement (the 'L/C Issuer'). Subject to the terms and conditions
specified in the related Prospectus Supplement, an L/C Issuer will be obligated
to honor drawings under a letter of credit in an aggregate dollar amount (which
may be fixed or may be reduced as described in the related Prospectus
Supplement), net of unreimbursed payments thereunder, equal to the amount
described in the related Prospectus Supplement. The amount available under a
letter of credit will be reduced to the extent of the unreimbursed payments
thereunder.
Cash Collateral Account. If specified in the related Prospectus
Supplement, the Certificates of any Class or Series offered hereby may have the
benefit of a cash collateral account. A cash collateral account with respect to
a Class or Series will be funded on the Series Issuance Date with respect
thereto and the funds on deposit therein will be invested in Eligible
Investments. The amount available to be withdrawn from a cash collateral account
will be the lesser of the amount on deposit in the cash collateral account and
an amount specified in the related Prospectus Supplement. The related Prospectus
Supplement will set forth the circumstances under which such withdrawals will be
made from the Cash Collateral Account.
Surety Bond or Insurance Policy. If so specified in the related Prospectus
Supplement, insurance with respect to a Series or Class of Certificates offered
hereby may be provided by one or more insurance companies. Such insurance will
guarantee, with respect to one or more Classes of the related Series,
distributions of interest or principal in the manner and amount specified in the
related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a surety bond may be
purchased for the benefit of the holders of any Series or Class of Certificates
offered hereby to assure distributions of interest or principal with respect to
such Series or Class of Certificates in the manner and amount specified in the
related Prospectus Supplement.
36
Spread Account. If so specified in the related Prospectus Supplement,
support for a Series or one or more Classes of a Series offered hereby may be
provided by the periodic deposit of certain available excess cash flow from the
Trust Assets into an account (the 'Spread Account') intended to assure the
subsequent distributions of interest and principal on the Certificates of such
Class or Series in the manner specified in the related Prospectus Supplement.
OTHER SERIES ENHANCEMENT
For any Series or for any Class of any Series, there may be, in addition to
Credit Enhancement, other Series Enhancement in the form of a guaranteed rate
agreement, maturity liquidity facility, tax protection agreement, interest rate
cap agreement, interest rate swap agreement or other similar arrangement for the
benefit of Certificateholders of such Series or Class.
PAY OUT EVENTS
As described above, the Revolving Period with respect to a Series will
continue until the commencement of the Accumulation Period or the Scheduled
Amortization Period with respect thereto, which will continue until the Invested
Amount of such Series shall have been paid in full or the Series Termination
Date with respect to such Series occurs, unless a Pay Out Event occurs with
respect to such Series prior to any of such dates. Except as otherwise provided
in the related Prospectus Supplement with respect to any Series offered hereby,
a 'Pay Out Event' with respect to a Series refers to any of the following events
and any other events specified as such in the related Prospectus Supplement: (a)
failure on the part of either of the Banks (i) to make any payment or deposit
required under the Pooling Agreement or the Supplement relating to such Series
within five business days after the date such payment or deposit is required to
be made or (ii) to observe or perform any other covenants or agreements of the
Banks set forth in the Pooling Agreement or such Supplement, which failure has a
material adverse effect on the Certificateholders of such Series and which
continues unremedied for a period of 60 days after written notice; provided that
no such 60-day cure period shall apply in the case of a failure by a Seller to
perform its agreement to accept reassignment of Receivables which were the
subject of a breached representation or warranty as described in the first
paragraph under the heading 'The Pooling Agreement Generally-Representations and
Warranties' and that only a five day cure period shall apply in the case of a
failure by a Seller to observe its covenant not to grant a security interest or
otherwise intentionally create a lien on the Receivables; (b) any representation
or warranty made by the Banks in the Pooling Agreement or the Supplement with
respect to such Series or any information required to be given by the Banks to
the Trustee to identify the Accounts proves to have been incorrect in any
material respect when made and continues to be incorrect in any material respect
for a period of 60 days after written notice and as a result of which the
interests of the Certificateholders of such Series are materially and adversely
affected; provided, however, that a Pay Out Event shall not be deemed to occur
thereunder if the relevant Bank has repurchased the related Receivables or all
such Receivables, if applicable, during such period in accordance with the
provisions of the Pooling Agreement; (c) the occurrence of an Insolvency Event
relating to either of the Banks; (d) a failure by a Bank to make an Addition to
the Trust within five business days after the day on which it is required to
make such Addition pursuant to the Pooling Agreement; (e) the Trust becomes an
'investment company' within the meaning of the Investment Company Act of 1940,
as amended; (f) the average of the Portfolio Yields for any three consecutive
Monthly Periods is less than the average of the Base Rates with respect to such
Series for such Monthly Periods; the terms 'Base Rate' and 'Portfolio Yield'
with respect to a Series offered hereby will have the meanings set forth in the
related Prospectus Supplement; (g) the occurrence of any Servicer Default; or
(h) either of the Banks becomes unable for any reason to transfer Receivables to
the Trust in accordance with the Pooling Agreement.
In the case of any event described in (a), (b) or (g), a Pay Out Event with
respect to any Series will be deemed to have occurred only if, after the
applicable grace period described in such clauses, if any, either the Trustee or
Certificateholders holding Certificates evidencing more than 50% of the
aggregate unpaid principal amount of the Certificates of any Series to which
such event relates by written notice to the Banks and the Servicer (and the
Trustee, if given by the Certificateholders) declare that a Pay Out Event has
occurred as of the date of such notice. See 'Risk Factors--Control'. In the case
of any event described in clause (c), (d), (e) or (h), a Pay Out Event with
respect to all Series will be deemed to have occurred without any notice or
other action on the part of the Trustee or the Certificateholders of any Series
immediately upon the occurrence of such event. In
37
the case of the event described in clause (f), a Pay Out Event with respect to
the related Series will be deemed to have occurred without any notice or other
action on the part of the Trustee or the Certificateholders immediately upon the
Determination Date following the occurrence of such event. The Early
Amortization Period with respect to a Series will commence on the day on which a
Pay Out Event occurs with respect thereto. Monthly distributions of principal to
the Certificateholders of such Series will begin on the Distribution Date in the
Monthly Period following the Monthly Period in which such Pay Out Event occurs
(such Distribution Date and each following Distribution Date with respect to
such Series, a 'Special Payment Date'). Any amounts on deposit in a Principal
Funding Account or an Interest Funding Account with respect to such Series at
such time will be distributed on such first Special Payment Date to the
Certificateholders of such Series. If a Series has more than one Class of
Certificates, each Class may have different Pay Out Events which, in the case of
any Series of Certificates offered hereby, will be described in the related
Prospectus Supplement.
In addition to the consequences of a Pay Out Event discussed above, if an
Insolvency Event occurs, pursuant to the Pooling Agreement, on the day of such
Insolvency Event, the Banks will immediately cease to transfer Principal
Receivables to the Trust and promptly give notice to the Trustee of such
Insolvency Event. Under the terms of the Pooling Agreement, within 15 days the
Trustee will publish a notice of the occurrence of the Insolvency Event stating
that the Trustee intends to sell, dispose of or otherwise liquidate the
Receivables in a commercially reasonable manner and on commercially reasonable
terms unless within 90 days from the date such notice is published each other
holder of the Banks' Certificate and the holders of Certificates of each Series
or, if a Series includes more than one Class, each Class of such Series
evidencing more than 50% of the aggregate unpaid principal amount of each such
Series or Class (and, in the case of any Series with respect to which there is
an Enhancement Invested Amount, any Credit Enhancer with respect thereto)
instruct the Trustee not to dispose of or liquidate the Receivables and to
continue transferring Principal Receivables as before such Insolvency Event. The
proceeds from any such sale, disposition or liquidation of the Receivables will
be deposited in the Collection Account and allocated as described in the Pooling
Agreement and each Series Supplement. If the sum of (a) the portion of such
proceeds allocated to the Certificateholders' Interest of any Series and (b) the
proceeds of any collections on the Receivables in the Collection Account
allocated to the Certificateholders' Interest of such Series is not sufficient
to pay the Invested Amount of the Certificates of such Series in full, such
Certificateholders will incur a loss.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation for its servicing activities and reimbursement
for its expenses for any Monthly Period will be a servicing fee (the 'Servicing
Fee') payable monthly on each Distribution Date in an amount equal to
one-twelfth of the product of (a) the weighted average of the applicable
servicing fee percentages with respect to each Series outstanding (based upon
the applicable servicing fee percentage for each Series and the amount of
Receivables serviced on behalf of each Series) and (b) the amount of Principal
Receivables in the Trust on the last day of the prior Monthly Period. The
Servicing Fee will be allocated among the Sellers' Interest, the
Certificateholders' Interests of each Series and, after the Certificates of a
Series have been paid in full, the interest represented by the Enhancement
Investment Amount, if any, with respect to such Series. The share of the
Servicing Fee allocable to the Certificateholders' Interest, which includes the
Enhancement Invested Amount, if any, of a Series offered hereby with respect to
any Distribution Date shall be equal to one-twelfth of the product of (A) the
servicing fee percentage specified in the related Prospectus Supplement with
respect to such Series (the 'Series Servicing Fee Percentage') and (B) the sum
of the Invested Amount with respect to such Series (less the amount, if any, on
deposit in any Principal Funding Account with respect to such Series and the
amount, if any, on deposit in the Special Funding Account allocable to such
Series) and the Enhancement Invested Amount, if any, with respect to such Series
as of the last day of the prior Monthly Period (the 'Monthly Investor Servicing
Fee'). The portion of the Servicing Fee not so allocated to the
Certificateholders' Interest of a Series shall be paid by the Banks and in no
event shall the Trust, the Trustee or the Certificateholders of any Series be
liable for the share of the Servicing Fee to be paid by the Banks. Unless
otherwise provided in any Supplement, in the case of the first Distribution Date
with respect to any Series, the Monthly Investor Servicing Fee shall accrue from
the Series Issuance Date with respect to such Series. The Monthly Investor
Servicing Fee with respect to a Series will be funded from collections of
Finance Charge Receivables allocable to such Series, and will be paid on the
Distribution Date with respect to each Monthly Period from the Collection
Account (unless such amount has been netted against deposits by the Servicer to
the Collection Account).
38
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Receivables including, without
limitation, expenses related to the enforcement of the Receivables, payment of
the fees and disbursements of the Trustee and independent accountants and other
fees which are not expressly stated in the Pooling Agreement to be payable by
the Trust, the Certificateholders of a Series or the Banks (other than Federal,
state, local and foreign income, franchise or other taxes based on income, if
any, or any interest or penalties with respect thereto, imposed upon the Trust).
In the event that FDNB is acting as Servicer and fails to pay the fees and
disbursements of the Trustee, the Trustee will be entitled to receive the
portion of the Servicing Fee that is equal to such unpaid amounts. In no event
will the Certificateholders of a Series be liable to the Trustee for the
Servicer's failure to pay such amounts, and any such amounts so paid to the
Trustee will be treated as paid to the Servicer for all other purposes of the
Pooling Agreement.
RECORD DATE
Payments on the Certificates of a Series offered hereby will be made as
described herein and in the relevant Prospectus Supplement to the
Certificateholders in whose names the Certificates were registered (expected to
be Cede, as nominee of DTC) at the close of business on the last business day of
the calendar month preceding the date of such payment (each a 'Record Date').
However, the final payment on the Certificates of a Series offered hereby will
be made only upon presentation and surrender of such Certificates. Distributions
will be made to DTC in immediately available funds. See 'The Pooling Agreement
Generally--Book-Entry Registration'.
OPTIONAL TERMINATION; FINAL PAYMENT OF PRINCIPAL
Unless otherwise specified in the Prospectus Supplement with respect to any
Series offered hereby, on any day occurring on or after the day that the sum of
the Invested Amount of the Certificates of a Series and the Enhancement Invested
Amount, if any, with respect to such Series is reduced to 5% or less of the
initial Invested Amount of the Certificates of such Series, the Banks will have
the option to repurchase the Certificateholders' Interest of such Series. The
purchase price will be equal to the sum of the Invested Amount of such Series
(less the amount, if any, on deposit in any Principal Funding Account with
respect to such Series), plus the Enhancement Invested Amount, if any, with
respect to such Series, plus accrued and unpaid interest on the unpaid principal
amount of the Certificates (and accrued and unpaid interest with respect to
interest amounts that were due but not paid on a prior Payment Date) through (a)
if the day on which such repurchase occurs is a Distribution Date, the day
preceding such Distribution Date or (b) if the day on which such repurchase
occurs is not a Distribution Date, the day preceding the Distribution Date
following such day, at the applicable certificate rate. Following any such
repurchase, the Certificateholders of such Series will have no further rights
with respect to the Receivables. In the event that the Banks fail for any reason
to deposit the aggregate purchase price for the Certificateholders' Interest of
a Series offered hereby, payments would continue to be made to the
Certificateholders of such Series as described herein and in the related
Prospectus Supplement.
In any event, the last payment of principal and interest on the
Certificates of a Series offered hereby will be due and payable not later than
the date (the 'Series Termination Date') specified in the related Prospectus
Supplement. In the event that the Invested Amount of the Certificates of such
Series is greater than zero on the Series Termination Date (or a Distribution
Date prior thereto specified in the related Prospectus Supplement), the Trustee
may, subject to any conditions specified in such Prospectus Supplement, sell or
cause to be sold interests in the Principal Receivables or certain Principal
Receivables, together in each case with related Finance Charge Receivables, as
specified in such Prospectus Supplement, in an amount equal to the sum of the
Invested Amount and the Enhancement Invested Amount, if any, with respect to
such Series. The net proceeds of any such sale will be deposited in the
Collection Account and allocated to the Certificateholders of such Series, as
provided in such Prospectus Supplement.
REPORTS
No later than the third business day prior to each Distribution Date, the
Servicer will forward to the Trustee, the Paying Agent, the Rating Agency and
certain providers of Series Enhancement with respect to a Series a statement
(the 'Monthly Report') prepared by the Servicer setting forth certain
information with respect to the Trust and the Certificates of such Series
(unless otherwise indicated), including: (a) the aggregate amount of Principal
Receivables and Finance Charge Receivables in the Trust as of the end of such
Monthly Period; (b) the
39
Invested Amount with respect to such Series (and, if such Series includes more
than one Class, each such Class); (c) the Floating Allocation Percentage and,
during any Accumulation Period, Scheduled Amortization Period or Early
Amortization Period with respect to such Series, the Principal Allocation
Percentage with respect to such Series; (d) the amount of collections of
Principal Receivables and Finance Charge Receivables processed during the
related Monthly Period and the portion thereof allocated to the
Certificateholders' Interest of such Series; (e) the aggregate outstanding
balance of Accounts which were 30, 60 and 90 days or more delinquent as of the
end of such Monthly Period; (f) the Defaulted Amount with respect to such
Monthly Period and the portion thereof allocated to the Certificateholders'
Interest of such Series; (g) the amount, if any, of charge-offs with respect to
the Certificateholders' Interest of such Series for such Monthly Period; (h) the
Monthly Investor Servicing Fee with respect to such Series for such Monthly
Period; and (i) the available amount of Credit Enhancement with respect to such
Series for such Distribution Date.
With respect to each Interest Payment Date or Special Payment Date (each, a
'Payment Date'), as the case may be, the Monthly Report with respect to any
Series will include the following additional information with respect to the
Certificates of such Series: (a) the total amount distributed; (b) the amount of
such distribution allocable to principal on the Certificates; (c) the amount of
such distribution allocable to interest on the Certificates; and (d) the amount,
if any, by which the unpaid principal balance of the Certificates exceeds the
Invested Amount of such Series as of the Record Date with respect to such
Payment Date. On each Distribution Date, the Paying Agent, on behalf of the
Trustee, will forward to each Certificateholder of record a copy of the Monthly
Report.
On or before January 31 of each calendar year, the Paying Agent, on behalf
of the Trustee, will furnish (or cause to be furnished) to each person who at
any time during the preceding calendar year was a Certificateholder of record a
statement containing the information required to be provided by an issuer of
indebtedness under the Code for such preceding calendar year or the applicable
portion thereof during which such person was a Certificateholder, together with
such other customary information as is necessary to enable the
Certificateholders to prepare their tax returns. See 'Tax Matters'.
LIST OF INVESTOR CERTIFICATEHOLDERS
At such time, if any, as Definitive Certificates have been issued, upon
written request of any Certificateholder or group of Certificateholders of
record holding Certificates evidencing not less than 10% of the aggregate unpaid
principal amount of the Certificates of a Series or all outstanding Series, as
the case may be, the Trustee will afford such Certificateholders access during
normal business hours to the current list of Certificateholders of such Series
or all outstanding Series, as the case may be, for purposes of communicating
with other Certificateholders with respect to their rights under the Pooling
Agreement or any Supplement or Certificates. See 'The Pooling Agreement
Generally--Book-Entry Registration' and '--Definitive Certificates'.
The Pooling Agreement does not provide for any annual or other meetings of
Certificateholders.
40
THE POOLING AGREEMENT GENERALLY
BOOK-ENTRY REGISTRATION
Unless otherwise specified in the related Prospectus Supplement,
Certificateholders may hold Certificates of a Series offered hereby through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems.
Cede, as nominee for DTC, will be the registered holder of the global
Certificates. No Certificateholder will be entitled to receive a certificate
representing such person's interest in the Certificates. Unless and until
Definitive Certificates are issued under the limited circumstances described
below, all references herein to actions by Certificateholders shall refer to
actions taken by DTC upon instructions from its Participants, and all references
herein to distributions, notices, reports and statements to Certificateholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Certificates, for distribution to Certificateholders in
accordance with DTC procedures.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Citibank, N.A. ('Citibank'), will act as depositary for CEDEL and
Morgan Guaranty Trust Company of New York ('Morgan') will act as depositary for
Euroclear (in such capacities, the 'Depositaries').
Transfers between DTC participants will occur in the ordinary way in
accordance with DTC rules. Transfers between CEDEL Participants and Euroclear
Participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL or
Euroclear participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depositary; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the
Certificates, see 'Tax Matters--Federal Income Tax Consequences--Non-United
States Investors.'
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within the meaning of the UCC and a 'clearing agency' registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ('Participants') and
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ('Indirect
Participants').
Certificateholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect
41
Participants. In addition, Certificateholders will receive all distributions of
principal of and interest on the Certificates from the Paying Agent or the
Trustee through DTC and its Participants. Under a book-entry format,
Certificateholders will receive payments after the related Payment Date because,
while payments are required to be forwarded to Cede, as nominee for DTC, on each
such date, DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Certificateholders.
It is anticipated that the only 'Certificateholder' (as such term is used in the
Pooling Agreement and the Supplements) will be Cede, as nominee of DTC, and that
Certificateholders will not be recognized by the Trustee as 'Certificateholders'
under the Pooling Agreement and the Supplements. Certificateholders will only be
permitted to exercise the rights of Certificateholders under the Pooling
Agreement and the Supplements indirectly through DTC and its Participants which
in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which
Certificateholders have accounts with respect to the Certificates similarly are
required to make book-entry transfers and receive and transmit such payments on
behalf of their respective Certificateholders.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder to pledge Certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Banks that it will take any action permitted to be
taken by a Certificateholder under the Pooling Agreement or the Supplements only
at the direction of one or more Participants to whose account with DTC the
Certificates are credited. Additionally, DTC has advised the Banks that it will
take such actions with respect to specified percentages of the
Certificateholders' Interest only at the direction of and on behalf of
Participants whose holdings include undivided interests that satisfy such
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
CEDEL Bank, societe anonyme ('CEDEL') is incorporated under the laws of
Luxembourg as a professional depository. CEDEL holds securities for its
participating organizations ('CEDEL Participants') and facilitates the clearance
and settlement of securities transactions between CEDEL Participants through
electronic book-entry changes in accounts of CEDEL Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include any underwriters, agents or dealers with
respect to a Series of Certificates offered hereby. Indirect access to CEDEL is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ('Euroclear Participants') and to clear and
settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 27
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the 'Euroclear Operator' or 'Euroclear'), under contract with
Euroclear Clearance System S.C., a Belgian cooperative corporation (the
'Cooperative'). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator,
42
not the Cooperative. The Cooperative establishes policy for the Euroclear System
on behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include any underwriters, agents or dealers
with respect to a Series of Certificates offered hereby. Indirect access to the
Euroclear System is also available to other firms that clear through or maintain
a custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Distributions with respect to Certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See 'Tax Matters.' CEDEL or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Certificateholder under the
Pooling Agreement or the relevant Supplement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
Unless otherwise stated in the related Prospectus Supplement, the
Certificates of a Series offered hereby will be issued in fully registered,
certificated form to Certificateholders or their respective nominees
('Definitive Certificates'), rather than to DTC or its nominee only if (i) the
Banks advise the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as Depository with respect to the
Certificates, and the Trustee or the Banks are unable to locate a qualified
successor, (ii) the Banks, at their option, elect to terminate the book-entry
system through DTC or (iii) after the occurrence of a Servicer Default,
Certificateholders evidencing not less than 50% of the aggregate unpaid
principal amount of the Certificates of any Class of such Series advise the
Trustee and DTC through Participants in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of the Certificateholders.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and instructions for
re-registration, the Trustee will issue such Certificates in the form of
Definitive Certificates, and thereafter the Trustee will recognize the holders
of such Definitive Certificates as 'Certificateholders' under the Pooling
Agreement and the relevant Supplement ('Holders').
If Definitive Certificates are issued, distribution of principal and
interest on the Definitive Certificates will be made by the Paying Agent or the
Trustee directly to the Holders in whose names the Definitive Certificates were
registered on the related Record Date in accordance with the procedures set
forth herein and in the Pooling Agreement and the relevant Supplement.
Distributions will be made by check mailed to the address of each Holder as it
appears on the register maintained by the Trustee, except that the final payment
on any Definitive Certificate will be made only upon presentation and surrender
of such Definitive Certificate on the date for such
43
final payment at such office or agency as is specified in the notice of final
distribution to Holders. The Trustee will provide such notice to Holders not
later than the fifth day of the month of the final distribution.
Definitive Certificates will be transferable and exchangeable at the
offices of the Transfer Agent and Registrar, which shall initially be the
Trustee. No service charge will be imposed for any registration of transfer or
exchange, but the Transfer Agent and Registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
THE BANKS' CERTIFICATE; ADDITIONAL SELLERS
The Pooling Agreement provides that the Banks may exchange a portion of the
certificate evidencing the Banks' interest in the Trust for one or more
additional certificates (each, a 'Supplemental Certificate') for transfer or
assignment to a person designated by the Banks upon the execution and delivery
of a supplement to the Pooling Agreement (which supplement shall be subject to
the amendment section of the Pooling Agreement to the extent that it amends any
of the terms of the Pooling Agreement; see '--Amendments'); provided that (a)
such transfer will not result in a Ratings Effect, (b) the Banks' and any
Additional Sellers remaining interest in Principal Receivables shall not be less
in the aggregate than 2% of the total amount of Principal Receivables, in each
case as of the date of, and after giving effect to, such exchange and (c) prior
to such exchange, the Banks shall have delivered to the Trustee a Tax Opinion
with respect to the transfer or assignment of such Supplemental Certificate. Any
transfer or assignment of a Supplemental Certificate is subject to the
conditions set forth in clauses (a) and (c) of the preceding sentence. The Banks
may also transfer a portion of the Certificate evidencing the Banks' interest in
the Trust to certain affiliates provided that the condition set forth in clause
(c) of the second preceding sentence has been satisfied.
The Banks may designate affiliates of the Banks which may be banks, finance
companies or similar organizations to be included as sellers ('Additional
Sellers') under the Pooling Agreement (by means of an amendment to the Pooling
Agreement which will not require the consent of any Certificateholder; see
'--Amendments') and, in connection with the designation of an Additional Seller,
the Banks shall surrender the Banks' Certificate to the Trustee in exchange for
a newly issued Banks' Certificate modified to reflect such Additional Seller's
interest in the Sellers' Interest; provided, however, that (a) the conditions
set forth in clauses (a) and (c) in the preceding paragraph with respect to a
transfer of a Supplemental Certificate shall have been satisfied with respect to
such designation and issuance and (b) any applicable conditions described in
'Description of the Certificates--Addition of Trust Assets' shall have been
satisfied with respect to the transfer of Receivables or Participations by any
Additional Seller to the Trust. Following the inclusion of an Additional Seller,
the Additional Seller will be treated in the same manner as a Bank and each
Additional Seller generally will have the same obligations and rights as a Bank
described herein.
TERMINATION OF TRUST
Unless the Banks instruct the Trustee otherwise, the Trust will only
terminate on the earlier to occur of (a) the day following the day on which the
aggregate Invested Amounts and Enhancement Invested Amounts of all Series is
zero (provided that the Banks shall have delivered a written notice to the
Trustee electing to terminate the Trust), (b) June 1, 2014, or (c) if the
Receivables are sold, disposed of or liquidated following the occurrence of an
Insolvency Event as described under 'Description of the Certificates--Pay Out
Events', immediately following such sale, disposition or liquidation (the 'Trust
Termination Date'). Upon termination of the Trust, all right, title and interest
in the Receivables and other funds of the Trust (other than amounts in accounts
maintained by the Trust for the final payment of principal and interest to
Certificateholders) will be conveyed and transferred to the Banks.
CONVEYANCE OF RECEIVABLES
Pursuant to the Pooling Agreement, the Banks have sold and assigned and
will sell and assign to the Trust their respective interests in all Receivables
in the Initial Accounts outstanding as of the Trust Cut-Off Date, and all
Receivables in the Additional Accounts as of the applicable additional cut-off
date, all Receivables thereafter created under the Accounts and the proceeds of
all of the foregoing.
In connection with the transfer of any Receivables to the Trust, the Banks
are required to indicate in their computer records that the Receivables have
been conveyed to the Trust. In addition, the Banks have provided or
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will provide to the Trustee a computer file or a microfiche list containing a
true and complete list showing for each Initial Account, as of the Trust Cut-Off
Date, and for each Additional Account, as of the applicable additional cut-off
date (i) its account number and (ii) the aggregate amount outstanding and the
aggregate amount of Principal Receivables in such Account. FDNB, as initial
Servicer, will retain and will not deliver to the Trustee any other records or
agreements relating to the Accounts or the Receivables. Except as set forth
above, the records and agreements relating to the Accounts and the Receivables
will not be segregated from those relating to other revolving credit accounts
and receivables, and the physical documentation relating to the Accounts or
Receivables will not be stamped or marked to reflect the transfer of Receivables
to the Trust. The Banks have filed and are required to file UCC financing
statements with respect to the sale of the Receivables to the Trust meeting the
requirements of applicable state law. See 'Special Considerations' and 'Certain
Legal Aspects of the Receivables.'
REPRESENTATIONS AND WARRANTIES
As of the issuance date for a Series offered hereby (the 'Series Issuance
Date') specified in the related Prospectus Supplement, each Bank will severally
make representations and warranties to the Trust relating to the Accounts owned
by it and the Receivables transferred by it to the Trust to the effect, among
other things, that (a) as of the Trust Cut-Off Date (or as of the date of
addition) each Account or each Additional Account was an Eligible Account, (b)
as of the Trust Cut-Off Date (or as of the date of addition), each of the
Receivables in any Account or Additional Account which is conveyed to the Trust
on such day is an Eligible Receivable and (c) thereafter, as of the date of
creation of any new Receivable, such Receivable is an Eligible Receivable. If a
Bank breaches any representation and warranty described in this paragraph, such
breach remains uncured for 60 days, or such longer period as may be agreed to by
the Trustee, after the earlier to occur of the discovery of such breach by such
Bank or receipt of written notice of such breach by such Bank, and as a result
of such breach any Receivables in the related Account become Defaulted
Receivables or the Trust's rights in, to or under such Receivables or the
proceeds of such Receivables are impaired or such proceeds are not available for
any reason to the Trust free and clear of any lien, then the Certificateholders'
Interest in all Receivables with respect to the affected Account ('Ineligible
Receivables') will be reassigned to such Bank on the terms and conditions set
forth below and such Account shall no longer be included as an Account;
provided, however, that such Receivables will not be deemed to be Ineligible
Receivables and will not be reassigned to such Bank if, on any day prior to the
end of such 60-day or longer period, (i) the relevant representation and
warranty shall be true and correct in all material respects as if made on such
day and (ii) such Bank shall have delivered to the Trustee a certificate of an
authorized officer describing the nature of such breach and the manner in which
the relevant representation and warranty became true and correct.
An Ineligible Receivable shall be reassigned to the relevant Bank on or
before the end of the Monthly Period in which such reassignment obligation
arises by such Bank directing the Servicer to deduct the portion of such
Ineligible Receivable which is a Principal Receivable from the aggregate amount
of the Principal Receivables used to calculate the Sellers' Interest. In the
event that the exclusion of an Ineligible Receivable from the calculation of the
Sellers' Interest would cause the Sellers' Interest to be a negative number, on
the Distribution Date following the Monthly Period in which such reassignment
obligation arises, the related Bank will make a deposit into the Collection
Account in immediately available funds in an amount equal to the amount by which
the Sellers' Interest would be reduced below zero. Any deposit into the
Collection Account in connection with the reassignment of an Ineligible
Receivable (the amount of any such deposit being referred to herein as a
'Transfer Deposit Amount') shall be considered a payment in full of the
Ineligible Receivable. The reassignment of any Ineligible Receivable to a Bank
is the sole remedy respecting any breach of the representations and warranties
described in the preceding paragraph with respect to such Receivable available
to Certificateholders of any Series (or the Trustee on behalf of such
Certificateholders) or any provider of Series Enhancement. Any such Transfer
Deposit Amount will be treated as a portion of Shared Principal Collections as
described under 'Description of the Certificates--Shared Principal Collections.'
Each Bank will also make representations and warranties to the Trust to the
effect, among other things, that as of each Series Issuance Date (a) it is a
national banking association validly existing under the laws of the United
States, it has the authority to consummate the transactions contemplated by the
Pooling Agreement and the related Supplement and each of the Pooling Agreement
and the related Supplement constitutes a valid, binding and enforceable
agreement of such Bank and (b) the Pooling Agreement constitutes a valid sale,
transfer
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and assignment to the Trust of all right, title and interest of such Bank in the
Receivables, whether then existing or thereafter created and the proceeds
thereof (including proceeds in any of the accounts established for the benefit
of the Certificateholders) or the grant of a first priority perfected security
interest under the UCC as in effect in California and New Hampshire in such
Receivables and the proceeds thereof (including proceeds in any of the accounts
established for the benefit of the Certificateholders), which is effective as to
each Receivable then existing on the Series Issuance Date or, as to each
Receivable arising thereafter, upon the creation thereof and until termination
of the Trust. In the event that the breach of any of the representations and
warranties described in this paragraph has a material adverse effect on the
Certificateholders' Interest of all Series in the Receivables transferred to the
Trust by such Bank, either the Trustee or the holders of Certificates evidencing
not less than 50% of the aggregate unpaid principal amount of the Certificates
of all Series, by written notice to such Bank and the Servicer (and to the
Trustee if given by the holders of the requisite percentage of Certificates of
all Series), may direct such Bank to accept the reassignment of the Receivables
transferred by it to the Trust within 60 days of such notice, or within such
longer period specified in such notice; provided, however, that such Receivables
will not be reassigned to such Bank if, on any day prior to the end of such
60-day or longer period, (i) the relevant representation and warranty shall be
true and correct in all material respects as if made on such day and (ii) such
Bank shall have delivered to the Trustee a certificate of an authorized officer
describing the nature of such breach and the manner in which the relevant
representation and warranty became true and correct. Such Bank will be obligated
to accept the reassignment of such Receivables on the Distribution Date
following the Monthly Period in which such reassignment obligation arises. The
price for such reassignment will generally be equal to the product of (x) the
aggregate Invested Amounts and Enhancement Invested Amounts of all Series on the
Distribution Date on which the purchase is scheduled to be made plus accrued and
unpaid interest on the unpaid principal amount of all Series and any interest
amounts that were due but not paid on a prior date and interest on such overdue
interest amounts (if the applicable Supplement so provides) at the applicable
certificate rates through the day preceding such Distribution Date and (y) a
fraction, the numerator of which is equal to the aggregate amount of Principal
Receivables in the Trust on such Distribution Date which were transferred to the
Trust by such Bank and the denominator of which is equal to the aggregate amount
of Principal Receivables in the Trust on such day. The payment of such
reassignment price, in immediately available funds, will be considered a payment
in full of such Receivables and the principal portion of such funds and the
interest portion of such funds will be deposited into the Special Funding
Account and the Collection Account, respectively. If the Trustee or the
requisite percentage of holders of Certificates of all Series gives a notice as
provided above, the obligation of such Bank to make any such deposit will
constitute the sole remedy respecting a breach of the representations and
warranties available to Certificateholders of all Series (or the Trustee on
behalf of such Certificateholders) or any provider of Series Enhancement.
An 'Eligible Account' is defined to mean a revolving credit card account or
other revolving credit account owned by one of the Banks which as of the Trust
Cut-Off Date with respect to an Initial Account or as of the addition date with
respect to an Additional Account: (a) is payable in United States dollars; (b)
except as provided below, has not been identified as an account the credit cards
or checks, if any, with respect to which have been reported to such Bank as
having been lost or stolen; (c) has an accountholder who has provided, as his or
her billing address at the date such account was opened, an address located in
the United States or its territories or possessions or a military address; (d)
has an accountholder who has not been identified by such Bank as an employee of
such Bank or any affiliate; (e) has not been, and does not have any receivables
which have been, sold, pledged, assigned or otherwise conveyed to any person
(except pursuant to the Pooling Agreement); (f) except as provided below, does
not have any receivables which are Defaulted Receivables; and (g) except as
provided below, does not have any receivables which have been identified as
having been incurred as a result of fraudulent use of any related credit card or
check. Eligible Accounts may include accounts, the receivables of which have
been written off, or with respect to which the related Bank believes the related
accountholder is bankrupt, or as to which certain receivables have been
identified by the accountholder as having been incurred as a result of
fraudulent use of any credit cards or checks, or as to which any credit cards or
checks have been reported to such Bank as lost or stolen; provided, that (a) the
balance of all receivables in such accounts is reflected on the books and
records of such Bank (and is treated for purposes of the Pooling Agreement) as
'zero,' and (b) charging or check writing privileges with respect to all such
accounts have been canceled in accordance with the Lending Guidelines of such
Bank and will not be reinstated by such Bank or the Servicer.
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An 'Eligible Receivable' is defined to mean each Receivable (a) which has
arisen under an Eligible Account; (b) which was created in compliance with the
Lending Guidelines and all requirements of law applicable to the relevant Bank,
the failure to comply with which would have a material adverse effect on
Certificateholders, and pursuant to a lending agreement which complies with all
requirements of law applicable to such Bank, the failure to comply with which
would have a material adverse effect on Certificateholders; (c) with respect to
which all consents, licenses, approvals or authorizations of, or registrations
with, any governmental authority required to be obtained or given by such Bank
in connection with the creation of such Receivable or the execution, delivery
and performance by such Bank of the related lending agreement have been duly
obtained or given and are in full force and effect as of the date of the
creation of such Receivable; (d) as to which, at the time of its transfer to the
Trust, the Banks or the Trust will have good and marketable title free and clear
of all liens and security interests (other than any lien for municipal or other
local taxes if such taxes are not then due and payable or if the relevant Bank
is then contesting the validity thereof in good faith by appropriate proceedings
and has set aside on its books adequate reserves with respect thereto); (e)
which has been the subject of either a valid transfer and assignment from the
Banks to the Trust of all the Banks' right, title and interest therein or the
grant of a first priority perfected security interest therein (and in the
proceeds thereof), effective until the termination of the Trust; (f) which at
and after the time of transfer to the Trust is the legal, valid and binding
payment obligation of the accountholder thereof, legally enforceable against
such accountholder in accordance with its terms (with certain bankruptcy and
equity-related exceptions); (g) which constitutes either an 'account' or a
'general intangible' under Article 9 of the UCC as then in effect in the states
of California and New Hampshire; (h) which, at the time of its transfer to the
Trust, has not been waived or modified except as permitted by the Pooling
Agreement; (i) which, at the time of its transfer to the Trust, is not subject
to any right of rescission, setoff, counterclaim or other defense of the
accountholder (including the defense of usury), other than certain bankruptcy
and equity-related defenses and adjustments permitted by the Pooling Agreement
to be made by the Servicer; (j) as to which such Bank has satisfied all
obligations to be fulfilled at the time it is transferred to the Trust; and (k)
as to which such Bank has not taken any action which, or failed to take any
action the omission of which, would, at the time of its transfer to the Trust,
to impair the rights of the Trust or Certificateholders therein.
It is not required or anticipated that the Trustee will make any initial or
periodic general examination of any documents or records related to the
Receivables or the Accounts for the purpose of establishing the presence or
absence of defects, compliance with the Banks' representations and warranties or
for any other purpose. In addition, it is not anticipated or required that the
Trustee will make any initial or periodic general examination of the Servicer
for the purpose of establishing the compliance by the Servicer with its
representations or warranties or the performance by the Servicer of its
obligations under the Pooling Agreement or for any other purpose. The Servicer,
however, will deliver to the Trustee on or before March 31 of each calendar year
an opinion of counsel with respect to the validity of the interest of the Trust
in and to the Receivables and certain other components of the Trust.
INDEMNIFICATION
The Pooling Agreement provides that the Servicer will indemnify the Trust
and the Trustee from and against any loss, liability, expense, damage or injury
suffered or sustained arising out of the Servicer's actions or omissions with
respect to the Trust pursuant to the Pooling Agreement.
Under the Pooling Agreement, the Banks have agreed to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Certificateholder in the capacity of
an investor in the Certificates of any Series) arising out of or based on the
arrangement created by the Pooling Agreement (to the extent that the Trust
assets remaining after the Investor Certificateholders and certain providers of
Series Enhancement have been paid in full are insufficient to pay such losses,
claims, damages, or liabilities) as though such agreement created a partnership
under the New York Uniform Partnership Act in which the Banks were general
partners. In the event of a Service Transfer, the successor Servicer will
indemnify and hold harmless the Banks for any losses, claims, damages and
liabilities of the Banks as described in this paragraph arising from the actions
or omissions of such successor Servicer.
Except as provided in the preceding paragraph, the Pooling Agreement
provides that none of the Banks, the Servicer or any of their directors,
officers, employees or agents will be under any other liability to the Trust,
the
47
Trustee, the holders of Certificates of any Series, any provider of Series
Enhancement or any other person for any action taken, or for refraining from
taking any action, in good faith pursuant to the Pooling Agreement. However,
none of the Banks, the Servicer or any of their directors, officers, employees
or agents will be protected against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence of any
such person in the performance of their duties or by reason of reckless
disregard of their obligations and duties thereunder.
In addition, the Pooling Agreement provides that the Servicer is not under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its servicing responsibilities under the Pooling Agreement. The
Servicer may, in its sole discretion, undertake any such legal action which it
may deem necessary or desirable for the benefit of holders of Certificates of
any Series with respect to the Pooling Agreement and the rights and duties of
the parties thereto and the interest of such Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling Agreement, the Servicer is responsible for
servicing, collecting, enforcing and administering the Receivables in accordance
with its customary and usual procedures for servicing receivables comparable to
the Receivables and the Lending Guidelines.
Servicing activities to be performed by the Servicer include collecting and
recording payments, communicating with accountholders, investigating payment
delinquencies, evaluating the increase of credit limits and the issuance of
credit cards, providing billing and tax records, if any, to accountholders and
maintaining internal records with respect to each Account. Managerial and
custodial services performed by the Servicer on behalf of the Trust include
providing assistance in any inspections of the documents and records relating to
the Accounts and Receivables by the Trustee pursuant to the Pooling Agreement,
maintaining the agreements, documents and files relating to the Accounts and
Receivables as custodian for the Trust and providing related data processing and
reporting services for Certificateholders of any Series and on behalf of the
Trustee.
Pursuant to the Pooling Agreement, FDNB, as Servicer, has the right to
delegate any of its responsibilities and obligations as Servicer to any of its
affiliates and to certain third-party service providers that agrees to conduct
such duties in accordance with the Pooling Agreement and the Lending Guidelines.
FDNB currently contracts with Total System and intends to continue to contract
with Total System (and possibly one or more other third-party service providers)
to perform certain of its servicing activities as described under 'The Banks'
Credit Card and Consumer Lending Business--Business Overview'. Notwithstanding
any such delegation to any entity, the Servicer will continue to be liable for
all of its obligations under the Pooling Agreement.
SERVICER COVENANTS
In the Pooling Agreement, the Servicer has covenanted as to each Receivable
and related Account that: (a) it will duly fulfill all obligations on its part
to be fulfilled under or in connection with the Receivable or Account, and will
maintain in effect all qualifications required in order to service the
Receivable or Account the failure to comply with which would have a material
adverse effect on the Certificateholders or any provider of Series Enhancement;
(b) it will not permit any rescission or cancellation of the Receivable except
as ordered by a court of competent jurisdiction or other governmental authority
or in the ordinary course of business and in accordance with the Lending
Guidelines; (c) it will do nothing to substantially impair the rights of the
Certificateholders in the Receivables or Accounts; (d) it will not reschedule,
revise or defer payments due on the Receivable except in accordance with the
Lending Guidelines; and (e) except in connection with its enforcement or
collection of an Account, it will take no action to cause any Receivables to be
evidenced by any instruments (as defined in the UCC) and if any Receivable is so
evidenced, it shall be reassigned or assigned to the Servicer as provided below.
Under the terms of the Pooling Agreement, in the event any of the
representations, warranties or covenants of the Servicer contained in clauses
(a) through (e) above with respect to any Receivable or the related Account is
breached, such breach is not cured within 60 days (or such longer period, not in
excess of 150 days, as may be agreed to by the Trustee) of the earlier to occur
of the discovery of such event by the Servicer or receipt by the Servicer of
written notice of such event given by the Trustee, and as a result of such
breach the Trust's rights in, to or under any Receivables in the related Account
or the proceeds of such Receivables are impaired or such proceeds are not
available for any reason to the Trust free and clear of any lien, then all
Receivables in the Account or Accounts to which such event relates shall be
reassigned or assigned to the Servicer on the terms and
48
conditions set forth below; provided, however, that such Receivables will not be
reassigned or assigned to the Servicer if, on any day prior to the end of such
60-day or longer period, (i) the relevant representation and warranty shall be
true and correct, or the relevant covenant shall have been complied with, in all
material respects and (ii) the Servicer shall have delivered to the Trustee a
certificate of an authorized officer describing the nature of such breach and
the manner in which such breach was cured. If FDNB is the Servicer, such
reassignment will be made on or before the Distribution Date following the
Monthly Period in which such reassignment obligation arises by the Servicer
deducting the portion of any such Receivable which is a Principal Receivable
from the aggregate amount of Principal Receivables used to calculate the
Sellers' Interest. In addition, if the deduction of such Principal Receivable
would reduce the Sellers' Interest below zero, FDNB as the Servicer will deposit
into the Collection Account the applicable Transfer Deposit Amount described
above under '--Representations and Warranties.' If FDNB is not the Servicer,
such assignment and transfer will be made when the Servicer deposits an amount
equal to the amount of such Receivable in the Collection Account on the business
day preceding the Distribution Date following the Monthly Period during which
such obligation arises. The amount of such deposit shall be deemed a Transfer
Deposit Amount hereunder and shall be treated as a portion of Shared Principal
Collections as described under 'Description of the Certificates--Shared
Principal Collections'. This reassignment or transfer and assignment to the
Servicer constitutes the sole remedy available to the Certificateholders of any
Series if such covenant or warranty of the Servicer is not satisfied and the
Trust's interest in any such reassigned Receivables shall be automatically
assigned to the Servicer.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Pooling Agreement, except upon determination that such duties are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor to the Servicer has assumed the Servicer's
responsibilities and obligations under the Pooling Agreement. Notwithstanding
the foregoing, FDNB may transfer its servicing obligations to any other direct
or indirect wholly-owned subsidiary of Providian Corporation (which meets
certain eligibility standards set forth in the Pooling Agreement) and be
relieved of its obligations and duties under the Pooling Agreement.
Any person into which, in accordance with the Pooling Agreement, FDNB or
the Servicer may be merged or consolidated or any person resulting from any
merger or consolidation to which FDNB or the Servicer is a party, or any person
succeeding to the business of FDNB or the Servicer, will be the successor to
FDNB, as servicer, or the Servicer, as the case may be, under the Pooling
Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, either the Trustee or
Certificateholders holding Certificates evidencing more than 50% of the
aggregate unpaid principal amount of all outstanding Series, by written notice
to the Servicer (and to the Trustee and certain providers of Series Enhancement,
if given by the Certificateholders) (a 'Termination Notice'), may terminate all
of the rights and obligations of the Servicer, as servicer, under the Pooling
Agreement. If the Trustee within 60 days of receipt of a Termination Notice is
unable to obtain any bids from eligible Servicers and the Banks deliver an
officer's certificate to the effect that the Servicer cannot in good faith cure
the Servicer Default which gave rise to the Termination Notice, then the Trustee
shall offer the Banks the right at their option to purchase the
Certificateholders' Interest for all Series. The purchase price for such a
purchase shall be paid on a Distribution Date and shall generally be equal to,
with respect to each Series, the higher of (a) the sum of the Invested Amount
and the Enhancement Invested Amount, if any, of such Series on such Distribution
Date (less the amount, if any, on deposit in any Principal Funding Account with
respect to such Series) plus accrued and unpaid interest at the applicable
certificate rate (together with, if applicable, interest on interest amounts
that were due and not paid on a prior date), through the last day of the
calendar month preceding such Distribution Date and (b) the sum of (i) the
average bid price quoted by at least two recognized dealers for similar
securities rated in the same rating category as the initial rating of the
Certificates of such Series with a remaining maturity approximately equal to the
remaining maturity of the Certificates of such Series and (ii) the Enhancement
Invested Amount, if any, of such Series.
The Trustee shall, as promptly as possible after giving a Termination
Notice, appoint a successor Servicer (a 'Service Transfer'), and if no successor
Servicer has been appointed by the Trustee and has accepted such appointment by
the time the Servicer ceases to act as Servicer, all rights, authority, power
and obligations of the
49
Servicer under the Pooling Agreement shall pass to and be vested in the Trustee.
Prior to any Service Transfer, the Trustee will seek to obtain bids from
potential Servicers meeting certain eligibility requirements set forth in the
Pooling Agreement to serve as a successor Servicer for servicing compensation
not in excess of the Servicing Fee. The rights and interest of the Banks under
the Pooling Agreement and any Supplement in the Sellers' Interest will not be
affected by any Termination Notice or Service Transfer.
A 'Servicer Default' refers to any of the following events: (a) failure by
the Servicer to make any payment, transfer or deposit, or to give instructions
or to give notice to the Trustee to make such payment, transfer or deposit, on
the date the Servicer is required to do so under the Pooling Agreement or any
Supplement, which is not cured within a five business day grace period; (b)
failure on the part of the Servicer duly to observe or perform in any material
respect any other covenants or agreements of the Servicer in the Pooling
Agreement or any Supplement which has a material adverse effect on the
Certificateholders of any Series or Class (which determination shall be made
without regard to whether funds are then available pursuant to any Series
Enhancement) and which continues unremedied for a period of 60 days after
written notice, or the Servicer delegates its duties under the Pooling
Agreement, except as specifically permitted thereunder, and such delegation
continues unremedied for 15 days after written notice; (c) any representation,
warranty or certification made by the Servicer in the Pooling Agreement or any
Supplement or in any certificate delivered pursuant to the Pooling Agreement or
any Supplement proves to have been incorrect when made, which has a material
adverse effect on the rights of the Certificateholders of any Series or Class
(which determination shall be made without regard to whether funds are then
available pursuant to any Series Enhancement), and which material adverse effect
continues for a period of 60 days after written notice; or (d) the occurrence of
certain events of bankruptcy, insolvency or receivership with respect to the
Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of five business days or
referred to under clause (b) or (c) for a period of 60 days (in addition to any
period provided in (a), (b) or (c)) shall not constitute a Servicer Default
until the expiration of such additional five business days or 60 days,
respectively, if such delay or failure could not be prevented by the exercise of
reasonable diligence by the Servicer and such delay or failure was caused by an
act of God or other similar occurrence. Upon the occurrence of any such event
the Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Pooling
Agreement and any Supplement and the Servicer shall provide the Trustee, the
Banks, certain providers of Series Enhancement and the Certificateholders of
each Series prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Trustee in writing of any Servicer Default.
EVIDENCE AS TO COMPLIANCE
The Pooling Agreement provides that on or before March 31 of each calendar
year the Servicer will cause a firm of nationally recognized independent public
accountants (who may also render other services to the Servicer or the Banks) to
furnish a report addressed to the Trustee to the effect that such firm has
applied certain procedures agreed upon with the Servicer and examined certain
documents and records relating to the servicing of the Accounts and that, on the
basis of such procedures, such firm is of the opinion that such servicing was
conducted in compliance with the Pooling Agreement and the applicable provisions
of each Supplement except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in such
statement.
The Pooling Agreement provides for delivery to the Trustee, the Rating
Agency and certain providers of Series Enhancement on or before March 31 of each
calendar year of a statement signed by an officer of the Servicer to the effect
that, to the best of such officer's knowledge, the Servicer has performed its
obligations in all material respects under the Pooling Agreement throughout the
preceding year or, if there has been a default in the performance of any such
obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the Trustee
may be obtained by a request in writing delivered to the Trustee.
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AMENDMENTS
The Pooling Agreement and any Supplement may be amended from time to time
(including in connection with (x) the issuance of a Supplemental Certificate,
(y) the addition of a Participation to the Trust or (z) the designation of an
Additional Seller) by agreement of the Trustee and the Banks without the consent
of the Certificateholders of any Series or the consent of the provider of any
Series Enhancement provided that (i) each Bank shall have delivered to the
Trustee a certificate of an authorized officer to the effect that such Bank
reasonably believes, based on the facts known to such officer at the time of
such certificate, that such amendment will not adversely affect in any material
respect the interests of any such Certificateholder and (ii) such amendment will
not result in a Ratings Effect.
The Pooling Agreement and any Supplement may also be amended from time to
time by the Banks, the Servicer and the Trustee with the consent of the holders
of Certificates evidencing not less than 66 2/3% of the aggregate unpaid
principal amount of the Certificates of all adversely affected Series for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Pooling Agreement or any Supplement or of modifying in
any manner the rights of such Certificateholders. No such amendment, however,
may (a) reduce in any manner the amount of or delay the timing of any
distributions to be made to Certificateholders or deposits of amounts to be so
distributed or the amount available under any Series Enhancement without the
consent of each Certificateholder affected (provided that an amendment of the
terms of a Pay Out Event shall not be deemed to be within the scope of this
clause (a)); (b) change the definition or the manner of calculating the interest
of any Certificateholder without the consent of each affected Certificateholder;
(c) reduce the aforesaid percentage required to consent to any such amendment,
without the consent of each Certificateholder; or (d) adversely affect the
rating of any Series or Class by the Rating Agency without the consent of the
holders of Certificates of such Series or Class evidencing not less than 66 2/3%
of the aggregate unpaid principal amount of the Certificates of such Series or
Class. Promptly following the execution of any such amendment (other than an
amendment described in the preceding paragraph), the Trustee will furnish
written notice of the substance of such amendment to each Certificateholder.
TRUSTEE
Bankers Trust Company is the Trustee under the Pooling Agreement. The
Corporate Trust Department of Bankers Trust Company is located at Four Albany
Street, New York, New York 10006. The Banks, the Servicer and their respective
affiliates may from time to time enter into normal banking and trust
relationships with the Trustee and its affiliates. The Trustee, the Banks, the
Servicer and any of their respective affiliates may hold Certificates of any
Series in their own names; however, any Certificates so held shall not be
entitled to participate in any decisions made or instructions given to the
Trustee by such Certificateholders as a group. In addition, for purposes of
meeting the legal requirements of certain local jurisdictions, the Trustee shall
have the power to appoint a co-trustee or separate trustees of all or any part
of the Trust. In the event of such appointment, all rights, powers, duties and
obligations shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee, who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Banks will be
obligated to appoint a successor Trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Pooling Agreement or if the Trustee becomes insolvent. In such circumstances,
the Servicer will be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Each Bank has sold and will sell Receivables to the Trust. Pursuant to the
Pooling Agreement, each Bank represents and warrants that the transfer of
Receivables by it to the Trust constitutes either a valid transfer and
assignment to the Trust of all right, title and interest of such Bank in and to
such Receivables, except for the interest of such Bank as a holder of the Banks'
Certificate, or a grant of a security interest to the Trust in and to the
Receivables. Each Bank also represents and warrants to the Trust in the Pooling
Agreement that, in the event the transfer of Receivables by such Bank to the
Trust is deemed to create a security interest under the UCC, there will exist a
valid, subsisting and enforceable first priority perfected security interest in
such Receivables, in existence at the time of the formation of the Trust or at
the date of addition of any Additional Accounts, in favor of the Trust and a
valid, subsisting and enforceable first priority perfected security interest in
such Receivables created thereafter in favor of the Trust on and after their
creation, in each case until termination of the Trust. For a discussion of the
Trust's rights arising from these representations and warranties not being
satisfied, see 'The Pooling Agreement Generally--Representations and
Warranties'.
Pursuant to the Pooling Agreement, each Bank represents that the
Receivables transferred by it to the Trust are 'accounts' or 'general
intangibles' for purpose of the UCC. Both the sale of accounts and the transfer
of accounts as security for an obligation are treated under the UCC as creating
a security interest therein and are subject to its provisions, and the filing of
an appropriate financing statement or statements is required to perfect the
interest of the Trust in the Receivables. If a transfer of general intangibles
is deemed to create a security interest, the UCC applies and filing an
appropriate financing statement or statements is also required in order to
perfect the Trust's security interest. Financing statements covering the
Receivables have been and will be filed under the UCC to protect the Trust in
the event the transfer by the Banks is deemed to be subject to the UCC. If a
transfer of general intangibles is deemed to be a sale, then the UCC is not
applicable and no further action under the UCC is required to protect the
Trust's interest from third parties. Although the priority of a transfer of
general intangibles arising after the formation of the Trust is not as clear
under the laws of the States of California and New Hampshire as the priority of
interests governed by the UCC, counsel to the Banks is of the opinion, in New
Hampshire, that it would be inconsistent for a court to afford the Trust less
favorable treatment if the transfer of the Receivables is deemed to be a sale
than if it were deemed to be a security interest, and, in California, that a
court should conclude that a sale of Receivables consisting of general
intangibles would be deemed to have occurred as of the date of execution of the
Pooling Agreement.
There are certain limited circumstances under the UCC in which prior or
subsequent transferees of Receivables coming into existence after the date of
the Pooling Agreement could have an interest in such Receivables with priority
over the Trust's interest. A tax or other government lien on property of the
Bank arising prior to the time a Receivable comes into existence may also have
priority over the interest of the Trust in such Receivables. Furthermore, if the
FDIC were appointed as a receiver of either of the Banks, the receiver's
administrative expenses may also have priority over the interest of the Trust in
such Receivables. Under the Pooling Agreement, however, the Banks warrant that
they have transferred the Receivables to the Trust free and clear of the lien of
any third party (subject to certain potential tax liens referred to under 'The
Pooling Agreement Generally--Representations and Warranties'). In addition, the
Banks covenant that they will not sell, pledge, assign, transfer or grant any
lien on any Receivable (or any interest therein) other than to the Trust.
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 receiver or conservator of either of the Banks.
Subject to clarification by FDIC regulations or interpretations, it would
appear from the positions taken by the FDIC that the FDIC, in its capacity as
receiver or conservator for either of the Banks, would not interfere with the
timely transfer to the Trust of payments collected on the Receivables or
interfere with the timely liquidation of Receivables as described below. To the
extent that the Banks have granted a security interest in the Receivables to the
Trust, and such security interest is validly perfected before an Insolvency
Event and is not
52
taken in contemplation of insolvency or with the intent to hinder, delay or
defraud the relevant Bank or its creditors, based upon opinions issued by the
general counsel of the FDIC and a related policy statement issued by the FDIC
addressing the enforceability against the FDIC, as conservator or receiver for a
depository institution, of a security interest in collateral granted by such
depository institution, such security interest should not be subject to
avoidance, and payments to the Trust with respect to the Receivables should not
be subject to recovery, by the FDIC. However, such opinions and policy statement
are not binding on the FDIC and, if the FDIC were to assert a contrary position,
certain provisions of the FDIA which, at the request of the FDIC, have been
applied in lawsuits to avoid security interests in collateral granted by
depository institutions, would permit the FDIC to avoid such security interest,
thereby resulting in possible delays and reductions in payments to the
Certificateholders of all outstanding Series. In addition, if the FDIC were to
require the Trustee to establish its right to such payments by submitting to and
completing the administrative claims procedure under the FDIA, as amended by
FIRREA, delays in payments on the Certificates of all Series and possible
reductions in the amount of those payments could occur.
The Pooling Agreement provides that, upon the occurrence of an Insolvency
Event, the Banks will promptly give notice thereof to the Trustee and a Pay Out
Event will occur with respect to each outstanding Series. Under the Pooling
Agreement, no new Principal Receivables will be transferred to the Trust and,
unless otherwise instructed within a specified period by each other holder of
the Banks' Certificate and the Certificateholders holding Certificates of each
Series or, if a Series includes more than one Class, each Class of such Series
evidencing more than 50% of the aggregate unpaid principal amount of each such
Series or Class (and, in the case of any Series with respect to which there is
an Enhancement Invested Amount, any Credit Enhancer with respect thereto), or
unless otherwise prohibited by law, the Trustee will proceed to sell, dispose of
or otherwise liquidate the Receivables in a commercially reasonable manner and
on commercially reasonable terms. The proceeds from the sale of the Receivables
would then be treated by the Trustee as collections on the Receivables. This
procedure, however, could be delayed as described above. Upon the occurrence of
an Insolvency Event, if no Pay Out Event other than such Insolvency Event
exists, the FDIC may have the power to continue to require the Banks to transfer
new Principal Receivables to the Trust and to prevent the early sale,
liquidation or disposition of the Receivables and the commencement of the Early
Amortization Period. See 'Description of the Certificates--Pay Out Events'.
In the event of a Servicer Default, if a conservator, receiver or
liquidator is appointed for the Servicer, and no Servicer Default other than
such conservatorship, receivership, liquidation or insolvency of the Servicer
exists, the conservator, receiver or liquidator may have the power to prevent
either the Trustee or the requisite percentage of holders of Certificates of all
Series from appointing a successor Servicer. See 'The Pooling Agreement
Generally--Servicer Default'.
CONSUMER PROTECTION LAWS
The relationship between an accountholder and consumer lender is
extensively regulated by federal, state and local consumer protection laws. With
respect to consumer revolving credit accounts owned by the Banks, the most
significant federal laws include the Federal Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Reporting and Fair Debt Collection Practices Acts.
These statutes impose disclosure requirements before and when an Account is
opened and at the end of monthly billing cycles and, in addition, limit
accountholder liability for unauthorized use, prohibit certain discriminatory
practices in extending credit, impose certain limitations on the type of
account-related charges that may be issued and regulate collection practices by
third parties. In addition, accountholders are entitled under these laws to have
payments and credits applied to their accounts promptly and to require billing
errors to be resolved promptly. The Trust may be liable for certain violations
of consumer protection laws that apply to the Receivables, either as assignee
from the Banks with respect to obligations arising before transfer of the
Receivables to the Trust or as the party directly responsible for obligations
arising after the transfer. In addition, an accountholder may be entitled to
assert such violations by way of setoff against the obligation to pay the amount
of Receivables owing. See 'Risk Factors--Certain Legal Aspects' and '--The
Ability of the Banks to Change Terms of the Accounts'. All Receivables that were
not created in compliance in all material respects with the requirements of such
laws, subject to certain conditions described under 'The Pooling Agreement
Generally--Representations and Warranties', will be reassigned to the Banks. The
Servicer has also agreed in the Pooling Agreement to indemnify the Trust, among
other things,
53
for any liability arising from such violations. For a discussion of the Trust's
rights if the Receivables were not created in compliance in all material
respects with applicable laws, see 'The Pooling Agreement Generally--
Representations and Warranties'.
The Soldiers' and Sailors' Civil Relief Act of 1940 allows individuals on
active duty in the military to cap the interest rate on debts incurred before
the call to active duty at 6%. In addition, subject to judicial discretion, any
action or court proceeding in which an individual in military service is
involved may be stayed if the individual's rights would be prejudiced by denial
of such a stay.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the Certificateholders of all Series if such laws result
in any Receivables being charged off as uncollectible. See 'Description of the
Certificates--Defaulted Receivables; Rebates and Fraudulent Charges'.
TAX MATTERS
FEDERAL INCOME TAX CONSEQUENCES--GENERAL
Set forth below is a discussion of the federal income tax consequences to
holders of Certificates of each Series or Class that are intended to be
characterized as debt; additional or different tax considerations will be
disclosed in the applicable Prospectus Supplement for other Series or Classes.
This discussion does not purport to deal with all aspects of federal income
taxation that may be relevant to holders of the Certificates in light of their
personal investment circumstances, nor to certain types of holders subject to
special treatment under the federal income tax laws (for example, banks, life
insurance companies and tax-exempt organizations). Prospective investors are
advised to consult their own tax advisors with regard to the federal income tax
consequences of holding and disposing of Certificates, as well as the tax
consequences arising under the laws of any state, foreign country or other
jurisdiction. This discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the 'Code'), the regulations promulgated
thereunder, and judicial or ruling authority, all of which are subject to
change, which change may be retroactive. No ruling on any of the issues
discussed below will be sought from the Internal Revenue Service (the 'IRS').
The discussion assumes that a Certificate is issued in registered form, has
all payments denominated in U.S. dollars and has a term that exceeds one year.
Moreover, the discussion assumes that the interest formula for the Certificates
meets the requirements for 'qualified stated interest' under Treasury
regulations (the 'OID regulations') relating to original issue discount ('OID'),
and that any OID on the Certificates arising from any excess of the principal
amount of a Certificate over its issue price is de minimis (i.e., less than
1/4% of its principal amount multiplied by the number of full years until its
maturity date), all within the meaning of the OID regulations. If those
conditions are not satisfied, additional tax considerations will be disclosed in
the applicable Prospectus Supplement.
TREATMENT OF THE CERTIFICATES AS INDEBTEDNESS
The Banks and Certificateholders will express in the Pooling Agreement the
intent that for federal, state and local income and franchise tax purposes, the
Certificates will be indebtedness of the Banks secured by the Receivables. The
Banks, by entering into the Pooling Agreement, and each investor, by the
acceptance of a Certificate, will agree to treat the Certificates as
indebtedness of the Banks for federal, state and local income and franchise tax
purposes. However, the Pooling Agreement generally refers to the transfer of
Receivables as a 'sale', and because different criteria are used in determining
the nontax accounting treatment of the transaction, the Banks will treat the
Pooling Agreement, for certain nontax accounting purposes, as a transfer of an
ownership interest in the Receivables and not as creating a debt obligation of
the Banks.
A basic premise of federal income tax law is that the economic substance of
a transaction generally determines the tax consequences. The form of a
transaction, while a relevant factor, is not conclusive evidence of its economic
substance. In appropriate circumstances, the courts have allowed taxpayers, as
well as the IRS, to treat a transaction in accordance with its economic
substance, as determined under federal income tax law, even though the
participants in the transaction have characterized it differently for nontax
purposes.
54
The determination of whether the economic substance of a purchase of an
interest in property is instead a loan secured by the transferred property has
been made by the IRS and the courts on the basis of numerous factors designed to
determine whether the seller has relinquished (and the purchaser has obtained)
substantial incidents of ownership in the property. Among those factors, the
primary factors examined are whether the purchaser has the opportunity to gain
if the property increases in value, and has the risk of loss if the property
decreases in value. Based upon its analysis of such factors, Cravath, Swaine &
Moore, special federal tax counsel to the Banks ('Tax Counsel'), has concluded
that the holders of Certificates (through their ownership of the Certificates)
are not the owners of the Receivables for federal income tax purposes. Moreover,
in the opinion of Tax Counsel, the Certificates will properly be characterized
for federal income tax purposes as indebtedness.
TREATMENT OF THE TRUST
The Trust could be viewed for federal income tax purposes either as (1) a
collateral arrangement for debt issued directly by the Banks and other holders
of the Banks' Certificate or (2) a separate entity owning the Receivables,
issuing its own debt. However, in the opinion of Tax Counsel, in the former
event the Trust will be disregarded for federal income tax purposes and in the
latter event under current law the Trust would be a partnership, rather than an
association (or publicly traded partnership) taxable as a corporation.
Therefore, in the opinion of Tax Counsel, under current law the Trust will not
be subject to federal income tax.
If the Trust were considered to be a partnership, as described in the
preceding paragraph, and if any of its interests that are properly treated as
equity for Federal income tax purposes were considered to be publicly traded,
the Trust might be treated as a publicly traded partnership taxable as a
corporation, even though all of its publicly offered Certificates were properly
treated as debt for Federal income tax purposes. The Banks intend to take
measures to minimize the risk that the Trust would be considered to have
publicly traded equity and thus to be a publicly traded partnership. It is
believed such measures will be successful, but no assurance can be given in this
regard.
FEDERAL INCOME TAX CONSEQUENCES--UNITED STATES INVESTORS
INTEREST INCOME TO CERTIFICATEHOLDERS
Assuming the Certificates are debt obligations for federal income tax
purposes, based on the above assumptions they will not be considered issued with
OID (except as discussed below or in the applicable Prospectus Supplement).
Interest thereon will be taxable as ordinary interest income when received or
accrued by holders utilizing the cash or accrual methods of accounting,
respectively. Under the OID regulations, a holder of a Certificate issued with a
de minimis amount of OID must include such OID in income, on a pro rata basis,
as principal payments are made on the Certificate. A purchaser who buys a
Certificate for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
If any interest due on a Series or Class of Certificates is not paid in
full on its scheduled payment date, Certificates of that Series or Class will
thereafter be considered to be issued with OID. The Banks intend to take the
position that OID does not arise on a Series or Class of Certificates unless and
until an event described in the preceding sentence occurs. This position is
based on the Banks' belief that the likelihood of any such event is a 'remote
contingency' under applicable Treasury regulations. However, if at the time of
issuance of a Series or Class of Certificates such an event was not considered
to be a 'remote contingency', the Certificates of that Series or Class would be
considered to have OID from their date of issuance without regard to the
occurrence of any such event.
If the Certificates of a Series or Class were considered to have OID,
either initially or subsequently, all holders of Certificates of that Series or
Class would thereafter be required to accrue OID into income at a rate equal to
the full interest rate payable on the Certificates, whether or not all or part
of the interest on the Certificates was paid currently. Moreover, the holders
would be required to accrue any de minimis discount into income over the life of
the Certificates rather than when principal is paid. As a result, holders might
be required to report taxable income prior to the receipt of cash attributable
to such income.
55
The Paying Agent will be required to report annually to the IRS, and to
each Certificateholder of record, the amount of interest paid (or OID accrued)
on the Certificates (and the amount of interest withheld for federal income
taxes, if any) for each calendar year, except as to exempt holders (generally,
holders that are corporations, tax-exempt organizations, qualified pension and
profit-sharing trusts, individual retirement accounts, or nonresident aliens who
provide certification as to their status as nonresidents). As long as the only
'Certificateholder' of record is Cede, as nominee for DTC, Certificateholders
and the IRS will receive tax and other information only from Participants and
Indirect Participants rather than the Paying Agent. Accordingly, each nonexempt
Certificateholder will be required to provide, under penalties of perjury, a
certificate on IRS Form W-9 containing the holder's name, address, correct
federal taxpayer identification number and a statement that such holder is not
subject to backup withholding. If a nonexempt Certificateholder fails to provide
the required certification, the Paying Agent (or the Participants or Indirect
Participants) will be required to withhold (or cause to be withheld) 31% of the
interest (and principal) otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS INTERESTS IN A PARTNERSHIP OR
ASSOCIATION
Although, as described above, it is the opinion of Tax Counsel that the
Certificates will properly be characterized as debt for federal income tax
purposes, such opinion is not binding on the IRS and thus no assurance can be
given that such a characterization will prevail. If the IRS were to contend
successfully that some or all of the Certificates were not debt obligations for
federal income tax purposes, the arrangement among the Banks, any other holders
of the Banks' Certificate, the holders of such Certificates and holders of other
Certificates might be classified as a partnership for federal income tax
purposes, as an association taxable as a corporation or as a 'publicly traded
partnership' taxable as a corporation.
If some or all of the Certificates are treated as equity interests in a
partnership, the partnership would in all likelihood be treated as a 'publicly
traded partnership'. A publicly traded partnership is, in general, taxable as a
corporation. If the partnership were nevertheless not taxable as a corporation
(because of an exception for an entity whose income is interest income that is
not derived in the conduct of a financial business) it would not be subject to
federal income tax. Rather, each item of income, gain, loss, deduction and
credit generated through the ownership of the Receivables by the partnership
would be passed through to the partners in such a partnership (including holders
of Certificates that are treated as equity interests in the partnership)
according to their respective interests therein.
The income reportable by Certificateholders as partners in such a
partnership could differ from the income reportable by Certificateholders as
holders of debt. However, except as provided below, it is not expected that such
differences would be material. A cash basis Certificateholder treated as a
partner might be required to report income when it accrues to the partnership
rather than when it is received by the Certificateholder. Moreover, an
individual Certificateholder's share of expenses of the partnership would be
miscellaneous itemized deductions that might not be deductible in whole or in
part, meaning that the holder might be taxed on a greater amount of income than
the stated interest on the Certificates. Finally, if any Certificates are
treated as equity interests in a partnership in which other Certificates are
debt, all or part of a tax-exempt investor's share of income from the
Certificates that are treated as equity would be treated as unrelated
debt-financed income under the Code taxable to the investor.
If, alternatively, some or all of the Certificates were treated as equity
interests in an association taxable as a corporation or a 'publicly traded
partnership' taxable as a corporation, the resulting entity would be subject to
federal income taxes at corporate tax rates on its taxable income generated by
ownership of the Receivables. Moreover, distributions by the entity on such
Certificates and the Banks' Certificate would probably not be deductible in
computing the entity's taxable income and distributions to such
Certificateholders would probably be treated as dividend income to such holders.
Such an entity-level tax could result in reduced distributions to all
Certificateholders, and the holders of Certificates that are treated as equity
could also be liable for a share of such a tax.
Since the Banks will treat the Certificates as indebtedness for federal
income tax purposes, the Paying Agent (and Participants and Indirect
Participants) will not comply with the tax reporting requirements that would
apply under those alternative characterizations of the Certificates.
56
FEDERAL INCOME TAX CONSEQUENCES--NON-UNITED STATES INVESTORS
Tax Counsel has given its opinion that the Certificates will properly be
classified as debt for federal income tax purposes. If the Certificates are
treated as debt: (a)interest paid to a nonresident alien or foreign corporation
or partnership would be exempt from U.S. withholding taxes (including backup
withholding taxes), provided the holder complies with applicable identification
requirements (and does not actually or constructively own 10% or more of the
voting stock of Providian Corporation, is not a controlled foreign corporation
with respect to Providian Corporation, and does not bear certain relationships
to holders of the Banks' Certificate other than the Banks). Applicable
identification requirements will be satisfied if there is delivered to a
securities clearing organization (or bank or other financial institution that
holds Certificates on behalf of the customer in the ordinary course of its trade
or business) (i) IRS Form W-8 signed under penalties of perjury by the
beneficial owner of the Certificates stating that the holder is not a U.S.
person and providing such holder's name and address, (ii) IRS Form 1001 signed
by the beneficial owner of the Certificates or such owner's agent claiming an
exemption from withholding under an applicable tax treaty, or (iii) IRS Form
4224 signed by the beneficial owner of the Certificates or such owner's agent
claiming exemption from withholding of tax on income connected with the conduct
of a trade or business in the United States; 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 holder is a U.S. person or that any certification on the form is false; (b)a
holder of a Certificate who is a nonresident alien or foreign corporation will
not be subject to United States federal income tax on gain realized on the sale,
exchange or redemption of such Certificate, provided that (i) such gain is not
effectively connected to a trade or business carried on by the holder in the
United States, (ii) in the case of a holder that is an individual, such holder
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 clause (a) are
satisfied; and (c)a Certificate held by an individual who at the time of death
is a nonresident alien will not be subject to United States federal estate tax
as a result of such individual's death if, immediately before his death, (i) the
individual did not actually or constructively own 10% or more of the voting
stock of Providian Corporation, and does not bear certain relationships to
holders of the Banks' Certificate other than the Banks and (ii) the holding of
such Certificate was not effectively connected with the conduct by the decedent
of a trade or business in the United States.
If the IRS were to contend successfully that some or all of the
Certificates are equity interests in a partnership (not taxable as a
corporation), a holder of such a Certificate that is a nonresident alien or
foreign corporation might be required to file a U.S. individual or corporate
income tax return and pay tax on its share of partnership income at regular U.S.
rates, including in the case of a corporation the branch profits tax (and would
be subject to withholding tax on its share of partnership income). If some or
all of the Certificates are recharacterized as equity interests in an
association taxable as a corporation or a 'publicly traded partnership' taxable
as a corporation, to the extent distributions on such Certificates were treated
as dividends, a nonresident alien individual or foreign corporation would
generally be taxed on the gross amount of such dividends (and subject to
withholding) at the rate of 30% unless such rate were reduced by an applicable
treaty.
STATE AND LOCAL TAX CONSEQUENCES
California. This discussion is based upon present provisions of the
California Revenue & Tax Code and the regulations promulgated thereunder, and
applicable judicial or ruling authority, all of which are subject to change,
which change may be retroactive. No ruling on any of the issues discussed below
will be sought from the California Franchise Tax Board.
California imposes an income tax on corporations doing business in the
state and a franchise tax on corporations earning income from the state. The
California Revenue & Tax Code, which governs the taxation of individuals,
partnerships, trusts and corporations, largely incorporates the Federal Internal
Revenue Code. Accordingly, in the opinion of Farella Braun & Martel LLP, special
California tax counsel to the Banks ('California Tax Counsel'), if the
Certificates are treated as debt of the Banks for federal income tax purposes,
California would also treat the Certificates as debt of the Banks. Pursuant to
this treatment, the Trust would be treated as a mere security device and would
not be subject to California income or franchise tax. In addition,
Certificateholders not otherwise subject to California taxes would not become
subject to them solely by reason of
57
their ownership of the Certificates. Certificateholders already subject to
taxation in California, however, could be required to pay tax on income
generated from the Certificates.
If the Trust were treated for federal income tax purposes either (i) as a
partnership (not taxable as a corporation) between the Banks and any other
owners of the Banks' Certificate (of which the Certificateholders or other
holders of Certificates are treated as creditors) or (ii) as a partnership (not
taxable as a corporation) among the Banks, any other owners of the Banks'
Certificate and some or all of the Certificateholders or other holders of
Certificates (in which any other Certificateholders or other holders of
Certificates are treated as creditors), in the opinion of California Tax
Counsel, the same treatment should also apply for California tax purposes. Since
only certain publicly traded partnerships are liable for entity-level California
income or franchise tax, and all other partnerships are 100% pass-through,
neither kind of partnership should be liable for entity-level income or
franchise tax in California.
If the Pooling Agreement is characterized for federal income tax purposes
as a partnership between the Banks and any other owners of the Banks'
Certificate, and the Certificates are respected as debt of such a partnership,
neither the Trustee nor the Certificateholders should be subject to California
income or franchise tax merely by virtue of their acting as Trustee or their
investment in the Certificates.
If, however, the relationship created by the Pooling Agreement is
characterized for federal income tax purposes as a partnership that includes not
only the Banks and any other owners of the Banks' Certificate but also one or
more of the Certificateholders, California would view such a partnership as
doing business in California to the extent the activities of the Banks in
servicing the Receivables take place principally in California. As a result,
each Certificateholder that is treated as an equity investor of the partnership
for federal tax purposes would be treated as an equity investor of the
partnership for California tax purposes and would be subject to California
income or franchise tax. Under these circumstances, such a Certificateholder
might be taxed by California on its share of the partnership's income
apportioned to California and the partnership would be required to withhold 7%
of all distributions in excess of $1,500 to any U.S. Certificateholder not
resident in California, unless the Certificateholder either obtains a waiver
from the Franchise Tax Board or notifies the partnership that (i) the
Certificateholder reported the income on a duly filed California tax return, or
(ii) the Certificateholder has a permanent place of business within California.
In addition, in the event of such a partnership characterization, a holder of a
Certificate that is a nonresident alien or foreign corporation would be subject
to California withholding on its share of California apportioned income at the
highest individual or corporate rate (9.3% and 8.84%, respectively). Moreover,
such partnership characterization might cause a Certificateholder not otherwise
subject to tax in California to pay California tax on income beyond that derived
from the Certificates.
If the Pooling Agreement were characterized for federal income tax purposes
as a publicly traded partnership, which is taxable as a corporation, or as a
corporation, California would follow this characterization. The resulting entity
would be liable for California income or franchise tax, which would reduce the
amounts available for distribution to the Certificateholders. The
Certificateholders, themselves, however, would be treated as owning interests in
a corporation for California tax purposes, and Certificateholders not otherwise
subject to California taxes should not become subject to such taxes solely by
reason of their ownership of Certificates.
New Hampshire. This discussion is based upon present provisions of the New
Hampshire statutes, the regulations promulgated thereunder, and applicable
judicial or ruling authority, all of which are subject to change, which change
may be retroactive. No ruling on any of the issues discussed below will be
sought from the New Hampshire Department of Revenue Administration.
New Hampshire has a Business Profits Tax, an Interest and Dividends Tax and
a Business Enterprise Tax. New Hampshire taxing authorities would follow federal
income tax standards on characterization of the Certificates as indebtedness.
Accordingly, it is the opinion of Gallagher, Callahan & Gartrell, P.A., New
Hampshire tax counsel to the Banks ('New Hampshire Tax Counsel') that if the
Certificates were characterized as indebtedness for federal income tax purposes,
they would also be characterized as indebtedness for New Hampshire tax purposes.
Pursuant to this characterization, the Trust would be treated as a mere security
device.
The activities to be undertaken by the Banks in originating and conveying
Receivables to the Trust might be viewed as taking place in New Hampshire;
pursuant to the Pooling Agreement, FDNB, as Servicer, will be responsible for
the administration and the servicing of the Receivables. All Trust operations,
however, will take
58
place outside of New Hampshire. Because the situs of the Trust is outside the
State of New Hampshire and all duties and obligations of the trustee of the
Trust are performed outside of the State of New Hampshire (except in connection
with the enforcement of rights and remedies in the event of default), New
Hampshire Tax Counsel is of the opinion that the Trust will not be considered as
carrying on any business activity in the State of New Hampshire and will not be
subject to the Business Profits Tax or the Business Enterprise Tax. There is
insufficient nexus to justify New Hampshire taxation.
In the alternative, if the Trust was characterized for federal income tax
purposes as a partnership, as a corporation, or as a publicly-traded partnership
taxable as a corporation, there would still be insufficient nexus with New
Hampshire to subject the Trust to New Hampshire taxation at the entity level.
Although it is not expected that the Trust will be subject to tax by New
Hampshire, the effect of taxation at the entity level would be reduced
distributions to Certificateholders. However, Certificateholders not otherwise
subject to taxation in New Hampshire would not become subject to New Hampshire
taxation solely due to ownership of Certificates.
New Hampshire imposes a tax on interest and dividends received by a
partnership, association or trust, the beneficial interest in which is not
represented by transferable shares. It is the opinion of New Hampshire Tax
Counsel that the Trust is not subject to the Interest and Dividends Tax because:
(i) there is insufficient nexus with the State of New Hampshire; and (ii) the
beneficial interests in the Trust are represented by transferable shares.
Certificateholders already subject to taxation in New Hampshire would be
required to pay Interest and Dividends Tax on income generated from the
Certificates. In this regard, New Hampshire would follow federal OID
characterization. Amounts characterized as OID for federal purposes would be
interest taxable to New Hampshire Certificateholders under the Interest and
Dividends Tax or the Business Profits Tax.
New Hampshire does not follow federal pass-through treatment of
non-publicly traded partnerships. Partnerships are subject to the Business
Profits Tax and Business Enterprise Tax at the entity-level in New Hampshire.
Therefore, if the relationship established under the Pooling Agreement between
the Banks and the Certificateholders is characterized as a partnership or
corporation for federal tax purposes, and if the activity of FDNB as Servicer is
deemed to be conducted on behalf of the partnership or corporation and
sufficient to provide taxable nexus within the State of New Hampshire, the
entity would be liable for Business Profits Tax and Business Enterprise Tax at
the entity level, which would result in reduced distributions to
Certificateholders.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ('ERISA'), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan (including an individual retirement
account) (collectively referred to as 'Benefit Plans') from engaging in certain
transactions involving 'plan assets' with persons that are 'parties in interest'
under ERISA or 'disqualified persons' under Section 4975 of the Code with
respect to the Benefit Plan. A violation of these 'prohibited transaction' rules
may generate excise tax and other liabilities under ERISA and the Code for such
persons. For example, a prohibited transaction would arise, unless an exemption
were available, if a Certificate were viewed as debt of either of the Banks and
such Bank were a disqualified person or a party in interest with respect to a
Benefit Plan that acquired the Certificate.
Moreover, additional prohibited transactions could arise if the Trust
Assets were deemed to constitute 'plan assets' of any Benefit Plan that owned
Certificates. The Department of Labor ('DOL') has issued a final regulation (the
'Final Regulation') concerning the definition of what constitutes 'plan assets'
of a Benefit Plan. Under the Final Regulation, the assets and properties of
corporations, partnerships and certain other entities in which a Benefit Plan
makes an investment in an 'equity interest' could in certain circumstances be
deemed to be assets of the Benefit Plan, or 'plan assets.' Accordingly, if
Benefit Plans or other entities whose assets include plan assets purchase
Certificates, the Trust could be deemed to hold plan assets unless one of the
exceptions under the Final Regulation is applicable to the Trust.
The Final Regulation only applies to the use of the assets of a Benefit
Plan to acquire an 'equity interest' in an entity. Assuming that a Certificate
is an equity interest, the Final Regulation contains an exception which provides
that if assets of a Benefit Plan are used to acquire a 'publicly-offered
security', the issuer of the
59
security is not deemed to hold plan assets. A publicly-offered security is a
security that is (i) freely transferable, (ii) part of a class of securities
that is owned by 100 or more investors independent of the issuer and of one
another at the conclusion of the initial offering and (iii) either is (A) part
of a class of securities registered under Section 12(b) or 12(g) of the Exchange
Act, or (B) sold to the Benefit Plan as part of an offering of securities to the
public pursuant to an effective registration statement under the Act and the
class of securities of which such security is a part is registered under the
Exchange Act within 120 days (or such later time as may be allowed by the
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred.
The Certificates of each Class and Series must be separately tested under,
and may each meet, the criteria of publicly-offered securities as described
above. There are no restrictions imposed on the transfer of the Certificates
offered hereby, and the Certificates offered hereby will be sold as part of an
offering pursuant to an effective registration statement under the Act and then
will be timely registered under the Exchange Act. Based on information provided
by an underwriter, agent or dealer involved in the distribution of the
Certificates offered hereby, the Banks will notify the Trustee as to whether or
not the Certificates of a Class or Series offered by this Prospectus and an
accompanying Supplement will be held by at least 100 separately named persons at
the conclusion of the offering thereof. The Banks will not, however, determine
whether the 100-independent investor requirement of the exception for
publicly-offered securities is satisfied as to either a specific Class or
Series. Prospective purchasers may obtain a copy of the notification described
in the second preceding sentence from the Trustee at its Corporate Trust
Department.
If the Certificates of a Class or Series fail to meet the criteria of
publicly-offered securities and the Trust Assets are deemed to include assets of
Benefit Plans, 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
available. Thus, for example, if a participant in any Benefit Plan holding
Certificates is an accountholder of one of the Accounts, under a DOL
interpretation the purchase of such Certificates by such Benefit Plan could
constitute a prohibited transaction.
Moreover, as discussed above, while Tax Counsel has given its opinion that
(unless otherwise provided in the related Prospectus Supplement) the
Certificates of a Series offered hereby will properly be treated as debt for
federal income tax purposes, if any Certificates were instead treated as equity
interests in a partnership not taxable as a corporation in which any other Class
or Series of Certificates are debt, all or part of a tax-exempt investor's share
of income from the Certificates that are treated as equity would be treated as
unrelated debt-financed income under the Code taxable to the investor.
In light of the foregoing, fiduciaries of Benefit Plans or other investors
of 'plan assets' considering the purchase of Certificates should consult their
own counsel as to whether the acquisition of such Certificates would be a
prohibited transaction, whether Trust Assets which are represented by such
Certificates would be considered plan assets, the consequences that would apply
if the Trust Assets were considered plan assets, the applicability of exemptive
relief from the prohibited transaction rules, and the applicability of the tax
on unrelated business income and unrelated debt-financed income. In addition,
based on the reasoning of the United States Supreme Court's decision in John
Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 510 U.S. 86 (1993), under
certain circumstances assets in the general account of an insurance company
might be deemed to be plan assets for certain purposes, and under such reasoning
the purchase of Certificates with assets of an insurance company's general
account might be subject to the prohibited transaction rules described above.
Insurance company general account investors should also consider the effect of
the recent enactment of Section 401(c) of ERISA.
Unless otherwise provided in the Prospectus Supplement, if the Banks do not
notify the Trustee, as described above, that the Certificates of any particular
Class or Series will be held by at least 100 separately named persons, the
Certificates of such Class or Series may not be acquired by any Benefit Plan or
by any entity investing with assets that are treated as assets of a Benefit
Plan. Furthermore, in that case, the Pooling Agreement, the related Supplement
and each Certificate of such Class or Series will provide that each holder of
such Certificate shall be deemed to have represented and warranted that it is
not a Benefit Plan, is not purchasing such Certificate on behalf of a Benefit
Plan, and is not using assets treated as assets of any Benefit Plan to effect
the purchase.
60
PLAN OF DISTRIBUTION
The Banks may sell Certificates in any of three ways: (i) through
underwriters or dealers; (ii) directly to one or more purchasers; or (iii)
through agents. The related Prospectus Supplement will set forth the terms of
the offering of any Certificates offered hereby, including, without limitation,
the names of any underwriters, the purchase price of such Certificates and the
proceeds to the Banks from such sale, any underwriting discounts and other items
constituting underwriters' compensation, any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in a sale of any Certificates of a Series offered
hereby, such Certificates will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. Such Certificates may be offered to the public either through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. Unless otherwise set forth in the related Prospectus
Supplement, the obligations of the underwriters to purchase such Certificates
will be subject to certain conditions precedent, and the underwriters will be
obligated to purchase all of such Certificates if any of such Certificates are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Certificates of a Series offered hereby may also be offered and sold, if so
indicated in the related Prospectus Supplement, in connection with a remarketing
upon their purchase, in accordance with a redemption or repayment pursuant to
their terms, by one or more firms ('remarketing firms') acting as principals for
their own accounts or as agents for the Banks. Any remarketing firm will be
identified and the terms of its agreement, if any, with the Banks and its
compensation will be described in the related Prospectus Supplement. Remarketing
firms may be deemed to be underwriters in connection with the Certificates
remarketed thereby.
Certificates may also be sold directly by the Banks or through agents
designated by the Banks from time to time. Any agent involved in the offer or
sale of Certificates will be named, and any commissions payable by the Banks to
such agent will be set forth, in the related Prospectus Supplement. Unless
otherwise indicated in the related Prospectus Supplement, any such agent will
act on a best efforts basis for the period of its appointment.
Any underwriters, agents or dealers participating in the distribution of
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them on the sale or resale of Certificates may be deemed to be
underwriting discounts and commissions, under the Act. Agents and underwriters
may be entitled under agreements entered into with the Banks to indemnification
by the Banks against certain civil liabilities, including liabilities under the
Act, or to contribution with respect to payments that the agents or underwriters
may be required to make in respect thereof. Agents and underwriters may be
customers of, engage in transactions with, or perform services for, the Banks or
their affiliates in the ordinary course of business.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Banks and the Trust by Cravath, Swaine & Moore, New York, New York and for
any underwriters, agents or dealers by Orrick, Herrington & Sutcliffe LLP, New
York, New York. Certain federal income tax matters will be passed upon for the
Banks by Cravath, Swaine & Moore, New York, New York, certain California tax
matters will be passed upon for the Banks by Farella Braun & Martel LLP, San
Francisco, California and certain New Hampshire tax matters will be passed upon
for the Banks by Gallagher, Callahan & Gartrell, P.A., Concord, New Hampshire.
61
GLOSSARY FOR PROSPECTUS
TERM PAGE
- ----------------------------------------------- ----
Accounts....................................... 1
Accumulation Period............................ 8
Act............................................ 2
Addition....................................... 27
Additional Accounts............................ 28
Additional Finance Charges..................... 34
Additional Sellers............................. 44
Adjustment Payment............................. 35
Aggregate Additional Limit..................... 28
Automatic Additional Accounts.................. 28
Banks.......................................... 1
Banks' Certificate............................. 6
Base Rate...................................... 37
Benefit Plans.................................. 59
California Tax Counsel......................... 57
Capital Cash................................... 20
Cede........................................... 2
CEDEL.......................................... 42
CEDEL Participants............................. 42
Certificateholders............................. 2
Certificateholders' Interest................... 5
Certificates................................... 1
Citibank....................................... 41
Class.......................................... 1
Code........................................... 54
Collection Account............................. 31
Commission..................................... 2
Controlled Accumulation Amount................. 9
Controlled Amortization Amount................. 9
Controlled Deposit Amount...................... 9
Controlled Distribution Amount................. 9
Cooperative.................................... 42
Credit Enhancement............................. 11
Credit Enhancer................................ 36
Date of Processing............................. 12
Defaulted Amount............................... 34
Defaulted Receivables.......................... 34
Definitive Certificates........................ 43
Depositaries................................... 41
Depository..................................... 26
Determination Date............................. 12
Disclosure Document............................ 6
Distribution Date.............................. 8
DOL............................................ 59
DTC............................................ 2
Early Amortization Period...................... 9
Eligible Account............................... 46
Eligible Deposit Account....................... 31
Eligible Institution........................... 31
Eligible Investments........................... 32
Eligible Receivable............................ 47
TERM PAGE
- ----------------------------------------------- ----
Enhancement Invested Amount.................... 36
ERISA.......................................... 59
Euroclear...................................... 42
Euroclear Operator............................. 42
Euroclear Participants......................... 43
Exchange Act................................... 2
Expected Final Payment Date.................... 7
FDIA........................................... 52
FDIC........................................... 5
FDNB........................................... 1
Final Regulation............................... 59
Finance Charge Receivables..................... 4
FIRREA......................................... 52
Floating Allocation Percentage................. 32
Funding Period................................. 11
GAO............................................ 17
Group.......................................... 34
Holders........................................ 43
Indirect Participants.......................... 41
Ineligible Receivables......................... 45
Initial Accounts............................... 4
Initial Amount................................. 11
Insolvency Event............................... 16
Interchange.................................... 22
Interest Funding Account....................... 7
Interest Payment Dates......................... 30
Invested Amount................................ 30
IRS............................................ 54
L/C Issuer..................................... 36
Lending Guidelines............................. 19
Monthly Investor Servicing Fee................. 38
Monthly Period................................. 23
Monthly Report................................. 39
Moody's........................................ 31
Morgan......................................... 41
New Hampshire Tax Counsel...................... 58
New Issuance................................... 30
OID............................................ 54
OID regulations................................ 54
Participants................................... 41
Participations................................. 27
Pay Out Event.................................. 37
PNB............................................ 1
Payment Date................................... 40
Pooling Agreement.............................. 1
Portfolio Yield................................ 37
Prefunding Account............................. 11
Prefunding Account Balance..................... 34
Principal Allocation Percentage................ 32
Principal Commencement Date.................... 7
Principal Funding Account...................... 8
62
TERM PAGE
- ----------------------------------------------- ----
Principal Receivables.......................... 4
Principal Shortfalls........................... 33
Principal Terms................................ 30
Prospectus Supplement.......................... 1
Providian Portfolio............................ 20
Publically-offered security.................... 60
Rating Agency.................................. 14
Ratings Effect................................. 15
Receivables.................................... 1
Record Date.................................... 39
Remarketing firms.............................. 61
Removal Date................................... 29
Removal Notice Date............................ 29
Removed Accounts............................... 4
Required Principal Balance..................... 18
Required Sellers' Participation Amount......... 18
Required Sellers' Percentage................... 18
Revolving Period............................... 8
Rollouts....................................... 23
Scheduled Amortization Period.................. 9
Sellers' Interest.............................. 5
Series......................................... 1
Series Cut-off Date............................ 8
Series Enhancement............................. 3
Series Issuance Date........................... 45
Series Servicing Fee Percentage................ 38
TERM PAGE
- ----------------------------------------------- ----
Series Termination Date........................ 39
Service Transfer............................... 49
Servicer....................................... 12
Servicer Default............................... 50
Servicing Fee.................................. 38
Shared Principal Collections................... 33
Special Funding Account........................ 33
Special Payment Date........................... 38
Spread Account................................. 37
Standard & Poor's.............................. 31
Supplement..................................... 6
Supplemental Certificate....................... 44
Tax Counsel.................................... 55
Tax Opinion.................................... 31
Termination Notice............................. 49
Terms and Conditions........................... 43
Total System................................... 20
Transfer Deposit Amount........................ 45
Trust.......................................... 1
Trust Assets................................... 3
Trust Cut-off Date............................. 3
Trustee........................................ 1
Trust Portfolio................................ 23
Trust Termination Date......................... 44
Trustee........................................ 3
UCC............................................ 16
Unallocated Principal Collections.............. 33
63
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE BANKS OR THE UNDERWRITERS. NEITHER THIS PROSPECTUS
SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER OR SOLICITATION
BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT 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 SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BANKS SINCE THE
DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary of Series Terms........................ S-3
Risk Factors................................... S-11
Maturity Considerations........................ S-11
The Providian Portfolio........................ S-13
Composition of the Accounts.................... S-15
The Banks...................................... S-18
Use of Proceeds................................ S-18
Series Provisions.............................. S-18
Underwriting................................... S-33
Glossary for Prospectus Supplement............. S-35
Annex I........................................ A-1
PROSPECTUS
Available Information.......................... 2
Reports to Certificateholders.................. 2
Incorporation of Certain Documents by
Reference.................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 15
The Banks' Credit Card and Consumer Lending
Business..................................... 20
The Accounts................................... 23
The Banks...................................... 25
Use of Proceeds................................ 25
The Trust...................................... 25
Description of the Certificates................ 26
The Pooling Agreement Generally................ 41
Certain Legal Aspects of the Receivables....... 52
Tax Matters.................................... 54
ERISA Considerations........................... 59
Plan of Distribution........................... 61
Legal Matters.................................. 61
Glossary for Prospectus........................ 62
------------------------
UNTIL JUNE 11, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES
OR THE CLASS B CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS AND A PROSPECTUS SUPPLEMENT. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND A PROSPECTUS
SUPPLEMENT WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$546,000,000
PROVIDIAN
MASTER TRUST
$489,000,000 Floating Rate Class A
Asset Backed Certificates,
Series 1997-1
$57,000,000 Floating Rate Class B
Asset Backed Certificates,
Series 1997-1
[LOGO]
First Deposit National Bank
Seller and Servicer
Providian National Bank
Seller
PROSPECTUS
SUPPLEMENT
Underwriters of the Class A Certificates
CREDIT SUISSE FIRST BOSTON
CITICORP SECURITIES, INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
Underwriters of the Class B Certificates
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
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