Filed Pursuant To Rule 424B2
Registration No. 333-81788
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 13, 2003
[ADVANTA LOGO]
ADVANTA BUSINESS CARD MASTER TRUST
Issuer
ADVANTA BUSINESS RECEIVABLES CORP.
Transferor
ADVANTA BANK CORP.
Servicer
$386,000,000 SERIES 2003-D ASSET BACKED NOTES
- --------------------------------------------------------------------------------
<Table>
<Caption>
CLASS A NOTES CLASS B NOTES CLASS C NOTES
Principal Amount $320,000,000 $37,000,000 $29,000,000
Interest Rate LIBOR plus 0.27% per LIBOR plus 1.15% per LIBOR plus 2.90% per
year year year
Interest Payment Dates February 20, 2004 and February 20, 2004 and February 20, 2004 and
monthly monthly monthly
thereafter on the thereafter on the thereafter on the
20th 20th 20th
Expected Principal Payment Date November 20, 2006 November 20, 2006 November 20, 2006
Legal Maturity Date October 20, 2009 October 20, 2009 October 20, 2009
Price to Public $320,000,000 $37,000,000 $29,000,000
(or 100.00%) (or 100.00%) (or 100.00%)
Underwriting Discount $800,000 $120,250 $145,000
(or 0.250%) (or 0.325%) (or 0.500%)
Proceeds to Issuer $319,200,000 $36,879,750 $28,855,000
(or 99.750%) (or 99.675%) (or 99.500%)
</Table>
- --------------------------------------------------------------------------------
The notes will be paid from the assets of the trust consisting primarily of
receivables in a portfolio of MasterCard(R) and VISA(R) business revolving
credit card accounts.
We expect to issue your series of notes on or about December 4, 2003. We will
deliver your notes in book-entry form.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 7 IN THE
PROSPECTUS.
A note is not a deposit and neither the notes nor the underlying accounts or
receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency. The notes are obligations of
Advanta Business Card Master Trust only and are not obligations of Advanta
Business Receivables Corp., Advanta Bank Corp., Advanta Corp., any affiliate of
them or any other person.
THIS PROSPECTUS SUPPLEMENT MAY BE USED TO OFFER AND SELL THE OFFERED NOTES ONLY
IF ACCOMPANIED BY THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE NOTES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
DEUTSCHE BANK SECURITIES
BARCLAYS CAPITAL
November 18, 2003
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We provide information to you about your notes in two separate documents:
(a) the accompanying prospectus, which provides general information, some of
which may not apply to your series of notes, and (b) this prospectus supplement,
which describes the specific terms of your series of notes.
Whenever the information in this prospectus supplement is more specific
than the information in the accompanying prospectus, you should rely on the
information in this prospectus supplement.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
different information. We are not offering the notes in any state where the
offer is not permitted.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents in the accompanying prospectus provide the pages on which these
captions are located.
This prospectus supplement uses some defined terms. You can find a glossary
of terms under the caption "Glossary of Terms for Prospectus Supplement"
beginning on page S-51 in this prospectus supplement and under the caption
"Glossary of Terms for Prospectus" beginning on page 82 in the accompanying
prospectus.
FORWARD-LOOKING STATEMENTS
If and when included in this prospectus supplement and the accompanying
prospectus or in documents incorporated herein or therein by reference, the
words "expects," "intends," "anticipates," "estimates" and analogous expressions
are intended to identify forward-looking statements. Any such statements, which
may include statements contained in "Developments Relating to Advanta Bank
Corp., Advanta Corp. and its other Subsidiaries," inherently are subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, among
others, general economic and business conditions, competition, changes in
foreign, political, social and economic conditions, regulatory initiatives and
compliance with governmental regulations, customer preferences and various and
other matters, many of which are beyond our control. These forward-looking
statements speak only as of the date of this prospectus supplement. We expressly
disclaim any obligation or undertaking to release publicly any updates or
revisions to any forward-looking statement contained herein to reflect any
change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
UNITED KINGDOM LEGEND
The notes may not be offered or sold to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purpose of
their business or otherwise in circumstances that have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995. This prospectus supplement and the
accompanying prospectus and any other communication in connection with the
offering and issuance of the notes may only be issued or passed on to a person
of a kind described in Article 49(2) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2001 or a person to whom this prospectus
supplement and the
S-2
accompanying prospectus or any other such communication may otherwise lawfully
be issued or passed on (all such persons together being referred to as "RELEVANT
PERSONS"). This communication must not be acted on or relied on by persons who
are not relevant persons. Any investment or investment activity to which this
communication relates is available only to relevant persons and will be engaged
in only with relevant persons.
S-3
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Transaction Summary.................. S-5
Summary of Terms..................... S-6
The Issuer......................... S-6
Seller, Servicer and Transferor.... S-6
The Series 2003-D Notes............ S-6
Credit Enhancement................. S-7
Events of Default.................. S-7
Other Interests in the Trust....... S-8
The Receivables.................... S-9
Allocations of Collections......... S-9
Application of Collections......... S-9
Pay Out Events..................... S-11
Optional Redemption................ S-11
Group One.......................... S-11
Denominations...................... S-11
Registration, Clearance and
Settlement...................... S-11
Tax Status......................... S-11
ERISA Considerations............... S-12
Note Ratings....................... S-12
Exchange Listing................... S-12
The Seller's Business Card
Portfolio.......................... S-13
Delinquency and Loss Experience.... S-13
Delinquency and Loss Trends........ S-15
Receivable Yield Considerations.... S-16
FICO Scores at Time of
Origination..................... S-17
Recoveries......................... S-18
Payment Rates...................... S-18
Developments Relating to Advanta Bank
Corp., Advanta Corp. and its Other
Subsidiaries....................... S-19
Regulatory Matters................. S-19
Litigation......................... S-20
The Trust Portfolio.................. S-22
Maturity Considerations.............. S-26
Controlled Accumulation Period..... S-26
Early Amortization Period.......... S-26
</Table>
<Table>
<Caption>
PAGE
----
Description of Series Provisions..... S-27
Issuance........................... S-27
Interest Payments.................. S-28
Principal Payments................. S-30
Postponement of Controlled
Accumulation Period............. S-32
Allocation Percentages............. S-33
Floating Allocation Definitions.... S-33
Fixed Allocation Definitions....... S-33
Reallocated Principal
Collections..................... S-34
Application of Collections......... S-35
Payment of Principal............... S-36
Subordination...................... S-37
Shared Finance Charge
Collections..................... S-38
Shared Principal Collections....... S-38
Defaulted Receivables; Investor
Charge-Offs..................... S-39
Principal Funding Account.......... S-39
Reserve Account.................... S-40
Cash Collateral Account............ S-41
Cash Collateral Account
Distributions................... S-43
Additional Series Enhancement...... S-43
Pay Out Events..................... S-43
Events of Default.................. S-45
Servicing Compensation and Payment
of Expenses..................... S-45
Reports to Noteholders............. S-46
ERISA Considerations................. S-46
Use of Proceeds...................... S-48
Underwriting......................... S-48
Legal Matters........................ S-50
Glossary of Terms for Prospectus
Supplement......................... S-51
Other Series Issued and
Outstanding........................ A-1
</Table>
S-4
TRANSACTION SUMMARY
This Transaction Summary lists certain information concerning the Advanta
Business Card Master Trust, Series 2003-D notes. Only the Class A notes, Class B
notes and Class C notes are offered by this prospectus supplement and the
accompanying prospectus. The table also describes the Class D notes which have
not been registered under the Securities Act of 1933 and will be retained by the
transferor or an affiliate of the transferor or sold to investors in private
transactions.
<Table>
Trust: Advanta Business Card Master Trust
Transferor: Advanta Business Receivables Corp.
Seller: Advanta Bank Corp.
Servicer: Advanta Bank Corp.
Indenture Trustee: Deutsche Bank Trust Company Americas
Owner Trustee: Wilmington Trust Company
Closing Date: On or about December 4, 2003
Clearance and Settlement: DTC/Clearstream/Euroclear
Primary Trust Assets: Receivables generated under unsecured lines of
credit with small businesses
Offered Notes: Class A, Class B and Class C
</Table>
<Table>
<Caption>
NOTE STRUCTURE AMOUNT % OF TOTAL SERIES
- -------------- ------------ -----------------
Class A............................ $320,000,000 80.00%
Class B............................ $ 37,000,000 9.25%
Class C............................ $ 29,000,000 7.25%
Class D............................ $ 14,000,000 3.50%
Initial Invested Amount............ $400,000,000
Servicing Fee Rate................. 2.0% per annum
</Table>
<Table>
<Caption>
CLASS A NOTES CLASS B NOTES CLASS C NOTES
------------- ------------- -------------
Anticipated Ratings
(Standard & Poor's/Moody's)*: AAA/Aaa A/A2 BBB/Baa2
Credit Enhancement: subordination of subordination of subordination of
Class B, Class C Class C and Class Class D; shared
and Class D D cash collateral
account
Interest Rate: One-Month LIBOR One-Month LIBOR One-Month LIBOR
plus 0.27% per plus 1.15% per plus 2.90% per
year year year
Interest Accrual Method: actual/360 actual/360 actual/360
Interest Payment Dates: monthly (20th) monthly (20th) monthly (20th)
Interest Rate Index Reset Date: 2 London business 2 London business 2 London business
days before each days before each days before each
interest payment interest payment interest payment
date date date
First Interest Payment Date: February 20, 2004 February 20, 2004 February 20, 2004
Expected Principal Payment Date: November 20, 2006 November 20, 2006 November 20, 2006
Commencement of Accumulation Period February 28, 2006 February 28, 2006 February 28, 2006
(subject to adjustment):
Legal Maturity Date: October 20, 2009 October 20, 2009 October 20, 2009
</Table>
- ---------------
* It is a condition to issuance that at least one of these ratings for each
class be obtained.
S-5
SUMMARY OF TERMS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION AND DOES NOT CONTAIN ALL OF
THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR INVESTMENT DECISION.
YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
BEFORE YOU PURCHASE ANY NOTES.
THE ISSUER
The notes will be issued by Advanta Business Card Master Trust, a Delaware
common law trust, pursuant to an indenture supplement to an indenture, each
between the trust and the indenture trustee.
For additional information concerning the issuer, see "The Issuer" in the
accompanying prospectus.
SELLER, SERVICER AND TRANSFEROR
For information concerning Advanta Bank Corp. as a seller, servicer and
administrator and Advanta Business Receivables Corp. as a transferor, see
"Developments Relating to Advanta Bank Corp., Advanta Corp. and its Other
Subsidiaries" in this prospectus supplement and see "Advanta Bank Corp., Advanta
Business Receivables Corp. and Advanta Corp." in the accompanying prospectus.
THE SERIES 2003-D NOTES
Only the Class A notes, the Class B notes and the Class C notes are offered
by this prospectus supplement and the accompanying prospectus.
INTEREST
The Class A notes will bear interest at one-month LIBOR as determined each
month plus 0.27% per annum.
The Class B notes will bear interest at one-month LIBOR as determined each
month plus 1.15% per annum.
The Class C notes will bear interest at one-month LIBOR as determined each
month plus 2.90% per annum.
For each class of the Series 2003-D notes, interest will be calculated as
follows:
<Table>
Principal balance Number of days
on related record X in interest period X Interest
date 360 Rate
</Table>
Each interest period begins on and includes a payment date and ends on and
includes the day prior to the next payment date. However, the first interest
period will begin on and include the closing date and end on and include
February 19, 2004.
Interest on the Series 2003-D notes will be paid on each payment date,
which will be February 20, 2004 and the 20th day of each following month if the
20th is a business day and, if not, the following business day.
You may obtain the interest rates for the current interest period and the
immediately preceding interest period by telephoning the indenture trustee at
(800) 735-7777.
See "Description of Series Provisions -- Interest Payments" in this
prospectus supplement for a description of how and when LIBOR will be
determined.
PRINCIPAL
Principal of the Class A notes, the Class B notes, the Class C notes and
the Class D notes is expected to be paid in full on the November 20, 2006
payment date, which is the expected principal payment date.
However:
- no principal will be paid on the Class B notes until the Class A notes
are paid in full;
- no principal will be paid on the Class C notes until the Class A notes
and the Class B notes are paid in full; and
- no principal will be paid on the Class D notes until the Class A notes,
the
S-6
Class B notes and the Class C notes are paid in full.
We are scheduled to begin accumulating collections of principal receivables
starting at the close of business on February 28, 2006 for payment to the Series
2003-D noteholders on the expected principal payment date, but we may begin
accumulating at a later date.
Principal of the Series 2003-D notes may be paid earlier or later than the
expected principal payment date. You will not be entitled to any premium for
early or late payment of principal. If specified events known as pay out events
occur, principal may be paid earlier than expected. If collections of the
receivables are less than expected or are collected more slowly than expected,
then principal payments may be delayed. If the Series 2003-D notes are not paid
on the expected principal payment date, available principal collections will
continue to be used to pay principal on the Series 2003-D notes until the notes
are paid or until the legal maturity date of October 20, 2009, whichever occurs
first.
For more information about principal payments, see "Maturity
Considerations," "Description of Series Provisions -- Principal Payments,"
"-- Payment of Principal" and "-- Allocation Percentages" in this prospectus
supplement.
CREDIT ENHANCEMENT
Credit enhancement for your series is for the benefit of your series only.
You are not entitled to the benefits of credit enhancement available to other
series.
SUBORDINATION
Credit enhancement for the Class A notes is provided by the subordination
of the Class B notes, the Class C notes and the Class D notes.
Credit enhancement for the Class B notes is provided by the subordination
of the Class C notes and the Class D notes.
Credit enhancement for the Class C notes is provided in part by the
subordination of the Class D notes.
The Class D notes do not have the benefit of subordination of any other
class of notes.
CASH COLLATERAL ACCOUNT
A cash collateral account will provide credit enhancement for the Class C
notes and the Class D notes.
The cash collateral account will be funded with a deposit of $9,000,000 on
the closing date. After the Series 2003-D notes are issued, deposits in the cash
collateral account will be made each month from available finance charge
collections and, if necessary, shared finance charge collections from other
series in group one up to the required cash collateral account amount as
described in this prospectus supplement under "Description of Series
Provisions -- Cash Collateral Account." The cash collateral account will be used
to cover interest shortfalls first, on the Class C notes and, then on the Class
D notes if collections of finance charge and administrative receivables
allocated to the Class C notes and the Class D notes are insufficient to make
required payments. On the Series 2003-D Termination Date, the Cash Collateral
Account will be used to fund any shortfall in payment of the outstanding
principal balance first, of the Class C Notes and, then of the Class D Notes.
For more information about credit enhancement, see "Description of Series
Provisions -- Reallocated Principal Collections," "-- Application of
Collections" and "-- Defaulted Receivables; Investor Charge-Offs" in this
prospectus supplement.
EVENTS OF DEFAULT
The Series 2003-D notes are subject to specified events of default
described under "Description of Series Provisions -- Events of Default" in this
prospectus supplement and "The Indenture -- Events of Default; Rights upon Event
of Default" in the accompanying prospectus. These include, among other
S-7
things, the failure to pay interest for 35 days after it is due or to pay
principal on the legal maturity date.
If an event of default concerning failure to pay interest or principal or
to observe or perform covenants and agreements occurs and continues with respect
to the Series 2003-D notes, the indenture trustee or holders of more than 50% of
the then-outstanding principal balance of the Series 2003-D notes may declare
the principal amount of the notes to be immediately due and payable. That
declaration may be rescinded by holders of more than 50% of the then-outstanding
principal balance of the Series 2003-D notes if the related event of default has
been cured, subject to the conditions described under "The Indenture -- Events
of Default; Rights Upon Event of Default" in the accompanying prospectus.
After an event of default and the acceleration of the Series 2003-D notes,
the indenture trustee may apply funds allocated to Series 2003-D and on deposit
in the collection account, the principal funding account, the reserve account,
and the excess funding account and, for the Class C notes and the Class D notes,
the cash collateral account, to pay principal of and interest on the Series
2003-D notes to the extent permitted by law. Collections of principal
receivables and collections of finance charge and administrative receivables
allocated to the Series 2003-D notes will be applied to make the monthly
principal and interest payments on the Series 2003-D notes until the earlier of
the date those notes are paid in full or the legal maturity of those notes.
If the Series 2003-D notes are accelerated or the issuer fails to pay the
principal of the Series 2003-D notes on the legal maturity date of October 20,
2009, and if certain conditions described under "The Indenture -- Events of
Default; Rights upon Event of Default" in the accompanying prospectus are
satisfied, the indenture trustee may:
- institute proceedings in its own name for the collection of all amounts
then payable on the Series 2003-D notes or under the indenture; or
- take any other appropriate action to protect and enforce the rights and
remedies of the indenture trustee and the Series 2003-D noteholders.
The indenture trustee may foreclose on a portion of the trust receivables
which secure the Series 2003-D notes by causing the trust to issue a foreclosure
certificate to the holders of the notes or to a third party, subject to the
conditions in the Series 2003-D indenture supplement and the indenture.
A foreclosure certificate is an investor certificate issued by the trust
representing ownership of an interest in the assets of the trust securing the
Series 2003-D notes. A foreclosure certificate held by a noteholder or a third
party will be subject to certain restrictions on transfer described under "The
Indenture -- Events of Default; Rights upon Event of Default" in the
accompanying prospectus.
If the Series 2003-D notes are accelerated, you may receive principal prior
to the expected principal payment date for your notes.
OTHER INTERESTS IN THE TRUST
OTHER SERIES OF NOTES
The trust has issued other series of notes secured by the assets of the
trust and may issue other series of notes secured by the assets of the trust
from time to time in the future. A summary of the outstanding series is in
"Annex I: Other Series Issued and Outstanding" included at the end of this
prospectus supplement. The issuance of future series will occur without prior
review or consent by you or any other noteholder.
THE TRANSFEROR BENEFICIAL INTEREST
The transferor beneficial interest is the interest in the trust not
securing your series or any other series and is owned by the bank. The bank may,
however, sell all or a portion of its interest in the transferor beneficial
interest. The transferor beneficial interest does not provide series enhancement
for your series or any other series.
S-8
THE RECEIVABLES
The primary assets of the trust are receivables in MasterCard(R)* and, to a
lesser extent, VISA(R)* business revolving credit card accounts. The receivables
consist of principal receivables and finance charge and administrative
receivables.
The following information is as of the opening of business on October 1,
2003, and includes accounts designated to the trust on October 28, 2003, the
receivables of which were conveyed to the trust as of the beginning of the day
on October 1, 2003:
- Receivables in the trust: $2,867,510,088
- Businesses having accounts designated to the trust: 1,016,732
For more information, see "The Trust Portfolio" in this prospectus
supplement.
ALLOCATIONS OF COLLECTIONS
The servicer will collect payments on the receivables and will deposit
those collections in an account. It will keep track of collections of finance
charge and administrative receivables and collections of principal receivables.
Each month, the servicer will allocate collections received among:
- your series;
- other series outstanding; and
- the transferor beneficial interest in the trust.
The amount allocated to your series will be determined based mainly upon
the size of the invested amount of your series compared to the total amount of
principal receivables in the trust. At the time of issuance of Series 2003-D,
the invested amount for your series will be $400,000,000.
You are entitled to receive payments of interest and principal only from
collections of receivables and other trust assets allocated to your series. If
the invested amount of your series declines, amounts allocated and available for
payment to your series and to you may be reduced. For a description of the
allocation calculations and the events which may lead to these reductions, see
"Description of Series Provisions -- Allocation Percentages," "-- Reallocated
Principal Collections" and "-- Defaulted Receivables; Investor Charge-Offs" in
this prospectus supplement.
APPLICATION OF COLLECTIONS
COLLECTIONS OF FINANCE CHARGE AND ADMINISTRATIVE RECEIVABLES
The trust will apply your series' share of collections of finance charge
and administrative receivables in the following order of priority:
- to pay interest on the Class A notes;
- to pay interest on the Class B notes;
- to pay the monthly servicing fee to the servicer;
- to pay interest on the Class C Notes;
- to cover your series' allocation of defaulted receivables;
- to cover reductions in your series' invested amount resulting from
investor charge-offs allocated to your series and from reallocated
principal collections, in each case that have not been reimbursed;
- to fund a reserve account after the reserve account funding date but
prior to termination of the reserve account to cover interest payment
shortfalls for the Series 2003-D notes during the controlled accumulation
period;
- to pay interest on the Class D notes;
- to make a deposit to the cash collateral account for the Class C notes
and the Class D notes up to the
- ---------------
* MasterCard(R) and VISA(R) are federally registered service marks of MasterCard
International Inc. and VISA U.S.A., Inc., respectively.
S-9
required cash collateral account amount;
- to other series in group one; and
- to the holders of the transferor beneficial interest.
For a more detailed description of these applications, see "Description of
Series Provisions -- Application of Collections" in this prospectus supplement.
COLLECTIONS OF PRINCIPAL RECEIVABLES
The trust will apply your series' share of collections of principal
receivables each month as follows:
- During the revolving period, no principal will be paid to you or
accumulated in a trust account. Instead, your series' share of
collections of principal receivables will be treated as shared principal
collections and may be available to make principal payments for other
series in group one or will be paid to the holders of the transferor
beneficial interest or deposited in the excess funding account.
- The controlled accumulation period is scheduled to begin at the close of
business on February 28, 2006, but may begin at a later date. During the
controlled accumulation period, your series' share of collections of
principal receivables will be deposited in the principal funding account,
up to a controlled deposit amount. On the expected principal payment
date, amounts on deposit in that account will be paid first to the Class
A noteholders, then to the Class B noteholders, then to the Class C
noteholders and then to the Class D noteholders.
- If a pay out event that applies only to Series 2003-D or to all series
occurs, the early amortization period will begin. During the early
amortization period, your series' share of collections of principal
receivables will be paid first to the Class A noteholders, then to the
Class B noteholders, then to the Class C noteholders and then to the
Class D noteholders. During the early amortization period, no shared
principal collections from other series in group one will be allocated to
make principal payments on the Series 2003-D notes.
- During any of the above periods, collections of principal receivables
allocated to your series may be reallocated, if necessary, to make
required interest payments on the Class A notes, the Class B notes and
the Class C notes and required servicing fee payments not made from
available finance charge collections, shared finance charge collections
available from other series in group one or funds in the reserve account
or, for the Class C notes only, the cash collateral account. However, for
any monthly period, the sum of these reallocated principal collections
cannot exceed the sum of (i) for the required interest payments on the
Class A notes, 20.00% of the initial invested amount of your series, (ii)
for the required interest payments on the Class B notes and the required
servicing fee payments, 10.75% of the initial invested amount of your
series, and (iii) for the required interest payments on the Class C
notes, 3.50% of the initial invested amount of your series, in each case
after the initial invested amount has been reduced due to the writing off
of receivables or for previously reallocated principal collections, in
each case, that have not been reimbursed.
- Any remaining collections of principal receivables will first be made
available to other series in group one and then be paid to the holders of
the transferor beneficial interest or deposited in the excess funding
account.
For a more detailed description of these applications, see "Description of
S-10
Series Provisions -- Application of Collections" in this prospectus supplement.
PAY OUT EVENTS
Pay out events are events that result in commencement of the early
amortization period. Pay out events for Series 2003-D are:
- the transferor fails to make required payments or deposits or violates
other covenants or agreements;
- representations and warranties of the transferor or information provided
by the transferor is materially incorrect;
- the net portfolio yield averaged over any three consecutive monthly
periods is less than the average of the base rates for the same monthly
periods;
- an event of default for Series 2003-D occurs under the indenture; or
- the outstanding principal balances of all the Series 2003-D notes were
not paid on the expected principal payment date.
These pay out events are more fully described under "Description of Series
Provisions -- Pay Out Events" in this prospectus supplement. There are
additional pay out events referred to as trust pay out events that apply to all
series. These trust pay out events are more fully described under "Description
of the Notes -- Pay Out Events" in the accompanying prospectus.
OPTIONAL REDEMPTION
The servicer has the option to repurchase your notes when the total note
principal balance for your series has been reduced to 10% or less of the initial
total note principal balance. See "Description of the Notes -- Final Payment of
Principal; Termination" in the accompanying prospectus.
GROUP ONE
Series 2003-D is a part of group one, and shares collections of finance
charge and administrative receivables and principal receivables in specified
circumstances. See "Description of Series Provisions -- Shared Finance Charge
Collections" and -- Shared Principal Collections" in this prospectus supplement.
DENOMINATIONS
Beneficial interests in the Class A notes, the Class B notes and the Class
C notes may be purchased in minimum denominations of $1,000 and multiples of
$1,000 in excess of that amount.
REGISTRATION, CLEARANCE AND SETTLEMENT
Your Series 2003-D notes will be in book-entry form and will be registered
in the name of Cede & Co., as the nominee of The Depository Trust Company.
Except in certain limited circumstances, you will not receive a definitive
instrument representing your notes. See "Description of the Notes -- Definitive
Notes" in the accompanying prospectus.
You may elect to hold your Series 2003-D notes through The Depository Trust
Company, in the United States, or Clearstream Banking, societe anonyme, or the
Euroclear System, in Europe.
Transfers will be made in accordance with the rules and operating
procedures of those clearing systems. See "Description of the Notes -- Book
Entry Registration" in the accompanying prospectus.
TAX STATUS
Subject to important considerations described under "Federal Income Tax
Consequences" in the accompanying prospectus, Wolf, Block, Schorr and
Solis-Cohen LLP, as special tax counsel to the trust, is of the opinion that
under existing law your Series 2003-D notes will be characterized as debt for
federal income tax purposes and that the trust will not be an association or
publicly traded partnership taxable as a corporation for U.S. federal income tax
purposes. By your acceptance of a Class A note, a Class B note or a Class C
note, you will agree to treat your notes as debt for federal, state and local
income and franchise tax purposes. See "Federal Income
S-11
Tax Consequences" in the accompanying prospectus for additional information
concerning the application of federal income tax laws.
ERISA CONSIDERATIONS
Subject to important considerations described under "ERISA Considerations"
in this prospectus supplement and in the accompanying prospectus, the Class A
notes, the Class B notes and the Class C notes are eligible for purchase by
persons investing assets of employee benefit plans or individual retirement
accounts. We suggest that a fiduciary or other person contemplating purchasing a
Class A note, a Class B note or a Class C note on behalf of or with plan assets
of any plan or account consult with its counsel regarding whether the purchase
or holding of an offered Series 2003-D note could give rise to a transaction
prohibited or not otherwise permissible under ERISA or Section 4975 of the
Internal Revenue Code.
NOTE RATINGS
The notes offered by this prospectus supplement and the accompanying
prospectus will be rated in one of the four highest rating categories by at
least one nationally recognized rating organization.
EXCHANGE LISTING
We may apply to list the offered Series 2003-D notes on the Luxembourg
Stock Exchange. Upon any application made to the Luxembourg Stock Exchange, we
cannot guarantee that the application for the listing will be accepted.
S-12
THE SELLER'S BUSINESS CARD PORTFOLIO
For additional information regarding the Advanta Business Card Portfolio,
see "The Bank's Business Card Activities" in the accompanying prospectus.
DELINQUENCY AND LOSS EXPERIENCE
The following tables set forth the delinquency and loss experience for each
of the periods shown for the Advanta Business Card Portfolio. As of the
beginning of the day on October 1, 2003, the Advanta Business Card Portfolio
included receivables in an aggregate amount equal to $2,876,619,322. The trust
portfolio, as of October 1, 2003 included receivables in an aggregate amount
equal to $2,867,510,088 and constituted 99.68% of the Advanta Business Card
Portfolio. Accounts designated to the trust on October 28, 2003 included
receivables of $56,169,952 which were conveyed to the trust as of the beginning
of the day on October 1, 2003. The accounts designated to the trust have been
selected from the accounts in the Advanta Business Card Portfolio based on
certain eligibility criteria specified in the transfer and servicing agreement.
The delinquency and loss experience for the receivables in the trust may be
different from the experience for the Advanta Business Card Portfolio set forth
below, for reasons including:
- the trust portfolio, as of the beginning of the day on October 1, 2003,
constitutes 99.68% of the Advanta Business Card Portfolio and in the
future may continue to constitute less than all of the Advanta Business
Card Portfolio;
- additional sellers may in the future originate or acquire accounts to be
designated to the trust; and
- the transferor will have the right, subject to certain conditions set
forth in the transfer and servicing agreement, and in some circumstances,
the obligation, to designate additional accounts, and to convey to the
trust all receivables in such additional accounts, which additional
accounts may not have the same characteristics as accounts previously
designated to the trust.
S-13
We cannot assure you that the future delinquency and loss experience for
the receivables in either the Advanta Business Card Portfolio or the trust
portfolio will be similar to the historical experience of the Advanta Business
Card Portfolio set forth below.
ADVANTA BUSINESS CARD PORTFOLIO
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
AS OF SEPTEMBER 30, 2003
------------------------------------
$2,876,619
RECEIVABLES OUTSTANDING(1): DELINQUENT % OF
NUMBER OF DAYS DELINQUENT $ AMOUNT RECEIVABLES OUTSTANDING
- --------------------------- ---------- -----------------------
30 to 59 days............................................ $ 50,929 1.78%
60 to 89 days............................................ $ 43,938 1.53%
90 to 119 days........................................... $ 31,154 1.08%
120 to 149 days.......................................... $ 26,261 0.91%
150 to 179 days.......................................... $ 24,592 0.85%
180 or more days......................................... $ 13 0.00%
-------- ----
TOTAL (30+ days past due)................................ $176,887 6.15%
======== ====
</Table>
- ------------
(1) The receivables outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts as of the period shown, including
principal and finance charge and administrative receivables.
ADVANTA BUSINESS CARD PORTFOLIO
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
AS OF DECEMBER 31,
---------------------------------------------------------------------------------------------------------
2002 2001 2000 1999
RECEIVABLES ------------------------ ------------------------ ------------------------ ------------------------
OUTSTANDING(1): $2,594,230 $2,042,974 $1,659,224 $1,040,114
NUMBER % OF % OF % OF % OF
OF DAYS DELINQUENT RECEIVABLES DELINQUENT RECEIVABLES DELINQUENT RECEIVABLES DELINQUENT RECEIVABLES
DELINQUENT $ AMOUNT OUTSTANDING $ AMOUNT OUTSTANDING $ AMOUNT OUTSTANDING $ AMOUNT OUTSTANDING
- --------------- ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
30 to 59 days......... $ 44,409 1.71% $ 38,702 1.89% $27,104 1.63% $13,050 1.25%
60 to 89 days......... $ 33,831 1.31% $ 30,453 1.49% $18,347 1.11% $ 8,300 0.80%
90 to 119 days........ $ 30,066 1.16% $ 24,691 1.21% $14,274 0.86% $ 6,650 0.64%
120 to 149 days....... $ 25,245 0.97% $ 21,318 1.04% $12,303 0.74% $ 5,523 0.53%
150 to 179 days....... $ 25,975 1.00% $ 20,501 1.00% $10,742 0.65% $ 4,633 0.45%
180 or more days...... $ 8 0.00% $ 372 0.02% $ 145 0.01% $ 280 0.03%
-------- ---- -------- ---- ------- ---- ------- ----
TOTAL
(30+ days past
due)................. $159,534 6.15% $136,037 6.65% $82,915 5.00% $38,436 3.70%
======== ==== ======== ==== ======= ==== ======= ====
<Caption>
AS OF DECEMBER 31,
------------------------
1998
RECEIVABLES ------------------------
OUTSTANDING(1): $814,734
NUMBER % OF
OF DAYS DELINQUENT RECEIVABLES
DELINQUENT $ AMOUNT OUTSTANDING
- --------------- ---------- -----------
30 to 59 days......... $11,600 1.42%
60 to 89 days......... $ 8,007 0.98%
90 to 119 days........ $ 6,347 0.78%
120 to 149 days....... $ 5,312 0.65%
150 to 179 days....... $ 4,462 0.55%
180 or more days...... $ 172 0.02%
------- ----
TOTAL
(30+ days past
due)................. $35,900 4.40%
======= ====
</Table>
- ------------
(1) The receivables outstanding on the accounts consist of all amounts due from
cardholders as posted to the accounts as of the period shown, including
principal and finance charge and administrative receivables.
S-14
ADVANTA BUSINESS CARD PORTFOLIO
LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------------
2003 2002 2001 2000 1999 1998
------------- ---------- ---------- ---------- -------- --------
Average Receivables
Outstanding(1)............. $2,781,738 $2,199,967 $1,872,314 $1,372,717 $892,862 $744,192
Gross Total Losses(2)........ $ 226,303 $ 244,703 $ 178,067 $ 77,948 $ 53,268 $ 51,010
Interest Charged-Off(3)...... $ 43,076 $ 31,375 $ 20,977 $ 7,746 $ 4,091 $ 3,400
---------- ---------- ---------- ---------- -------- --------
Gross Principal Losses(4).... $ 183,227 $ 213,328 $ 157,090 $ 70,202 $ 49,177 $ 47,610
Recoveries................... $ 14,105 $ 19,646 $ 13,564 $ 5,566 $ 4,868 $ 3,890
---------- ---------- ---------- ---------- -------- --------
Net Principal Losses(5)...... $ 169,122 $ 193,682 $ 143,526 $ 64,636 $ 44,309 $ 43,720
========== ========== ========== ========== ======== ========
Net Principal Losses as a
Percentage of Average
Receivables
Outstanding(5)............. 8.11%(6) 8.80% 7.67% 4.71% 4.96% 5.87%
</Table>
- ------------
(1)Average Receivables Outstanding for each indicated period is calculated as
the weighted average of each month's average daily balance for such periods
and includes principal and finance charge and administrative receivables.
(2) Gross Total Losses includes charge-offs of principal and finance charge and
administrative receivables.
(3) Interest Charged-Off includes charge-offs of finance charge and
administrative receivables.
(4) Gross Principal Losses are calculated as gross total losses less interest
charge-offs.
(5) Net Principal Losses are calculated as gross total losses less interest
charge-offs less recoveries.
(6) Annualized.
DELINQUENCY AND LOSS TRENDS
We believe that the total delinquency rates in the Advanta Business Card
Portfolio were stable to declining between December 31, 2001 and September 30,
2003 for a number of reasons, including improvements in the management of our
collections activities, a shift to targeting higher credit quality businesses
and the growth of the Advanta Business Card Portfolio from approximately $2.04
billion at year end 2001, to approximately $2.88 billion as of September 30,
2003. The trends in the loss rates are attributable to, among other factors,
including those mentioned above, a decline in overall economic conditions in the
United States during the past few years and increases in yearly bankruptcy
filings. The loss rate, in general, has been trending lower since the start of
the second half of 2002. The delinquency and loss experience for the portfolio
reflects, among other factors, the changes in the growth rates in the portfolio,
the changes in the mix of businesses and usage patterns, the seasoning of the
accounts, collection efforts and general economic conditions. We cannot provide
you with assurance about the delinquency rates or loss rates to be realized in
the future.
S-15
RECEIVABLE YIELD CONSIDERATIONS
The yield on the Advanta Business Card Portfolio for certain periods is set
forth in the following table. The historical yield figures in the table are
calculated on an accrual basis. The cost of reward programs is not included in
the table data. Collections of finance charge and administrative receivables
included in the trust portfolio are calculated on a cash basis and may not
reflect the historical yield experience for accounts in the Advanta Business
Card Portfolio. During periods of increasing delinquencies or periodic payment
deferral programs, accrual yields may exceed cash amounts accrued and billed to
cardholders. Conversely, cash yields may exceed accrual yields as amounts
collected in a current period may include amounts accrued during prior periods.
Revenues from finance charges and fees on an accrual and cash basis will be
affected by numerous factors, including the rates of the finance charges on
principal receivables, the amount of other fees paid by cardholders, the
percentage of cardholders who pay off their balances in full each month, and
changes in delinquency rates. There can be no assurance that the portfolio yield
in the future will be similar to the historical experience set forth below or
that the portfolio yield experience with respect to the trust portfolio, which
is less than all of the Advanta Business Card Portfolio, will be similar to the
historical experience for the Advanta Business Card Portfolio. See "The Bank's
Business Card Activities" in the accompanying prospectus.
S-16
ADVANTA BUSINESS CARD PORTFOLIO
REVENUE FROM FINANCE CHARGES AND FEES(1)
(BY ACTIVE BUSINESS RELATIONSHIP)
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------------
2003 2002 2001 2000 1999 1998
------------- --------- ------ ------ --------- ---------
AVERAGE MONTHLY ACCRUED
FEES AND FINANCE
CHARGES(2)(3)............ $ 86.50 $ 87.95 $88.07 $82.21 $ 76.58 $ 73.35
Average Monthly Finance
Charges and Late
Fees.................. $ 63.79 $ 66.11 $67.62 $63.11 $ 59.22 $ 59.20
Average Monthly
Interchange Fees...... $ 16.37 $ 14.97 $14.35 $14.44 $ 13.16 $ 10.39
Average Monthly Other
Fees(4)............... $ 6.34 $ 6.87 $ 6.10 $ 4.66 $ 4.20 $ 3.76
AVERAGE ACCOUNT
BALANCE(5)............... $ 4,757 $ 4,247 $3,980 $3,854 $ 4,168 $ 4,470
YIELD FROM FEES AND FINANCE
CHARGES(2)(3)............ 21.82%(6) 24.85% 26.56% 25.59% 22.05% 19.69%
Yield from Finance
Charges and Late
Fees.................. 16.09%(6) 18.68% 20.39% 19.65% 17.05% 15.89%
Yield from Interchange
Fees.................. 4.13%(6) 4.23% 4.33% 4.49% 3.79% 2.79%
Yield from Monthly Other
Fees.................. 1.60%(6) 1.94% 1.84% 1.45% 1.21% 1.01%
</Table>
- ------------
(1) The figures shown include revenue attributable to Interchange.
(2) Fees and Finance Charges are comprised of the items shown on the following
three lines, being finance charges and late fees, interchange fees and other
fees.
(3) Average Monthly Accrued Fees and Finance Charges and Yield from Fees and
Finance Charges are presented net of adjustments made pursuant to the
seller's normal servicing procedures, including removal of incorrect or
disputed fees and finance charges and reversal of finance charges accrued on
charged-off accounts.
(4) Reward costs have been excluded from Other Fees.
(5) Average Account Balance includes purchases, cash advances and billed and
unpaid fees and finance charges, and is calculated based on the weighted
average of each month's average daily balance and the weighted average of
each month's average number of gross active accounts.
(6) Annualized.
FICO SCORES AT TIME OF ORIGINATION
The bank has always used FICO(R)* scores of the signing individuals as a
factor in its initial underwriting decisions. However, a FICO score of the
signing individual is only one of many factors used at origination to assess the
probability of a business account defaulting. Therefore, the bank has
supplemented these FICO scores with additional custom scoring and other
underwriting criteria as more fully described under "The Bank's Business Card
Activities -- Underwriting Procedures" in the accompanying prospectus. Investors
should also note that the probability of a business account defaulting is only
one factor for predicting future dollar loss rates. Dollar loss rates are also
affected by, among other factors, credit line assignment strategies, card
utilization rates, seasonality, the level of bankruptcies and general
macroeconomic conditions.
- ---------------
* FICO(R) is a federally registered servicemark of Fair, Isaac & Company.
S-17
For those accounts the receivables of which where included in the trust
portfolio as of the beginning of the day on October 1, 2003, plus those accounts
that were designated to the trust on October 28, 2003, the receivables of which
were conveyed to the trust as of the beginning of the day on October 1, 2003,
the table below shows the FICO scores for the signing individuals for new
business relationships at the time an account was originated. We present it
solely to assist investors in understanding the credit quality at origination of
the signing individuals who are joint obligors on the account of the businesses
that we target and underwrite.
Since June 2000, we have not approved any new accounts if the signing
individual for that account had a FICO score of 660 or lower or the FICO score
was unavailable at the time of underwriting. Prior to June 2000 lower FICO
scores were permitted. There can be no assurance that the distributions of FICO
scores at time of origination described in the table below will remain constant
over the life of the trust because future accounts designated to the trust may
have distributions different than those presented below.
Because FICO scores for the signing individuals can and do change over
time, the table is not indicative of the distribution of the most recent FICO
scores for the signing individuals for relationships within the trust portfolio.
Distributions of the most recent FICO scores would show greater percentages in
the lower FICO score ranges. See "The Bank's Business Card Activities --
Underwriting Procedures" in the accompanying prospectus.
TRUST PORTFOLIO
FICO SCORES AT TIME OF ORIGINATION
BY BUSINESS RELATIONSHIP(1)
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE
NUMBER OF NUMBER OF OF TOTAL
FICO SCORE RANGE RELATIONSHIPS RELATIONSHIPS RECEIVABLES BALANCE RECEIVABLES
- ---------------- ------------- ------------- ------------------- -----------
No FICO Score.................... 2,053 0.20% $ 5,914,121 0.21%
Less than 600.................... 233 0.03% $ 155,168 0.00%
600-660.......................... 74,843 7.36% $ 235,627,434 8.22%
661-719.......................... 485,910 47.79% $1,532,401,973 53.44%
720 and Higher................... 453,693 44.62% $1,093,411,392 38.13%
--------- ------ -------------- ------
Total.......................... 1,016,732 100.00% $2,867,510,088 100.00%
========= ====== ============== ======
</Table>
- ------------
(1) Includes 298,253 inactive relationships with a $0.00 balance.
RECOVERIES
Pursuant to the terms of the indenture, the transferor will be required to
transfer to the trust all of the recoveries that are reasonably estimated by the
servicer on receivables in charged-off accounts designated to the trust,
including amounts received by the transferor or the servicer from the purchaser
or transferee with respect to the sale or other disposition of receivables in
charged-off accounts ("RECOVERIES"). Collections of recoveries will be treated
as collections of finance charge and administrative receivables and included as
part of the Net Portfolio Yield.
PAYMENT RATES
The following table sets forth the highest and lowest cardholder monthly
payment rates for the Advanta Business Card Portfolio during any month in the
periods shown and the cardholders' average monthly payment rates for all months
in the periods shown. Payment rates
S-18
shown in the table are based on amounts which would be deemed payments of
principal receivables and finance charge and administrative receivables for the
accounts.
ADVANTA BUSINESS CARD PORTFOLIO
MONTHLY PAYMENT RATES
<Table>
<Caption>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------------------
2003 2002 2001 2000 1999 1998
------------- ----- ----- ----- ----- -----
Lowest Month(1).................... 17.33% 17.10% 16.57% 17.91% 15.97% 12.32%
Highest Month(1)................... 21.76% 21.85% 21.06% 21.30% 19.10% 17.64%
Monthly Average(2)................. 20.19% 19.84% 19.29% 19.26% 17.85% 15.23%
</Table>
- ------------
(1) The monthly payment rates are calculated as the total amount of payments
received during the month divided by the total receivables outstanding on
the accounts as of the beginning of the month, including principal and
finance charge and administrative receivables.
(2) The monthly average payment rate is calculated as the average of the monthly
payment rates for the periods shown.
The amount of collections on receivables may vary from month to month due
to seasonal variations, general economic conditions and payment habits of
individual cardholders.
We cannot assure you that collections of principal receivables for the
trust portfolio, and thus the rate at which noteholders could expect to
accumulate or receive payments of principal on their notes during the controlled
accumulation period or the early amortization period, will be similar to the
historical experience of the Advanta Business Card Portfolio.
DEVELOPMENTS RELATING TO ADVANTA BANK CORP., ADVANTA CORP.
AND ITS OTHER SUBSIDIARIES
REGULATORY MATTERS
In 2000, the bank entered into agreements with its bank regulatory
agencies, primarily relating to the bank's subprime lending operations. These
agreements imposed temporary deposit growth limits at the bank and required
prior regulatory approval of cash dividends. In April 2002, the agreements were
removed and, as a result, the restrictions in the agreements on deposit growth
and payment of cash dividends were no longer applicable. In connection with
removing the agreements, the bank reached an understanding with its regulators
reflecting continued progress in the bank's ongoing efforts to enhance practices
and procedures. Effective October 2002, the understanding was revised. The
revised understanding replaced the provisions of the prior understanding and
provided for the bank to enhance certain of its internal planning and monitoring
processes. Effective October 2003, the regulatory understanding that the bank
reached with its regulators in October 2002 was removed by the bank's state and
federal regulators. This action brings to a conclusion the agreements and
understandings between the bank and its regulators described in this paragraph.
The bank's affiliate, Advanta National Bank ("ANB"), also reached
agreements in 2000 and 2001 with its bank regulatory agency, primarily relating
to ANB's subprime lending operations. The bank's management believes the ANB
agreements are immaterial to the bank's financial position or future operating
results.
Banking and finance businesses in general are the subject of extensive
regulation at the state and federal levels and legislative and regulatory
proposals frequently are proposed which, if adopted, could affect the bank's
profitability or the manner in which the bank conducts its business activities.
It is not possible to determine whether any of the current federal or state
S-19
legislative and regulatory proposals relating to the bank's businesses will
become law, and if so, the extent of their impact on the bank's activities or
future financial results.
LITIGATION
Advanta Corp. and certain of its subsidiaries have been involved in
litigation with Fleet Financial Group Inc. and certain of its subsidiaries
("FLEET") relating to the transfer of Advanta Corp.'s consumer credit card
business in 1998 (the "TRANSACTION"). Neither the bank nor the business card
business are directly involved in these matters, which are described below, and
management expects that the ultimate resolution of these matters will not have
any impact on the bank's ability to operate the business card business or the
bank's financial position or future operating results.
On January 22, 1999, Fleet and certain of its affiliates filed a lawsuit
against Advanta Corp. and certain of its subsidiaries in Delaware Chancery
Court. Fleet's allegations, which Advanta Corp. denied, centered around Fleet's
assertions that Advanta Corp. failed to complete certain post-closing
adjustments to the value of the assets and liabilities contributed to Fleet
Credit Card Services, LP in connection with the Transaction. Advanta Corp. filed
an answer to the complaint, and also filed a countercomplaint against Fleet for
damages it believes have been caused by certain actions of Fleet following the
closing of the Transaction. As a result of related litigation with Fleet, $70.1
million of Advanta Corp.'s reserves in connection with this litigation were
funded in an escrow account in February 2001.
On January 22, 2003, the trial court issued a decision ruling on all but
one of the remaining issues, and ordering further briefing on the remaining
outstanding issue. In the year ended December 31, 2002, Advanta Corp. recognized
a $43.0 million pretax loss on the transfer of its consumer credit card
business, representing the estimated impact of implementing the court's
decisions. This amount represented the amount in excess of the reserves Advanta
Corp. had been carrying for the litigation, which was based on its expectations
of the outcome of the litigation. In 2003, Advanta Corp. provided for interest
on the liability at a rate consistent with the estimation methodology used
effective December 31, 2002. On November 7, 2003, the court ruled on the
remaining outstanding issue, the method for calculating the interest to be
awarded. The court has ordered the parties to submit revised calculations in
accordance with this ruling before it issues a judgment. After considering the
November 2003 ruling, Advanta Corp. estimates that its reserves at September 30,
2003 were adequate. The ultimate resolution of any issues that may be appealed
could reduce or eliminate the December 2002 charge to our earnings, although
there can be no assurance as to the potential benefit, if any, to earnings at
this time.
In an ongoing element of Fleet's disputes with Advanta Corp., Fleet has
claimed $508 million of tax deductions from its partnership with Advanta Corp.
in connection with the Transaction which are required by law to be allocated
solely to Advanta Corp. As required, Advanta Corp. reported these deductions on
its 1998 corporate tax return. However, Advanta Corp. has not used or booked the
benefit from most of these deductions because for tax purposes it has a very
substantial net operating loss carryforward. The deductions are attributable to
deductions for bad debt reserves that were expensed by Advanta Corp. in
computing its book income or loss before the Transaction, but which were not
deductible by Advanta Corp. for tax purposes until after the closing of the
Transaction in 1998. The tax law requires such "built in losses" to be deducted
by the party who contributed the assets to the partnership, in this case Advanta
Corp. The Internal Revenue Service agents who have examined the returns at issue
have to ensure that both parties do not obtain the deductions and therefore,
following standard practice, proposed to disallow the deductions to both parties
until there is a final resolution. The deductions, as well as the allocation of
a gain from the sale of a partnership asset of approximately $47 million, are
now before the IRS Regional Office of Appeals.
On January 15, 2003, Fleet filed a complaint in Rhode Island Superior Court
seeking a declaratory judgment that Advanta Corp. indemnify Fleet under the
applicable partnership
S-20
agreement for any damage Fleet incurs by not being entitled to the $508 million
of tax deductions. Fleet is also seeking a declaratory judgment that it should
not indemnify Advanta Corp. for any damages that Advanta Corp. incurs due to any
allocation to it of the $47 million gain on the sale of a partnership asset.
Fleet's claim for indemnification appears to be brought in the hope that Advanta
Corp. will advise the IRS that it will agree with a substantial part of Fleet's
tax position. On February 28, 2003, Advanta Corp. filed a motion to dismiss the
complaint. On August 13, 2003, the court denied the motion to dismiss on
procedural grounds. Advanta Corp. answered the complaint and filed a
counterclaim against Fleet on September 19, 2003. Advanta Corp. believes that
the indemnification provision in the partnership agreement does not indemnify
Fleet for damages incurred related to tax deductions and that the lawsuit is
frivolous, having no legal basis whatsoever. Advanta Corp.'s management does not
expect this lawsuit or the tax issues discussed above to have a material adverse
effect on Advanta's financial condition or results of operations.
On July 26, 2001, Chase Manhattan Mortgage Corporation ("CHASE") filed a
complaint against Advanta Corp. and certain of its subsidiaries, including the
bank, in the United States District Court for the District of Delaware alleging,
among other things, that Advanta Corp. breached its contract with Chase in
connection with the February 2001 exit of Advanta Corp.'s mortgage business
through a purchase and sale agreement with Chase as purchaser (the "MORTGAGE
TRANSACTION"). Chase claims that Advanta Corp. misled Chase concerning the value
of certain of the assets sold to Chase. In September 2001, Advanta Corp. filed
an answer which denied all of the substantive allegations of the complaint and
asserted a counterclaim against Chase for breach of contract relating to funds
owed by Chase to Advanta Corp. in connection with the Mortgage Transaction. The
trial was originally scheduled to begin in January 2004. The parties extended
the discovery period and in the second quarter of 2003 in addition to the
parties further extending the discovery period, the scheduled date for trial to
begin was moved to April 2004. The discovery period has ended. In September
2003, Advanta Corp. filed a motion for summary judgment with the court with
respect to all claims raised in Chase's complaint and Chase filed a motion for
partial summary judgment with respect to certain of its claims. Advanta Corp.'s
management believes that the lawsuit is without merit and will vigorously defend
Advanta Corp. in this litigation. Management expects that the ultimate
resolution of this litigation will not have a material adverse effect on Advanta
Corp.'s or the named subsidiaries' financial position or future operating
results.
In addition, Advanta Corp. and its subsidiaries are involved in class
action lawsuits, other litigation, claims and legal proceedings arising in the
ordinary course of business or discontinued operations, including litigation
arising from Advanta Corp.'s operation of the mortgage business prior to the
Mortgage Transaction in the first quarter of 2001. Management believes that the
aggregate loss, if any, resulting from these actions will not have a material
adverse effect on the consolidated financial position or results of Advanta
Corp.'s operations based on the level of litigation reserves Advanta Corp. has
established and its current expectations regarding the ultimate resolutions of
each action, after consultation with Advanta Corp.'s attorneys. However, due to
the inherent uncertainty in litigation and since the ultimate resolution of
litigation, claims and other legal proceedings are influenced by factors outside
of Advanta Corp.'s control, it is reasonably possible that Advanta Corp.'s
estimated liability under these proceedings may change or that actual results
will differ from its estimates.
S-21
THE TRUST PORTFOLIO
The receivables conveyed to the trust arise in accounts selected from the
Advanta Business Card Portfolio at the time the trust was established, and in
additional accounts selected and designated to the trust since that time, on the
basis of criteria described in the transfer and servicing agreement (the "TRUST
PORTFOLIO"). The transferor has the right to designate additional accounts to
the trust portfolio and to transfer to the trust all receivables of those
additional accounts, whether the receivables already exist or arise after the
designation, if certain conditions are satisfied. For a discussion of these
conditions, see "Description of the Notes -- Addition of Trust Assets" in the
accompanying prospectus. In addition, the transferor will be required to
designate additional accounts, to the extent available, (a) to maintain the
Transferor Beneficial Interest so that, during any period of 30 consecutive
days, the Transferor Beneficial Interest averaged over that period equals or
exceeds the Required Transferor Interest for the same period and (b) to
maintain, for so long as notes of any series remain outstanding, an aggregate
amount of principal receivables in the trust portfolio equal to or greater than
the Required Minimum Principal Balance, as adjusted for any series having a
paired series as described in the related indenture supplement.
The transferor also has the right to designate certain removed accounts and
to require the indenture trustee to transfer all receivables in the removed
accounts back to the transferor, whether the receivables already exist or arise
after the designation, if certain conditions are satisfied. For a discussion of
these conditions, see "Description of the Notes -- Removal of Accounts" in the
accompanying prospectus.
Throughout the term of the trust, the accounts from which the receivables
arise will be the accounts designated by the transferor at the time the trust is
established, plus any additional accounts, minus any removed accounts. As a
result, the composition of the trust assets is expected to change over time. For
a general description of the receivables in the trust, see "The Trust Portfolio"
in the accompanying prospectus.
Non-performing accounts will not be included in the trust at its formation
or in an account addition. The transferor currently considers an account to be
non-performing if the receivables in the account have been charged off, if its
receivables have been determined to be fraudulent or determined to be involved
in voluntary or involuntary bankruptcy proceedings or if the account's card or
cards have been reported as lost or stolen. While non-performing accounts will
not be included at the trust's formation or in an account addition, the
transferor expects that some accounts will become non-performing after they have
been designated to the trust. To the extent an account is non-performing, the
transferor and the servicer will treat the receivables balance on that account
as a zero balance, for all purposes, including in all disclosures about the
asset pool. Less than 20% of the trust's receivables, by outstanding principal
balance, at the time the trust was formed, were, or immediately following any
account addition and at the time of the initial issuance of any series of notes
publicly offered by means of the accompanying prospectus, will be, 30 or more
days delinquent. The servicer will consider an account delinquent if less than
the minimum payment is received before the next statement date.
The following is selected information about the receivables, as they relate
to the businesses with which the bank has active account relationships. Active
accounts are those accounts that have a balance -- which may include a $0.00
balance -- and as to which: the obligor is not engaged in a bankruptcy
proceeding; the account has not been closed, revoked or frozen; the related
charge card has not been reported as stolen; the account has not been designated
as subject to fraud; there exists no prohibited authorizations; and with respect
to which there exists no prohibited interest accrual. The following information
is as of the beginning of the day on October 1, 2003 and includes accounts
designated to the trust on October 28, 2003, the
S-22
receivables of which were conveyed to the trust as of the beginning of the day
on October 1, 2003.
- The receivables in the trust portfolio consisted of $2,803,256,172 of
principal receivables, $64,253,915 of finance charge and administrative
receivables, for a combined total of $2,867,510,088 of principal
receivables and finance charge and administrative receivables (the
"RECEIVABLES BALANCE").
- The accounts of business relationships designated to the trust portfolio
had an average receivables balance of $3,991 and an average credit limit
of $12,509.
- The average receivable balance of the accounts of business relationships
designated to the trust portfolio expressed as a percentage of the
average total credit limit was 31.91%. The average age of the accounts of
business relationships designated for the trust portfolio was
approximately 32.06 months.
- Accounts of business relationships designated to the trust portfolio had
billing addresses in all 50 states, plus certain other U.S. territories
and possessions.
The following information and tables summarize the composition of the trust
portfolio, including accounts designated to the trust on October 28, 2003 as if
the $56,169,952 of receivables in those accounts were part of the trust as of
the beginning of the day on October 1, 2003. Because the future composition of
the trust portfolio may change over time, this information and these tables are
not necessarily indicative of the composition of the trust portfolio at any
subsequent time.
TRUST PORTFOLIO
ACCOUNT BALANCE
BY BUSINESS RELATIONSHIP(1)
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
ACCOUNT BALANCE RANGE RELATIONSHIPS RELATIONSHIPS BALANCE RECEIVABLES
- --------------------- ------------- ------------- -------------- -----------
Less than $0.00.............. 15,159 1.49% $ (3,802,891) (0.13)%
$0.00........................ 432,835 42.57% $ 0 0.00%
$0.01-$5,000................. 362,682 35.67% $ 604,219,511 21.07%
$5,000.01-$10,000............ 118,376 11.65% $ 855,239,681 29.82%
$10,000.01-$20,000........... 70,579 6.94% $ 965,444,131 33.67%
$20,000.01-$25,000........... 9,482 0.93% $ 210,668,633 7.35%
Over $25,000................. 7,619 0.75% $ 235,741,023 8.22%
--------- ------ -------------- ------
Total................... 1,016,732 100.00% $2,867,510,088 100.00%
========= ====== ============== ======
</Table>
- ------------
(1) Includes 298,253 inactive relationships with a $0.00 balance.
S-23
TRUST PORTFOLIO
CREDIT LIMIT
BY BUSINESS RELATIONSHIP(1)
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
CREDIT LIMIT RANGE RELATIONSHIPS RELATIONSHIPS BALANCE RECEIVABLES
- ------------------ ------------- ------------- -------------- -----------
$0....................... 20 0.00% $ 2,602 0.00%
$1-$1,500................ 8,773 0.86% $ 2,715,051 0.09%
$1,501-$5,000............ 201,337 19.80% $ 201,382,975 7.02%
$5,001-$10,000........... 330,038 32.46% $ 600,079,406 20.93%
$10,001-$15,000.......... 263,889 25.96% $ 714,444,791 24.92%
$15,001-$25,000.......... 174,565 17.17% $ 890,162,008 31.04%
$25,001-$35,000.......... 31,312 3.08% $ 323,174,165 11.27%
Over $35,000............. 6,798 0.67% $ 135,549,090 4.73%
--------- ------ -------------- ------
Total............... 1,016,732 100.00% $2,867,510,088 100.00%
========= ====== ============== ======
</Table>
- ------------
(1) Includes 298,253 inactive relationships with a $0.00 balance.
TRUST PORTFOLIO
MONTHS AS CUSTOMER
BY BUSINESS RELATIONSHIP(1)
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
ACCOUNT AGE RELATIONSHIPS RELATIONSHIPS BALANCE RECEIVABLES
- ----------- ------------- ------------- -------------- -----------
0 months to 3 months..... 33,781 3.32% $ 160,387,481 5.59%
4 months to 6 months..... 26,701 2.63% $ 111,528,992 3.89%
7 months to 9 months..... 51,656 5.08% $ 195,713,346 6.82%
10 months to 12 months... 68,101 6.70% $ 207,581,318 7.24%
13 months to 18 months... 87,088 8.57% $ 242,609,446 8.46%
19 months to 24 months... 65,382 6.43% $ 184,924,302 6.45%
25 months to 36 months... 182,941 17.99% $ 444,419,138 15.50%
37 months to 48 months... 224,454 22.08% $ 563,640,558 19.66%
49 months to 60 months... 84,540 8.31% $ 180,415,998 6.29%
Over 60 months........... 192,088 18.89% $ 576,289,509 20.10%
--------- ------ -------------- ------
Total............... 1,016,732 100.00% $2,867,510,088 100.00%
========= ====== ============== ======
</Table>
- ------------
(1) Includes 298,253 inactive relationships with a $0.00 balance.
S-24
TRUST PORTFOLIO
GEOGRAPHIC DISTRIBUTION
BY BUSINESS RELATIONSHIP(1)
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
GEOGRAPHIC LOCATION RELATIONSHIPS RELATIONSHIPS BALANCE RECEIVABLES
- ------------------- ------------- ------------- -------------- -----------
California....................... 139,758 13.75% $ 379,443,008 13.23%
Texas............................ 74,270 7.30% $ 211,024,559 7.36%
Florida.......................... 74,937 7.37% $ 206,946,182 7.22%
New York......................... 69,574 6.84% $ 186,785,677 6.51%
Illinois......................... 42,612 4.19% $ 124,169,753 4.33%
Pennsylvania..................... 41,090 4.04% $ 114,606,266 4.00%
Michigan......................... 33,461 3.29% $ 107,308,623 3.74%
Ohio............................. 31,878 3.14% $ 100,564,173 3.51%
New Jersey....................... 36,642 3.60% $ 94,569,354 3.30%
Georgia.......................... 25,190 2.48% $ 74,273,187 2.59%
Colorado......................... 23,582 2.32% $ 68,431,337 2.39%
Massachusetts.................... 26,286 2.59% $ 68,071,553 2.37%
North Carolina................... 22,603 2.22% $ 66,091,045 2.31%
Virginia......................... 21,966 2.16% $ 64,065,152 2.23%
Indiana.......................... 19,840 1.95% $ 62,930,239 2.19%
All Others(2).................... 333,043 32.76% $ 938,229,980 32.72%
--------- ------ -------------- ------
Total....................... 1,016,732 100.00% $2,867,510,088 100.00%
========= ====== ============== ======
</Table>
- ------------
(1) Includes 298,253 inactive relationships with a $0.00 balance.
(2) No state, U.S. territory or possession within "All Others" individually
accounts for more than 2.09% of the total receivables balance.
Since the largest number of account relationships whose accounts were
designated to the trust as of the beginning of the day on October 1, 2003, plus
accounts designated to the trust on October 28, 2003, were located in
California, Texas, Florida and New York, adverse economic conditions in these
states may have a direct impact on the timing and amount of payments on the
notes.
TRUST PORTFOLIO
DELINQUENCY
BY BUSINESS RELATIONSHIP(1)
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE
NUMBER OF NUMBER OF RECEIVABLES OF TOTAL
NUMBER OF DAYS DELINQUENT RELATIONSHIPS RELATIONSHIPS BALANCE RECEIVABLES
- ------------------------- ------------- ------------- -------------- -----------
Current.......................... 978,974 96.29% $2,575,022,880 89.80%
1 to 29 Days..................... 17,552 1.73% $ 117,045,362 4.08%
30 to 59 Days.................... 6,282 0.62% $ 50,425,350 1.76%
60 to 89 Days.................... 5,086 0.50% $ 43,678,053 1.52%
90 to 119 Days................... 3,405 0.33% $ 30,776,661 1.07%
120 to 149 Days.................. 2,842 0.28% $ 26,056,493 0.91%
150 to 179 Days.................. 2,590 0.25% $ 24,492,696 0.86%
180 days or more................. 1 0.00% $ 12,593 0.00%
--------- ------ -------------- ------
Total....................... 1,016,732 100.00% $2,867,510,088 100.00%
========= ====== ============== ======
</Table>
- ------------
(1) Includes 298,253 inactive relationships with a $0.00 balance.
S-25
MATURITY CONSIDERATIONS
You are expected to receive payment of principal in full on November 20,
2006. We call this date the "EXPECTED PRINCIPAL PAYMENT DATE." You may, however,
receive payments of principal earlier than the Expected Principal Payment Date
if a pay out event occurs and the early amortization period begins. The holders
of the Class B notes will not begin to receive payments of principal until the
final principal payment on the Class A notes has been made. The holders of the
Class C notes will not begin to receive payments of principal until the final
principal payments on the Class A notes and the Class B notes have been made.
The holders of the Class D notes will not begin to receive payments of principal
until the final principal payment on the Class A notes, the Class B notes and
the Class C notes have been made.
CONTROLLED ACCUMULATION PERIOD
Principal collections for payment to the Series 2003-D noteholders will
accumulate during the controlled accumulation period in the Principal Funding
Account established by the indenture trustee. The controlled accumulation period
is scheduled to begin at the close of business on February 28, 2006, but may be
delayed based on recent payment rate experience, as discussed under "Description
of Series Provisions -- Postponement of Controlled Accumulation Period" in this
prospectus supplement. On each payment date during the controlled accumulation
period, an amount will be deposited into the Principal Funding Account equal to,
for each monthly period, the least of:
- Available Principal Collections;
- the Controlled Deposit Amount; and
- the Adjusted Invested Amount prior to any deposits on that day.
We expect, but cannot assure you, that the amounts available in the
Principal Funding Account on the Expected Principal Payment Date will be
sufficient to pay in full the outstanding principal balance of the Class A
notes, the Class B notes, the Class C notes and the Class D notes. If these
amounts are not available on the Expected Principal Payment Date, a pay out
event will occur and the early amortization period will begin.
Your series of notes may be paired with one or more series of notes issued
at a later time once the controlled accumulation period for your series begins.
We cannot assure you that the terms of any paired series will not have an impact
on the calculation of the Investor Percentage or the timing or amount of
payments received by you as a Series 2003-D noteholder. The extent to which the
timing or amount of payments received by you may be affected will depend on many
factors, only one of which is a change in the calculation of the Investor
Percentage. See "Description of Series Provisions -- Allocation Percentages" and
"-- Fixed Allocation Definitions" in this prospectus supplement and "Description
of the Notes -- Paired Series" in the accompanying prospectus.
EARLY AMORTIZATION PERIOD
If a pay out event occurs during either the revolving period or the
controlled accumulation period, the early amortization period will begin. If a
pay out event occurs during the controlled accumulation period, on the next
payment date any amount on deposit in the Principal Funding Account will be
paid:
- first to Class A noteholders, up to the outstanding principal balance of
the Class A notes;
- then to Class B noteholders, up to the outstanding principal balance of
the Class B notes;
S-26
- then to Class C noteholders, up to the outstanding principal balance of
the Class C notes; and
- then to Class D noteholders, up to the outstanding principal balance of
the Class D notes.
In addition, if the outstanding principal balance of the Class A notes has
not been paid in full, after distribution of any amount on deposit in the
Principal Funding Account, Available Principal Collections in an amount not to
exceed the Invested Amount will be paid to the Class A noteholders on each
payment date until the earlier of:
- the date the Class A notes are paid in full; and
- October 20, 2009, called the "SERIES 2003-D TERMINATION DATE."
After the Class A notes have been paid in full, and if the Series 2003-D
termination date has not occurred, Available Principal Collections in an amount
not to exceed the Invested Amount will be paid to the Class B noteholders on
each payment date until the date the Class B notes are paid in full.
After the Class B notes have been paid in full, and if the Series 2003-D
termination date has not occurred, Available Principal Collections in an amount
not to exceed the Invested Amount will be paid to the Class C noteholders on
each payment date until the date the Class C notes are paid in full.
After the Class C notes have been paid in full, and if the Series 2003-D
termination date has not occurred, Available Principal Collections in an amount
not to exceed the Invested Amount will be paid to the Class D noteholders on
each payment date until the date the Class D notes are paid in full.
During the early amortization period, no Shared Principal Collections from
other series in group one will be allocated to make principal payments on the
Series 2003-D notes.
DESCRIPTION OF SERIES PROVISIONS
The following is a summary of the material provisions of the Series 2003-D
notes. This summary is not a complete description of the terms of the Series
2003-D notes. You should refer to "Description of the Notes" in the accompanying
prospectus as well as to the transfer and servicing agreement, the indenture and
the Series 2003-D indenture supplement for a complete description. The form of
each of these agreements has been filed with the SEC as an exhibit to the
registration statement for the notes.
ISSUANCE
The Class A notes, the Class B notes, the Class C notes and the Class D
notes comprise the "SERIES 2003-D NOTES." Only the Class A notes, the Class B
notes and the Class C notes are offered by this prospectus supplement and the
accompanying prospectus. We call these notes the "OFFERED NOTES." The Series
2003-D notes will be issued under the indenture, as supplemented by the
indenture supplement relating to the Series 2003-D notes (the "SERIES 2003-D
INDENTURE SUPPLEMENT"), in each case between the trust and the indenture
trustee. As described under "Description of the Notes -- Issuance of Additional
Series" in the accompanying prospectus, the transferor may cause the owner
trustee, on behalf of the trust, and the indenture trustee to execute further
indenture supplements in order to issue additional series.
The "CLOSING DATE" for the Series 2003-D notes will be on or about December
4, 2003. The offered notes will be issued in denominations of $1,000 and
integral multiples of $1,000 and will be available only in book-entry form,
registered in the name of Cede & Co., as nominee of DTC. As described under
"Description of the Notes -- General," "-- Book-Entry Registration"
S-27
and "-- Definitive Notes" in the accompanying prospectus, unless and until
definitive notes are issued, you will be able to transfer your notes only
through the facilities of DTC. You will receive payments and notices through DTC
and its participants. Payments of interest and principal will be made on each
payment date on which those amounts are due to the noteholders in whose names
Series 2003-D notes were registered on the record date for that payment date.
The "RECORD DATE" for the Series 2003-D notes is the business day immediately
preceding a payment date.
INTEREST PAYMENTS
The Class A notes will accrue interest at a rate of 0.27% per annum above
LIBOR as LIBOR is determined on the related LIBOR determination date for each
interest period (the "CLASS A NOTE INTEREST RATE").
The Class B notes will accrue interest at a rate of 1.15% per annum above
LIBOR as LIBOR is determined on the related LIBOR determination date for each
interest period (the "CLASS B NOTE INTEREST RATE").
The Class C notes will accrue interest at a rate of 2.90% per annum above
LIBOR as LIBOR is determined on the related LIBOR determination date for each
interest period (the "CLASS C NOTE INTEREST RATE").
The Class D notes will accrue interest at a rate of not more than 7.50% per
annum above LIBOR as LIBOR is determined on the related LIBOR determination date
for each interest period (the "CLASS D NOTE INTEREST RATE"). However, the Series
2003-D indenture supplement allows the transferor to cause the trust to change
the spread above LIBOR on the Class D notes to any percentage less than or equal
to 7.50% per annum with the prior written consent of each rating agency rating a
class of Series 2003-D notes without the prior consent of any noteholder, if the
Class D notes are held by the transferor or an affiliate of the transferor.
The indenture trustee will determine LIBOR for each interest period two
London business days before the related interest period commences. We call each
of these determination dates a "LIBOR DETERMINATION DATE." In calculating LIBOR,
a "LONDON BUSINESS DAY" is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market and which
must be a U.S. business day. However, for the first interest period, the
indenture trustee will determine LIBOR for the period from the closing date
through January 19, 2004 on December 2, 2003 and for the period from January 20,
2004 through February 19, 2004 on January 15, 2004. The sum of the interest
accrued during each of these periods will be paid on February 20, 2004.
An "INTEREST PERIOD" begins on and includes a payment date and ends on and
includes the day prior to the next payment date. However, the first interest
period will begin on and include the closing date and end on and include
February 19, 2004.
"LIBOR" means, for any LIBOR determination date, other than the first LIBOR
determination date, the London interbank offered rate for deposits in U.S.
dollars having a maturity of one month commencing on the related LIBOR
determination date (the "ONE-MONTH INDEX MATURITY") which appears on Telerate
Page 3750 as of 11:00 a.m., London time, on that LIBOR determination date. If
that rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States dollars,
having the One-Month Index Maturity and in an amount of not less than U.S.
$1,000,000, are offered by three major banks selected by the servicer at
approximately 11:00 a.m., London time, on that LIBOR determination date to prime
banks in the London interbank market. The indenture trustee will request the
principal London office of each of those banks to provide a quotation of its
rate. If at least two quotations are provided, the rate for that LIBOR
determination date will be the arithmetic mean of the quotations. If fewer than
two quotations
S-28
are provided, the rate for that LIBOR determination date will be the arithmetic
mean of the rates quoted by major banks in New York City, selected by the
servicer, at approximately 11:00 a.m., New York City time, on that day for loans
in United States dollars to leading European banks having the One Month Index
Maturity and in an amount equal to an amount of not less than U.S. $1,000,000;
provided that if the banks selected are not quoting as mentioned in this
sentence, LIBOR in effect for the applicable interest period will be LIBOR in
effect for the previous interest period.
All percentages resulting from any calculation of an interest rate will be
rounded to the nearest one-hundred-thousandth of a percentage point, with five
one millionths of a percentage point rounded upwards. For example, 9.876545%, or
0.09876545, would be rounded to 9.87655%, or 0.0987655. All dollar amounts used
in or resulting from that calculation will be rounded to the nearest cent, with
one-half cent or more being rounded upward.
"TELERATE PAGE 3750" means the display page currently so designated on the
Moneyline Telerate Service, or any other page that replaces that page on that
service for the purpose of displaying comparable rates or prices.
The Class A note interest rate, the Class B note interest rate, the Class C
note interest rate and the Class D note interest rate applicable to the
then-current and immediately preceding interest period may be obtained by
telephoning the indenture trustee at its corporate trust office at (800)
735-7777.
Interest on the notes will be calculated on the basis of the actual number
of days in the related interest period and a 360-day year.
Interest will be paid on each "PAYMENT DATE," which will be February 20,
2004 and the 20th day of each following month. If the 20th day is not a business
day, then the payment date will be the following business day. For purposes of
this prospectus supplement and the accompanying prospectus, a "BUSINESS DAY" is
any day other than a Saturday, a Sunday or a day on which banking institutions
in New York, Delaware, Utah or any other state in which the principal executive
offices of the seller, the owner trustee or the indenture trustee are located,
are authorized or obligated by law, executive order or governmental decree to be
closed.
Interest payments on the Class A notes, the Class B notes, the Class C
notes and the Class D notes on any payment date will be calculated on the
outstanding principal balance of the Class A notes, the Class B notes, the Class
C notes and the Class D notes, as applicable, as of the preceding record date.
However, interest for the first payment date will accrue at the applicable note
interest rate on the initial outstanding principal balance of the Class A notes,
the Class B notes, the Class C notes and the Class D notes, as applicable, from
the closing date.
Interest due on the Class A notes, the Class B notes, the Class C notes and
the Class D notes but not paid on any payment date will be payable on the
following payment date, together with additional interest on that amount at the
applicable note interest rate to the extent permitted by law. We refer to this
additional interest as "CLASS A ADDITIONAL INTEREST," "CLASS B ADDITIONAL
INTEREST," "CLASS C ADDITIONAL INTEREST" and "CLASS D ADDITIONAL INTEREST."
Additional interest will accrue on the same basis as interest on the Series
2003-D notes, and will accrue from the payment date on which the overdue
interest became due, to but excluding the payment date on which the additional
interest is paid. Unpaid additional interest will not also accrue additional
interest.
Interest payments on the Series 2003-D notes on any payment date will be
paid from Available Finance Charge Collections for the related monthly period
and, to the extent Available Finance Charge Collections are insufficient to pay
the interest, from any Shared Finance Charge Collections and Reallocated
Principal Collections for that monthly period. Interest payments on the Class C
notes and the Class D notes on any payment date will also be paid from available
amounts on deposit in the cash collateral account to the extent needed.
S-29
"AVAILABLE FINANCE CHARGE COLLECTIONS" means, for any monthly period, an
amount equal to the sum of:
- the Investor Percentage of collections of finance charge and
administrative receivables deposited in the collection account for that
monthly period;
- any net investment earnings on amounts on deposit in the collection
account and the Excess Funding Account treated as collections of finance
charge and administrative receivables and allocated to Series 2003-D;
- any net investment earnings on amounts on deposit in the Principal
Funding Account for that monthly period; and
- any amounts withdrawn from the reserve account which are required to be
included in Available Finance Charge Collections under the Series 2003-D
indenture supplement for the related payment date.
For purposes of the Series 2003-D notes, "FINANCE CHARGE AND ADMINISTRATIVE
RECEIVABLES" are periodic finance charges, annual membership fees and service
charges, late fees, overlimit fees, cash advance fees, the portion of
interchange and all other fees and charges on accounts designated by the
transferor to be included as finance charge and administrative receivables, and
any other amounts, other than principal receivables, designated by the
transferor to be "finance charge and administrative receivables." See "The Trust
Portfolio" in the accompanying prospectus for further information on the type of
receivables included in the trust.
The transferor will be required to transfer to the trust a percentage of
the interchange attributed to the accounts in the trust. Interchange arising
under the accounts will be allocated to the Invested Amount on the basis of the
Floating Investor Percentage of the ratio which the amount of principal
receivables in the trust bears to the total amount of principal receivables
attributable to accounts owned by the seller, as reasonably estimated by the
servicer. See "The Bank's Business Card Activities -- Interchange" in the
accompanying prospectus. Interchange will be treated as collections of finance
charge and administrative receivables for purposes of allocating collections of
finance charge and administrative receivables and making required monthly
payments. See "Description of Series Provisions -- Servicing Compensation and
Payment of Expenses" in this prospectus supplement.
Each "MONTHLY PERIOD" will be the period from and including the first day
of a calendar month to and including the last day of that calendar month. The
initial monthly period will commence on and include the closing date and end on
and include January 31, 2004.
PRINCIPAL PAYMENTS
Principal payments on the Series 2003-D notes will be paid from "AVAILABLE
PRINCIPAL COLLECTIONS" which, for any monthly period, equal:
- the Investor Percentage of collections of principal receivables for that
monthly period; minus
- the amount of Reallocated Principal Collections for that monthly period;
plus
- any Shared Principal Collections from other series in group one allocated
to your series; plus
- the amount of Available Finance Charge Collections to be treated as
Available Principal Collections as described under "Application of
Collections -- Payment of Interest, Fees and Other Items."
S-30
REVOLVING PERIOD
The "REVOLVING PERIOD" for the Series 2003-D notes begins on the closing
date and ends on the earlier of the date the controlled accumulation period or
the early amortization period begins. During the revolving period, the Investor
Percentage of collections of principal receivables will, subject to specified
limitations, including the allocation of any Reallocated Principal Collections
for that monthly period, be treated as Shared Principal Collections and used to
pay principal to other series in group one or will be paid to the holders of the
Transferor Beneficial Interest or deposited in the Excess Funding Account.
CONTROLLED ACCUMULATION PERIOD
The "CONTROLLED ACCUMULATION PERIOD" for the Series 2003-D notes is
scheduled to begin at the close of business on February 28, 2006, but may be
postponed, as discussed under "Description of Series Provisions -- Postponement
of the Controlled Accumulation Period" in this prospectus supplement.
The controlled accumulation period ends on the earliest of:
- the beginning of the early amortization period;
- the payment in full of the outstanding aggregate principal balance of the
Series 2003-D notes; and
- the Series 2003-D termination date.
If a pay out event occurs before the controlled accumulation period begins,
there will be no controlled accumulation period and the early amortization
period will begin.
On each payment date during the controlled accumulation period, the
indenture trustee at the written direction of the servicer will deposit in the
Principal Funding Account an amount equal to the least of (a) Available
Principal Collections for that payment date, (b) the applicable Controlled
Deposit Amount and (c) the Adjusted Invested Amount prior to any deposits on
that date. Amounts in the Principal Funding Account will be paid:
- first to Class A noteholders, up to the outstanding principal balance of
the Class A notes;
- then to Class B noteholders, up to the outstanding principal balance of
the Class B notes;
- then to Class C noteholders, up to the outstanding principal balance of
the Class C notes; and
- then to Class D noteholders, up to the outstanding principal balance of
the Class D notes;
in each case, on the Expected Principal Payment Date unless paid earlier due to
the commencement of the early amortization period.
During the controlled accumulation period, the portion of Available
Principal Collections not applied for the payment of principal on the Class A
notes, the Class B notes, the Class C notes or the Class D notes on a payment
date and not treated as Reallocated Principal Collections generally will be
treated as Shared Principal Collections and used to pay principal to other
series in group one or will be paid to the holders of the Transferor Beneficial
Interest or deposited in the Excess Funding Account.
EARLY AMORTIZATION PERIOD
The "EARLY AMORTIZATION PERIOD" for the Series 2003-D notes will begin on
the day on which a pay out event for Series 2003-D occurs.
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The early amortization period ends on the earlier of:
- the payment in full of the outstanding aggregate principal balance of the
Series 2003-D notes; and
- the Series 2003-D termination date.
On each payment date during the early amortization period, the Class A
noteholders will be entitled to receive Available Principal Collections for the
related monthly period in an amount up to the outstanding principal balance of
the Class A notes.
After payment in full of the outstanding principal balance of the Class A
notes, the Class B noteholders will be entitled to receive, on each payment date
during the early amortization period, Available Principal Collections for the
related monthly period in an amount up to the outstanding principal balance of
the Class B notes.
After payment in full of the outstanding principal balance of the Class B
notes, the Class C noteholders will be entitled to receive, on each payment date
during the early amortization period, Available Principal Collections for the
related monthly period in an amount up to the outstanding principal balance of
the Class C notes.
After payment in full of the outstanding principal balance of the Class C
notes, the Class D noteholders will be entitled to receive on each payment date
during the early amortization period, Available Principal Collections for the
related monthly period in an amount up to the outstanding principal balance of
the Class D notes.
During the early amortization period, no Shared Principal Collections from
other series in group one will be allocated to make principal payments on the
Series 2003-D notes.
See "-- Pay Out Events" below for a discussion of events that might lead to
the commencement of the early amortization period.
POSTPONEMENT OF CONTROLLED ACCUMULATION PERIOD
The controlled accumulation period is scheduled to last 8 months. However,
the servicer may elect to extend the revolving period and postpone the
controlled accumulation period by notifying the indenture trustee. The servicer
can make this election only if the conditions specified in the Series 2003-D
Indenture Supplement are satisfied.
On each determination date beginning on the Reserve Account Funding Date,
the servicer will review the amount of expected collections of principal
receivables and determine the number of months expected to be required to fully
fund the Principal Funding Account by the Expected Principal Payment Date and
may elect to postpone the controlled accumulation period. In making its
decision, the servicer is required to assume that the principal payment rate
will be no greater than the lowest monthly payment rate for the prior 12 months
and will consider the amount of principal expected to be allocable to
noteholders of all other series which are expected to be amortizing or
accumulating principal during the controlled accumulation period for Series
2003-D.
In no case will the controlled accumulation period be reduced to less than
one month.
The method for determining the number of months required to fully fund the
Principal Funding Account may be changed upon receipt of written confirmation
that the change will not result in the reduction or withdrawal by any rating
agency of its rating of any outstanding series or class.
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ALLOCATION PERCENTAGES
Under the indenture, for each monthly period, the servicer will allocate
among the Invested Amount, the invested amounts for all other series issued and
outstanding and the Transferor Beneficial Interest, all amounts collected on
finance charge and administrative receivables, all amounts collected on
principal receivables and all Defaulted Amounts for that monthly period. These
amounts will be allocated to Series 2003-D based on the Investor Percentage for
Series 2003-D.
FLOATING ALLOCATION DEFINITIONS
Defaulted Amounts and collections of finance charge and administrative
receivables at any time and principal receivables during the revolving period
will be allocated to the Invested Amount based on the Floating Investor
Percentage. The "FLOATING INVESTOR PERCENTAGE" means, for any monthly period,
the percentage equivalent of a fraction:
(a) the numerator of which is the Adjusted Invested Amount as of the
close of business on the last day of the preceding monthly period, or for
the first monthly period, the initial Invested Amount, and
(b) the denominator of which is the greater of:
(i) the sum of (A) the aggregate amount of principal receivables in
the trust as of the close of business on the last day of the preceding
monthly period, or for the first monthly period, the aggregate amount of
principal receivables in the trust as of the close of business on the
closing date, and (B) the principal amount on deposit in the Excess
Funding Account as of the close of business on the last day of the
preceding monthly period, or for the first monthly period, as of the
closing date, and
(ii) the sum of the numerators used to calculate the Investor
Percentages for allocations of finance charge and administrative
receivables, Defaulted Amounts or principal receivables, as applicable,
for all outstanding series on the date of determination.
The denominator used in the calculation of Floating Investor Percentage,
however, will be adjusted as follows, for any monthly period in which a Reset
Date occurs:
the amount in clause (b)(i)(A) above will be:
(1) the aggregate amount of principal receivables in the trust as
of the close of business on the last day of the prior monthly period,
for the period from and including the first day of the prior monthly
period to but excluding the related Reset Date; and
(2) the aggregate amount of principal receivables in the trust as
of the opening of business on the related Reset Date after adjusting for
the aggregate amount of principal receivables added to or removed from
the trust on the related Reset Date, for the period from and including
the related Reset Date to and including the last day of that monthly
period.
FIXED ALLOCATION DEFINITIONS
Collections of principal receivables during the controlled accumulation
period and early amortization period will be allocated to the Invested Amount
based on the Fixed Investor Percentage. The "FIXED INVESTOR PERCENTAGE" means,
for any monthly period, the percentage equivalent of a fraction:
(a) the numerator of which is the Invested Amount as of the close of
business on the last day of the revolving period; and
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(b) the denominator of which is the greater of:
(i) the sum of (A) the aggregate amount of principal receivables in
the trust as of the close of business on the last day of the prior
monthly period, or for the first monthly period, the aggregate amount of
principal receivables in the trust as of the close of business on the
closing date, and (B) the principal amount on deposit in the Excess
Funding Account as of the close of business on the last day of the
preceding monthly period, or for the first monthly period, as of the
closing date, and
(ii) the sum of the numerators used to calculate the Investor
Percentages for allocations of principal receivables for all outstanding
series on the date of determination.
The denominator used in the calculation of Fixed Investor Percentage,
however, will be adjusted as follows, for any monthly period in which a Reset
Date occurs:
the amount in clause (b)(i)(A) above will be:
(1) the aggregate amount of principal receivables in the trust as
of the close of business on the last day of the prior monthly period,
for the period from and including the first day of the prior monthly
period to but excluding the related Reset Date; and
(2) the aggregate amount of principal receivables in the trust as
of the opening of business on the related Reset Date after adjusting for
the aggregate amount of principal receivables added to or removed from
the trust on the related Reset Date, for the period from and including
the related Reset Date to and including the last day of that monthly
period.
REALLOCATED PRINCIPAL COLLECTIONS
On each payment date, if the sum of Class A Monthly Interest, Class B
Monthly Interest, Class C Monthly Interest and the noteholder servicing fee
cannot be paid from Available Finance Charge Collections, Shared Finance Charge
Collections as described under "-- Application of Collections," and, in the case
of monthly interest on the Class C notes, from amounts withdrawn from the cash
collateral account, then collections of principal receivables allocated to the
Invested Amount will be treated as collections of finance charge and
administrative receivables and will be available to pay these amounts in an
amount equal to the Reallocated Principal Collections, and the Invested Amount
will be reduced accordingly. A reduction in the Invested Amount will reduce the
allocation of collections of finance charge and administrative receivables and
collections of principal receivables to your series.
"REALLOCATED PRINCIPAL COLLECTIONS" means for any monthly period Available
Principal Collections used to pay interest on the Class A notes, the Class B
notes or the Class C notes or used to pay the monthly servicing fee in an amount
equal to:
the lower of:
- the excess of the amounts needed to pay current and past due Class A
Monthly Interest and Class A additional interest as described under
"-- Application of Collections -- Payment of Interest, Fees and Other
Items" below over the Available Finance Charge Collections and Shared
Finance Charge Collections allocated to cover these amounts; and
- 20.00% of the initial Invested Amount, minus the amount of
unreimbursed Investor Charge-Offs and unreimbursed Reallocated
Principal Collections;
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plus the lower of:
- the sum of (a) the excess of the amounts needed to pay current and
past due Class B Monthly Interest and Class B additional interest as
described under "-- Application of Collections -- Payments of
Interest, Fees and Other Items" below over the Available Finance
Charge Collections and Shared Finance Charge Collections allocated to
cover these amounts and (b) the excess of the monthly servicing fee
over the Available Finance Charge Collections and Shared Finance
Charge Collections allocated to cover these amounts; and
- 10.75% of the initial Invested Amount minus the amount of unreimbursed
Investor Charge-Offs and unreimbursed Reallocated Principal
Collections;
plus the lower of:
- the excess of the amounts needed to pay current and past due Class C
Monthly Interest and Class C additional interest as described under
"-- Application of Collections -- Payment of Interest, Fees and Other
Items" below over the Available Finance Charge Collections, Shared
Finance Charge Collections and amounts withdrawn from the cash
collateral account for the benefit of the Class C notes allocated to
cover these amounts; and
- 3.50% of the initial Invested Amount, minus the amount of unreimbursed
Investor Charge-Offs and unreimbursed Reallocated Principal
Collections.
APPLICATION OF COLLECTIONS
PAYMENT OF INTEREST, FEES AND OTHER ITEMS
On each payment date, the servicer will direct the indenture trustee to
apply Available Finance Charge Collections and Shared Finance Charge Collections
allocated to Series 2003-D on deposit in the collection account in the following
order:
- an amount equal to the Class A Monthly Interest plus Class A additional
interest due for the related payment date, and past due for any prior
payment dates, will be paid to the Class A noteholders;
- an amount equal to the Class B Monthly Interest plus Class B additional
interest due for the related payment date, and past due for any prior
payment dates, will be paid to the Class B noteholders;
- an amount equal to the monthly servicing fee due for the related payment
date, plus the amount of such portion of the monthly servicing fee past
due for any prior payment date, will be paid to the servicer;
- an amount equal to the Class C Monthly Interest plus Class C additional
interest due for the related payment date, and past due for any prior
payment dates, will be paid to the Class C noteholders;
- an amount equal to any Investor Default Amount for the related monthly
period, will be treated as Available Principal Collections;
- an amount equal to the sum of the Investor Charge-Offs and the amount of
unreimbursed Reallocated Principal Collections will be treated as
Available Principal Collections;
- on and after the Reserve Account Funding Date, but prior to the
termination of the reserve account, an amount equal to any excess of the
Required Reserve Account Amount over the amount then on deposit in the
reserve account will be deposited into the reserve account;
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- an amount equal to the Class D Monthly Interest plus Class D additional
interest due for the related payment date, and past due for any prior
payment dates, will be paid to the Class D noteholders;
- an amount equal to any excess of the Required Cash Collateral Account
Amount over the amount then on deposit in the cash collateral account
will be deposited into the cash collateral account;
- all remaining amounts will be treated as Shared Finance Charge
Collections and will be available to cover any shortfalls in collections
of finance charge and administrative receivables for other outstanding
series in group one; and
- after payment of these shortfalls, the remaining amount will be paid to
the holders of the Transferor Beneficial Interest.
In the event that Available Finance Charge Collections and Shared Finance
Charge Collections allocated to Series 2003-D for any monthly period are
insufficient to pay first, the Class C Monthly Interest or then, the Class D
Monthly Interest when due, a draw will be made from amounts available in the
cash collateral account to the extent of that insufficiency and will be paid to
the Class C noteholders or the Class D noteholders on the related payment date.
PAYMENT OF PRINCIPAL
On each payment date, the servicer will direct the indenture trustee to
apply Available Principal Collections on deposit in the collection account in
the following priority:
- on each payment date during the revolving period, all Available Principal
Collections will be treated as Shared Principal Collections and applied
as described under "Description of Series Provisions -- Shared Principal
Collections" in this prospectus supplement and "Description of the
Notes -- Shared Principal Collections" in the accompanying prospectus;
- on each payment date during the controlled accumulation period and the
early amortization period, all Available Principal Collections will be
paid or deposited in the following priority:
- during the controlled accumulation period, an amount equal to Monthly
Principal will be deposited in the Principal Funding Account;
- during the early amortization period, an amount equal to the Monthly
Principal will be distributed to the paying agent for payment to the
Class A noteholders until the outstanding principal balance of the
Class A notes has been paid in full;
- during the early amortization period, an amount equal to Monthly
Principal will, after the outstanding principal balance of the Class A
notes has been paid in full, be distributed to the paying agent for
payment to the Class B noteholders until the outstanding principal
balance of the Class B notes has been paid in full;
- during the early amortization period, an amount equal to Monthly
Principal will, after the outstanding principal balances of the Class
A notes and the Class B notes have been paid in full, be distributed
to the paying agent for payment to the Class C noteholders until the
outstanding principal balance of the Class C notes has been paid in
full; and
- during the early amortization period, an amount equal to Monthly
Principal will, after the outstanding principal balances of the Class
A notes, the Class B notes and the Class C notes have been paid in
full, be distributed to the paying agent for payment to the Class D
noteholders until the outstanding principal balance of the Class D
notes has been paid in full; and
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- on each payment date during the controlled accumulation period and the
early amortization period, any Available Principal Collections not
applied as described above will be treated as Shared Principal
Collections and applied as described under "Description of Series
Provisions -- Shared Principal Collections" in this prospectus supplement
and "Description of the Notes -- Shared Principal Collections" in the
accompanying prospectus.
- during the early amortization period, no Shared Principal Collections
from other series in group one will be allocated to make principal
payments on the Series 2003-D notes.
"ACCUMULATION SHORTFALL" means:
(a) on the first payment date during the controlled accumulation
period, zero; and
(b) on each subsequent payment date during the controlled accumulation
period, any excess of the Controlled Deposit Amount for the previous
monthly period over the amount deposited in the Principal Funding Account
for the previous monthly period.
"CONTROLLED ACCUMULATION AMOUNT" for any payment date during the controlled
accumulation period means $50,000,000. However, if the commencement of the
controlled accumulation period is postponed as described under "-- Postponement
of Controlled Accumulation Period" in this prospectus supplement, the Controlled
Accumulation Amount may be higher than the amount stated above for each payment
date during the controlled accumulation period and will be determined by the
servicer in accordance with the Series 2003-D Indenture Supplement based on the
principal payment rates for the accounts and on the invested amounts of other
series, other than certain excluded series, which are scheduled to be in their
revolving periods and then scheduled to create Shared Principal Collections
during the controlled accumulation period.
"CONTROLLED DEPOSIT AMOUNT" for any payment date during the controlled
accumulation period means the sum of (i) the Controlled Accumulation Amount for
that payment date, plus (ii) any Accumulation Shortfall.
"MONTHLY PRINCIPAL" for any payment date will equal the least of (i) the
Available Principal Collections on deposit in the collection account for that
payment date, (ii) for each payment date during the controlled accumulation
period, the Controlled Deposit Amount for that payment date, and (iii) the
Adjusted Invested Amount, as adjusted for any Investor Charge-Offs and
Reallocated Principal Collections on that payment date, prior to any deposits
into the Principal Funding Account on that payment date.
SUBORDINATION
The Class B notes, the Class C notes and the Class D notes are subordinated
to the Class A notes. The Class C notes and the Class D notes are subordinated
to the Class B notes. The Class D notes are subordinated to the Class C notes.
Interest payments will be made on the Class A notes prior to being made on
the Class B notes, the Class C notes and the Class D notes. Interest payments
will be made on the Class B notes prior to being made on the Class C notes and
the Class D notes. Interest payments will be made on the Class C notes prior to
being made on the Class D notes.
Principal payments on the Class B notes will not begin until the Class A
notes have been paid in full. Principal payments on the Class C notes will not
begin until the Class A notes and the Class B notes have been paid in full.
Principal payments on the Class D notes will not begin until the Class A notes,
the Class B notes and the Class C notes have been paid in full. If collections
of principal receivables allocated to your series are reallocated to pay the
interest on the Class A notes, the principal balance of the Class D notes, the
Class C notes and the Class B notes may not be repaid. If collections of
principal receivables allocated to your series are reallocated to pay interest
on the Class B notes, the principal balance of the Class D notes and
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the Class C notes may not be repaid. If a foreclosure certificate is sold after
an event of default, the net proceeds of that sale which are available to pay
principal on the Series 2003-D notes would be paid first to the Class A notes
before any remaining net proceeds would be available for payments due to the
Class B notes, the Class C notes or the Class D notes, to the Class B notes
before any remaining net proceeds would be available for payments due to the
Class C notes and the Class D notes and to the Class C notes before any
remaining net proceeds would be available for payments due to the Class D notes.
SHARED FINANCE CHARGE COLLECTIONS
Collections of finance charge and administrative receivables and other
amounts treated as collections of finance charge and administrative receivables
in excess of the amount required to make payments or deposits for your series
will be made available to other series included in group one whose allocation of
collections of finance charge and administrative receivables is not sufficient
to make its required payments or deposits. Similarly, if collections of finance
charge and administrative receivables allocated through the Investor Percentage
to Series 2003-D are insufficient to make specified payments described under
"-- Application of Collections -- Payment of Interest, Fees and Other Items" in
this prospectus supplement, your series will have access to collections of
finance charge and administrative receivables and other amounts treated like
collections of finance charge and administrative receivables from other series
in group one for that payment date, if any, to the extent they exceed the
amounts necessary to make required payments for those series. We call these
collections that are available for sharing between series "SHARED FINANCE CHARGE
COLLECTIONS." For each payment date, Shared Finance Charge Collections will be
allocated to Series 2003-D in an amount equal to the product of (1) the total
amount of Shared Finance Charge Collections for that payment date for all series
in group one that are designated to share excess finance charge and
administrative receivables and (2) a fraction, the numerator of which is the
Finance Charge Shortfall for Series 2003-D for that payment date and the
denominator of which is the total amount of shortfalls in collections of finance
charge and administrative receivables for that payment date for all series in
group one that are designated to share excess finance charge and administrative
receivables. The "FINANCE CHARGE SHORTFALL" for Series 2003-D for any payment
date will be equal to any excess of the full amount required to be paid as
described in the first eight bullet points under "-- Application of
Collections -- Payment of Interest, Fees and Other Items" in this prospectus
supplement over the amount of collections of finance charge and administrative
receivables and amounts treated as collections of finance charge and
administrative receivables, other than Shared Finance Charge Collections,
allocated through the Investor Percentage to Series 2003-D. The amount of the
shortfall for each other series will be calculated as described in the documents
governing each series.
SHARED PRINCIPAL COLLECTIONS
Collections of principal receivables for any monthly period allocated to
the Invested Amount will first be used to cover, for any monthly period during
the controlled accumulation period, deposits of the Controlled Deposit Amount to
the Principal Funding Account, and during the early amortization period,
payments to the noteholders. The servicer will determine the amount of
collections of principal receivables for any monthly period allocated to the
Invested Amount remaining after covering required payments to the noteholders.
This remaining amount constitutes "SHARED PRINCIPAL COLLECTIONS." The servicer
will make a similar determination for all other series in group one. The
servicer will allocate the Shared Principal Collections of all series to cover
any scheduled or permitted principal payments to noteholders and any deposits to
principal funding accounts for any series in group one which have not been
covered out of the collections of principal receivables allocable to that series
in group one and certain other amounts for those series. We call these uncovered
amounts "PRINCIPAL SHORTFALLS." Shared Principal Collections will not be used to
cover investor charge-offs for any series. If Principal
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Shortfalls exceed Shared Principal Collections for any monthly period, then
Shared Principal Collections will be allocated among the applicable series in
group one based on the relative amounts of Principal Shortfalls. To the extent
that Shared Principal Collections exceed Principal Shortfalls, the balance will
be paid to the holders of the Transferor Beneficial Interest or deposited in the
Excess Funding Account. During the early amortization period, no Shared
Principal Collections from other series in group one will be allocated to make
principal payments on the Series 2003-D notes.
Shared Principal Collections for series in group one for each payment date
will be allocated to Series 2003-D in an amount equal to (1) the total of Shared
Principal Collections for all series in group one for that payment date,
multiplied by (2) a fraction, the numerator of which is the Series 2003-D
Principal Shortfall for that payment date and the denominator of which is the
total amount of Principal Shortfalls for that payment date for all series of
group one that are principal sharing series.
DEFAULTED RECEIVABLES; INVESTOR CHARGE-OFFS
The Investor Default Amount represents the series' share of losses from the
trust portfolio. On each payment date, the servicer will calculate the "INVESTOR
DEFAULT AMOUNT" by multiplying:
- the Floating Investor Percentage for that month; by
- the "DEFAULTED AMOUNT," which is the total amount of principal
receivables, other than ineligible receivables, in the trust that were
charged-off for that month.
If the Investor Default Amount exceeds the amount of collections of finance
charge and administrative receivables allocated to fund this amount for the
prior month, then the Invested Amount will be reduced by the excess as an
"INVESTOR CHARGE-OFF." In no event, however, will the Invested Amount be reduced
below zero. Reductions in the Invested Amount may be reimbursed from subsequent
collections of finance charge and administrative receivables allocated for
reimbursement. If the Invested Amount is reduced to zero, your series will not
receive any further allocations of collections of finance charge and
administrative receivables and collections of principal receivables.
PRINCIPAL FUNDING ACCOUNT
The indenture trustee will establish and maintain with an eligible
institution an eligible deposit account held for the benefit of the noteholders
to serve as the "PRINCIPAL FUNDING ACCOUNT." During the controlled accumulation
period, the indenture trustee at the direction of the servicer will transfer
Available Principal Collections from the collection account to the Principal
Funding Account as described under "-- Application of Collections" in this
prospectus supplement.
Funds on deposit in the Principal Funding Account will be invested to the
following payment date by the indenture trustee at the direction of the servicer
in eligible investments. Investment earnings, net of investment losses and
expenses, on funds on deposit in the Principal Funding Account will be deposited
in the collection account and included in Available Finance Charge Collections
for the related interest period.
If, for any payment date, the net investment earnings are less than the
product of (i) the balance of the Principal Funding Account, (ii) the weighted
average of the Class A note interest rate, the Class B note interest rate, the
Class C note interest rate and the Class D note interest rate for the related
interest period and (iii) the number of days in the related interest period
divided by 360, then the indenture trustee will withdraw the shortfall, called
the "RESERVE DRAW AMOUNT," to the extent required and available, from the
reserve account and deposit it in the collection account for use as Available
Finance Charge Collections.
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RESERVE ACCOUNT
The indenture trustee will establish and maintain a segregated trust
account with an eligible institution for the benefit of the noteholders to serve
as the "RESERVE ACCOUNT." The reserve account is established to assist with the
payment of interest on the notes during the controlled accumulation period and
on the first payment date during any early amortization period that starts after
the Reserve Account Funding Date. On each payment date from and after the
Reserve Account Funding Date, but prior to the termination of the reserve
account, the indenture trustee, acting on the servicer's instructions, will
apply Available Finance Charge Collections and Shared Finance Charge Collections
allocated to the Series 2003-D notes, 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 up to the Required Reserve
Account Amount.
The "RESERVE ACCOUNT FUNDING DATE" will be the payment date for the monthly
period which commences no later than three months prior to the commencement of
the controlled accumulation period, or an earlier date selected by the servicer.
The "REQUIRED RESERVE ACCOUNT AMOUNT" for any payment date on or after the
reserve account funding date will be equal to (a) the product of (i) 0.50% of
the outstanding aggregate principal balance of the Class A notes, the Class B
notes, the Class C notes and the Class D notes as of the preceding payment date
and (ii) a fraction the numerator of which is the number of monthly periods
scheduled to be included in the controlled accumulation period as of that date,
and the denominator of which is eight (except that if the numerator is one, the
Required Reserve Account Amount determined as described above will be $0) or (b)
any other amount selected by the transferor. However, if the amount designated
by the transferor under clause (b) is less than the amount in clause (a), the
transferor will provide the servicer and the indenture trustee with written
confirmation that the designation will not result in the reduction or withdrawal
by any rating agency of its rating of any outstanding series or class, and the
transferor will deliver to the indenture trustee a certificate of an authorized
officer to the effect that, based on the facts known to that officer at the
time, in the reasonable belief of the transferor, the other amount selected will
not cause a pay out event or an event that, after the giving of notice or the
lapse of time, would cause a pay out event to occur for Series 2003-D.
On each payment date, after giving effect to any deposit to be made to, and
any withdrawal to be made from, the reserve account on that payment date, the
indenture trustee will withdraw from the reserve account an amount equal to any
excess of the amount on deposit in the reserve account over the Required Reserve
Account Amount. The indenture trustee will deposit the excess in the cash
collateral account to the extent that funds available in the cash collateral
account are less than the Required Cash Collateral Account Amount and will
distribute any remaining excess to the holders of the Transferor Beneficial
Interest. Any amounts withdrawn from the reserve account and deposited in the
cash collateral account as described above will be available for distribution
only to the holders of the Class C notes and the Class D notes. Any amounts
withdrawn from the reserve account and distributed to the holders of the
Transferor Beneficial Interest as described above will not be available for
distribution to the noteholders.
So long as the reserve account is not terminated as described below, all
amounts on deposit in the reserve account on any payment date, after giving
effect to any deposits to, or withdrawals from, the reserve account to be made
on that payment date, will be invested to the following payment date by the
indenture trustee at the direction of the servicer in eligible investments. The
interest and other investment income, net of investment expenses and losses,
earned on these investments will be retained in the reserve account, to the
extent the amount on deposit is less than the Required Reserve Account Amount,
or deposited in the collection account and treated as Available Finance Charge
Collections.
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On or before each payment date during the controlled accumulation period
and on the first payment date during the early amortization period, the
indenture trustee will withdraw from the reserve account and deposit in the
collection account to be included as Available Finance Charge Collections for
that payment date an aggregate amount equal to the least of:
- the amount then on deposit in the reserve account for that payment date;
- the Required Reserve Account Amount; and
- the Reserve Draw Amount for that payment date.
However, the amount of the withdrawal will be reduced to the extent that funds
otherwise would be available to be deposited in the reserve account on that
payment date.
The reserve account will be terminated upon the earliest of:
- the first payment date during the early amortization period;
- the Expected Principal Payment Date; and
- the Series 2003-D termination date.
Upon the termination of the reserve account, all amounts on deposit in the
reserve account, after giving effect to any withdrawal from the reserve account
on that date as described above, will be deposited in the cash collateral
account to the extent that funds available in the cash collateral account are
less than the Required Cash Collateral Account Amount and any remaining amounts
will be distributed to the holders of the Transferor Beneficial Interest. Any
amounts withdrawn from the reserve account and deposited in the cash collateral
account as described above will be available for distribution only to the
holders of the Class C notes and the Class D notes. Any amounts withdrawn from
the reserve account and distributed to the holders of the Transferor Beneficial
Interest as described above will not be available for distribution to the
noteholders.
CASH COLLATERAL ACCOUNT
The servicer will establish and maintain a segregated account with an
eligible institution for the benefit of the Class C noteholders and Class D
noteholders called the "CASH COLLATERAL ACCOUNT." Amounts on deposit in the cash
collateral account will be used to fund shortfalls in interest payments first,
on the Class C notes and then, the Class D notes and on the Series 2003-D
termination date to fund any shortfall in payment of the outstanding principal
balance first, of the Class C notes and then, the Class D notes.
The cash collateral account initially will be funded with a deposit of
$9,000,000 on the Closing Date and will be funded thereafter by (a) Available
Finance Charge Collections and Shared Finance Charge Collections, as described
above under "-- Application of Collections -- Payment of Interest, Fees and
Other Items" in this prospectus supplement, (b) any amounts withdrawn from the
reserve account, as described above under "-- Reserve Account" in this
prospectus supplement, and deposited into the cash collateral account on any
payment date to the extent that the funds available in the cash collateral
account are less than the Required Cash Collateral Account Amount on that
payment date and (c) investment earnings on funds in the cash collateral
account.
The "REQUIRED CASH COLLATERAL ACCOUNT AMOUNT" is, for each payment date, in
general the product of (a) the Cash Collateral Account Percentage in effect on
that date and (b) the initial Invested Amount. However, in the absence of an
event of default for your series, the Required Cash Collateral Account Amount
will not exceed the outstanding aggregate principal balance of the Class C notes
and the Class D notes minus any excess of the Principal Funding Account balance
over the sum of the outstanding principal balances of the Class A notes and
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the Class B notes on that date. The Required Cash Collateral Account Amount will
be determined on each payment date.
Upon an event of default for your series, the Required Cash Collateral
Account Amount for any payment date will be equal to the sum of (a) the amount
on deposit in the cash collateral account on that payment date plus (b)
Available Finance Charge Collections and Shared Finance Charge Collections for
that payment date available immediately after funding the reserve account.
However, following an event of default for your series, if the maturity of your
notes is not accelerated, the Required Cash Collateral Account Amount will be
limited to an amount equal to the outstanding principal amount of your series of
notes.
The "CASH COLLATERAL ACCOUNT PERCENTAGE" will be determined as follows:
<Table>
<Caption>
IF THE QUARTERLY EXCESS THEN, THE CASH
SPREAD PERCENTAGE IS COLLATERAL ACCOUNT
GREATER THAN OR EQUAL TO: AND LESS THAN PERCENTAGE WILL EQUAL:
- ------------------------- ------------- ----------------------
4.50% -- 2.25%
4.00% 4.50% 3.25%
3.50% 4.00% 4.25%
3.00% 3.50% 4.75%
2.00% 3.00% 5.25%
0.00% 2.00% 6.25%
-- 0.00% 10.75%
</Table>
However, if a pay out event, other than a pay out event resulting from the
occurrence of an event of default for Series 2003-D has occurred, the Cash
Collateral Account Percentage will be 10.75%.
The Cash Collateral Account Percentage will remain at the specified
percentage until further increased to a higher required percentage as specified
in the table above or decreased to a lower required percentage as described in
the Series 2003-D Indenture Supplement.
The transferor may at any time in its sole discretion decrease the
"Required Cash Collateral Percentage." However, any decrease in the Required
Cash Collateral Percentage is permitted only if that decrease will not cause a
reduction or withdrawal by any rating agency of its rating of any outstanding
series or class.
The "QUARTERLY EXCESS SPREAD PERCENTAGE" will be determined as follows:
For the February 2004 payment
date The Excess Spread Percentage for the February
2004 payment date
For the March 2004 payment
date One half of the sum of the Excess Spread
Percentage for the February 2004 payment date
plus the Excess Spread Percentage for the March
2004 payment date
For the April 2004 payment
date One third of the sum of the Excess Spread
Percentage for the February 2004 payment date
plus the Excess Spread Percentage for the March
2004 payment date plus the Excess Spread
Percentage for the April 2004 payment date
For each following payment
date One third of the sum of the Excess Spread
Percentage for the then-current payment date
plus the Excess Spread Percentage for the
previous payment date plus the Excess Spread
Percentage for the second prior payment date
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Funds on deposit in the cash collateral account will be invested at the
direction of the servicer in eligible investments. Investment earnings, net of
losses and investment expenses, will be deposited into the cash collateral
account and will be available for payment to holders of the Class C notes and
the Class D notes.
CASH COLLATERAL ACCOUNT DISTRIBUTIONS
If on any payment date, the aggregate interest to be paid on the Class C
notes and the Class D notes exceeds the amount allocated to pay that interest,
prior to the application of any Reallocated Principal Collections, the servicer
will direct the indenture trustee to withdraw from the cash collateral account
the least of (i) the amount on deposit in the cash collateral account, including
investment earnings, (ii) the Required Cash Collateral Account Amount and (iii)
the amount of the shortfall, and will deposit that amount into the collection
account for payment of interest first, on the Class C notes and, then on the
Class D notes.
On the Series 2003-D termination date, funds available in the cash
collateral account, after giving effect to any withdrawals to be made as
discussed in the preceding paragraph, will be used to fund any shortfall in the
payment of the outstanding principal balance first, of the Class C notes and,
then, of the Class D notes.
Funds on deposit in the cash collateral account on any payment date in
excess of the Required Cash Collateral Account Amount on that date will be paid
to the holders of the Transferor Beneficial Interest. On the date on which all
amounts due the Class C noteholders and the Class D noteholders from the cash
collateral account have been paid in full, all amounts then remaining in the
cash collateral account will be distributed to the holders of the Transferor
Beneficial Interest.
ADDITIONAL SERIES ENHANCEMENT
The transferor may at any time in its sole discretion arrange for any
additional series enhancement for the benefit of any class or classes of the
Series 2003-D notes. This additional series enhancement may be in the form of
additional cash collateral funded from collections of receivables otherwise
allocable to the Transferor Beneficial Interest, a letter of credit, surety
bond, the purchase of interest rate caps or swaps and/or another form of series
enhancement, provided that the form and amount of additional series enhancement
will not cause a reduction or withdrawal by any rating agency of its rating of
any outstanding series or class.
PAY OUT EVENTS
As described above, the revolving period will continue through the close of
business on February 28, 2006, unless that date is postponed as described under
"-- Postponement of Controlled Accumulation Period" in this prospectus
supplement, unless a pay out event occurs prior to that date.
There are two types of pay out events: series pay out events that apply
only to the Series 2003-D notes; and trust pay out events that apply to notes of
all series.
A "SERIES 2003-D PAY OUT EVENT" refers to any of the following events:
(a) failure by the transferor (i) to make any payment or deposit
required under the transfer and servicing agreement, the indenture or the
Series 2003-D indenture supplement within 5 business days of the date
required to be made or (ii) to observe or perform any other covenants or
agreements of the transferor set forth in the transfer and servicing
agreement, the indenture or the Series 2003-D indenture supplement, which
failure has a material adverse effect on the Series 2003-D noteholders and
which continues unremedied for a period of 60 days after written notice of
the failure, requiring the same to be remedied, and continues to materially
and adversely affect the interests of the noteholders for the designated
period;
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(b) any representation or warranty made by the transferor in the
transfer and servicing agreement, the indenture or the Series 2003-D
indenture supplement, or any information required to be given by the
transferor to the indenture trustee to identify the accounts proves to have
been incorrect in any material respect when made or delivered and which
continues to be incorrect in any material respect for a period of 60 days
after written notice of the failure, requiring the same to be remedied, and
as a result of which the interests of the noteholders are materially and
adversely affected for the designated period. However, a pay out event
described in this subparagraph (b) will not occur if the transferor has
accepted reassignment of the related receivable or all related receivables,
during the designated period in accordance with the provisions of the
transfer and servicing agreement;
(c) the Net Portfolio Yield averaged over any three consecutive
monthly periods is less than the average of the Base Rates for the same
monthly periods;
(d) an event of default for Series 2003-D occurs under the indenture;
or
(e) the outstanding principal balances of all the Series 2003-D notes
are not paid on the Expected Principal Payment Date.
A "TRUST PAY OUT EVENT" refers to any of the following events:
(i) a failure by the transferor, including any additional transferor,
to transfer receivables in additional accounts to the trust within 5
business days after the date required by the transfer and servicing
agreement;
(ii) any servicer default occurs which would have a material adverse
effect on the noteholders;
(iii) certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the transferor, the seller or
the servicer;
(iv) the transferor, including any additional transferor, is unable to
transfer receivables to the trust in accordance with the provisions of the
transfer and servicing agreement; or
(v) the trust becomes subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940.
Series 2003-D pay out events and trust pay out events together are called
"PAY OUT EVENTS."
In the case of any Series 2003-D pay out event described in clause (a) or
(b) or any trust pay out event described in clause (ii) above, a pay out event
will be deemed to have occurred with respect to the notes only if, after any
applicable grace period, either the indenture trustee or the holders of Series
2003-D notes evidencing interests aggregating not less than 50% of the then
outstanding principal balance of the Series 2003-D notes, by written notice to
the transferor and the servicer, and to the indenture trustee if given by the
Series 2003-D noteholders, declare that a pay out event has occurred with
respect to the Series 2003-D notes as of the date of the notice.
In the case of any event described in clause (i), (iii), (iv) or (v), a pay
out event with respect to all series then outstanding, and in the case of any
event described in clause (c), (d) or (e), a pay out event with respect to only
the Series 2003-D notes, will occur without any notice or other action on the
part of the indenture trustee or the Series 2003-D noteholders immediately upon
the occurrence of the event.
On the date on which a pay out event is deemed to have occurred, the early
amortization period will begin.
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See "Description of the Notes -- Pay Out Events" in the accompanying
prospectus for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of the transferor.
The term "BASE RATE" means, for any monthly period, the per annum rate
calculated on the basis of a 360-day year consisting of twelve 30-day months
equal to the product of the percentage equivalent of a fraction:
- the numerator of which is the sum of the Monthly Interest and the monthly
servicing fee, each for the related payment date; and
- the denominator of which is the Invested Amount as of the close of
business on the last day of the prior monthly period;
multiplied by 12.
The term "NET PORTFOLIO YIELD" means, for any monthly period, the per annum
rate calculated on the basis of a 360-day year consisting of twelve 30-day
months equal to the product of the percentage equivalent of a fraction:
- the numerator of which is the sum of collections of finance charge and
administrative receivables and any other amount, other than principal
receivables, designated by the transferor to be finance charge and
administrative receivables, any net investment earnings on funds
deposited in the Principal Funding Account and the Excess Funding Account
and any amounts withdrawn from the Reserve Account and deposited in the
collection account and allocable to the Series 2003-D notes for that
monthly period, calculated on a cash basis after subtracting the Investor
Default Amount for that monthly period; and
- the denominator of which is the Invested Amount as of the close of
business on the last day of the prior monthly period;
multiplied by 12.
However, Shared Finance Charge Collections that are allocated to Series
2003-D for any Monthly Period may be added to the numerator if the transferor
provides ten business days prior written notice to each Rating Agency and
written notice is received that using Shared Finance Charge Collections in the
calculation will not result in any Rating Agency reducing or withdrawing its
then existing rating of the notes or any outstanding series or class of notes.
EVENTS OF DEFAULT
The events of default for Series 2003-D, as well as the rights and remedies
available to the indenture trustee and the Series 2003-D noteholders when an
event of default occurs, are described under "The Indenture -- Events of
Default; Rights Upon Event of Default" in the accompanying prospectus.
If an event of default for Series 2003-D occurs, the indenture trustee or
the holders of a majority of the then-outstanding principal balance of the
Series 2003-D notes may declare the Series 2003-D notes to be immediately due
and payable. If the Series 2003-D notes are accelerated, you may receive
principal prior to the expected principal payment date for your notes.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The share of the servicing fee allocable to Series 2003-D for any payment
date will be equal to one-twelfth of the product of (a) the "servicing fee rate"
of 2.0% per annum and (b) (i) the Adjusted Invested Amount as of the last day of
the monthly period preceding that
S-45
payment date, minus (ii) the product of any amount on deposit in the Excess
Funding Account as of the last day of the monthly period preceding that payment
date and the Floating Investor Percentage of collections of finance charge and
administrative receivables for that monthly period. This is called the "monthly
servicing fee." However, for the first payment date, the monthly servicing fee
will equal $666,667. The servicing fee rate may be increased upon the written
direction of noteholders holding 66 2/3% or more of the then-outstanding amount
of each class of the Series 2003-D notes and upon written confirmation from each
rating agency then rating any class of the Series 2003-D notes that the increase
in the servicing fee rate will not cause a reduction or withdrawal of the rating
of any outstanding class.
On each payment date, the servicer will deposit into the collection account
the amount of interchange estimated by it attributable to the designated
accounts for the prior monthly period to be treated as collections of finance
charge and administrative receivables. The amount allocated to Series 2003-D
will be equal to the product of the estimated interchange and the Floating
Investor Percentage.
The servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the receivables including, without
limitation, payment of the fees and disbursements of the indenture trustee and
independent certified public accountants and other fees which are not expressly
stated in the transfer and servicing agreement, the indenture or the Series
2003-D indenture supplement to be payable by the trust or the noteholders other
than federal, state and local income and franchise taxes, if any, of the trust.
REPORTS TO NOTEHOLDERS
On each payment date, the paying agent, on behalf of the indenture trustee
will forward to each noteholder of record, a statement prepared by the servicer
setting forth the items described in "Description of the Notes -- Reports to
Noteholders" in the accompanying prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and certain collective investment funds or
insurance company general or separate accounts in which the plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility
provisions of ERISA and/or Section 4975 of the Code (collectively called
"PLANS"), and on persons who are fiduciaries with respect to plans, in
connection with the investment of plan assets of any plan. ERISA generally
imposes on plan fiduciaries certain general fiduciary requirements, including
those of investment prudence and diversification and the requirement that a
plan's investments be made in accordance with the documents governing the plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving plan assets and persons (called "parties in interest" under ERISA and
"disqualified persons" under the Code) who have specified relationships to a
plan or its plan assets, unless a statutory or administrative exemption is
available. These persons are collectively called "PARTIES IN INTEREST." Parties
in interest that participate in a prohibited transaction may be subject to a
penalty imposed under ERISA and/or an excise tax imposed pursuant to Section
4975 of the Code, unless a statutory or administrative exemption is available.
These prohibited transactions generally are set forth in Section 406 of ERISA
and Section 4975 of the Code.
Subject to the considerations described below and in the accompanying
prospectus, the offered notes are eligible for purchase with plan assets of any
plan.
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Any fiduciary or other plan investor considering whether to purchase the
offered notes with plan assets of any plan should determine whether that
purchase is consistent with its fiduciary duties and whether that purchase would
constitute or result in a non-exempt prohibited transaction under ERISA and/or
Section 4975 of the Code because any of the transferor, the servicer, the
indenture trustee, the owner trustee or any other party may be parties in
interest with respect to the investing plan and may be deemed to be benefiting
from the issuance of the notes. If the transferor or the servicer is a party in
interest with respect to the prospective plan investor, any fiduciary or other
plan investor considering whether to purchase or hold the offered notes should
consult with its counsel regarding the availability of exemptive relief under
United States Department of Labor Prohibited Transaction Class Exemption (called
a "PTCE") 96-23 (for transactions determined by "in-house asset managers"), PTCE
95-60 (for transactions involving insurance company general accounts), PTCE
91-38 (for transactions involving bank collective investment funds), PTCE 90-1
(for transactions involving insurance company pooled separate accounts) or PTCE
84-14 (for transactions determined by independent "qualified professional asset
managers") or any other prohibited transaction exemption issued by the
Department of Labor. A purchaser of the offered notes should be aware, however,
that even if the conditions specified in one or more of the above-referenced
exemptions are met, the scope of the exemptive relief provided by the exemption
might not cover all acts which might be construed as prohibited transactions.
In addition, under United States Department of Labor Regulation Section
2510.3-101 (called the "PLAN ASSET REGULATION"), the purchase with plan assets
of equity interests in the issuer could, in certain circumstances, cause the
receivables and other assets of the issuer to be deemed plan assets of the
investing plan. This, in turn, would subject the issuer and its assets to the
fiduciary responsibility provisions of ERISA and the prohibited transaction
provisions of ERISA and Section 4975 of the Code. Nevertheless, because the
offered notes (a) are expected to be treated as indebtedness under local law and
will, in the opinion of Special Tax Counsel, be treated as debt, rather than
equity, for federal tax purposes (see "Federal Income Tax Consequences -- Tax
Characterization of the Trust and the Notes -- Treatment of the Notes as Debt"
in the accompanying prospectus), and (b) should not be deemed, at the time of
initial issuance, to have any "substantial equity features," purchases of the
offered notes with plan assets should not be treated as equity investments and,
therefore, the receivables and other assets included as assets of the issuer
should not be deemed to be plan assets of the investing plans. Those conclusions
are based, in part, upon the traditional debt features of the offered notes,
including the reasonable expectation of purchasers of the offered notes that the
offered notes will be repaid when due, as well as the absence of conversion
rights, warrants and other typical equity features.
The notes may not be purchased or held by any plan, or any person investing
plan assets of any plan, if any of the transferor, the servicer, the indenture
trustee, the owner trustee or any of their respective affiliates: (a) has
investment or administrative discretion with respect to the plan assets used to
effect the purchase; (b) has authority or responsibility to give, or regularly
gives, investment advice with respect to the plan assets, for a fee and pursuant
to an agreement or understanding that the advice (1) will serve as a primary
basis for investment decisions with respect to the plan assets, and (2) will be
based on the particular investment needs of that plan; or (c) unless PTCE 95-60,
PTCE 91-38 or PTCE 90-1 is applicable, is an employer maintaining or
contributing to that plan. Each purchaser or holder of the notes or any interest
in the notes will be deemed to have represented by its purchase and holding of
the notes that it is not subject to the foregoing limitations.
We suggest that any fiduciary or other plan investor considering whether to
purchase any notes on behalf of or with plan assets of any plan consult with its
counsel and refer to this prospectus supplement for guidance regarding the ERISA
considerations applicable to the notes offered by this prospectus supplement and
the accompanying prospectus.
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USE OF PROCEEDS
A portion of the net proceeds of the sale of the offered notes will be used
to reduce the outstanding principal amount of the Series 1997-A Class A and
Class B Notes previously issued by the trust. The remainder of the proceeds will
be used for general corporate purposes.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
dated November 18, 2003, relating to the Class A notes, the Class B notes and
the Class C notes (the "UNDERWRITING AGREEMENT") among the transferor, the bank
and the underwriters named below (the "UNDERWRITERS"), the transferor has agreed
to sell to the underwriters, and each of the underwriters has severally agreed
to purchase, the principal amount of the notes set forth opposite its name:
<Table>
<Caption>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITERS CLASS A NOTES CLASS B NOTES CLASS C NOTES
- ------------ ------------- ------------- -------------
Deutsche Bank Securities Inc. ........ $160,000,000 $18,500,000 $14,500,000
Barclays Capital Inc. ................ $160,000,000 $18,500,000 $14,500,000
------------ ----------- -----------
Total............................ $320,000,000 $37,000,000 $29,000,000
============ =========== ===========
</Table>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth in that agreement, to purchase all of the notes
offered hereby if any of the notes are purchased.
The underwriters propose initially to offer the Class A notes to the public
at 100.000% of their principal balance and to certain dealers at that price less
concessions not in excess of 0.150% of the principal balance of the Class A
notes. The underwriters may allow, and the dealers may reallow, concessions not
in excess of 0.075% of the principal balance of the Class A notes to certain
brokers and dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the underwriters.
The underwriters propose initially to offer the Class B notes to the public
at 100.000% of their principal balance and to certain dealers at that price less
concessions not in excess of 0.195% of the principal balance of the Class B
notes. The underwriters may allow, and the dealers may reallow, concessions not
in excess of 0.0975% of the principal balance of the Class B notes to certain
brokers and dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the underwriters.
The underwriters propose initially to offer the Class C notes to the public
100.000% of their principal balance and to certain dealers at that price less
concessions not in excess of 0.300% of the principal balance of the Class C
notes. The underwriters may allow, and the dealers may reallow, concessions not
in excess of 0.150% of the principal balance of the Class C notes to certain
brokers and dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the underwriters.
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We will receive proceeds of approximately $384,934,750 from the sale of the
notes (representing 99.750% of the principal balance of each Class A note,
99.675% of the principal balance of each Class B note and 99.500% of the
principal balance of each Class C note) after paying the underwriting discount
of $1,065,250 (representing 0.250% of the principal balance of each Class A
note, 0.325% of the principal balance of each Class B note and 0.500% of the
principal balance of each Class C note). Additional offering expenses are
estimated to be $700,000. The underwriters have agreed to reimburse certain
offering expenses of the transferor.
Each underwriter has represented and agreed that:
- it has not offered or sold, and prior to the date which is six months
after the date of issue of the notes, will not offer or sell any notes to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(as principal or agent) for the purposes of their businesses or otherwise
in circumstances which have not resulted and will not result in an offer
to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, referred to in this section as the
Regulations, and the Financial Services and Markets Act 2000, or the
FSMA;
- it has complied and will comply with all applicable provisions of the
Regulations and the FSMA with respect to anything done by it in relation
to the notes in, from or otherwise involving the United Kingdom; and
- it has only communicated or caused to be communicated and it will only
communicate or cause to be communicated any invitation or inducement to
engage in investment activity (within the meaning of Section 21 of the
FSMA) received by it in connection with the issue or sale of any notes in
circumstances in which Section 21(1) of the FSMA does not apply to the
issuer.
The transferor and the bank will indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the underwriters may be required to make in respect thereof.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the notes in accordance with Regulation M under the Securities Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the notes so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
notes in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the underwriters to reclaim
a selling concession from a syndicate member when the notes originally sold by
that syndicate member are purchased in a syndicate covering transaction.
Over-allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the notes to be higher
than they would otherwise be in the absence of those transactions. Neither the
transferor nor the underwriters represent that the underwriters will engage in
any of these transactions or that those transactions, once commenced, will not
be discontinued without notice at any time.
In the ordinary course of business, one or more of the underwriters or
their affiliates have engaged, and may engage in the future, in certain
investment banking or commercial banking transactions with the bank or its
affiliates.
As discussed under "Use of Proceeds" in this prospectus supplement, a
portion of the net proceeds of the sale of the offered notes will be used to
reduce the outstanding principal amount of the Series 1997-A Class A Notes and
Class B Notes previously issued by the trust. The Series 1997-A Class A Notes
and Class B Notes are held by a commercial paper conduit
S-49
for which Barclays Bank PLC, New York Branch, an affiliate of Barclays Capital
Inc., provides liquidity lines and acts as agent. Barclays Capital Inc. is one
of the underwriters of the offered notes.
Deutsche Bank Securities Inc., one of the underwriters, is an affiliate of
Deutsche Bank Trust Company Americas, the Indenture Trustee.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Series 2003-D notes
will be passed upon for the transferor by Wolf, Block, Schorr and Solis-Cohen
LLP, special counsel to the transferor. Certain legal matters relating to the
federal tax consequences of the issuance of the Series 2003-D notes will be
passed upon for the transferor by Wolf, Block, Schorr and Solis-Cohen LLP.
Certain legal matters relating to the issuance of the Series 2003-D notes will
be passed upon for the underwriters by Orrick, Herrington & Sutcliffe LLP.
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GLOSSARY OF TERMS FOR PROSPECTUS SUPPLEMENT
"ACCUMULATION SHORTFALL" means: (a) on the first payment date during the
controlled accumulation period, zero; and (b) on each subsequent payment date
during the controlled accumulation period, any excess of the applicable
Controlled Deposit Amount for the previous monthly period over the amount
deposited in the Principal Funding Account for the previous monthly period.
"ADJUSTED INVESTED AMOUNT" means, for any date of determination, the
Invested Amount as of that date, minus the amount on deposit in the Principal
Funding Account for that date.
"AVAILABLE PRINCIPAL COLLECTIONS" means, for any monthly period, the sum
of: (i) the Investor Percentage of collections of principal receivables for that
monthly period; minus (ii) the amount of Reallocated Principal Collections for
that monthly period; plus (iii) any Shared Principal Collections from other
series in group one allocated to your series, from which principal payments on
the Series 2003-D notes will be paid; plus (iv) the amount of Available Finance
Charge Collections to be treated as Available Principal Collections as described
under "Description of Series Provisions -- Application of Collections -- Payment
of Interest, Fees and Other Items."
"AVAILABLE FINANCE CHARGE COLLECTIONS" means, for any monthly period, an
amount equal to the sum of: (i) the Investor Percentage of collections of
finance charge and administrative receivables deposited in the collection
account for that monthly period; (ii) any net investment earnings on amounts on
deposit in the collection account and the Excess Funding Account treated as
collections of finance charge and administrative receivables and allocated to
Series 2003-D; (iii) any net investment earnings on amounts on deposit in the
Principal Funding Account for that monthly period; and (iv) any amounts
withdrawn from the Reserve Account which are required to be included in
Available Finance Charge Collections under the Series 2003-D Indenture
Supplement for the related payment date.
"BASE RATE" means, for any monthly period, the per annum rate calculated on
the basis of a 360-day year consisting of twelve 30-day months equal to the
product of the percentage equivalent of a fraction: (a) the numerator of which
is the sum of the Monthly Interest and the monthly servicing fee, each for the
related payment date; and (b) the denominator of which is the Invested Amount as
of the close of business on the last day of the prior monthly period; multiplied
by 12.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York, Delaware, Utah or any other state in
which the principal executive offices of the seller, the owner trustee or the
indenture trustee are located are authorized or obligated by law, executive
order or governmental decree to be closed.
"CASH COLLATERAL ACCOUNT" means a segregated account established and
maintained by the servicer with an eligible institution for the benefit of the
Class C noteholders and the Class D noteholders that will be used to fund
shortfalls in interest payments on the Class C notes and the Class D notes and
on the Series 2003-D termination date to fund any shortfall in payment of the
outstanding principal balance of the Class C notes and the Class D notes.
"CASH COLLATERAL ACCOUNT PERCENTAGE" means an amount determined as
described in this prospectus supplement under "Description of Series
Provisions -- Cash Collateral Account."
"CLASS A ADDITIONAL INTEREST" means interest due on the Class A notes but
not paid on any payment date and payable on the following payment date, together
with additional interest on that amount at the Class A note interest rate to the
extent permitted by law.
"CLASS A MONTHLY INTEREST" means, for any payment date, the product of (a)
the Class A note interest rate for the related interest period, (b) the actual
number of days in that interest period divided by 360 and (c) the outstanding
principal balance of the Class A notes as of the
S-51
close of business on the applicable record date or, for the first payment date,
the outstanding principal balance of the Class A notes as of the closing date.
"CLASS A NOTE INTEREST RATE" means a rate of 0.27% per annum above LIBOR as
LIBOR is determined on the related LIBOR determination date for each interest
period.
"CLASS B ADDITIONAL INTEREST" means interest due on the Class B notes but
not paid on any payment date and payable on the following payment date, together
with additional interest on that amount at the Class B note interest rate to the
extent permitted by law.
"CLASS B MONTHLY INTEREST" means, for any payment date, the product of (a)
the Class B note interest rate for the related interest period, (b) the actual
number of days in that interest period divided by 360 and (c) the outstanding
principal balance of the Class B notes as of the close of business on the
applicable record date or, with respect to the first payment date, the
outstanding principal balance of the Class B notes as of the closing date.
"CLASS B NOTE INTEREST RATE" means a rate of 1.15% per annum above LIBOR as
LIBOR is determined on the related LIBOR determination date for each interest
period.
"CLASS C ADDITIONAL INTEREST" means interest due on the Class C notes but
not paid on any payment date and payable on the following payment date, together
with additional interest on that amount at the Class C note interest rate to the
extent permitted by law.
"CLASS C MONTHLY INTEREST" means, for any payment date, the product of (a)
the Class C note interest rate for the related interest period, (b) the actual
number of days in that interest period divided by 360 and (c) the outstanding
principal balance of the Class C notes as of the close of business on the
applicable record date or, with respect to the first payment date, the
outstanding principal balance of the Class C notes as of the closing date.
"CLASS C NOTE INTEREST RATE" means a rate of 2.90% per annum above LIBOR as
LIBOR is determined on the related LIBOR determination date for each interest
period.
"CLASS D ADDITIONAL INTEREST" means interest due on the Class D notes but
not paid on any payment date and payable on the following payment date, together
with additional interest on that amount at the Class D note interest rate to the
extent permitted by law.
"CLASS D MONTHLY INTEREST" means, for any payment date, the product of (a)
the Class D note interest rate for the related interest period, (b) the actual
number of days in that interest period divided by 360 and (c) the outstanding
principal balance of the Class D notes as of the close of business on the
applicable record date or, with respect to the first payment date, the
outstanding principal balance of the Class D notes as of the closing date.
"CLASS D NOTE INTEREST RATE" means a rate not in excess of 7.50% per annum
above LIBOR as LIBOR is determined on the related LIBOR determination date for
each interest period. However, the Series 2003-D indenture supplement allows the
transferor to cause the trust to change the spread above LIBOR on the Class D
notes to any percentage less than or equal to 7.50% per annum with the prior
written consent of each rating agency rating a class of Series 2003-D notes
without the prior consent of any noteholder, if the Class D notes are held by
the transferor or an affiliate of the transferor.
"CLOSING DATE" means, for the Series 2003-D notes, on or about December 4,
2003.
"CODE" means the Internal Revenue Code of 1986.
"CONTROLLED ACCUMULATION AMOUNT" means, for any payment date during the
controlled accumulation period, $50,000,000. However, if the commencement of the
controlled accumulation period is postponed as described under "Description of
Series Provisions -- Postponement of Controlled Accumulation Period," the
Controlled Accumulation Amount may be higher than the amount stated above for
each payment date during the controlled accumulation
S-52
period and will be determined by the servicer in accordance with the Series
2003-D indenture supplement based on a calculation designed to assure that the
full amount needed to pay principal on the notes is accumulated during the
controlled accumulation period.
"CONTROLLED ACCUMULATION PERIOD" means the period that is scheduled to
begin on the close of business on February 28, 2006 (but may be postponed, as
discussed in this prospectus supplement under "Description of Series
Provisions -- Postponement of Controlled Accumulation Period") and ends on the
earliest of: (i) the beginning of the early amortization period; (ii) the
payment in full of the outstanding amount of the Series 2003-D notes; or (iii)
the Series 2003-D termination date.
"CONTROLLED DEPOSIT AMOUNT" means, for any payment date during the
controlled accumulation period, the sum of (i) the Controlled Accumulation
Amount for that payment date, plus (ii) any Accumulation Shortfall.
"DEFAULTED AMOUNT" means, for any monthly period, the total amount of
principal receivables, other than ineligible receivables, in the trust that were
charged-off for that month.
"EARLY AMORTIZATION PERIOD" means the period that begins on the day on
which a pay out event for Series 2003-D occurs and ends on the earliest of (i)
the payment in full of the outstanding amount of the Series 2003-D notes, or
(ii) the Series 2003-D termination date.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EXCESS SPREAD PERCENTAGE" means a percentage equal to the Net Portfolio
Yield minus the Base Rate.
"EXPECTED PRINCIPAL PAYMENT DATE" means the date on which the Series 2003-D
noteholders are expected to receive payment in full of principal, which is
November 20, 2006.
"FINANCE CHARGE AND ADMINISTRATIVE RECEIVABLES" means periodic finance
charges, annual membership fees and service charges, late fees, overlimit fees,
cash advance fees, the portion of interchange and all other fees and charges on
accounts designated by the transferor to be included as finance charge and
administrative receivables, and any other amounts, other than principal
receivables, designated by the transferor to be "FINANCE CHARGE AND
ADMINISTRATIVE RECEIVABLES."
"FINANCE CHARGE SHORTFALL" means, for Series 2003-D, for any payment date,
the excess of the full amount required to be paid as described under the first
eight bullet points under "-- Application of Collections -- Payment of Interest,
Fees and Other Items" in this prospectus supplement over the amount of
collections of finance charge and administrative receivables and amounts treated
as collections of finance charge and administrative receivables, other than
Shared Finance Charge Collections, allocated through the Investor Percentage to
Series 2003-D.
"FIXED INVESTOR PERCENTAGE" means, for any monthly period, the percentage
equivalent of a fraction that is defined in this prospectus supplement under
"Description of Series Provisions -- Fixed Allocation Definitions."
"FLOATING INVESTOR PERCENTAGE" means, for any monthly period, the
percentage equivalent of a fraction that is defined in this prospectus
supplement under "Description of Series Provisions -- Floating Allocation
Definitions."
"INTEREST PERIOD" means the period that begins on and includes a payment
date and ends on and includes the day prior to the next payment date, except
that the first interest period begins on and includes the closing date.
"INVESTED AMOUNT" means, for any date of determination, an amount equal to
(a) the initial outstanding principal amount of the Series 2003-D notes, minus
(b) the amount of
S-53
principal previously paid to the Series 2003-D noteholders, minus (c) the amount
of unreimbursed Investor Charge-Offs and Reallocated Principal Collections.
"INVESTOR CHARGE-OFF" means, for any payment date, the reduction to the
Invested Amount in an amount equal to the excess of the Investor Default Amount
over the amount of collections of finance charge and administrative receivables
allocated to cover such excess.
"INVESTOR DEFAULT AMOUNT" means the series' share of losses from the trust
portfolio, which, as of each payment date, is equal to the Floating Investor
Percentage for that month multiplied by the Defaulted Amount for that payment
date.
"INVESTOR PERCENTAGE" means, for any monthly period, (a) for Defaulted
Amounts and for collections of finance charge and administrative receivables at
any time and for principal receivables during the revolving period, the Floating
Investor Percentage, and (b) for collections of principal receivables during the
controlled accumulation period and the early amortization period, the Fixed
Investor Percentage.
"LIBOR" means, for any LIBOR determination date, other than the first LIBOR
determination date, the London interbank offered rate for deposits in U.S.
dollars having a maturity of one month commencing on the related LIBOR
determination date and which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on that LIBOR determination date, except that if that rate does not
appear on Telerate Page 3750, then as otherwise stated in the prospectus
supplement under "Description of Series Provisions -- Interest Payments."
"LIBOR DETERMINATION DATE" means the day on which the indenture trustee
will determine LIBOR for each interest period, which is the day two London
business days before the related interest period commences. However, for the
first interest period, the indenture trustee will determine LIBOR for the period
from the Closing Date through January 19, 2004, on December 2, 2003, and for the
period from January 20, 2004 through February 19, 2004 on January 15, 2004.
"LONDON BUSINESS DAY" means any business day on which dealings in deposits
in United States dollars are transacted in the London interbank market and which
also must be a U.S. business day.
"MONTHLY PERIOD" means the period from and including the first day of a
calendar month to and including the last day of that calendar month; the initial
monthly period will commence on and include the closing date and end on and
include January 31, 2004.
"MONTHLY INTEREST" means, for any payment date, the sum of the Class A
Monthly Interest, the Class B Monthly Interest, the Class C Monthly Interest and
the Class D Monthly Interest for that payment date.
"MONTHLY PRINCIPAL" means, for any payment date, an amount equal to the
least of (i) the Available Principal Collections on deposit in the collection
account for that payment date, (ii) for each payment date during the controlled
accumulation period, the Controlled Deposit Amount for that payment date, and
(iii) the Adjusted Invested Amount (as adjusted for any Investor Charge-Offs and
Reallocated Principal Collections on that payment date) prior to any deposits
into the Principal Funding Account on that payment date.
"NET PORTFOLIO YIELD" means, for any monthly period, the per annum rate
calculated on the basis of a 360-day year consisting of twelve 30-day months
equal to the product of the percentage equivalent of a fraction: (a) the
numerator of which is the sum of collections of finance charge and
administrative receivables and any other amount, other than principal
receivables, designated by the transferor to be finance charge and
administrative receivables, any net investment earnings on funds deposited in
the Principal Funding Account and any amounts withdrawn from the Reserve Account
and deposited in the collection account and allocable to the Series 2003-D notes
for that monthly period, calculated on a cash basis after
S-54
subtracting the Investor Default Amount for that monthly period; and (b) the
denominator of which is the Invested Amount as of the close of business on the
last day of the prior monthly period; multiplied by 12. However, Shared Finance
Charge Collections that are allocated to Series 2003-D for any Monthly Period
may be added to the numerator if the transferor provides ten business days prior
written notice to each Rating Agency and written notice is received that using
Shared Finance Charge Collections in the calculation will not result in any
Rating Agency reducing or withdrawing its then existing rating of the notes or
any outstanding series or class of notes.
"OFFERED NOTES" means the Class A notes, the Class B notes and the Class C
notes that are offered by this prospectus supplement and the accompanying
prospectus.
"ONE-MONTH INDEX MATURITY" means a maturity of one month commencing on the
related LIBOR determination date.
"PARTIES IN INTEREST" means persons (called "parties in interest" under
ERISA and "disqualified persons" under Section 4975 of the Code) who have
specified relationships to a plan or its plan assets.
"PAY OUT EVENTS" means, collectively, Series 2003-D pay out events and
trust pay out events.
"PAYMENT DATE" means February 20, 2004 and the 20th day of each following
month. If the 20th day is not a Business Day, then the payment date will be the
following Business Day.
"PLAN ASSET REGULATION" means United States Department of Labor Regulation
Section 2510.3-101.
"PLANS" means employee benefit plans and certain other plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and certain collective investment funds or insurance company general or
separate accounts in which the plans, accounts or arrangements are invested,
that are subject to the fiduciary responsibility provisions of ERISA and/or
Section 4975 of the Code.
"PRINCIPAL FUNDING ACCOUNT" means the eligible deposit account established
and maintained by the indenture trustee with an eligible institution for the
benefit of the noteholders. During the controlled accumulation period, the
indenture trustee at the direction of the servicer will transfer Available
Principal Collections from the collection account to the Principal Funding
Account as described under "Description of Series Provisions -- Application of
Collections" in this prospectus supplement.
"PRINCIPAL SHORTFALLS" means the amount by which any scheduled or permitted
principal payments to noteholders and any deposits to principal funding accounts
for any series in group one which have not been covered out of the collections
of principal receivables allocable to that series in group one is less than the
collections of principal receivables allocable to that series and certain other
amounts for those series.
"PTCE" means a United States Department of Labor Prohibited Transaction
Class Exemption.
"QUARTERLY EXCESS SPREAD PERCENTAGE" means an amount determined as
described in this prospectus supplement under "Description of Series
Provisions -- Cash Collateral Account."
"REALLOCATED PRINCIPAL COLLECTIONS" means, for any monthly period,
Available Principal Collections used to pay interest on the Class A notes, the
Class B notes or the Class C notes or used to pay the monthly servicing fee in
an amount not to exceed the amount specified in this prospectus supplement under
"Description of Series Provisions -- Reallocated Principal Collections."
S-55
"RECORD DATE" means, for the Series 2003-D notes, the Business Day
immediately preceding a payment date.
"RECOVERIES" means all of the recoveries that are reasonably estimated by
the servicer on receivables in charged-off accounts of the trust, including
amounts received by the transferor or the servicer from the purchaser or
transferee with respect to the sale or other disposition of receivables in
defaulted accounts.
"REQUIRED CASH COLLATERAL ACCOUNT AMOUNT" means, for each payment date, in
general, the product of (a) the Cash Collateral Account Percentage in effect on
that date and (b) the initial Invested Amount. However, in the absence of an
event of default for Series 2003-D, the Required Cash Collateral Account Amount
will not exceed the outstanding aggregate principal balance of the Class C notes
and the Class D notes minus any excess of the Principal Funding Account balance
over the sum of the outstanding principal balances of the Class A notes and the
Class B notes on that date.
"REQUIRED MINIMUM PRINCIPAL BALANCE" means, as of any date, for all
outstanding series, unless otherwise provided in the related indenture
supplement for a series having a paired series (a) the sum of the Invested
Amounts for each series outstanding on that date, plus (b) the Required
Transferor Interest on that date, minus (c) the amounts on deposit in the Excess
Funding Account on that date.
"REQUIRED RESERVE ACCOUNT AMOUNT" means, for any payment date on or after
the reserve account funding date, an amount equal to (a) the product of (i)
0.50% of the outstanding aggregate principal balance of the Class A notes, the
Class B notes, the Class C notes and the Class D notes as of the preceding
payment date and (ii) a fraction the numerator of which is the number of monthly
periods scheduled to be included in the controlled accumulation period as of
that date, and the denominator of which is eight (except that if the numerator
is one, the Required Reserve Account Amount determined as described above will
be $0) or (b) any other amount selected by the transferor. However, if the
amount designated by the transferor under clause (b) is less than the amount in
clause (a), the transferor will provide the servicer and the indenture trustee
with certain written confirmation as described in the prospectus supplement
under "Description of Series Provisions -- Reserve Account."
"REQUIRED TRANSFEROR INTEREST" is an amount equal to (a) the Required
Transferor Percentage multiplied by (b) the total amount of principal
receivables in the trust portfolio.
"RESERVE ACCOUNT" means the segregated trust account established and
maintained by the indenture trustee with an eligible institution for the benefit
of the noteholders, to assist with the payment of interest on the notes during
the controlled accumulation period and on the first payment date during any
early amortization period that starts after the Reserve Account Funding Date.
"RESERVE ACCOUNT FUNDING DATE" means the payment date for the monthly
period which commences no later than three months prior to the commencement of
the controlled accumulation period, or an earlier date selected by the servicer.
"RESERVE DRAW AMOUNT" means, for any payment date, the draw made by the
indenture trustee from the reserve account of funds to be used as Available
Finance Charge Collections and deposited in the collection account in an amount
equal to the shortfall, if any, that results if the net investment earnings on
funds on deposit in the Principal Funding Account are less than the product of
(i) the balance of the Principal Funding Account, (ii) the weighted average of
the Class A note interest rate, the Class B note interest rate, the Class C note
interest rate and the Class D note interest rate for the related interest period
and (iii) the number of days in the related interest period divided by 360.
S-56
"RESET DATE" means any date that is an addition date, a date on which the
issuance of additional notes of an outstanding series occurs, a date on which an
increase or decrease in the invested amount of any series that is a variable
principal funding series occurs, or a removal date.
"REVOLVING PERIOD" means the period that begins on the closing date and
ends on the earlier of the date the controlled accumulation period or the early
amortization period begins.
"SERIES 2003-D PAY OUT EVENT" means any of the following events:
(a) failure by the transferor (i) to make any payment or deposit on
the date required under the transfer and servicing agreement, the indenture
or the Series 2003-D indenture supplement, or within the applicable grace
period which shall not exceed 5 business days or (ii) to observe or perform
in any material respect any other covenants or agreements of the transferor
set forth in the transfer and servicing agreement, the indenture or the
Series 2003-D indenture supplement, which failure has a material adverse
effect on the Series 2003-D noteholders and which continues unremedied for
a period of 60 days after written notice of the failure, requiring the same
to be remedied, and continues to materially and adversely affect the
interests of the noteholders for the designated period;
(b) any representation or warranty made by the transferor in the
transfer and servicing agreement, the indenture or the Series 2003-D
indenture supplement, or any information required to be given by the
transferor to the indenture trustee to identify the accounts proves to have
been incorrect in any material respect when made or delivered and which
continues to be incorrect in any material respect for a period of 60 days
after written notice of the failure, requiring the same to be remedied, and
as a result of which the interests of the noteholders are materially and
adversely affected and continue to be materially and adversely affected for
the designated period. However, a pay out event described in this
subparagraph (b) will not occur if the transferor has accepted reassignment
of the related receivable or all related receivables, during the designated
period in accordance with the provisions of the transfer and servicing
agreement;
(c) the Net Portfolio Yield averaged over any three consecutive
monthly periods is less than the average of the Base Rates for the same
monthly periods;
(d) an event of default for Series 2003-D occurs under the indenture;
or
(e) insufficient funds are available to pay in full the outstanding
principal balance of all the Series 2003-D notes on the Expected Principal
Payment Date.
"SERIES 2003-D INDENTURE SUPPLEMENT" means the indenture supplement
relating to the Series 2003-D notes between the trust and the indenture trustee.
"SERIES 2003-D NOTES" means the Class A notes, the Class B notes, the Class
C notes and the Class D notes.
"SERIES 2003-D PRINCIPAL SHORTFALL" means an amount equal to (a) for any
payment date during the revolving period or the early amortization period, zero,
and (b) for any payment date during the controlled accumulation period, any
excess of the Controlled Deposit Amount for that payment date over the amount of
Available Principal Collections for that payment date (excluding any portion
attributable to Shared Principal Collections).
"SERIES 2003-D TERMINATION DATE" means October 20, 2009.
"SERVICING FEE RATE" means 2.0% per annum, as may be adjusted from time to
time as described in "Description of Series Provisions -- Servicing Compensation
and Payment of Expenses" in this prospectus supplement.
S-57
"SHARED FINANCE CHARGE COLLECTIONS" means, for any series of notes in group
one, collections of finance charge and administrative receivables and other
amounts treated like collections of finance charge and administrative
receivables in excess of the amount required to make payments or deposits for
that series and made available to other series included in group one whose
allocation of collections of finance charge and administrative receivables is
not sufficient to make its required payments or deposits.
"SHARED PRINCIPAL COLLECTIONS" means the balance of collections of
principal receivables for any monthly period after allocation to the Invested
Amount and used first to cover, for any monthly period during the controlled
accumulation period, deposits of the Controlled Deposit Amount to the Principal
Funding Account, and during the early amortization period, payments to the
noteholders, as determined by the servicer. The servicer will allocate the
Shared Principal Collections of all series to cover any scheduled or permitted
principal payments to noteholders and any deposits to principal funding accounts
for any series in group one which have not been covered out of the collections
of principal receivables allocable to that series in group one and certain other
amounts for those series. During the early amortization period, no Shared
Principal Collections from other series in group one will be allocated to make
principal payments on the Series 2003-D notes.
"TELERATE PAGE 3750" means the display page currently so designated on the
Moneyline Telerate Service, or any other page that replaces that page on that
service for the purpose of displaying comparable rates or prices.
"TRANSFEROR BENEFICIAL INTEREST" is the interest in the trust not securing
your series or any other series of notes and is equal to (a) the sum of the
total amount of principal receivables in the trust and the Excess Funding
Account balance, minus (b) the total adjusted invested amounts of all series of
notes then outstanding.
"TRUST PAY OUT EVENT" means any of the following events:
(i) a failure by the transferor (including any additional transferor)
to transfer receivables in additional accounts to the trust within 5
business days after the date required by the transfer and servicing
agreement;
(ii) any servicer default occurs which would have a material adverse
effect on the noteholders;
(iii) certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the transferor, the seller or
the servicer;
(iv) the transferor (including any additional transferor) is unable to
transfer receivables to the trust in accordance with the provisions of the
transfer and servicing agreement; or
(v) the trust becomes subject to regulation as an investment company
within the meaning of the Investment Company Act of 1940.
"TRUST PORTFOLIO" consists of the accounts selected by the transferor from
the Advanta Business Card Portfolio at the time the trust was established, and
additional accounts selected since that time, on the basis of criteria described
in the transfer and servicing agreement, the receivables of which have been
transferred to the trust.
"UNDERWRITERS" means, collectively, the underwriters of the Class A notes,
the Class B notes and the Class C notes.
"UNDERWRITING AGREEMENT" means, the underwriting agreement, dated November
18, 2003, relating to the Class A notes, the Class B notes and the Class C
notes, among the transferor, the bank and the underwriters.
S-58
ANNEX I
OTHER SERIES ISSUED AND OUTSTANDING
The table below sets forth the principal characteristics of the other
series previously issued by the trust, or a predecessor trust, that are
currently outstanding, all of which are in group one. For more specific
information with respect to any series, any prospective investor should contact
Advanta Bank Corp., Treasury Department at (801) 523-0858, facsimile (801) 523-
2920. Advanta Bank Corp. will provide, without charge, to any prospective
purchaser of the notes, a copy of the disclosure documents for any previous
publicly-issued series.
SERIES 1997-A
<Table>
Initial Class A Invested Amount $243,275,000
Current Class A Invested Amount $243,275,000*
Maximum Class A Invested Amount $243,275,000
Class A note interest rate Commercial Paper Index
Initial Class B Invested Amount $36,975,000
Current Class B Invested Amount $36,975,000*
Maximum Class B Invested Amount $36,975,000
Class B note interest rate Floating Rate
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
Notes
Enhancement for the Class B notes subordination of Class C notes and Cash
Collateral Account
Series 1997-A Final Maturity Date July 20, 2009
Series Issuance Date August 18, 2000
</Table>
- ------------
* The outstanding principal amount of the Series 1997-A Class A Notes and Class
B Notes will be reduced using a portion of the net proceeds of the sale of the
Series 2003-D Notes.
A-1
SERIES 2000-C
<Table>
Initial Class A Invested Amount $320,000,000
Current Class A Invested Amount $320,000,000
Class A note interest rate one-month LIBOR plus 0.25% per annum
Initial Class B Invested Amount $38,000,000
Current Class B Invested Amount $38,000,000
Class B note interest rate one-month LIBOR plus 0.70% per annum
Initial Class C Invested Amount $28,000,000
Current Class C Invested Amount $28,000,000
Class C note interest rate one-month LIBOR plus 1.45% per annum
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
notes and Class D notes
Enhancement for the Class B notes subordination of Class C notes and Class D
notes
Enhancement for the Class C notes subordination of Class D notes and shared
Cash Collateral Account
Scheduled End of Revolving Period January 31, 2005
Series 2000-C Final Maturity Date April 21, 2008
Series Issuance Date November 16, 2000
</Table>
SERIES 2001-A
<Table>
Initial Class A Invested Amount $240,000,000
Current Class A Invested Amount $240,000,000
Class A note interest rate one-month LIBOR plus 0.30% per annum
Initial Class B Invested Amount $28,500,000
Current Class B Invested Amount $28,500,000
Class B note interest rate one-month LIBOR plus 0.85% per annum
Initial Class C Invested Amount $21,000,000
Current Class C Invested Amount $21,000,000
Class C note interest rate one-month LIBOR plus 1.55% per annum
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
notes and Class D notes
Enhancement for the Class B notes subordination of Class C notes and Class D
notes
Enhancement for the Class C notes subordination of Class D notes and shared
Cash Collateral Account
Scheduled End of Revolving Period July 31, 2007
Series 2001-A Final Maturity Date October 20, 2010
Series Issuance Date April 17, 2001
</Table>
A-2
SERIES 2002-A
<Table>
Initial Class A Invested Amount $240,000,000
Current Class A Invested Amount $240,000,000
Class A note interest rate one-month LIBOR plus 0.20% per annum
Initial Class B Invested Amount $27,750,000
Current Class B Invested Amount $27,750,000
Class B note interest rate one-month LIBOR plus 0.70% per annum
Initial Class C Invested Amount $21,750,000
Current Class C Invested Amount $21,750,000
Class C note interest rate one-month LIBOR plus 1.75% per annum
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
notes and Class D notes
Enhancement for the Class B notes subordination of Class C notes and Class D
notes
Enhancement for the Class C notes subordination of Class D notes and shared
Cash Collateral Account
Scheduled End of Revolving Period September 30, 2004
Series 2002-A Final Maturity Date December 20, 2007
Series Issuance Date July 18, 2002
</Table>
SERIES 2003-A
<Table>
Initial Class A Invested Amount $320,000,000
Current Class A Invested Amount $320,000,000
Class A note interest rate one-month LIBOR plus 0.40% per annum
Initial Class B Invested Amount $37,000,000
Current Class B Invested Amount $37,000,000
Class B note interest rate one-month LIBOR plus 1.75% per annum
Initial Class C Invested Amount $29,000,000
Current Class C Invested Amount $29,000,000
Class C note interest rate one-month LIBOR plus 3.50% per annum
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
notes and Class D notes
Enhancement for the Class B notes subordination of Class C notes and Class D
notes
Enhancement for the Class C notes subordination of Class D notes and shared
Cash Collateral Account
Scheduled End of Revolving Period May 31, 2005
Series 2003-A Final Maturity Date August 20, 2008
Series Issuance Date February 25, 2003
</Table>
A-3
SERIES 2003-B
<Table>
Initial Class A Invested Amount $240,000,000
Current Class A Invested Amount $240,000,000
Class A note interest rate one-month LIBOR plus 0.35% per annum
Initial Class B Invested Amount $27,750,000
Current Class B Invested Amount $27,750,000
Class B note interest rate one-month LIBOR plus 1.65% per annum
Initial Class C Invested Amount $21,750,000
Current Class C Invested Amount $21,750,000
Class C note interest rate one-month LIBOR plus 4.10% per annum
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
notes and Class D notes
Enhancement for the Class B notes subordination of Class C notes and Class D
notes
Enhancement for the Class C notes subordination of Class D notes and shared
Cash Collateral Account
Scheduled End of Revolving Period September 30, 2005
Series 2003-B Final Maturity Date December 22, 2008
Series Issuance Date June 20, 2003
</Table>
A-4
SERIES 2003-C
<Table>
Initial Class A-1 Invested Amount $210,000,000
Current Class A-1 Invested Amount $210,000,000
Class A-1 note interest rate Federal Funds plus 0.40% per annum
Initial Class A-2 Invested Amount $30,000,000
Current Class A-2 Invested Amount $30,000,000
Class A-2 note interest rate one-month LIBOR plus 0.23% per annum
Initial Class B Invested Amount $27,750,000
Current Class B Invested Amount $27,750,000
Class B note interest rate one-month LIBOR plus 1.50% per annum
Initial Class C-1 Invested Amount $10,000,000
Current Class C-1 Invested Amount $10,000,000
Class C note interest rate one-month LIBOR plus 3.95% per annum
Initial Class C-2 Invested Amount $11,750,000
Current Class C-2 Invested Amount $11,750,000
Class C-2 note interest rate 5.95% per annum
Annual servicing fee percentage 2.0% per annum
Enhancement for the Class A notes subordination of Class B notes and Class C
notes and Class D notes
Enhancement for the Class B notes subordination of Class C notes and Class D
notes
Enhancement for the Class C notes subordination of Class D notes and shared
Cash Collateral Account
Scheduled End of Revolving Period November 30, 2004
Series 2003-C Final Maturity Date February 20, 2008
Series Issuance Date August 15, 2003
</Table>
A-5
PROSPECTUS
[ADVANTA LOGO]
ADVANTA BUSINESS CARD MASTER TRUST
ISSUER
ADVANTA BUSINESS RECEIVABLES CORP.
TRANSFEROR
ADVANTA BANK CORP.
SERVICER
ASSET BACKED NOTES
THE TRUST --
- may periodically issue asset backed notes in one or more series with one
or more classes; and
- will have an interest in --
- receivables in a portfolio of MasterCard(R) and VISA(R) business
revolving credit card accounts;
- payments due on those receivables; and
- other property described in this prospectus and in the accompanying
prospectus supplement.
THE NOTES --
- will be paid only from the trust assets;
- offered with this prospectus will be rated in one of the four highest
rating categories by at least one nationally recognized rating
organization;
- may have one or more forms of series enhancement; and
- will be issued as part of a designated series which may include one or
more classes of notes.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 IN THIS
PROSPECTUS.
A note is not a deposit and neither the notes nor the underlying accounts
or receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Advanta Business Card Master Trust only and
are not obligations of Advanta Business Receivables Corp., Advanta Bank Corp.,
Advanta Corp., any affiliate of them or any other person.
This prospectus may be used to offer and sell notes of a series only if
accompanied by the prospectus supplement for that series.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 13, 2003
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the notes in two separate documents:
(a) this prospectus, which provides general information, some of which may not
apply to your series of notes; and (b) the accompanying prospectus supplement,
which describes the specific terms of your series of notes, including:
- the terms, including interest rates, for each class;
- the timing of interest and principal payments;
- information about the receivables;
- information about any series enhancement for each class;
- the ratings for each class being offered; and
- the method for selling the notes.
The accompanying supplement to this prospectus may update or modify this
prospectus. Whenever the information in the prospectus supplement is more
specific than the information in this prospectus, you should rely on the
information in the prospectus supplement.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the notes in any state where the offer is not
permitted.
We include cross references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
in the accompanying prospectus supplement provide the pages on which these
captions are located.
i
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Prospectus Summary................. 1
Issuer........................... 1
Series........................... 1
Indenture Trustee................ 1
Transferor....................... 1
Seller, Servicer and
Administrator................. 1
Trust Assets..................... 1
Collections and Allocations...... 2
Interest Payments on the Notes... 2
Principal Payments on the
Notes......................... 3
Events of Default................ 4
Event of Default Remedies........ 5
Shared Finance Charge
Collections................... 5
Shared Principal Collections..... 5
Paired Series.................... 5
Series Enhancement............... 5
Tax Status....................... 6
ERISA Considerations............. 6
Note Ratings..................... 6
Risk Factors..................... 6
Risk Factors....................... 7
The Issuer......................... 14
Advanta Bank Corp., Advanta
Business Receivables Corp. and
Advanta Corp..................... 14
The Bank's Business Card
Activities....................... 15
Business Overview................ 15
Originations..................... 16
Competition...................... 17
Underwriting Procedures.......... 18
Pricing.......................... 19
Interchange...................... 20
Operations....................... 20
Key Outside Supplier
Relationships................. 22
Credit Card Association
Relationships................. 23
The Trust Portfolio................ 23
</Table>
<Table>
<Caption>
PAGE
----
Maturity Considerations............ 25
Use of Proceeds.................... 25
Description of the Notes........... 26
General.......................... 26
Securities Depository............ 27
Book-Entry Registration.......... 28
Definitive Notes................. 31
Interest Payments................ 31
Principal Payments............... 32
Transfer and Assignment of
Receivables................... 33
Issuance of Additional Series.... 33
Issuance of Additional Notes..... 35
Representations and Warranties... 36
Addition of Trust Assets......... 39
Removal of Accounts.............. 41
Collection and Other Servicing
Procedures.................... 42
Adjustments...................... 42
Trust Accounts................... 42
Funding Period................... 44
Investor Percentage and
Transferor Percentage......... 45
Application of Collections....... 45
Shared Finance Charge
Collections................... 47
Shared Principal Collections..... 48
Defaulted Receivables; Rebates
and Fraudulent Charges;
Investor Charge-Offs.......... 48
Final Payment of Principal;
Termination................... 48
Paired Series.................... 49
Pay Out Events................... 50
Servicing Compensation and
Payment of Expenses........... 51
Certain Matters Regarding the
Transferor and the Servicer... 51
Servicer Default................. 54
</Table>
ii
<Table>
<Caption>
PAGE
----
Reports to Noteholders........... 55
Evidence as to Compliance........ 56
Amendments....................... 57
The Indenture...................... 58
Events of Default; Rights upon
Event of Default.............. 58
Certain Covenants................ 61
Modification of the Indenture.... 62
Annual Compliance Statement...... 64
Indenture Trustee's Annual
Report........................ 64
List of Noteholders.............. 64
Satisfaction and Discharge of
Indenture..................... 64
The Indenture Trustee............ 65
Certain Matters Regarding the
Administrator................. 65
Series Enhancement................. 65
General.......................... 65
Subordination.................... 66
Letter of Credit................. 67
Cash Collateral Guaranty or
Account....................... 67
Collateral Interest.............. 67
Surety Bond or Insurance
Policy........................ 68
Spread Account................... 68
Reserve Account.................. 68
Interest Rate Swap Agreements and
Interest Rate Cap
Agreements.................... 68
Description of the Purchase
Agreement........................ 68
</Table>
<Table>
<Caption>
PAGE
----
Note Ratings....................... 70
Material Legal Aspects of the
Receivables...................... 71
Transfer of Receivables.......... 71
Borrower Protection Laws......... 71
Claims and Defenses of Account
Obligors Against the Trust.... 71
Certain Matters Relating to
Conservatorship, Receivership
and Bankruptcy................ 72
Certain Regulatory Matters....... 74
Federal Income Tax Consequences.... 75
General.......................... 75
Tax Characterization of the Trust
and the Notes................. 75
Consequences to Holders of the
Notes......................... 76
State and Local Tax
Consequences.................. 79
ERISA Considerations............... 79
Plan of Distribution............... 80
Legal Matters...................... 81
Reports to Noteholders............. 81
Where You Can Find More
Information...................... 81
Glossary of Terms for Prospectus... 82
Annex I
Global Clearance, Settlement and
Tax Documentation Procedures..... A-1
</Table>
iii
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION AND DOES NOT CONTAIN ALL OF
THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR INVESTMENT DECISION.
YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
SUPPLEMENT BEFORE YOU PURCHASE ANY NOTES.
ISSUER
Advanta Business Card Master Trust, a Delaware common law trust, is the
issuer of the notes. The trust's principal place of business is located at
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890. Its telephone number is (302) 651-8951.
The trust is a master trust and will issue notes in series.
SERIES
The trust will issue other series of notes secured by the assets of the
trust from time to time in the future.
Each series of notes will consist of one or more classes. The classes of a
series may be issued at the same time or at different times. The notes of each
series will be issued under an indenture supplement to an indenture, in each
case between the trust and the indenture trustee.
Some classes or series may not be offered by this prospectus. They may be
offered, for example, in a private placement.
The issuance of future series will occur without your prior review or
consent.
INDENTURE TRUSTEE
Deutsche Bank Trust Company Americas, a New York banking corporation.
TRANSFEROR
Advanta Business Receivables Corp. is the initial transferor of the credit
card receivables to the trust. Its principal place of business is 639 Isbell
Road, Suite 390, Reno, Nevada 89509. Its telephone number is (775) 823-3080. It
is a wholly-owned subsidiary of Advanta Bank Corp. Additional transferors that
are affiliates of the initial transferor may be designated.
SELLER, SERVICER AND ADMINISTRATOR
The bank is the initial seller of the credit card receivables to the
transferor. Additional sellers that are affiliates of the bank may be
designated. A seller may sell credit card receivables to the transferor or
transfer the receivables directly to the trust.
The bank's principal place of business is 11850 South Election Road,
Draper, Utah 84020. Its telephone number is (801) 523-0858. The bank is a direct
wholly-owned subsidiary of Advanta Corp.
The bank will service the receivables for the trust and will act as the
trust's administrator.
In limited cases, the servicer may resign or be removed, and either the
indenture trustee or a third party may be appointed as the new servicer. The
servicer receives a servicing fee from the trust, and each series is obligated
to pay a portion of that fee.
TRUST ASSETS
The seller is the owner of the accounts in which the credit card
receivables were created and will continue to own the accounts after the
receivables generated in those accounts have been transferred to the trust. The
seller's portfolio of accounts represents agreements between the seller and
small businesses governing the extension of unsecured revolving lines of credit
that can be used through
1
the MasterCard(R)* or VISA(R)* payment-processing systems. The seller has
designated selected MasterCard(R) and VISA(R) revolving business credit card
accounts from its portfolio and has either sold the receivables in those
accounts to the transferor under a receivables purchase agreement or transferred
the receivables directly to the trust under a transfer and servicing agreement.
If the seller has sold receivables to the transferor, then the transferor has,
in turn, transferred the receivables to the trust under the transfer and
servicing agreement.
All new receivables generated in the accounts will be transferred
automatically to the trust. The total amount of receivables in the trust
fluctuates daily as new receivables are generated and payments are received on
existing receivables. See "Summary of Terms -- The Receivables" in the
accompanying prospectus supplement.
The receivables transferred to the trust are the primary trust assets.
Additional similar assets may be transferred to the trust as described under
"Description of the Notes -- Addition of Trust Assets" in this prospectus. The
transferor may also remove receivables that it transferred to the trust as
described under "Description of the Notes -- Removal of Accounts" in this
prospectus.
For more information about the receivables, see "The Trust Portfolio" in
this prospectus.
COLLECTIONS AND ALLOCATIONS
The servicer receives collections on the receivables, deposits those
collections in the collection account and keeps track of them as either finance
charge and administrative receivables or principal receivables.
The servicer then allocates those collections among each series of notes
outstanding and the transferor beneficial interest. The servicer allocates (a)
collections of finance charge and administrative receivables and principal
receivables and (b) receivables in accounts written off as uncollectible to each
series based on varying percentages. The accompanying prospectus supplement
describes the allocation percentages applicable to your series. The amount of
cashflows from the trust assets the transferor beneficial interest is entitled
to receive is called the transferor interest.
The principal amount of the transferor interest fluctuates with the amount
of the principal receivables held in the trust and the amount of notes
outstanding. The transfer and servicing agreement requires the transferor to
transfer receivables in additional accounts to the trust (a) if the transferor
interest, averaged over any 30-day period, is less than the required transferor
interest, or (b) if the total amount of principal receivables in the trust
portfolio is less than the required minimum principal balance. The transferor
may sell all or part of its interest in the transferor beneficial interest by
issuing a supplemental certificate. The transferor interest does not provide
series enhancement for any series.
INTEREST PAYMENTS ON THE NOTES
Each note entitles the holder to receive payments of interest as described
in the applicable prospectus supplement. If a series of notes consists of more
than one class, each class may differ in priority of payments, payment dates,
interest rates, methods for computing interest, rights to series enhancement and
other things.
Each class of notes may have a fixed, floating or any other type of
interest rate. Generally, interest will be paid monthly, quarterly,
semi-annually or on other sched-
- ---------------
* MasterCard(R) and VISA(R) are federally registered servicemarks of Mastercard
International Inc. and VISA U.S.A., Inc., respectively.
2
uled dates over the life of the notes. See "Description of the Notes -- Interest
Payments" in this prospectus.
PRINCIPAL PAYMENTS ON THE NOTES
Each note offered under this prospectus entitles the holder to receive
payments of principal as described in the applicable prospectus supplement. If a
series of notes has more than one class, each class may differ in the amounts
allocated for principal payments, priority of payments, payment dates, maturity,
rights to series enhancement and other things. See "Description of the
Notes -- Principal Payments" in this prospectus.
REVOLVING PERIOD
From the date a series of notes is issued until a date specified in the
series supplement, the trust will not pay or accumulate principal for payment to
the noteholders. During this revolving period, the trust will pay available
principal to noteholders of other series in a group as shared principal
collections or to the transferor as holder of the transferor beneficial
interest, or in certain circumstances will deposit the available principal in
the excess funding account.
After the revolving period, each class of notes will have one or more of
the following periods:
- a controlled accumulation period, during which principal is accumulated
in specified amounts per month and paid on an expected principal payment
date;
- a controlled amortization period, during which principal is paid in fixed
amounts at scheduled intervals; or
- an early amortization period or early accumulation period, during which
principal is paid or accumulated, respectively, in varying amounts each
month based on the amount of principal receivables collected following a
pay out event.
CONTROLLED ACCUMULATION PERIOD
If a series or class of notes is in a controlled accumulation period, the
trust is expected to pay available principal to those noteholders on the
expected principal payment date specified in the prospectus supplement for that
series. If the series has more than one class, each class may have a different
priority of payment. For a period of time prior to the expected principal
payment date, the trust will deposit specified amounts of available principal in
a trust account. The controlled accumulation period for a series or class begins
on a date specified in the applicable prospectus supplement and ends when any
one of the following occurs:
- the notes of that series or class are paid in full;
- the early amortization period or early accumulation period starts; or
- the series termination date.
CONTROLLED AMORTIZATION PERIOD
If a series or class of notes is in a controlled amortization period, the
trust will pay available principal up to a fixed amount to those noteholders on
each payment date during that period. The trust will pay available principal in
a fixed amount, plus any amounts not previously paid. If the series has more
than one class, each class may have a different priority of payment. The
controlled amortization period for a series or class starts on the date
specified in the applicable prospectus supplement and ends when any one of the
following occurs:
- the notes of that series or class are paid in full;
- the early amortization period or early accumulation period starts; or
- the series termination date.
3
EARLY AMORTIZATION PERIOD OR
EARLY ACCUMULATION PERIOD
If a series or class of notes is in an early amortization period or early
accumulation period, the trust will pay available principal to those noteholders
on each payment date or accumulate available principal by making a deposit into
an account on each payment date. If the series has more than one class, each
class may have a different priority for payment. The early amortization period
or early accumulation period for a series or class starts on the business day
before the date on which a pay out event occurs and ends when any of the
following occurs:
- the notes of that series or class are paid in full;
- the series termination date; or
- the trust termination date.
All principal and interest will be due and payable no later than the series
termination date.
PAY OUT EVENTS
Pay out events for any series of notes will consist of series pay out
events and trust pay out events. Series pay out events are described in the
prospectus supplement for that series and apply only to that series. Trust pay
out events apply to all series and consist of the following:
- any servicer default occurs which would have a material adverse effect on
the noteholders;
- certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the transferor, the seller or
the servicer;
- the transferor is unable for any reason to transfer receivables to the
trust in accordance with the provisions of the transfer and servicing
agreement; or
- the trust becomes subject to regulation as an "investment company" within
the meaning of the Investment Company Act of 1940.
See "Description of the Notes -- Pay Out Events" in this prospectus.
EVENTS OF DEFAULT
The indenture and related indenture supplement governing the terms and
conditions of the notes include a list of events of default.
If an event of default occurs, then, after any applicable cure period, the
indenture trustee or the holders of a majority in principal amount of the
affected series of notes may accelerate those notes by declaring the principal
amount of those notes to be immediately due and payable. That declaration may,
under certain circumstances, be rescinded by the holders of a majority in
principal amount of the affected series of notes.
Events of default include the following:
- the trust fails to pay interest on any note within 35 days of its due
date;
- the trust fails to pay in full principal on any note on its series
termination date;
- the trust defaults on any covenant or breaches any agreement under the
indenture, the default or breach is materially adverse to noteholders and
the default or breach continues unremedied for 60 days after written
notice of the default or breach is given to the trust by the indenture
trustee or to the trust and the indenture trustee by holders of at least
25% in principal amount of the notes;
- the occurrence of certain bankruptcy, insolvency, reorganization or
similar events relating to the trust; or
4
- as to any series of notes, any additional events of default specified in
the applicable prospectus supplement.
See "The Indenture -- Events of Default; Rights upon Event of Default" in this
prospectus for a description of the events of default and their consequences to
noteholders.
It is not an event of default if the principal of a note is not paid on its
expected principal payment date.
EVENT OF DEFAULT REMEDIES
After an event of default and the acceleration of a series of notes, funds
on deposit in the collection account for that series will be applied to pay
principal of and interest on those notes to the extent permitted by law. After
an event of default, collections of principal receivables and finance charge and
administrative receivables allocated to the affected notes will be applied to
make monthly principal and interest payments on those notes until the earlier of
the date those notes are paid in full or the series termination date of those
notes.
After an event of default, the indenture trustee (acting on its own or at
the direction of holders of notes that have been accelerated) will have a
limited right to foreclose on the portion of the receivables allocable to the
accelerated notes by causing the trust to sell an interest in the assets of the
trust by issuing a foreclosure certificate. This foreclosure certificate would
represent an undivided interest in the assets of the trust equal to the invested
amount securing the notes of the related series. See "The Indenture -- Events of
Default; Rights upon Event of Default" in this prospectus.
SHARED FINANCE CHARGE COLLECTIONS
Any series may be included in a group of series. The group to which a
series belongs will be specified in the prospectus supplement for that series.
If specified in the prospectus supplement for any of these series, to the extent
that collections of finance charge and administrative receivables allocated to a
series are not needed for that series, those collections may be applied to cover
certain shortfalls of other series in the same group. See "Description of the
Notes -- Shared Finance Charge Collections" in this prospectus.
SHARED PRINCIPAL COLLECTIONS
If a series is identified in its prospectus supplement as being in a group
of series, to the extent that collections of principal receivables allocated to
that series are not needed for that series at that time, those collections may
be applied to cover principal payments for other principal sharing series in the
same group, and vice versa. Once principal receivables are transferred from one
series to another, the series providing the principal receivables is not
entitled to recoup these amounts. Certain principal payments for certain
principal sharing series in the same group may have priority in receiving those
collections over other principal payments for other principal sharing series in
that group. See "Description of the Notes -- Shared Principal Collections" in
this prospectus.
PAIRED SERIES
If specified in its prospectus supplement, a series may be paired with
another series so that a reduction in the invested amount securing the notes of
one series results in an increase in the invested amount securing the notes of
the other such series.
SERIES ENHANCEMENT
Each class of a series may be entitled to series enhancement. Series
enhancement for the notes of any class may take the form of one or more of the
following:
- subordination
- letter of credit
- collateral interest
- surety bond
- insurance policy
- spread account
5
- cash collateral guaranty
- reserve account
- cash collateral account
- swap arrangement
- interest rate cap agreement
- cross support feature
The type, characteristics and amount of any series enhancement for a series
will be:
- based on several factors, including the characteristics of the
receivables and accounts at the time a series of notes is issued; and
- established based on the requirements of the rating agencies.
See "Series Enhancement" in this prospectus.
TAX STATUS
Subject to important considerations described under "Federal Income Tax
Consequences" in this prospectus, Wolf, Block, Schorr and Solis-Cohen LLP, as
special tax counsel to the trust, is of the opinion that, for United States
federal income tax purposes (1) the notes will be treated as indebtedness and
(2) the trust will not be an association or a publicly traded partnership
taxable as a corporation. In addition, noteholders will agree, by acquiring
notes, to treat the notes as debt for federal, state and local income and
franchise tax purposes.
ERISA CONSIDERATIONS
Under the regulations issued by the United States Department of Labor, the
trust's assets would not be deemed plan assets of any employee benefit plan
holding notes and the notes may be purchased by employee benefit plans if
certain conditions are met. If the trust's assets were deemed to be plan assets
of an employee benefit plan, there is uncertainty as to whether existing
exemptions from the prohibited transaction rules of the Employee Retirement
Income Security Act of 1974, as amended, would apply to all transactions
involving the trust's assets. We suggest that fiduciaries or other persons
contemplating purchasing notes of any series with "plan assets"of any employee
benefit plan consult their counsel before making a purchase. See "ERISA
Considerations" in this prospectus.
NOTE RATINGS
Any note offered by this prospectus and an accompanying prospectus
supplement will be rated in one of the four highest rating categories by at
least one nationally recognized rating organization. A rating is not a
recommendation to buy, sell or hold securities, and may be revised or withdrawn
at any time by the assigning agency. Each rating should be evaluated
independently of any other rating. See "Note Ratings" in this prospectus.
RISK FACTORS
Investment in the notes will be subject to one or more risk factors. We
suggest that you read "Risk Factors" beginning on page 7 in this prospectus and
any risk factors discussion in the accompanying prospectus supplement for a
discussion of risk factors that you may wish to consider before investing in the
notes.
6
RISK FACTORS
The following is a summary of the material risks that apply to an
investment in the notes. The remainder of this prospectus and the attached
prospectus supplement provide more detailed information about these risks. You
should consider the following risk factors and any risk factors in the
accompanying prospectus supplement before deciding whether to purchase the
notes.
IT MAY NOT BE POSSIBLE TO FIND AN INVESTOR TO PURCHASE YOUR NOTES.
You must be prepared to hold the notes you purchase for as long as they are
outstanding. The underwriters may assist in resales of the notes of any class or
series but they are not required to do so. A secondary market for the notes of
your class may not develop. If a secondary market does develop, it might not
continue or it might not be sufficiently liquid to allow you to resell any of
your notes.
THE SERIES ENHANCEMENT FOR YOUR NOTES MAY NOT BE SUFFICIENT TO PROTECT YOU
AGAINST LOSSES.
The series enhancement for your notes is designed to protect your investment
against certain types and amount of losses as described in the prospectus
supplement for your series of notes. The amount of any series enhancement is
limited and may decline during an amortization or accumulation period. If a
series enhancer fails to perform its obligations or if the series enhancement
ends under the terms on which it is provided, then you will bear directly the
credit and other risks associated with your investment in the notes.
SOME LIENS WOULD BE GIVEN PRIORITY OVER YOUR NOTES WHICH COULD CAUSE DELAYED OR
REDUCED PAYMENTS.
The seller and the transferor will account for the transfer of the receivables
as a sale. However, a court could conclude that the seller or the transferor
still owns the receivables and that the trust holds only a security interest.
Even if a court would reach that conclusion, the indenture trustee will have a
first priority perfected security interest.
If a court were to conclude that the trust has only a security interest, a tax
or government lien (or other lien imposed under applicable state or federal law
without consent) on the property of the person that owns the receivables arising
before new receivables come into existence may be senior to the trust's interest
in the receivables.
Additionally, if a receiver or conservator were appointed for any seller, the
fees and expenses of the receiver or conservator might be paid from the
receivables before the trust received any payments on the receivables. In
addition, the trust may not have a first-priority security interest in
collections commingled and used for the benefit of the bank as servicer if (a) a
receiver or conservator were appointed for the bank or (b) a ten-day period were
to elapse after receipt by the servicer of collections that have been commingled
with other funds. If any of these events occur, payments to you could be delayed
or reduced. See "Certain Legal Aspects of the Receivables -- Transfer of
Receivables" and "Description of the Notes -- Representations and Warranties" in
this prospectus.
IF A RECEIVER OR CONSERVATOR WERE APPOINTED FOR A SELLER OR A TRANSFEROR THAT IS
A BANK, OR IF A SELLER OR A TRANSFEROR THAT IS NOT A BANK BECAME A DEBTOR IN A
BANKRUPTCY CASE, DELAYS OR REDUCTIONS IN PAYMENT OF YOUR NOTES COULD OCCUR.
The bank is chartered as a Utah industrial loan corporation and is regulated and
supervised by the Federal Deposit Insurance Corporation. The FDIC may act as
conservator or receiver for the
7
bank if certain events occur relating to the bank's financial condition or the
propriety of its actions.
The bank will treat its transfers of receivables to the transferor as sales
under general applicable law. Arguments could be made, however, that any
transfer of receivables by the bank to the transferor constitutes the grant of a
security interest under general applicable law.
As noted above, the bank intends to treat the transfers between the bank, as
seller, and the transferor under the receivables purchase agreement as absolute
conveyances. Arguments may be made, however, that any of these transfers
constitutes the grant of a security interest under general applicable law.
Nevertheless, the FDIC has issued regulations surrendering certain rights under
the Federal Deposit Insurance Act to reclaim, recover, or recharacterize a
financial institution's transfer of financial assets such as the receivables if:
- the transfer involved a securitization of the financial assets and meets
specified conditions for treatment as a sale under relevant accounting
principles;
- the financial institution received adequate consideration for the
transfer;
- the parties intended that the transfer constitute a sale for accounting
purposes; and
- the financial assets were not transferred fraudulently, in contemplation
of the financial institution's insolvency, or with the intent to hinder,
delay or defraud the financial institution or its creditors.
The bank's transfer of the receivables and the agreements under which the bank
makes those transfers are intended to satisfy all of these conditions.
If a condition required under the FDIC's regulations were found not to have been
met, however, the FDIC could reclaim, recover or recharacterize the seller's
transfer of the receivables. If the FDIC were successful, the FDIA would limit
the damages for any such repudiation to the trust's "actual direct compensatory
damages" determined as of the date that the FDIC were appointed as conservator
or receiver for that seller or transferor. The FDIC, moreover, could delay its
decision whether to repudiate the applicable receivables purchase agreement and
back-up security agreement or to reclaim, recover or recharacterize the transfer
for a reasonable period following its appointment as conservator or receiver for
the seller or transferor. Therefore, if the FDIC as conservator or receiver for
a seller or transferor that is a bank were to repudiate the applicable
receivables purchase agreement and back-up security agreement or to reclaim,
recover or recharacterize the transfer, the amount payable to you could be lower
than the outstanding principal and accrued interest on the notes, thus resulting
in losses to you.
Advanta Business Receivables Corp. is a wholly-owned bankruptcy remote
subsidiary of the bank. The certificate of incorporation of ABRC limits the
nature of its business and restricts its ability to commence a voluntary case
under the bankruptcy code without the unanimous consent of its directors.
If, however, ABRC or any other transferor or any seller that is not a bank
became a debtor in a bankruptcy case, and if its transfer of the receivables to
a transferor or the trust were construed as the grant of a security interest to
secure a borrowing, your payments of outstanding principal and interest could be
delayed and possibly reduced.
If a receiver or conservator were appointed for any seller or transferor that is
a bank, or if any seller or transferor that is not a bank became a debtor in a
bankruptcy case, an early payment of principal on all outstanding series of
notes could result. Under the terms of the applicable receivables purchase
agreement or transfer and servicing agreement, new principal receivables would
not be transferred to the trust. However, the bankruptcy court, the receiver or
conservator
8
may have the power, regardless of the terms of the applicable receivables
purchase agreement or transfer and servicing agreement, (a) to delay the effect
of any provision under the indenture, the applicable receivables purchase
agreement or transfer and servicing agreement, (b) to prevent the early payment
of principal or (c) to require new principal receivables to continue being
transferred.
In addition, regardless of the terms of the indenture, the FDIC as conservator
or receiver for a seller or transferor that is a bank may have the power to
prevent the commencement of an early amortization period or to prevent or limit
the early liquidation of the receivables and termination of the trust, or to
require the continued transfer of new principal receivables. Regardless of the
instructions of those authorized to direct the indenture trustee's action,
moreover, the FDIC as conservator or receiver for a seller or transferor that is
a bank may have the power to require the early liquidation of the receivables,
to require the early termination of the trust and the retirement of the notes,
or to prohibit or limit the continued transfer of new principal receivables.
Furthermore, regardless of the terms of the transfer and servicing agreement,
the FDIC as conservator or receiver for a seller or transferor that is a bank
may have the power to prevent the appointment of a successor servicer or could
authorize the bank to stop servicing the receivables.
If the FDIC were appointed as receiver or conservator for the servicer and no
servicer default other than the appointment of the receiver or conservator has
occurred, the FDIC (a) could prevent either the indenture trustee or the
noteholders from appointing a new servicer, (b) could authorize the bank to stop
servicing the receivables, or (c) could increase the amount or the priority of
the servicing fee due to the servicer or otherwise alter the terms under which
the bank services the receivables. If any of these events were to occur,
payments to you could be delayed, reduced or terminated.
See "Material Legal Aspects of the Receivables -- Certain Matters Relating to
Conservatorship, Receivership and Bankruptcy" in this prospectus.
Furthermore, at any time, if the FDIC were to conclude that any obligation under
the trust agreement, the indenture, the transfer and servicing agreement, the
receivables purchase agreement, the administration agreement or any other
agreement entered into by the bank with respect to one or more series were an
unsafe or unsound practice or violated any law, rule, regulation or written
condition or agreement applicable to the bank, the FDIC has the power to order
the bank, among other things, to rescind the agreement or contract, refuse to
perform that obligation, terminate the activity, amend the terms of such
obligation or take such other action as it determines to be appropriate. If such
an order were issued, payments to you could be delayed or reduced, and the bank
may not be liable to you for contractual damages for complying with such an
order and you may have no recourse against the FDIC. See "Material Legal Aspects
of the Receivables -- Certain Regulatory Matters" in this prospectus.
THE ACCOUNT OWNER MAY CHANGE THE TERMS AND CONDITIONS OF THE ACCOUNTS IN A WAY
THAT REDUCES COLLECTIONS.
The bank and any other seller which owns accounts will have the right to change
the finance charges and the other fees and charges which will be applicable from
time to time on the accounts, to alter the minimum monthly payment required
under the accounts and to change various other terms of its agreement with
customers on the accounts. Such changes may be voluntary on the part of the
owner of the accounts or may be required by law or forced by market conditions.
For example, changes in applicable law, changes in the marketplace or prudent
business practice might result in a determination by the bank or any other
seller which
9
owns accounts to decrease finance charges or other fees and charges for existing
accounts, or to take actions which would otherwise change the terms of the
accounts. Changes could also result in lower credit ratings on your notes. A
decrease in the finance charges and the other fees and charges assessed on the
accounts should decrease the effective yield on the accounts and could result in
the occurrence of a pay out event and commencement of the early amortization
period or early accumulation period. If an early amortization period occurs, you
could receive an early payment of principal on your notes.
LIMITED REMEDIES FOR BREACHES OF REPRESENTATIONS COULD REDUCE OR DELAY PAYMENTS.
The transferor makes representations and warranties relating to the validity and
enforceability of the receivables arising under the accounts in the trust
portfolio, and as to the perfection and priority of the trust's interest in the
receivables. However, neither the owner trustee nor the indenture trustee will
make any examination of the receivables or the related assets to determine the
presence of defects, compliance with the representations and warranties or for
any other purpose.
If a representation or warranty relating to the receivables is violated, the
related obligors may have defenses to payment or offset rights, or creditors of
the seller or the transferor may claim rights to the trust assets. If a
representation or warranty is violated, the transferor may have an opportunity
to cure the violation. If it is unable to cure the violation within the
specified time period or if there is no right to cure the violation, the
transferor must accept reassignment of the receivables affected by the
violation. These reassignments are the only remedy for breaches of
representations and warranties, even if your damages exceed your share of the
reassignment price. See "Description of the Notes -- Representations and
Warranties" in this prospectus.
PAYMENT PATTERNS OF RECEIVABLES COULD REDUCE COLLECTIONS.
The receivables transferred to the trust may be paid at any time. The trust
cannot assure the creation of additional receivables in the trust's accounts or
that any particular pattern of customer payments will occur. A significant
decline in the amount of new receivables generated could result in the
occurrence of a pay out event for one or more series and the commencement of the
early amortization period or the early accumulation period for each of those
series. If a pay out event occurs, you could receive payment of principal sooner
than expected. The bank's ability to compete in the current industry environment
will affect its ability to generate new receivables and might also affect
payment patterns on the receivables. In addition, changes in finance charges can
alter the monthly payment rates of customers. A significant decrease in monthly
payment rates could slow the return or accumulation of principal during an
amortization period or accumulation period. See "Maturity Considerations" in
this prospectus.
CREDIT CARD INDUSTRY ANTITRUST LITIGATION COULD ADVERSELY AFFECT THE BANK'S
BUSINESS CARD PROGRAM.
On October 9, 2001, the United States District Court for the Southern District
of New York issued its decision in an antitrust lawsuit brought by the United
States Department of Justice against Mastercard International, VISA U.S.A, Inc.,
and VISA International, Inc. The court ordered the repeal of the exclusionary
policies of the associations that prevented the associations' member banks from
offering credit cards of competitors (e.g., American Express(R) and Discover
Card(R)). The court rejected the Justice Department's argument that the
associations' "duality" policies that allow a bank to belong to both
associations lessened competition. The District Court has stayed final judgment
on the exclusionary policies pending appeal by the associations. On September
17, 2003, the United States Court of Appeals for the Second Circuit issued a
decision that upheld the judgment of the District Court. Both Mastercard
International and
10
VISA U.S.A., Inc. have issued public statements declaring their intentions to
continue the appeals process. We are not able at this time to determine what the
effect, if any, of the final judgment would be on the bank's business credit
card program.
In 1996, Wal-Mart Stores, Inc. and several other retailers sued Mastercard
International, Inc., VISA U.S.A., Inc. and VISA International, Inc. in the U.S.
District Court for the Eastern District of New York. The suit asserts that the
rules of the associations regarding the uniform acceptance of all VISA and
MasterCard cards, including debit VISA and MasterCard cards, constitute an
illegal tying arrangement. In April 2003, Mastercard International, Inc. and
VISA U.S.A., Inc. each agreed to settle the suit before the U.S. District Court.
MasterCard International, Inc. agreed to pay into a settlement fund
approximately $1 billion over ten years and VISA U.S.A., Inc. agreed to pay
approximately $2 billion over ten years. The associations also agreed to certain
reductions in the interchange rate for debit cards and agreed to change their
rules to allow merchants who accept their credit cards for payment to not accept
their debit cards. In June 2003, the U.S. District Court granted preliminary
approval of the settlements and a fairness hearing was held on September 25,
2003. Certain merchants, however, have opted out of the settlements.
We cannot predict the effect of the suits described above or the proposed
settlement in the retailer suit on the competitive environment in the credit
card industry.
THE RATING ASSIGNED TO A CLASS OF NOTES IS LIMITED.
Any rating assigned to the notes by a credit rating agency will reflect the
rating agency's assessment solely of the likelihood that noteholders will
receive the payments of interest and principal required to be made under the
terms of the series and will be based primarily on the value of the receivables
in the trust and the series enhancement provided. The rating is not a
recommendation to purchase, hold or sell any notes. The rating does not
constitute a comment as to the marketability of any notes, any market price or
suitability for a particular investor. Any rating can be changed or withdrawn by
a rating agency at any time.
THE ADDITION OF RECEIVABLES WITH DIFFERENT CHARACTERISTICS COULD AFFECT
ADVERSELY THE COMPOSITION OF THE TRUST AND REDUCE THE AVERAGE YIELD ON THE
PORTFOLIO.
The transferor expects, and in some cases will be obligated, to designate
additional accounts, and the receivables generated in these additional accounts
will be conveyed to the trust. These may include receivables arising in accounts
originated using criteria different from those which were applied to the initial
accounts transferred to the trust because these accounts were originated at a
later date, were part of a portfolio of accounts which were not part of the
bank's portfolio as of the initial cut-off date or 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.
Consequently, the trust cannot assure you that additional accounts and the
receivables generated in those accounts will be of the same credit quality as
the accounts and receivables previously included in the trust. In addition,
additional accounts may consist of receivables arising in revolving business
credit card accounts that have different terms than the accounts previously
transferred to 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, including,
in the case of voluntary additions, that each rating agency that has rated the
series of notes confirm in writing that the addition of receivables will not
result in a reduction or withdrawal of its rating of any class.
11
THE NOTES ARE SOLELY LIMITED OBLIGATIONS OF THE TRUST.
The notes of any series will represent the right to receive payments of
principal and interest in the amounts and at the times described in the
prospectus supplement for the series. The notes will not represent an interest
in or obligation of the seller, the transferor, the owner trustee, the indenture
trustee or any of their affiliates and will not be guaranteed or insured by any
of them. A specified percentage of collections, amounts on deposit in specified
accounts and funds provided by any series enhancer will be the sole source of
payment on the notes. You will not have recourse to the seller, the transferor,
the owner trustee, the indenture trustee or any other entity if collections,
amounts on deposit in specified accounts and funds provided by any series
enhancer are insufficient or otherwise unavailable to make all payments provided
for under the notes of your series.
SUBORDINATED CLASSES BEAR LOSSES BEFORE SENIOR CLASSES.
One or more classes of notes in a series may be subordinated to one or more
senior classes of notes in the same series. Principal payments to the
subordinated class or classes will not begin until each of the more senior
classes has been paid in full. Additionally, if collections of finance charge
and administrative receivables allocated to a series are insufficient to cover
amounts due for that series' senior notes, the invested amount for the series
might be reduced. This would reduce the amount of the collections of finance
charge and administrative receivables available to the subordinated notes in
future periods and could cause a possible delay or reduction in principal and
interest payments on the subordinated notes.
ALLOCATIONS OF CHARGED-OFF RECEIVABLES COULD REDUCE PAYMENTS TO YOU.
The servicer will write off the receivables arising in accounts in the trust
portfolio if the receivables become uncollectible. Your series will be allocated
a portion of these charged-off receivables. See "Description of Series
Provisions -- Allocation Percentages" and "The Seller's Business Card
Portfolio -- Delinquency and Loss Experience" in the accompanying prospectus
supplement. If the amount of charged-off receivables allocated to your series of
notes exceeds the amount of funds available to reimburse those charge-offs, you
may not receive the full amount of principal and interest due to you. If an
obligor on an account sought protection under federal or state bankruptcy or
debtor relief laws, a court could reduce or discharge completely the obligor's
obligations to repay amounts due on its account and, as a result, the related
receivables would be written off as uncollectible. See "Material Legal Aspects
of the Receivables -- Borrower Protection Laws" in this prospectus and
"Description of Series Provisions -- Reallocated Principal Collections,"
"-- Application of Collections" and "-- Defaulted Receivables; Investor
Charge-Offs" in the accompanying prospectus supplement.
THE NOTE INTEREST RATE AND THE RECEIVABLES INTEREST RATE MAY RE-SET AT DIFFERENT
TIMES, BE BASED ON DIFFERENT INDICES, OR BE CALCULATED IN A DIFFERENT MANNER, OR
ONE COULD BE FIXED AND THE OTHER FLOATING, RESULTING IN REDUCED OR EARLY
PAYMENTS TO YOU.
Some accounts may have finance charges set at a variable rate based on a
designated index, for example, the prime rate. A series of notes may bear
interest either at a fixed rate or at a floating rate based on a different
index. If the interest rate charged on the accounts declines, collections of
finance charge and administrative receivables may be reduced without a
corresponding reduction in the amounts of interest payable on your notes and
other amounts required to be paid out of collections of finance charge and
administrative receivables. This could result in delayed or reduced payments to
you.
12
A series of notes may bear interest at a floating rate, while all or a portion
of the receivables bear interest at a fixed rate. If the rate on the notes
increased, collections of finance charge and administrative receivables may not
support the note interest rate. This could result in delayed or reduced payments
to you.
A decrease in the spread, or difference, between collections of finance charge
and administrative receivables and those collections allocated to make interest
payments on your notes could reduce the net portfolio yield and increase the
risk of early repayment of your notes.
ISSUANCE OF ADDITIONAL SERIES BY THE TRUST MAY AFFECT THE TIMING OF PAYMENTS TO
YOU.
The trust will issue additional series of notes from time to time. The trust may
issue additional series with terms that are different from your series without
your prior review or consent. It is a condition to the issuance of each new
series that each rating agency that has rated an outstanding series confirm in
writing that the issuance of the new series will not result in a reduction or
withdrawal of its then-existing rating of any class of any outstanding series.
The rating agency confirmation primarily will be based on the trust's ability to
pay principal by the series termination date and interest on each payment date.
The rating agency confirmation will not consider how the terms of a new series
could affect the timing and amounts of payments on your series.
SOCIAL, ECONOMIC AND GEOGRAPHIC FACTORS CAN AFFECT CREDIT CARD PAYMENTS AND MAY
CAUSE A DELAY IN OR DEFAULT ON PAYMENTS.
Changes in business credit card use, payment patterns and the rate of defaults
by customers may result from a variety of social, economic and geographic
factors. Social factors include changes in confidence levels and attitudes
towards incurring debt, the public's perception of the use of credit cards and
changing attitudes about incurring debt and the stigma of bankruptcy. Economic
factors include the rates of inflation, the unemployment rates and the relative
interest rates offered for various types of loans. Moreover, adverse changes in
economic conditions in states where customers are located could have a direct
impact on the timing and amount of payments on the notes of any series.
The acts of terrorism which occurred in the United States on September 11, 2001
had a significant impact on the overall economy in the United States, including
declines in business travel and entertainment spending since September 11, 2001.
The ongoing effect of these events and of other terrorist acts on the U.S.
economy and business spending is unclear. We cannot predict how these or other
factors will affect business credit card use, payment patterns and remittance
practices. Political and military actions in response to these events and other
terrorist acts and the impact of those actions on credit card use, payment
patterns and remittance practices are also unclear. In addition, existing and
future legislation may affect the incurrence of debt and payment of credit card
balances. In particular, under the Soldiers' and Sailors' Civil Relief Act of
1940, members of the military, including reservists, on active duty who have
entered into obligations, such as incurring credit card debt, before being
called to active duty may be entitled to reductions in interest rates to a cap
of 6% and a stay of collection efforts. We have no information at this time
concerning how many accounts in the trust portfolio may be affected by the
limitations and restrictions of the Soldiers' and Sailors' Civil Relief Act.
We cannot predict how any of these or other factors will affect repayment
patterns or credit card use and, consequently, the timing and amount of payments
on your series. Any reductions in the amount or timing of interest or principal
payments will reduce the amount available for payment on the notes of such
series.
13
This prospectus uses some defined terms. You can find a glossary of terms
under the caption "Glossary of Terms for Prospectus" beginning on page 82 in
this prospectus.
THE ISSUER
Advanta Business Card Master Trust is a common law trust created under the
laws of the State of Delaware. It is operated under a trust agreement, dated as
of August 1, 2000, between ABRC, as transferor, and Wilmington Trust Company, as
owner trustee. Advanta Business Card Master Trust is called the "ISSUER" or the
"TRUST" and Wilmington Trust Company, in its capacity as owner trustee of the
issuer, is called the "OWNER TRUSTEE."
The activities of the issuer are limited to:
- acquiring, owning and managing the trust assets and the proceeds of those
assets;
- issuing and making payments on the notes; and
- engaging in related activities.
As a consequence, the trust is not expected to have any need for, or
sources of, capital resources other than the trust assets.
The bank, in its capacity as "ADMINISTRATOR," under the administration
agreement, dated as of August 1, 2000, between the administrator and the trust,
will provide the notices and perform on behalf of the trust certain other
administrative obligations required by the transfer and servicing agreement, the
indenture and the indenture supplement for each series, and will be compensated
for acting as the administrator.
The trust's principal offices are in Delaware, in care of Wilmington Trust
Company, as owner trustee, at the following address: Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890.
The transferor will pay the fees of the owner trustee and will reimburse it
for certain liabilities and expenses.
ADVANTA BANK CORP.,
ADVANTA BUSINESS RECEIVABLES CORP.
AND ADVANTA CORP.
Advanta Bank Corp. is a Utah-chartered industrial loan corporation. The
bank is a depository institution subject to regulatory oversight and examination
by both the FDIC and the Utah Department of Financial Institutions. Under its
banking charter, the bank is permitted to make consumer and commercial loans and
to accept all FDIC insured deposits with the exception of demand deposits
(checking accounts). The bank is a wholly-owned subsidiary of Advanta
Corp. Advanta Corp. is a publicly-traded company based in Spring House,
Pennsylvania and its stock is listed on the NASDAQ as ADVNA and ADVNB.
The principal executive office of the bank is located in Draper, Utah.
Advanta Business Receivables Corp. is a corporation incorporated under the
laws of the State of Nevada in May, 1996. The articles of incorporation of ABRC
limit its purpose and activities to reduce the likelihood that a bankruptcy
petition will be filed concerning it. An entity which is structured in this
manner is frequently called bankruptcy remote. All of ABRC's issued and
outstanding shares of common stock are owned by the bank.
The principal executive office of ABRC is located in Reno, Nevada.
14
THE BANK'S BUSINESS CARD ACTIVITIES
BUSINESS OVERVIEW
The receivables conveyed initially and to be conveyed in the future by the
transferor to the trust pursuant to the transfer and servicing agreement have
been and will be generated from transactions made by holders of selected
MasterCard(R)* and VISA(R)* business credit card accounts. MasterCard and VISA
both license banks and other financial institutions, such as the bank, to issue
credit cards using their respective marks and interchange networks.
The bank offers business credit cards to small businesses using targeted
direct mail, the Internet and telemarketing solicitation of potential customers.
The bank also uses event marketing, to a limited extent, as another solicitation
channel. Each business credit card account opened by the bank is funded by the
bank, and each credit card (an "ADVANTA BUSINESS CARD") relating to a business
credit card account is issued by the bank.
The bank's objective is to use an information-based strategy to continue to
prudently grow its business. The bank has experience and expertise in analyzing
the credit behavior and characteristics of both consumers and small businesses,
and has developed an extensive database of customer information and attributes.
This information, in conjunction with proprietary credit scoring, customer
segmentation, targeting and other sophisticated analytical models, is used to
market the bank's products to prospective customers. The bank measures the
expected behavior of prospects through an integrated analysis of a prospect's
responsiveness, creditworthiness and expected transaction volume. Customer
segments and models are continually validated, based on actual results from
marketing campaigns. The bank uses this information to refine and improve its
analytical assumptions and customer segmentation. The information the bank
gathers and analyzes allows it to market directly to specific customer segments,
target prospects effectively, anticipate customer needs, and customize its
pricing and products to meet those needs.
The bank's primary product is a MasterCard business credit card. The bank
also offers a limited number of VISA business credit cards. The business credit
cards provide the bank's customers with access, through merchants, banks and
ATMs, to an instant unsecured revolving business credit line. Under the terms of
the cardholder agreements, the bank's business cards may be used for business
purposes only. Creditors, such as the bank, who participate in the MasterCard
and VISA associations receive certain fees, called "INTERCHANGE," as partial
compensation for taking credit risk, absorbing fraud losses and funding
receivables for a limited period prior to account billing.
The bank offers a number of benefits that it believes are important to
small business owners including:
- additional cards for employees at no fee with the ability to set
individual spending limits;
- on-line detailed expense management reports that categorize purchases and
itemize charges for record keeping and tax purposes;
- customized cards with the cardholder's business name displayed on the
front of the card and customized business checks; and
- free on-line account management.
- ---------------
* MasterCard(R) and VISA(R) are registered servicemarks of MasterCard
International Inc. and VISA U.S.A., Inc., respectively.
15
The bank's business credit card also offers free auto rental insurance, free
purchase protection service for a specified time period and several free
emergency assistance and referral services.
The bank offers rewards programs on some of its business credit cards.
Under the rewards programs, the cardholder may receive bonus miles that can be
redeemed for air travel, cash rebates and/or other rewards, based on net
purchases charged on their business credit card account. The cost of these
ancillary card benefits is borne by the bank, not by the trust. The bank expects
to continue to expand its business credit card product offerings and to look for
innovative ways to tailor products to the unique needs of small businesses.
The interest rates and credit line sizes offered on the bank's credit card
accounts vary and are generally determined based upon the credit history and
creditworthiness of the business and the signing individual who is an owner or
authorized officer of the business (the "SIGNING INDIVIDUAL"). This signing
individual and the business he/she owns, or is authorized to sign for, are
jointly and severally liable for all transactions on the account. The signing
individual is personally liable for amounts due to the bank that the business
does not pay. The interest rate charged on the bank's credit card accounts is
generally a variable rate based on a LIBOR (London Interbank Offered Rate) or a
Prime Rate index. In most cases, the interest rate will change with changes in
LIBOR or the Prime Rate, as applicable, and is subject to a minimum below which
the interest rate cannot fall.
Some data processing and administrative functions associated with the
servicing of the portfolio of credit card accounts originated by the bank (the
"ADVANTA BUSINESS CARD PORTFOLIO") are currently performed on behalf of the bank
by First Data Resources, Inc. ("FDR"). See "-- Key Outside Supplier
Relationships." If FDR were to fail or become insolvent, delays in processing
and recovery of information about charges incurred by cardholders could occur.
The replacement of the services that FDR now provides to the bank could be time-
consuming. As a result, delays in payments to noteholders of each series
outstanding at that time could occur.
ORIGINATIONS
The bank originates, directly and through the use of third parties,
substantially all of its business credit card accounts using direct marketing
techniques, including direct mail of applications to prospective customers
inviting them to apply, direct mail and telemarketing solicitations of
prospective customers whose creditworthiness was prescreened, and applications
taken over the telephone or through the Internet from prospective customers. The
bank also uses event marketing, to a limited extent, as another solicitation
channel to market its business credit cards to small businesses at industry
trade shows and other forums.
The bank prescreens some potential applicants to identify those who meet
its target market profile. The information used in the prescreening process is
compiled by external credit reporting agencies and includes general demographic
and credit information. The bank also identifies prospects from compiled small
business lists. The bank then uses targeted direct marketing programs, primarily
direct mail and telemarketing, to reach its prospective customers. The bank also
mails solicitations periodically, offering potential applicants the invitation
to apply for a MasterCard or VISA business card. Interested applicants may
return applications to the bank via mail, telephone or the Internet. Upon
receipt, an applicant's data is input into the bank's database and is subject to
the bank's verification process. Through the use of proprietary models, the bank
scores applicants to determine creditworthiness. If an applicant is approved, an
account is established and a fulfillment package including the card and an
account agreement is sent via
16
mail directly to the customer. On the face of the card is the name of the
customer's business, card account number and expiration date. If an applicant is
declined, typically due to a poor credit history or lack of complete or accurate
credit information, a written notice to that effect is issued.
In an effort to expand the bank's customer base, the bank has formed
strategic relationships with third parties whose customers or membership fit the
bank's target market profile. These third party relationships take the form of
joint ventures or other strategic alliances with companies and associations
having portfolios of small business customers or members. The bank may also
choose to pursue selective bulk portfolio acquisitions, provided the cardholders
to be acquired fit the bank's desired small business customer profile.
By using the bank's cards, its cardholders agree to be bound by the terms
and conditions of the account agreement. Under each account agreement, the bank,
or its successor, reserves the right, upon notice to the customer, to change or
terminate any terms, conditions, services or features of its accounts at any
time, including increasing or decreasing interest rates, finance charges, other
fees and charges or minimum payment terms. The agreement also provides that any
such changes may, after notice, apply to outstanding balances as well as to
future transactions.
Cardholders may use the credit card for business-purpose purchases, balance
transfers and cash advances. Cardholders make purchases by using the credit card
to buy goods or services from retailers, service providers and other vendors.
Cardholders may draw against their credit lines by transferring business-purpose
balances owed to other creditors to their Advanta Business Card account. A cash
advance is made when a credit card is used to obtain cash from a financial
institution or an automated teller machine, when the cardholder uses special
drafts issued by the bank to draw against the cardholder's credit line, or when
the cardholder purchases items which can be reasonably assumed to be substitutes
for cash.
When a cardholder uses a credit card issued by a bank (a "MEMBER BANK")
under contract with MasterCard or VISA, the seller of goods or services or the
provider of cash advances generally sells the resulting receivable to that
seller's/provider's merchant bank, which in turn sells the receivable (generally
indirectly, through a clearing corporation and its agent bank) to the member
bank that issued the credit card for an amount equal to the face amount of the
receivable less interchange and other fees. The member bank is generally
required by its contracts with MasterCard and VISA to purchase and pay daily for
all receivables generated by use of credit cards issued by it. If a member bank
were to fail to perform these obligations, MasterCard or VISA would have the
right to cancel the credit cards issued by that bank.
COMPETITION
The bank credit card industry is highly competitive. As both traditional
and new credit card issuers seek to expand or to enter the market there is
increased competitive use of advertising and target marketing. There is also
increasing pricing competition with respect to both interest rates and annual
cardholder fees. The bank issues Master Card and VISA credit cards to small
business customers nationwide, competing with certain money center banks and
other large nationwide issuers, as well as with regional and local banks,
savings and loan associations and other depository institutions. Many of these
competitors have sizeable branch systems through which credit cards are marketed
to the institution's customer base, and these competitors may have greater
capital resources and a larger depositor base than the bank. Certain major
credit card issuers assess finance charges for selected portions of their
portfolios at rates significantly
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lower than the rates currently being assessed on the accounts designated to the
trust. The bank has responded to this increased competition primarily by
marketing cards with promotional pricing, in some cases with low or zero percent
introductory rates, to a target market of small businesses. See "-- Business
Overview."
UNDERWRITING PROCEDURES
The bank has developed sophisticated modeling techniques for assessing the
creditworthiness of applicants. Through the application process, the bank
verifies the applicant's identification information and collects available
information relevant to the applicant's business, including current sales and
income statistics. This information, coupled with credit reports received from
external credit reporting agencies, ultimately forms the basis for the bank's
decision to extend credit. Using a proprietary credit scoring system and other
statistical techniques, the bank evaluates common applicant characteristics and
their perceived correlation to credit risk. Periodically, the bank's scoring
models are updated to maintain and enhance their predictability.
Starting in June 2003, the bank initiated the reporting of account
information on its business customers to an external business credit agency. The
bank also has the right to report its signing individual's credit behavior to
consumer credit bureaus and may elect to report to these bureaus in the future
in the event these persons fail to perform their obligations, as joint
borrowers, under the bank's account agreements.
The bank's senior credit committee, of which the bank's chief credit
officer is chairman, is responsible for overseeing credit policy, which includes
developing and approving credit policies, and recommending material changes to
the credit policies to the bank's board of directors. Policy recommendations may
originate from business unit personnel, credit administration or risk management
personnel. The bank's board of directors approves all credit-related policies
and any material changes to those policies. Policies by which the credit process
is managed are reviewed and approved by the board of directors on at least an
annual basis. Included in this review are the bank's policies on items such as
underwriting, loan monitoring and problem loan management.
The bank currently uses a set of credit risk scoring models to predict the
creditworthiness of the signing individual. These models use several predictive
attributes to predict the probability of default--defined as 90 days past due in
an 18 month period--of the signing individual and the business. One predictive
indicator is the FICO score of the signing individual. The FICO score is a
measurement determined by Fair, Isaac & Company using information collected by
the major credit bureaus to assess credit risk. Although Fair, Isaac & Company
discloses only limited information about the variables it uses to assess credit
risk, the bank believes they include, but are not limited to, debt level, number
of credit experiences, delinquency experience and utilization level of available
credit. The bank believes that the FICO score, as a measure of credit risk, has
only limited value in assessing the small business market because it does not
capture all relevant information relating to applicants' businesses. The bank
also uses a business risk segmentation model to assess the credit risk of the
business. Both the signing individual risk model score and business risk model
score are combined for analysis to produce a credit line assignment decision for
each applicant.
From April 2002 through October 2002, the bank assigned credit lines based
on a combination of underwriting risk score and applicable product offer. The
underwriting risk score together with the applicable product offer were key
determinants of credit line assignment. In general, those in the lowest risk
score band reflecting the highest degree of credit risk received
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lower credit lines than those in the higher credit risk score bands reflecting
lower degrees of credit risk. Credit line assignments expanded for competitively
priced offers and for "reward" products, due to the better performance that
these products had produced historically for the bank. At the point of approval
of an applicant, the bank's profile of that applicant was limited to the
information outlined above, including the FICO score of the signing individual
and, if available, limited historical business information. Once the applicant
became an account holder, the bank compiled information regarding the account
behavior and used this information to maintain and update its performance
database. The bank's management believed that this information regarding actual
account performance and actual behavior over time became a highly reliable
indicator of future performance and therefore diminished the relevance of the
criteria initially used to score applicants. Hence, the bank periodically
re-scored the signing individual of the business, who is a joint borrower on the
account, based on all of the information the bank had accumulated, and used this
information to evaluate and potentially adjust both the interest rate and the
credit line size offered to the business.
Starting in April 2001 and continuing through March 2002, the bank's
scoring system was modified to differentiate between revolvers (customers who
maintain account balances on which finance charges are assessed) and transactors
(customers who pay their balances in full each month). This updated scoring
system allowed the bank to more accurately assess the likely profitability of an
account by acknowledging the differences in behavior and profitability between
revolvers and transactors. The differences between these two groups called for
different treatments in assigning credit lines and pricing on the account.
Generally, higher credit lines were assigned for the revolver segment where the
incremental line would most likely be used. Higher account interest rates were
generally assigned to revolvers in this updated system, as compared to the
original scoring system, and lower interest rates were assigned to the
transactor segment in an effort to encourage balance-building behavior. This
updated system also introduced a purchase volume score that allowed the bank to
better segment and predict those customers who would likely be revolvers but
maintain smaller revolving account balances, and assign them the appropriate
size credit lines and pricing.
From August 1999 through March 2001, the bank's scoring system included an
underwriting risk score and a revolving balance score. The underwriting risk
score was a measure of perceived credit risk or potential for default, as
previously described. The revolving balance score measured the expected
potential balance of an account or the propensity for a customer to maintain an
on-going account balance on which finance charges could be assessed. This score,
together with the underwriting risk score, were key determinants of overall
profitability. Using this two-score technique, the bank was able to identify
those actual and potential applicants who presented low risk but also were not
likely to maintain an account balance, engage in regular card use, or otherwise
contribute to the bank's profitability. Likewise, it allowed the bank to include
potential applicants who presented moderate risk, but who also were likely to
maintain an account balance and contribute to the bank's profitability.
Traditionally, these applicants may have been excluded using only credit risk
criteria.
PRICING
All of the bank's accounts are assigned annual interest rates which are
either fixed rates or variable rates that adjust from time to time according to
an index. An account may have promotional pricing including an introductory
period during which a low or zero percent rate is charged for some or all types
of account transactions. In such instances, the introductory rate is converted
to a higher rate at the end of the introductory period.
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The bank continually tests various pricing and reward strategies. The
bank's pricing and reward strategies include a combination of promotional
pricing and cashback or other rewards and/or rebates, including travel rewards,
based on spending levels. The level of cashback rewards may also vary by type of
transaction. The bank's offers are subject to verification of information
provided by the potential cardholder through the application process.
The bank offers primarily variable rate credit card accounts. The periodic
interest rates assessed on most of these accounts are indexed to LIBOR or the
Prime Rate, plus an add-on percentage or spread. In most cases, the rate will
change with changes in LIBOR or the Prime Rate, as applicable, and is subject to
a minimum below which the rate cannot fall. In addition, the rate may vary
depending on the type of transaction. For example, cash advances are generally
subject to higher interest rates than merchandise purchase transactions.
With notice, the bank may re-price any account at its discretion, based
upon a variety of factors indicating risk of future nonpayment, such as changes
in a customer's credit standing. The credit line size also may be adjusted up or
down based on continual credit monitoring. To discourage delinquent payments,
the bank uses "penalty pricing" and automatically increases the interest rate
assessed on any account that becomes in default in accordance with the terms of
the applicable account agreement. The amount of the automatic increase may vary,
but typically 3% or more is added to the existing interest rate on an account.
INTERCHANGE
Creditors, such as the bank, who participate in the MasterCard and VISA
associations receive certain fees, called "INTERCHANGE," as partial compensation
for taking credit risk, absorbing fraud losses and funding receivables for a
limited period prior to account billing. Under the MasterCard and VISA systems,
a portion of interchange in connection with cardholder charges for goods and
services is passed from banks that clear the related transactions to the
cardholders' card-issuing banks. MasterCard and VISA set interchange fees
annually based on the number of credit card transactions and the amount charged
per transaction. To the extent set forth in the indenture supplement for a
particular series of notes, the bank's collections of finance charge and
administrative receivables allocable to that series for any monthly period will
be deemed to include any interchange allocated to those receivables.
OPERATIONS
The bank's operations are organized and designed to support rapid product
introduction and customer portfolio growth. The bank uses internal and external
resources to support various functions in an effort to achieve operational
efficiencies in the most cost-effective manner. The bank's operations management
team provides management oversight for those functions that are outsourced. The
key functional components of the bank's operations are as follows:
- Customer Service and Support
The bank maintains several channels of communication for its customers,
including a toll-free phone number, e-mail, postal and facsimile services. The
quality of the bank's customer service is periodically reviewed through, among
other things, monitoring of customer contacts. In addition, the bank leverages
numerous technology solutions to manage key performance indicators and to
increase efficiencies and reduce costs. The bank maintains multi-site contact
centers in Horsham, Pennsylvania and Draper, Utah. Each contact center is
managed as a virtual call center so that functions can be performed seamlessly
regardless of geographic location. Customer contacts are distributed across
these sites based on service level objectives.
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The bank's strategy is to maximize every contact opportunity to provide best in
class service to its customers and to create customer loyalty. The customer
service function works closely with other functions across the organization to
achieve seamless service and problem resolution.
- Delinquencies and Collections
Each account is billed monthly on a statement date which occurs on or about
the same day of each month. An account is "contractually delinquent" if the
minimum payment indicated on the billing statement is not received before the
next statement date. The bank maintains multi-site collection centers in
Gibbsboro, New Jersey and Draper, Utah. Efforts to collect contractually
delinquent credit card receivables currently are made by the bank's personnel or
its designees. Collection activities include statement messages, letters and
telephone calls.
Collection personnel initiate telephone contact with delinquent customers
as early as the first day the customer becomes contractually delinquent. Based
on the use of behavioral scoring and adaptive control techniques, the bank
determines the timing of the collection activity to be implemented for each
account. The objective is to contact highest risk accounts first. If initial
telephone contact fails to resolve the delinquency, the bank continues to
contact the customer by telephone and by mail. Although such arrangements are
made infrequently, the bank may also enter into arrangements with customers to
extend or otherwise change payment schedules.
Delinquency levels are monitored by management of the collections and
credit departments, and information is reported daily to senior management of
the bank. Credit card accounts are charged off no later than the end of the
month in which they become past due 180 cumulative days from the contractual due
date.
After an account has been charged off, if the customer has not declared
bankruptcy, the account is generally referred to an outside collection agency.
For fraudulent activity, the bank charges off the relevant portion of a credit
card account no later than 90 days after discovery or within the contractual
charge-off time frames stated above, whichever is shorter. If customers declare
hardship or enter consumer credit counseling, the bank will charge off affected
accounts at 120 days past due. The accounts of obligors, whether the business or
the signing individual, who declare bankruptcy are charged off within 60 days of
receipt of notification of filing from the bankruptcy court, or within the time
frames adopted in the FFIEC Uniform Retail Credit Classification and Account
Management Policy, whichever is shorter. Once an account is charged off, it
cannot revert to non-charged-off status, unless the charge-off was an
operational error.
Efforts to collect on delinquent and charged-off accounts are generally
made by the bank's collection group and supplemented in certain cases by
external collection agencies. The credit evaluation, servicing and charge-off
policies and collection practices of the bank may change from time to time in
accordance with its business judgment and applicable laws and regulations.
- Interest Accrual
Prior to October 1, 2002, the billing and recognition of interest and fees
was discontinued when the related receivable became 90 days past due or when the
account was classified as fraudulent, bankrupt, deceased, hardship or credit
counseling. Effective October 1, 2002, the bank continues to bill and recognize
interest and fees on accounts when they become 90 days past due, and an
additional allowance for receivable losses is established for the additional
billings estimated to be uncollectible through a provision for interest and fee
losses. The billing and recognition of interest and fees is still discontinued
when the account is classified as
21
fraudulent, bankrupt, deceased, hardship or credit counseling. Provisions for
interest and fee losses are recorded as direct reductions to interest and fee
income.
- Billing and Payments
FDR, a leading service bureau to the credit card industry, performs certain
core processing services for the bank. These services include authorizing
transactions, performing billing and settlement processes and generating monthly
billing statements.
FDR, as the bank's service bureau, generates and mails to customers monthly
statements summarizing account activity. Activity on an account during a billing
period can take the form of (a) a balance at the end of the period (b) a
purchase, balance transfer, cash advance or other transactions during the
period, (c) a payment (complete or partial) during the period, and/or (d) a
charge assessed during the period. Customers can pay balances in full each month
or pay in installments. If they elect to pay in installments, they are required
to pay at least the minimum payment shown on the billing statement.
Generally, the bank's cardholder agreements define the minimum payment due
as the sum of (1) 2.25% of the outstanding balance on the account (rounded to
the nearest whole dollar) or $10, whichever is greater, plus (2) any amount that
is past due, plus (3) any newly-accrued fees or charges the bank elects to
include. However, if the finance charges assessed for a given month plus any
newly-accrued fees or charges the bank elects to include are greater than 2.25%
of the outstanding account balance, the minimum payment due will be the sum of
(1) those assessed finance charges for that month plus any newly-accrued fees or
charges the bank elects to include, plus (2) any amount that is past due, plus
(3) $2. This alternative calculation is intended to minimize negative
amortization on certain high-rate accounts. If the new balance is less than $10,
then only the balance is due. Finance charges are assessed during any period
when there is an outstanding account balance. Application of payments to the
various components of any amounts due will be at the bank's discretion, subject
to contractual, legal and regulatory requirements, and may vary from time to
time and may include, among other things, application of payments to fees,
finance charges and insurance premiums before principal amounts, and to
components bearing lower interest rates before components bearing higher
interest rates.
The bank offers cards to customers with and without an annual fee. The bank
can also assess miscellaneous transaction fees, including cash advance, balance
transfer, late and over-limit charges, returned check, returned draft, and draft
stop payment charges, all as provided in the bank's cardholder agreements.
KEY OUTSIDE SUPPLIER RELATIONSHIPS
The bank uses a variety of services, in addition to those referred to
above, provided by FDR in originating and servicing its accounts. These services
include issuing credit card plastics and new account agreements, data
management, fraud management and payment processing. Any interruption,
deterioration or termination of these services could adversely affect the bank's
business operations and reputation. FDR is located in Omaha, Nebraska and is a
subsidiary of First Data Corp.
The bank contracts with a major third-party financial institution to
process customer payments. The payments are received at a centralized post
office box and delivered to a processing center. The processing center processes
the work Monday through Saturday and deposits the payments into the bank's
account. Payments are transmitted to FDR to post to the customers' accounts.
Customers also have the ability to make account payments via electronic
22
Automated Clearing House ("ACH") transactions. These payments can be initiated
through the bank's website or over the phone with a bank representative. Payment
requests are confirmed in the system and initiated through the ACH network,
through which payments post to the customers' accounts and funds are drawn from
customers' previously-identified banks.
The bank depends on data provided by the three consumer credit bureaus,
Equifax, Experian, and Trans Union. Additionally, credit and marketing decisions
are based on business information provided by Dun & Bradstreet and Experian.
While the three consumer credit bureaus are largely interchangeable, the
business data provided by Dun & Bradstreet and Experian are unique. Inability to
access information from Dun & Bradstreet or Experian could adversely impact the
bank's ability to make credit decisions and market its business card products.
CREDIT CARD ASSOCIATION RELATIONSHIPS
MasterCard and VISA license banks to issue credit cards using their marks
and to use their interchange networks. The bank is licensed to issue both
MasterCard and VISA business credit cards.
THE TRUST PORTFOLIO
The assets of the trust include receivables generated through accounts
selected from the Advanta Business Card Portfolio owned by the bank or accounts
owned by another seller affiliated with the bank the receivables of which have
been transferred to the trust. These designated accounts are called the "TRUST
PORTFOLIO." In addition to the receivables in the trust portfolio, the trust
assets include:
- all monies due or to become due in payment of these receivables;
- all proceeds of these receivables;
- all proceeds of any credit insurance policies relating to these
receivables;
- any recoveries allocable to the trust because of these receivables;
- interchange, if any, allocated to your series of notes, as described in
the prospectus supplement for your series;
- all monies on deposit in specified trust accounts or investments made
with these monies, including any earned investment proceeds if the
prospectus supplement for your series of notes so indicates;
- proceeds of any series enhancement, as described in the prospectus
supplement for your series of notes; and
- proceeds of any derivative contracts, consisting of interest rate swaps,
currency swaps, credit swaps, interest rate caps or instruments, called
bankruptcy options, under which a counterparty assumes the risk of an
increase in bankruptcies in exchange for payment, each such contract
between the trust or a transferor and a counterparty, as described in the
prospectus supplement for your series of notes.
Receivables in the trust consist of:
- "PRINCIPAL RECEIVABLES," which are amounts charged by cardholders for
merchandise, services, cash advances and balance transfers; and
23
- "FINANCE CHARGE AND ADMINISTRATIVE RECEIVABLES," which are periodic
finance charges, and annual membership fees and service charges, late
fees, over-limit fees, cash advance fees, and all other fees and charges
on accounts designated by the transferor to be included as finance charge
and administrative receivables, and any other amounts, other than
principal receivables, designated by the transferor to be "finance charge
and administrative receivables."
The trust considers net recovery amounts for defaulted receivables, called
"RECOVERIES," as collections of finance charge and administrative receivables.
Initially, a group of accounts were selected on August 1, 2000 (the
"INITIAL CUT-OFF DATE") and designated to the trust. These accounts are the
"INITIAL DESIGNATED ACCOUNTS." On numerous dates since then and on dates
hereafter (each, an "ADDITIONAL CUT-OFF DATE"), additional accounts have been
and may be designated for inclusion in the trust. The initial cut-off date and
each additional cut-off date are called "CUT-OFF DATES" in this prospectus. The
initial designated accounts and any additional accounts designated for inclusion
in the trust must meet eligibility criteria set forth in the transfer and
servicing agreement. Existing receivables in the initial designated accounts
have been conveyed to the trust. Additional receivables arising from time to
time in the initial designated accounts or additional accounts designated for
inclusion in the trust will also be conveyed to the trust. Receivables conveyed
to the trust must also meet eligibility criteria set forth in the transfer and
servicing agreement. If receivables conveyed to the trust are found to have been
ineligible when created or designated for inclusion, the transferor that
transferred those receivables must accept retransfer of those receivables back
to it.
The transferor has the right, and may be required to, designate additional
accounts for inclusion in the trust portfolio or may elect to automatically
designate additional accounts, as described under "Description of the
Notes -- Addition of Trust Assets" in this prospectus.
The transferor also has the right to remove accounts from the trust
portfolio, as described under "Description of the Notes -- Removal of Accounts"
in this prospectus. If the transferor does so, the trust will reconvey all
receivables in these removed accounts, whether existing or to be created, to the
transferor that transferred those receivables.
When the trust issues a new series of notes, the transferor will represent
and warrant to the trust that, as of the closing date for the new series, the
accounts designated to the trust met the eligibility criteria set forth in the
transfer and servicing agreement at their time of designation. See "Description
of the Notes -- Representations and Warranties" in this prospectus for more
information on eligibility criteria for accounts and receivables.
The prospectus supplement relating to each series of notes will provide
certain information about the trust portfolio as of the date specified. This
information will include:
- the amount of principal receivables;
- the amount of finance charge and administrative receivables;
- the range and average of balances of the accounts;
- the range and average of credit limits of the accounts;
- the range and average of ages of the accounts;
- the geographic distribution of the accounts; and
- delinquency statistics relating to the accounts.
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MATURITY CONSIDERATIONS
Following its revolving period, each series of notes is expected to begin
to accumulate principal or begin to distribute principal to noteholders. The
accompanying prospectus supplement describes the conditions under which an
accumulation or amortization period will begin for your class of notes.
Principal will accumulate in a principal funding account if your series
features controlled accumulation or early accumulation and one of these
accumulation periods begins. As described in the accompanying prospectus
supplement, during controlled accumulation on each payment date an amount of
principal, up to the amount specified, will be set aside in the principal
funding account. If a pay out event occurs and your series features early
accumulation, the full amount of principal available to your series will be
deposited in the principal funding account, up to the amount specified in the
related prospectus supplement. This accumulated principal will be paid to you on
the Expected Principal Payment Date for your class of notes, or earlier if an
early amortization period begins before your Expected Principal Payment Date.
Note that although your series may feature an accumulation period, your class of
notes might not make use of it.
Principal will be paid to you in increments, up to the amount specified in
the accompanying prospectus supplement, if your series features controlled
amortization and this period begins. Your class of notes might also begin to pay
principal to you if the accompanying prospectus supplement specifies that your
class will begin early amortization. Early amortization will begin for all
classes of your series when a pay out event occurs. During any amortization
period, principal will be paid to you only on a payment date.
If the series described in the accompanying prospectus supplement features
multiple classes, different classes of your series may have differing priorities
for the accumulation or payment of principal. This means that noteholders of
other classes could begin to receive payments of principal before you do.
The trust cannot assure you that principal will be available when expected,
either to accumulate or to pay to you. The Expected Principal Payment Date for
your class of notes is based upon assumptions about payment rates on the
receivables, as detailed in the accompanying prospectus supplement. The trust
cannot assure you that these payment rate assumptions will be correct. Payment
rates depend on collections of receivables. Collections can vary seasonally and
are also affected by general economic conditions and the payment habits of
customers. The accompanying prospectus supplement will provide historical
payment rates, total charge-offs and other information relating to the Advanta
Business Card Portfolio. The trust cannot assure you that future events will be
consistent with this historical performance. The life of your notes might be
longer than expected if principal is collected more slowly. The accompanying
prospectus supplement may provide that if the principal payment rate falls below
a specified level, a pay out event will occur. The occurrence of any pay out
event may substantially shorten the average life of your notes.
USE OF PROCEEDS
The net proceeds from the sale of each series of notes the trust offers by
this prospectus and the accompanying prospectus supplement will be used by the
trust for the purposes, if any, described in the accompanying prospectus
supplement. Any remaining proceeds will be paid to the relevant transferor. The
transferor will use those proceeds to pay the relevant seller the purchase price
of the receivables transferred to it and to pay its other expenses. The seller
will
25
use the proceeds received from the transferor to provide liquidity for
anticipated future asset growth and for its general corporate purposes.
DESCRIPTION OF THE NOTES
The notes will be issued in series. Each series will represent an
obligation of the trust. Each series of notes will be issued under the
indenture, as supplemented by an indenture supplement, in each case entered into
by the trust and the indenture trustee. The following summaries describe the
material provisions common to each series of notes. The accompanying prospectus
supplement gives you additional information specific to the notes of your
series. The summaries are qualified by reference to all of the provisions of the
transfer and servicing agreement, the indenture and the related indenture
supplement.
GENERAL
The notes will be secured by and paid from the assets of the trust. Each
series will be allocated collections of principal receivables, finance charge
and administrative receivables and defaulted receivables based on a specified
percentage called the "INVESTOR PERCENTAGE." The Investor Percentage will be set
forth in the related prospectus supplement. The Investor Percentage will be
based on the Invested Amount for a series.
The "INVESTED AMOUNT" for a series on any date will be equal to:
- the initial outstanding principal amount of that series of notes as of
the closing date for that series (increased by the principal balance of
any notes of that series issued after the closing date for that series);
minus
- the amount of principal paid to noteholders of that series prior to that
date; minus
- the amount of unreimbursed Investor Charge-Offs and reallocated principal
collections for notes of that series prior to that date.
If specified in the prospectus supplement for any series of notes, under certain
circumstances the Invested Amount may be further adjusted by the amount of
principal allocated to noteholders, the funds on deposit in any specified
account, and any other amount specified in the accompanying prospectus
supplement.
Each series of notes may consist of one or more classes, one or more of
which may be senior notes and one or more of which may be subordinated notes.
Each class of a series will evidence the right to receive a specified portion of
each payment of principal or interest or both. Each class of a series may differ
from other classes in some aspects, including:
- amounts allocated to principal payments;
- maturity date;
- interest rate; and
- availability and amount of series enhancement.
Payments of interest and principal will be made on payment dates to
noteholders in whose names the notes were registered on the business day prior
to any payment date, unless a different record date is specified in the
accompanying prospectus supplement. Interest will be paid to noteholders in the
amounts, for the periods and on the dates specified in the accompanying
prospectus supplement.
26
The transferor initially will own the "TRANSFEROR BENEFICIAL INTEREST"
which is an undivided beneficial interest in the trust and which represents the
right to receive all cash flows from the trust assets not required to make
payments on the notes or to be paid to a series enhancer. We call the amount of
those cashflows the "TRANSFEROR INTEREST." The holder of the Transferor
Beneficial Interest, subject to certain limitations, will have the right to a
percentage, called the "TRANSFEROR PERCENTAGE," of all customer payments from
the receivables in the trust. The Transferor Beneficial Interest may be
transferred, in whole or in part, subject to certain limitations and conditions
described in the trust agreement and in a transaction exempt from the
registration requirements of the Securities Act of 1933. At the discretion of
the transferor, the Transferor Beneficial Interest may be held either in an
uncertificated form or in the form of a certificate representing the Transferor
Beneficial Interest, called a "TRANSFEROR CERTIFICATE." See "-- Certain Matters
Regarding the Transferor and the Servicer" in this prospectus.
During the revolving period, the Invested Amount of a series will remain
constant except under certain limited circumstances. See "-- Defaulted
Receivables; Rebates and Fraudulent Charges; Investor Charge-Offs" in this
prospectus. The amount of principal receivables in the trust, however, will vary
each day as new principal receivables are created and others are paid. The
amount of the Transferor Interest will fluctuate each day, therefore, to reflect
the changes in the amount of the principal receivables in the trust. When a
series is amortizing, the Invested Amount of that series will decline as
customer payments of principal receivables are collected and distributed, or
accumulated for payment, to the noteholders. As a result, the Transferor
Interest will generally increase to reflect reductions in the Invested Amount
for that series and will also change to reflect the variations in the amount of
principal receivables in the trust. The Transferor Interest may also be reduced
as the result of new issuances. See "-- Issuance of Additional Series" and
"-- Issuance of Additional Notes" in this prospectus.
SECURITIES DEPOSITORY
Generally, notes offered through this prospectus and the accompanying
prospectus supplement:
- will be represented by notes registered in the name of a DTC nominee;
- will be available for purchase in minimum denominations of $1,000 and
multiples of $1,000 in excess of that amount; and
- will be available for purchase in book-entry form only.
The accompanying prospectus supplement will specify if your notes have
different characteristics from those listed above.
DTC has informed the transferor that initially its nominee will be Cede &
Co. Accordingly, Cede & Co. is expected to be the holder of record of each
series of notes. As an owner of beneficial interests in the notes, called a
"NOTE OWNER," you will generally not be entitled to a definitive note
representing your interest in the issued notes because you will own notes
through a book-entry record maintained by DTC. References in this prospectus and
the accompanying prospectus supplement to payments, reports, notices and
statements to noteholders refer to DTC or Cede & Co., as registered holder of
the notes, for payment or delivery to you in accordance with DTC procedures. All
references in this prospectus and the accompanying prospectus supplement to
actions by noteholders shall refer to actions taken by DTC upon instructions
from DTC participants.
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The accompanying prospectus supplement may state that application will be
made to list your series or class of notes on the Luxembourg Stock Exchange or
another exchange.
BOOK-ENTRY REGISTRATION
Following is a description of the form your notes will take. We also
describe how your notes may be transferred and how payments will be made to you.
The information in this section concerning DTC and DTC's book-entry system
has been provided by DTC. The transferor has not independently verified the
accuracy of this information.
You may hold your notes through DTC in the U.S., Clearstream Banking or
Euroclear in Europe or in any other manner described in the accompanying
prospectus supplement. You may hold your notes directly with one of these
systems if you are a participant in the system, or indirectly through
organizations which are participants.
Cede & Co., as nominee for DTC, will hold the global notes. Clearstream
Banking and Euroclear will hold omnibus positions on behalf of the Clearstream
Banking customers and the Euroclear participants, respectively, through
customers' securities accounts in Clearstream Banking's and Euroclear's names on
the books of their respective depositaries collectively called the
"DEPOSITARIES," which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered under the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (who may
include the underwriters of any series), 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, as indirect participants, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream Banking customers and Euroclear participants will
occur in the ordinary way in accordance with their rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Banking customers or Euroclear participants, on the other, will be effected
through 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 that 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.
Clearstream Banking customers and Euroclear participants may not deliver
instructions directly to the depositaries.
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Because of time-zone differences, credits of securities in Clearstream
Banking or Euroclear as a result of a transaction with a participant will be
made during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the relevant
Clearstream Banking customer or Euroclear participant on that business day. Cash
received in Clearstream Banking or Euroclear as a result of sales of securities
by or through a Clearstream Banking customer 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 Clearstream Banking or Euroclear cash account only as
of the business day following settlement in DTC.
Note owners that are not participants or indirect participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
notes may do so only through participants and indirect participants. In
addition, note owners will receive all payments of principal of and interest on
the notes from the indenture trustee through the participants who in turn will
receive them from DTC. Under a book-entry format, note owners may experience
some delay in their receipt of payments, since payments will be forwarded by the
indenture trustee to Cede & Co., as nominee for DTC. DTC will forward payments
to its participants, which thereafter will forward them to indirect participants
or note owners. It is anticipated that the only "noteholder" will be Cede & Co.,
as nominee of DTC. Note owners will not be recognized by the indenture trustee
as noteholders, as such term is used in the indenture, and note owners will only
be permitted to exercise the rights of noteholders indirectly through the
participants who in turn will exercise the rights of noteholders 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 notes and is required to receive and
transmit payments of principal and interest on the notes. Participants and
indirect participants with which note owners have accounts with respect to the
notes similarly are required to make book-entry transfers and receive and
transmit payments on behalf of their respective note owners. Accordingly,
although note owners will not possess notes, note owners will receive payments
and will be able to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a note owner
to pledge notes to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of its notes, may be limited due to
the lack of a physical certificate for its notes.
DTC has advised the transferor that it will take any action permitted to be
taken by a noteholder under the indenture only at the direction of one or more
participants to whose account with DTC the notes are credited. Additionally, DTC
has advised the transferor that it will take such actions with respect to
specified percentages of the notes only at the direction of and on behalf of
participants whose holdings include interests that satisfy such specified
percentages. DTC may take conflicting actions with respect to other interests to
the extent that such actions are taken on behalf of participants whose holdings
include such interests.
Clearstream Banking is incorporated under the laws of Luxembourg as a
professional depository. Clearstream Banking holds securities for its customers
and facilitates the clearance and settlement of securities transactions between
Clearstream Banking customers through electronic book-entry changes in accounts
of Clearstream Banking customers, thereby eliminating the need for physical
movement of notes. Transactions may be settled in Clearstream Banking in over 30
currencies, including United States dollars. Clearstream Banking provides to its
Clearstream Banking customers, among other things, services for safekeeping,
administration,
29
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream Banking interfaces with domestic markets in
several countries. As a registered bank in Luxembourg, Clearstream Banking is
subject to regulation by the Luxembourg Commission for the Supervision of the
Financial Sector. Clearstream Banking customers are world-wide financial
institutions, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations and may
include the underwriters of any series of notes. Indirect access to Clearstream
Banking is also available to other institutions, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Clearstream Banking customer, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System 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 notes and any
risk from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in over 30 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 Euroclear Bank S.A./N.V. as
the Euroclear operator. All operations are conducted by the Euroclear operator,
and all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator. Euroclear participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of any series of
notes. 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.
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.
These rules and laws govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under these rules and laws only on behalf of
Euroclear participants and has no record of or relationship with persons holding
through Euroclear participants.
Payments with respect to notes held through Clearstream Banking or
Euroclear will be credited to the cash accounts of Clearstream Banking customers
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 "Federal Income Tax Consequences" in this prospectus.
Clearstream Banking or the Euroclear operator will take any other action
permitted to be taken by a noteholder under the indenture on behalf of a
Clearstream Banking customer or Euroclear participant only in accordance with
its rules and procedures and subject to its depositary's ability to effect those
actions on its behalf through DTC.
Although DTC, Clearstream Banking and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of notes among
participants of DTC, Clearstream Banking and
30
Euroclear, they are under no obligation to perform or continue to perform those
procedures. Those procedures may be discontinued at any time.
DEFINITIVE NOTES
Notes issued in fully registered, certificated form are called "DEFINITIVE
NOTES." The notes of each series will be issued as definitive notes to note
owners or their nominees, rather than to DTC or its nominee, only if:
- the transferor advises the indenture trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to that series of notes, and the indenture
trustee or the transferor is unable to locate a qualified successor;
- the transferor at its option, advises the indenture trustee in writing
that it elects to terminate the book-entry system through DTC; or
- after the occurrence of a servicer default, note owners representing more
than 50% (or another percentage specified in the accompanying prospectus
supplement) of the then-outstanding principal amount of the notes of that
series advise the indenture 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 interest of the note owners.
If any of these events occur, DTC must notify all participants of the
availability through DTC of definitive notes. Upon surrender by DTC of the
definitive instrument representing the notes and instructions for
re-registration, the indenture trustee will issue the notes as definitive notes,
and thereafter the indenture trustee will recognize the holders of those
definitive notes as noteholders under the indenture.
Payment of principal and interest on the notes will be made by the
indenture trustee directly to holders of definitive notes in accordance with the
procedures set forth in this prospectus and in the indenture. Interest payments
and any principal payments on each payment date will be made to holders in whose
names the definitive notes were registered at the close of business on the
record date. Payments will be made by check mailed to the address of the
noteholders as it appears on the register maintained by the indenture trustee.
The final payment on any note (whether definitive notes or the notes registered
in the name of Cede & Co. representing the noteholders) will be made only upon
presentation and surrender of that note at the office or agency specified in the
notice of final payment to noteholders. The indenture trustee will provide this
notice to registered noteholders not later than the fifth day of the month of
the final payment.
Definitive notes will be transferable and exchangeable at the offices of
the transfer agent and registrar, which will initially be the indenture 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 with the
transfer or exchange. The transfer agent and registrar will not be required to
register the transfer or exchange of definitive notes for a period of twenty
days preceding the payment date for any payment on those definitive notes.
INTEREST PAYMENTS
For each series of notes and each class, interest will accrue from the
relevant closing date on the applicable outstanding principal balance at the
applicable interest rate. The interest rate on any note may be a fixed, floating
or any other type of rate as specified in the accompanying
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prospectus supplement. Interest will be paid, or deposited for later payment, to
noteholders on the payment dates.
Interest payments or deposits on any payment date will be funded from:
- collections of finance charge and administrative receivables allocated to
the Invested Amount during the preceding monthly period or periods;
- investment earnings, if any, on any funds held in trust accounts, to the
extent described in the accompanying prospectus supplement;
- any series enhancement, to the extent described in the accompanying
prospectus supplement; and
- any derivative counterparty, to the extent described in the accompanying
prospectus supplement.
If interest payments will be made less frequently than monthly, an interest
funding account may be established to accumulate the required interest amount.
If a series has more than one class of notes, that series may have more than one
interest funding account.
Your class of notes will pay interest on the payment dates and at the
interest rate specified in the accompanying prospectus supplement. If your notes
bear interest at a floating or variable rate, the accompanying prospectus
supplement will describe how that rate is calculated. The interest rate on
floating rate notes will be a variable or adjustable rate. The payment dates for
floating rate notes will be set forth in the accompanying prospectus supplement
and need not be the same as the payment dates for the other notes of that
series, but may be either more or less frequent. For each class of floating rate
notes, the related prospectus supplement will set forth the initial floating
rate note interest rate, or the method of determining it, the dates or the
method for determining the dates on which the floating rate note interest rate
is adjusted, and the formula, index or other method by which the interest rate
is determined on such dates.
PRINCIPAL PAYMENTS
Generally, each series will begin with a period, called the "REVOLVING
PERIOD," when no principal is paid or accumulated. The revolving period begins
on the closing date for a series and ends on the day before an amortization
period or accumulation period begins. During the revolving period no principal
payments will be made to the noteholders of that series.
During the controlled amortization period, which will be scheduled to begin
on the date specified in, or determined in the manner specified in, the
accompanying prospectus supplement, and during the early amortization period,
which will begin upon the occurrence of a pay out event, principal will be
distributed to any class of the series in the amounts and on the dates specified
in the accompanying prospectus supplement.
During the controlled accumulation period, or, if specified in the
accompanying prospectus supplement, the early accumulation period, principal
will be accumulated in a trust account, called a "PRINCIPAL FUNDING ACCOUNT,"
established for the benefit of one or more specified classes of noteholders for
later distribution to noteholders on the date specified in the prospectus
supplement, called the "EXPECTED PRINCIPAL PAYMENT DATE," in the amounts
specified in the accompanying prospectus supplement.
Principal payments for any series or class will be funded from collections
of principal receivables received during the related monthly period or periods
as specified in the
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accompanying prospectus supplement and allocated to that series or class and
from certain other sources specified in the accompanying prospectus supplement.
In the case of a series with more than one class of notes, the noteholders of
one or more classes may receive payments of principal at different times. The
accompanying prospectus supplement will describe the manner, timing and priority
of payments of principal to noteholders of each class.
TRANSFER AND ASSIGNMENT OF RECEIVABLES
The bank, as the initial seller, has transferred and assigned to ABRC, as
the initial transferor, for further transfer and assignment by ABRC to the
trust, all of the bank's right, title and interest in and to the receivables in
the accounts designated as accounts of the trust and future receivables created
in these accounts. One or more additional sellers that are affiliates of the
bank may transfer and assign to the transferor or directly to the trust all
their right, title and interest in and to receivables in designated accounts.
The bank and any additional sellers, together, may sometimes be called the
"SELLER." Additional transferors that are affiliates of the initial transferor
may also be designated. ABRC, any additional transferors and any sellers that
transfer receivables directly to the trust, together, may sometimes be called
the "TRANSFEROR." Any additional seller or transferor will be designated only in
accordance with the procedures specified in the governing documents.
Each of the seller and the transferor has indicated and, in connection with
each future transfer of receivables to the trust, will indicate in its computer
files or books and records that the receivables have been conveyed to the trust.
In addition, the seller and the transferor have provided or caused to be
provided (or will provide or cause to be provided) to the owner trustee computer
files or microfiche lists, containing a true and complete list showing each
account designated to the trust, identified by account number and by total
outstanding balance on the applicable cut-off date. Neither the seller nor the
transferor will deliver to the owner trustee any other records or agreements
relating to the accounts or the receivables, except in connection with additions
or removals of accounts. Except as stated above, the records and agreements
relating to the accounts and the receivables maintained by the seller or the
transferor are not and will not be segregated from other documents and
agreements relating to other credit card accounts and receivables and are not
and will not be stamped or marked to reflect the transfers described above. The
computer records of the seller and the transferor are and will be required to be
marked to evidence these transfers. Each of the seller and the transferor has
filed or will file in all appropriate jurisdictions Uniform Commercial Code
financing statements covering the receivables meeting the requirements of
applicable law. See "Risk Factors -- Some liens would be given priority over
your notes which could cause delayed or reduced payments" and "Material Legal
Aspects of the Receivables" in this prospectus.
ISSUANCE OF ADDITIONAL SERIES
The indenture provides that, under any one or more indenture supplements,
the transferor may cause the owner trustee, on behalf of the trust, to issue one
or more new series of notes and may designate all principal terms of those
series. Each additional series issued may contain one or more classes and may
have different terms and enhancements than any other series. With respect to any
notes that may be issued by the trust privately in the future, references in
this prospectus or the accompanying prospectus supplement to the terms of any
series of notes described in the applicable prospectus supplement instead refer
to the governing documents for those privately-issued notes.
33
The issuance of future series will occur without prior review or consent by
you or any other noteholder. Upon the issuance of an additional series of notes,
none of the transferor, the servicer, the indenture trustee, the owner trustee
or the trust will be required or will intend to obtain the consent of any
noteholder of any other series previously issued by the trust. However, as a
condition of a new issuance, the indenture trustee must receive written
confirmation that the new issuance will not result in the reduction or
withdrawal by any rating agency of its then-existing rating of any outstanding
series or class. The principal terms of one series may vary substantially from
those of another series. Some series may be in revolving periods while others
are in amortization periods or accumulation periods. The trust cannot assure you
that the terms of any series might not have an impact on the time or amount of
payments received by the noteholders of any other series. The issuance of a
series of notes will cause a reduction in the Transferor Interest. The trust may
offer any additional series under a prospectus or other disclosure document in
offerings under this prospectus or in transactions either registered under the
Securities Act of 1933, or exempt from registration under the Securities Act of
1933, directly, through one or more underwriters or placement agents, in
fixed-price offerings or in negotiated transactions or otherwise.
Unless otherwise specified in the accompanying prospectus supplement, a new
issuance may only occur upon the satisfaction of certain conditions provided in
the indenture. Under the indenture, the transferor may cause the owner trustee,
on behalf of the trust, to issue new series of notes by notifying the owner
trustee, the indenture trustee, the servicer and each rating agency at least
five days in advance of the date upon which the new issuance is to occur. Under
the indenture, the notice will state the date upon which the new issuance is to
occur.
The owner trustee will execute, and the indenture trustee will
authenticate, the notes of any series only upon delivery to them of the
following items, or satisfaction of the following conditions, among others:
- an indenture supplement specifying the principal terms of the new series;
- an opinion of counsel to the effect that, except as otherwise stated in
the related indenture supplement, the notes of the new series will be
characterized as indebtedness for federal income tax purposes;
- an opinion of counsel to the effect that for federal income tax purposes:
- the issuance will not adversely affect the tax characterization as debt
of notes of any outstanding series or class that were characterized as
debt at the time of their issuance;
- the new issuance will not cause the trust to be deemed to be an
association (or publicly traded partnership) taxable as a corporation;
and
- the new issuance will not cause or constitute an event in which gain or
loss would be recognized by any noteholder (an opinion of counsel with
respect to these tax matters is referred to in this prospectus as a
"TAX OPINION");
- if required by the related indenture supplement, the form of series
enhancement and an appropriate series enhancement agreement for that
series enhancement executed by the transferor and the series enhancer;
- written confirmation from each rating agency that the new issuance will
not result in a reduction or withdrawal of its rating of any outstanding
series or class;
- the new issuance will not:
34
- cause a pay out event or an event of default; or
- materially and adversely affect the amount or timing of payments to be
made to the noteholders of any series or class (any such effect is
referred to in this prospectus as an "ADVERSE EFFECT");
- a certificate of an authorized officer of the transferor to the effect
that it reasonably believes the new issuance will not have an Adverse
Effect; and
- after giving effect to the new issuance, (a) the total amount of
outstanding principal receivables previously transferred to the trust
exceeds the Required Minimum Principal Balance and (b) the Transferor
Interest exceeds the Required Transferor Interest.
ISSUANCE OF ADDITIONAL NOTES
If specified in the accompanying prospectus supplement, from time to time
during the revolving period, the transferor may, subject to certain conditions
described below, cause the trust to issue additional notes of an outstanding
series. Each issuance of additional notes of an outstanding series is called an
"ADDITIONAL ISSUANCE." When issued, the additional notes of each class will be
identical in all respects to the other outstanding notes of that class and will
be equally and ratably entitled to the benefits of the transfer and servicing
agreement, the indenture and the related indenture supplement without
preference, priority or distinction.
In connection with each additional issuance, the outstanding principal
amounts of each class of notes and the series enhancement will be increased
proportionately. The additional series enhancement provided in connection with
an additional issuance may take the form of an additional letter of credit, the
establishment of a cash collateral account, the purchase of interest rate caps
or swaps and/or another form of series enhancement, provided that the form and
amount of additional series enhancement will not cause a reduction or withdrawal
by any rating agency of its rating of any outstanding series or class of notes.
Following an additional issuance of a series and class, the respective
portions of the series enhancement that are for the benefit of the holders of
notes of that series and class will remain the same, as a percentage of the
total series enhancement, as the respective proportions in effect on the closing
date for that series. If applicable, the amount to be deposited into the
principal funding account also will be increased proportionately to reflect the
principal amount of additional notes.
In order to issue additional notes of a series, several conditions must be
satisfied, including:
- notice to the indenture trustee, the owner trustee, the servicer and any
series enhancer of the issuance and the date upon which it is to occur;
- after giving effect to the additional issuance, the total amount of
principal receivables must at least equal the Required Minimum Principal
Balance;
- delivery to the indenture trustee of any additional series enhancement
agreement related to the additional issuance, executed by each of the
parties to the series enhancement agreement;
- delivery to the indenture trustee of written confirmation that the
additional issuance will not result in the reduction or withdrawal by any
rating agency of its rating of any outstanding series or class;
35
- delivery to the indenture trustee of a certificate of an authorized
officer of the transferor to the effect that, in the transferor's
reasonable belief, the issuance will not have an Adverse Effect on the
date of issuance or at any future date;
- as of the date of the additional issuance, all amounts due to the holders
of notes of that series must have been paid, and there must not be any
unreimbursed Investor Charge-Offs;
- after giving effect to the issuance, the Transferor Interest must equal
or exceed the Required Transferor Interest; and
- delivery by the transferor to the indenture trustee of a tax opinion.
There are no restrictions on the timing or amount of any additional issuance,
provided that the conditions described above are met. As of the date of any
additional issuance, the Invested Amount will be increased to reflect the
initial principal balance of the additional notes of each class.
REPRESENTATIONS AND WARRANTIES
When the trust issues a new series of notes, the transferor will make
several representations and warranties to the trust in the transfer and
servicing agreement, including the following:
(1) the execution and delivery by the transferor of the transfer and
servicing agreement and each other document relating to the issuance to
which it is a party will not conflict with any law or any other
agreement to which it is a party;
(2) all required governmental approvals in connection with the execution
and delivery by the transferor of the transfer and servicing agreement
and each other document relating to the issuance have been obtained and
remain in force and effect;
(3) as of the closing date, the transferor is validly existing and in good
standing and has the authority to consummate the issuance;
(4) the transfer and servicing agreement, the applicable receivables
purchase agreement and the order to the owner trustee to authenticate
and deliver the notes have been duly authorized by the transferor;
(5) the transfer and servicing agreement, the applicable receivables
purchase agreement and any assignment of additional accounts to which
it is a party constitutes a legal, valid and binding obligation
enforceable against the transferor;
(6) the trust has all right, title and interest in the receivables in the
trust portfolio or has a first priority perfected security interest in
these receivables; and
(7) no selection procedures believed by such transfer to be materially
adverse to the interests of the noteholders have been used in selecting
the accounts designated to the trust.
In the event:
- any representation or warranty described in clauses (3), (4), (5), (6) or
(7) above is materially incorrect; and
- such breach has a material adverse effect on the receivables conveyed to
the trust;
then the owner trustee, the indenture trustee or noteholders representing 50% or
more of the then-outstanding principal balance of all of the trust's outstanding
series may give notice to the transferor and the servicer (and to the owner
trustee and indenture trustee if given by the noteholders) directing the
transferor to accept reassignment of the entire trust portfolio and to
36
pay into the trust's collection account a cash deposit equal to the sum of the
amounts specified with respect to each outstanding series in the related
indenture supplement. However, no reassignment will be required if on any day
within the applicable 60-day to 120-day cure period, the relevant representation
and warranty is then true and correct in all material respects and the
transferor delivers to the owner trustee a certificate of an authorized officer
describing the nature of the breach and the manner in which the relevant
representation and warranty became true and correct.
Reassignment of the trust portfolio and ABRC's or the additional
transferor's obligation to make the cash deposit in the trust's collection
account are the only remedies for any breach of the representations and
warranties described above.
The transferor makes representations and warranties in the transfer and
servicing agreement concerning the accounts and the receivables in the trust
portfolio. Only eligible accounts can be designated as accounts for the trust
portfolio. The trust can give you no assurance that eligible accounts will
remain eligible once added to the trust.
The transferor represents that each receivable transferred by it in the
trust portfolio is an eligible receivable when created or transferred. If a
receivable in the trust portfolio is found to be ineligible when created or
transferred, and, as a result, the breach has a material adverse effect on the
interests of noteholders in the receivables, the transferor must accept
reassignment of the receivables in the related account. However, the transferor
will have 60 days, or up to 120 days if agreed to by the indenture trustee and
the servicer, from the earlier to occur of discovery of the breach by the
transferor or receipt by the transferor of written notice of the breach given by
the owner trustee, the indenture trustee or the servicer, to cure the
ineligibility before reassignment is required.
The transferor will accept reassignment by directing the servicer to deduct
the principal amount of the ineligible receivable from the Transferor Interest.
If this would reduce the Transferor Interest below the Required Transferor
Interest, the transferor will make a cash deposit in the trust's Excess Funding
Account in the amount by which the Transferor Interest would have been reduced
below the Required Transferor Interest. Any such reassigned ineligible
receivable will be treated as collected in full. The transferor's obligation to
accept reassignment of any ineligible receivable is the only remedy for any
breach of a representation concerning eligibility of receivables.
The accompanying prospectus supplement may specify additional
representations and warranties made by the transferor when your notes are
issued. The indenture trustee is not required to make periodic examinations of
receivables in the trust portfolio or any records relating to them. However, the
trust will deliver to the indenture trustee once each year an opinion of counsel
affirming, among other things, that no further action is necessary to maintain
the trust's perfected security interest in the receivables.
For each series of notes, an "ELIGIBLE ACCOUNT" means, as of the applicable
cut-off date, each customer account originated by the seller:
- which was in existence and maintained by the seller;
- which is payable in United States dollars;
- the holder of which has provided, as his or her most recent billing
address, an address located in the United States or its territories,
possessions or military bases;
37
- the holder of which has not been identified by the servicer in its
computer files as currently being involved in a bankruptcy proceeding;
- which has not been classified as stolen or lost;
- which has not been sold or pledged to any other party except for any sale
to another account owner that has either entered into a receivables
purchase agreement or is an additional transferor;
- which does not have receivables which have been sold or pledged by the
bank or any party other than the transferor or the trust under a
receivables purchase agreement or a transfer and servicing agreement;
- which does not have any receivables that are defaulted receivables; and
- which does not have any receivables that have been identified by the
servicer or the relevant customer as having been incurred as a result of
fraudulent use of any credit card.
For each series of notes, an "ELIGIBLE RECEIVABLE" means each receivable:
- which has arisen in an eligible account;
- which was created in compliance, in all material respects, with all
requirements of law applicable to the seller at the time of its creation,
and under the terms of a credit card agreement which complies in all
material respects with all requirements of law applicable to the seller;
- for which all consents, licenses or authorizations of, or registrations
with, any governmental authority required to be obtained or given in
connection with the creation of the receivable or the execution, delivery
and performance by the seller of the related credit card agreement have
been duly obtained or given and are in full force and effect;
- as to which, at the time of its transfer to the trust, the transferor or
the trust has good title, free and clear of all liens and security
interests, other than tax liens for taxes not then due or which the
transferor is contesting;
- which has been the subject of either a valid transfer and assignment from
the transferor to the trust of all of the transferor's right, title and
interest in the receivable (including any proceeds of the receivable), or
the grant of a first priority perfected security interest in the
receivable (and in the proceeds of the receivable), effective until the
termination of the trust;
- which is the legal, valid and binding payment obligation of the obligor
under the receivable, legally enforceable against that obligor in
accordance with its terms, subject to some bankruptcy-related exceptions;
- which, at the time of transfer to the trust, has not been waived or
modified except as permitted under the customary policies and procedures,
as amended from time to time, of the seller, and then only if the waiver
or modification is reflected in the servicer's computer file of revolving
credit card accounts;
- which, at the time of transfer to the trust, is not subject to any right
of rescission, setoff, counterclaim or any other defense (including
defenses arising out of violations of usury laws) of the obligor, other
than defenses arising out of bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general;
38
- which, at the time of transfer to the trust, none of the transferor or
the seller has taken any action, or omitted to take any action, that
would impair the rights of the trust or the noteholders; and
- which constitutes an "account" or "general intangible" under Article 9 of
the Uniform Commercial Code as then in effect in any state where the
filing of a financing statement is required to perfect the trust's
interest in the receivables and the proceeds thereof.
ADDITION OF TRUST ASSETS
As described above under "The Trust Portfolio," the transferor will have
the right to designate, from time to time, additional accounts to be included as
accounts for the trust. In addition, the transferor will be required to
designate additional accounts under the circumstances and in the amounts
specified below. In both cases, the transferor will convey to the trust its
interest in all receivables of those additional accounts, whether the
receivables are then existing or subsequently created.
The transferor is required to designate additional eligible accounts to the
trust on a monthly basis, to the extent available, (a) to maintain the
Transferor Interest so that, during each period of 30 consecutive days specified
in the transfer and servicing agreement, the Transferor Interest averaged over
that period equals or exceeds the Required Transferor Interest for that same
period and (b) to maintain, for so long as notes of any series remain
outstanding, a total amount of principal receivables in the trust equal to or
greater than the Required Minimum Principal Balance, as adjusted for any series
having a paired series as described in the indenture supplement for that series.
The transferor has the right, from time to time, to designate, in its sole
discretion, additional eligible accounts to the trust.
Each additional account must be an eligible account on the applicable
cut-off date. However, additional accounts may not be of the same credit quality
as the initial accounts. The seller will not use selection procedures it
believes are materially adverse to the interests of the noteholders in selecting
additional accounts from the available eligible accounts in the Advanta Business
Card Portfolio. Each seller will designate additional accounts on a random basis
from all available eligible accounts owned by that seller. However, since
additional accounts may not have been part of the Advanta Business Card
Portfolio at the time of the initial transfer of accounts to the trust,
additional accounts may not be of the same credit quality as the initial
accounts. Additional accounts may have been originated by the bank or other
seller at a later date using credit criteria different from those that were
applied to the initial accounts or may have been acquired by the bank or other
seller from another credit card issuer that had different credit criteria.
The Transferor Interest on any date is equal to the difference between:
(a) the sum of
<Table>
(i) the total amount of and (ii) the Excess Funding
principal Account balance on
receivables the immediately
in the trust on the prior day
immediately prior
day
</Table>
minus
(b) the total Adjusted Invested Amounts of all series of notes then
outstanding.
39
The "REQUIRED TRANSFEROR INTEREST" on any date will be calculated as
follows:
<Table>
Required total amount
Transferor X of principal
Percentage receivables
in the trust
</Table>
The "REQUIRED TRANSFEROR PERCENTAGE" initially is 7%, but the transferor
may reduce the percentage by giving 30 days prior notice to the indenture
trustee and each rating agency if (a) written confirmation is received from each
rating agency that such action will not result in a reduction or withdrawal of
its then-existing rating of any outstanding series or class of notes and (b) the
transferor delivers to the indenture trustee a certificate of an authorized
officer to the effect that the transferor reasonably believes that such
reduction will not have an Adverse Effect. In no event may the Required
Transferor Percentage be less than 2%.
The "REQUIRED MINIMUM PRINCIPAL BALANCE" is, unless otherwise provided in
the related indenture supplement, on any date, an amount equal to the sum of the
Invested Amounts for all outstanding series on that date, plus the Required
Transferor Interest on that date, minus the amount on deposit in the Excess
Funding Account.
In the case of both required additions of accounts and discretionary
additions of accounts, when the transferor transfers additional accounts it must
satisfy several conditions, including, as applicable:
- notice to the owner trustee, the indenture trustee, the servicer and each
rating agency;
- delivery and acceptance by the owner trustee of a written assignment of
receivables in the additional accounts to the trust;
- delivery to the owner trustee of a computer file or microfiche list with
an accurate list of all additional accounts;
- delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer to the effect that:
- as of the applicable cut-off date, each additional account is an
eligible account;
- the transferor has delivered to the Indenture Trustee copies of UCC
financing statements, if necessary to perfect the trust's interest in
the receivables arising in the additional accounts;
- as of the date of assignment, called the "ADDITION DATE," and the
applicable cut-off date, none of the seller or the transferor is
insolvent; and
- in the transferor's reasonable belief, adding the receivables in
additional accounts will not have an Adverse Effect;
- delivery of certain opinions of counsel with respect to the transfer of
the receivables in the additional accounts to the trust;
- in circumstances where the transferor, in its discretion, designates
additional accounts to be included as accounts for the trust, that are
not business revolving credit card accounts initially originated by the
bank, written confirmation from each rating agency that the addition will
not result in the reduction or withdrawal of its then-existing rating of
any outstanding series or class; and
40
- in circumstances where the transferor, in its discretion, designates
additional accounts to be included as accounts for the trust, unless each
rating agency then rating any series or class of notes outstanding under
the trust shall have consented, (a) the number of additional accounts
designated during any of the three-month periods commencing in December,
March, June and September of each calendar year will not exceed the
percentage of the number of accounts as of the beginning of such calendar
year specified in the transfer and servicing agreement and (b) the number
of additional accounts designated during any calendar year will not
exceed the percentage of the number of accounts as of the beginning of
such calendar year specified in the transfer and servicing agreement.
In addition to the periodic reports otherwise required to be filed by the
servicer with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, the servicer intends to file, on behalf of the trust, a
Report on Form 8-K with respect to any addition to the trust of receivables in
additional accounts that would have a material effect on the composition of the
assets of the trust.
REMOVAL OF ACCOUNTS
The transferor has the right to designate certain accounts for removal from
the trust and to require the indenture trustee to transfer and reassign to it or
its designee all receivables in the removed accounts back to it, whether the
receivables already exist or arise after the designation. The transferor's
rights to removal are subject to satisfaction of several conditions, including:
- written notice to the owner trustee, the indenture trustee, the servicer,
each rating agency and each series enhancer;
- delivery to the owner trustee for execution of a written reassignment of
receivables in the removed accounts to the transferor or its designee;
- delivery to the owner trustee of a computer file or microfiche list with
an accurate list of all removed accounts;
- written confirmation from each rating agency that the removal will not
result in the reduction or withdrawal of its then-existing rating of any
outstanding series or class;
- delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer to the effect that, in the transferor's
reasonable belief:
- the removal will not have a material adverse effect on the noteholders;
- the removal will not cause a pay out event or event of default; and
- the accounts to be removed were not selected through a selection
process believed to be materially adverse to the interests of the
noteholders; and
- any other conditions specified in the accompanying prospectus supplement.
Removed accounts usually will be selected on a random basis from all previously
designated accounts. A non-random basis of selection for removal will be used
only in special circumstances, such as the end of a co-branding program, when
those accounts may be removed.
Upon satisfaction of the above conditions, the trust will execute and
deliver to the transferor or its designee a written reassignment and will,
without further action, be deemed to transfer, assign, set over and otherwise
convey to the transferor or its designee, effective as of the removal date,
without recourse, representation or warranty, all the right, title and interest
of the trust in
41
and to the receivables arising in the removed accounts, all moneys due and to
become due and all amounts received with respect thereto and all proceeds
thereof.
On the date on which a receivable becomes a defaulted receivable, the trust
will automatically be deemed to transfer that receivable to the transferor.
Recoveries on any defaulted receivable will be treated as collections of finance
charge and administrative receivables.
In all cases of removal, the transferor will purchase the related
receivables by directing the servicer to deduct the principal amount of those
receivables from the Transferor Interest. If this would reduce the Transferor
Interest below the Required Transferor Interest, the transferor will make a cash
deposit in the trust's Excess Funding Account in the amount by which the
Transferor Interest would have been reduced below the Required Transferor
Interest. Any deduction or deposit is considered a payment in full for those
receivables.
COLLECTION AND OTHER SERVICING PROCEDURES
For each series of notes, the servicer will be responsible for servicing
and administering the receivables in the trust in accordance with the servicer's
policies and procedures for servicing revolving business credit card receivables
comparable to the receivables in the trust and in accordance with the customary
guidelines of the servicer. The bank as servicer or any new servicer is called
the "SERVICER."
ADJUSTMENTS
On each day that the servicer adjusts downward the amount of any receivable
because of a rebate, refund, unauthorized charge or billing error to a customer,
or because the 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 receivable without receiving collections therefor or
charging off such amount as uncollectible, then, in any such case, the amount of
principal receivables used to calculate the Transferor Interest, the Investor
Percentage and any other percentage or amount required in the transfer and
servicing agreement, the indenture or the indenture supplement to be calculated
by reference to the amount of principal receivables will be reduced by the
amount of the adjustment. Similarly, the amount of principal receivables used to
calculate the Transferor Interest, the series percentages and any other
percentage or amount required in the transfer and servicing agreement, the
indenture or the indenture supplement to be calculated by reference to the
amount of principal receivables will be reduced by the amount of any receivable
discovered to have been created through a fraudulent or counterfeit charge. Any
of these adjustments will be made on or prior to the end of the monthly period
in which the adjustment arises. If after the exclusion of the principal
receivables from the calculation of the Transferor Interest, the Transferor
Interest would be less than the Required Transferor Interest, the transferor
will be required to pay an amount equal to such deficiency into the Excess
Funding Account.
TRUST ACCOUNTS
The servicer will establish and maintain in the name of the indenture
trustee, for the benefit of noteholders of all series, a "COLLECTION ACCOUNT,"
into which the servicer will deposit collections on the receivables and other
amounts described herein. The collection account will be either (a) a segregated
account with an eligible institution or (b) a segregated trust account with the
corporate trust department of a depositary institution organized under the laws
of the United
42
States or any one of the 50 states, the District of Columbia (or any domestic
branch of a foreign bank), and acting as a trustee for funds deposited in that
account, so long as any of the securities of this depository institution are
rated at least investment grade by each rating agency rating a series or class
of notes. An account that meets these requirements is called a "QUALIFIED
ACCOUNT."
The collection account will initially be maintained with the indenture
trustee. If at any time the collection account ceases to be an eligible account,
the indenture trustee will move the collection account to another eligible
institution so that it will again be a qualified account.
The servicer will also establish and maintain with an eligible institution
in the name of the indenture trustee for the benefit of noteholders of all
series, an "EXCESS FUNDING ACCOUNT," which also is required to be a qualified
account.
An "ELIGIBLE INSTITUTION" is either:
- a depository institution, including the owner trustee or the indenture
trustee:
- that is organized under the laws of the United States or any one of the
50 states or the District of Columbia (or any domestic branch of a
foreign bank); and
- which at all times (i) has FDIC deposit insurance and (ii) has either a
long-term unsecured debt rating or a certificate of deposit rating
acceptable to each rating agency rating a series or class of notes; or
- any other institution the appointment of which would not result in the
reduction or withdrawal by any rating agency of its then-existing rating
of any outstanding series or class.
Funds in the collection account and the Excess Funding Account will be
assets of the trust and will be invested, at the direction of the servicer, in
"ELIGIBLE INVESTMENTS." Eligible investments are securities, instruments,
security entitlements or other investment property which evidence:
(1) direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States of America;
(2) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository
institutions or trust companies incorporated under the laws of the
United States of America or any of the 50 states or the District of
Columbia (or domestic branches of foreign banks) and subject to
supervision and examination by federal or state banking or depository
institution authorities. However, at the time of the trust's investment
or contractual commitment to invest, the short-term debt rating of that
depository institution or trust company must be in the highest rating
category of at least one of the rating agencies rating each series or
class of notes;
(3) commercial paper or other short-term obligations having original or
remaining maturities of no more than 30 days, and having, at the time
of the trust's investment or contractual commitment to invest, a rating
in the highest rating category of at least one of the rating agencies
rating each series or class of notes;
(4) demand deposits, time deposits and certificates of deposit which are
fully insured by the FDIC having, at the time of the trust's
investment, a rating in the highest rating category of at least one of
the rating agencies rating each series or class of notes;
43
(5) notes or bankers' acceptances (having original maturities of no more
than 365 days) issued by any depository institution or trust company
referred to in clause (2) above;
(6) money market funds having, at the time of the trust's investment, a
rating in the highest rating category of at least one of the rating
agencies rating each series or class of notes (including funds for
which the indenture trustee or any of its affiliates is investment
manager or advisor);
(7) time deposits (having maturities not later than the next payment date)
other than those referred to in clause (4) above, with a person whose
commercial paper has a credit rating satisfactory to at least one of
the rating agencies rating each series or class of notes; or
(8) any other investment upon receipt of written confirmation from each
rating agency rating a series or class of notes that the additional
form of investment will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class.
Any earnings (net of losses and investment expenses) on funds in the
collection account and the Excess Funding Account which have been added to the
account in the related monthly period will be treated as collections of finance
charge and administrative receivables.
The indenture trustee, acting as the initial paying agent, will have the
revocable power to withdraw funds from the collection account for the purpose of
making payments to the noteholders of any series under the related indenture
supplement. The indenture trustee, acting as the initial paying agent, together
with any successor to the indenture trustee acting in that capacity, and any
entity specified in an indenture supplement to act in that capacity for the
related series, is referred to collectively as the "PAYING AGENT."
FUNDING PERIOD
For any series of notes, the total amount of principal receivables in the
trust available to that series at the time of its issuance may be less than the
total principal balance of the notes of that series. If this occurs, the initial
Invested Amount for that series of notes will be less than the principal amount
of that series of notes. In this case, the prospectus supplement for the series
will set forth the terms of the "FUNDING PERIOD," which is the period from that
series' closing date to the earlier of:
- the commencement of an early amortization period;
- the date that series' Invested Amount equals the principal amount of that
series of notes; and
- the date specified in the related prospectus supplement.
During the funding period, the portion of the Invested Amount not invested
in receivables will be maintained in a "PRE-FUNDING ACCOUNT," which is a trust
account established and maintained with the indenture trustee for the benefit of
the noteholders of that series. On the closing date for that series of notes,
this amount may be up to 100% of the principal balance of that series of notes.
The Invested Amount for that series will increase as new receivables are
transferred to the trust or as the Invested Amounts of other outstanding series
are reduced. The Invested Amount may decrease due to charge-offs allocated to
the series. The funding period will not be longer than one year.
44
During the funding period, funds on deposit in the pre-funding account will
be paid to the transferor as the Invested Amount increases. If the Invested
Amount for a series is not increased so that it equals the principal balance of
the notes of that series by the end of the funding period, any amount remaining
in the pre-funding account will be repaid to noteholders of that series. This
type of event may also cause repayment of other amounts to noteholders, as set
forth in the related prospectus supplement.
The prospectus supplement for a series with a funding period will set
forth:
- the series' initial Invested Amount;
- the series' full Invested Amount, which is the initial principal balance
of the series of notes;
- the date on which the series' Invested Amount is expected to equal the
full Invested Amount;
- the date by which the funding period will end; and
- what other events, if any, will occur if the end of the funding period is
reached before the full Invested Amount is funded.
The monthly reports provided to noteholders will include a line item which will
describe the balance in the pre-funding account as of the end of the monthly
period, any amounts withdrawn from the pre-funding account during the monthly
period, and the interest earned on the pre-funding account during the monthly
period. The Servicer will file a Form 8-K with the SEC following termination of
the funding period containing updated trust portfolio composition information.
INVESTOR PERCENTAGE AND TRANSFEROR PERCENTAGE
The servicer will allocate all collections of finance charge and
administrative receivables, all collections of principal receivables and all
defaulted receivables among:
- each series issued and outstanding;
- the Transferor Interest; and
- if the related prospectus supplement so states, to any series enhancers.
All allocations of these amounts will be made through the respective Investor
Percentages for each series, the Transferor Percentage and, where applicable,
the percentage interest of certain series enhancers, called the "SERIES
ENHANCEMENT PERCENTAGE." The related prospectus supplements will set forth how
the Investor Percentages and series enhancement percentages are calculated.
The Transferor Percentage will equal 100% minus:
- the total Investor Percentages for all outstanding series; minus
- the total series enhancement percentages for all outstanding series.
APPLICATION OF COLLECTIONS
Except in the circumstances described below, the servicer must deposit into
the collection account, no later than two business days after processing, all
payments made on receivables in
45
the trust portfolio. The servicer must also allocate these deposits between
accounts and to various parties, as described below.
However, the servicer will be able to make these deposits on a monthly or
other periodic basis if one of the following is true:
- no pay out event has occurred; and
- either: (i) the bank maintains a long or short term rating which is
satisfactory to each rating agency; or (ii) the servicer delivers to the
indenture trustee a letter of credit or other guaranty covering
collection risk and written confirmation is received from each rating
agency that this arrangement will not result in a reduction or withdrawal
of its rating of any outstanding series or class.
The servicer must make daily or periodic deposits to the collection account
only to the extent that the funds are needed for deposit into other accounts or
distribution to noteholders or other parties. If the collection account balance
ever exceeds the amount needed for deposit or distribution, the servicer will be
able to withdraw the excess and pay such amount pursuant to the transaction
documents. The servicer may retain its servicing fee for any series and will not
be required to deposit it in the collection account.
Each time a collection account deposit is made, the servicer will withdraw
from, or retain in, the collection account, as applicable, the following amounts
and apply them as indicated:
- the Transferor Percentage of collections of finance charge and
administrative receivables and principal receivables in the trust
portfolio will be paid or held for payment to the holders of the
Transferor Beneficial Interest. However, collections of principal
receivables allocable to the holders of the Transferor Beneficial
Interest will be:
- paid to the holders of the Transferor Beneficial Interest only if the
Transferor Interest exceeds zero; or
- deposited in the Excess Funding Account;
- for each series, the relevant Investor Percentage of collections of
finance charge and administrative receivables in the trust portfolio will
be retained in the collection account for allocation and payment as set
forth in the related prospectus supplement;
- if the series is in its revolving period, the applicable Investor
Percentage of collections of principal receivables in the trust portfolio
allocated to the series will be:
- first, if the series is identified in the prospectus supplement for
that series as part of a group of series that shares principal
collections, paid as shared principal collections to other series in
that group to the extent specified in the prospectus supplement; and
- second, paid or held for payment to the holders of the Transferor
Beneficial Interest; provided that collections of principal receivables
will be:
- paid to the holders of the Transferor Beneficial Interest only if
the Transferor Interest is greater than the "Required Transferor
Interest;" or
- otherwise deposited in the Excess Funding Account;
- if the series is in the period in which principal is accumulated in
specified amounts per month and paid on an expected principal payment
date, known as the "CONTROLLED ACCUMULATION PERIOD," the period in which
principal is paid in fixed amounts at scheduled
46
intervals, known as the "CONTROLLED AMORTIZATION PERIOD," or the period
in which principal is paid or accumulated in varying amounts each month
based on the amount of principal receivables collected following a pay
out event, known as the "EARLY AMORTIZATION PERIOD" or "EARLY
ACCUMULATION PERIOD," respectively, the applicable Investor Percentage of
collections of principal receivables in the trust portfolio allocated to
the series up to the amount, if any, specified in the accompanying
prospectus supplement will be retained in the collection account or
deposited in a principal funding account, as applicable, for allocation
and payment to noteholders as described in the accompanying prospectus
supplement. However, if collections of principal receivables exceed the
principal payments which may be allocated or distributed to noteholders,
the excess will be:
- first, if the series is identified in the prospectus supplement for
that series as part of a group of series that shares principal
collections, paid as shared principal collections to other series in
that group to the extent specified in the prospectus supplement; and
- second, paid or held for payment to the holders of the Transferor
Beneficial Interest; provided that collections of principal receivables
will be:
- paid to the holders of the Transferor Beneficial Interest only if
the Transferor Interest is greater than the Required Transferor
Interest; or
- otherwise deposited in the Excess Funding Account.
In the case of a series of notes having more than one class, the amounts in
the collection account will be allocated and applied to each class in the manner
and order of priority described in the accompanying prospectus supplement.
Any amounts, called "UNALLOCATED PRINCIPAL COLLECTIONS," collected in
respect of principal receivables and not paid to the holders of the Transferor
Beneficial Interest because the Transferor Interest is less than the Required
Transferor Interest as described above, together with any adjustment payments as
described under "-- Adjustments" above, will be paid to and held in the Excess
Funding Account and paid to the holders of the Transferor Beneficial Interest
if, and only to the extent that, the Transferor Interest is greater than the
Required Transferor Interest. If an amortization period or accumulation period
has commenced, unallocated collections of principal receivables will be held for
payment to the noteholders on the dates specified in the accompanying prospectus
supplement or accumulated for payment on the Expected Principal Payment Date, as
applicable, and paid to the noteholders of each class or held for and paid to
the noteholders of other series of notes issued by the trust in the manner and
order of priority specified in the accompanying prospectus supplement.
SHARED FINANCE CHARGE COLLECTIONS
If a series is identified in the prospectus supplement for that series as
included in a group, collections of finance charge and administrative
receivables in the trust portfolio allocated to the series in excess of the
amount needed to make deposits or payments may be shared with other series
identified in the prospectus supplements for those other series as included in
the same group. These shared collections are called "SHARED FINANCE CHARGE
COLLECTIONS." If one series requires more collections of finance charge and
administrative receivables than allocated through its Investor Percentage, it
will have access to all of these Shared Finance Charge Collections in other
series in its group. If two or more series require more collections of finance
charge and administrative receivables, Shared Finance Charge Collections in the
group will be shared among the series in the manner and priority set forth in
the related prospectus supplements.
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SHARED PRINCIPAL COLLECTIONS
If a series is allocated principal in excess of the amount needed for
deposit or distribution, this excess amount will be available to make principal
payments or deposits required by other series. This excess amount which is made
available to other series is called "SHARED PRINCIPAL COLLECTIONS." These Shared
Principal Collections may be limited to series identified in the prospectus
supplements for those series as included in the same group. Once principal
receivables from one series are made available to another series, the series
providing the excess principal receivables is not entitled to recoup those
amounts. If collections of principal receivables in the trust portfolio
allocated to a series are shared with another series, the Invested Amount for
the series from which collections were shared will not be reduced.
DEFAULTED RECEIVABLES; REBATES AND FRAUDULENT CHARGES; INVESTOR CHARGE-OFFS
Unless otherwise specified in the accompanying prospectus supplement, for
each series of notes, on the third business day preceding the fifteenth day of
each calendar month (called the "DETERMINATION DATE"), the servicer will
calculate the aggregate Investor Default Amount for the preceding monthly
period. The "INVESTOR DEFAULT AMOUNT" will be equal to the aggregate amount of
the Investor Percentage of principal receivables that are defaulted receivables.
The term "DEFAULTED RECEIVABLES" means those principal receivables which in
that monthly period were written off as uncollectible in accordance with the
servicer's credit card guidelines and customary and usual servicing procedures
for servicing revolving credit card receivables comparable to the receivables in
the trust. If provided in the accompanying prospectus supplement for a series,
an amount equal to the Investor Default Amount for any monthly period may be
paid from other amounts, including from series enhancement, and applied to pay
principal to noteholders or, subject to certain limitations, the holder of the
Transferor Beneficial Interest, as appropriate.
The term "INVESTOR CHARGE-OFFS" means, for any monthly period, and for any
series or class, the amount by which:
(a) the Investor Default Amount exceeds
(b) amounts available to pay that amount out of collections of finance
charge and administrative receivables and other amounts treated like collections
of finance charge and administrative receivables, any available series
enhancement amounts and other sources specified in the accompanying prospectus
supplement, but not more than the lesser of the Investor Default Amount and the
Invested Amount.
For each series of notes, the Invested Amount will be reduced by the amount
of Investor Charge-Offs for any monthly period, but not by more than the lesser
of the Investor Default Amount and the Invested Amount. Investor Charge-Offs
will be reimbursed on any payment date to the extent amounts on deposit in the
collection account and otherwise available exceed the interest, fees and any
aggregate Investor Default Amount payable on that date. This reimbursement of
Investor Charge-Offs will result in an increase in the Invested Amount for that
series.
FINAL PAYMENT OF PRINCIPAL; TERMINATION
For each series, the servicer has the option to repurchase the notes at any
time after the remaining outstanding principal balance of that series is 10% or
less of the initial principal amount of that series (as increased by the
principal amount of any notes of that series issued
48
after the related closing date) if certain conditions set forth in the related
indenture supplement are met. The repurchase price will equal (a) if the
repurchase occurs on a payment date, the sum of the following amounts on the
payment date and (b) if the repurchase occurs on any other day, the sum of the
following amounts on the payment date following such day:
- the outstanding principal amount of the notes of that series, plus
- any accrued and unpaid interest through the day preceding the payment
date on which the repurchase occurs or, if the repurchase occurs on any
other date, through the day preceding the payment date immediately
following the repurchase date, plus
- any amounts due the series enhancer, as specified in the prospectus
supplement for that series.
Any amounts on deposit in the principal funding account for that series
will be applied toward the repurchase price on behalf of the transferor.
For any series of notes, the related prospectus supplement may specify
different conditions to the servicer's repurchase option.
The notes of each series will be retired on the day on which the final
payment of principal is made to the noteholders, whether as a result of payment
of the repurchase price, optional reassignment of the receivables to the
transferor or otherwise. Each prospectus supplement will specify the series
termination date for the related series of notes. However, the notes may be
subject to prior termination as provided above and in the prospectus supplement.
For any series the failure to pay principal of the related notes on the latest
date by which principal and interest for that series can be paid, called the
"SERIES TERMINATION DATE," will be an event of default and the indenture trustee
or holders of a specified percentage of the notes of that series will have
certain rights described under "The Indenture -- Events of Default; Rights upon
Event of Default" in this prospectus.
Upon the retirement of a series of notes, upon optional repurchase or
otherwise, there will be no continuing direct or indirect liability of the trust
or noteholders to the holders of the Transferor Beneficial Interest.
Unless the servicer and the holder of the Transferor Beneficial Interest
instruct the indenture trustee otherwise, the trust will terminate on the
earlier of (a) the date designated by the transferor, but no earlier than the
day on which the rights of all series to receive payments from the trust have
terminated and (b) the date of dissolution of the trust in accordance with
applicable law. This date is called the "TRUST TERMINATION DATE." Upon the
termination of the trust and the surrender of the Transferor Beneficial
Interest, the indenture trustee shall convey to the holders of the Transferor
Beneficial Interest all right, title and interest of the trust in and to the
receivables and other funds of the trust.
PAIRED SERIES
The prospectus supplement for a series of notes will specify whether that
series may be paired with a previously or later issued series so that a decrease
in the Invested Amount of the previously issued series results in a
corresponding increase in the Invested Amount of the later issued series. Each
of these series is called a "PAIRED SERIES." In general, a series may be issued
as a paired series so the trust can fund the amount by which the previously
issued series has amortized or accumulated funds for a principal payment and
will amortize or accumulate in the future.
49
If a pay out event occurs for the previously issued series or its paired
series when the previously issued series is amortizing, the Investor Percentage
for the allocation of collections of principal receivables for the previously
issued series may be reset to a lower percentage as described in the prospectus
supplement for that series and the period over which it will amortize may be
lengthened as a result. The extent to which the period over which it amortizes
is lengthened will depend on many factors, only one of which is the reduction of
its Investor Percentage. For a discussion of these factors, see "Risk
Factors -- Issuance of additional series by the trust may affect the timing of
payments to you." in this prospectus and "Maturity Considerations" in the
accompanying prospectus supplement.
We cannot assure you that the terms of a paired series will not have an
adverse impact on the timing or amount of payments allocated to your series. If
an early amortization period or an early accumulation period occurs for a paired
series while your series is outstanding, the percentage of receivables allocated
to your series may be reduced if the terms of the indenture supplement relating
to the paired series requires that the paired series also receive its share of
principal collections. In addition, if an early amortization period or early
accumulation period occurs for your series, the percentage of receivables
allocated to the paired series may be reduced until your series is paid in full.
PAY OUT EVENTS
The revolving period will continue through the date specified in the
accompanying prospectus supplement unless a pay out event occurs prior to that
date, unless otherwise specified in the accompanying prospectus supplement.
There are two types of pay out events: a trust pay out event and a series pay
out event.
A "TRUST PAY OUT EVENT" occurs with respect to all series issued by the
trust upon the occurrence of any of the following events:
- any servicer default occurs which would have a material adverse effect on
the noteholders;
- certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the transferor, the seller or
the servicer;
- the transferor is unable for any reason to transfer receivables to the
trust in accordance with the provisions of the transfer and servicing
agreement; or
- the trust becomes subject to regulation as an "investment company" within
the meaning of the Investment Company Act of 1940.
In addition, a "SERIES PAY OUT EVENT" may occur with respect to any
particular series upon the occurrence of any other event specified in the
prospectus supplement for that series.
On the business day before the date on which a pay out event is deemed to
have occurred, the early amortization period or, if specified in the
accompanying prospectus supplement, the early accumulation period will commence.
If, because of the occurrence of a pay out event, the early amortization
period begins earlier than the scheduled commencement of an amortization period
or prior to an Expected Principal Payment Date, noteholders will begin receiving
payments of principal earlier than they otherwise would have, which may shorten
the average life of the notes. A pay out event which causes an early
accumulation period to occur will not shorten the average life of the notes.
50
In addition to the consequences of a pay out event discussed above, unless
otherwise specified in the accompanying prospectus supplement, if certain
bankruptcy, insolvency or similar proceedings under the Bankruptcy Code or
similar laws occur with respect to the transferor, on the day of that event the
transferor will immediately cease to transfer principal receivables to the trust
and will promptly give notice to the indenture trustee and the owner trustee of
this occurrence. Any principal receivables transferred to the trust prior to the
event, as well as collections on those principal receivables and finance charge
and administrative receivables accrued at any time with respect to those
principal receivables, will continue to be part of the trust assets and will be
applied as specified above in "-- Application of Collections" and in the
accompanying prospectus supplement.
If the only pay out event to occur is either the insolvency of the
transferor or the commencement of a bankruptcy case by or against the
transferor, the bankruptcy court may have the power to require the continued
transfer of principal receivables to the trust. See "Risk Factors -- If a
receiver or conservator were appointed for a seller or a transferor that is a
bank, or if a seller or a transferor that is not a bank became a debtor in a
bankruptcy case, delays or reductions in payment of your notes could occur" in
this prospectus.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicer receives a fee for its servicing activities and reimbursement
of expenses incurred administering the trust. This servicing fee accrues for
each outstanding series in the amounts and is calculated on the balances set
forth in the related prospectus supplement. Each series' servicing fee is
payable each period from collections of finance charge and administrative
receivables allocated to the series; some series, however, may direct all or a
portion of the interchange arising from the accounts toward paying the servicing
fee. Neither the trust nor the noteholders are responsible for any servicing fee
allocable to the transferor interest.
The servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the receivables including, without
limitation, payment of the fees and disbursements of the indenture trustee, any
paying agent, transfer agent and registrar and independent accountants fees and
other fees which are not expressly stated in the indenture to be payable by the
trust or the noteholders of a series other than any Federal, state, local and
foreign income, franchise or other taxes, or any interest or penalties with
respect thereto, imposed upon the trust.
CERTAIN MATTERS REGARDING THE TRANSFEROR AND THE SERVICER
The servicer may not resign from its obligations and duties under the
transfer and servicing agreement, except:
- upon a determination that performance of its duties is no longer
permissible under applicable law; or
- upon assumption of its obligations and duties by one of its affiliates
that is a direct or indirect wholly-owned subsidiary of Advanta Corp. or
by appointment of any other eligible successor if written confirmation is
received from each rating agency that the appointment will not result in
a reduction or withdrawal of its then-existing rating of any outstanding
series or class.
If, within 120 days of the determination that the servicer is no longer
permitted to act as servicer, the indenture trustee is unable to appoint a
successor, then the indenture trustee will act
51
as servicer. If the indenture trustee is unable to act as servicer, it will
petition an appropriate court to appoint an eligible successor.
The servicer has the right to delegate any of its responsibilities and
obligations as servicer to any entity that agrees to conduct such duties in
accordance with the transfer and servicing agreement and the bank's credit card
guidelines. The servicer currently contracts and intends to continue to contract
with First Data Resources to perform certain of its servicing activities. The
servicer also has the right to appoint one or more sub-servicers in accordance
with the terms of the transfer and servicing agreement. Notwithstanding any such
delegation to any entity or sub-servicing arrangement, the servicer will
continue to be liable for all of its obligations under the transfer and
servicing agreement.
The servicer will indemnify the trust, the owner trustee and the indenture
trustee for any losses suffered as a result of (i) its actions or omissions as
servicer or (ii) the administration by the owner trustee of the trust, except in
each case, for losses resulting from the negligence or willful misconduct of the
owner trustee or the indenture trustee, as applicable.
Neither the servicer nor any of its directors, officers, employees or
agents will be under any other liability to the trust, the owner trustee, the
indenture trustee, the noteholders, any series enhancer or any other person for
any action taken, or for refraining from taking any action, in good faith under
the transfer and servicing agreement. However, none of them will be protected
against any liability resulting from willful wrongdoing, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of obligations and duties under the transfer and servicing agreement. In
addition, the transfer and servicing 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 transfer and
servicing agreement and which in its opinion may expose it to any expense or
liability.
The transferor may, from time to time, designate one or more of its
affiliates as additional transferors under the transfer and servicing agreement.
In connection with this designation, the transferor will cause the owner trustee
to note on the books and records of the trust the new percentage of the
Transferor Beneficial Interest owned by it and owned by the additional
transferor or the transferor will exchange the transferor certificate for a
newly issued transferor certificate modified to reflect any additional interest
in the Transferor Beneficial Interest. The transfer and servicing agreement may
be amended to permit the designation of these additional transferors and the
division of the Transferor Beneficial Interest or the exchange of the transferor
certificate without the consent of noteholders of any series offered under this
prospectus upon:
- delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer of the transferor to the effect that in the
transferor's reasonable belief, such amendment will not have an Adverse
Effect; and
- receipt of written confirmation from each rating agency that the exchange
will not result in a reduction or withdrawal of its rating of any
outstanding series or class.
Each transferor will be severally, but not jointly, liable for all of its
obligations, covenants, representations and warranties under the transfer and
servicing agreement. No transferor or any of its directors, officers, employees,
incorporators or agents will be liable to the trust, the owner trustee, the
indenture trustee, the noteholders, any series enhancer or any other person for
any action taken, or for refraining from taking any action, in good faith under
the transfer and servicing agreement. However, none of them will be protected
against any liability resulting from
52
willful wrongdoing, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of obligations and duties under the
transfer and servicing agreement.
The trust agreement provides that the transferor may transfer its interest
in all or a portion of the Transferor Beneficial Interest by exchanging its
interest for a new Transferor Beneficial Interest and a second interest, called
a "SUPPLEMENTAL BENEFICIAL INTEREST." The Supplemental Beneficial Interest may
be held either in an uncertificated form or in the form of a certificate
representing the Supplemental Beneficial Interest, called a "supplemental
certificate." The terms of the Supplemental Beneficial Interest must be defined
in a supplement to the trust agreement. Except for transfers to affiliates of
the transferor, before a Supplemental Beneficial Interest is issued, the
following must occur:
- notice of the exchange to the owner trustee, the indenture trustee, the
servicer and each rating agency;
- delivery to the owner trustee and the indenture trustee of an executed
supplement to the trust agreement;
- written confirmation from each rating agency that the exchange will not
result in a reduction or withdrawal of its then-existing rating of any
outstanding series or class;
- the exchange will not result in an Adverse Effect and delivery to the
owner trustee and the indenture trustee of a certificate of an authorized
officer of the transferor to the effect that it reasonably believes the
exchange will not have an Adverse Effect;
- delivery to the owner trustee and the indenture trustee of a tax opinion;
and
- the total amount of principal receivables in the trust portfolio must
exceed the Required Minimum Principal Balance on the date of the
exchange.
Except for transfers to affiliates of the transferor, no Supplemental Beneficial
Interest may be transferred or exchanged except in a transaction exempt from the
registration requirements of the Securities Act of 1933 and unless a tax opinion
is delivered to the owner trustee and the indenture trustee regarding the
exchange.
The transferor or the servicer may consolidate with, merge into, or sell
its business to, another entity, in accordance with the transfer and servicing
agreement, on the following conditions:
- if the transferor or servicer, as the case may be, is not the surviving
entity, execution of an agreement relating to the succession that
supplements the transfer and servicing agreement;
- in the case of a transaction relating to the transferor, delivery to the
owner trustee and the indenture trustee of a certificate of an authorized
officer of the transferor and an opinion of counsel, each addressing
compliance with the applicable provisions of the transfer and servicing
agreement and the validity and enforceability of the supplemental
agreement and written confirmation from each rating agency that the
succession will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class; and
- in the case of a transaction relating to the servicer, delivery to the
owner trustee and the indenture trustee of a certificate of an authorized
officer of the servicer and an opinion of counsel, each addressing
compliance with the applicable provisions of the transfer and servicing
agreement, notification of the succession to each rating agency and the
successor must be eligible to act as servicer.
53
SERVICER DEFAULT
The transfer and servicing agreement specifies the duties and obligations
of the servicer. A failure by the servicer to perform its duties or fulfill its
obligations can result in a servicer default.
A "SERVICER DEFAULT" includes each of the following:
(1) failure by the servicer to make any payment, transfer or deposit, or to
give instructions or to give notice to the indenture trustee to do so,
within 5 business days of the required date under the transfer and
servicing agreement, the indenture or any indenture supplement;
(2) failure on the part of the servicer to observe or perform in any
material respect any of its other covenants or agreements set forth in
the transfer and servicing agreement, if the failure:
(a) has an Adverse Effect; and
(b) continues unremedied for a period of 60 days after written notice to
(i) the servicer by the owner trustee or the indenture trustee, or
(ii) the servicer, the owner trustee and the indenture trustee by
noteholders holding 10% or more of the then-outstanding principal
amount of all of the trust's outstanding series (or, where the
servicer's failure does not relate to all series, 10% or more of the
then-outstanding principal balance of all series affected);
(3) the servicer assigns or delegates its duties, except as specifically
permitted under the transfer and servicing agreement;
(4) any representation, warranty or certification made by the servicer in
the transfer and servicing agreement, or in any certificate delivered
under the transfer and servicing agreement, proves to have been
incorrect in any material respect when made if it:
(a) has an Adverse Effect; and
(b) continues to have an Adverse Effect for a period of 60 days after
written notice to (i) the servicer by the owner trustee or the
indenture trustee, or (ii) the servicer, the owner trustee and the
indenture trustee by noteholders holding 10% or more of the
then-outstanding principal amount of all of the trust's outstanding
series (or, where the servicer's inaccuracy does not relate to all
series, 10% or more of the then-outstanding principal balance of all
series effected);
(5) specific bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the servicer; or
(6) any other event specified in the accompanying prospectus supplement.
Notwithstanding the foregoing, a delay in or failure of performance referred to
in clause (1) above for a period of 10 business days after the applicable grace
period, or referred to in clause (2), (3) or (4) above for a period of 60
business days after the applicable period, will not constitute a servicer
default if the delay or failure could not be prevented by the exercise of
reasonable diligence by the servicer and the delay or failure was caused by an
act of God or the public enemy, acts of declared or undeclared war, terrorism,
public disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or other similar occurrence.
54
Upon the occurrence of any of the events identified above, the servicer
will not be relieved from using all commercially reasonable efforts to perform
its obligations in a timely manner in accordance with the terms of the transfer
and servicing agreement. The servicer must provide the indenture trustee, the
owner trustee, each transferor and any series enhancer with an officer's
certificate giving prompt notice of its failure or delay, together with a
description of its efforts to perform its obligations. If a servicer default
occurs, for as long as it has not been remedied, the indenture trustee or
noteholders holding more than 50% of the then-outstanding principal amount of
all of the trust's outstanding series may give a notice to the servicer and the
owner trustee (and to the indenture trustee if given by the noteholders)
terminating all of the rights and obligations of the servicer under the transfer
and servicing agreement. The indenture trustee will as promptly as possible
appoint an eligible successor to the servicer upon the written direction of
noteholders holding more than 50% of the then-outstanding amount of the notes.
If no successor has been appointed or has accepted the appointment by the time
the servicer ceases to act as servicer, the indenture trustee will automatically
become the successor. If the indenture trustee is unable to obtain bids from
eligible servicers within sixty days of notice of termination of the servicer
and the servicer delivers a certificate of an authorized officer to the effect
that it cannot in good faith cure the servicer default which gave rise to a
transfer of servicing, and if the indenture trustee is legally unable to act as
successor, then the indenture trustee will give the transferor a right of first
refusal to purchase the interests of the noteholders in the trust on the payment
date in the next calendar month at a price equal to the sum of the amounts
specified for each series outstanding in the related indenture supplement.
The rights and obligations of the transferor under the transfer and
servicing agreement and of the seller under the receivables purchase agreement
will be unaffected by any change in the person acting as servicer.
In the event of the appointment of a receiver or conservator of the
servicer, the receiver or conservator may have the power to prevent either the
indenture trustee or the noteholders from appointing a successor servicer.
REPORTS TO NOTEHOLDERS
Noteholders of each series issued by the trust will receive reports with
information on the series and the trust. The paying agent will forward to each
noteholder of record a report, prepared by the servicer, for its series on the
payment dates for that series. The report will set forth information as
specified in the related prospectus supplement. If a series has multiple
classes, information will be provided for each class, as specified in the
related prospectus supplement.
Periodic information to noteholders generally will include:
- the total amount paid;
- the amount paid allocable to principal;
- the amount paid allocable to interest;
- collections of principal receivables and finance charge and
administrative receivables allocated to the series;
- the aggregate amount of principal receivables, the Invested Amount and
the Invested Amount as a percentage of the aggregate amount of the
principal receivables in the trust portfolio;
55
- the aggregate outstanding balance of accounts broken out by delinquency
status;
- the aggregate defaults allocated to the series;
- Investor Charge-Offs for the series and any reimbursements of previous
Investor Charge-Offs;
- the servicing fee for that series;
- the amount available under any series enhancement for the series or each
class of the series;
- the "pool factor," which is the ratio of the current Invested Amount to
the initial Invested Amount;
- the Base Rate and Net Portfolio Yield (each as defined in the
accompanying prospectus supplement) for the series;
- if the series or a class of the series bears interest at a floating or
variable rate, information relating to that rate; and
- if the series has a funding period, the period ending balance in the
pre-funding account, the amount withdrawn from the pre-funding account to
date and the amount of interest earned on the pre-funding account during
the monthly period.
By January 31 of each calendar year, the paying agent will also provide to
each person who at any time during the preceding calendar year was a noteholder
of record a statement, prepared by the servicer. The statement will contain the
type of information presented in the periodic reports, aggregated for that
calendar year or the portion of that calendar year that the person was a
noteholder, together with other information that is customarily provided to
holders of debt, to assist noteholders in preparing their United States tax
returns.
EVIDENCE AS TO COMPLIANCE
The transfer and servicing agreement provides that on or before September
30 of each calendar year, the servicer will have a firm of independent certified
public accountants furnish reports showing that, for the prior one-year period
ending June 30 of such calendar year:
- the accounting firm has applied certain agreed upon procedures and has
examined certain documents and records pertaining to the servicing of the
accounts and that nothing has come to that firm's attention that has
caused it to believe that the servicing has not been conducted in
compliance with the transfer and servicing agreement, except for
specified exceptions; and
- the accounting firm has compared certain amounts set forth in the
periodic reports prepared by the servicer for the prior one-year period
ending June 30 of such calendar year with the servicer's computer reports
and that, in the accounting firm's opinion, the amounts are in agreement,
except for any specified exceptions.
The transfer and servicing agreement also provides that by September 30 of
each calendar year, the servicer will deliver to the owner trustee, the
indenture trustee and each rating agency a certificate of an authorized officer
to the effect that the servicer has fully performed its obligations under the
transfer and servicing agreement during the preceding year, or, if there has
been a default in the performance of any of its obligations, specifying the
nature and status of the default.
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AMENDMENTS
The transfer and servicing agreement may be amended by the transferor, the
servicer and the trust, without the consent of the indenture trustee, any series
enhancer or the noteholders of any series offered under this prospectus, on the
following conditions:
- the transferor delivers to the owner trustee and the indenture trustee a
certificate of an authorized officer stating that, in the transferor's
reasonable belief, the amendment will not have a material Adverse Effect;
and
- receipt of written confirmation from each rating agency that the
amendment will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class.
The transfer and servicing agreement may also be amended by the servicer
and the trust at the direction of the transferor, without the consent of the
indenture trustee, the noteholders of any series offered under this prospectus
or the series enhancers for any series to add, modify or eliminate any
provisions necessary or advisable in order to enable the trust or any portion of
the trust to qualify as, and to permit an election to be made for the trust to
be treated as, a "financial asset securitization investment trust" under the
Internal Revenue Code of 1986 (the "CODE") and avoid the imposition of state or
local income or franchise taxes on the trust's property or its income. The
following conditions apply for the amendments described in this paragraph:
- delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer of the transferor to the effect that the
requirements under the transfer and servicing agreement applicable to the
proposed amendments have been met;
- receipt of written confirmation from each rating agency that the
amendment will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class; and
- the amendment must not affect the rights, duties or obligations of the
indenture trustee or the owner trustee under the transfer and servicing
agreement.
The transfer and servicing agreement may also be amended by the transferor,
the servicer and the trust with the consent of noteholders holding at least
66 2/3% of the then-outstanding principal amount of the notes of all series
adversely affected by the amendment. Even with consent, no amendment may occur
if it:
- reduces the amount of, or delays the timing of:
- any payments to be made to noteholders of any series (changes in pay
out events or events of default that decrease the likelihood of the
occurrence of those events will not be considered delays in the timing
of payments for purposes of this clause) or deposits of amounts to be
distributed; or
- the amount available under any series enhancement, in each case,
without the consent of each affected noteholder;
- changes the manner of calculating the interests of any noteholder,
without the consent of each affected noteholder;
- reduces the percentage of the outstanding principal balance of the notes
required to consent to any amendment, without the consent of each
affected noteholder; or
57
- adversely affects the rating of any series or class by each rating
agency, without the consent of noteholders holding at least 66 2/3% of
the then-outstanding principal amount of the notes of each affected
series or class offered under this prospectus.
THE INDENTURE
The following summarizes the material terms of the indenture and is
qualified in its entirety by reference to the indenture. The laws of the State
of New York will govern the indenture. You should carefully read the indenture
and the indenture supplement for your series of notes for information concerning
the duties, obligations, rights and powers of the indenture trustee. The
servicer can provide you with a copy of the indenture and indenture supplement
as described under "Where You Can Find More Information" in this prospectus.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
With respect to the notes of any series, "EVENTS OF DEFAULT" under the
indenture will be any of the following:
(1) the trust fails to pay principal when it becomes due and payable on the
series termination date for that series of notes;
(2) the trust fails to pay interest when it becomes due and payable and the
default continues for a period of 35 days;
(3) certain bankruptcy, insolvency, conservatorship, receivership,
liquidation or similar events relating to the trust;
(4) the trust fails to observe or perform covenants or agreements made in
the indenture, and:
- the failure continues, or is not cured, for 60 days after notice to
the trust by the indenture trustee or to the trust and the indenture
trustee by noteholders holding 25% or more of the then-outstanding
principal amount of all of the trust's outstanding series; and
- as a result, the interests of the noteholders are materially and
adversely affected, and continue to be materially and adversely
affected during the 60-day period; or
(5) any additional events of default specified in the applicable prospectus
supplement.
Failure to pay the full principal amount of a note on its Expected Principal
Payment Date will not constitute an event of default.
An event of default with respect to one series of notes will not
necessarily be an event of default with respect to any other series of notes.
If an event of default, other than an event of default described in clause
(3) above, occurs and continues with respect to the notes, the indenture trustee
or noteholders holding more than 50% of the then-outstanding principal amount of
the notes of the affected series may declare all the notes of that series to be
immediately due and payable. If an event of default described in clause (3)
above should occur and be continuing, the unpaid principal and interest due on
the notes shall be immediately due and payable. These declarations may, under
certain circumstances, be rescinded by noteholders holding more than 50% of the
then-outstanding principal amount of the notes of that series.
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Generally, in the case of any event of default, the indenture trustee will
be under no obligation to exercise any of the rights or powers under the
indenture if requested or directed by any of the holders of the notes of the
affected series if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with that request. Subject to those provisions
for indemnification and certain limitations contained in the indenture,
noteholders holding more than 50% (or not less than 66 2/3% if an event of
default occurs and continues) of the then-outstanding principal amount of the
notes of the affected series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the indenture
trustee. Noteholders holding more than 50% of the then-outstanding principal
amount of the notes of the affected series may, in certain cases, waive any
default with respect to the notes, except a default in the payment of principal
or interest or a default relating to a covenant or provision of the indenture
that cannot be modified without the waiver or consent of all noteholders of the
affected series.
After acceleration of a series of notes, collections of principal
receivables and collections of finance charge and administrative receivables
allocated to those notes will be applied to make monthly principal and interest
payments on the notes until the earlier of the date the notes are paid in full
or the series termination date. The indenture trustee may apply funds in the
collection account, the Excess Funding Account and other trust accounts for a
series of notes that have been accelerated to pay principal of and interest on
those notes.
Upon acceleration of the maturity of a series of notes following an event
of default, the indenture trustee will have a lien on the collateral for those
notes for its unpaid fees and expenses that ranks senior to the lien of those
notes on the collateral.
In general, the indenture trustee will enforce the rights and remedies of
the holders of accelerated notes. However, noteholders will have the right to
institute any proceeding with respect to the indenture if the following
conditions are met:
- the noteholder gives the indenture trustee written notice of a continuing
event of default;
- noteholders holding at least 25% of the then-outstanding principal amount
of the notes of the affected series make a written request of the
indenture trustee to institute a proceeding as indenture trustee;
- the noteholders offer indemnification satisfactory to the indenture
trustee against the costs, expenses and liabilities of instituting a
proceeding;
- the indenture trustee has not instituted a proceeding within 60 days
after receipt of the request and offer of indemnification; and
- the indenture trustee has not received from noteholders holding more than
50% of the then-outstanding principal amount of the notes of that series
a direction inconsistent with the request.
However, notwithstanding the foregoing, each noteholder has the absolute and
unconditional right to receive payment of the principal of and interest on its
notes at the time principal or interest is due and to institute suit for the
enforcement of payment. This right may not be impaired without the consent of
each noteholder.
If any series of notes has been accelerated following an event of default,
and the indenture trustee has not received any valid directions from noteholders
of that series, the indenture trustee may elect to continue to hold the portions
of the trust assets that secures those notes and apply
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distributions on the trust assets to make payments on those notes to the extent
funds are available.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if any series of notes has been accelerated following an
event of default, the indenture trustee may:
- institute proceedings in its own name for the collection of all amounts
then payable on the notes of the affected series; or
- take any other appropriate action to protect and enforce the rights and
remedies of the indenture trustee and the noteholders of the affected
series.
Subject to the conditions described below, the indenture trustee also may
foreclose on the portion of the receivables which secure that series of notes
that have been accelerated by causing the trust to issue a foreclosure
certificate to the holders of notes or to one or more third parties.
The conditions that must be satisfied for the indenture trustee to exercise
one of these foreclosure remedies include satisfaction of at least one of the
following two conditions:
- the indenture trustee receives the consent of all noteholders of the
affected series; or
- the indenture trustee determines that any proceeds from exercising the
foreclosure remedy that are to be distributed to the noteholders of that
series are sufficient to discharge in full all principal and interest due
on those notes.
The indenture trustee must also have obtained an opinion of counsel that
the exercise of the foreclosure remedy will not cause the trust or any portion
of the trust to be classified as an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes and that
the exercise of the foreclosure remedy complies with applicable federal and
state securities laws.
A "FORECLOSURE CERTIFICATE" is an investor certificate issued by the trust
as a result of a foreclosure on a portion of the receivables that corresponds to
the portion of the receivables that secured the notes that have been
accelerated. The foreclosure certificate represents an undivided interest in the
assets of the trust. The principal amount of the foreclosure certificate would
be equal to the principal amount of the notes that have been accelerated, and
the Invested Amount of the foreclosure certificate would be equal to the
Invested Amount of the series of notes that have been accelerated.
When a foreclosure certificate is issued with respect to notes that have
been accelerated, those notes will be deemed to have been paid in full by the
trust and not outstanding, and the holders of the notes that have been
accelerated will no longer have any claim against the trust. Accordingly, the
Invested Amount of the notes that have been accelerated will be allocable to the
holders of the foreclosure certificate.
A foreclosure certificate held by a noteholder or a third party will be
subject to restrictions on transfer, including:
- restrictions required to prevent the trust from being deemed an
association or publicly traded partnership taxable as a corporation for
federal income tax purposes, including a limitation on the number of
holders or interests in the foreclosure certificate and restrictions on
transfers to holders that are partnerships, Subchapter S corporations or
grantor trusts for United States federal income tax purposes;
- restrictions on transfers of interest in the foreclosure certificate to
non-U.S. persons;
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- restrictions on transfers to employee benefit plans, or any entity whose
underlying assets include "plan assets;" and
- other restrictions that counsel to the trust may require to avoid adverse
tax and other consequences to the trust or the noteholders.
The indenture trustee and the noteholders will covenant that they will not at
any time institute against the trust or the transferor any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
The remedies described above are the exclusive remedies available to the
noteholders upon an event of default. The indenture trustee and each noteholder,
by its acceptance of an interest in any note, waive any other remedy that may be
available under the Uniform Commercial Code as then in effect in any applicable
jurisdiction.
None of the transferor, the administrator, the owner trustee, the indenture
trustee, the servicer, the seller or the trust, in its individual capacity, nor
any holder of an ownership interest in the trust, nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the notes
or for the agreements of the trust contained in the indenture. The notes will
represent obligations solely of the trust, and the notes will not be insured or
guaranteed by the transferor, the servicer, the administrator, the owner
trustee, the indenture trustee, the seller or any other person or entity.
CERTAIN COVENANTS
The indenture provides that the trust may not consolidate with, merge into
or sell or transfer its properties or assets to, another entity, unless:
- the entity formed by or surviving the consolidation or merger, or that
acquires the trust's properties or assets, is organized under the laws of
the United States, any state thereof or the District of Columbia;
- the successor entity is not subject to regulation as an investment
company under the Investment Company Act of 1940;
- the successor entity expressly assumes, by supplemental indenture, the
trust's obligation to make due and punctual payments upon the notes and
the performance of every covenant of the trust under the indenture and to
make all required filings with the Securities and Exchange Commission;
- no pay out event or event of default has occurred and is continuing
immediately after the merger, consolidation or sale;
- written confirmation is received from each rating agency that the
transaction will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class;
- the trust has received a tax opinion and an opinion of counsel to the
effect that the transaction would have no material adverse federal income
tax consequence to any noteholder;
- any action as is necessary to maintain the lien and security interest
created by the indenture shall have been taken;
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- the trust has delivered to the indenture trustee an opinion of counsel
and officer's certificate each stating that the transaction satisfies all
requirements under the indenture and that the supplemental indenture is
duly authorized, executed and delivered and is valid, binding and
enforceable;
- in the case of a sale or transfer of the trust's properties or assets,
the acquiring entity expressly agrees, by supplemental indenture, that
all right, title and interest so acquired shall be subject and
subordinate to the rights of noteholders, to indemnify the trust and to
make all required filings with the Securities and Exchange Commission;
As long as the notes are outstanding, the trust will not:
- except as expressly permitted by the indenture, the transfer and
servicing agreement or certain related documents, sell, transfer,
exchange or otherwise dispose of any of the assets of the trust, unless
directed to do so by the indenture trustee;
- claim any credit on or make any deduction from payments in respect of the
principal of and interest on the notes (other than amounts withheld under
the Code or applicable state law) or assert any claim against any present
or former noteholders because of the payment of taxes levied or assessed
upon the trust;
- voluntarily dissolve or liquidate in whole or in part; or
- permit: (i) the validity or effectiveness of the indenture to be
impaired, or permit the lien under the indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
person to be released from any covenants or obligations with respect to
the notes under the indenture except as may be expressly permitted by the
indenture; (ii) any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend to or otherwise
arise upon or burden the assets of the trust or any part thereof, except
as may be created by the terms of the indenture; or (iii) the lien of the
indenture not to constitute a valid first priority perfected security
interest in the assets of the trust that secure the notes.
The trust may not engage in any activity other than as specified under "The
Issuer" in this prospectus. The trust will not incur, assume or guarantee any
indebtedness other than indebtedness incurred under the notes and the indenture.
MODIFICATION OF THE INDENTURE
The trust and the indenture trustee may, without the consent of any
noteholders but with prior written notice to each rating agency, enter into one
or more supplemental indentures for any of the following purposes:
- to correct or enhance the description of any property subject to the lien
of the indenture, or to take any action that will enhance the indenture
trustee's lien under the indenture, or to add to the property pledged to
Secure the notes;
- to reflect the agreement of another person to assume the role of the
trust;
- to add to the covenants of the trust, for the benefit of the noteholders,
or to surrender any right or power of the trust;
- to transfer or pledge any property to the indenture trustee;
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- to cure any ambiguity, to correct or supplement any provision in the
indenture or in any supplemental indenture that may be inconsistent with
any other provision in the indenture or in any supplemental indenture as
long as that action would not adversely affect the interests of the
noteholders;
- to appoint a successor to the indenture trustee with respect to the notes
and to add to or change any of the provisions of the indenture to allow
more than one indenture trustee to act under the indenture;
- to modify, eliminate or add to the provisions of the indenture as
necessary to qualify the indenture under the Trust Indenture Act of 1939
or any similar federal statute later enacted;
- to permit the issuance of one or more new series of notes in accordance
with the indenture; or
- to terminate any interest rate swap agreement or other credit enhancement
in accordance with the related indenture supplement.
The trust and the indenture trustee may also, without the consent of any
noteholders, enter into one or more supplemental indentures to add provisions
to, change in any manner or eliminate any provision of the indenture, or to
change the rights of the noteholders under the indenture, upon:
- receipt of a certificate of an authorized officer of the transferor to
the effect that the requirements under the indenture applicable to the
proposed amendment have been met and in the transferor's reasonable
belief, the amendment will not have an Adverse Effect; and
- delivery of a tax opinion to each rating agency.
The trust and the indenture trustee may also, without the consent of the
noteholders of any series or the series enhancers for any series, enter into one
or more supplemental indentures to add, modify or eliminate any provisions
necessary or advisable in order to enable the trust or any portion of the trust
to (i) qualify as, and to permit an election to be made for the trust to be
treated as, a "financial asset securitization investment trust" under the Code
and (ii) to avoid the imposition of state or local income or franchise taxes on
the trust's property or its income. The following conditions apply for the
amendments described in this paragraph:
- delivery to the owner trustee and the indenture trustee of a certificate
of an authorized officer of the transferor to the effect that the
requirements under the indenture applicable to the proposed amendments
have been met;
- receipt of written confirmation from each rating agency that the
amendment will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class; and
- the amendment must not affect the rights, duties or obligations of the
indenture trustee or the owner trustee under the indenture.
The trust and the indenture trustee will not, without the receipt of
written confirmation from each rating agency that the amendment will not result
in a reduction or withdrawal of its then-
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existing rating of any outstanding series or class and without the consent of
each noteholder affected, enter into any supplemental indenture to:
- change the date of payment of any installment of principal of or interest
on any note or reduce the principal amount of a note, the note interest
rate or the redemption price of the note or change any place of payment
where, or the currency in which, any note is payable;
- impair the right to institute suit for the enforcement of specified
payment provisions of the indenture;
- reduce the percentage of the aggregate principal amount of the notes of
any series, whose consent is required for execution of any supplemental
indenture or for any waiver of compliance with specified provisions of
the indenture or of some defaults under the indenture and their
consequences provided in the indenture;
- reduce the percentage of the aggregate outstanding amount of the notes
required to direct the indenture trustee to sell or liquidate the trust
assets if the proceeds of the sale would be insufficient to pay the
principal amount and interest due on those notes;
- decrease the percentage of the aggregate principal amount of the notes
required to amend the sections of the indenture that specify the
percentage of the principal amount of the notes of a series necessary to
amend the indenture or other related agreements;
- modify provisions of the indenture prohibiting the voting of notes held
by the trust, any other party obligated on the notes, the seller or any
other account owner or any of their affiliates; or
- permit the creation of any lien superior or equal to the lien of the
indenture with respect to any of the trust assets or, except as otherwise
permitted or contemplated in the indenture, terminate the lien of the
indenture.
ANNUAL COMPLIANCE STATEMENT
The trust will be required to present to the indenture trustee each year a
written statement as to the performance of its obligations under the indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
The indenture trustee will be required to mail to the noteholders each year
a brief report relating to its eligibility and qualification to continue as
indenture trustee under the indenture, the property and funds physically held by
the indenture trustee and any action it took that materially affects the notes
and that has not been previously reported.
LIST OF NOTEHOLDERS
Under the indenture, noteholders have the right to communicate with other
noteholders in accordance with the requirements of the Trust Indenture Act of
1939.
SATISFACTION AND DISCHARGE OF INDENTURE
The indenture will be discharged with respect to the notes upon the
delivery to the indenture trustee for cancellation of all the notes or, with
specific limitations, upon deposit with the indenture trustee of funds
sufficient for the payment in full of all the notes.
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THE INDENTURE TRUSTEE
The indenture trustee may transact business with the servicer, the
transferor or any series enhancer or their affiliates with the same rights as if
it were not the indenture trustee under the indenture. The indenture trustee may
become the owner or pledgee of notes. In addition, for purposes of meeting the
legal requirements of certain local jurisdictions, the indenture trustee will
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 conferred or imposed upon the indenture trustee by the indenture
will be conferred or imposed upon the indenture trustee and the separate
indenture trustee or co-trustee jointly. However, in any jurisdiction in which
the indenture trustee is incompetent or unqualified to perform certain acts, all
rights, powers, duties and obligations will be conferred or imposed upon the
separate indenture trustee or co-trustee. In this event, the separate indenture
trustee or co-trustee will exercise and perform the rights, powers, duties and
obligations solely at the direction of the indenture trustee.
The indenture trustee may resign at any time, in which event your
administrator will appoint a successor indenture trustee for your series. The
administrator may also remove the indenture trustee if it ceases to be eligible
to continue as an indenture trustee under the indenture, if the indenture
trustee becomes insolvent or otherwise becomes legally unable to act as
indenture trustee. The administrator will then be obligated to appoint a
successor indenture trustee for your series. If an event of default occurs under
the indenture and the accompanying prospectus supplement provides that a given
series or class of notes is subordinated to one or more other series or classes
of notes, under the Trust Indenture Act of 1939, the indenture trustee may be
deemed to have a conflict of interest and be required to resign as indenture
trustee for one or more of those series or classes of notes. In that case, a
successor indenture trustee will be appointed for one or more of those classes
of notes. The right of the senior noteholders to consent to or direct actions by
the indenture trustee may be in conflict with the interests of the subordinated
noteholders. Any resignation or removal of the indenture trustee and appointment
of a successor indenture trustee for any series of notes will not become
effective until the successor indenture trustee accepts its appointment for your
series.
You should carefully read the indenture and the indenture supplement for
your series of notes for information concerning the duties, obligations, rights
and powers of the indenture trustee. The servicer can provide you with a copy of
the indenture and indenture supplement as described under "Where You Can Find
More Information" in this prospectus.
CERTAIN MATTERS REGARDING THE ADMINISTRATOR
The administrator will, to the extent provided in the administration
agreement, provide the notices and perform on behalf of the trust other
administrative obligations required by the indenture.
SERIES ENHANCEMENT
GENERAL
For any series, credit enhancement may be provided for one or more of its
classes. Credit enhancement for a series is called "SERIES ENHANCEMENT." Series
enhancement may be in the form of the subordination of one or more classes of
the notes of that series, a letter of credit, the establishment of a cash
collateral guaranty or account, a surety bond, an insurance policy, a spread
account, a reserve account, the use of cross support features, an interest rate
swap
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agreement, interest rate cap agreement, currency exchange agreement or other
derivatives agreement, or another method of series enhancement described in the
accompanying prospectus supplement, or any combination of these. If so specified
in the accompanying prospectus supplement, any form of series enhancement may be
structured so as to be drawn upon by more than one class to the extent described
in that accompanying prospectus supplement.
Unless otherwise specified in the accompanying prospectus supplement for a
series, the series enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
notes and interest thereon. If losses occur which exceed the amount covered by
the series enhancement or which are not covered by the series enhancement,
noteholders will bear their allocable share of deficiencies.
If series enhancement is provided with respect to a series, the
accompanying prospectus supplement will include a description of:
- the amount payable under that series enhancement;
- any conditions to payment not described here;
- the conditions, if any, under which the amount payable under that series
enhancement may be reduced and under which that series enhancement may be
terminated or replaced; and
- any material provision of any agreement relating to that series
enhancement.
Additionally, the accompanying prospectus supplement may set forth certain
information with respect to any provider of series enhancement, including:
- a brief description of its principal business activities;
- its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
- if applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business; and
- its total assets, and its stockholders' or policy holders' surplus, if
applicable, and other appropriate financial information as of the date
specified in the prospectus supplement.
The provider of third party series enhancement is called the "SERIES
ENHANCER." If specified in the accompanying prospectus supplement, series
enhancement for a series may be available to pay principal of the notes of that
series following the occurrence of certain pay out events for that series. In
this event, the series enhancer will have an interest in certain cash flows in
respect of the receivables to the extent described in that prospectus
supplement. This interest is called the "ENHANCEMENT INVESTED AMOUNT."
SUBORDINATION
If specified in the accompanying prospectus supplement, one or more classes
of notes of any series will be subordinated as described in the accompanying
prospectus supplement to the extent necessary to fund payments for the more
senior classes of notes. The rights of the holders of these subordinated notes
to receive payments of principal and/or interest on any payment date for that
series will be subordinate in right and priority to the rights of the holders of
senior notes, but only to the extent set forth in the accompanying prospectus
supplement. The amount of subordination will decrease whenever certain amounts
otherwise payable to the holders of
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subordinated notes are paid to the holders of senior notes. If specified in the
accompanying prospectus supplement, subordination may apply only in the event of
certain types of losses not covered by other series enhancement.
The accompanying prospectus supplement will also set forth information
concerning:
- the amount of subordination of a class or classes of subordinated notes
in a series;
- the circumstances in which that 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 those subordinated notes will be
distributed to holders of senior notes.
If collections of receivables otherwise distributable to holders of a
subordinated class of a series will be used as series enhancement for a class of
another series, the accompanying prospectus supplement will specify the manner
and conditions for applying that cross-support feature.
LETTER OF CREDIT
If specified in the accompanying prospectus supplement, series enhancement
for a series or one or more of the classes of a series will be provided by one
or more letters of credit. A letter of credit may provide limited protection
against certain losses in addition to or in lieu of other series enhancement.
The series enhancer in this case, the issuer of the letter of credit, called the
"L/C BANK," will be obligated to honor demands under that letter of credit, to
the extent of the amount available, to provide funds under the circumstances and
subject to any conditions as are specified in the accompanying prospectus
supplement.
The maximum liability of an L/C bank under its letter of credit will
generally be an amount equal to a percentage of the initial Invested Amount of a
series or a class of that series. This percentage will be specified in the
accompanying prospectus supplement. The amount available under a letter of
credit will be reduced to the extent of its unreimbursed payments. The maximum
amount available at any time to be paid under a letter of credit will be set
forth in the accompanying prospectus supplement.
CASH COLLATERAL GUARANTY OR ACCOUNT
If specified in the accompanying prospectus supplement, series enhancement
for a series or one or more of the classes of a series will be provided by a
guaranty, called the "CASH COLLATERAL GUARANTY," secured by the deposit of cash
or certain permitted investments in an account, called the "CASH COLLATERAL
ACCOUNT," reserved for the beneficiaries of the cash collateral guaranty or by a
cash collateral account alone. The amount available under the cash collateral
guaranty or the cash collateral account will be the lesser of amounts on deposit
in the cash collateral account and an amount specified in the accompanying
prospectus supplement. The accompanying prospectus supplement will set forth the
circumstances under which payments are made to beneficiaries of the cash
collateral guaranty from the cash collateral account or from the cash collateral
account directly. Any guaranty will be a guaranty of payment on the underlying
receivables, not a guaranty of payment on the notes.
COLLATERAL INTEREST
If specified in the accompanying prospectus supplement, series enhancement
for a series of notes or one or more of the classes of a series may be provided
initially by a subordinated
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interest in the trust, called the "COLLATERAL INTEREST," in an amount initially
equal to a percentage of the initial Invested Amount of the series. The
collateral interest may be certificated or uncertificated. This percentage will
be specified in the accompanying prospectus supplement.
SURETY BOND OR INSURANCE POLICY
If specified in the accompanying prospectus supplement, insurance with
respect to a series or one or more of the classes of a series will be provided
by one or more insurance companies. The insurance will guarantee, with respect
to one or more classes of the series, payments of interest or principal in the
manner and amount specified in the accompanying prospectus supplement.
If specified in the accompanying prospectus supplement, a surety bond will
be purchased for the benefit of the holders of a series or one or more classes
of that series to assure payments of interest or principal for that series or
class of notes in the manner and amount specified in the accompanying prospectus
supplement.
SPREAD ACCOUNT
If specified in the accompanying prospectus supplement, series enhancement
for a series or one or more of the classes of a series will be provided by the
periodic deposit of certain available excess cash flow from the trust assets
into an account, called the "SPREAD ACCOUNT," intended to assist with subsequent
payment of interest and principal on the notes of that class or series in the
manner specified in the accompanying prospectus supplement.
RESERVE ACCOUNT
If so specified in the accompanying prospectus supplement, series
enhancement for a series or one or more of the classes of a series or support
for any related enhancement will be provided by the establishment of an account,
called the "RESERVE ACCOUNT." The reserve account may be funded, to the extent
provided in the accompanying prospectus supplement, by an initial cash deposit,
the retention of certain periodic payments of principal or interest or both
otherwise payable to one or more classes of notes, including the subordinated
notes, or the provision of a letter of credit, guarantee, insurance policy or
other form of series enhancement or any combination of these arrangements. The
reserve account will be established to assist with the subsequent payment of
principal or interest on the notes of that series or the related class or any
other amount owing on any related series enhancement in the manner provided in
the accompanying prospectus supplement.
INTEREST RATE SWAP AGREEMENTS AND INTEREST RATE CAP AGREEMENTS
If so specified in the accompanying prospectus supplement, the indenture
trustee, on behalf of the trust, or the transferor, seller or other party may
enter into one or more interest rate swap agreements, interest rate floor and/or
cap agreements, currency exchange agreements or other derivatives securities
agreements for the benefit of a class or series, the terms of which will be
specified in the accompanying prospectus supplement.
DESCRIPTION OF THE PURCHASE AGREEMENT
Following is a summary of the material terms of the receivables purchase
agreement entered into by the bank and ABRC. The summary is qualified in its
entirety by reference to the
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receivables purchase agreement. A form of this agreement is filed as an exhibit
to the registration statement which contains this prospectus. Any receivables
purchase agreement entered into by an additional seller or an additional
transferor will contain substantially similar provisions as those discussed
here. In addition, the bank and the owner trustee have entered, and each seller
that is a bank and that is not a transferor will enter, into a back-up security
agreement under which the bank or other seller, as applicable, has granted
directly to the indenture trustee a security interest in the receivables.
Sale of Receivables. The receivables transferred to the trust by ABRC were
acquired by ABRC from the bank under a receivables purchase agreement. In
connection with the sale of the receivables to ABRC, the bank has filed
appropriate UCC financing statements to evidence that sale and perfect ABRC's
right, title and interest in those receivables. In addition, the bank has
indicated in its computer files that the receivables have been sold to ABRC by
the bank.
Under the receivables purchase agreement, the bank sold and, in the future,
may sell to ABRC all of its right, title and interest in and to all of the
receivables existing in the initial accounts as of the initial closing date and
in additional accounts as of the applicable addition date and recoveries
allocable to those receivables and certain other property.
Representations and Warranties. In the receivables purchase agreement, the
seller represents and warrants to the transferor to the effect that, among other
things, as of the date of the receivables purchase agreement and, with respect
to any receivables in any designated additional accounts, as of the applicable
addition date, it is duly organized and in good standing and has the authority
to consummate the transactions contemplated by the receivables purchase
agreement. In the receivables purchase agreement, the seller additionally
represents and warrants that as of the initial cut-off date and, with respect to
any receivables in any designated additional accounts, as of each additional
cut-off date, each receivable transferred thereunder is an eligible receivable.
In the event of a breach of any representation or warranty set forth in the
receivables purchase agreement which results in the requirement that the
transferor accept re-transfer of an ineligible receivable under the transfer and
servicing agreement, then the seller will repurchase that ineligible receivable
from the transferor on the date of the re-transfer. The purchase price to be
paid by the seller for the ineligible receivables will be equal to the purchase
price to be paid by the transferor for such ineligible receivables under the
transfer and servicing agreement.
The seller also represents and warrants to the transferor in the
receivables purchase agreement that, among other things, as of the date of the
receivables purchase agreement and, with respect to any receivables in any
designated additional accounts, as of the applicable addition date, the
receivables purchase agreement constitutes a valid and binding obligation of the
seller and the receivables purchase agreement constitutes a valid sale to the
transferor of all right, title and interest of the seller in and to the
receivables existing in the accounts as of the initial closing date and, with
respect to any receivables in any designated additional accounts, as of the
applicable addition date and in the proceeds thereof. If the breach of any of
the representations or warranties described in this paragraph results in the
obligation of the transferor under the transfer and servicing agreement to
accept re-transfer of the receivables, the seller will repurchase the
receivables re-transferred to the transferor for an amount of cash at least
equal to the amount of cash the transferor is required to deposit under the
transfer and servicing agreement in connection with the re-transfer.
Amendments. The receivables purchase agreement may be amended by the
seller or the transferor without the consent of the holders of any notes offered
under this prospectus and the accompanying prospectus supplement. No amendment,
however, may change or modify the
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purchase price to be paid to the seller for the receivables and no amendment may
change, modify, delete or add any other obligation of the seller or the
transferor unless written confirmation is received from each rating agency that
the amendment will not result in a reduction or withdrawal of its then-existing
rating of any outstanding series or class and the seller has delivered to the
transferor a certificate of an authorized officer of the seller to the effect
that the seller reasonably believes that such action will not have an Adverse
Effect, unless the owner trustee and the indenture trustee have consented to the
amendment.
Termination. The receivables purchase agreement will terminate immediately
after the trust terminates. In addition, if a receiver or conservator is
appointed for any seller that is a bank or any seller that is not a bank becomes
a debtor in a bankruptcy case or certain other liquidation, bankruptcy,
insolvency or similar events occur, the seller will immediately cease to sell
principal receivables to the transferor and will promptly give notice of that
event to the transferor, the owner trustee and the indenture trustee.
NOTE RATINGS
Any rating of the notes by a rating agency will indicate:
- its view on the likelihood that noteholders will receive required
interest and principal payments; and
- its evaluation of the receivables and the availability of any series
enhancement for the notes.
Among the things a rating will not indicate are:
- the likelihood that interest or principal payments will be paid on a
scheduled date;
- the likelihood that a pay out event will occur;
- the likelihood that a U.S. withholding tax will be imposed on non-U.S.
noteholders;
- the marketability of the notes;
- the market price of the notes; or
- whether the notes are an appropriate investment for any purchaser.
A rating will not be a recommendation to buy, sell or hold the notes. A
rating may be lowered or withdrawn at any time by a rating agency.
The transferor will request a rating of the notes offered by this
prospectus and the accompanying prospectus supplement from at least one rating
agency. Rating agencies other than those requested could assign a rating to the
notes and, if so assigned, that rating could be lower than any rating assigned
by a rating agency chosen by the transferor. Except as otherwise expressly
stated, any reference in this prospectus or the accompanying prospectus
supplement to a "rating agency" refers to a rating agency selected by the
transferor to rate the notes of a series or class issued by the trust.
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MATERIAL LEGAL ASPECTS OF THE RECEIVABLES
TRANSFER OF RECEIVABLES
Each seller will represent in the receivables purchase agreement that its
transfer of receivables constitutes a valid sale and assignment of all its
right, title and interest in and to the receivables to the transferor. In the
transfer and servicing agreement, the transferor will represent and warrant that
its transfer of receivables constitutes a valid sale and assignment of all of
its right, title and interest in and to the receivables, except for its interest
as the holder of the Transferor Beneficial Interest, or creates in favor of the
trust a valid first-priority perfected security interest in the transferor's
rights in the receivables in existence at the time that the trust is formed or
at the time that receivables in additional accounts are transferred, as the case
may be, and a valid first-priority perfected security interest in the
transferor's rights in the receivables arising in accounts already designated
for the trust on and after their creation, in each case until termination of the
trust.
Under the UCC as in effect in the States of New York, Delaware, Utah and
Nevada, the receivables constitute "accounts". Both the sale of the receivables
and the transfer of the receivables as security for an obligation are governed
by Article 9 of the UCC as in effect in the States of New York, Delaware, Utah
and Nevada, and to the extent that Article 9 is applicable, the filing of
appropriate financing statements is required to perfect the sale of such
receivables or the transfer of such receivables as security for an obligation by
a seller to a transferor, and by a transferor to the trust. Appropriate
financing statements covering the receivables have been or will be filed in Utah
and Nevada.
There are certain limited circumstances under the UCC and applicable
Federal law in which prior or subsequent transferees of receivables coming into
existence after a series closing date could have an interest in those
receivables with priority over the trust's interest. A tax or other government
lien on property of a seller or transferor arising prior to the time a
receivable comes into existence may also have priority over the interest of the
trust in that receivable. Under the receivables purchase agreement, a seller
will warrant to the transferor, and under the transfer and servicing agreement,
a transferor will warrant to the indenture trustee, that it has transferred the
receivables free and clear of the lien of any third party. Furthermore, if the
FDIC were appointed as a receiver or conservator of a seller or transferor that
is a bank, some administrative expenses of the receiver or conservator may have
priority over the interest of the trust in the receivables.
BORROWER PROTECTION LAWS
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the holders of notes if the protection provided to
debtors under those laws result in any receivables of the trust being written
off as uncollectible when there are insufficient funds available from
collections of finance charge and administrative receivables and under any
series enhancement.
CLAIMS AND DEFENSES OF ACCOUNT OBLIGORS AGAINST THE TRUST
The UCC would be applicable to the trust if the trust were deemed to have
acquired a security interest in the receivables. The UCC provides that unless an
obligor, such as a customer, has made an enforceable agreement not to assert
defenses or claims arising out of a transaction, the rights of the trust, as
assignee, are subject to all the terms of the cardholder agreement
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between the seller and the obligor and any defense or claim arising therefrom,
to rights of set off and to any other defense or claim of the obligor against
the seller that accrues before the obligor receives notification of the
assignment. The UCC also provides that any obligor, such as a customer, is
authorized to continue to pay the seller until (a) the obligor receives
notification, reasonably identifying the rights assigned, that the amount due or
to become due has been assigned and that payment is to be made to the indenture
trustee or the servicer and (b) if requested by the obligor, the indenture
trustee or the servicer has furnished reasonable proof of assignment. No
agreement not to assert defenses has been entered into and no notice of the
assignment of the receivable to the trust will be sent to the obligors obligated
on the accounts in connection with the transfer of the receivables to the trust.
CERTAIN MATTERS RELATING TO CONSERVATORSHIP, RECEIVERSHIP AND BANKRUPTCY
The receivables purchase agreement, the transfer and servicing agreement,
the indenture and related agreements contemplate a number of transfers of
receivables, including transfers by the seller to the transferor and transfers
by the transferor to the trust.
The seller and the transferor intend to treat the transfers between the
seller and the transferor under the receivables purchase agreement as absolute
conveyances. It is possible that a creditor, trustee, receiver or conservator of
such a party, or such party as debtor-in-possession, may at some time take a
contrary position. The implications of such action are discussed below.
The seller and the transferor intend to treat transfers of receivables from
the transferor to the trust either as an absolute transfer or as the grant of a
first perfected security interest. The implications of characterization of a
transfer as a security interest are also discussed below.
The bank is chartered as a Utah industrial loan corporation and is
regulated and supervised by the FDIC. The FDIC may act as conservator or
receiver for the bank and any other seller or transferor that is a bank the
deposits of which are issued by the FDIC, if certain events occur relating to
the bank's financial condition or the propriety of its actions.
As noted above, the seller intends to treat the transfers between the
seller and the transferor under the receivables purchase agreement as absolute
conveyances. Arguments may be made, however, that any of these transfers
constitutes the grant of a security interest under general applicable law.
Nevertheless, the FDIC has issued regulations surrendering certain rights under
the FDIA to reclaim, recover, or recharacterize a financial institution's
transfer of financial assets such as the receivables if:
- the transfer involved a securitization of the financial assets and meets
specified conditions for treatment as a sale under relevant accounting
principles;
- the financial institution received adequate consideration for the
transfer;
- the parties intended that the transfer constitute a sale for accounting
purposes; and
- the financial assets were not transferred fraudulently, in contemplation
of the financial institution's insolvency, or with the intent to hinder,
delay or defraud the financial institution or its creditors.
The seller's transfer of the receivables and the agreements under which the
seller makes those transfers are intended to satisfy all of these condition.
If a condition required under the FDIC's regulations were found not to have
been met, however, the FDIC could reclaim, recover or recharacterize the
seller's transfer of the
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receivables. If the FDIC were successful, the FDIA would limit the damages for
any such repudiation to the trust's "actual direct compensatory damages"
determined as of the date that the FDIC were appointed as conservator or
receiver for that seller or transferor. The FDIC, moreover, could delay its
decision whether to repudiate the applicable receivables purchase agreement and
back-up security agreement or to reclaim, recover or recharacterize the transfer
for a reasonable period following its appointment as conservator or receiver for
the seller or transferor. Therefore, if the FDIC as conservator or receiver for
a seller or transferor that is a bank were to repudiate the applicable
receivables purchase agreement and back-up security agreement or to reclaim,
recover or recharacterize the transfer, the amount payable to you could be lower
than the outstanding principal and accrued interest on the notes, thus resulting
in losses to you.
In addition, regardless of the terms of the indenture, the FDIC as
conservator or receiver for a seller or transferor that is a bank may have the
power to prevent the commencement of an early amortization period or to prevent
or limit the early liquidation of the receivables and termination of the trust,
or to require the continued transfer of new principal receivables. Regardless of
the instructions of those authorized to direct the indenture trustee's action,
moreover, the FDIC as conservator or receiver for a seller or transferor that is
a bank may have the power to require the early liquidation of the receivables,
to require the early termination of the trust and the retirement of the notes,
or to prohibit or limit the continued transfer of new principal receivables.
ABRC has been structured so that (i) the filing of a voluntary or
involuntary petition for relief by or against it under the Bankruptcy Code and
(ii) the substantive consolidation of its assets and liabilities with those of a
seller is unlikely. ABRC is a separate, limited purpose corporation, and its
certificate of incorporation contains limitations on the nature of its business
and restrictions on its ability to commence a voluntary case or proceeding under
the Bankruptcy Code or similar laws without the prior unanimous consent of all
of its directors. In addition, the indenture trustee will covenant in the
indenture that it will not at any time institute against ABRC or any additional
transferor any bankruptcy, insolvency or similar proceedings under the
Bankruptcy Code or similar laws. Nevertheless, if ABRC or any additional
transferor that is not a bank were to become a debtor in a bankruptcy case and
if its bankruptcy trustee or creditor or it, as debtor-in-possession, were to
take the position that the transfer of the receivables by it to the trust or
transferor, as applicable, should be characterized as a pledge of those
receivables, or if the assets and liabilities of ABRC or any additional
transferor that is not a bank were substantively consolidated with those of an
entity in bankruptcy, then delays in payments on the notes and possible
reductions in the amount of those payments could result.
If bankruptcy, insolvency or similar proceedings under the Bankruptcy Code
or similar laws occur with respect to ABRC or any additional transferor that is
not a bank, then ABRC or that additional transferor, as the case may be, will
promptly notify the indenture trustee and a pay out event will occur with
respect to each series. Under the transfer and servicing agreement, newly
created receivables will not be transferred to the trust on and after any such
event. Any principal receivables transferred to the trust prior to the event, as
well as collections on those principal receivables and finance charge and
administrative receivables related to those principal receivables, will continue
to be part of the trust assets and will be applied as specified above in
"Description of the Notes -- Application of Collections" and in the accompanying
prospectus supplement.
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The bankruptcy court, however, may have the power to delay any such
procedure or to require the continued transfer of principal receivables to the
trust.
Application of Federal and state bankruptcy and debtor relief laws would
affect the interests of the noteholders in the receivables, if these laws result
in any receivables being written off as uncollectible.
If a receiver or conservator were appointed for the servicer and no
servicer default other than the insolvency of the servicer exists, the receiver
or conservator may have the power to prevent either the indenture trustee or the
noteholders from appointing a new servicer.
See "Risk Factors -- If a receiver or conservator were appointed for a
seller or a transferor that is a bank, or if a seller or a transferor that is
not a bank became a debtor in a bankruptcy case, delays or reductions in payment
of your notes could occur" in this prospectus.
CERTAIN REGULATORY MATTERS
The operations and financial condition of the bank are subject to extensive
regulation and supervision under federal and state law. The FDIC has broad
enforcement powers over the bank. These enforcement powers may adversely affect
the operation and financial condition of the trust, your rights under the
indenture and the obligations of the bank under the trust agreement, the
indenture, the transfer and servicing agreement, the receivables purchase
agreement, the administration agreement or any other agreement entered into by
the bank with respect to one or more series prior to the appointment of a
receiver or conservator.
If the FDIC supervising any bank were to find that any obligation of that
bank or an affiliate under a securitization or other agreement, or any activity
of that bank or affiliate, constituted an unsafe or unsound practice or violated
any law, rule, regulation or written condition or agreement applicable to that
bank, the FDIC has the power under the FDIA to order that bank or affiliate,
among other things, to rescind that agreement or contract, refuse to perform
that obligation, terminate the activity, amend the terms of the obligation or
take any other action as the FDIC determines to be appropriate. In that event,
the bank may not be liable to you for contractual damages for complying with
such an order and you may have no recourse against the FDIC.
Recently, after the Office of the Comptroller of the Currency found that a
national bank was, contrary to safe and sound banking practices, receiving
inadequate servicing compensation under its securitization agreements, that bank
agreed to a consent order with the OCC. That consent order requires that bank,
among other things, to resign as servicer by June 30, 2003, to immediately
withhold and segregate funds from collections for payment of its servicing fee
(notwithstanding the priority of payments in the securitization agreements and
the perfected security interest of the relevant trust in those funds) and to
increase its servicing fee percentage above that which was originally agreed
upon in its securitization agreements.
While the bank has no reason to believe that the FDIC would consider
provisions relating to the bank acting as servicer or the payment or amount of a
servicing fee to the bank, or any other obligation of the bank under its
securitization agreements, to be unsafe or unsound or violative of any law, rule
or regulation applicable to it, there can be no assurance that the FDIC would
not conclude otherwise in the future. If the FDIC did reach such a conclusion,
and ordered the bank to rescind or amend its securitization agreements, payments
to you could be delayed or reduced.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of the notes.
Additional federal income tax considerations relevant to a particular series may
be set forth in the accompanying prospectus supplement. The following summary
has been prepared and reviewed by Wolf, Block, Schorr and Solis-Cohen LLP, as
special tax counsel to the issuer ("SPECIAL TAX COUNSEL"). The summary is based
on the Code, as amended, as of the date hereof, and existing final, temporary
and proposed Treasury regulations, revenue rulings and judicial decisions, all
of which are subject to prospective and retroactive changes. The summary is
addressed only to original purchasers of the notes, deals only with notes held
as capital assets within the meaning of Section 1221 of the Code and, except as
specifically set forth below, does not address tax consequences of holding notes
that may be relevant to investors in light of their own investment circumstances
or their special tax situations, such as certain financial institutions,
tax-exempt organizations, certain insurance companies, dealers in securities,
non-U.S. persons, investors holding the notes as part of a conversion
transaction, as part of a hedge or hedging transaction, or as a position in a
straddle for tax purposes or persons subject to other specialized tax regimes.
Further, this discussion does not address alternative minimum tax consequences
or any tax consequences to holders of interests in a noteholder. Special tax
counsel is of the opinion that the following summary of federal income tax
consequences is correct in all material respects. An opinion of special tax
counsel, however, is not binding on the Internal Revenue Service or the courts,
and no ruling on any of the issues discussed below will be sought from the IRS.
Moreover, there are no authorities on similar transactions involving interests
issued by an entity with terms similar to those of the notes described in this
prospectus. Accordingly, we suggest that persons considering the purchase of
notes consult their own tax advisors with regard to the United States federal
tax consequences of an investment in the notes and the application of United
States federal tax laws, as well as the laws of any state, local or foreign
taxing jurisdictions, to their particular situations.
TAX CHARACTERIZATION OF THE TRUST AND THE NOTES
Treatment of the Trust as an Entity Not Subject to Tax. Special tax
counsel is of the opinion that, although no transaction closely comparable to
that contemplated herein has been the subject of any Treasury regulation,
revenue ruling or judicial decision, the trust will not be classified as an
association or as a publicly traded partnership taxable as a corporation for
federal income tax purposes. As a result, special tax counsel is of the opinion
that the trust will not be subject to federal income tax. However, as discussed
above, this opinion is not binding on the IRS and no assurance can be given that
this characterization will prevail.
The precise tax characterization of the trust for federal income tax
purposes is not certain. It might be viewed as merely holding assets on behalf
of the transferor as collateral for notes issued by the transferor. On the other
hand, the trust could be viewed as a separate entity for tax
75
purposes issuing its own notes. This distinction, however, should not have a
significant tax effect on noteholders except as stated below under "Possible
Alternative Characterizations."
Treatment of the Notes as Debt. Special tax counsel is of the opinion
that, although no transaction closely comparable to that contemplated herein has
been the subject of any Treasury regulation, revenue ruling or judicial
decision, the notes offered hereunder will be characterized as debt for United
States federal income tax purposes. Additionally, the trust will agree by
entering into the indenture, and the noteholders will agree by their purchase
and holding of notes, to treat the notes as debt for United States federal
income tax purposes.
Possible Alternative Characterizations. If, contrary to the opinion of
special tax counsel, the IRS successfully asserted that a series or class of
notes did not represent debt for United States federal income tax purposes,
those notes might be treated as equity interests in the trust or some other
entity for such purposes. If so treated, investors could be treated for such
purposes either as partners in a partnership or, alternatively, as shareholders
in a taxable corporation. Treatment of a noteholder as a partner could have
adverse tax consequences to certain holders; for example, income to foreign
persons generally would be subject to United States tax and United States tax
return filing and withholding requirements, and individual holders might be
subject to certain limitations on their ability to deduct their share of
partnership expenses. If notes instead were treated as corporate stock, the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on notes recharacterized as equity, and the corporate tax
imposed with respect to such corporation could materially reduce cash available
to make payments on the notes; further, noteholders might not be entitled to any
dividends received deduction in respect of payments of interest on notes treated
as dividends. In addition, even if the notes are treated as debt, the trust is
also able to issue other securities which may be treated as debt or as equity
interests in the trust. The issuance of such securities requires the delivery of
a new opinion of counsel generally to the effect that such issuance will not
cause the trust to become taxable as a separate entity for federal income tax
purposes; however, any such new opinion would not bind the IRS, and the trust
could become taxable as a corporation as a result of such issuance, potentially
diminishing cash available to make payments on the notes. Prospective investors
should consult with their own tax advisors with regard to the consequences of
each such possible alternative characterization to them in their particular
circumstances; the following discussion assumes that the characterization of the
notes as debt is correct.
CONSEQUENCES TO HOLDERS OF THE NOTES
Interest and Original Issue Discount. In general, stated interest on a
note will be includable in gross income as it accrues or is received in
accordance with a noteholder's usual method of tax accounting. If a class of
notes is issued with original issue discount ("OID"), the provisions of Sections
1271 through 1273 and 1275 of the Code will apply to those notes. Under those
provisions, a holder of such a note (including a cash basis holder) generally
would be required to include the OID on a note in income for federal income tax
purposes on a constant yield basis, resulting in the inclusion of OID in income
in advance of the receipt of cash attributable to that income. In general, a
note will be treated as having OID to the extent that its "stated redemption
price" exceeds its "issue price," if such excess equals or exceeds 0.25 percent
multiplied by the weighted average life of the note (determined by taking into
account the number of complete years following issuance until payment is made
for each partial principal payment). Under Section 1272(a)(6) of the Code,
special provisions apply to debt instruments on which payments may be
accelerated due to prepayments of other obligations securing those
76
debt instruments. However, no regulations have been issued interpreting those
provisions, and the manner in which those provisions would apply to the notes is
unclear, but the application of Section 1272(a)(6) could affect the rate of
accrual of OID and could have other consequences to holders of the notes.
Additionally, the IRS could take the position based on Treasury regulations that
none of the interest payable on a note is "unconditionally payable" and hence
that all of such interest should be included in the note's stated redemption
price at maturity. If sustained, such treatment should not significantly affect
tax liabilities for most holders of the notes, but prospective noteholders
should consult their own tax advisors concerning the impact to them in their
particular circumstances. The trust intends to take the position that interest
on the notes constitutes "qualified stated interest" and that the above
consequences do not apply.
Market Discount. A holder of a note who purchases an interest in a note at
a discount that exceeds any OID not previously includable in income may be
subject to the "market discount" rules of Sections 1276 through 1278 of the
Code. These rules provide, in part, that gain on the sale or other disposition
of a note and partial principal payments on a note are treated as ordinary
income to the extent of accrued market discount. The market discount rules also
provide for deferral of interest deductions with respect to debt incurred to
purchase or carry a note that has market discount.
Market Premium. A holder of a note who purchases an interest in a note at
a premium may elect to amortize the premium against interest income over the
remaining term of the note in accordance with the provisions of Section 171 of
the Code.
Disposition of the Notes. Upon the sale, exchange or retirement of a note,
the holder of the note generally will recognize taxable gain or loss in an
amount equal to the difference between the amount realized on the disposition
(other than amounts attributable to accrued interest, which the holder will be
required to include as interest income) and the holder's adjusted tax basis in
the note. The holder's adjusted tax basis in the note generally will equal the
cost of the note to such holder, increased by any market or original issue
discount previously included in income by such holder with respect to the note,
and decreased by the amount of any bond premium previously amortized and any
payments of principal or OID previously received by such holder with respect to
such note. Any such gain or loss generally will be capital gain or loss, except
to the extent of accrued market discount not previously included in income, and
will be long-term capital gain or loss if at the time of sale the note has been
held for more than one year.
Foreign Holders. Under United States federal income tax law now in effect,
payments of interest by the trust to a holder of a note who, as to the United
States, is a nonresident alien individual or a foreign corporation, or is an
estate or trust that lacks certain essential contacts with the United States (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States federal income tax and
withholding tax, provided the interest is not effectively connected with the
conduct of a trade or business within the United States by the foreign person
and the foreign person (i) is not for United States federal income tax purposes
actually or constructively a "10 percent shareholder" of the transferor or the
trust, a "controlled foreign corporation" with respect to which the transferor
or the trust is a "related person" within the meaning of the Code, or a bank
extending credit under a loan agreement entered into in the ordinary course of
its trade or business, and (ii) provides the person who is otherwise required to
withhold United States tax with respect to the notes with an appropriate
statement (on IRS Form W-8BEN or a substitute form), signed under penalties of
perjury, certifying that the beneficial owner of the note is a foreign person
and providing the foreign
77
person's name, address and certain additional information. If a note is held
through a securities clearing organization or certain other financial
institutions (as is expected to be the case unless definitive notes are issued),
the organization or institution may provide the relevant signed statement
generally to the withholding agent; in that case, however, the signed statement
generally must be accompanied by an IRS Form W-8BEN or substitute form provided
by the foreign person that owns the note. If a note is held through a qualified
intermediary, withholding may not be required if the intermediary has sufficient
information in its files to establish that the holder is a foreign person. If
such interest is not portfolio interest, then it will be subject to United
States federal income and withholding tax at a rate of 30%, unless reduced or
eliminated under an applicable tax treaty or such interest is effectively
connected with the conduct of a trade or business within the United States and,
in either case, the appropriate statement has been provided. Special rules apply
to partnerships, estates and trusts, and in certain circumstances certifications
as to foreign status and other matters may be required to be provided by
partners and beneficiaries thereof.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a foreign person will be exempt from United
States federal income tax and withholding tax, provided that such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person, and in the case of an individual foreign person,
such individual is not present in the United States for 183 days or more in the
taxable year and is not subject to tax pursuant to certain Code provisions
dealing with expatriates.
The U.S. Treasury Department recently issued final Treasury regulations
which revise some of the foregoing procedures whereby a foreign person may
establish an exemption from withholding; foreign persons should consult their
tax advisors concerning the impact to them, if any, of such revised procedures.
Backup Withholding. Payments of principal and interest, as well as
payments of proceeds from the sale, retirement or disposition of a note, may be
subject to "backup withholding" tax under Section 3406 of the Code if a
recipient of such payments fails to furnish to the payor certain identifying
information. Any amounts deducted and withheld would be allowed as a credit
against such recipient's United States federal income tax, provided appropriate
proof is provided under rules established by the IRS. Furthermore, certain
penalties may be imposed by the IRS on a recipient of payments that is required
to supply information but that does not do so in the proper manner. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as corporations and financial institutions. Information
reporting to the IRS may be required with respect to payments of interest, OID
and retirement proceeds. Holders of the notes should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
Tax Disclosure and Investor List Requirements. Recent Treasury disclosure
and record keeping requirements directed at tax shelter activity can apply to
transactions not conventionally regarded as tax shelters. A transaction may be
affected by these regulations if, among other things, there are restrictions on
the disclosure of the tax treatment or tax structure of the transaction. The
indenture and the series supplements, in general, do not impose any such
confidentiality restrictions with respect to the notes. However, there are
pending in the United States Congress legislative proposals that, if enacted,
would impose significant penalties for failure to comply with these
requirements, and you should be aware that the transferor and the bank and other
participants in the transaction intend to comply with such disclosure and
investor list maintenance requirements as they determine may apply to them with
respect to this
78
transaction. In order to minimize the possibility that any transaction relating
to the trust or the notes might constitute a "confidential transaction" subject
to reporting by any person, the transferor, the servicer, the trust and the
underwriters and each recipient of this prospectus are deemed to agree that each
of them and each of their employees, representatives, and other agents may
disclose to any and all persons, without limitation of any kind, the tax
treatment and tax structure of any transaction relating to the trust or the
notes and all materials of any kind (including opinions or other tax analyses)
that are provided to any of them relating to such tax treatment and tax
structure.
Certain Recent Legislation. Recent legislation has reduced the income tax
rate on dividends on equity investments in domestic and certain foreign
corporations. You should consult your own financial advisors concerning the
impact that this legislation might have on securities such as the notes, the
interest on which will remain subject to Federal income tax.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY, MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR TAX SITUATION, AND DOES NOT PURPORT TO ADDRESS THE ISSUES DESCRIBED
WITH THE DEGREE OF SPECIFICITY THAT WOULD BE PROVIDED BY A TAXPAYER'S OWN TAX
ADVISOR. WE SUGGEST THAT PROSPECTIVE PURCHASERS CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL TAX
LAWS.
STATE AND LOCAL TAX CONSEQUENCES
The discussion above does not address the taxation of the trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
notes under any state, local or foreign tax law. We suggest that each investor
consult its own tax adviser regarding state, local and foreign tax consequences.
ERISA CONSIDERATIONS
Subject to the considerations described below and in the accompanying
prospectus supplement, the notes may be purchased by, on behalf of, or with
"plan assets" of, any employee benefit or other plan that is subject to the
fiduciary responsibility provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 4975 of the Code (each is called a
"PLAN"). Any plan fiduciary or other person that proposes to use plan assets of
any plan to acquire any of the notes should consult with its counsel concerning
the potential consequences under ERISA and the Code of the plan's acquisition
and ownership of notes. See "ERISA Considerations" in the accompanying
prospectus supplement.
Section 406 of ERISA and Section 4975 of the Code prohibit plans from
engaging in certain transactions involving plan assets with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code
(referred to together as "PARTIES IN INTEREST") with respect to the plan. A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and Section 4975 of the Code for these persons,
unless a statutory, regulatory or administrative exemption is available.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, assets of these plans may be invested in the notes without
regard to the ERISA considerations described herein, subject to
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the provisions of other applicable federal and state law. However, any such plan
that is qualified and exempt from taxation under Sections 401(a) and 501(a) of
the Code is subject to the prohibited transaction rules set forth in Section 503
of the Code.
We suggest that fiduciaries or other persons contemplating purchasing the
notes on behalf of or with plan assets of any plan consult their own counsel
regarding whether the trust assets represented by the notes would be considered
plan assets, the consequences that would apply if the trust's assets were
considered plan assets, and the availability of exemptive relief from the
prohibited transaction rules.
Finally, plan fiduciaries and other persons using plan assets to purchase
notes should consider the fiduciary standards under ERISA or other applicable
law in the context of the plan's particular circumstances before authorizing an
investment of a portion of the plan's assets in the notes. Among other factors,
plan fiduciaries and other plan investors should consider whether the investment
satisfies the diversification requirement of ERISA or other applicable law, is
in accordance with the plan's governing instruments, and is prudent in light of
the "Risk Factors" and other factors discussed in this prospectus and the
accompanying prospectus supplement.
PLAN OF DISTRIBUTION
The transferor and the seller and one or more underwriters named in the
prospectus supplement will enter into an underwriting agreement for each series
of notes. Under each underwriting agreement, the transferor will cause the notes
to be sold by the trust to the underwriters named in that underwriting agreement
and in the accompanying prospectus supplement. Each of those underwriters will
severally agree to purchase from the trust the principal balance of notes set
forth in that underwriting agreement and in the accompanying prospectus
supplement (subject to proportional adjustment on the terms and conditions set
forth in the underwriting agreement in the event of an increase or decrease in
the aggregate balance of notes offered by this prospectus and by the
accompanying prospectus supplement).
In each underwriting agreement, the underwriters will agree, subject to the
terms and conditions set forth in that underwriting agreement, to purchase all
the notes offered by this prospectus and by the accompanying prospectus
supplement if any of those notes are purchased. In the event of a default by any
underwriter, each underwriting agreement will provide that, in certain
circumstances, purchase commitments of the nondefaulting underwriters may be
increased or the underwriting agreement may be terminated.
Each prospectus supplement will set forth the price at which each series of
notes or class being offered initially will be offered to the public and any
concessions that may be offered to certain dealers participating in the offering
of those notes. After the initial public offering, the public offering price and
such concessions may be changed.
Each underwriting agreement will provide that the transferor and the seller
will indemnify the related underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
The place and time of delivery for any series of notes for which this
prospectus is delivered will be set forth in the accompanying prospectus
supplement.
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LEGAL MATTERS
Legal matters relating to the issuance of the notes will be passed upon for
the transferor and the seller by Wolf, Block, Schorr and Solis-Cohen LLP, New
York, New York, special counsel to the transferor and the seller. Legal matters
relating to the federal tax consequences of the issuance of the notes will be
passed upon for the transferor and the seller by Wolf, Block, Schorr and
Solis-Cohen LLP, New York, New York.
REPORTS TO NOTEHOLDERS
The servicer will prepare monthly and annual reports that will contain
information about the trust. The financial information contained in the reports
will not be prepared in accordance with generally accepted accounting
principles. Unless and until definitive notes are issued, the reports will be
sent to Cede & Co. which is the nominee of DTC and the registered holder of the
notes. No financial reports will be sent to you. See "Description of the
Notes -- Book-Entry Registration," "-- Reports to Noteholders" and "-- Evidence
as to Compliance" in this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
ABRC filed a registration statement relating to the notes with the SEC.
This prospectus is part of the registration statement, but the registration
statement includes additional information.
The servicer will file with the SEC all required annual, monthly and
special SEC reports and other information about the trust.
You may read and copy any reports, statements or other information the
trust and ABRC files at the SEC's public reference room in Washington, D.C. You
can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at (800) SEC-0330 for further
information on the operation of the public reference rooms. The trust's and
ABRC's SEC filings are also available to the public on the SEC Internet site
http://www.sec.gov.
The SEC allows the trust to "incorporate by reference" information the
trust and ABRC files with it, which means that the trust can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information that the trust and ABRC files later with the SEC will automatically
update the information in this prospectus. In all cases, you should rely on the
later information over different information included in this prospectus or the
accompanying prospectus supplement. The trust and ABRC incorporate by reference
any future annual, monthly and special SEC reports and proxy materials filed by
or on behalf of the trust and ABRC until the trust terminates its offering of
the notes. The documents incorporated by reference will be filed with the SEC
under the name of Advanta Business Card Master Trust and Advanta Business
Receivables Corp.
As a recipient of this prospectus, you may request a copy of any document
the trust incorporates by reference, except exhibits to the documents (unless
the exhibits are specifically incorporated by reference), at no cost, by writing
or calling the servicer at: 11850 South Election Road, Draper, Utah 84020,
Attention: Treasury Department, Telephone: (801) 523-0858.
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GLOSSARY OF TERMS FOR PROSPECTUS
"ABRC" means Advanta Business Receivables Corp., a Nevada corporation.
"ADDITION DATE" means the date of assignment of receivables in each
additional account to the trust.
"ADDITIONAL ISSUANCE" means each issuance of additional notes of an
outstanding series of notes.
"ADJUSTED INVESTED AMOUNT" means on any date for any series the Invested
Amount on that date, minus the amount on deposit in the specified trust account,
as described in the indenture supplement for that series.
"ADMINISTRATOR" means the bank, in its capacity as administrator under the
administration agreement, dated as of August 1, 2000, between the administrator
and the trust.
"ADVANTA BUSINESS CARD" means each credit card relating to a business card
account and issued by the bank.
"ADVANTA BUSINESS CARD PORTFOLIO" means the portfolio of credit card
accounts originated by the bank.
"ADVERSE EFFECT" means, with respect to any action, that the action will
(a) materially and adversely affect the amount or timing of payments made to the
noteholders of any series or class or (b) result in the occurrence of a Pay Out
Event or an Event of Default.
"BANK" means Advanta Bank Corp., a Utah industrial loan corporation.
"CASH COLLATERAL ACCOUNT" means either an account securing a cash
collateral guaranty into which cash or permitted investments are held or an
account that is series enhancement for a series of notes.
"CASH COLLATERAL GUARANTY" means series enhancement in the form of a
guaranty secured by the deposit of cash or certain permitted investments for a
series or one or more classes.
"CODE" means the Internal Revenue Code of 1986.
"COLLECTION ACCOUNT" means an account established and maintained by the
servicer in the name of the indenture trustee, for the benefit of noteholders of
all series, into which the servicer will deposit collections on the receivables
and other specified amounts. The collection account will be a qualified account.
"CONTROLLED AMORTIZATION PERIOD" means the period during which principal is
paid on the notes in fixed amounts at scheduled intervals.
"CONTROLLED ACCUMULATION PERIOD" means the period during which principal is
accumulated in specified amounts per month and paid on an Expected Principal
Payment Date.
"DEFAULTED RECEIVABLES" means principal receivables which in a monthly
period are written off as uncollectible in accordance with the servicer's credit
card guidelines and customary and usual servicing procedures for servicing
revolving credit card receivables comparable to the receivables in the trust.
"DEFINITIVE NOTES" means notes that are issued in fully registered,
certificated form.
"DEPOSITARIES" means DTC, Clearstream Banking or Euroclear.
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"DETERMINATION DATE" means the third business day preceding the fifteenth
day of each calendar month, unless otherwise specified in the prospectus
supplement for a series of notes.
"EARLY ACCUMULATION PERIOD" means the period during which principal on the
receivables is accumulated each month based on the amount of principal
receivables collected following a pay out event.
"EARLY AMORTIZATION PERIOD" means the period during which principal is paid
each month based on the amount of principal receivables collected following a
pay out event.
"ELIGIBLE ACCOUNT" means, for each series of notes, as of the cut-off date,
each account originated by the seller
- which was in existence and maintained by the seller;
- which is payable in United States dollars;
- the cardholder of which has provided, as his or her most recent billing
address, an address located in the United States or its territories,
possessions or military bases;
- the cardholder of which has not been identified by the servicer in its
computer files as currently being involved in a bankruptcy proceeding;
- which has not been classified as stolen or lost;
- which does not have any receivables that are defaulted receivables;
- which has not been sold or pledged to any other party except for any sale
to another account owner that has either entered into a receivables
purchase agreement or is an additional transferor;
- which does not have receivables which have been sold or pledged by the
seller to any party other than the transferor or the trust under a
receivables purchase agreement or a transfer and servicing agreement; and
- which does not have any receivables that have been identified by the
servicer or the relevant cardholder as having been incurred as a result
of fraudulent use of any credit card.
"ELIGIBLE INSTITUTION" means either:
- a depository institution, including the owner trustee or the indenture
trustee, that is organized under the laws of the United States or any one
of the 50 states or the District of Columbia (or any domestic branch of a
foreign bank) and which at all times (i) has FDIC deposit insurance and
(ii) has either a long-term unsecured debt rating or a certificate of
deposit rating acceptable to each rating agency rating a series or class
of notes; or
- any other institution the appointment of which would not result in the
reduction or withdrawal by any rating agency of any of its then-existing
rating of any outstanding series or class.
"ELIGIBLE INVESTMENTS" means securities, instruments, security entitlements
or other investment property which evidence:
- direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States of America;
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- demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 365 days) of depository institutions
or trust companies incorporated under the laws of the United States of
America or any state thereof or the District of Columbia (or domestic
branches of foreign banks) and subject to supervision and examination by
federal or state banking or depository institution authorities. However,
at the time of the trust's investment or contractual commitment to
invest, the short-term debt rating of that depository institution or
trust company must be in the highest rating category of at least one of
the rating agencies rating each series or class of notes;
- commercial paper or other short-term obligations having original or
remaining maturities of no more than 30 days, and having, at the time of
the trust's investment or contractual commitment to invest, a rating in
the highest rating category of at least one of the rating agencies rating
a class of notes;
- demand deposits, time deposits and certificates of deposit which are
fully insured by the FDIC having, at the time of the trust's investment,
a rating in the highest rating category of at least one of the rating
agencies rating each series or class of notes;
- notes or bankers' acceptances (having original maturities of no more than
365 days) issued by any depository institution or trust company referred
to in the second clause above;
- money market funds having, at the time of the trust's investment, a
rating in the highest rating category of at least one of the rating
agencies rating each series or class of notes (including funds for which
the indenture trustee or any of its affiliates is investment manager or
advisor);
- time deposits (having maturities not later than the next payment date)
other than those referred to in the fourth clause above, with a person
whose commercial paper has a credit rating satisfactory to at least one
of the rating agencies rating each series or class of notes; or
- any other investment upon receipt of written confirmation from each
rating agency rating a series or class of notes that the additional form
of investment will not result in a reduction or withdrawal of its rating
of any outstanding series or class.
"ELIGIBLE RECEIVABLE" means, for each series of notes, each receivable:
- which has arisen in an eligible account;
- which was created in compliance, in all material respects, with all
requirements of law applicable to the seller at the time of its creation,
and under the terms of a credit card agreement which complies in all
material respects with all requirements of law applicable to the seller;
- for which all consents, licenses or authorizations of, or registrations
with, any governmental authority required to be obtained or given in
connection with the creation of the receivable or the execution, delivery
and performance by the seller of the related credit card agreement have
been duly obtained or given and are in full force and effect;
- as to which, at the time of its transfer to the trust, the transferor or
the trust has good title, free and clear of all liens and security
interests arising under or through the transferor, other than tax liens
for taxes not then due or which the transferor is contesting;
84
- which has been the subject of either a valid transfer and assignment from
the transferor to the trust of all of the transferor's right, title and
interest in the receivable (including any proceeds of the receivable), or
the grant of a first priority perfected security interest in the
receivable (and in the proceeds of the receivable), effective until the
termination of the trust;
- which is the legal, valid and binding payment obligation of the obligor
under the receivable, legally enforceable against that obligor in
accordance with its terms, subject to some bankruptcy-related exceptions
and equitable considerations;
- which, at the time of transfer to the trust, has not been waived or
modified except as permitted under the customary policies and procedures,
as amended from time to time, of the seller, and then only if the waiver
or modification is reflected in the servicer's computer file of revolving
credit card accounts;
- which, at the time of transfer to the trust, is not subject to any right
of rescission, setoff, counterclaim or any other defense (including
defenses arising out of violations of usury laws) of the obligor, other
than defenses arising out of bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general;
- which, at the time of transfer to the trust, none of the transferor or
the seller has taken any action, or omitted to take any action, that
would impair the rights of the trust or the noteholders; and
- which constitutes an "account" or "general intangible" under Article 9 of
the Uniform Commercial Code as then in effect in any state where the
filing of a financing statement is required to perfect the trust's
interest in the receivables and the proceeds thereof.
"ENHANCEMENT INVESTED AMOUNT" means the interest the series enhancer will
have in certain cash flows in respect of the receivables to the extent described
in the applicable prospectus supplement, if the prospectus supplement specifies
that series enhancement may be available to pay principal of the notes following
the occurrence of certain pay out events.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EVENTS OF DEFAULT" means, under the indenture, and with respect to the
notes of any series, any of the following:
- the trust fails to pay principal when it becomes due and payable on the
series termination date for that series of notes;
- the trust fails to pay interest when it becomes due and payable and the
default continues for a period of 35 days;
- certain bankruptcy, insolvency, conservatorship, receivership,
liquidation or similar events relating to the trust;
- the trust fails to observe or perform covenants or agreements made in
the indenture, and:
- the failure continues, or is not cured, for 60 days after notice to
the trust by the indenture trustee or to the trust and the indenture
trustee by noteholders holding 25% or more of the then-outstanding
principal amount of all of the trust's outstanding series; and
85
- as a result, the interests of the noteholders are materially and
adversely affected, and continue to be materially and adversely
affected during the 60-day period; or
- any additional events of default specified in the applicable prospectus
supplement.
"EXCESS FUNDING ACCOUNT" means an account established and maintained by the
servicer in the name of the indenture trustee, which will be a qualified
account.
"EXPECTED PRINCIPAL PAYMENT DATE" means the date specified in the
prospectus supplement for a class of notes on which amounts on deposit in the
principal funding account will be paid to the noteholders.
"FDIA" means the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989.
"FDIC" means the Federal Deposit Insurance Corporation.
"FINANCE CHARGE AND ADMINISTRATIVE RECEIVABLES" are periodic finance
charges, annual membership fees and service charges, late fees, overlimit fees,
cash advance fees, the portion of interchange and all other fees and charges on
accounts designated by the transferor to be included as finance charge and
administrative receivables, and any other amounts, other than principal
receivables, designated by the transferor to be "finance charge and
administrative receivables."
"FORECLOSURE CERTIFICATE" means an investor certificate issued by the trust
as a result of a foreclosure on a portion of the receivables that corresponds to
the portion of the receivables that secured the notes that have been
accelerated.
"FUNDING PERIOD" means the period from a series' closing date to the
earlier of (i) the date that series' Invested Amount equals the principal amount
of that series of notes, or (ii) the date specified in the related prospectus
supplement.
"INITIAL DESIGNATED ACCOUNTS" means the group of eligible accounts that
were designated on the initial cut-off date to the trust.
"INITIAL CUT-OFF DATE" means August 1, 2000.
"INTERCHANGE" means certain fees received by creditors participating in the
MasterCard and VISA associations as partial compensation for taking credit risk,
absorbing fraud losses and funding receivables for a limited period prior to
initial billing.
"INVESTED AMOUNT" for a series of notes on any date will mean a sum equal
to:
- the initial outstanding principal amount of that series of notes as of
the closing date for that series (increased by the principal balance of
any notes of that series issued after the closing date for that
series); minus
- the amount of principal paid to noteholders of that series prior to
that date; and minus
- the amount of unreimbursed Investor Charge-Offs and reallocated
principal collections for notes of that series prior to that date.
"INVESTOR CHARGE-OFFS" means, for any monthly period, and for any series or
class, the amount by which: (a) the Investor Default Amount exceeds (b) amounts
available to pay that amount out of collections of finance charge and
administrative receivables and other amounts treated like collections of finance
charge and administrative receivables, any available series
86
enhancement amounts and other sources specified in the accompanying prospectus
supplement, but not more than the lesser of the Investor Default Amount and the
Invested Amount.
"INVESTOR DEFAULT AMOUNT" means the aggregate amount of the Investor
Percentage of principal receivables that are defaulted receivables.
"INVESTOR PERCENTAGE" means a specified percentage of collections of
principal receivables, finance charge and administrative receivables and
defaulted receivables allocated to each series of notes.
"ISSUER" means Advanta Business Card Master Trust, a Delaware common law
trust.
"L/C BANK" means the issuer of a letter of credit, if a series enhancer has
issued a letter of credit.
"MEMBER BANK" means a bank under contract with MasterCard or VISA to issue
credit cards.
"NOTE OWNER" means the owner of beneficial interests in the notes of a
series held in book-entry form.
"OWNER TRUSTEE" means Wilmington Trust Company, a Delaware banking
corporation, in its capacity as owner trustee of the issuer.
"PAIRED SERIES" means each of the series specified in the applicable
prospectus supplements as being paired with a previously or later issued series
so that a decrease in the Invested Amount of the previously issued series
results in a corresponding increase in the Invested Amount of the later issued
series.
"PARTIES IN INTEREST" means persons that are "parties in interest" under
ERISA or "disqualified persons" under the Code.
"PAYING AGENT" means the indenture trustee, acting as the initial paying
agent, together with any successor to the indenture trustee acting in that
capacity, and any entity specified in an indenture supplement to act in that
capacity for the related series.
"PLAN" means any employee benefit or other plan that is subject to ERISA or
Section 4975 of the Code.
"PRE-FUNDING ACCOUNT" means a trust account established and maintained with
the indenture trustee for the benefit of the noteholders of a series that has a
funding period into which the portion of the Invested Amount not invested in
receivables will be maintained.
"PRIME RATE" means the "Prime Rate" as set forth in the "Money Rates"
section of The Wall Street Journal.
"PRINCIPAL FUNDING ACCOUNT" means the trust account, established for the
benefit of one or more specified classes of noteholders in which principal is
accumulated for later distribution to noteholders.
"PRINCIPAL RECEIVABLES" are amounts charged by cardholders for merchandise,
services, cash advances and balance transfers.
"QUALIFIED ACCOUNT" means an account which will be either (a) a segregated
account with an eligible institution or (b) a segregated trust account with the
corporate trust department of a depositary institution organized under the laws
of the United States or any one of the 50 states, the District of Columbia (or
any domestic branch of a foreign bank) and acting as a trustee for
87
funds deposited in such account so long as any of the securities of this
depositary institution are rated at least investment grade by each rating agency
rating a class of notes.
"RATING AGENCY" means a rating agency selected by the transferor to rate
the notes of a series or class issued by the trust.
"RECOVERIES" means net recovery amounts for defaulted receivables.
"REQUIRED MINIMUM PRINCIPAL BALANCE"means on any date for all series
(unless otherwise specified in the related indenture supplement for any series
which is a paired series) the sum of the Invested Amounts for all series on that
date, plus the Required Transferor Interest on that date, minus the amount on
deposit in the Excess Funding Account.
"REQUIRED TRANSFEROR INTEREST" means on any date, the Required Transferor
Percentage times the total amount of principal receivables in the trust.
"REQUIRED TRANSFEROR PERCENTAGE" initially means 7%; but the transferor may
reduce the percentage by giving 30 days prior notice to the indenture trustee
and each rating agency if written confirmation is received from each rating
agency that such action will not result in a reduction or withdrawal of its
then-existing rating of any outstanding series or class of notes and the
transferor delivers to the indenture trustee a certificate of an authorized
officer to the effect that the transferor reasonably believes that such
reduction will not have an Adverse Effect. In no event may the Required
Transferor Percentage be less than 2%.
"RESERVE ACCOUNT" means an account established as credit enhancement for a
series of notes to assist with payment of principal or interest on a series or
class of notes or any other amount owing on any series enhancement in the manner
described in a prospectus supplement.
"REVOLVING PERIOD" means the period, for each series, when no principal is
paid or accumulated, which begins on the closing date for a series and ends on
the day before an amortization period or accumulation period begins.
"SELLER" means, collectively, the bank and any additional sellers.
"SERIES TERMINATION DATE" means the latest date by which principal and
interest for that series can be paid.
"SERIES ENHANCEMENT PERCENTAGE" means the percentage interest of a series
enhancer in a series, if any, as may be described in the related prospectus
supplement.
"SERIES ENHANCER" means the provider of third party series enhancement.
"SERIES PAY OUT EVENT" means, with respect to any particular series, the
occurrence of any event, in addition to a trust pay out event, specified as a
pay out event in the prospectus supplement for that series.
"SERIES ENHANCEMENT" means credit enhancement for a series.
"SERVICER DEFAULT" means the following:
(1) failure by the servicer to make any payment, transfer or deposit, or to
give instructions or to give notice to the indenture trustee to do so,
within 5 business days of the required date under the transfer and
servicing agreement, the indenture or any indenture supplement;
88
(2) failure on the part of the servicer to observe or perform in any
material respect any of its other covenants or agreements set forth in
the transfer and servicing agreement, the indenture or any indenture
supplement, if the failure:
(a) has an Adverse Effect; and
(b) continues unremedied for a period of 60 days after written notice
to (i) the servicer by the owner trustee or the indenture trustee,
or (ii) the servicer, the owner trustee and the indenture trustee
by noteholders holding 10% or more of the then-outstanding
principal amount of all of the trust's outstanding series (or,
where the servicer's failure does not relate to all series, 10% or
more of the then-outstanding principal balance of all series
affected);
(3) the servicer assigns or delegates its duties, except as specifically
permitted under the transfer and servicing agreement;
(4) any representation, warranty or certification made by the servicer in
the transfer and servicing agreement, or in any certificate delivered
under the transfer and servicing agreement, proves to have been
incorrect when made if it:
(a) has an Adverse Effect; and
(b) continues to have an Adverse Effect for a period of 60 days after
written notice to (i) the servicer by the owner trustee or the
indenture trustee, or (ii) the servicer, the owner trustee and the
indenture trustee by noteholders holding 10% or more of the
then-outstanding principal amount of all of the trust's
outstanding series (or, where the servicer's inaccuracy does not
relate to all series, 10% or more of the then-outstanding
principal balance of all series affected);
(5) specific bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the servicer; or
(6) any other event specified in the accompanying prospectus supplement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in the first clause (1) above for a period of 10 business days after
the applicable grace period, or referred to in clause (2), (3) or (4) above for
a period of 60 business days after the applicable period, will not constitute a
servicer default if the delay or failure could not be prevented by the exercise
of reasonable diligence by the servicer and the delay or failure was caused by
an act of God or the public enemy, acts of declared or undeclared war,
terrorism, public disorder, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or other similar occurrence.
"SERVICER" means the bank or any successor servicer that is responsible for
servicing and administering the receivables in the trust.
"SHARED FINANCE CHARGE COLLECTIONS" means, for a series identified in a
prospectus supplement as included in a group, collections of finance charge and
administrative receivables in the trust portfolio allocated to that series in
excess of the amount needed to make deposits or payments for that series that
may be shared with other series identified in the prospectus supplements for
those other series as included in the same group.
"SHARED PRINCIPAL COLLECTIONS" means an amount of principal receivables
allocated to a series in excess of the amount needed for deposit or distribution
that is made available to other series to make principal payments or deposits
required by those other series.
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"SPECIAL TAX COUNSEL" means Wolf, Block, Schorr and Solis-Cohen LLP, as
special tax counsel to the issuer.
"SPREAD ACCOUNT" means an account that provides series enhancement for a
series or class of notes that is intended to assist with payment of interest and
principal in the manner described in a prospectus supplement and funded by the
periodic deposit of certain available excess cash flow from the trust assets.
"SUPPLEMENTAL BENEFICIAL INTEREST" means an undivided beneficial interest
in the trust created in exchange, in part, upon the surrender by the transferor
of its Transferor Beneficial Interest.
"SUPPLEMENTAL CERTIFICATE" means a certificate issued in exchange, in part,
for a transferor certificate.
"TAX OPINION" means with respect to any action, an opinion of counsel to
the effect that, for federal income tax purposes, (a) such action will not
adversely affect the tax characterization as debt of the notes of any
outstanding series or class that were characterized as debt at the time of their
issuance, (b) such action will not cause the trust to be deemed an association
(or publicly traded partnership) taxable as a corporation and (c) such action
will not cause or constitute an event in which gain or loss would be recognized
by any noteholder.
"TRANSFEROR" means, collectively, ABRC, any additional transferors and any
sellers that transfer receivables directly to the trust.
"TRANSFEROR BENEFICIAL INTEREST" means an undivided beneficial interest in
the trust initially owned by the transferor which entitles the holder to receive
all cash flows from the trust assets not required to make payments on the notes
or to be paid to a series enhancer.
"TRANSFEROR CERTIFICATE" means a certificate representing the Transferor
Beneficial Interest if the Transferor Interest is held in certificated form.
"TRANSFEROR INTEREST" means on any date an amount equal to the aggregate
balance of principal receivables at the end of the prior day, plus the amount on
deposit in the Excess Funding Account at the end of the prior day, minus the
total Adjusted Invested Amounts of all then-outstanding series of notes.
"TRANSFEROR PERCENTAGE" means the percentage of all customer payments from
the receivables in the trust the right to which is owned by the holder of the
Transferor Beneficial Interest. The Transferor Percentage will equal 100%, minus
the total Investor Percentages for all outstanding series, minus the total
series enhancement percentages for all outstanding series.
"TRUST" means Advanta Business Card Master Trust, a Delaware common law
trust.
"TRUST PAY OUT EVENT" means, with respect to all series issued by the
trust, the occurrence of any of the following events:
- any servicer default occurs which would have a material adverse effect
on the noteholders;
- certain bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the transferor, the seller
or the servicer;
- the transferor is unable for any reason to transfer receivables to the
trust in accordance with the provisions of the transfer and servicing
agreement; or
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- the trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940.
"TRUST PORTFOLIO" means designated accounts selected from the Advanta
Business Card Portfolio owned by the bank or another seller that generates
receivables transferred to the trust.
"TRUST TERMINATION DATE" means the earlier of (a) the date designated by
the transferor, which may be no earlier than the day on which the rights of all
series to receive payments from the trust have terminated and (b) the date of
dissolution of the trust.
"UNALLOCATED PRINCIPAL COLLECTIONS" means any amounts collected in respect
of principal receivables and not paid to the holders of the transferor
certificates because the Transferor Interest is less than the Required
Transferor Interest.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Advanta
Business Card Master Trust Asset Backed Notes (the "global securities") to be
issued in series from time to time (each, a "series") will be available only in
book-entry form. Investors in the global securities may hold those global
securities through any of The Depository Trust Company ("DTC"), Clearstream
Banking or Euroclear. The global securities will be tradable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding global securities
through Clearstream Banking and Euroclear will be conducted in the ordinary way
in accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding global securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream Banking or Euroclear and
DTC participants holding notes will be effected on a delivery-against-payment
basis through the respective depositaries of Clearstream Banking and Euroclear
(in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of global securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All global securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the global securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, Clearstream Banking and Euroclear
will hold positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global securities through DTC (other than
through accounts at Clearstream Banking or Euroclear) will follow the settlement
practices applicable to U.S. corporate debt obligations. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their global securities through Clearstream
Banking or Euroclear accounts will follow the settlement procedures applicable
to conventional eurobonds in registered form. Global securities will be credited
to the securities custody accounts on the settlement date against payment for
value on the settlement date.
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SECONDARY MARKET TRADING
Because the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants (other than the depositories for Clearstream Banking and Euroclear)
will be settled using the procedures applicable to U.S. corporate debt
obligations in same-day funds.
Trading between Clearstream Banking Customers and/or Euroclear
Participants. Secondary market trading between Clearstream Banking customers or
Euroclear participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream Banking or Euroclear
purchaser. When global securities are to be transferred from the account of a
DTC participant (other than the depositories for Clearstream Banking and
Euroclear) to the account of a Clearstream Banking customer or a Euroclear
participant, as the case may be, the purchaser must send instructions to
Clearstream Banking or Euroclear, as the case may be, prior to 12:30 PM on the
settlement date. Clearstream Banking or Euroclear, as the case may be, will
instruct the respective depository, to receive the global securities for
payment. Payment will then be made by the respective depository, to the DTC
participant's account against delivery of the global securities. After
settlement has been completed, the global securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream Banking customer's or Euroclear
participant's account. Credit for the global securities will appear the next day
(European time) and the cash debit will be backvalued to, and the interest on
the global securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the Clearstream
Banking or Euroclear cash debit will be valued instead as of the actual
settlement date.
Clearstream Banking customers and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream Banking or Euroclear.
Under this approach, they may take on credit exposure to Clearstream Banking or
Euroclear until the global securities are credited to their accounts one day
later.
As an alternative, if Clearstream Banking or Euroclear has extended a line
of credit to them, Clearstream Banking customers or Euroclear participants can
elect not to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Clearstream Banking customers or
Euroclear participants purchasing global securities would incur overdraft
charges for one day, assuming they cleared the overdraft when the global
securities were credited to their accounts. However, interest on the global
securities would accrue from the value date. Therefore, in many cases the
investment income on the global securities earned during that one-day period may
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each Clearstream Banking customer's or Euroclear
participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global securities to
the respective European depository for the benefit of Clearstream Banking
customers or Euroclear participants. The sale proceeds
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will be available to the DTC seller on the settlement date. Thus, to the DTC
participant a cross-market transaction will settle no differently from a trade
between two DTC participants.
Trading between Clearstream Banking or Euroclear seller and DTC
purchaser. Due to time zone differences in their favor, Clearstream Banking
customers and Euroclear participants may employ their customary procedures for
transactions in which global securities are to be transferred by the respective
clearing system, through the respective depository, to another DTC participant.
The seller will send instructions to Clearstream Banking or Euroclear, as the
case may be, before 12:30 PM on the settlement date. In these cases, Clearstream
Banking or Euroclear will instruct the respective depository, to credit the
global securities to the DTC participant's account against payment. The payment
will then be reflected in the account of the Clearstream Banking customer or
Euroclear participant the following day, and receipt of the cash proceeds in the
Clearstream Banking customer's or Euroclear participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). If the Clearstream Banking customer or Euroclear
participant has a line of credit with its respective clearing system and elects
to draw on such line of credit in anticipation of receipt of the sale proceeds
in its account, the back-valuation may substantially reduce or offset any
overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Clearstream Banking customer's or Euroclear participant's
account would instead be valued as of the actual settlement date.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of global securities holding securities through
Clearstream Banking or Euroclear (or through DTC if the holder has an address
outside the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless, under currently applicable law,
(i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8BEN). Beneficial owners of notes
that are non-U.S. Persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding). If the information shown on
Form W-8BEN changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form W-8ECI (Certificate of Foreign Person's
Claim to Exemption from Withholding Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form W-8BEN). Non-U.S. Persons that are note owners residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form W-8BEN.
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Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding and, generally, backup withholding tax by filing
Form W-9 (Payer's Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The note owner of a global
security files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Forms W-8 are generally effective for three calendar
years.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof, or any political subdivision of either
(including the District of Columbia), or (iii) an estate or trust the income of
which is includable in gross income for United States tax purposes regardless of
its source. This summary does not deal with all aspects of U.S. Federal income
tax withholding that may be relevant to foreign holders of the global
securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the global securities.
Further, the U.S. Treasury Department has recently finalized new regulations
that will revise some aspects of the current system for withholding on amounts
paid to foreign persons. Under these regulations, interest or OID paid to a
nonresident alien would continue to be exempt from U.S. withholding taxes
(including backup withholding) provided that the holder complies with the new
certification procedures.
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PROSPECTUS SUPPLEMENT
[ADVANTA LOGO]
ADVANTA BUSINESS CARD MASTER TRUST
Issuer
ADVANTA BUSINESS RECEIVABLES CORP.
Transferor
ADVANTA BANK CORP.
Servicer
SERIES 2003-D
$320,000,000
Class A Asset Backed Notes
$37,000,000
Class B Asset Backed Notes
$29,000,000
Class C Asset Backed Notes
DEUTSCHE BANK SECURITIES
BARCLAYS CAPITAL
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the notes in any state where the offer is not permitted.
We do not claim the accuracy of the information in this prospectus supplement
and the accompanying prospectus as of any date other than the dates stated on
their respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the notes will deliver a
prospectus supplement and prospectus until February 16, 2004.